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Gomberg v. Shosid

July 6, 2006


The opinion of the court was delivered by: Harry S. Mattice, Jr. United States District Judge


Plaintiffs Edward N. Gomberg and Synair Corporation ("Synair") bring this action against Larry L. Shosid and Bell, Nunnally & Martin ("Bell Nunnally"), alleging professional negligence, breach of contract, and fraud.

Before the Court is Defendants' Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(2), 12(b)(3), and 12(b)(6).

For the reasons stated below, Defendants' Motion to Dismiss is DENIED.


Pursuant to Rule 12(b)(2), Defendants move to dismiss this action for lack of personal jurisdiction.

A. Standard

When the issue of personal jurisdiction is raised by way of a motion under Rule 12(b)(2), the plaintiff has the burden of establishing that jurisdiction exists. Theunissen v. Matthews, 935 F.2d 1254, 1458 (6th Cir. 1991). The plaintiff may not meet its burden by simply standing on its pleadings; rather, the plaintiff must set forth, by affidavit or otherwise, specific facts showing that the Court has jurisdiction. Id.

Presented with a properly supported 12(b)(2) motion and opposition, the Court has three procedural alternatives: decide the motion upon the affidavits alone, permit discovery on the motion, or conduct an evidentiary hearing to resolve an factual questions. Id.; Kelly v. Int'l Capital Res., Inc., 231 F.R.D. 502, 508-09 (M.D. Tenn. 2005). If the Court does not conduct an evidentiary hearing, then the plaintiff need only make a prima facie showing that personal jurisdiction exists. Theunissen, 935 F.2d at 1458; Kelly, 231 F.R.D. at 509. In such an instance, the pleadings and affidavits are viewed in the light most favorable to the plaintiff, and the Court will not consider the controverting assertions of the defendant. Theunissen, 935 F.2d at 1458-59; Kelly, 231 F.R.D. at 509. If the Court does conduct an evidentiary hearing, then the plaintiff must establish personal jurisdiction by a preponderance of the evidence. Dean v. Motel 6 Operating L.P., 134 F.3d 1269, 1272 (6th Cir. 1998); Kelly, 231 F.R.D. at 509.

B. Facts

Because the Court has not held an evidentiary hearing, the Court must view the pleadings and affidavits in the light most favorable to Plaintiffs and must not consider facts proffered by Defendants that conflict with facts proffered by Plaintiffs. In accordance with such requirements, the relevant facts are as follows.

Plaintiff Synair is incorporated in Delaware, with its principal place of business in Tennessee. (Court Doc. No. 1-1, Notice of Removal 2.) At the relevant time, Plaintiff Gomberg was the President, Chairman of the Board, and majority shareholder of Synair, and he is a citizen of California. (Id.; Court Doc. No. 1-4, Compl. ¶ I.) Defendant Bell Nunnally is a law firm organized and with its principal place of business in Texas. (Notice of Removal 2.) Defendant Shosid is an attorney employed by Bell Nunnally and is a citizen of Texas. (Id.; Compl. ¶ I.)

Plaintiffs and Defendants became associated when David Mahmood, an investment banker, recommended to Mr. Gomberg that he consider hiring Mr. Shosid and his law firm to represent Synair in connection with a particular transaction. (Court Doc. No. 12-2, Shosid Dep. 7-8.) Mr. Mahmood then arranged a meeting between Mr. Gomberg and Mr. Shosid. (Id. at 8.) After such meeting, Mr. Gomberg retained Bell Nunnally to represent Synair and others in connection with the transaction. On June 22, 2004, Mr. Shosid sent Mr. Gomberg a letter outlining the law firm's billing practices and certain other issues. (Court Doc. No. 8-1, Shosid Aff. Ex. A.) The letter states that the firm is representing Synair in the sale of certain assets, the Edward N. and Helen M. Gomberg Trust (the "Trust")*fn1 in the sale of certain real estate, and Chemical Innovations, Limited ("CIL")*fn2 in the sale of stock. (Id. at 1.) All three components were together referred to as the "Transaction." (Id.)

At the time Bell Nunnally began representing Synair, Synair was in default under its credit facility with AmSouth Bank ("AmSouth"), its senior lender. (Shosid Dep. 18-19.) Synair had determined that it would sell the assets that were the subject of the credit facility -- the assets associated with Synair's Amnicola facility -- in order to pay off AmSouth. (Id. at 19; Shosid Aff. ¶ 13.) Prior to Bell Nunnally's involvement in the transaction, Mr. Gomberg, Synair, and AmSouth had already negotiated certain aspects of the transaction related to the loan agreement between Synair and AmSouth. (Compl. ¶ XI.) The assets associated with the Amnicola facility were to be sold to British Vita, a British company. (Shosid Aff. ¶ 14.) AmSouth would receive a partial repayment of its financing, and Synair would receive the remainder of the proceeds of the sale of assets. (Id.) Synair's obligations to AmSouth going forward, after the sale of the Amnicola facility, would be secured entirely by the assets associated with Synair's other facility in Tennessee -- the Hawthorne plant -- and not by Synair's accounts receivable. (Compl. ¶ XI.) Additionally, the pre-existing subordination agreement would be eliminated in its entirety, meaning that the right of Mr. Gomberg and Synair to receive a certain amount of the proceeds from the sale of the Hawthorne facility would not be subordinate to AmSouth's right to receive the remainder of what it was owed. (Id.) Based on these results of the negotiation, Mr. Gomberg instructed Mr. Shosid to negotiate and draft documentation that accurately reflected the agreement reached between Mr. Gomberg, Synair, and AmSouth. (Id.)

