Barry D. Stein, M.D. et al. v. Hartford Life and Annuity Insurance Company et al. (2012)

MEMORANDUM OF DECISION RE MOTION TO DISMISS # 111

I

PROCEDURAL BACKGROUND

On August 23, 2011 the plaintiffs Barry S. Stein, Jennifer Vogel–Stein and Barry D. Stein, M.D., LLC filed a nine-count complaint against the defendants Hartford Life and Annuity Insurance Company (“Hartford”);  Hartford Life Insurance Company;  Hartford Financial Services Group, Inc.;   John Culhane (Culhane);  Niche Plan Sponsors, Inc. (“Niche”);  Niche Marketing, Inc. (“Niche Marketing”);  The National Benefit Plan;  419 Trust Administrators, Inc.;   Wells Fargo Bank, N.A.;   Crawford, Wilson & Ryan, LLC and Kevin J. Ryan (“Ryan”).   The gravamen of the complaint is that the plaintiffs were induced by false and/or misleading statements by the defendants to participate in a defined benefit pension plan that was audited by the Internal Revenue Service and ultimately determined to be an abusive tax shelter.   As a result of the audit, the plaintiffs claim they were subject to substantial back taxes, penalties and interest.

As to all defendants, the complaint claims fraud, negligent misrepresentation, fraudulent inducement, negligence, civil conspiracy, breach of fiduciary duty, breach of contract, unjust enrichment, and money had and received.   The defendant Ryan has filed a motion to dismiss the complaint (# 110) arguing that the claims against him should be dismissed for lack of personal jurisdiction in that they fail to satisfy the minimum jurisdictional requirements under General Statutes § 52–59b (the “longarm statute”) and that there are insufficient contacts between Ryan and Connecticut to satisfy due process principles under the Fourteenth Amendment to the United States Constitution.   The plaintiffs have filed an objection to the motion (# 129).   The court held an oral and evidentiary hearing on the motion on March 22, 2012.

II

STATEMENT OF LAW

Under Practice Book § 10–31, a motion to dismiss may be brought on the grounds that the court lacks jurisdiction over the person.  Zizka v. Water Pollution Control Authority, 195 Conn. 682, 687 (1985).  “A motion to dismiss ․ properly attacks the jurisdiction of the court, essentially asserting that the plaintiff cannot as a matter of law and fact state a cause of action that should be heard by the court ․ A motion to dismiss tests, inter alia, whether, on the face of the record, the court is without jurisdiction.”  (Internal quotation marks omitted.)  Beecher v. Mohegan Tribe of Indians of Connecticut, 282 Conn. 130, 134 (2007).  “[T]he Superior Court ․ may exercise jurisdiction over a person only if that person has been properly served with process, has consented to the jurisdiction of the court or has waived any objection to the court's exercise of personal jurisdiction.”   (Internal quotation marks omitted.)  Kim v. Magnotta, 249 Conn. 94, 101–102 (1999).   In this matter, the defendant Ryan is a nonresident of the state of Connecticut.  “If the defendant challenging the court's personal jurisdiction is a foreign corporation or a nonresident individual, it is the plaintiff's burden to prove the court's jurisdiction.”  Cogswell v. American Transit Ins. Co., 282 Conn. 505, 515 (2007) (citing Knipple v. Viking Communications, Ltd, 236 Conn. 602, 607 (1996)).

“The motion to dismiss ․ admits all facts which are well pleaded, invokes the existing record and must be decided on that alone ․ Where, however, as here, the motion is accompanied by supporting affidavits containing undisputed facts, the court may look to their content for determination of the jurisdictional issue ․” (Internal quotation marks omitted.)  Ferreira v. Pringle, 255 Conn. 330, 346–47 (2001).   Additionally, “[w]hen a motion to dismiss for lack of personal jurisdiction raises a factual question which is not determinable from the face of the record, the burden of proof is on the plaintiff to present evidence which will establish jurisdiction.”  Cogswell v. American Transit Ins. Co., supra, 282 Conn. 515.   However, “[i]n this regard, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader.”  Id. at 516.  “When issues of fact are necessary to the determination of a court's jurisdiction, due process requires that a trial-like hearing be held, in which an opportunity is provided to present evidence and to cross-examine adverse witnesses.”  Unisys Corp. v. Dept. of Labor, 220 Conn. 689, 695–96 (1991).

