Confederate Motors, Inc. v. Terny, et al

Filing 117

Ch. Magistrate Judge Judith G. Dein: MEMORANDUM OF DECISION AND ORDER entered allowing Chambers' Motion to Dismiss. (Dambrosio, Jolyne)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

CONFEDERATE MOTORS, INC.,

)
)
Plaintiff /
)
Counterclaim Defendant, )
v.
)
)
FRANCOIS-XAVIER TERNY,
)
)
Defendant /
)
Counterclaim Plaintiff,
)
v.
)
)
HERBERT MATTHEW CHAMBERS, )
)
Counterclaim Defendant. )

CIVIL ACTION
NO. 11-10213-JGD

MEMORANDUM OF DECISION AND ORDER ON CHAMBERS’
MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
July 18, 2011
DEIN, U.S.M.J.
I. INTRODUCTION
This matter is before the court on “Counterclaim Defendant H. Matthew
Chambers’ Motion to Dismiss for Lack of Personal Jurisdiction.” Docket No. 90. The
counterclaim-plaintiff, Francois-Xavier Terny (“Terny”), contends that Chambers
consented to this court’s jurisdiction by executing a Consulting Agreement as President
and Chief Executive Officer of Confederate Motors, Inc. (“Confederate”) which provides
that any dispute thereunder “shall be brought exclusively in the courts of Massachusetts.”
For the reasons detailed herein, this court finds that Chambers did not personally consent

to the jurisdiction of the Massachusetts courts, and that he does not have sufficient
contacts with the Commonwealth of Massachusetts to permit this court to exercise
personal jurisdiction over him. Therefore, Chambers’ Motion to Dismiss is ALLOWED.
II. STATEMENT OF FACTS
The relevant facts are straightforward and are undisputed. Confederate is a
publicly-traded corporation engaged in the business of designing and manufacturing
handcrafted street motorcycles. Chambers was the President, Chief Executive Officer
and Chairman of the Board of Directors of Confederate at all relevant times. According
to Terny, beginning in the latter part of 2008, he was courted by Confederate to provide
financing to the company pursuant to a private placement memorandum dated November
1, 2008. See, e.g., Docket No. 84 (Counterclaim) ¶ 12. Between December 2008 and
September 2009, Terny invested $450,000 in Confederate in exchange for 300,000 shares
of company stock. Id. at ¶¶ 24-29.
In April 2009, Terny was appointed to Confederate’s Board. Id. at ¶ 32. In
September 2009, he entered into a Consulting Agreement with Confederate pursuant to
which he received an additional 505,000 shares of the company in exchange for his
services. Id. at ¶ 33. The Consulting Agreement contains the following provision:
Governing Law and Jurisdiction of Disputes. This Agreement shall
be construed, interpreted and enforced in accordance with the laws
of the State of Delaware and any dispute shall be brought
exclusively in the courts of Massachusetts.

2

Docket No. 1 (Original Complaint) Ex. F at ¶ 13. The Consulting Agreement was signed
on behalf of Confederate by Chambers as “President and Chief Executive Officer.” It is
undisputed that neither of the parties to the Agreement is from Massachusetts, the
contract was not negotiated in Massachusetts, and it was not to be performed here. The
reference to Massachusetts, according to the parties, seems to have been a typographical
error.
Disagreements between Chambers and Terny concerning the operations of the
company arose shortly after the execution of the Consulting Agreement. See Docket No.
70-1 (Third Amended Complaint) ¶ 1. The details of these disputes are irrelevant to the
present motion, as it is undisputed that none of the parties’ communications or actions
took place in Massachusetts.
On April 8, 2010, Confederate commenced an action against Terny in the United
States District Court for the Northern District of Alabama, Southern Division, where
Confederate’s principal place of business was located. See Docket No. 1. Therein,
Confederate sought a declaratory judgment as to the parties’ rights and obligations under
their agreements and the corporate documents. On December 13, 2010, based on the
forum selection clause in the Consulting Agreement, Terny filed a Motion to Enforce
Forum Section Clause seeking to have the Alabama case dismissed, with leave to have
Confederate refile it in Massachusetts. Docket No. 76. Confederate unsuccessfully
opposed the motion. On January 21, 2010, the Alabama District Court orally denied
Confederate’s request that the action be dismissed, but granted the alternative relief that
3

