Petition for Writ of Certiorari — Baker v. Bennett

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92-932 — FILED

;

No. ;

In the Supreme Court of the United States

October Term 1992

Leon C. Baker, Petitioner

J.R. Bennett and Laura Bennett, Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF THE

STATE OF ALABAMA

Arthur R. Miller

Attomey for Petitioner

1545 Massachusetts Ave.

Cambridge, Massachusetts 02138

Tel.: (617) 495-4111

Date: November 20, 1992

QUESTIONS PRESENTED

1. Did an Alabama court’s exercise of

specific jurisdiction over a Floridian (a retired New York

lawyer) based solely on unsolicited long distance

telephone calls made from Alabama to him in New York

violate the Due Process Clause of the Fourteenth

Amendment of the United States Constitution?

2 Was the Due Process Clause of the

Fourteenth Amendment of the United States Constitution

violated when an Alabama court exercised general

jurisdiction over a Floridian (a retired New York lawyer)

in a lawsuit by other Floridians, solely on the basis of the

lawyer’s representation six months earlier of an English

client in a different transaction with different participants,

two Alabamans, which was conducted entirely from New

York by interstate and international correspondence and

telephone calls?

3. Did an Alabama court’s application of Alabama

law to impose damages on a Floridian in an action by

two other Floridians for alleged innocent

misrepresentation and innocent nondisclosure in

connection with a purchase of computers in England that

occurred in New York, when no liability existed under

New York, English, or Florida law, violate the Due

Process Clause of the Fourteenth Amendment and the

Full Faith and Credit Clause of Article IV of the United

States Constitution.

4. Did an Alabama court’s exercise of personal

jurisdiction over a nonresident based on unsolicited

interstate telephone calls from Alabama to the

nonresident in New York impose burdens on interstate

commerce that violate the Commerce Clause of the

United States Constitution?

TABLE OF CONTENTS

QUESTIONS PRESENTED. .......scsssessssssesssesesssssssesensenesees i

TABLE OF CONTENTS. ......cccsssssscssssssessscesssssssssssesenseesees iii

TABLE OF AUTHORITIEG............ccscscsssscssssessesesesssesseeere Vv

OPINION BELOW.........ccccscsssssssssscscssssssscecesersssscsesssesssssesens 1

JURISDICTION .......cccccccscsssscscsssssssersscssssecsesererencasececsereseseres 2

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED. .......ccccscssscsecssessserssesesessesees 2

STATEMENT OF THE CASE.........c:ccccsssssssesseseserenssessere 3

A. The FAC8S......cccccccccoccccsscessesscscecveesscssersccsscessescescecssors 3

B. The Federal Questions Presented For

Review By This Court Were Raised In

The Alabama Trial and Supreme Courts..............00+ 11

REASONS FOR GRANTING THE WRIT........:::s:sss0e 13

POINT I: ALABAMA’S EXERCISE OF

SPECIFIC JURISDICTION

OVER BAKER BASED ON

NOTHING MORE THAN UN-

SOLICITED INTERSTATE

TELEPHONE CALLS FROM

ALABAMA TO BAKER IN

NEW YORK VIOLATED

THE DUE PROCESS CLAUSE

OF THE FOURTEENTH

TABLE OF CONTENTS (Continued)

POINT II: THE EXERCISE OF GENERAL

JURISDICTION OVER BAKER

BASED ON HIS REPRESENTA-

TION OF AN ENGLISH CLIENT

IN A SINGLE TRANSACTION

WITH TWO ALABAMANS THAT

WAS CONDUCTED ENTIRELY

FROM NEW YORK AND WAS

COMPLETELY INDEPENDENT

OF THE TRANSACTION

UNDERLYING THIS LITIGATION

VIOLATED THE DUE PROCESS

CLAUSE OF THE FOURTEENTH

AMENDMENT siasnaniananensanes 25

POINT III: ALABAMA’S APPLICATION OF

ITS OWN LAW TO AWARD

DAMAGES FOR INNOCENT

MISREPRESENTATION AND

INNOCENT NONDISCLOSURE,

FOR WHICH THERE WOULD

BE NO LIABILITY UNDER

THE LAWS OF THE ONLY

JURISDICTIONS HAVING A

NEXUS WITH THE CLAIM,

VIOLATED DUE PROCESS AND

~ POINT IV: ALABAMA’S EXERCISE OF

JURISDICTION VIOLATED

THE COMMERCE CLAUSE................ 35

CI i Gonieennnnsninsicannsinniniinisitiniiipeeisinioenennennns - =

TABLE OF AUTHORITIES

CASES

In re Aircrash Disaster at Gander Newfoundland,

660 F. Supp. 202 (W.D.Ky. 1987).....s:--secssssssnsernseenneeens 18

Allstate Ins. Co. v. Hague, 449 U.S. 302,

101 S.Ct. 633, 67 L.Ed.2d 623 (1981).........sssseeseeees 33

Asahi Metal Co. v. Superior Court of

California, Solano County, 480 U.S. 102, 107

S.Ct. 1026, 94 L.Ed 2d 92 (1987)..........:2000 13, 22, 24, 28

Atchison Topeka & Sante Fe R.R. Co. v. Wells,

265 U.S. 101, 44 S.Ct. 469, 98 LEd. 524 (1924)...... 37

Austad Co. v. Pennie & Edwards, 823 F.2d 223

(Sth Cir. 1987)......sesccssecsssssnsesssneesnnecssnssensessnsssensessnssenscees 14

Baker v. Baker, 111 Idaho 639, 603 P.2d 590

(1979)... sense thencemnaiaanatcinaniiienanniata einen 18

Bennett v. Baker, 603 So.2d 928 (Ala. 1992)........++++ 1

Bibb v. Navajo Freight Lines, Inc., 359 U.S.

§20, 79 S.Ct. 962, 3 L-Ed.2d 1002, (1959).....-..-s+s00- 36

Brent v. American Basketball Association, 432

F. Supp. 71 (D.C. MO. 1977)....-sssssesseesssenessnsensseneeneeee 14

Burger King Corp. v. Rudzewicz, 471 U.S. 462,

105 S.Ct. 2174, 85 L.Ed.2d 529 (1985)........scscccsceseee 17

Caldwell v. Seaboard Sys. R.R., 238 Va. 148,

380 S.E.2d 910 (1989), cert. denied 493 U.S.

1095 110 S.Ct. 1169, 107 L.Ed.2d 1071 (1990) ....... 18

Cartwright v. Braly, 218 Ala. 49, 117 So.

477 (1928)....... sitiesenebinebiendasinninnianitinenapinnneiniignainenemmene 31

Davis v. Farmers Cooperative Equity Co., 262

U.S. 312, 43 S.Ct. 556, 67 L.Ed. 996 (1923)............. 36

Derry v. Peek, 14 A.C. 337 (1888)......ccssssssssssssseseseceees 31

German Auto Inc. v. Tambrello, 565 So.2d 238

(Ala. 1990) suneessiiinnsniaheeanatendsnannibtaninemeneneenene 31

Hanson v. Denckla, 357 U.S. 235, 78 S.Ct.

Ra & SUNUET CUE Detereinnnsinseennnsestesnenennsanssnees 17, 22

Helicoptoros Nacionales de Colombia, S.A.

v. Hall, 466 U.S. 408, 104 S.Ct. 1868,

80 L.Ed.2d 404 (1984).........cccccsssscsssssseseseees 25, 26, 27, 29

Holfield v. Power Chemical Co., 382 F. Supp.

388 (D.Md. 1974) 18

Home Insurance Company v. Dick, 281 U.S. 397,

SO SIA. SSB, 74 LEGS (1GSD).ccecesscsescscsesescsesossers 32, 33

International Shoe Co. v.-Washington, 326

U.S. 310, 66 S.Ct. 154, 90 L-Ed. 95 (1945).............. 17, 21

Jonz v. Garrett Air Search Corp, 490 P.2d 7

1197 (Alaska 1971).....-secssssssssssssssssssessesssssneenssnsssnssssensenes 18

Kulko v. California Superior Court, 436

US. 84, 98 S.Ct. 1690, 53 L.Ed.2d 132 (1978)......... 20

Marchant v. Peeples, 623 S.W.2d 523

(Ark. 1981)....sccssccsssesssscsssssssessnsssnesssecsnssssnecenscensensnesenssenes 14

Mayes v. Leipziger, 674 F.2d 178

(2d Cir. 1982).....c-cvessscsseesseserssssnsssnessnessncsssscnssensenseennsenecs 14

Michigan Central R.R. Co. v. Mix, 278

USS. 492, 49 S.Ct. 207, 73 L.Ed. 470 (1929).soossssses 37

N.Y. Central R.R.Co. v. Johnson, 279

US. 310, 49 S.Ct. 300, 73 L-Ed. 706 (1929)..........++ 8

Pappas v. Middle Earth Condominium Assoc.,

963 F.2d 534 (2d Cir. 1992)......-sssssscsssessessseesessessensensees 9

Phillips Petroleum Co. v. Shutts, 472 U.S.