III

DISCUSSION

The defendant Ryan has brought his motion to dismiss on alternate grounds.   First, that the plaintiff has failed to comply with the requirements of General Statutes § 52–59b (the “long-arm statute”).   Second, that the court's exercise of jurisdiction would violate constitutional principles of due process.  Knipple v. Viking Comm., Ltd, 236 Conn. 602, 606 (1996).   Constitutional due process requires that a “[defendant] have certain minimum contacts with [the forum state] such that maintenance of the suit does not offend traditional notions of fair play and substantial justice.”  (Internal quotation marks omitted.)  Cogswell v. American Transit Ins. Co., 282 Conn. 505, 523 (2007).  “The due process test for personal jurisdiction [then] has two related components:  the ‘minimum contacts' inquiry and the ‘reasonableness' inquiry ․” Id. at 524.   Under this test, the exercise of personal jurisdiction is limited to persons having “minimum contacts” with the state.  Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985);  International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

A

Complaint and the Affidavit of the Defendant Ryan

For purposes of consideration of the defendant Ryan's motion, the court considers well-pleaded all the allegations of the complaint and construes them in the manner most favorable to the plaintiff.  Cogswell v. American Transit Ins. Co., supra, 282 Conn. 516.   It also accepts the affidavit of the defendant Ryan appended to the motion to dismiss.  Ferreira v. Pringle, supra, 255 Conn. 346–47.   Ryan's motion was dated October 7, 2011.   The plaintiff's filed, and were granted, a motion for extension of time (# 112) so as to respond to the motion.   On December 29, 2011, the plaintiff's filed their objection to the motion (# 129) but did so without appending a memorandum of law or any supporting affidavits.¹  In their objection, the plaintiffs noted that where there is an issue of fact as to the determination of the court's jurisdiction, the parties must be given an opportunity to present evidence and cross-examine witnesses.   As part of their objection they further requested time to perform limited discovery and to have a hearing on the issue of jurisdiction.   However, the plaintiffs never made a formal motion for an extension of time to conduct discovery.   A request for adjudication of the motion to dismiss (# 136) was not made until January 17, 2012 and the hearing on the motion to dismiss which the plaintiffs had requested was not held until March 22, 2012.   This provided the plaintiffs with nearly three months from the date of their objection, and almost six months from the date of the defendant's motion, to conduct any discovery which they may have desired.   Despite this, at the hearing, the plaintiffs presented no affidavits either in support of their position or to contradict that of the defendant.   Moreover, they only offered into evidence an opinion letter authored by Ryan, but failed to do so through a competent witness, an affidavit or the agreement of counsel.   Hence, at the hearing, the court relied solely on the allegations of the complaint and the affidavit of the defendant Ryan.

The complaint itself generally alleges the following.   A defined benefit pension plan was provided to the plaintiffs through The National Benefit Plan and its plan sponsor, Niche.   Niche Marketing is alleged to have facilitated the sales of the plan by marketing it through insurance companies, certified public accountants and tax attorneys.   This included the plaintiffs' accountant, Culhane along with Bruce Hirshfield (Hirshfield) of Hartford, Connecticut who sold the Niche Plan to the plaintiffs.