As Mr. Shosid described it, the transaction was, in general terms, a sale of the Amnicola business, which required the negotiation, preparation, and review of the many documents associated with the sale. (Shosid Dep. 42-43.) Because of AmSouth's lien on a portion of the assets, however, Bell Nunnally's representation of Synair also included the negotiation of modifications to the loan agreement, as described above. (Id. at 19.) Consequently, Mr. Shosid reviewed, revised, and negotiated such modifications. (Id. at 19, 74, 76-79.) Mr. Shosid described the negotiation of such modifications to the loan agreement as being "necessary" to, though "not a significant piece of," the transaction. (Id. at 42.) The negotiated modifications to the loan agreement were eventually incorporated into an amended and restated loan agreement. (See Court Doc. No. 12-3, Am. & Restated Loan Agreement.)

Bell Nunnally also issued an opinion letter related to the amended and restated loan agreement in which the firm opined as follows: (1) Synair is a validly existing entity with the power to enter into the loan agreement; (2) the execution and performance of the loan agreement was authorized through the proper channels at Synair and will not contravene any judgment, order, or prior agreement to which Synair is a party; (3) the necessary and relevant documents were executed by Synair and are valid, binding obligations of Synair; and (4) Synair is not a party to any pending litigation, except as already disclosed. (Shosid Aff. Ex. B. 2.) The opinions given by Bell Nunnally were subject to the qualification that the firm expressed no opinions with regard to the laws of the state of Tennessee. (Id. at 3.)

To facilitate the closing of the transaction, Mr. Shosid obtained signature pages executed by Mr. Gomberg and sent those signature pages to AmSouth's counsel in Tennessee. (Id. at 53-54.) The signature pages executed by Mr. Gomberg were eventually attached to documents that were inconsistent with Mr. Gomberg's above-described understanding of the agreement: specifically, the amended and restated loan agreement included a subordination clause giving AmSouth priority over all of Mr. Gomberg's rights and claims. (Compl. ¶¶ XVII-XVIII, XX.) Thus, Mr. Gomberg claims that the amended and restated agreement, which was reviewed, revised, and negotiated by Mr. Shosid, did not accurately memorialize the agreement reached by Mr. Gomberg, Synair, and AmSouth, and that Mr. Gomberg never agreed to sign the subordination agreement.

After the closing of the transaction, AmSouth foreclosed on the Hawthorne facility, prompting Mr. Gomberg and Synair to file suit in the Chancery Court of Hamilton County, Tennessee. (See generally Court Doc. No. 13, Richardson Aff.) Mr. Gomberg and Synair have obtained a temporary injunction prohibiting the foreclosure sale of the facility and are seeking to rescind the amended and restated loan agreement. (Id.) In the alternative, they seek the reformation of the agreement in accordance with Mr. Gomberg's understanding of their agreement with respect to the subordination issue. (Id.)

C. Analysis

In diversity cases, federal courts apply the law of the forum state, subject to constitutional limitations, to determine whether personal jurisdiction exists. Nationwide Mut. Ins. Co. v. Tryg Int'l Ins. Co., 91 F.3d 790, 793 (6th Cir. 1996); Reynolds v. Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir. 1994). Thus, a court must look not only to the forum state's long-arm statute, but also to the due process requirements of the Constitution. Nationwide Mut. Ins., 91 F.3d at 793; Reynolds, 23 F.3d at 1115. Tennessee's long-arm statute, Tenn. Code Ann. § 20-2-214, expands the jurisdiction of Tennessee courts to the full limit permitted by due process. Masada Inv. Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn. 1985). When a state's long-arm statute reaches as far as the limits of the Due Process Clause, the two inquiries merge, and the Court need only determine whether the exercise of personal jurisdiction violates constitutional due process. Aristech Chem. Int'l Ltd. v. Acrylic Fabricators Ltd., 138 F.3d 624, 627 (6th Cir. 1998).

The Due Process Clause permits the exercise of personal jurisdiction over a defendant if either general jurisdiction or specific jurisdiction exists. Id. General jurisdiction exists when a defendant has "continuous and systematic contacts with the forum state sufficient to justify the state's exercise of judicial power with respect to any and all claims . . . ." Kerry Steel, Inc. v. Paragon Indus., Inc., 106 F.3d 147, 149 (6th Cir. 1997). Plaintiffs do not argue that Defendants had continuous and systematic contacts with Tennessee sufficient to confer general jurisdiction; rather, Plaintiffs argue that specific jurisdiction exists. Specific jurisdiction "exposes the defendant to suit in the forum state only on claims that 'arise out of or relate to' a defendant's contacts with the forum." Id. (citing various cases). The Sixth Circuit has developed a three-pronged test to determine whether specific jurisdiction exists over a particular defendant:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection ...

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