797, 105 S.Ct. 2965, 86 L.Ed.2d 268 (1985)........0+-++- 34

Rebozo v. Washington Post Co.,

515 F.2d. 1208 (Sth Cir. 1975).....c..scsvsrerssreseersseerenseses 18

Reliance Steel Products Co. v. Watson, Ess,

Marshall, 675 F.2d 587 (3d Cir. 1982).........0-0vesereeees 14

S.D. Leasing, Inc. v. Al Spain & Associates,

277 Ark. 178, 640 S.W.2d 451 (1982)......ccersssseesersees 18

Southern Pacific Co. v. Arizona,

325 U.S. 761, 65 S.Ct. 1515, 89 L.Ed.

Ee) ee 36

Sperandio v. Clymer, 581 S.W.2d

FF Ces CF ieiiniiiinneeninnnninmnmmnniie 14

State ex rel. Deere & Co. v. Pinnell,

G56 Fee GR CI, Ba iiccnsntesernernensccnnsrcennscrnsonscrss 18

Sutton v. Cast-Crete Corporation of

Florida, 197 S0.2d 556 (Fla. 1967)........ssssssssssesssssssees 31

Ultramares v. Touche, 55, N.Y. 170, 174 N.E. 441

(1931).... ee ee eT 31

Viereck v. U.S., 318 U.S. 236 63 S.Ct.

ere 8

Weber v. Mihalis, 633 F.2d 518

ON CI i aititisoniipni aati 18

Worldwide Volkswagen Corp. v. Woodson,

444 US. 286, 100 S.Ct. 559, 62 L.Ed.2d

490 (1980) 13, 20, 23, 28

Wright v. Yackley, 459 F.2d 287

(9th Cir. 1972) EON nea Teme 14

UNITED STATES CONSTITUTIONAL PROVISIONS

Article I, $10.........cscscssssssssessesssssesssssssssssssssssseseesseesesenes 34, 35

Article I], §8........scssscscsssssssseseseressssssssssssssesssseneeseenenes 2, 35, 36

Article IV, §1......cscsscccssssscosssssssecnsescsssscssessssssesssesenens 2, 30, 32

Fourteenth AMendme?t.............ccerreserssesesseses 2,..17, 25, 36

RULES AND STATUTES

PT, ol, een ee D 2

Rule 4.2(a)(2)(1), Alabama Rules of

Cad Pr cecceccccescocenssenseseusnssenssennsnecsversencenesoonsenensoees 3, 18

Rule 5, Alabama Rules of Appellate Procedure...... 11

Rule 59.1, Alabama Rules of Civil Procedure.......... 8, 12

Alabama Code §§6-5-101 through 6-5-103.........0.+++ 3, 31

Arizona Rules of Civil Procedure Rule 4.2(a).......... 18

California Code of Civil Procedure $410.10.............. 18

District of Columbia Code $13-423..........sssssssserees 18

[Illinois Statutes $2-209(C)........cerersrssersssssssssrereneeenenenees 18

Kansas Statutes $6-308(11)...........--ccscsrsssssrsssseresereeeeees 21

Louisiana Statutes $3201...........cssssssssrssssnseesenees 18

Maine Statutes §704-A. iiiahaiemeenniceiieneniinnanene 18

Misrepresentation Act Of 1967 §21.........sscssssssssenseesees 31

Nebraska Statutes §25-536(2).......ssssssssssenssererereeeeeees 18

New Jersey Rule 4:4-5 Civil Practice Rule...............

North. Dakata, Rule 4(h), Rules. of. GwL Praca.

Oregon Rule 4L, Rules of Civil Procedure...............

Pennsylvania Statutes §5322(b)

Rhode Island General Laws §9-5-33(a)

South Dakota Codified Laws $15-7-2(14)...........ss0e0

Tennessee Code §$20-2-214(a)(6).........:sssssssssseesseees

Utah Code §78-2722.

Vermont, Rule 4(e) Rules of Civil Procedure..........

Wyoming Statutes §5-1-107(a)

OTHER

4 Florida Jur. 566

Miller & Crump, Jurisdiction and Choice of Law

in Multi State Class Action after Phillips

Petroleum Co. v. Schutts, 96 Yale L.J.1

Misrepresentation Act of 1967, §2I

60 New York Jur.2d 570-71, 633-36.

Restatement of Restitution §8 (1988)

Restatement (Second) of Contracts 424-25 (1986).......

Street, Law of Torts, 386-87 (6th Ed. 1976)..............

12 Williston, Contracts, 400 (3d Ed.)

In the Supreme Court of the United States

October Term, 1992

Leon C. Baker, Petitioner

J.R. Bennett and Laura Bennett, Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF THE .-

STATE OF ALABAMA

Petitioner Leon C. Baker (“Baker”) prays that a

Writ of Certiorari be issued to review the opinion and

judgment of the Supreme Court of Alabama entered in

these proceedings on July 24, 1992.

OPINION BELOW

The Alabama Circuit Court issued no opinion. The

opinion of the Alabama Supreme Court is reported at

603 So.2d 928 (Ala. 1992) and is set forth at page A-6

of the Appendix. Petitioner applied to the Alabama

Supreme Court for rehearing, which was denied without

opinion.

JURISDICTION

The opinion of the Supreme Court of Alabama was

entered on July 24, 1992. An application for rehearing

was filed on August 7, 1992 and was denied on

September 4, 1992. This Petition for a Writ of

Certiorari was filed within 90 days of the denial. This

Court’s jurisdiction is invoked under 28 U.S.C. §1257(3).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fourteenth Amendment to the United States

Constitution provides in pertinent part:

[Njor shall any state deprive any

person of life, liberty or property,

without due process of law * * *.

Article IV, $1 of the United States Constitution provides

in pertinent part:

Full faith and credit shall be given in

each state to the public acts, records,

and judicial proceedings of every other

state.

Article II, §8 of the United States Constitution provides

in pertinent part:

The Congress shall have Power* * *

To regulate Commerce with foreign

Nations, and among the several States;

and with the Indian Tribes * * *.

The statutory provisions involved are Rule

4.2(a)(2)(D, Alabama Rules of Civil Procedure and

Alabama Code §§6-5-101 through 6-5-103, which are set

forth at pages A-3_ through A-5 of the Appendix.

STATEMENT OF THE CASE

A. The Facts’

This lawsuit arose out of a purchase in June 1981

by plaintiff, J.R. Bennett ("Bennett"), of an interest in

computers located in England from Donald Gibbs, an

Alabama resident, who is not a party to this action (or

to the dispute between the parties). (C14-16) Plaintiff

Laura Bennett is the wife of J.R. Bennett and filed joint

federal income tax returns with him.

record, a transcript of the trial ae i the clerk’s record,

pleadings, motions, and other documents in the

to pages of the transcript are by R (e.g., R32) and to the

clerk’s record by C (e.g, C34). Citations to the to this

petition are by A (e.g. A-21). Plaintiffs’ exhibits are

tea, DS (e.g, P21) and defendants’ exhibits are preceded by

e.g.

D4).

In December 1980, six months before the resale to

Bennett, the seller, Gibbs, and an associate, Johnny

West, had purchased the computers from Atlantic

Computer Leasing, plc. ("Atlantic"), an English

computer leasing company, and its Netherlands affiliate.

Petitioner, Baker, a New York lawyer, had represented

the two European companies in the sale to Gibbs and

West.2 (R102-03, 120-21, 843; PEx 2) When Gibbs

resold half of his interest in the computers to Bennett,

Baker’s only relation to the transaction was the following:

(i) In response to a telephone call initiated

in Alabama by Bennett’s accountants to Baker’s

New York law office, Baker ascertained that his

English client would consent to the sale of part

of Gibbs’ interest to J.R. Bennett.’

(ii) In a second long distance telephone call

initiated in Alabama by Bennett’s Alabama

accountants to Baker’s New York law office,

7As part of his representation, Baker formed a Delaware

corporation, Coleman Leasing Corporation, to execute

Qe ee ee ee

*The accountants also asked Baker whether the price

Bennett was to pay Gibbs was fair. Baker said he believed it was.

(R857)

Baker approved, on behalf of his English client,

the proposed form of assignment from Gibbs to

J.R. Bennett.

(iii) A copy of the executed assignment from

Gibbs to Bennett was received by Baker in

New York, which he then transmitted to his

client in England.

(R172, 857-60) Baker sought no compensation in

connection with any of the above and received none.

(R869)

Bennett claims that there was a third long distance

telephone call from his accountants in Alabama to Baker

in New York, during which Bennett was handed the

telephone and had a 30 second conversation with Baker.

According to Bennett, Baker said that the purchase from

Gibbs would give the Bennetts "a good tax shelter."

Nine years after the sale to Bennett and three years

after all the parties had become residents of Florida,’ the

Bennetts instituted this action in an Alabama circuit

court alleging that they had not received the tax deferrals

they had anticipated from the purchase, because the IRS

had disallowed deductions they had claimed.* (R169,

492, 781-83) The complaint was served on Baker in

Florida.

The Bennetts originally advanced two theories

against Baker. First, that Baker was acting as Bennett’s

lawyer in advising him of the tax consequences of the

purchase from Gibbs and that Baker's opinion

constituted professional malpractice. (C18) The Alabama

trial court granted Baker a directed verdict dismissing

that count. (R941) Second, Bennett contended that

“The Bennetts had become residents of Florida before the

losses on their computer investment. (R83, 93, 514,

745)

a ——ev

Baker’s alleged "opinion" constituted intentional fraud.

The trial judge initially granted a directed verdict on this

count (R675), but she subsequently reinstated it based on

Bennett’s belated testimony at the trial as to the alleged

30 second telephone conversation.’ (R942)

Baker submitted a 60 page memorandum of law

showing that, even if he had proffered the 30 second

gratuitous telephone opinion attributed to him, the

Bennetts were not deceived, because his opinion was

correct. (C660-719) In addition, Baker urged that,

since the accuracy of his opinion was a matter to be

decided by the court, not the jury, the directed verdict

dismissing the intentional fraud count should be

reinstated. The Bennetts did not respond to the

memorandum. The trial court, without adverting to the

7The Bennetts originally based their intentional fraud claim on

a 31 opinion Baker wrote to a third party, but they drop

that because that opinion was written almost two Le

Bennett’s purchase from Gibbs. (C14, 27-57) At that point, the

Bennetts needed something to avoid a directed verdict. Bennett's

tardy testimony concerning the alleged 30 second telephone

conversation was a convenient deus ex machina.

®*The legal conclusions of Baker’s memorandum were concurred

ee ee eee wake Semer

president of the Tax Section of the American Bar Association.

(R238-65, 279-83, 292)

memorandum or the issues it raised, submitted the issue

to the jury. (R941-942)

In closing argument, the Bennetts’ counsel urged the

Alabama jury to "stop lawyers in the biggest law firm in

America," “New York lawyers," "from putting together

abusive tax shelters," “costing the taxpayers 1.5 billion

dollars a year." (R967, 977-978) Despite the persistent

misconduct of the Bennetts’ counsel - even after the

judge warned him that she would declare a mistrial if he

continued to employ improper tactics -- Baker’s mistrial

motions were denied. (R977-78)

The jury returned a general verdict in favor of the

Bennetts for compensatory damages of $440,025 but

awarded no punitive damages. (A-2) Baker moved for

judgment notwithstanding the verdict or for a new trial

or a remittitur. (C943-1018) The trial court never ruled

on the three motions and, under Alabama Rule of Civil

Procedure 59.1, they were deemed denied.

