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Scottsdale Capital Advisors Corp. v. The Deal, LLC

United States District Court, D. New Hampshire

September 8, 2017

Scottsdale Capital Advisors Corp. and John Hurry
v.
The Deal, LLC and William Meagher Opinion No. 2017 DNH 186

          MEMORANDUM ORDER

          JOSEPH N. LAPLANTE UNITED STATES DISTRICT JUDGE

         This defamation action turns on whether this court has specific personal jurisdiction over the defendants on the basis of articles written by one and published by the other. The plaintiffs, Scottsdale Capital Advisors Corp. and one of its executive officers, John Hurry (collectively “Scottsdale”), have brought this action based on an alleged injury wrought by a publication, The Deal, LLC, and one of its writers, William Meagher, through dissemination of three articles that, plaintiffs allege, paint them in a false light. The plaintiffs raise four state-law claims: defamation, invasion of privacy, intentional interference with contractual relations, and tortious interference with prospective economic advantage.

         This court has subject-matter jurisdiction under 28 U.S.C. § 1332(a) (diversity). The defendants challenge this court's personal jurisdiction over them, however, and move to dismiss the case on that basis. See Fed.R.Civ.P. 12(b)(2). After holding oral argument, permitting jurisdictional discovery, and considering the parties' supplemental briefing based on that discovery, the court grants the defendants' motion. Scottsdale has failed to establish that defendants have the minimum contacts with New Hampshire required for this court to exercise personal jurisdiction over them in this action consistent with the Fourteenth Amendment's due process clause. Specifically, the plaintiffs have not demonstrated that their claims are related to the defendants' forum-based activities or that the defendants purposefully contacted New Hampshire such that they could expect to answer for their actions here.

         I. Applicable legal standard

         “Personal jurisdiction implicates the power of a court over a defendant . . . . [B]oth its source and its outer limits are defined exclusively by the Constitution, ” namely, the due process clause of the Fourteenth Amendment. Foster-Miller, Inc. v. Babcock & Wilcox Can., 46 F.3d 138, 143-44 (1st Cir. 1995) (citing Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)); U.S. Const. amend. XIV. “To establish personal jurisdiction in a diversity case, a plaintiff must satisfy both the forum state's long-arm statute and the Due Process Clause of the Fourteenth Amendment.” C.W. Downer & Co. v. Bioriginal Food & Sci. Corp., 771 F.3d 59, 65 (1st Cir. 2014). New Hampshire's applicable long-arm statute is coextensive with federal due process limitations, allowing the court to proceed directly to the due process inquiry. See Phillips Exeter Acad. v. Howard Phillips Fund, 196 F.3d 284, 287 (1st Cir. 1999).

         To satisfy the requirements of due process, the defendants must have sufficient “minimum contacts” with the forum “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotations omitted). A court may exercise either general or specific jurisdiction over the defendants. Scottsdale asserts that the court has only specific jurisdiction over the defendants.[1]Specific jurisdiction “is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.” Goodyear, 564 U.S. at 919 (internal quotations omitted). “[T]he constitutional test for determining specific jurisdiction . . . has three distinct components, namely, relatedness, purposeful availment (sometimes called ‘minimum contacts'), and reasonableness.” Adelson v. Hananel, 652 F.3d 75, 80-81 (1st Cir. 2011) (internal quotations and citations omitted).

         Scottsdale bears the burden of demonstrating that these three components are satisfied by “proffer[ing] evidence which, if credited, is sufficient to support findings of all facts essential to personal jurisdiction.”[2] A Corp. v. All Am. Plumbing, Inc., 812 F.3d 54, 58 (1st Cir. 2016) (quoting Phillips v. Prairie Eye Ctr., 530 F.3d 22, 26 (1st Cir. 2008)). “To satisfy the prima facie standard in a specific jurisdiction case, a plaintiff may not rest on mere allegations but, rather, must submit competent evidence showing sufficient dispute- related contacts between the defendant and the forum.” Carreras v. PMG Collins, LLC, 660 F.3d 549, 552 (1st Cir. 2011). The court “view[s] this evidence, together with any evidence proffered by the defendant[s], in the light most favorable to the plaintiff and draw[s] all reasonable inferences therefrom in the plaintiff's favor, ” albeit without “credit[ing] bald allegations or unsupported conclusions.” Id. This approach informs the following factual summary.

