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LEXINGTON INSURANCE CO. v. FORREST

May 6, 2003

LEXINGTON INSURANCE CO., PLAINTIFFS,
v.
DAVID FORREST, AND T. BEAUCLERC ROGERS, IV, DEFENDANTS.



The opinion of the court was delivered by: Anita B. Brody, United States District Judge

EXPLANATION AND ORDER

On July 3, 2002, plaintiff Lexington Insurance Company ("Lexington") filed suit against defendants David Forrest ("Forrest") and T. Beauclerc Rogers, IV ("Rogers"). In its five-count complaint, plaintiff alleged that defendants, by and through various companies under their control, conspired to defraud Lexington of millions of dollars in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-1968 (Counts I-III), and that they also committed common law fraud (Count IV) and tortious interference with contract (Count V).

On September 12, 2002, Rogers filed a motion to dismiss plaintiff's complaint or, alternatively, stay the proceedings. His motion seeks dismissal of plaintiff's complaint on the following grounds: lack of subject matter jurisdiction, forum non conveniens, principles of international comity, and failure to state a claim for which relief can be granted. On November 4, 2002, Forrest filed an identical motion, save that he also alleges that the court lacks personal jurisdiction over him. For the reasons discussed below, I will deny defendants' motions.

• FACTUAL BACKGROUND

Plaintiff states that this litigation arises from the following alleged circumstances: Defendants controlled a set of companies collectively referred to as "Flashpoint." Compl. ¶¶ 2, 3, 14. Defendant Rogers resides within the Eastern District of Pennsylvania, and several of the Flashpoint companies, including Flashpoint Ltd., are located at his home in Gladwyne, Pennsylvania. Id. ¶¶ 8, 14. Defendant Forrest is a subject of the United Kingdom, and Flashpoint UK Ltd. is organized and exists under the laws of that same nation. Id. ¶¶ 7, 12. Plaintiff is a Delaware corporation with its principal place of business in Massachusetts. Id. ¶ 6. It writes property and casualty insurance business in the United States and the United Kingdom. Id.

Defendants were in the business of securing financing for motion pictures. Id. ¶ 16. Typically, movies produced by independent film makers initially have few assets other than the anticipated success of their as-yet unfinished product. To secure bank loans or alternative forms of financing, production companies are sometimes required to enter into agreements with insurance companies that insure the investments of a film's creditors. By issuing what are known as "credit enhancements" for film production loans, insurers like Lexington agree to pay a film's creditors for any shortfall between the film's revenue stream and the face amount of its loan as of a specified "claim date." Id. ¶¶ 17, 18. Plaintiff maintains that defendants obtained insurance for film loans by promising to serve as "risk managers," meaning that Flashpoint would monitor a film's production and sales on behalf of the company insuring the film's loans. Id. ¶ 19. These promises allegedly induced Lexington to enter into eight film finance transactions with companies connected to defendants.*fn1 Id. ¶¶ 23, 29, 31-34, 38. According to plaintiff, these eight transactions constituted an elaborate Ponzi scheme, wherein the defendants used funds from later projects to pay off those debts incurred in earlier ones. Id. ¶ 3.

Plaintiff claims that defendants reneged on their promises to serve as risk managers for those film projects insured by Lexington and connected to Flashpoint. In particular, plaintiff accuses defendants of (i) fraudulently inflating the estimated sales receipts of the various films and projects that Lexington insured, (ii) misappropriating funds from one set of insured films and applying those funds toward a different set, (iii) misappropriating funds from insured films for personal investments like a California office building ("The Building"), a film post-production site in Los Angeles ("New Standard Post"), and a chain of Russian cinemas, (iv) deliberately concealing their ownership of the production companies that they had promised to monitor, (v) removing a profitable film from a slate insured by Lexington in order to avoid using the film's proceeds to repay the insured loans, and (vi) hiding their misdeeds in order to induce Lexington to issue insurance policies for successive projects. Id. ¶¶ 20-23, 26, 29, 31-35.

Some time after Lexington entered into the eight financing agreements with defendants, and before defendants could enter into "Hollywood Funding No. 7," Flashpoint UK went into judicial administration proceedings, the British equivalent of bankruptcy. Id. ¶ 44. Following the collapse of defendants' alleged Ponzi scheme, Flashpoint's creditors have come calling. Id. ¶¶ 3-5. As a result of its insurance contracts with Flashpoint, Lexington is now embroiled in a series of British lawsuits with Flashpoint's creditors that threaten plaintiff's credit rating and risk costing it close to $200 million. Id. Lexington has already spent several million dollars defending itself against these suits. Id. Neither the defendants nor Flashpoint are parties to the lawsuits against Lexington.

