Opinion
No. C 02-05971 JSW
August 7, 2003
ORDER GRANTING DEFENDANT DELOITTE TOUCHE TOHMATSU'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
Now before the Court is the motion by defendant Deloitte Touche Tohmatsu ("DTT") to dismiss plaintiffs' claims against it for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). Having carefully reviewed the parties' papers and considered their arguments and the relevant legal authority, and good cause appearing, the Court hereby GRANTS DTT's motion to dismiss for lack of personal jurisdiction.
FACTUAL BACKGROUND
This action arises from alleged fraud and other wrongdoing involving an investment by plaintiffs Roderick Marshall ("Marshall") and Boston Telecommunications Group, Inc. ("BTG") (collectively "Plaintiffs") in a failed venture to purchase cable television companies in Bulgaria. From 1993 through 1999, Marshall lived in Bratislava, Slovakia, where he provided legal services for numerous Slovak entities. (Am. Compl. ¶ 22.) During that time, Marshall shared office space with defendant Deloitte Touche Slovakia, s.r.o., ("Deloitte Slovakia") and defendant Robert Wood ("Wood"), Managing Partner of Deloitte Slovakia. (Am. Compl. ¶ 26; Marshall Decl. ¶ 3, 7.)
Plaintiffs allege that on or about April 1996, Wood made representations to Marshall about an opportunity to invest in a plan by defendant Consolidated Global Cable Systems, Inc. ("CGCS") and its president, defendant George A. Mainas ("Mainas"), to acquire two Bulgarian cable television companies (the "Bulgarian Venture"). (Am. Compl. ¶¶ 29-39.) Plaintiffs allege that a meeting then occurred between Wood, Mainas and Marshall in Israel, where Wood and Mainas made additional representations about the proposed Bulgarian Venture. (Am. Compl. ¶¶ 42-45.) Plaintiffs further allege that on or about June 15, 1996, Wood met with Marshall in San Francisco, California. (Am Compl. ¶ 48.)
Plaintiffs assert that in California, Wood reiterated to Marshall that Marshall, as an individual and as President of BTG, would receive benefits from "Deloitte" in return for investing in the Bulgarian Venture. (Opp. Br. at 2; Marshall Decl. ¶¶ 8-9.) The alleged benefits included a guarantee from "Deloitte" for the value of the Bulgarian Venture, future business referrals from "Deloitte," and a partnership in "Deloitte." (Opp. Br. at 2; Am. Compl. ¶ 48; Marshall Decl. ¶ 9.) Plaintiffs contend that Wood did not distinguish between the various Deloitte entities when referring to the future benefits and that Marshall believed Wood was referring to benefits from DTT. (Marshall Decl. ¶ 9.)
Plaintiffs also allege that in California, Wood provided Marshall with several documents pertaining to the Bulgarian Venture: (1) a report prepared for CGCS, which included a cover sheet displaying the names "Deloitte Touche" in the top left and "Deloitte Tohmatsu International" in the lower left and contained a five-page letter signed "Deloitte Touche" in cursive, valuing one of the Bulgarian cable companies at $48 million; (2) a report, dated February 17, 1996, which stipulated agreed-upon procedures for one of the Bulgarian cable companies, included a cover sheet displaying the names "Deloitte Touche" in the top left and "Deloitte Tohmatsu International" in the lower left, and also contained a two-page letter signed "Deloitte Touche" and (3) non-public documents, which were embossed with the "Deloitte Touche" name on every page and which Wood represented were prepared by "Deloitte Touche" for potential investors in the Bulgarian Venture. (Marshall Decl. ¶ 10.) Plaintiffs allege that, based on Wood's representations and the documents Wood provided to Marshall in California, Marshall agreed to form BTG for the purpose of effecting the Bulgarian Venture. Plaintiffs then invested $550,000 in the Bulgarian Venture. (Am. Compl. ¶¶ 47-62, 115; Marshall Decl. ¶ 11.) Plaintiffs contend, however, that Wood's representations were intentionally false and that the Bulgarian venture was a sham. (Am. Compl. ¶¶ 86-102.) Plaintiffs lost the value of their investment and financing costs and expenses. (Am. Compl. ¶ 121.)
On December 31, 2002, Plaintiffs filed this diversity action against DTT, Wood, Mainas, CGCS, Deloitte Slovakia, Deloitte Bulgaria, Deloitte Czech, and Deloitte Central Europe for alleged fraud and other wrongdoing in connection with the Bulgarian Venture. (Br. at 1-2.) On April 25, 2003, DTT brought the instant motion to dismiss for lack of personal jurisdiction.