         II. Background

         A. Genesis of the action

         This dispute stems from a series of three articles written by defendant Meagher and published by defendant The Deal in its online business journal, The Deal Pipeline, on December 6, 2013, March 20, 2014, and April 16, 2014.[3] In these articles, Meagher reported on an investigation by federal authorities, including the Financial Industry Regulatory Authority (FINRA), into the involvement of Scottsdale, a securities broker-dealer, in the trading of stock in Biozoom Inc.[4]

         The articles follow the course of the alleged investigation and a related lawsuit, which Meagher characterized as a “pump-and-dump case.”[5] Meagher reported that individuals who traded in Biozoom stock through Scottsdale “enjoyed perks that were not available to other Scottsdale clients, ” such as paying a lower percentage per transaction than typical clients, placing orders through instant messaging, and wiring funds to institutions located outside the United States and Argentina, where the clients were located.[6] He cited a source familiar with the investigations as indicating that “several red flags were raised regarding the Biozoom trades at Scottsdale, ” but that “no follow-up occurred at the broker-dealer . . . .”[7]

         Scottsdale filed this action on November 18, 2016, within New Hampshire's three-year statute of limitations for defamation claims. See N.H. Rev. Stat. Ann. § 508:4, II. Scottsdale alleges that all three articles contain false statements about the plaintiffs.[8] Specifically, it contends that the plaintiffs “had not been under any criminal or regulatory investigation at the time Mr. Meagher's articles were published . . . . were not involved in any ‘pump and dump scheme' and never gave special treatment to Biozoom shareholders.”[9]

         B. The parties' contacts with the forum

         Though not dispositive of the personal jurisdiction question for the reasons discussed infra, the court notes, as an initial matter, that none of the parties to this action possesses substantial connections to this state. Meagher resides in California and, by his own account, has never visited New Hampshire.[10] The Deal is a limited liability company formed under the laws of Delaware, with offices in New York, California, and Washington DC.[11] It employs no New Hampshire residents.[12] Its sole member, The Street, Inc., likewise organized under Delaware law, maintains its principal place of business in New York, and has no New Hampshire office.[13]

         Nor do the plaintiffs have any connections to New Hampshire. Scottsdale is an Arizona corporation with its principal place of business in that state.[14] Hurry, one of its executive officers, resides and does business in Nevada.[15] The plaintiffs do not allege that they conduct any business in New Hampshire or on behalf of any New Hampshire-based clients. Simply put, as the plaintiffs conceded at oral argument, they sued in New Hampshire because its statute of limitations does not time-bar their claims.[16]

         The parties agree, therefore, that the court's analysis must turn on the defendants' business-related contacts with the forum. The parties do not dispute that those contacts -- to the extent they exist -- would arise out of The Deal's publication of its online business journal, The Deal Pipeline, and specifically its publication of the three allegedly defamatory articles, to any residents of New Hampshire. The jurisdictional discovery conducted by the parties sketches the contours of that publication in this state.

         The Deal Pipeline is an online business journal.[17]Institutional organizations and individuals (though predominantly the former) must subscribe to The Deal Pipeline to access its full content through The Deal's online portal or to receive email newsletters[18] containing links to articles published in The Deal Pipeline.[19] Because content on The Deal Pipeline sits behind a pay wall, it is accessible only to those with whom The Deal has entered into a subscriber agreement.

         At the time it published Meagher's articles, and in the time since, The Deal has had only one subscriber in New Hampshire -- Dartmouth College.[20] According to The Deal's records, no user accessed these three articles through the Dartmouth subscription.[21] Nor did either of the two users of the Dartmouth subscription who had signed up to receive “The DealFlow Report” at the time the articles were published open the attachments containing links to the March 25 or April 22 articles; and no evidence suggests either opened the attachment containing a link to the December 10 article.[22] Indeed, according to data collected through Google Analytics, [23] not a single user who read these articles through The Deal's online portal was located in New Hampshire.[24]

         Because no evidence suggests that anyone in New Hampshire -- Dartmouth-affiliated or otherwise -- viewed the three allegedly-defamatory articles, the plaintiffs focus on other contacts between The Deal and Dartmouth. For example, The Deal solicited Dartmouth's subscription, and renewals thereof, through emails and telephone calls specifically directed at Dartmouth.[25] Furthermore, during the time period between January 1, 2013 and June 2017, 81 individuals were registered to use The Deal's online portal under Dartmouth's subscription.[26]Approximately 30 to 40 students each year were permitted to access The Deal's online portal via IP authentication (that is, without entering a log-in name or password).[27] The Deal registered a total of 7, 232 “sessions” by Dartmouth users visiting its online portal during this time period.[28] The Deal also communicated directly with between 32 and 48 individuals at Dartmouth by email during this time, [29] including regular circulation of “The DealFlow Report” to the two Dartmouth-affiliated individuals who had signed up for it.

