Opposition Brief — Scruggs v. Daynard

No. 02-421 nae eee 02

IN THE

Supreme Court of the United States

RICHARD F. SCRUGGS and

SCRUGGS, MILLETTE, BOZEMAN & DENT, P.A., _

Petitioners,

v.

RICHARD A. DAYNARD,

Respondent.

On PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FirST CIRCUIT

BRIEF IN OPPOSITION

ANTHONY M. DONIGER

Counsel of Record

EDWARD J. BARSHAK

JEFFREY S. STERN

REGINA E. ROMAN

DarreL C. WAUGH

SUGARMAN, ROGERS,

BARSHAK & COHEN, P.C.

Attorneys for Respondent

101 Merrimac Street

Boston, MA 02114-4737

(617) 227-3030

176738 ce

COUNSEL PRESS

(800) 274-3321 + (800) 359-6859

iia aint,

TABLE OF CONTENTS

Table of Cited Agtnorites 2... io. isc ce eewes il

Reasons for Denying the Petition ............... l

I. The First Circuit Correctly Applied

Traditional Principles Of Agency In

Attributing The Activities Of The Motley

Defendants In Massachusetts To The Scruggs

Defendants, And In Finding That Those

Activities Conferred Personal Jurisdiction

Consistent With The Due Process Clause. .. y

A. The Petitioners’ Contentions ........ 2

Ree CII CIO in ieee ees 3

Il. The First Circuit Correctly Determined That

The “Substantial Influence” Test Of Donatelli

v. National Hockey League Is Not

The Exclusive Test For Imputation Of

Jurisdictional Contacts And Does Not Apply

In The Circumstances Of This Case. ...... 9

A. The Donatelli “Substantial Influence”

Requirement, On Its Face, Arose Out Of

Considerations Applicable In General

Po | a rr 10

B. The Donatelli Holding Applies To

“Unincorporated Associations,” Not To

Partnerships Or Joint Ventures. ...... 11

ESSE eye tip ee OR ene ao an ee 13

=_

tl

TABLE OF CITED AUTHORITIES

Page

Cases:

American Construction Co. v. Jacksonville T & K.

W. Railway Co., 148 U.S. 372 (1893) ......... l

“Automatic” Sprinkler Corp. of America v. Seneca

Foods Corp., 361 Mass. 441, 280 N.E.2d 423

(Mast. 1974) i 6s +03 4622 ab kaos +

Donatelli v. National Hockey League, 893 F.2d 459

(iat Coe. FRED ok 4 kai veces ee passim

E.I. Dupont de NeMours & Co. v. Rhodia Fiber &

Resin, 197 F.R.D. 112 (D. Del. 2000), aff'd in part,

appeal dismissed in part by, E.I. DuPont de

Nemours and Co. v. Rhone Poulenc Fiber and

Resin Intermediates S.A.S., 269 F.3d 187 (3d Cir.

2UG1) 60 cease eee Ry ete Tene

Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46

F.3d 138 (ist Ci SO si eee.

Glater v. Eli Lilly & Co., 744 F.2d 213 (1st Cir. 1984)

oeoeeeeeeeeeeeeeeee eee we ew eee er eer eee eee eee

Inn Foods, Inc. v. Equitable Coop. Bank, 45 F.3d

594 (in Cis 1998 Bocca. Ca

International Shoe Co. v. Washington, 326 U.S. 310

(RDG) oo bcc vdsseveees , ees Ghana

iil

Cited Authorities

Mass. School of Law at Andover, Inc. v. American

Bar Association, 142 F.3d 26 (1st Cir. 1998) ...

Meyers v. The Bennett Law Offices, 238 F.3d 1068

fils Cie, 2000)... e esse esse eens es eeeees

Rush v. Savchuk, 444 U.S. 320 (1980) ....-------

Virginia Military Institute v. United States, 508 U.S.

