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Burman v. Phoenix Worldwide Industries

July 7, 2006

PAUL I. BURMAN, ET AL., PLAINTIFFS,
v.
PHOENIX WORLDWIDE INDUSTRIES, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Reggie B. Walton United States District Judge

MEMORANDUM OPINION

The plaintiffs, Paul I. Burman, Robert C. Warriner, Sylvia J. Rolinski, and the Ingersoll & Bloch, Chartered, Employees Profit Sharing Plan and Trust, bring this action to recover compensatory damages for injuries caused by alleged "statutory securities fraud, common law fraud and misrepresentation, negligent representation, breach of fiduciary duty and negligence" on the part of the defendants, Phoenix Worldwide Industries, Inc. ("Phoenix"), Dr. J. Al Esquivel Shuler ("Shuler"), and Rachlin, Cohen & Holtz, LLP ("Rachlin"). Second Amended Complaint ("Compl.") at 1-2. Currently before this Court is defendant Rachlin's Motion to Dismiss for lack of personal jurisdiction ("Def.'s Mot.") and the plaintiffs' opposition thereto.*fn1 For the reasons set forth below, this Court will grant the defendant's motion to dismiss.

I. Background

This Court has previously set forth an exhaustive discussion of the facts of this case.*fn2

Burman v. Phoenix Worldwide Indus., 384 F. Supp. 2d 316, 321-24 (D.D.C. 2005). Accordingly, there is no need to provide an extensive discussion of the facts again. It is helpful, however, to review Rachlin's involvement in the events that gave rise to the dispute in this case.

Rachlin is an accounting firm based in Florida with offices located only in that state. Def.'s Mem. at 2. Rachlin has provided accounting services to Phoenix for over ten years.

Def.'s Reply, Ex. B (Certification of Harvey Miller). During the course of soliciting purchasers of its common stock in the District of Columbia, Phoenix presented potential investors with audited financial statements that had been prepared by Rachlin. Pls.' Opp'n at 2. The plaintiffs allege that in connection with their purchase of Phoenix common stock, they relied upon the audited financial statements prepared by Rachlin. Id. The 2001-2002 financial statement allegedly contained a number of notes, which the plaintiffs contend were misrepresentations that induced them into purchasing Phoenix common stock. Specifically, two of these notes, Note 10 and Note 13, indicated that Phoenix had been in arrears in its payment of payroll taxes but that "the payroll taxes had been paid in August 2002" and that "[n]o penalties or interest ha[d] been imposed." Compl. ¶ 88; Pls.' Opp'n, Ex. 1 (Affidavit of Jay Zawatsky ¶ 9). However, in April of 2004, the IRS placed a lien on Phoenix's property in the amount of $233,677.95, the amount of Phoenix's payroll tax liabilities plus penalties and interest. Compl., Ex. 3. The plaintiffs allege that Rachlin knew or should have known of the unpaid payroll taxes and did not "adequately report such information in the audited financial statements." Compl. ¶ 157. Therefore, according to the plaintiffs, Rachlin "breached its duty to [them] by falling below the standard of care applicable to accountants in the same or similar situation." Id. The plaintiffs further assert that they "would not have invested in Phoenix securities had [Rachlin]'s audit reports disclosed the existence of unpaid employment taxes." Id. ¶ 158. Thus, the plaintiffs contend that Rachlin's alleged negligence caused them to sustain damages in the amount of $1,116,500, which was the amount they invested in Phoenix common stock plus interest. Id. ¶ 159. Rachlin now responds with its Motion to Dismiss. Apart from the contacts with the District of Columbia alleged in this case, Rachlin's business contacts with this jurisdiction during the time period relevant to the claim lodged against it were limited to seven client relationships consisting of three business valuations and four tax matters. Def.'s Mem. at 9-10. And defendant Phoenix, which is the principal target of the plaintiffs' lawsuit and the entity for whom Rachlin provided the services that form the basis for the claim filed against Rachlin, is a manufacturer with its principal place of business also in Florida. Compl. ¶ 5.

II. Standard of Review

When personal jurisdiction is challenged under Federal Rule of Civil Procedure 12(b)(2), the "[p]laintiff bears the burden of establishing personal jurisdiction over each individual defendant." Atlantigas Corp. v. Nisource, Inc., 290 F. Supp. 2d 34, 42 (D.D.C. 2003). "In the absence of an evidentiary hearing, . . . [the plaintiff] can satisfy [its] burden with a prima facie showing." See Mwani v. Bin Laden, 417 F.3d 1, 7 (D.C. Cir. 2005). In order to meet [this] burden, [the] plaintiff must allege specific facts on which personal jurisdiction can be based; . . . [the plaintiff] cannot rely on conclusory allegations." Atlantigas Corp., 290 F. Supp. at 42. Furthermore, the plaintiff "cannot aggregate factual allegations concerning multiple defendants in order to demonstrate personal jurisdiction over any individual defendant." Id.

III. Analysis

In diversity cases, such as the one currently before this Court, a federal district court must look to the jurisdictional law of the forum where it presides to determine whether it has personal jurisdiction over a non-resident defendant. Fed. R. Civ. P. 4(e). Under District of Columbia law, personal jurisdiction can be satisfied either by demonstrating that the court has general jurisdiction pursuant to D.C. Code § 13-422 (2001) or that the court has personal jurisdiction pursuant to the District of Columbia long-arm statute, D.C. Code § 13-423 (2001). The plaintiffs bear the "burden of establishing a factual basis for the exercise of personal jurisdiction over the defendant." Crane v. New York Zoological Soc'y, 894 F.2d 454, 456 (D.C. Cir. 1990) (citing Reuber v. United States, 750 F.2d 1039, 1052 (D.C. Cir. 1984)). "In determining whether such a basis exists, factual discrepancies appearing in the record must be resolved in favor of the plaintiff[s]." Id.

Rachlin is legally organized as a Limited Liability Partnership in the State of Florida, has its principal place of business in Florida, and maintains no offices outside of that state. Def.'s Mem. at 2. It is clear, then, and the plaintiffs do not contend otherwise, that the Court does not have general jurisdiction over Rachlin as it is not a "person domiciled in, organized under the laws of, or maintaining . . . its principal place of business in, the District of Columbia . . . ." See D.C. Code § 13-422. Thus, the question for this Court to resolve is whether the Court can exercise personal jurisdiction over Rachlin pursuant to the District of Columbia's long-arm statute. The plaintiffs contend that they have made a prima facie showing that this Court can exercise personal jurisdiction over Rachlin pursuant to D.C. Code § 13-423(a)(1), (a)(3) and (a)(4). Pls.' Opp'n at 5, 13, 15. These provisions state:

(a) A District of Columbia court may exercise personal jurisdiction over a person, who acts directly or through an agent, as to a claim for relief arising from the person's:

(1) transacting any business in the District of Columbia; * * * (3) causing tortious injury in the District of Columbia by an act or omission in the District of Columbia; (4) causing tortious injury in the District of Columbia by an act or omission outside the District of Columbia if he regularly does or solicits business, engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed, or services rendered, in the District of Columbia; * * * (b) When jurisdiction over a ...


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