Marshall now resides in "New England" and is the sole director and shareholder of BTG, a Delaware corporation with a principal place of business in Boston, Massachusetts. (Am. Compl. ¶¶ 1-2.) DTT is a Swiss verein with U.S. headquarters in New York, New York. (Lambert Decl. ¶ 2; Am. Compl. ¶ 6.) Wood is an American citizen domiciled in Florida. (Br. at 3.) Mainas is an American citizen residing in California. Id. CGCS is a Canadian company. Id. Deloitte Slovakia is a Slovak Republic limited liability company with a principal place of business in Bratislava. Slovak Republic, (Am. Comnl. ¶ 7.) Deloitte Bulgaria is a Bulgarian entity with a principal place of business in Sofia. Bulgaria. (Am. Compl. ¶ 8.) Deloitte Czech is a Netherlands company with a principal place of business in Prague, Czech Republic. (Am. Compl. ¶ 9.) Deloitte Central Europe is a Cyprus-based company with a principal place of business in Cyprus. (Am. Compl. ¶ 10.)
ANALYSIS
A. Legal Standard for the Court's Exercise of Personal Jurisdiction Over Defendant.
1. Defendant must have certain minimum contacts with the forum state.
In a diversity action, a district court can exercise personal jurisdiction over a nonresident defendant only if the forum's state statute confers personal jurisdiction over the nonresident defendant and if the exercise of jurisdiction satisfies federal constitutional principles of due process. Data Disc, Inc. v. Systems Tech. Assocs, Inc., 557 F.2d 1280, 1286 (9th Cir. 1977). The Ninth Circuit has determined that California's jurisdictional statute is "coextensive with the outer limits of due process under the state and federal constitutions." Data Disc, 557 F.2d at 1286 (quoting Republic International Corp. v. Amco Engineers, Inc., 516 F.2d 161, 167 (9th Cir. 1976). Thus, jurisdictional inquiries under California state law merge into a single analysis with inquiries under federal due process standards. Id.
Due process precludes a court from asserting jurisdiction over a defendant unless the defendant has certain minimum contacts with the forum state. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). The overriding constitutional principle is that maintenance of an action in a certain forum may not offend "traditional conception[s] of fair play and substantial justice." Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990) (citing International Shoe, 326 U.S. at 320). "The defendant's `conduct and connection with the forum State' must be such that the defendant `should reasonably anticipate being haled into court there.'" Id. (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).
The concept of minimum contacts encompasses two types of jurisdiction: general and specific. Data Disc, 557 F.2d at 1287. General jurisdiction exists when "the nonresident defendant's activities within a state are `substantial' or `continuous and systematic,' [such that] there is a sufficient relationship between the defendant and the state to support jurisdiction even if the cause of action is unrelated to the defendant's forum activities." Id.; see also Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 416 (1984) (holding that a court may exercise general jurisdiction over a defendant only where the defendant's forum contacts are "continuous and systematic general business contacts"). For specific jurisdiction, "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).
The court must employ a three-part test to evaluate the nature and quality of the defendant's contacts for the purposes of specific jurisdiction: "(A) some action must be taken whereby the defendant purposefully avails himself or herself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of the forum's laws; (B) the claim must arise out of or result from defendant's forum-related activities; and (C) exercise of jurisdiction must be reasonable." Sher, 911 F.2d at 1361 (citing Cubbage, 744 F.2d at 668).
2. Plaintiff bears the burden of establishing the Court's personal jurisdiction over Defendant.
A defendant may move for dismissal for lack of personal jurisdiction prior to trial. Fed.R.Civ.P. 12(b)(2). The court can decide the motion on the basis of affidavits and declarations submitted in response to the motion, or it can hold an evidentiary hearing. See Data Disc, 557 F.2d at 1285 (citations omitted). Regardless of the procedure the court chooses, the plaintiff bears the burden of establishing the court's jurisdiction over the defendant. Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1108 (9th Cir. 2002) (citing Sher, 911 F.2d at 1361).
If the court determines that it will resolve a motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, "the plaintiff need make only a prima facie showing of jurisdictional facts to withstand the motion to dismiss . . . That is, the plaintiff need only demonstrate facts that if true would support jurisdiction over the defendant." Bollard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995) (citations omitted); see also ATT v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996) (where trial court rules on jurisdictional issue based on affidavits and without holding an evidentiary hearing, plaintiff need only make a prima facie showing). The court must take uncontroverted allegations in the complaint as true. Dole, 303 F.3d at 1108 (citations omitted).