the case be transferred to Massachusetts. This was confirmed by a written order on
January 24, 2011. Docket No. 80.
On February 22, 2011, after the case had been transferred to Massachusetts, Terny
brought counterclaims against Confederate and Chambers. Docket No. 84. Terny
contends therein that this court has personal jurisdiction over Confederate and Chambers
based on the forum selection clause in the Consulting Agreement. Id. at ¶ 6. Terny has
brought claims of breach of fiduciary duty (Count I), violation of federal securities laws
(Count II), violation of blue sky laws (Count III), fraud (Count IV), and negligent
misrepresentation (Count V) against both Confederate and Chambers, and is seeking a
declaratory judgment (Count VI) in addition to damages. Chambers responded to the
counterclaim by filing the instant motion to dismiss for lack of personal jurisdiction. In
support of this motion, Chambers has filed an affidavit attesting to the fact that he has no
connection to Massachusetts and has not done any business here. Docket No. 91-1.1
Additional facts will be provided below where appropriate.

1

While at oral argument Confederate indicated that it would like to take discovery of the
issue of Chambers’ contacts with Massachusetts, it has not put forth any basis for the need for
such discovery or any facts which would indicate that discovery would be more than a fishing
expedition. This court sees no grounds for allowing discovery on the jurisdictional issue.
4

III. ANALYSIS
A.

Consent to Jurisdiction

“On a motion to dismiss for want of in personam jurisdiction, Fed. R. Civ. P.
12(b)(2), the plaintiff ultimately bears the burden of persuading the court that jurisdiction
exists.” Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass’n, 142 F.3d 26, 34 (1st Cir.
1998), and cases cited. “When a district court rules on a motion to dismiss for lack of
personal jurisdiction without holding an evidentiary hearing, as in this case, the ‘prima
facie’ standard governs its determination.” United States v. Swiss Am. Bank, Ltd., 274
F.3d 610, 618 (1st Cir. 2001). Thus, to meet its burden, the plaintiff must “demonstrate
the existence of every fact required to satisfy both the forum’s long-arm statute and the
Due Process Clause of the Constitution.” Id. (quotations and citation omitted). Under
this standard, the court will look to the facts alleged in the pleadings and the parties’
supplemental filings, including affidavits. Sawtelle v. Farrell, 70 F.3d 1381, 1385 (1st
Cir. 1995); Ticketmaster-New York, Inc. v. Alioto, 26 F.3d 201, 203 (1st Cir. 1994).
In general, in order to exercise personal jurisdiction over a defendant, the court
must find sufficient contacts between the defendant and the forum to satisfy both the
state’s long-arm statute and the due process clause of the Fourteenth Amendment.
Sawtelle, 70 F.3d at 1387; Ticketmaster-New York, Inc., 26 F.3d at 204. “[T]he Supreme
Judicial Court of Massachusetts has interpreted the state’s long-arm statute as an
assertion of jurisdiction over the person to the limits allowed by the Constitution of the
United States.” Phillips v. Prairie Eye Ctr., 530 F.3d 22, 26 (1st Cir. 2008) (quotations
5