UNE) Faces ee bree dass rier se eweee sees

Statutes:

Massachusetts General Law c. 223A, | aoe

Massachusetts General Law c. 223A, § 3a ...----

Rule:

RE yh ice nae ve eee r cere eee ess

Other Authorities:

Restatement (Third) of Agency, § 401

(tentative draft No. Eo cae beta san eee ness

Uniform Partnership Act, Section9 .....-----++-:

Uniform Partnership Act, ee ee

Page

12

1

REASONS FOR DENYING THE PETITION

A petition for a writ of certiorari, under the rules of

this Court, “will be granted only for compelling reasons.”

Sup. Ct. R. 10. The petitioners attempt to overcome this

hurdle by fundamentally distorting the language and logic

of the opinion below.' They do not, however, nor could they,

allege true conflict between the Circuit Courts of Appeal or

any conflict with an opinion of this Court. Indeed, only by

mischaracterizing the holding below as adopting an

“expansive new test for imputing jurisdictional contracts”

(Petition, p. 3) do the petitioners purport to even approach

the standard required for allowance of certiorari petitions.

Yet, as demonstrated in detail below, the First Circuit engaged

in a careful, fact-based analysis in this case, applying familiar

jurisdictional standards and methods, and the Petitioners have

utterly failed to demonstrate any “compelling reason” to

justify the relief sought.’

-

1. While the petitioner’s statement of the Factual Background

of the case is, at best, incomplete, a further recitation of the facts

relevant to the resolution of the jurisdiction issue before this Court

is not necessary since a thorough description of those facts is

contained in the opinion of the First Circuit. (App. 4-13).

2. An additional factor strongly disfavoring allowance of the

present petition is the interlocutory nature of this dispute. While this

Court has unquestioned jurisdiction to review interlocutory

judgments, it has also been well recognized that “this Court should

not issue a writ of certiorari to review a decree of the Circuit Court

of Appeals on appeal from an interlocutory order, unless it is

necessary to prevent extraordinary inconvenience and embarrassment

in the conduct of the cause.” American Construction Co.

v. Jacksonville T & K. W. Railway Co., 148 U.S. 372, 384 (1893).

The Scruggs defendants have been expressly invited by the First

(Cont'd)

2

I. The First Circuit Correctly Applied Traditional

Principles Of Agency In Attributing The Activities

Of The Motley Defendants In Massachusetts To The

Scruggs Defendants, And In Finding That Those

Activities Conferred Personal Jurisdiction Consistent

With The Due Process Clause.

A. The Petitioners’ Contentions

The petitioners have alleged that the decision of the First

Circuit Court of Appeals “adopted a test that far exceeds in

scope any precedent of this Court or any Court of Appeals

— and that indeed runs contrary to the First Circuit’s own

previous decisions.” (Petition, p. 14). Specifically, the

petitioners argue that by rejecting the “substantial influence”

test set forth in Donatelli v. National Hockey League, 893

F.2d 459 (1st Cir. 1990), the decision below “dramatically

erodes (and almost completely eviscerates) the requirement

of purposeful availment.” (Petition, p. 16). The substance of

the claim being made to this Court, and the sole premise for

which the extraordinary relief of certiorari is sought, is that

the First Circuit has somehow abandoned all common-law

doctrines of agency, and set out a new, unprecedented and

untethered test, namely whether a “sufficient relationship

exists under the Due Process clause to permit the exercise of

jurisdiction. . . .” (App. 28). As demonstrated below, the First

(Cont'd)

Circuit to develop a factual record and, if that record allows, to

challenge jurisdiction at a later time. (App. 41-42). Based on the

lengthy procedural history to date, it is only fair to assume that the

Scruggs defendants will attempt to do precisely that. Therefore, even

if there were merit to the Petitioners’ contentions, the issues raised

would be far more appropriately treated on a full evidentiary record

after a final judgment. See, e.g., Virginia Military Institute v. United

States, 508 U.S. 946 (1993).