Culhane and Hirshfield represented the investment plan as compliant with the Internal Revenue Code and that it included tax benefits for the plaintiffs.   Complaint, ¶ 25.   The plaintiffs contend that Culhane and Hirshfield concealed or failed to disclose important information to the plaintiffs such as that the money invested by the plaintiffs was used to pay large commissions to the sales agents;  that Internal Revenue Code section 419 plans had consistently been successfully attacked by the IRS and that the IRS perceived the 419 plans offered by the defendants as abusive tax shelters.   Complaint, ¶ 28.   The plaintiff's claim that in marketing the Niche Plan, Culhane and Hirshfield provided them with materials which included an opinion letter written by Ryan that was issued to Niche “as a way of legitimizing how the Plan complied with the Internal Revenue Code.” Complaint, ¶¶ 27.

From the complaint and affidavit, it is clear that at all times relevant to the complaint, Ryan was a Pennsylvania resident who worked as an attorney in West Chester, Pennsylvania for the defendant law firm of Crawford, Wilson & Ryan, LLC (“CWR”).  See Complaint, ¶¶ 15, 16;  Affidavit of Kevin J. Ryan, Esq. (“Ryan Aff.”), ¶¶ 4, 13.   CWR was engaged by Niche, which was located in Newport Beach, California, to provide legal opinions regarding the federal tax treatment of the plan known as a Welfare Benefit Trust.   Ryan Aff., ¶ 14.   As an attorney for CWR, Ryan issued an opinion letter to Niche dated June 16, 2005 which stated that the opinions contained therein were addressed solely to Niche, and that any taxpayers who sought to rely upon the opinions were expressly instructed to seek tax advice based upon their particular circumstances from an independent tax advisor.   Ryan Aff., ¶¶ 15, 16.   Ryan's involvement with the letter and the plan ceased upon the issuance of the letter.   He had no direct involvement with Barry D. Stein, Jennifer Vogel–Stein or the Barry D. Stein, M.D., LLC Welfare Benefit Plan and gave no opinion as to the federal or state tax consequences to the plaintiffs in connection with participating in such plan.   Ryan Aff., ¶ 20.

The uncontradicted affidavit submitted by the defendant Ryan evidences that he practices law exclusively in Pennsylvania and has never been licensed to practice law in Connecticut.   He has not, and does not, solicit or transact business in Connecticut nor does he own, use or possess real property here.   The opinion letter was drafted in Pennsylvania and he sent it exclusively and directly to Niche in California.   In sending the letter to Niche, he did not authorize that office to use it in any marketing promulgated by it.   See generally, Ryan Aff.

B

Longarm Jurisdiction

As noted above, the defendant Ryan is a nonresident of Connecticut.   The criteria for the exercise of personal jurisdiction over nonresidents is set forth in General Statutes § 52–59b(a) which brings within its purview individuals who in person or through an agent:

(1) Transacts any business within the state;  (2) commits a tortious act within the state, except as to a cause of action for defamation of character arising from the act;  (3) commits a tortious act outside the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if such person or agent (A) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (B) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce;  (4) owns, uses or possesses any real property situated within the state;  or (5) uses a computer, as defined in subdivision (1) of subsection (a) of section 53–451, or a computer network, as defined in subdivision (3) of subsection (a) of said section, located within the state.

From a review of the allegations of the complaint and the affidavit before the court, it is clear that Ryan does not transact business in this state under § 52–59b(a)(1).   Although the opinion letter may have been presented to the plaintiffs, it was done so through intervening actors who were not agents of Ryan, nor did they have his authorization to do so.   The letter was authored by Ryan in Pennsylvania, sent directly (and only) to his client in California and for the sole purpose of addressing the inquiry made to his firm by the client.   There is no evidence he was advised or was aware that the letter would be presented and/or used to solicit sales in Connecticut or that he purposefully availed himself of the privilege of conducting activities within this state with the intention of invoking the benefits and protections of its laws.  J. McIntyre Machinery, Ltd., v. Nicastro, 131 S.Ct. 2780 (2011);  see also Gaudio v. Gaudio, 23 Conn.App. 287, 298–99 (1990).

Nor can it be said that he committed a tortious act within the state under § 52–59b(a)(2).   Following the issuance of the letter, Ryan had no further involvement with its use by Niche or any of the other defendants.   Any acts committed by them were separate and apart from any actions of Ryan.