In support of its underlying legal claim, plaintiff alleges that: (i) the collection of Flashpoint companies that committed the alleged frauds constitutes an enterprise, (ii) defendants' frauds required the use of the mails and/or wire transmissions in interstate and foreign commerce and that numerous such communications occurred in furtherance of their scheme, (iii) defendants knowingly caused the transportation of fraudulently-obtained funds in interstate or foreign commerce, (iv) defendants agreed and conspired to commit the acts of racketeering activity alleged above, and (v) such conspiracy was at least partially implemented through phone and fax communications between Rogers in Gladwyne and Forrest in the United Kingdom. Id. ¶¶ 39, 40.

II. DISCUSSION

Defendants' motions raise a number of issues. First, Forrest contends that this court lacks personal jurisdiction over him. Second, both defendants aver that plaintiff's complaint should be dismissed for lack of subject matter jurisdiction based on their arguments that (a) plaintiff lacks standing to make the complaint, and (b) that the complaint is not ripe. Third, the defendants maintain that the complaint should be dismissed based on the doctrine of forum non conveniens. Fourth, they seek dismissal based on principles of international comity. Fifth, they argue that plaintiff's complaint fails to state a claim upon which relief may be granted.*fn2 And, finally, if the court elects not to dismiss the complaint, defendants request that the court grant a stay pending resolution of the British lawsuits involving Lexington and Flashpoint's creditors.*fn3 I will address each of defendants' arguments in turn.

A. Personal Jurisdiction Over Defendant Forrest

A complaint may be dismissed when the court lacks personal jurisdiction over a defendant. Fed.R.Civ.P. 12(b)(2). "[C]ourts reviewing a motion to dismiss a case for lack of in personam jurisdiction must accept all of the plaintiff's allegations as true and construe disputed facts in favor of the plaintiff." Carteret Sav. Bank, F.A. v. Shushan, 954 F.2d 141, 142 n. 1 (3d Cir.), cert. denied, 506 U.S. 817 (1992) (citation omitted).

Unlike with Rules 12(b)(1) and 12(b)(6), the plaintiff may not rely on the pleadings alone to withstand a motion to dismiss for lack of personal jurisdiction. Stranahan Gear Co., Inc. v. NL Indus., 800 F.2d 53, 58 (3d Cir. 1986). Rather, "plaintiff bears the burden of establishing with reasonable particularity sufficient contacts between the defendant and the forum state to support jurisdiction." Gehling v. St. George's Sch. of Med., 773 F.2d 539, 542 (3d Cir. 1985). This burden both distinguishes a Rule 12(b)(2) motion from other motions to dismiss and engenders a particular procedural posture: If the court neither conducts an evidentiary hearing nor permits limited discovery to determine personal jurisdiction, the plaintiff "need make only a prima facie showing of jurisdiction through its affidavits and supporting materials." Kishi Int'l v. Allstate Textile Mach., Inc., No. 96-6110, 1997 WL 186324, at *2 (E.D.Pa. April 11, 1997) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). Plaintiff, however, "must eventually establish jurisdiction by a preponderance of the evidence, either at a pretrial evidentiary hearing or at trial." Id. (citation omitted).

The federal courts employ a two-part test to determine whether a federal court may exercise personal jurisdiction over a defendant. First, because "[u]nder Fed.R.Civ.P. 4(k), a district court's personal jurisdiction is usually coextensive with that of courts of general jurisdiction in the state where the district court sits," Electro Med. Equip. Ltd. v. Hamilton Med. AG, No. 99-579, 1999 WL 1073636, at *2 (E.D.Pa. Nov. 16, 1999), the court must begin by ascertaining whether state law permits the exercise of personal jurisdiction. Grand Entm't Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 481 (3d Cir. 1993). Second, the court must determine whether the exercise of personal jurisdiction would comport with a defendant's federal due process rights. IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998). Pennsylvania's long-arm statute permits the exercise of personal jurisdiction to the full extent allowed by the Fourteenth Amendment and its guarantee of due process. 42 Pa. Cons. Stat. Ann. § 5322(b) (Purdon 1981);*fn4 see also Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 63 (3d Cir. 1984). Consequently, within Pennsylvania the two stages of analysis used to determine whether a court has personal jurisdiction collapse into one.