*In New York Central R.R.Co. v. Johnson, 279 U.S. 310, 319

(1929), this Court declared: "The public interest requires that the

court of its own motion, as 2is its power and duty, protect suiters

in their right to a verdict uninfluenced by the of counsel to

passion or prejudice.” Id. at 318 The plain referred to the

defendant as an “eastern railroad," declared that records and

witnesses had been “sent on from New York" for the trial. See also

Viereck v. U.S., 318 U.S. 236 (1943).

On appeal the Alabama Supreme Court held that

Baker was not prejudiced by the pejorative references to

him because the Bennetts’ counsel used these arguments

"primarily" in support of their punitive damages claim.

Since the jury did not award punitive damages, the Court

said, Baker was not prejudiced. (A-25) *°

Although the case was tried on an intentional

misrepresentation theory, the court below affirmed on an

entirely different theory. It held that even though there

was no evidence of any intentional misrepresentation or -

intentional omission to disclose relevant facts, the jury

could have found Baker liable for innocent

misrepresentation or innocent nondisclosure. (A-21-23)

The parties had not addressed either of these theories in

their trial or appellate briefs.

Since the Bennetts had been asserting only

intentional misrepresentation, there had been no dispute

over the applicable law. Alabama, New York, Florida,

and England do not differ with respect to liability for

104 strikingly similar argument was rejected in Pappas v.

Middle Earth Condominium Ass'n, 963 F.2d 534 (2d Cir. 1992).

intentional misrepresentation. But once the Alabama

Supreme Court sua sponte changed the Bennetts’ claim

by holding Baker liable for innocent misrepresentation or

nondisclosure, rather than for intentional misrepre-

sentation, the governing law became critical. Alabama

law differs from that of the other jurisdictions in allowing

recovery for innocent misrepresentation and for innocent

nondisclosure.**

Accordingly once the Alabama Supreme Court

shifted the focus away from intentional fraud to innocent

misrepresentation or innocent nondisclosure, it became

necessary to consider what law was applicable. Baker

sought reargument in order to brief this issue. By

denying the motion, the Alabama Supreme Court de-

clined to consider any law other than its own.** (A-28)

‘Baker's innocent misrepresentation and innocent

nondisclosure, if they occurred, took in New York and, if they

had any effect, it was in Florida. “center of gravity” of the

financed, leased, and located. The computers remained in England

never any intent to transport them to Alabama or

*2Refusal to consider the application of law of other

Th dar: Ea

B. The Federal Questions Presented for

Review By This Court Were Raised In The

Alabama Trial and Supreme Courts.

Baker properly moved in the Alabama trial court to

dismiss for lack of jurisdiction, citing rulings of this Court

limiting the exercise of state court jurisdiction. (C120-

26) Baker’s motion was denied without opinion. (C267-

68) Since the denial was interlocutory, under Alabama

Rule of Appellate Procedure 5, Baker could not appeal

without permission of the trial court, which declined to

grant it.

Under Alabama law (as under federal practice),

notwithstanding a preliminary determination of personal

jurisdiction, the plaintiff must establish at trial the court’s

jurisdiction over the defendant. The Bennetts offered no

proof on jurisdiction. Baker moved for a directed verdict

upon completion of the Bennetts’ case, but the Alabama

trial court granted the motion only as to the professional

malpractice claim.*® (R941) Baker renewed his directed

verdict motion at’ the close of all the evidence. The

court reserved decision. In support of his post-trial

13Tmhe trial court held there was no evidence that Baker had

acted as the Bennetts’ lawyer. It did not discuss jurisdiction. R941

motions, Baker maintained that no evidence had been

submitted that the trial court had jurisdiction over him.

The court did not rule on Baker’s motions within 90 days

and they were deemed denied under Alabama Civil Rule

59.1.

In the Alabama Supreme Court, Baker pointed out

that this Court has held that a state’s long arm

jurisdiction may be exercised only when the nonresident’s

alleged liability arises from the same forum contacts as

provide the basis for jurisdiction. Nevertheless, the

Supreme Court affirmed, holding that Baker was subject

to jurisdiction in Alabama because of his participation as

attorney for Atlantic in connection with its sale to Gibbs

and West even though Baker’s alleged liability to the

Bennetts did not arise from that transaction. (A-19)

Baker’s application for rehearing not only cited this

Court’s jurisdiction decisions but pointed out (a) that

Baker was not subject to the jurisdiction of Alabama’s

courts because he represented his European clients in a

different transaction with two different participants, (b)

the error in applying Alabama law to hold him liable for

innocent misrepresentation or innocent nondisclosure,

and (c) that the jury’s failure to award punitive damages

did not cure the Bennetts’ appeal to regional prejudice.

The Alabama Supreme Court denied rehearing. (A-28)

REASONS FOR GRANTING THE WRIT

This case reflects the dramatic change in the last 25

years in interstate and international business. Commerce

formerly was concerned principally with goods and their

transportation. | Accordingly, many of this Court’s

precedents were designed to establish due process

limitations on state court jurisdiction over nonresidents

based on shipping goods into a state. See, ¢g.,

Worldwide Volkswagen Corp. v. Woodson, 444 U.S. 286

(1980) and Asahi Metal Co. v. Superior Court of California,

Solano County, 480 U.S. 102 (1987). Today a rapidly

growing component of trans-border activity is the

transmittal of information and services by various

electronic means, and this case presents the Court with

an opportunity to provide much needed guidance on the

limits of state court jurisdiction based on communications

and the movement of information services across state

lines.

The need for guidance from this Court is reflected

in the conflicting conclusions reached by various state

and federal courts. A number of cases, like this one,

have involved professionals who were sued in states

distant from those in which they practiced based on

telephonic contacts with the forum state. Many courts

have held that they did not obtain personal jurisdiction

over nonresidents by virtue of telephone calls or even as

a result of visits to the forum state in connection with

out-of-state professional activities, such as litigation.**

The case cited in note 14 are representative. There are

many others. Contrary to these cases, the court below

held that it had jurisdiction over Baker on the basis of

three unsolicited telephone calls to him in New York

““The following cases are representive only: Austad co. v.

Pennie & Edwards, 823 F.2d 223 (8th Cir. 1987) (New York patent

lawyers not subject to suit in South Dakota by virtue of trip to

client's office to inspect documents and “numerous phone calls

between New York and South Dakota"); Reliance Steel Co.

v. Watson, Ess, Marshall, 675 F.2d 587 (3d Cir. 1982) (Missouri law

partnership not to suit in Pennsylvania based on

advertisement in Hubbell Law Directory and unsolicited

telephone call from Philadelphia); Mayes v. Leipziger, 674 F.2d 178

(2d Cir. 1982) (California lawyers who corresponded and had

telephone calls with client in New York not to suit in New

York); Wright v. Yackley, 459 F.2d 287 (9th Cir. 1972) (South Dakota

doctor who furnished copy of prescription to patient who had moved

to Idaho not subject to suit in Idaho for alleged injury from use of

drug); Brent v. American Basketball Association, 432 F. Supp. 71

(D.C. Mo. 1977) (telephone calls to St. Louis by basketball team's

agent recruiting player did not give Missouri jurisdiction over team’s

owner); Marchant v. Peeples, 623 S.W. 2d (Ark. 1981) (Texas

lawyer who had spoken on telephone several times with Arkansas

client not subject to suit in Arkansas); State ex rel. Sperandio v.

Clymer, 581 S.W.2d 377 (Mo. 1979) (en banc) (Utah medical

specialist who exchanged correspondence with Missouri physician who

sought his opinion not subject to suit in Missouri).

one

from Alabama or, alternatively, based on his professional

representation of an English client (conducted entirely

from New York by telephone and air mail six months

earlier) in an entirely separate transaction with different

parties having no connection with this lawsuit.

The present case provides this Court with an

occasion to articulate the constitutional limits on personal

jurisdiction over nonresidents based on the interstate

transmission of information and information services. The

importance of doing so is evidenced by the existing

inconsistent precedents, the prevailing uncertainty, and the

increasing frequency with which the issue arises.

This case is an excellent vehicle for doing so because

it illustrates the grave potential for jurisdictional

overreaching unless this Court establishes appropriate due

process limitations. Baker did not initiate any of the

interstate calls and he did not solicit any of them. Baker

was not seeking, nor did he derive, any benefit from

Alabama’s laws. He was never in Alabama either in

connection with his representation of his English client

nor in connection with the transaction on which this case

is based.

Nonetheless, the Alabama courts violated Baker’s

due process rights by impermissibly extending their

jurisdiction to reach him. They violated his constitutional

rights in two additional respects as well. They imposed

liability on Baker under Alabama law for conduct and

consequences elsewhere for which he would not have

been liable in the relevant states and they permitted the

plaintiffs to appeal to local prejudice against "New York

lawyers" associated with "the biggest law firm in

America."** These infirmities, coupled with the

procedural rulings and nonrulings alluded to above

present a glaring example of distant forum abuse.

Finally, the cumulative effect of what occurred in the

Alabama courts, if other courts follow suit, threatens the

free flow of information and services throughout the

nation and, therefore, unduly burdens interstate

commerce.

**Based on the Alabama judgment, the Bennetts have

garnished Merrill Lynch Pierce Fenner & Smith in Alabama,

demanding that it turn over the securities in Baker’s Florida account,

which are exempt from execution in Florida, Baker’s home state.

POINT I

ALABAMA’S EXERCISE OF SPECIFIC

JURISDICTION OVER BAKER BASED ON

NOTHING MORE THAN’ UNSOLICITED

INTERSTATE TELEPHONE CALIS FROM

ALABAMA TO BAKER IN NEW YORK VIOLATED

THE DUE PROCESS CLAUSE OF THE

FOURTEENTH AMENDMENT.

This Court has held repeatedly that "[t]he Due

Process Clause protects an individual’s liberty interest in

not being subject to the binding judgments of a forum

with which he has established no meaningful contacts,

ties, or relations.” Burger King Corp. v. Rudzewicz, 471

U.S. 462, 471-72 (1985), quoting International Shoe Co.

v. Washington, 326 U.S. 310, 319 (1945). To be subject

to state court jurisdiction, a person must have

“purposefully avail[ed himself] of the privilege of

conducting activities within" that state. Hanson v.