If conflicts exist between the facts contained in the parties' affidavits, the Court must resolve them in the plaintiffs favor. ATT, 94 F.3d at 588. However, the plaintiff cannot "simply rest on the bare allegations of its complaint." Amba Marketing Systems, Inc. v. Jobar Intern., Inc. 551 F.2d 784, 787 (9th Cir. 1977) (citing Taylor v. Portland Paramount Corp., 383 F.2d 634, 639 (9th Cir. 1967)). The plaintiff is "obligated to come forward with facts, by affidavit or otherwise, supporting personal jurisdiction." Id.
C. Plaintiffs Fail to Allege Facts Sufficient to Warrant the Court's Exercise of General Jurisdiction Over DTT Based on Deloitte USA's Contacts with California.
DTT argues that it lacks the requisite continuous and systematic activities within the State of California to be subject to jurisdiction in this district on general jurisdiction grounds. (Br. at 10.) According to a declaration from its general counsel, DTT is a Swiss verein, an entity without an exact legal counterpart in the United States but one that is similar to an incorporated membership association. (Lambert Decl. ¶ 2.) DTT's general counsel avers that, as a Swiss verein, DTT is legally distinct from its member firms and is not a parent or sister corporation to any of its member firms. (Lambert Decl. ¶¶ 2, 8.) DTT's general counsel further avers that DTT provides services to its member firms, which are various professional service firms around the world using the Deloitte Touche name in their practices, but that DTT does not provide audit or other professional services, has never marketed, advertised, sold or distributed any products or services in California, does not have an office, employee, place of business, mailing address, bank account, telephone listing, real estate or personal property in California, does not pay taxes of any kind in California, is not licensed or qualified to do business in California, and does not contract to supply goods or services in California. (Lambert Decl. ¶¶ 2, 9.)
Plaintiffs do not dispute that DTT itself does not have sufficient activity with the State of California to warrant the exercise of general jurisdiction. Instead, Plaintiffs argue that DTT has continuous and systematic contacts with California through the contacts of its member entity and alleged agent, Deloitte Touche USA LLP ("Deloitte USA"). (Am. Compl. ¶ 16.) DTT, however, contends that Deloitte USA, Deloitte Slovakia, Deloitte Bulgaria, Deloitte Czech, and Deloitte Central Europe are member firms, or affiliates of member firms of DTT, and are legally distinct from and not agents of DTT. (Lambert Decl. ¶ 7.) Because Plaintiffs seek to establish jurisdiction over DTT, Plaintiffs bear the burden of alleging facts sufficient to demonstrate an agency relationship between DTT and Deloitte USA. Dole, 303 F.3d at 1108.
"Agency may confer general jurisdiction in the forum state over a foreign corporation." Sonora Diamond Corp. v. Super. Ct., 83 Cal.App.4th 523, 540 (2000). However, "neither ownership or control of a subsidiary corporation by a foreign parent corporation, without more, subjects the parent to the jurisdiction of the state where the subsidiary does business." Id. (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 36 (1925)); see also Wells Fargo, 556 F.2d 406 at 420. To exercise personal jurisdiction based on an agency relationship, the parent's control must be "over and above that to be expected as an incident of the parent's ownership of the subsidiary and must reflect the parent's purposeful disregard of the subsidiary's independent corporate existence." Sonora Diamond, 83 Cal.App.4th at 541. "As a practical matter, the parent must be shown to have moved beyond the establishment of general policy and direction for the subsidiary and in effect taken over performance of the subsidiary's day-to-day operations in carrying out that policy." Id.
Much of the case law regarding general jurisdiction based on agency deals with agency in the context of parent and subsidiary companies. See generally Sonora Diamond, 83 Cal.App.4th at 523; Wells Fargo Co. v. Wells Fargo Exp. Co., 556 F.2d 406, 420 (9th Cir. 1977); Bright v. Primary Source Media, 1998 WL 671247 (N.D. Cal.). Bearing in mind that DTT is not a "parent" to any of its member entities (Lambert Decl. ¶ 8), the Court finds the analysis regarding the requisite degree of control to be relevant to the discussion of whether DTT can be subjected to general jurisdiction in California based on its relationships with its member entities. See WellsFargo, 556 F.2d at 423 (establishing that the degree of control exercised by the principal over the agent is determinative for the purposes of establishing agency, whether or not the alleged agent is a subsidiary of the principal or is independently owned) (emphasis added).