3

Circuit did nothing of the sort. Rather, it wrote a well-reasoned

decision, rooted in familiar common-law principles of agency

and well-established constitutional limits of due process.

B. The Opinion Below

The First Circuit Court of Appeals’ decision is a careful

step-by-step analysis of the issues, an analysis which led the

Court unerringly and inevitably to the finding that the petitioners

were subject to personal jurisdiction in Massachusetts.

Preliminarily, the court below observed that the District Court

(Young, J.) had selected the “prima facie” method for dealing

with the motion to dismiss for lack of personal jurisdiction.

This method is “the most conventional” of the various

possibilities. Foster-Miller, Inc. v. Babcock & Wilcox Canada,

46 F.3d 138, 145 (1st Cir. 1995). Noting that neither party had

objected to that choice of method and “therefore, the Scruggs

defendants have waived any objection to the application of the

prima facie method,” the First Circuit expressly adopted the

same method. (App. 16). Consistent with that method, while

the plaintiff has the burden of making a prima facie showing;

the Court “must accept the plaintiff’s (properly documented)

evidentiary proffers as true for the purpose of determining the

adequacy of the prima facie jurisdictional showing.” Foster-

Miller, 46 F.3d at 145. (App. 17). The Court must take such

facts “as true (whether or not disputed) and construe them in

the light most congenial to the plaintiff's jurisdictional claim.”

Mass. School of Law at Andover, Inc. v. American Bar

Association, 142 F.3d 26, 34 (1st Cir. 1998). The court must

also “add to the mix facts put forward by the defendants, to the

extent they are uncontradicted.” Jd. (App. 17).

ee

4

The First Circuit next proceeded to conduct a de novo

review of the District Court’s application of the prima facie

standard to the facts before it. The First Circuit began with

an analysis of the Massachusetts long-arm statute,

Massachusetts General Laws c. 223A, § 3, which provides

personal jurisdiction where a defendant has “acted directly

or by an agent, as to a cause of action .. . arising from the

[defendants’]. . . transacting any business in” Massachusetts.

G.L. c. 223A, § 3a. Noting the opinions of the Supreme

Judicial Court of Massachusetts which interpret this statute

“as an assertion of jurisdiction over the person to the

limits allowed by the Constitution of the United States,”

“Automatic” Sprinkler Corp. of America.v. Seneca Foods

Corp., 361 Mass. 441, 280 N.E.2d 423, 424 (Mass. 1972),

the First Circuit proceeded directly to the Constitutional

analysis. (App. 19-20). This analysis focused on whether the

Motley defendants’ contacts with Massachusetts (which were

clearly sufficient to justify the exercise of personal

jurisdiction over the Motley defendants, who did not

challenge jurisdiction) could be imputed to the Scruggs

defendants, and whether the sum of any such imputed

contacts and any direct contacts of the Scruggs defendants

established the necessary “minimum contacts” with

Massachusetts to support a finding of personal jurisdiction.’

3. Before proceeding with its analysis of the factual record

concerning the nature of the relationship between the Motley

defendants, the Scruggs defendants, and Daynard, the Court correctly

rejected the Scruggs defendants’ contention, repeated in their petition

to this Court, that an earlier First Circuit decision, Donatelli v.

National Hockey League, set forth the exclusive test for determining

the propriety of imputation of contacts. The Court’s analysis of

Donatelli is discussed herein at pages 9-12.

5

Turning to the critical issue of imputation, the Court

formulated the key questions as follows:

First, we address whether the defendants were in

any sort of agency relationship. Second, we discuss

whether the Scruggs defendants initially authorized,

or later ratified, the Motley defendants’ actions.

(App. 26).