As to § 52–59b(a)(3), the court finds no evidence or inference that Ryan has committed “a tortious act outside the state causing injury to person or property within the state.”   There is nothing to indicate that the defendant regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in Connecticut, or, that he expected his acts to have consequences in the state and derive substantial revenue from interstate or international commerce.

The remaining sections of the statute are also inapplicable in that Ryan did not, and does not own, use or possesses real property situated within the state (§ 52–59b(a)(4)), nor has he used a computer or a computer network located in Connecticut (§ 52–59b(a)(5)).

C

Due Process

The defendant has argued in the alternative that there are insufficient contacts between Ryan and Connecticut to satisfy due process principles under the Fourteenth Amendment to the United States Constitution.   Reading the allegations of the complaint favorably to the plaintiffs and examining the affidavit before the court, the defendant's argument is well founded.

State courts may exercise personal jurisdiction over nonresident defendants only if there are certain “minimum contacts” between the state and the defendant.  International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).  “[T]he constitutional due process standard requires that, in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.”  (Citations omitted;  internal quotation marks omitted.)  Cogswell v. American Transit Ins. Co., supra, 282 Conn. 523.   “The due process test for personal jurisdiction has two related components:  the ‘minimum contacts' inquiry and the ‘reasonableness' inquiry.”  Id. at 254.   In order to address these components our courts have recognized that there are two types of personal jurisdiction.  “Either specific jurisdiction or general jurisdiction can satisfy the constitutional requirement of sufficient minimum contacts between the defendant and the forum.   A state court will have specific jurisdiction over a nonresident defendant whenever the defendant has purposefully directed [its] activities at residents of the forum ․ and the litigation [has] result[ed] from alleged injuries that arise out of or relate to those activities.”  (Citations omitted;  emphasis in original.)  Id.;  Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, (1984).   Alternatively, in determining whether minimum contacts exist, a state can exercise “general jurisdiction” over a defendant when the defendant has had continuous and systematic contacts with the state.  Id.

“Due process demands more, however, than the existence of minimum contacts between the defendant and the forum state.   Once minimum contacts have been established, the second stage of the due process inquiry asks whether the assertion of personal jurisdiction comports with traditional notions of fair play and substantial justice—that is, whether it is reasonable under the circumstances of the particular case.”  (Citrations omitted;  internal quotation marks omitted.)  Id. at 525.

In this case, from a review of the complaint and affidavit as set forth in more detail above, it cannot be said that the defendant had either minimum contacts or any sort of continuous and systematic general business contacts with the state of Connecticut.   Nor could it be said that it was foreseeable to the defendant that he would subject to being brought into court in this state as he did nothing to purposefully avail himself of the privilege of conducting activities in Connecticut and thereby invoke the benefits and protections of its laws.  J. McIntyre Machinery, Ltd v. Nicastro, supra.   To subject the defendant to the jurisdiction of this court would offend the traditional notions of fair play and substantial justice.  Cogswell v. American Transit Ins. Co., supra, 282 Conn. 523.

III

CONCLUSION

Reading the complaint in the light most favorable to the plaintiffs, and having considered the affidavit submitted to the court, the complaint as to the defendant Ryan is dismissed for lack of personal jurisdiction.   The plaintiffs have failed to establish that the defendant has met the minimum jurisdictional requirements necessary under General Statutes § 52–59b.   Moreover, there are insufficient contacts between Ryan and this state to satisfy due process principles under the Fourteenth Amendment to the United States Constitution.   As such, it would offend traditional notions of fair play to subject the defendant to the jurisdiction of this court.

BY THE COURT

Shaban, J.

FOOTNOTES

FN1. The text of the objection does make reference to General Statutes § 52–59b and one case citation to the issue of the right to present evidence at a hearing on the motion..  FN1. The text of the objection does make reference to General Statutes § 52–59b and one case citation to the issue of the right to present evidence at a hearing on the motion.

Shaban, Dan, J.