         III. Analysis

         “[T]he constitutional test for determining specific jurisdiction . . . has three distinct components, namely, relatedness, purposeful availment (sometimes called ‘minimum contacts') and reasonableness.” Adelson, 652 F.3d at 80-81 (internal quotations and citations omitted). The court addresses these components in that order, see United States v. Swiss Am. Bank, Ltd., 274 F.3d 610, 621 (1st Cir. 2001) (quoting Phillips Exeter Acad., 196 F.3d at 288), and concludes that the plaintiffs have not made a prima facie showing that this court may exercise personal jurisdiction over the defendants.

         A. Relatedness

         To satisfy the relatedness requirement, a suit must “arise out of, or be related to, the defendant's in-forum activities . . . .” Ticketmaster-N.Y., Inc. v. Alioto, 26 F.3d 201, 206 (1st Cir. 1994). The burden is on the plaintiffs to “show a nexus between [his] claims and the defendants' forum-based activities. Although this is a ‘relaxed standard, ' it nevertheless requires [the court] to hone in ‘on the relationship between the defendant and the forum.'” A Corp., 812 F.3d 54, 59 (1st Cir. 2016). This requirement “ensures that the element of causation remains in the forefront of the due process investigation” and “authorizes the court to take into account the strength (or weakness) of the plaintiff's relatedness showing in passing upon the fundamental fairness of allowing the suit to proceed.” Ticketmaster-N.Y., 26 F.3d at 207.

         Scottsdale focuses its relatedness argument on The Deal's ongoing business relationship in New Hampshire through its subscription agreement with Dartmouth.[30] If this action arose out of that agreement itself -- that is, if this were an action for breach of contract -- the court would evaluate the parties' “‘prior negotiations and contemplated future consequences, along with . . . the parties' actual course of dealing . . . in determining whether the defendant' has minimum contacts with the forum” arising from that contract. Swiss Am. Bank, 274 F.3d at 621 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985)). The existence of the contract, “by itself, cannot automatically establish” the defendants' contacts with the forum giving rise to relatedness, however. Id. It is “but an intermediate step serving to tie up prior business negotiations with future consequences which themselves are the real object of the business transaction.” Id. (quoting Burger King, 471 U.S. at 479) (analyzing minimum contacts in the relatedness context)).

         The contract and The Deal's efforts to obtain it are less relevant in this instance because the plaintiffs' cause of action does not arise from the contract itself. It lies in tort -- specifically, defamation arising from the publication of purportedly defamatory news articles. “The tort of libel is generally held to occur wherever the offending material is circulated, ” because the “reputation of the libel victim may suffer harm even in a state where he has hitherto been anonymous.” Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 777 (1984). The evidence establishes that the particular articles at issue in this case -- the “offending material” -- though theoretically accessible to Dartmouth-affiliated individuals because of the subscription agreement, were never accessed by any such individuals via that agreement, or by any other individual in New Hampshire. Absent any viewing of the allegedly-libelous statements in New Hampshire, the plaintiffs' reputations in New Hampshire cannot have been blemished by the articles' publication.

         The plaintiffs therefore have not met their burden of demonstrating that their claims “directly arise out of, or relate to” the defendants' New Hampshire activity. See Sawtelle v. Farrell, 70 F.3d 1381, 1389 (1st Cir. 1995); see also Christian v. Barricade Books, Inc., 2003 DNH 78, 8-9 (Barbadoro, J.) (relatedness requirement not satisfied where book sold into New Hampshire was returned to the defendant, uncirculated). Even had the plaintiffs carried that burden, their personal jurisdiction argument would fail at the next step.

         B. Purposeful availment

         The purposeful availment element “is only satisfied when the defendant purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefit he receives, to be subject to the court's jurisdiction based on these contacts.” Swiss Am. Bank, 274 F.3d at 624. The Supreme Court has adopted, and the First Circuit Court of Appeals has employed, “an effects test for determining purposeful availment in the context of defamation cases.” Noonan v. Winston Co., 135 F.3d 85, 90 (1st Cir. 1998) (citing Calder v. Jones, 465 U.S. 783, 789 (1984)). This test, unlike that for relatedness, focuses on the location at which the effects of the alleged defamation are directed and where they are felt. Id. It is ordinarily “to be applied only after the ...


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