Denckla, 357 U.S. 235, 253 (1958). "This ‘purposeful

availment’ requirement ensures that a defendant will not

be haled into a jurisdiction solely as a result of ‘random,’

‘fortuitous,’ or ‘attenuated’ contacts, or of the ‘unilateral

activity of another party or a third person.” Burger King,

471 US. at 475 (citations omitted).

Alabama’s jurisdiction provision, Alabama Rule of

Civil Procedure 4.2(a)(2)(1), has the declared purpose of

extending Alabama’s jurisdiction over nonresidents to the

limits permitted by the United States Constitution.*®

Alabama pushed far beyond those limits in this case.

None of the Constitutional requirements established by

this Court for a state’s exercise of jurisdiction over a

nonresident was met. Baker never was in Alabama. He

**The importance of defining the constitutional limits on

using interstate communication as a jurisdictional basis is evidenced

by the fact that seventeen states and the District of Columbia have

jurisdiction provisions comparable to Alabama’s. Arizona Rules of

Civil Procedure 4.2(a); California Code of Civil Procedure $410.10;

District of Columbia Code §$13-423; Illinois Statutes §2-209(c);

Louisiana Statutes §3201; Maine Statutes §704-A; Nebraska Statutes

$25-536(2); New Jersey Civil Practice Rule 4:4-5 North Dakota, Rule

of Civil Procedure ones Civil Procedure Rule 4L;

Pennsylvania Statutes §5322(b); Island General Laws §9-5-

33(a); South Dakota Codified Laws §15-7-2(14); Tennessee Code

§20-2-214(a)(6); Utah Code §78-2722; Vermont, Rule of Civil

Procedure 4(¢); and Wyoming Statutes §5-1-107(a).

In addition, although the provisions of at least nine states are

not as explicit as Alabama’s, courts have held that the legislatures

intended to go to the Constitutional limit. Alaska, Jonz v. Garrett

Air Search Corp, 490 P.2d 1197 (Alaska 1971); Arkansas, S.D.

Leasing, Inc. v. Al Spain & Associates, 277 Ark. 178, 640 S.W.2d 451

(1982); Florida, Rebozo v. Washington Post Co., 515 F.2d 1208,

1212 (Sth Cir. 1975); Idaho, Baker v. Baker, 111 Idaho 635, 603 P.2d

590 (1979); Kentucky, In re Aircrash Disaster at Gander

Newfoundland, 660 ae ae (W.D.Ky. 1987); Maryland, Holfieid

v. Power Chemical Co., F.Supp. 388 (D.Md. 1974); Minnesota,

Weber v. Mihalis, 633 F.2d $18 (8th Cir. 1980), Missouri, State ex

rel. Deere & Co. v. Pinnel, 454 S.W. 2d 889 (Mo. 1970) (en banc),

and Virginia, Caldwell v. Seaboard Sys. R.R. Inc., 238 Va. 148, 380

S.E.2d 910 (Va. 1989), cert. denied 493 U.S. 1095 (1990).

sent nothing into Alabama -- not even a single sheet of

paper. Baker’s limited activities relating to the Bennett

purchase took place in New York. None of them were

for Baker’s benefit; they were solely to accommodate

Bennett. Baker represented neither party to the sale and

he did not participate in any of the negotiations. He

neither sought nor received any legal fee or other benefit

from the transaction.

Baker’s conduct was entirely in New York. Baker

did nothing purposefully directed toward Alabama. He

did not need, invoke, or receive the protection or benefit

of Alabama’s laws, and that state had no constitutionally

legitimate interest in providing a forum for this dispute,

which is entirely between Floridians.

At the request of Bennett’s accountants, made in a

long distance call from Alabama to Baker’s New ‘ork

law office, Baker inquired of his English client whether

it would object to the proposed transfer of half of Gibbs’

interest to Bennett. In a second long distance telephone

call from Bennett’s accountants to Baker’s New York law

office, he approved - again on behalf of his English

client -- the form of assignment Gibbs and Bennett

proposed to use. Finally, Bennett’s accountants mailed

a copy of the assignment to Baker’s New York office,

which Baker simply transmitted to his client in England.

Even assuming (a) that there was a third long

distance telephone call initiated by Bennetts’ accountants

before the purchase from Gibbs and (b) that Baker

gratuitously indicated he thought the purchase would

provide the Bennetts with "a good tax shelter," the fact

remains that the call was unsolicited and was to Baker

in New York. Finally, even assuming the opinion were

erroneous, it caused no effect in Alabama, which is

required to permit that state to exercise jurisdiction. See

Kulko v. California Superior Court, 436 U.S. 84 (1978).

Any adverse effect was in Florida, where the Bennetts

resided when they were assessed by the Internal Revenue

Service.

If Baker can be haled before the Alabama courts

simply because he answered his telephone and discovered

an Alabama caller on the line, there is no substance left

to this Court’s statement in Worldwide Volkswagen Corp.

v. Woodson, 444 U.S. 286, 293 (1980) that:

[W]e have never accepted the

proposition that state lines are irrelevant

for jurisdictional purposes, nor could we

and remain faithful to the principles of

interstate federalism embodied in the

constitution* * *.

If Alabama can obtain jurisdiction over a nonresident

merely because telephone calls were made to him from

Alabama, state boundaries have been rendered irrelevant

and there are no practical limits on a state court’s

jurisdiction.’ 7

If a nexus with a state as tenuous as the unsolicited

telephone calls in this case suffices, it will enable suits to

be brought against nonresidents in distant forums without

regard to "traditional notions of fair play and substantial

justice," which this Court has said is impermissible.

International Shoe Co. v. Washington, 326 U.S. 310 (1945).

The burden on out-of-state citizens then can be

compounded, as is graphically highlighted in this case by

the Alabama court’s application of domestic law to

impose [iability that would not have existed in any of the

17Kansas Statutes §60-308(11) makes a nonresident subject to

suit in the state if the nonresident contracts for “communication

services" when the services are managed, operated, or monitored in

Kansas if the nonresident is put on reasonable notice that so

contracting result in extension of jurisdiction. Sprint

Communication Company's terms and conditions for Massachusetts

subscribers cites the statute and states that the customer “may be

subject to jurisdiction in Kansas for any dispute relating to your

telephone service with Sprint."

relevant jurisdictions and its toleration of the Bennetts’

resort to local prejudice against Baker as a "New York

lawyer" associated with the "biggest law firm in America."

See Points III and IV, below.

This Court’s decisions establishing a constitutional

limit on state court jurisdiction were disregarded by the

Alabama courts. In Hanson v. Denckla, 357 U.S. 235

(1958), this Court said:

[I]t is essential in each case that there

be some act by which the defendant

purposefully avails itself of the privilege

of conducting activities within the forum

State, thus invoking the protection of its

laws. (Id. at 253)

This Court added that the benefit to a defendant of

taking advantage "of the privilege of conducting activities

within the forum state" must be "meaningful and

beneficial." Clearly these requirements were not met with

regard to Baker.** The Alabama Supreme Court also

failed to honor Asahi Metal Co. v. Superior Court of

**Far from being protected by or benefitting from Alabama’s

law, Baker had thrust upon him Alabama’s unique laws with respect

to liability for innocent misrepresentation and innocent

nondisclosure. See Point III, below.

California, Solano County, 480 U.S. 102 (1987). This

Court held that a Japanese manufacturer could not be

subjected to suit in California even though it apparently

was fully aware that approximately 20,000 of its valve

assemblies, when incorporated in tires by a Taiwanese

manufacturer, would “end up" in California annually.

Unlike this case, which involves at most three telephone

calls, all initiated by the plaintiffs in a distant state

regarding a single transaction, in Asahi there was a

continuous flow of tires containing the defendant's valves

into California. Nonetheless, this Court said:

The "substantial connection" * * *

between the defendant and the forum

state necessary for a finding of minimum

contacts must come about by an action

of the defendant purposefully directed

toward the forum state. (emphasis in

original) (Id. at 112)

Also ignored by the court below was the requirement

that the defendant must reasonably have anticipated being

sued in the forum state. In Worldwide Volkswagen Corp.

v. Woodson, 444 U.S. 286 (1980), the purchaser of an

automobile in New York, who had an accident while

driving it in Oklahoma, was not permitted to maintain a

product liability suit in Oklahoma against the New York

retailer and the distributor for New York, New Jersey,

and Connecticut. This Court stated:

[T]he foreseeability which is critical to

due process is not the mere likelihood

that a product will find its way into the

forum State. Rather it is that the

defendant’s conduct and connection with

the forum State are such that he should

reasonably anticipate being haled into

court there. (Id. at 297)

The Alabama courts totally ignored the constitutional

limitations on state court jurisdiction established by this

Court. Certiorari should be granted not simply to correct

this error, but also to provide much needed guidance to

all state courts as to the proper construction .of this

Court’s declared limitations on state court power over

nonresidents by defining more precisely the meaning of

"minimum contacts," "purposefully avails," "meaningful and

beneficial," and “reasonably anticipate being haled into

court" in the context of interstate communications and

information services.**

18Since interstate communications are part of the nation’s

“stream of Commerce,” and questions of jurisdiction in that context

were left in a state of considerable confusion by the multiple

opinions in Asahi, certiorari should be granted to provide clarity in

this important area of jurisdiction law.

Perhaps implicitly recognizing that the telephone calls

to Baker, Standing alone, would not be a sufficient basis

for exercising personal jurisdiction, the court below held

that Alabama had jurisdiction over Baker because of his

representation of an English client in the Gibbs and West

purchase. That transaction, however, was completely

separate from the sale by Gibbs to Bennett and was

completed six months prior to the alleged innocent

misrepresentation and innocent nondisclosure involved

in this action.

The court below did not specify whether it was

holding that Alabama had general or specific jurisdiction

over Baker. Whichever the court may have intended,

however, it is clear that neither existed. In Helicopteros

Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984),

this Court pointed out the critical distinctions between

general and specific jurisdiction.

When a claim does not arise out of the defendant’s

forum activities, an action may be maintained against him

or her only if the court has general jurisdiction. That

requires the defendant’s forum activities to be contin-

uous and systematic -- for example, regularly doing or

soliciting business in the state. When the defendant’s

forum contacts are isolated or sporadic, the court cannot

assert general jurisdiction; it can invoke specific or long

arm jurisdiction only if the claim arises from those

contacts.