To support their contention that Deloitte USA is an agent of DTT, Plaintiffs point to the fact that DTT markets itself as "One Firm," reports its "global" revenues on its website and claims to employ more than 100,000 people in more than 140 countries. (Opp. Br. at 12.) Plaintiffs also allege that DTT requires its Central European member entities to tell clients and potential clients that they work for an international firm, rather than a national or regional company, and to use the "Deloitte Touche" and "Deloitte Touche Tohmatsu" logos when pitching and delivering services to clients and potential clients. ( Id.) Lastly, Leighton Klevana, former director of Business Development, Taxes, and Legal Services in Slovakia, avers that officers and directors from DTT's New York headquarters frequented annual and quarterly meetings of Deloitte Central Europe and exerted "strong influence" over budgetary and employee efficiency decisions. (Klevana Decl. ¶¶ 7-10.)
Although there certainly is a corporate relationship between DTT and Deloitte USA, Plaintiffs have not alleged sufficient facts to establish that DTT exercises the requisite degree of control over Deloitte USA to demonstrate an agency relationship. In Kramer Motors, Inc., v. British Leyland Ltd., 628 F.2d 1175 (9th Cir. 1980), the Ninth Circuit found that a parent corporation's involvement in the subsidiary's general executive operations, review and approval of the subsidiary's major policy decisions, and general responsibility for the sale of company products outside the United Kingdom were insufficient to subject the parent to personal jurisdiction based on the subsidiary's forum contacts. Id. at 1177. The court noted that the parent and subsidiary dealt with each other as "distinct corporate entities. Id. at 1178. Additionally, the parent did not control the subsidiary's internal affairs or determine its daily operation. Id. at 1177.
"Even where a corporate parent actively approves a corporation's major policy decisions and is involved in the executive operation of the corporation, the Ninth Circuit has held that an agency relationship does not exist for the purpose of establishing jurisdiction." Bright v. Primary Source Media, 1998 WL 671247 (N.D. Cal.) (citing Kramer Motors, 628 F.3d at 1177.) In this case, Plaintiffs' allegations that DTT officers and directors attended annual and quarterly meetings of DTT member firms in Central Europe and participated in such firms' budgetary and certain employment decisions similarly are insufficient to demonstrate that DTT failed to deal with member firms as distinct corporate entities. Accordingly, the Court finds that the exercise of general jurisdiction over DTT, based on the "continuous and systematic contacts" of Deloitte USA, is not warranted.
D. Plaintiffs Fail to Allege Facts Sufficient Warrant the Court's Exercise of Specific Jurisdiction Over DTT Based on Wood's Actions in California.
DTT also challenges that it has sufficient minimum contacts with the State of California to be subject to specific personal jurisdiction in California. Plaintiffs allege that jurisdiction is properly exercised because Wood was an agent of DTT at the time of making his allegedly fraudulent misrepresentations about the Bulgarian Venture in California. (Am. Compl. ¶ 16.) Plaintiffs contend that their agency claim can be based on either actual or apparent authority. Plaintiffs argue that DTT actively enabled Wood's ability to defraud them. (Opp. Br. at 13.) Plaintiffs also argue that a reasonable person in their position would have believed that Wood had authority to act on behalf of DTT because DTT intentionally blurred any legal distinction between itself and its member entities. (Opp. Br. at 15.)
1. Plaintiffs' allegations do not demonstrate that Wood had actual authority to act on behalf of DTT.
Jurisdiction cannot be premised on an agency relationship unless plaintiffs establish that the agent has performed substantial activities for the principal's benefit, which are "beyond mere solicitation and these services are sufficiently important to the [principal] corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services." Chan v. Soc'y Expeditions, Inc., 39 F.3d 1398, 1405 (9th Cir. 1994). The plaintiff must show a high level of control between principal and agent before an agent's forum contacts can be imputed to the principal. See Hingson v. Pac. Southwest Airlines, 743 F.2d 1408, 1416 (9th Cir. 1984) ("Under California law, the right of the alleged principal to control the behavior of the alleged agent is an essential element which must be factually present in order to establish the existence of agency") (citing DeSuza v. Andersack, 63 Cal.App.3d 694, 699 (1976)); see also Sonora Diamond, 83 Cal.App.4th at 541 ("Control is the key characteristic of the agent/principal relationship.").
In addition to their allegations regarding DTT's global marketing message, Plaintiffs attempt to demonstrate that Wood had actual authority to act as DTT's agent by alleging that Wood showed Marshall a series of documents valuing the Bulgarian cable companies. These documents bore the names and logos of Deloitte Touche Tohmatsu and "Deloitte Touche" and were signed in cursive by "Deloitte Touche." (Marshall Decl. ¶ 10.) Plaintiffs allege that Wood represented the documents were prepared by "Deloitte Touche" for potential investors in the Bulgarian Venture. (Marshall Decl. ¶ 10.)