A defendant's objections regarding due process and personal jurisdiction are resolved through a familiar two-part inquiry. The court must ask: (i) whether the defendant has minimum contacts with the forum "such that [he] should reasonably anticipate being haled into court there," World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980), and (ii) whether the exercise of personal jurisdiction comports with "traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).*fn5

For minimum contacts to exist, "[t]he defendant must engage in some affirmative act `by which the defendant purposely avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'" Grand, 988 F.2d at 482 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)). The contacts alleged by plaintiff are Forrest's "numerous" faxes and telephone calls to Rogers in Gladwyne. Pl.'s Mem. of Law in Opp'n to Defs.' Mot. to Dismiss ("Pl.'s Mem.") at 12.*fn6

This Circuit takes a "highly realistic" approach to analyzing minimum contacts. Mellon Bank (East) PSFS, Nat'l Assoc. v. Farino, 960 F.2d 1217, 1224 (3d Cir. 1992). For this reason, minimum contacts need not include a defendant's physical presence in the forum. Quill Corp. v. North Dakota by and through Heitkamp, 504 U.S. 298, 307 (1992). Telephone calls and fax transmissions can create the requisite contacts. See Grand, 988 F.2d at 482, Carteret Sav. Bank; 954 F.2d at 147-48. The facts in Grand resemble those now in dispute. In Grand, a Spanish defendant accused of violating the RICO Act argued that the district court's exercise of in personam jurisdiction violated due process. The defendant, Ricardo Sanz Perez, was a Spanish national living in Spain who was connected to approximately twelve telexes sent to Bala Cynwyd, Pennsylvania regarding a contract negotiation.*fn7 On appeal, the Third Circuit found that Sanz Perez's telefaxes constituted minimum contacts with the Eastern District of Pennsylvania and that the district court's exercise of personal jurisdiction over the defendant accorded with notions of fair play and substantial justice. Grand, 988 F.2d at 476. Forrest's case bears a number of similarities to those of Sanz Perez. In both cases the defendants' communications involved commercial matters that, by occurring within this forum, benefitted from the laws of this state. See id. at 483. Like Sanz Perez, Forrest freely chose to communicate with this forum and the resulting communications gave rise to the lawsuit whose jurisdiction each man contested. See id.. Based on these factual similarities and the Third Circuit's approval of the district court's exercise of personal jurisdiction over Sanz Perez, I find that Forrest's phone calls and faxes with this forum suffice to present a prima facie case of minimum contacts.*fn8

Having found that minimum contacts exist, it remains to be determined whether the exercise of personal jurisdiction squares with notions of "fair play and substantial justice." See Int'l Shoe, 326 U.S. at 316. There is a heavy burden on a defendant who seeks to demonstrate a lack of fairness or substantial justice. Grand, 988 F.2d at 483. Once the plaintiff has made out a prima facie case of minimum contacts, "the defendant `must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.'" Carteret Sav. Bank, 954 F.2d at 150 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)). For the reasons discussed below, I do not find that Forrest has made a sufficiently compelling case.

In evaluating the reasonableness of a district court's exercise of personal jurisdiction, the Third Circuit considers the following factors: (i) the burden on the defendant; (ii) the interests of the forum state; (iii) the plaintiff's interest in obtaining relief; (iv) the judicial system's interest in judicial efficiency; and (v) "the shared interests of the several States in furthering fundamental substantive social policies." Grand, 988 F.2d at 483 (quoting Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987)). I will now consider these factors in light of Forrest's motion.

Defending a lawsuit in a foreign country is a burden. See Asahi, 480 U.S. at 114. It is not, however, an unjustifiable burden. Id. (noting that when "minimum contacts have been established, often the interests of the plaintiff and the forum in the exercise of jurisdiction will justify even the serious burdens placed on the alien defendant"). Once again, I take my cue from Grand. Like the Spanish defendant in that case, Forrest "has shown his ability to conduct business in the United States and has actively carried on substantial activities here." Grand, 988 F.2d at 483. Plaintiff attached to its brief a Flashpoint brochure whose opening page is signed by Rogers and Forrest. Pl.'s Mem., Ex. TBR at 2. This brochure reveals at least seven Flashpoint-related entities located in the United States. Id. at 3. Forrest's connection to Flashpoint's U.S. subsidiaries and transactions is also documented by his prominent signature and picture on two Flashpoint brochures. Id. at 2, 20. In one of these two brochures, Rogers and Forrest state that "we are driven by a desire to reach audiences in every part of the world." Id. at 20. Rogers's demonstrated interest in reaching a U.S. audience and in developing successful commercial properties in this country shows that "[t]his is not a case where a party without ...


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