Helicopteros was a wrongful death action in Texas

against a Colombian corporation arising out of a

helicopter accident in Peru. The defendant provided

helicopter service for oil and construction companies in

South America. The decedents were United States

citizens employed by a Texas consortium. The

Colombian corporation’s contacts with Texas were

significantly greater than Baker’s with Alabama. At the

consortium’s request, the Colombian company’s chief

executive flew to Houston to negotiate the service

contract. The Colombian company had purchased a very

ane ed

large percentage of its helicopter fleet in Fort Worth.

On a number of occasions it had sent pilots, maintenance

employees, and executives to Texas for training. Despite

these activities this Court held that Texas did not have

general jurisdiction over the Colombian corporation,

because they were not continuous and systematic.

It follows that Baker’s role in the Gibbs and West

purchase also was not "a contact of a ‘continuous and

systematic’ nature." Id. at 416. Baker never went to

Alabama. He was not a party to the sale, merely a

lawyer representing an out-of-state client. Not even his

client was present in Alabama. Baker drafted sale and

leaseback agreements relating to equipment located in

England in his New York office. His only contact with

Alabama was sending the agreements there for signature

on behalf of his English client. Gibbs and West

returned the partially executed agreements to New York

to be forwarded for execution by Baker’s clients in

Europe.

Specific jurisdiction was not considered in

Helicopteros because the parties had agreed that the

accident in Peru had not arisen out of the Colombian

corporation’s contacts with Texas. Nor could it have

existed. This Court had held in Shaffer v. Heitner, 433

U.S. 186 (1977), that a state cannot exercise long arm

jurisdiction unless the plaintiffs claim arose out of

defendant’s contacts with the state.

True, had there never been a Gibbs and West

transaction, Gibbs’ sale to Bennett never would have

occurred. But this Court has not permitted use of a "but

for" theory for jurisdiction.

If the Japanese valve manufacturer had not

sold valves to the Taiwanese tire manufacturer for

insertion in tires that might be sold in California,

the motorcycle accident is Asahi never would have

taken place.

If the tri-state dealer had not sold the

automobile to the New York retailer, who sold it

to the owner, who drove it to Oklahoma, the

owner would not have been injured in the

Oklahoma accident in Worldwide Volkswagen.

If the Colombian corporation had not

purchased helicopters in Texas and trained its

pilots and maintenance personnel in Texas, the

ee ee a

crash in Peru in Halicgneras might mever have

occurred.

Yet in all of those cases the state could not exercise

specific jurisdiction. Similarly, if Gibbs and West had not

purchased computers from the English company, Gibbs

would not have resold them to Bennett. As this Court’s

precedents demonstrate, however, that cannot be a basis

for specific jurisdiction over Baker with regard to an

action arising from Bennett’s purchase from Gibbs.

Certiorari should be granted to correct the Alabama

Supreme Court’s unconstitutional assertion of general

jurisdiction over Baker. Beyond that, the decision below

demonstrates the continued confusion among state courts

as to the distinctions between, and constitutional

~ limitations on, general and specific jurisdiction. This case

Provides this Court with an excellent Opportunity to

clarify the differences between the two and the

constitutional standards applicable to each of them, which

the Alabama courts declined to honor.

POINT II

ALABAMA’S APPLICATION OF ITS OWN

LAW TO AWARD DAMAGES FOR INNOCENT MIS-

REPRESENTATION AND INNOCENT NONDIS-

CLOSURE, FOR WHICH THERE WOULD BE NO

LIABILITY UNDER THE LAWS OF THE ONLY

JURISDICTIONS HAVING A NEXUS WITH THE

CLAIM, VIOLATED DUE PROCESS AND FULL

FAITH AND CREDIT.

Alabama’s assertion of jurisdiction to adjudicate a

dispute between Florida residents did not merely cause

defendant great inconvenience and needless expense. It

changed the substantive rights of the parties and altered

the case’s outcome. If the action had been tried in

England, which was the transaction’s center of gravity, in

Florida, where all the parties reside and the alleged

damages were incurred, or in New York, where the

alleged innocent misrepresentation or innocent nondis-

closure occurred, Baker would not have been liable.

Under statutes peculiar to Alabama, however, Baker has

been ordered to pay the Bennetts $440,025.

In most jurisdictions, including England, New York,

and Florida, damages cannot be recovered for innocent

misrepresentation or innocent nondisclosure. Under the

general common law rule,” therefore, Bennett’s Only

available relief would have been to rescind his purchase

from Gibbs.

Alabama uniquely defines "legal fraud" to include

misrepresentations "made by mistake and innocently."

Ala. Code §6-5-101. Its courts have held that the

characterization of innocent misrepresentation as “legal

fraud" permits the aggrieved party not only to rescind but

to recover damages to the same extent as for actual fraud

(except that punitive damages are not permitted).

Cartwright v. Braly, 218 Ala. 49, 117 So. 477 (1928);

German Auto Inc. v. Tambrello, 565 So.2d 238 (Ala.

1990).**

*°See 12 Williston, Contracts $1500 at 400-12 (3d ed. 1970),

Restatement of Restitution §8 (1988); Restatement (Second) of

Contracts 424-25 (1986). Florida: 14 Florida Jur. 566, Sutton v.

Cast-Crete ty » 197 So.2d 556 (Fla. 1967); New York:

60 New York Jur. 570-71, 633-36, Ultramares Corp. v. Touche, 255

N.Y. 170, 186, 174 N.E. 441, 447 (1931); England: Street, Law of

Torts 386-87, (6th ed. 1976), Misrepresentation Act of 1967 §2I,

Derry v. Peek, 14 A.C, 337 (1888).

*1The Alabama statute also defines a tort of “suppression,”

which consists of a failure to disclose what one is legally obligated

to disclose. Ala. Code §6-5-102. The obligation can arise from a

fiduciary or confidential relationship or under some circumstances

does not include nondisclosure made by mistake and innocently, the

Alabama Supreme Court held that innocent nondisclosure did

constitute suppression in this case.

Since Home Insurance Co. v. Dick, 281 U.S. 397

(1930), it has been settled that due process prohibits a

state from applying its domestic law to a controversy

having no relation to the state other than that an action

was brought there.** In Dick, this Court reversed the

application of Texas law in a Texas suit against American

reinsurers of a Mexican insurance company to recover for

a fire loss in Mexico, stating:

All acts relating to the making of the

policy were done in Mexico. All in

relation to the making of the contracts

of re-insurance were done there or in

New York. And, likewise, all things in

regard to performance were to be done

outside of Texas. Neither the Texas

laws nor the Texas courts were invoked

for any purpose, except by Dick in the

bringing of this suit. The fact that

Dick’s permanent residence was in Texas

is without significance. At all times here

material, he was physically present and

acting in Mexico. Texas was, therefore

without power to affect the terms of

contracts so made. Its attempt to

impose a greater obligation than that

agreed upon and to seize property in

22There was no full faith and credit issue in Home Ins. Co.

~y. Dick, because the relevant law was that of Mexico.

payment of the imposed obligation

violates the guaranty against deprivation

of property without due process of law.

(Id. at 408)

The Alabama courts not only completely disregarded

the dictates of Dick but they ignored this Court’s mandate

in Allstate Ins. Co. v. Hague, 449 U.S. 302, 313 (1981),

that “for a state’s substantive law to be selected in a

constitutionally permissible manner, the state must have

significant contact or significant aggregation of contacts,

creating state interests, such that choice of law is neither

arbitrarily nor fundamentally unfair." In Allstate the

forum’s law could be applied because the plaintiff resided

in that state. She was suing on policies that insured the

life of her husband, who had worked in the forum state

for many years before his death.

There was no comparable nexus with Alabama in

this case. The Bennetts were Floridians at the time the

IRS assessed them, and when they served Baker three

years later. Any representation or failure to disclose by

Baker was in New York. Baker had no reason to believe

*2Before the husband’s death, the couple had lived in an

adjacent state a short distance from its boundary

that, because he had received an unsolicited telephone

call from Alabama, he was subject to a body of law so

much at odds with that of New York and Florida.

Nor is the opinion below reconcilable with Phillips

Petroleum Co. v. Shutts, 472 U.S. 797 (1985), which

reversed the application of Kansas law to the claims of

out-of-state plaintiffs in a nationwide class action. This

Court said:

Kansas must have a_ "significant

contact or significant aggregation of

contacts" to the claims asserted by each

member of the plaintiff class, contacts

“creating state interests," in order to

ensure that the choice of Kansas law is

not arbitrary or unfair. Allstate, 449

US., at 312-313. Given Kansas’ lack of

"interest" in claims unrelated to that

State, and the substantive conflict with

jurisdictions such as Texas, we conclude

that application of Kansas law to every

claim in this case is sufficiently arbitrary

and unfair as to exceed constitutional

limits. (Id. at 821)

Nothing offends “traditional notions of fair play and

substantial justice" more deeply than imposing liability

retroactively for an act or omission the law did not

proscribe when it was done. The states were prohibited

from passing ex post facto laws by Article I, Section 10

of the Constitution even prior to the adoption of the Bill

of Rights. Yet this effectively is what a state court does

when it applies its law to an act or omission that does

not engender liability where it occurred.

Certiorari should be granted so this Court can make

clear that what legislatures are prohibited from doing by

Article I, Section 10 of the Constitution courts are equally

prohibited from doing by the Due Process Clause of the

Fourteenth Amendment. ;

POINT IV

ALABAMA’S EXERCISE OF JURISDICTION

VIOLATED THE COMMERCE CLAUSE.

If unsolicited interstate communication can be the

basis for jurisdiction and the automatic application of

forum law, an individual businessperson, doctor, or lawyer

is threatened by having to defend, and being subject to

local law, in every distant forum from which he or she

receives a telephone call, a facsimile transmission, or an

electronic mail message.

That would be an intolerable burden on interstate

commerce. This Court has held that even state laws that

on their face do not discriminate against interstate

commerce violate the Commerce Clause when the effect

is to inhibit or burden interstate commerce. See, e.g.,

Southern Pac. Co. v. State of Arizona, 325 U.S. 761 (1945);

Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520 (1959).