and citations omitted). Accordingly, it is appropriate to dispense with the statutory
inquiry and “proceed directly to the constitutional analysis[.]” Id. See also Sawtelle, 70
F.3d at 1388 (“when a state’s long-arm statute is coextensive with the outer limits of due
process, the court’s attention properly turns to the issue of whether the exercise of
personal jurisdiction comports with federal constitutional standards”). In the instant case,
however, Terny contends that there is no need to undergo the “conventional long arm
analysis” since Chambers allegedly consented to the jurisdiction of the Massachusetts
courts by executing the Consulting Agreement. See General Contracting & Trading Co.,
LLC v. Interpole, Inc., 940 F.2d 20, 22 (1st Cir. 1991). This court disagrees.
Since the requirement of personal jurisdiction is “an individual right, it can, like
other such rights, be waived.” Lechoslaw v. Bank of Am., N.A., 618 F.3d 49, 55 (1st Cir.
2010) (internal quotation omitted). Thus, “[a] party to a contract may waive its right to
challenge personal jurisdiction by consenting to personal jurisdiction in a forum selection
cause.” Inso Corp. v. Dekotec Handelsges, mbH, 999 F. Supp. 165, 166 (D. Mass. 1998).
Confederate is a party to the Consulting Agreement, which provides that all disputes are
to be resolved in Massachusetts. Therefore, it appears that Confederate has consented to
this court’s jurisdiction. See id. at 167 (“contractual stipulation to a particular forum
implies consent to personal jurisdiction in that forum.”). Nevertheless, the forum selection clause does not bind Chambers personally, since he is not a party to the Agreement.
See Leyva v. Benjumea, No. 07-P-1660, 72 Mass. App. Ct. 1117, 2008 WL 4266384, at
*1 (Mass. App. Ct. Sept. 19, 2008) (unpub. op.) (corporate founders who signed license
6

agreement on behalf of the company are not personally bound by the license agreement’s
choice of law and forum selection clauses).
“It is well established that jurisdiction over the individual officers of a corporation
may not be based on jurisdiction over the corporation.” LaVallee v. Parrot-Ice Drink
Prods. of Am., Inc., 193 F. Supp.2d 296, 300 (D. Mass. 2002) (internal quotation
omitted). Rather, the court must ascertain if there is an “independent basis” for
exercising jurisdiction. Id. See also Morris v. UNUM Life Ins. Co. of Am., 66 Mass.
App. Ct. 716, 720-21, 850 N.E.2d 597, 600-01 (Mass. App. Ct. 2006). Similarly,
jurisdiction over individual shareholders of a corporation may not be based merely on
jurisdiction over the corporation – “[t]here must be an independent basis for asserting
long-arm jurisdiction.” Johnson Creative Arts, Inc. v. Wool Masters, Inc., 573 F. Supp.
1106, 1111 (D. Mass. 1983). Here, the mere signing of an agreement on behalf of the
corporation does not provide sufficient personal contacts for this court to exert personal
jurisdiction over Chambers. See Leyva, supra (where individuals signed a license
agreement with a forum selection clause on behalf of the company, and agreement
“plainly provides” that it is between two companies, “the license agreement cannot be a
basis for the assertion of jurisdiction in Massachusetts” over the individuals).
Terny argues that the fact that Chambers directed the company to enter into the
Consulting Agreement which (apparently accidentally) obligated the company to litigate
claims relating to the Agreement in Massachusetts is sufficient for this court to have
personal jurisdiction over him. This argument is without merit. The record before this
7

court is that Chambers engaged in absolutely no activities here in Massachusetts — nor
did he even direct the company to engage in any business here. He did not even direct
that the contract be signed in Massachusetts. This is simply not a situation where “active
entrepreneurial or managerial conduct in the State where jurisdiction is asserted will
cause jurisdiction to attach” to a corporate officer when there is jurisdiction over the
company. Kleinerman v. Morse, 26 Mass. App. Ct. 819, 824, 533 N.E.2d 221, 225
(1989).
Finally, Terny tries to analogize the instant situation to one where a party is
deemed to have submitted to the jurisdiction of a court by filing suit in that court. See
Gen. Contracting, 940 F.2d at 23 (company deemed to have submitted to the jurisdiction
of the state where it commenced a lawsuit). This argument ignores the fact that
Chambers never commenced suit in Massachusetts. Even assuming that Confederate
should have brought its suit against Terny in Massachusetts, and not Alabama, Chambers
was not a plaintiff in the suit against Terny. Furthermore, Chambers’ dispute with Terny
goes beyond their obligations under the Consulting Agreement. In sum, Chambers has
not consented to the jurisdiction of this court simply because Confederate has agreed to
litigate here.
B.

