Securities and Exchange Commission v. Carroll et al

Filing 93

MEMORANDUM OPINION AND ORDER aigned by Judge John G. Heyburn, II on 11/8/2011. For the reasons set forth, 40 Motion to Dismiss for Lack of Personal Jurisdiction is DENIED. The Court will address the Calcutts' other motions to dismiss, along with motions filed by their co-defendants, in separate memorandum opinion and orders. This is not a final order. cc: Counsel (AEP)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:11-CV-165-H

SECURITIES AND EXCHANGE
COMMISSION

PLAINTIFF

V.
PATRICK M. CARROLL, et. al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER
Plaintiff, the United States Securities and Exchange Commission (the “SEC”), brought
this action against eight defendants for alleged violations of Section 10(b) of the Securities
Exchange Act of 1934 (“SEA”), 15 U.S.C. § 78j(b) and its accompanying Rule 10b-5, 17 C.F.R.
§ 240.10b-5. The Complaint alleges insider trading in securities of Louisville-based Steel
Technologies, Inc. (“STTX”) prior to the February 28, 2007 announcement that Mitsui & Co.
(USA) Inc. (“Mitsui”) would acquire STTX. Two defendants, David Mark Calcutt and
Christopher T. Calcutt (collectively the “Calcutts” or “Defendants”) have moved to dismiss the
Complaint for lack of personal jurisdiction, improper venue, and failure to state a claim. See
Fed. R. Civ. P. 12(b)(2), 12(b)(3), and 12(b)(6). This Memorandum Opinion and Order
addresses only Defendants’ motion to dismiss for lack of personal jurisdiction.
I.
The Court need only briefly summarize the facts as they pertain to the Calcutts for
purposes of this motion. The Court takes all well-pleaded facts from the Complaint as true at the
motion-to-dismiss stage of litigation. Benzon v. Morgan Stanley Distribs., Inc., 420 F.3d 598,
608-09 (6th Cir. 2005) (citing Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir.

1987)).
The Calcutts, both North Carolina residents, are brothers and neighbors. David Calcutt is
the Vice President of Sales for STTX’s Southeast Region. According to the Complaint, in
January and February 2007, David learned nonpublic information about Mitsui’s impending
acquisition of STTX from Michael Carroll, STTX’s President and Chief Operating Officer. He
learned this information through phone calls with Michael and possibly on a hunting trip he
attended with Michael in Wyoming.
On January 5, 2007, before learning about the Mitsui acquisition, David sold all of the
STTX stock held in his brokerage account and $25,000 worth of STTX stock in his 401(k)
account, reducing his position in STTX to 1.9 percent of his 401(k) portfolio. The sale price was
$17.38 per share. After learning about the acquisition, David first placed limit orders to
purchase STTX stock at $17.75 and $18.50 per share. Both orders were fulfilled. Then, in the
next two weeks, David purchased more than $160,000 worth of STTX stock in his 401(k)
account, liquidating some of his mutual fund holdings and taking out a margin loan to help fund
his order. At least 2,000 of the STTX shares David purchased cost $19.42 per share. These
purchases increased his position in STTX to roughly 45 percent of his 401(k) portfolio.
David shared the nonpublic information he learned from Michael about the Mistui
acquisition with his brother, Christopher. As brothers and neighbors, the Calcutts talked
regularly in person and on the phone. David placed two phone calls to Christopher on the 16th
and 17th of February. Either during these phone conversations or during an in-person
conversation, David told Christopher about the forthcoming Mistui acquisition. Christopher
purchased 400 shares of STTX stock on February 21. To fund this purchase, Christopher sold