Permitting jurisdiction and choice of law to be based

solely on unsolicited interstate telephone calls or other

forms of communication dwarfs the burdens on interstate

commerce in the cases cited. As early as Davis v.

Farmers Cooperative Equity Co., 262 U.S. 312 (1923), this

Court recognized that subjecting a railroad to lawsuits in

distant forums places an intolerable burden on interstate

commerce in violation of the Commerce Clause. That

Clause was applied to prevent the exercise of jurisdiction

by states without regard to whether the Due Process

Clause of the Fourteenth Amendment would have been

applicable.?4 In Davis the Atchison Topeka & Santa Fe

Railway did not operate in Minnesota but maintained

an Office there for soliciting business. In reversing a

Minnesota judgment against the railroad, this Court said:

But orderly, effective administration

of justice clearly does not require that a

24This Court said: “Since we hold that the Minnesota statute as

construed and applied violates the commerce clause, we have no

occasion to consider whether it also violates the Fourteenth

Amendment." 262 U.S. at 318.

foreign carrier shall submit to a suit in

a State in which the cause of action did

not arise, in which the transaction giving

rise to it was not entered upon, in which

the carrier neither owns nor operates a

railroad, and in which the plaintiff does

not re-side. The public and the carriers

are alike interested in maintaining

adequate, uninterrupted transportation

service at reasonable cost.* * * With

these ends the Minnesota statute, as

here applied, unduly interferes. By

requiring from interstate carriers.general

submission to suit, it unreasonably

obstructs, and unduly burdens, interstate

commerce. Id. at 317.

Surely the public’s interest in avoiding unreasonable

obstructions to and undue burdens on interstate

communications is just as great today as its interest in

avoiding obstructions or burdens on transporting goods

was seventy years ago. If Alabama could exercise

personal jurisdiction because of unsolicited telephone calls

from Alabama by the Bennetts’ accountants made to

Baker in New York, why would a telephone call to a

New York lawyer or doctor (or any other citizen) from

a traveler passing through the Atlanta, Dallas, or Los

Angeles airport not equally subject the recipient to suit

in the courts of Georgia, Texas, or California? If so,

could Georgia, Texas, or California then apply its own

law to impose liability on the recipient, even though there

would be no liability under the law of the state in which

he or she lives or works?

The example differs only in degree from what was

done below. Certiorari should be granted to alleviate the

potential burden on interstate commerce imposed by the

Alabama courts in this case and to prevent the ruling

below from having precedential weight elsewhere.

CONCLUSION

For the reasons stated, this petition for a Writ of

Certiorari should be granted.

20 Mt.

ur R. Miller

Attorney for Petitioner

1545 Massachusetts Ave.

i Massachusetts 02138

Tel.: (617) 495-4111

No.

In the Supreme Court of the United States

October Term 1992

Leon C. Baker, Petitioner

J.R. Bennett and Laura Bennett, Respondents

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF THE

STATE OF ALABAMA

Arthur R. Miller

Attomey for Petitioner

1545 Massachusetts Ave.

Cambridge, Massachusetts 02138

Tel: (617) 495-4111

Date: November 20, 1992

TABLE OF CONTENTS

OF APPENDIX

JUDGMENT APPEALED FROM..ccssssssssssssseeeseeee A-l

ALABAMA STATUTES

$6-5-100 comune wm cd

Se icicisiinaseoincn A-3

§6-5-102. A-3

tics iaielsaatinemiiientcadacummancuamennies A-4

OPINION OF ALABAMA SUPREME COURT... A-5

ORDER DENYING REHEARING severe Ar29

JUDGMENT APPEALED FROM

J.R. BENNETT AND ) ;

LAURA BENNETT,

Plaintiff(s)

LEON BAKER,

)

v. ) CIVIL ACTION

)

Defendant(s). )

JUDGMENT ENTRY

THIS CAUSE came on for trial. The Plaintiff(s),

_J.R. Bennett and Laura Bennett were present and rep-

resented by counsel. The defendant(s), _Leon Baker

were present and represented by counsel. Issue was

joined. The jury is duly impaneled, sworn and charged

according to law and, after hearing the evidence, comes

a jury of good and lawful men and women, to-wit,

James C, Jackson _, and eleven (11) others, who do say

on their oath as follows:

"We the jury find in favor of the Plaintiffs and

against the defendant and assess Plaintiffs’

damages as follows:

IN THE CIRCUIT COURT OF MADISON COUNTY, ALABAMA

Compensatory (actual) damages $440,025 dollars

Punitive damages i $ 0 dollars

It is our intention to assess total damages to the

Plaintiffs at $440,025. dollars.

ls/ James C. Jackson

Foreperson

It is, therefore, ORDERED and ADJUDGED

that the Plaintiff(s) LR. Bennett and Laura Bennett,

have and recover of the Defendant(s), Leon C. Baker,

the sum of __ $440,025.00. Costs are taxed to the

Defendant(s), for which let execution issue.

This the _ 20th day of __ June, 1991 _.

cc: John Haley (s/Jeri Blankenship

Tim Francis Jeri Blankenship

Frank Noojin Circuit Judge

STATE OF ALABAMA a CIRCUIT

MADISON COUNTY CASE NO: CV-89-384

I, Billy D. Harbin, Clerk of the Circuit Court of

Madison County, Alabama, hereby testify that this

is a full, true and correct copy of the original

record as the same appears of record and now on

file in this office.

Witness my hand this the 25th day of June

1991.

ee a ee ae pers = 4

ALABAMA STATUTES

§$6-5-100 FRAUD - RIGHT OF ACTION GENERALLY

Fraud by one, accompanied with damage to the

party defrauded, in all cases gives a right of action.

(Code 1907, §2468; Code 1923, $5676; Code 1940, T.7,

$107.)

§6-5-101 - MISREPRESENTATIONS OF MATERIAL

FACTS

Misrepresentations of a material fact made

willfully to deceive, or recklessly without knowledge, and

acted on by the opposite party, or if made by mistake

and innocently and acted on by the opposite party,

constitute legal fraud. (Code 1907, $4298; Code 1923,

$8049; Code 1940, T. 7, $108.)

§6-S-102. SUPPRESSION OF MATERIAL FACTS

Suppression of a material fact which the party is

_ under an obligation to communicate constitutes fraud.

The obligation to communicate may arise from the

confidential relations of the parties or from the particular

circumstances of the case. (Code 1907, $4299: Code

1923, $8050; Code 1940, T. 7, $109.)

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§6-5-103. DECEIT —- RIGHT OF ACTION

GENERALLY

Willful misrepresentation of a material fact made

to induce another to act, and upon which he does act to

his injury, will give a right of action. Mere concealment

of such a fact, unless done in such a manner as to

deceive and mislead, will not support an action. In all

cases of deceit, knowledge of a falsehood constitutes an

essential element. A fraudulent or reckless

representation of facts as true, which the party may not

know to be false, if intended to deceive, is equivalent to

a knowledge of the falsehood. (Code 1907, §2469; Code

1923, §5677; Code 1940, T. 7, §110.)

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SUPREME COURT OF ALABAMA

SPECIAL TERM, 1992

1910384

Leon C. Baker

Vv.

J. R. Bennett and Laura Jean Bennett

Appeal from Madison Circuit Court

(CV-89-384)

STEAGALL, JUSTICE.

Leon Baker appeals from a judgment entered

pursuant to a jury verdict for J. R. Bennett and his wife

Laura Jean Bennett.

The Bennetts sued Baker, a tax attorney from New

York; S. David Johnston, their personal accountant; and

Johnston’s accounting firm, alleging conspiracy to

defraud, negligence, and malpractice. The Bennetts

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claimed that the defendants had fraudulently induced

them to invest in an improper tax shelter and that the

fraud resulted in their payment of over $700,000 to the

Internal Revenue Service ("IRS") in back taxes and

interest.’ Baker answered the Bennetts’ complaint and

asserted, among other things, that service of process was

defective. Upon Baker’s motion, the trial court quashed

the purported service on Baker and gave the Bennetts 30

days to file an alias summons and complaint. The

Bennetts complied; however, the record is silent as to

whether service was ever completed. The Bennetts filed

a second alias summons and complaint, which was

properly served upon Baker. Baker filed a motion to

dismiss, alleging that the trial court lacked personal

jurisdiction over him; this motion was denied. Baker

then petitioned this Court for a writ of mandamus to

vacate the trial court’s judgment on that motion, and this

Court denied the writ. Baker subsequently filed a

second answer to the Bennetts’ complaint, and the

Bennetts amended their complaint twice in response to

1The Bennetts’ claims against Johnston and Johnston’s

accounting firm were settled; neither of those defendants is a party

to this appeal.

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the defenses raised.

Baker filed two motions for summary judgment, and

both were denied. During the course of the subsequent

jury trial, Baker moved for a directed verdict on all

claims against him; his motion was granted as to the

malpractice claim. The jury returned a general verdict

against Baker for $440,025 in compensatory damages and

no punitive damages. Baker moved for a judgment

notwithstanding the verdict or, in the alternative, a new

trial or a remittitur; that motion was denied by operation

of law. Baker appeals.

The record reveals that the Bennetts owned a large

interest in River Oaks Industries, a mobile home

manufacturing business for which J. R. Bennett served as

president and chief executive officer. Johnston was the

Bennetts’ personal accountant, as well as an advisor for

many of the Bennetts’ business interests. Baker was a

business acquaintance of Johnston. J. R. Bennett had

met Baker briefly in 1980 during a business meeting

unrelated to this case.

In late 1980, the Bennetts were having difficulty

paying the large income tax assessments on their

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successful mobile home manufacturing business. Because

the Bennetts sought to continue expanding the business

and needed to maximize their cash flow, Johnston

suggested that they invest in computer leasing as a tax

shelter. Six months earlier, two of Johnston’s clients had

entered into a computer leasing arrangement

recommended to Johnston by Baker. The clients had

purchased computers and peripheral equipment from

Atlantic Computer Leasing (hereinafter “Atlantic") for

$4,128,473. Atlantic, an English corporation, is a large

supplier of computer systems and specializes in arranged

leases.