Specific Jurisdiction

In the absence of Chambers’ consent to this court’s jurisdiction, this court must
determine whether Chambers has maintained “certain minimum contacts” with the forum
state “such that the maintenance of the suit does not offend ‘traditional notions of fair
8

play and substantial justice.’” Int’l Shoe Co. v. Wash. Office of Unemployment, 326
U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945) (quoting Milliken v. Meyer, 311
U.S. 457, 463, 61 S. Ct. 339, 343, 85 L. Ed. 278 (1940)). Here, the record establishes
that Chambers has no significant contacts with Massachusetts, and there is no basis for
asserting jurisdiction over him.
“The accepted mode of analysis for questions involving personal jurisdiction
concentrates on the quality and quantity of the potential defendant’s contacts with the
forum.” Phillips Exeter Acad. v. Howard Phillips Fund, Inc., 196 F.3d 284, 288 (1st Cir.
1999). “Jurisdiction is proper . . . where the contacts proximately result from actions by
the defendant himself that create a substantial connection with the forum State.” Asahi
Metal Indus. Co., Ltd. v. Superior Court of Cal. Solano County, 480 U.S. 102, 109, 107
S. Ct. 1026, 1030, 94 L. Ed. 2d 92 (1987) (quotations and citation omitted).
The court may exercise two types of personal jurisdiction — general or specific.
There is no contention here that this court has general jurisdiction over Chambers, which
“‘exists when the litigation is not directly founded on the defendant’s forum-based
contacts, but the defendant has nevertheless engaged in continuous and systematic
activity, unrelated to the suit, in the forum state.’” Mass. Sch. of Law, 142 F.3d at 34
(quoting United Elec., Radio & Mach. Workers v. 163 Pleasant St. Corp., 960 F.2d 1080,
1088 (1st Cir. 1992)). Rather, the issue here is whether this court can exercise “specific
jurisdiction [which] exists when there is a demonstrable nexus between a plaintiff’s
claims and a defendant’s forum-based activities, such as when the litigation itself is
9

founded directly on those activities.” Id. When this analysis is undertaken in the instant
case, it is clear that this court cannot exert personal jurisdiction over Chambers.
Specific jurisdiction “has three distinct components, namely, relatedness,
purposeful availment (sometimes called ‘minimum contacts’) and reasonableness.”
Adelson v. Hananel, No. 09-2231, — F.3d —, 2011 WL 2698330, at *2 (1st Cir. July 13,
2011) (internal quotation omitted). “An affirmative finding on each of the three elements
of the test is required to support a finding of specific jurisdiction.” Phillips Exeter Acad.,
196 F.3d at 288. First, the court must decide whether the claim underlying the litigation
directly “relates to or arises out of the defendant’s contacts with the forum.” Id. This
“relatedness requirement” “focuses on the nexus between the defendant’s contacts and
the plaintiff’s cause of action.” Ticketmaster-New York, 26 F.3d at 206. It ensures that
the defendant will not be subject to personal jurisdiction unless its contacts with the
forum state caused the alleged harm. See id. at 207.
Second, the court must determine whether the defendant’s contacts with the forum
“represent a purposeful availment of the privilege of conducting activities in the forum
state, thereby invoking the benefits and protections of that state’s laws and making the
defendant’s involuntary presence before the state’s courts foreseeable.” Sawtelle, 70
F.3d at 1389 (quotations and citation omitted). “[T]he cornerstones upon which the
concept of purposeful availment rest are voluntariness and foreseeability.” Id. at 1391.
Voluntariness exists when a defendant deliberately has engaged in significant activities
within the forum, but not when the defendant’s contacts with the forum are “random,
10