In answering the first question in the affirmative, the First

Circuit relied on familiar statutory and common-law principles

of agency, including the doctrine of partnership, or joint venture,

by estoppel, as set forth in Section 16 of the Uniform Partnership

Act and codified in the states of Massachusetts, Mississippi and

South Carolina, the states where the parties reside or have

offices. The Court specifically found that it need not determine

whether the facts alleged definitively establish the existence of

a formal partnership or a joint venture between the Scruggs

defendants and Motley defendants, since these facts were clearly -

sufficient to establish an apparent agency relationship and, in

particular, an agency by estoppel under the Restatement (Second)

of Agency. (App. 27-28). It is in that context that the following

language (which is at the core of Petitioner’s claim) must be

understood:

Even if the defendants’ relationship were to fall

slightly outside of the confines of these specific

doctrines, the question before us is whether a

sufficient relationship exists under the Due Process

Clause to permit the exercise of jurisdiction, not

whether a partnership, joint venture, or other

particular agency relationship between the two

defendants exists. We think it consistent with the

Due Process Clause to attribute to the Scruggs

6

defendants the Motley defendants’ retention of,

and certain interactions with, Daynard where, as

Daynard alleges, they have led Daynard and the

public to believe they were joint venturers. That

is a different issue from whether, in a dispute

between the two firms, a joint venture agreement

could be enforced. (App. 28-29).

In context, the meaning is clear. Contrary to the petitioner’s

overwrought contentions that the First Circuit has “established

a precedent that exceeds the outer limits of constitutional due

process” (Petition, p. 10), and that the Court has announced

some new, and highly subjective, test untethered to any

established legal principle, the Court broke no new ground at

all.* It simply applied the same prima facie test which the district

court purportedly applied, and held that, at the very least,

Daynard makes out a case of agency by estoppel. The language

from the opinion quoted above, on which the petitioners place

so much emphasis, simply means that it is not and was not

necessary for the First Circuit to determine the precise nature

of the agency relationship, or how it might rule in a dispute

between the two law firms. Instead, the Court recognized that

under fundamental principles of agency law, the factual record

was more than sufficient to make the requisite jurisdictional

showing, namely that: ;

In Boston, Patrick of Ness, Motley hired Daynard,

that Daynard reasonably understood Patrick to be

4. Certainly, there is ample precedent in the Federal Court for the

imposition of personal jurisdiction based on the attribution to a principal

of in-forum contacts of his agent, including an apparent agent.

See, e.g., Meyers v. The Bennett Law Offices, 238 F.3d 1068, 1073

(9th Cir. 2000); E.J. Dupont de NeMours & Co. v. Rhodia Fiber & Resin,

197 FR.D. 112 (D. Del. 2000), aff'd in part, appeal dismissed in part

by, E.I. DuPont de Nemours and Co. v. Rhone Poulenc Fiber and Resin

Intermediates S.A.S., 269 F.3d 187 (3d Cir. 2001).

7

acting on behalf of a joint venture or other

agency relationship between Ness, Motley and

Scruggs, Millette and that Daynard relied on this

understanding by providing his services to both

defendants. (App. 33).

The First Circuit further held that the same underlying

facts which supported the basic finding of agency by estoppel,

as well as other record facts detailed by the Court, also

support the “conclusion that the Scruggs defendants

subsequently ratified the Motley defendants’ conduct.”

(App. 33). This ratification was appropriately treated by the

First Circuit as an independent basis for the exercise of

personal jurisdiction over the Scruggs defendants.

Even without actual or apparent authority, “a person may

ratify a prior act done by another ... by conduct that is

justifiable only on the assumption that the person so

consents.” Restatement (Third) of Agency, § 401 (tentative

draft No. 2001) (App. 33). Under Massachusetts law,

“ratification of an agent’s acts may be express or implied.”