Baker had set up several of these transactions for

Atlantic and had arranged the following plan involving

two of Johnston’s clients: IBM sold computers and

equipment to two British entities, which entered into a

leaseback arrangement with Atlantic. Atlantic then

transferred the computers and equipment to Carena,

Inc., its Dutch subsidiary, which resulted in tax

advantages for the company due to certain provisions of

Dutch tax law. Carena sold the equipment through a

non-recourse mortgage to Coleman Leasing Corporation,

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an intermediary entity set up by Baker for this purpose.

Baker was the sole stockholder in Coleman Leasing and

was, in fact, its attorney. The two clients then purchased

the computers and equipment from Coleman Leasing for

$586,034. Their interest was subject to the non-recourse

mortgage of $3,629,039 held by Carena on its initial

purchase of the computers from IBM: however, the

clients had no personal obligation to pay this mortgage.

The clients paid a total of $100,000 in cash, with the

remainder to be paid in escrow to Coleman Leasing

according to a 10-year structured payment schedule.

From these funds, Baker was required to disburse the

monthly payment on the principal due to Carena as well

as fees for Carena’s broker and his own legal fees. After

executing the purchase agreement with Coleman Leasing,

the clients immediately leased the computers back to

Atlantic for a 10-year period. The amount of the clients’

monthly purchase payment to Coleman Leasing was

equal to the amount of Atlantic’s monthly lease payment

to them, so that no money actually changed hands each

month. Under this arrangement, the clients could defer

a certain amount of income tax for accelerated

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depreciation of the computers and for deduction of

interest on indebtedness incurred for acquisition of the

computers. At the end of the 10-year lease period,

Atlantic would have the option to repurchase the

computers and equipment for a nominal amount, then

sell them to less-developed countries that have a need

for older model computers. This residual value of the

computers is Atlantic’s primary source of profit in

computer leasing transactions.

Baker represented Atlantic in the lease

arrangement with the two clients and prepared the

contracts and promissory note documents necessary to

execute the relationship between Atlantic, Carena,

Coleman Leasing, and the clients. The clients were

required to make their monthly payments to Atlantic

through Coleman Leasing.

Don Gibbs, one of the two clients,subsequently

sold his business and no longer needed the full amount

of tax deferral generated by the computer leasing

arrangement. Johnston then offered a one-half share of

Gibbs’s interest to the Bennetts, who were initially

hesitant to imvest in the rather complex transaction.

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Although he was unfamiliar with all the intricacies of the

shelter, Johnston urged the Bennetts to invest and even

lent them most of the "up front" money that was

necessary for them to do so. Johnston told the Bennetts

that they would have to report as income the rents

received from Atlantic on the equipment, but that the

depreciation of the equipment over the first five years

would far exceed this income and would be reported as

a loss. The Bennetts could then, he said, defer payment

of taxes equal to that loss. Johnston also told the

Bennetts that Baker would defend him before the IRS if

there were ever any problems with the leasing

arrangement. The Bennetts thereafter purchased a one-

half share of Gibbs’s interest in the computers for

$1,315,938, with payments to be made to Gibbs each

month.

The Bennetts took state and federal tax deferrals

relating to the transactions in their returns for 1981

through 1983. During those years, River Oaks Industries

was being audited. In early 1985, prior to the filing of

the Bennetts’ 1984 tax return, the IRS notified the

Bennetts that their personal tax returns would be

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audited. The Bennetts were represented at the audit by

one of Johnston’s associates in his accounting firm. At

the end of the initial audit in 1985, the IRS informed the

Bennetts that it was challenging the validity of the

computer leasing, but that it would not go forward on

the matter until a decision was rendered in Coleman v.

Commissioner, 87 T.C. 178 (1986), affirmed, 833 F.2d

303 (3d Cir. 1987), a case pending before the United

States Tax Court at that time. Coleman involved a

similar computer leasing tax shelter that had been set up

by Baker, using Coleman Leasing as the intermediary.

Baker was defending the taxpayer in Coleman.

Johnston discussed the audit with the Bennetts and

advised them to do nothing until Coleman was decided.

Johnston expressed great confidence in Baker’s ability to

win the case and assured the Bennetts that there was

nothing to worry about. Accordingly, the Bennetts

included the deferrals from the computer leasing deal in

their 1984 tax returns, which were then added to the

audit. The Bennetts retained a different accounting firm

to prepare their returns in 1985 and 1986. Upon the

advice of Gary Joyce, a member of Johnston’s accounting

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firm, the Bennetts’ new accounting firm also included

deferrals for the computer leasing in their tax returns for

those years.

In a letter dated August 24, 1987, the IRS informed

the Bennetts that the computer leasing deal was an

“abusive” tax shelter. Specifically, the IRS determined

that the computer equipment had been grossly

overvalued, giving rise to inflated and fictitious losses.

The IRS also questioned whether the computers and

equipment ever actually existed, because the

documentation relating to the computer leasing

transaction did not contain serial numbers for the

machinery. Based on these findings, the IRS assessed

the Bennetts’ back taxes, interest, and penalties totaling

$1,200,000 for 1981 through 1984. The Bennetts

immediately attempted to contact Baker in New York,

but were unable to do so.

After retaining counsel, the Bennetts settled their

State tax debt for $42,411.29 and their federal debt for

$758,783.56. The’IRS dropped its claim for penalties,

because it determined that the Bennetts had relied on

their advisors in investing in the computer leasing deal.

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Baker raises several issues concerning the merits of

the Bennetts’ fraud claims against him; however, we first

address his challenges to several procedural aspects of

the case. Baker argues that the Bennetts’ fraud claim is

barred by the applicable statute of limitations as a

matter of law and that the trial court erred in submitting

the issue to the jury.

Under Ala. Code 1975, § 6-2-3, fraud actions are

considered to have accrued upon the discovery by the

aggrieved party of the facts constituting the fraud.

Generally, the question of when a party discovered or

should have discovered those facts so as to begin the

running of the statutory period of limitations is one

properly left to the jury. Hicks v. Globe Life &

Accident Insurance Co., 584, So.2d 458 (Ala. 1991). The

issue may be taken from the jury and decided as a

matter of law only in cases where the plaintiff actually

knew of facts that would put a reasonable mind on

notice of fraud. Hicks, supra.

Based on the Hicks principle, Baker argues that the

Bennetts’ claim could have accrued at one of three

different times: (1) when they received notice of the

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IRS audit in 1985, (2) when the IRS gave notice in 1986

that it intended to disallow the computer leasing venture

as a tax shelter, or (3) when the Coleman decision,

which involved similar facts and the same type of shelter,

was issued in 1986.

The first letter from the IRS that the Bennetts

received did not indicate that the computer transaction

was suspect, nor was it an assessment for the deductions

taken on the transaction. It was merely notice of the

pending audit, and the Bennetts turned the matter over

to Joyce. There is evidence that the Bennetts knew in

1985 that the tax shelter might come under scrutiny;

however, the record does not indicate that the Bennetts

had grounds to suspect an underlying fraud at that point.

Johnston and Joyce repeatedly assured them that the

shelter would be upheld and continued to include the

deferrals and deductions under the tax shelter in the

Bennetts’ 1984 and 1985 tax returns. The Bennetts

thereafter retained new accountants to prepare their

taxes and included the benefits of the tax shelter in their

returns for those years.

The Bennetts had no contact with Baker during this

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period, but were "guaranteed" by Johnston that the

Coleman case would be resolved favorably and thereby

would eliminate any doubts the IRS might have about

the legitimacy of the tax shelter. The Bennetts did not

know the details and intricacies of Coleman, and there

is no evidence to indicate that they should have. The

Bennetts did not graduate from high school and have no

experience in tax or legal matters. In view of this fact,

it does not appear unreasonable that the Bennetts would

rely on the expertise and assurances of their accountant

during the audit.

The record shows that the Bennetts did not know

until 1987 that Coleman Leasing was controlled by

Baker, that the computers and equipment might not exist

at all, and that the value of those goods might have been

grossly overvalued. It is those elements that formed the

basis of the Bennetts’ claims against Baker, not the mere

knowledge that their returns were being audited or that

the tax shelter could be disallowed. Upon their discovery

of facts pertaining to Coleman Leasing and the valuation

of the computers themselves, the Bennetts filed a timely

complaint. In view of this, we conclude that the

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Bennetts did not have actual knowledge of the alleged

fraud until 1987, within two years of the filing of the

complaint. Whether they should have discovered the

fraud earlier was an issue properly submitted for the

jury’s determination. Hicks, supra.

Baker next argues that the Bennetts’ action should

not be deemed to have been filed in October 1988,

because he was not served with process until July 1990.

An action is not "commenced for purposes of the statute

of limitations if it is not filed with the bona fide intention

of having it immediately served." Mace _v. Centel

Business Systems, 549 So.2d 70 (Ala. 1989). Generally,

the claim may be barred where the plaintiff has

manifested a lack of intent to serve the defendant

promptly after filing. Thompson v. E. A. Industries, Inc.,

540 So.2d 1362, citing Ward v. Saben Appliance Co., 391

So.2d 1030 (Ala. 1980) (statute of limitations not

complied with where plaintiff requested a delay in service

of process after filing complaint). See, also, Pettibone

Crane Co. v. Foster, 485 So.2d 712 (Ala. 1986) (failure

to provide address of defendant was manifest evidence

of intent not to promptly serve process).

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The record shows that all other defendants in this

case were served with process promptly after the filing

of the complaint and that service was attempted on

Baker. The service of process was sent by mistake to a

law office located next to Baker’s office in New York,

and Baker testified at trial that a secretary in that office

received it. Baker immediately acted upon this process

by retaining counsel, who filed an answer and appeared

at a deposition taken in 1989. He also filed a motion to

quash service, which resulted in Baker’s being properly

served by a specially appointed process server. These

facts certainly do not indicate any manifest lack of intent

to promptly serve notice upon Baker; thus, we find no

merit in this argument.

Baker next argues that the judgment against him is

void because the trial court lacked in personam

jurisdiction. In personam jurisdiction is proper if the

defendant has such contacts with the state that

maintenance of the suit does not offend traditional

notions of substantial justice. Alabama Waterproofing

Co. v. Hanby, 431 So.2d 141 (Ala. 1983). A party has

sufficient contacts with the state of Alabama when that

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person, acting directly or by agent, is or may be

personally responsible as a consequence of that person’s

transacting business in this state. A.R.Civ.P. 4.2(a)(2)(A).