To support their contention that these facts establish agency, Plaintiffs cite Cramer Finance Ltd. v. Berger, 2002 WL 826847 (S.D.N.Y.), which upheld the exercise of personal jurisdiction against DTT in a securities fraud action. In Cramer, plaintiffs sought to hold DTT and its member entity in Bermuda ("DTB") liable for allegedly fraudulent audits that DTB issued for an offshore investment fund. 2002 WL 826847 at 1. Plaintiffs alleged that an audit proposal they had received from DTB stated that DTB was "part of Deloitte Touche Tohmatsu" and all audit reports bore the name and logo of DTT, as well as "Deloitte Touche" signed in cursive. Id. at 3. The court determined that plaintiffs sufficiently alleged that the Managing Partner of DTB was acting as an authorized agent of DTT in creating the audit reports. Id. at 4.
One key difference between the facts alleged in Cramer and the facts alleged in this action is that the plaintiffs in Cramer had retained DTB's auditing services. In this case, Plaintiffs did not retain the services of any Deloitte entity in connection with the Bulgarian Venture. Plaintiffs allege only that Wood made representations as to "Deloitte's" involvement in the Bulgarian Venture and that Wood showed Marshall documents that were prepared for CGCS, not Plaintiffs, in connection with the Bulgarian Venture. The fact that Wood had access to documents that Wood alleged were prepared by "Deloitte Touche" does not demonstrate that DTT exerted the necessary level of control over Wood to reflect an agency relationship. Accordingly, the Court finds that Plaintiffs allegations do not satisfy the high level of control that must be shown between DTT and Wood in order to exercise jurisdiction over DTT based on Wood's actions.
2. Plaintiffs' allegation that Wood had apparent authority to act on behalf of DTT is not traceable to the manifestations of DTT.
California law controls the issue of whether Wood had apparent authority to act as DTT's agent. C.A.R. Tramp. Brokerage Co., Inc., v. Darden Rests., Inc., 213 F.3d 474, 479 (9th Cir. 2000) (holding that a district court must look to California law to determine the existence of an agency relationship). Under California Civil Code section 2300, "An agency is ostensible when the principle intentionally, or by want of extraordinary care, causes a third person to believe another to be his agent who is not really employed by him." Therefore, to establish a triable issue of fact that Wood was DTT's ostensible agent, Plaintiffs must produce some evidence that DTT, not Wood, "intentionally or by want of ordinary care has caused or allowed [Plaintiffs] to believe that the agent possessed such authority. Am. Cas. Co. of Reading Pa. v. Krieger, 181 F.3d 1113, 1121 (9th Cir. 1999).
Ostensible authority "may be implied from the circumstances of a particular case and may be proved by circumstantial evidence." C.A.R. Transp., 213 F.3d at 480-81. "While it is true that the ostensible authority of an agent cannot be based solely on upon the agent's conduct, it is not true that the principal must make explicit representations regarding the agent's authority to the third party before ostensible authority can be found." Id. at 481 (citations omitted). Even so, some indication of authority must be related to the third party from the principal. Id. at 481 (noting that "ostensible authority may be proven through evidence of the principal transacting business solely through the agent," or evidence of "the principal knowing that the agent holds himself out as clothed with certain authority but remaining silent"); see also Kaplan v. Coldwell Banker Residential Affiliates, Inc., 59 Cal.App.4th 741, 747 (1997) (holding that the belief in the agent's authority must be generated by some act or neglect of the principal sought to be charged").
Plaintiffs contend that Wood was DTT's ostensible agent because DTT put Wood in a position that allowed him to defraud them. However, aside from allegations regarding the DTT's global marketing message and the documents Wood presented to Marshall in San Francisco, Plaintiffs have presented no evidence to show that it was DTT that caused them to believe Wood's authority to act as DTT's agent. "The ostensible authority of an agent cannot be based solely upon the agent's conduct." Kaplan, 59 Cal.App.4th at 747. Therefore, the Court finds that Plaintiffs have not alleged facts sufficient to support their contention that Wood was acting as an apparent agent of DTT.
Under the three-part test set forth by the Ninth Circuit, Plaintiffs have not met their burden of establishing that the Court has specific jurisdiction over DTT, whether through DTT's actions or through the actions of an agent of DTT. See Sher, 911 F.2d at 1361. Plaintiffs have not demonstrated that DTT has taken action "whereby the defendant purposefully avails himself or herself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of the forum's laws," nor have Plaintiffs shown that their claims against DTT "arise out of or result from" DTT's forum-related activities. See id. Thus, specific jurisdiction over DTT in California, on the facts as alleged, is not warranted.