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recently-acquired shares of another stock for a small loss and took out a margin loan. He sold all
of his STTX stock the day after the company publicly announced the acquisition.
II.
The Calcutts move this Court to dismiss the Complaint for a lack of personal jurisdiction.
Fed. R. Civ. P. 12(b)(2). They concede that the SEA provides for nationwide venue and service
of process,1 but argue the Court’s exercise of personal jurisdiction over the Defendants must still
comport with the constitutional minimum requirements of due process. See, e.g., Int’l Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945); World-Wide Volkswagon Corp. v. Woodson, 444 U.S.
286, 293 (1980). They urge this Court to follow decisions from federal courts in other circuits
requiring a defendant under the SEA to have minimum contacts with the forum state before
exercising personal jurisdiction. See, e.g., S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir.
1990); Allison v. Lomas, 387 F. Supp. 2d 516, 519 (M.D.N.C. 2005). Defendants argue that any
contacts they have had with Kentucky, the forum state, are so negligible that exercising personal
jurisdiction would not comport with due process.
The Court need not assess the degree to which the Calcutts have contacts with Kentucky

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15 U.S.C. § 78aa provides that: “The district courts of the United States and the United States courts of
any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of
violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought
to enforce any liability or duty created by this chapter or the rules and regulations thereunder. Any criminal
proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit
or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any
violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the
defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other
district of which the defendant is an inhabitant or wherever the defendant may be found. In any action or proceeding
instituted by the Commission under this chapter in a United States district court for any judicial district, a subpoena
issued to compel the attendance of a witness or the production of documents or tangible things (or both) at a hearing
or trial may be served at any place within the United States. Rule 45(c)(3)(A)(ii) of the Federal Rules of Civil
Procedure shall not apply to a subpoena issued under the preceding sentence. Judgments and decrees so rendered
shall be subject to review as provided in sections 1254, 1291, 1292, and 1294 of Title 28. No costs shall be assessed
for or against the Commission in any proceeding under this chapter brought by or against it in the Supreme Court or
such other courts.”

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or whether such contacts support an exercise of personal jurisdiction. Despite Defendants’
suggestion that Sixth Circuit law on the effect of the SEA’s nationwide service provision is
unsettled, the law appears to be clear. The current view of the Sixth Circuit is that where a
federal statute, like the SEA, provides for nationwide service of process, the constitutional due
process strictures articulated in International Shoe and its progeny do not apply. United Liberty
Life Ins. Co. v. Ryan, 985 F.2d 1320, 1330 (6th Cir. 1993). The SEA “confers personal
jurisdiction in any federal district court over any defendant with minimum contacts to the United
States,” irrespective of the defendant’s contacts to the state in which the district court sits. Id.
Defendants assert that “the Sixth Circuit has acknowledged a requirement of minimum
contacts with the forum state for claims brought under the ERISA statute” in a post-United
Liberty case and this Court should likewise apply such a requirement to an SEA case. See NGS
Am., Inc. v. Jefferson, 218 F.3d 519, 524 n.5 (6th Cir. 2000) (“it is not universally accepted by
the courts of appeals that a nationwide service of process provision suffices for personal
jurisdiction”). This Court sees this comment as merely acknowledging some differences among
the circuits. The Sixth Circuit has not backtracked from its unequivocal holding in United
Liberty. In the same footnote Defendants cite in their brief, Judge Boggs explains that the court
was not deciding whether a “national contacts approach to [ERISA] would comport with Fifth
Amendment due process” and if it were deciding that issue, “the weight of Sixth Circuit
precedent supports acceptance of the national contacts approach.” Id. (citing Haile v. Henderson
Nat’l Bank, 657 F.2d 816 (6th Cir. 1981); United Liberty, 985 F.2d at 1330). Furthermore, the
Sixth Circuit confirmed a year later that ERISA’s national service of process provision renders a
state-based minimum contacts analysis “simply inapposite.” Med. Mut. of Ohio v. DeSoto, 245

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F.3d 561, 567 (6th Cir. 2001).
For now, at least, the law is clear in the Sixth Circuit that a court has personal jurisdiction
over any defendant to a SEA action with minimum contacts to the United States. United Liberty,
985 F.2d at 1330. It is equally clear that the Calcutts, as U.S. citizens, have such contacts.
Having raised no other basis for challenging this Court’s personal jurisdiction over them,
Defendants’ motion to dismiss will be denied.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendants’ motion to dismiss for lack of personal
jurisdiction is DENIED. The Court will address the Calcutts’ other motions to dismiss, along
with motions filed by their co-defendants, in separate memorandum opinions and orders.
This is not a final order.

November 8, 2011

cc;

Counsel of Record

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