The primary inquiry regarding personal jurisdiction is

whether a defendant could have reasonably anticipated

that the effects of his acts would be felt by the plaintiff

in Alabama. Duke v. Young, 496 So.2d 37 (Ala. 1986).

The record shows that as an agent for Atlantic and

as president of Coleman Leasing, Baker intentionally sent

documents to this state to be executed by residents here,

that he obtained promissory notes from Alabama

residents that were payable at Alabama banks, that he

mailed numerous items related to the computer lease

transaction to this state, and that he accepted over

$580,000 in cash payments from Alabama residents for

Coleman Leasing. It is obvious that the repercussions of

these acts would be felt by the Alabama residents

involved; thus, we find no error in the trial court’s

conclusion that it had in personam jurisdiction over

Baker.

We now turn to consider Baker’s challenges to the

merits of this case. He first contends that the trial court

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erred in denying his motion for a directed verdict on the

Bennetts’ claims of intentional fraud and suppression. At

trial, the Bennetts emphasized that the monthly payments

they made to Gibbs for his share in the tax shelter were

directed to Coleman Leasing. They claimed that

Coleman Leasing was set up for Baker’s own profit, with

built-in kickbacks to Johnston. They further claimed that

Baker and Johnston knowingly created a sham tax shelter

and conspired to involve the Bennetts in the scheme in

order to pump money into Coleman Leasing. They

argued that both Johnston and Baker were guilty of

suppressing material facts that would have led to the

discovery of the purported fraud, and they accused Baker

and Johnston of intentionally misleading them as to the

facts underlying the leasing venture.

To prove suppression of a material fact, a plaintiff

must establish (1) that the defendant had a duty to

disclose that fact, (2) that the defendant concealed or

failed to disclose that fact, (3) that the concealment or

failure to disclose induced the plaintiff to act, and (4)

that the action caused injury to the plaintiff, Ala. Code

1975, § 6-5-102. See, also, Gary v. Kirtland, 514 So.2d

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970 (Ala. 1987). Section 6-5-102 does not require proof

of an intent to deceive; rather, a breach of the

defendant’s duty to disclose the suppressed facts is

sufficient to trigger liability. Burlington Northern R.V. v.

Warren, 574 So.2d 758 (Ala. 1990). Under § 6-5-102, a

duty to disclose arises either from a confidential

relationship between the parties or from the particular

facts and circumstances of the case. The question of the

existence of a duty to communicate under § 6-5-102 is

for the jury, which should consider the relationship of the

parties, the value of the particular facts suppressed, and

the relative knowledge of each party. Lowder Realty,

Inc. v. Odom, 495 So.2d 23 (Ala. 1986). Where the

defendant had superior knowledge of the suppressed fact

and the defrauded party has been induced to take action

that otherwise might not have been taken, the obligation

to disclose is particularly compelling. Dominick v. Dixie

Nat'l Life Ins. Co., 809 F.2d 1559 (11th Cir. 1987).

In this case, there is no substantial evidence of a

confidential relationship between Baker and the Bennetts

that would give rise to a duty to disclose the facts

underlying the computer leasing venture. However, the

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record shows that the Bennetts talked to Baker briefly by

telephone in 1985, when they were in Johnston’s office

deliberating over whether to buy into the computer

leasing venture. In that conversation, Baker stated that

computer leasing was a "good tax shelter," but he did not

reveal any of the underlying facts of the operation. It is

undisputed that Baker had superior knowledge of the

actual value of the computers and of the role of

Coleman Leasing in the arrangement and also knew that

these factors could be critical if the IRS questioned the

tax shelter. It is likewise undisputed that the Bennetts

relied on Baker and Johnston’s expertise in entering into

the venture.

In view of these facts, we cannot say that the trial

court erred in submitting the issue of suppression to the

jury. A directed verdict is proper only where there is a

complete absence of proof on a material issue or where

there are no disputed questions of fact on which

reasonable people could differ. National Security Fire &

Casualty Co. v. Vintson, 454 So.2d 942 (Ala. 1984).

Here, there was evidence relating to the elements of

fraud under § 6-5-102, and much of it was highly

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controverted; thus, Baker’s motion for a directed verdict

was properly denied.

Likewise, we hold that the trial court did not err in

failing to direct a verdict against the Bennetts’ claim of

fraudulent misrepresentation under § 6-5-101. Before a

claim under this section may be submitted to the jury,

the plaintiff must establish four elements of fraud: (1)

a false representation (2) concerning a material existing

fact (3) relied upon by the plaintiff (4) who was

damaged as a proximate result. Cherokee Farms, Inc. v.

Fireman’s Fund Ins. Co., 526 So.2d 871 (Ala. 1988). A

false representation, even if made by mistake or

innocently, is a legal fraud and this section applies,

entitling a plaintiff to compensatory damages. Morgan

y. South Central Bell Tel. Co., 466 So.2d 107 (Ala.

1985). Where the evidence reasonably affords an

inference that the plaintiff was defrauded by the

misrepresentation, the case is one for the trier of fact.

Hartselle Real Estate & Ins. Co. v. Atkins, 426 So.2d 451

(Ala.Civ.App. 1983).

Baker argues that the representation he made to

the Bennetts, i.e., that computer leasing was a good tax

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shelter, was not false at the time he gave it in 1981. At

that point, the Coleman case had not been decided and

the shelter had not been disallowed. Baker also correctly

points out that the mere statement of an opinion is

usually not a representation of material fact upon which

an action for legal fraud can be based, particularly when

there is no evidence of an intent to deceive. Reynolds

v. Mitchell, 529 So.2d 227 (Ala. 1988). However, the

Bennetts did not base their claim of misrepresentation

solely on Baker’s opinion of the tax shelter. The

Bennetts also alleged that Baker first misrepresented the

amount of money that would be directed through

Coleman Leasing and then misrepresented the actual and

residual value of the computers involved in the

transaction. The record shows that the Bennetts’

scheduled payments to Gibbs were channeled through

Coleman Leasing for disbursal to Carena and the

underlying parties in the transaction. Baker sharply

disputed the impropriety of any of these disbursals, but

was unable to produce a complete record of the money

he allocated as the attorney in fact and sole shareholder

of Coleman Leasing. Moreover, an expert witness for

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SEE

the Bennetts testified that the value of the computers

was considerably less than Baker reported it to be.

While this testimony was rebutted with detailed evidence

from Baker concerning the true value of the equipment,

it was sufficient to create an inference of fraudulent

misrepresentation.

Baker next argues that the trial court erred in

failing to give certain jury instructions regarding the

issues of suppression and material misrepresentation.

The record shows that during the trial, the Bennetts’

counsel sought to establish that Baker "pocketed" the

funds paid into Coleman Leasing and that the underlying

transaction was a sham. During closing argument, the

Bennetts’ counsel asked the jury to "Stop lawyers in the

biggest law firm in America" and "New York lawyers"

from putting together abusive tax shelters. Baker’s

counsel objected to these comments when they were

made, and the trial court sustained the objections and

gave curative instructions.

In a fraud case, counsel is given broad leeway in

arguing the merits and is allowed in closing argument to

comment on all proper inferences from the evidence

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based on his own reasoning. Seaboard Coastline R.R. v.

Moore, 479 So.2d 1131 (Ala. 1985). When an objection

to an improper comment during argument is sustained

and the trial court instructs the jury to disregard the

remark, the test on appeal is whether the comment was

so prejudicial that its effect was not or could not be

eradicated from the minds of the jurors. Harrison v.

Woodley Square Apartments, 421 So.2d 101 (Ala. 1982).

In this case, Baker insists that the statements made

by the Bennetts’ counsel inflamed the jury and resulted

in an unreasonably high verdict. | However, the

statements in question were made primarily in counsel’s

attempt to win an award of punitive damages for the

Bennetts. The fact that the jury declined to award even

a small amount of punitive damages indicates that the

statements made by the Bennetts’ counsel did not unduly

prejudice their minds against Baker. We therefore find

the statements not so inflammatory as to warrant a new

trial.

Baker next argues that the jury’s award of $440,025

in compensatory damages was unsupported by the

evidence and is, thus, due to be overturned. He

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contends that this amount was computed based on the

amount of taxes the Bennetts were required to pay to

the IRS. Baker points out that the tax benefit to be

gained from the computer transaction was a deferral, not

a deduction, and that the Bennetts would have had to

pay taxes to the IRS in any event. However, the amount

of taxes paid to the IRS by the Bennetts is not the only

element the jury could have considered in making its

award. As previously discussed, there was evidence that

the Bennetts paid an inflated amount for computer

equipment that was grossly undervalued and then lost the

residual value of the equipment. At trial, counsel for the

Bennetts vigorously argued that this evidence should be

a primary element in the jury’s award of damages.

In reviewing a jury verdict, this Court must

determine whether the evidence, viewed in the light most

favorable to the plaintiff, was so preponderantly against

the verdict as to be plainly and palpably wrong and

unjust. Christiansen v. Hall, 567 So.2d 1338 (Ala. 1990).

After examining the evidence contained in the record, we

cannot say that it is so entirely against the verdict as to

constitute plain error; therefore, in accordance with our

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narrow standard of review, we must affirm the jury’s

determination of this issue.

The judgment entered by the trial court pursuant

to the jury verdict is due to be affirmed.

AFFIRMED.

Hornsby, C. J., and Maddox, Shores, Adams,

Houston, Kennedy, and Ingram, JJ., concur.

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Oaktree

THE STATE OF ALABAMA

JUDICIAL DEPARTMENT

IN THE SUPREME COURT OF ALABAMA

September 4, 1992

1910384

Leon C. Baker v. J. R. Bennett and Laura Jean Bennett

County: Madison Circuit Court No.: CV-89-384]J

NOTICE

The application for rehearing filed in this cause is

overruled. No opinion written on rehearing.

STEAGALL, J. - Hornsby, CJ., Maddox, Shores,

Adams, Houston, Kennedy and Ingram, JJ., concur.

I, Robert G. Esdale, as Clerk of the Supreme Court of

Alabama, do hereby certify that the foregoing is a full,

true and correct copy of the instrument(s) herewith set

Out as same appear(s) of record in said Court.

Witness my hand this 4th day of September, 1992.

S/Robert G. Esiiale

Clerk, Supreme Court of Alabama

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.