fortuitous, or attenuated” or result solely from “the unilateral activity of another party or a
third person.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174,
2183-84, 85 L. Ed. 2d 528 (1985) (internal quotations and citations omitted).
Foreseeability exists when the defendant’s conduct and connection with the forum state is
such that the defendant “should reasonably anticipate being haled into court there.” Id. at
474, 105 S. Ct. at 2183 (internal quotation and citation omitted).
Finally, if the first two parts of the test for specific jurisdiction are fulfilled, the
court must determine whether the exercise of personal jurisdiction is reasonable in light
of the so-called “Gestalt factors.” Sawtelle, 70 F.3d at 1394. This requires the court to
consider “(1) the defendant’s burden of appearing; (2) the forum state’s interest in
adjudicating the dispute; (3) the plaintiff’s interest in obtaining convenient and effective
relief; (4) the judicial system’s interest in obtaining the most effective resolution of the
controversy; and (5) the common interests of all sovereigns in promoting substantive
social policies.” Id. Even when the lawsuit arises out of the defendant’s purposefully
generated contacts with the forum, therefore, the court may decline to exercise personal
jurisdiction if doing so would be unreasonable and fundamentally unfair. See Burger
King, 471 U.S. at 476-78, 105 S. Ct. at 2184-85; Ticketmaster-New York, 26 F.3d at
209-10.
There is no need for an extended discussion of any of these factors. Here, the only
contact Chambers has had with Massachusetts is the fortuitous listing of this state in the

11

forum selection clause of the Consulting Agreement. As detailed above, while this may
be enough to bind Confederate, it is not enough to compel Chambers to litigate here.
None of the challenged conduct took place in Massachusetts, and the Consulting
Agreement was neither formed nor breached here. See Adams v. Adams, 601 F.3d 1, 6
(1st Cir. 2010) (in a contract dispute, “we look to whether the defendant’s activity in the
forum state was instrumental either in the formation of the contract or its breach”)
(quotations omitted). Moreover, since Chambers is not even a party to the Consulting
Agreement, it cannot be said that he should have anticipated being sued in Massachusetts
by signing the Agreement, or that he in any way availed himself of the privilege of doing
business here. Moreover, this court notes that the parties’ dispute goes well beyond the
Consulting Agreement and involves issues which have no nexus with Massachusetts at
all, such as the parties’ conduct relating to Terny’s original investments, or their activities
as directors.
Terny’s principal argument is that it would be inconvenient for him to litigate
against the Company in Massachusetts, and Chambers elsewhere. This argument is a bit
disingenuous, given that Confederate was more than willing to waive the forum selection
clause in the Consulting Agreement. In any event, the situation where there is
jurisdiction over a company but not its officers is not uncommon — yet it does not create
jurisdiction where none exists. See, e.g., Johnson Creative Arts, Inc., 573 F. Supp. at
1111 (Massachusetts court has jurisdiction over company and one shareholder, but not
another shareholder). Any “inefficient burden on the judicial system” or the parties in
12

litigating in two forums “is insufficient to tip the constitutional balance on the facts of
this case.” Adelson, 2011 WL 2698330, at *6 (quoting Adelson v. Hananel, 510 F.3d 43,
52 (1st Cir. 2007)).
IV. CONCLUSION
For the reasons detailed herein, Chambers did not consent to the jurisdiction of the
Massachusetts courts, and he does not have sufficient contacts with Massachusetts to
support the exercise of this court’s jurisdiction over him. Therefore “Counterclaim
Defendant H. Matthew Chambers’ Motion to Dismiss for Lack of Personal Jurisdiction,”
Docket No. 90, is ALLOWED.
/ s / Judith Gail Dein
Judith Gail Dein
U.S. Magistrate Judge

13