Inn Foods, Inc. v. Equitable Coop. Bank, 45 F.3d 594, 597

(1st Cir. 1995). (App. 34). As it had done in its analysis of

agency by estoppel, the Court detailed the facts supporting a

valid claim for ratification, including the following:

The Scruggs defendants had many opportunities

to disavow a relationship with Daynard or to

clarify the relationship. For example, they could

have rejected his assistance or accepted it only

on certain conditions. Instead, according to

Daynard, they repeatedly encouraged and accepted

his assistance and during several conversations

agreed to pay him in the form of a share of the

8

fees generated. When Daynard wrote his first

letter to Scruggs in July 1997 confirming the

fee arrangement, Scruggs remained silent... .

By knowingly accepting the benefits of the

transaction initiated in Massachusetts, the Scruggs

defendants ratified Patrick’s act of hiring and

retaining Daynard on behalf of both firms, which

ultimately gave rise to this lawsuit. (App. 35-36).

It is noteworthy that the Petition is virtually silent about

the First Circuit’s ratification analysis. That is significant,

because, quite clearly, the court below saw ratification as a ee

separate basis for imposition of jurisdiction. (App. 33-36). Thus,

even if there were merit in the Petitioner’s attack on the analysis

based on agency by estoppel (and there is not), jurisdiction is

independently satisfied by the acts of ratification, about which

the Petitioners have little, if anything, to say.

The only remaining question, which the Court termed “the

easier question in this case,” (App. 36), was whether the

“minimum contacts” test of International Shoe Co. y.

Washington, 326 U.S. 310, 316 ( 1945), was met. Applying the

familiar tri-partite analysis, the Court readily found that there

was sufficient relatedness, purposeful availment and

reasonableness under the Gestalt factors. With respect to the

second prong, “purposeful availment,” the First Circuit noted

that the District Court’s reasoning, as to that test, was based

only on the Scruggs defendants’ direct contacts, which it had

found insufficient. While not addressing the propriety of this

conclusion, the First Circuit observed that those direct contacts

by the Scruggs defendants when combined with the physical

presence in Massachusetts of Mr. Patrick, of Ness, Motley, and

the “ongoing relationship” between the Motley defendants and

Daynard, which was “properly attributed to the Scruggs

defendants,” clearly established that the Scruggs defendants had

f

9

“engaged in. . . purposeful activity related to the forum that

would make the exercise of jurisdiction fair, just or

reasonable.” Rush v. Savchuk, 444 U.S. 320, 329 (1980).

(App. 39).°

In short, the First Circuit Court of Appeals did not launch

itself into unchartered territory. Rather, it issued a decision

firmly rooted in the law of agency and constitutional due

process.

II. The First Circuit Correctly Determined That The

“Substantial Influence” Test Of Donatelli v. National

Hockey League 1Is Not The Exclusive Test For

Imputation Of Jurisdictional Contacts And Does Not

Apply In The Circumstances Of This Case.

The District Court’s decision was indisputably based its

view that Donatelli v. National Hockey League, 893 F.2d

459 (ist Cir. 1990), governed the case. Under Donatelli,

“the barometer for control ... is whether or not the

association exercised substantial influence over the members’

decision to carry on the in-forum activities which constitute

relevant ‘minimum contacts.’” Jd. at 469. (App. 80-81).

Finding that the Scruggs defendants lacked the requisite

“substantial influence,” the District Court allowed the motion

to dismiss. (App. 82).

It is clear that the First Circuit simply disagreed with

the District Court’s conclusion:

Although Donatelli aids our inquiry, we conclude

that its substantial influence test is not the

5. The Court’s treatment as to relatedness and reasonableness

is self-evident from the opinion below and is not the focus of attack

by the Petitioners.

10

exclusive test for attribution of conduct. It does

not control the matter before us here, where the

questions are whether the Scruggs defendants

were in an actual or apparent agency relationship,

or at least held themselves out to be in a joint

venture or other agency relationship with the

Motley defendants, and whether the Scruggs

defendants ratified the Motley defendants’

conduct. (App. 22). (emphasis supplied).

For the reasons set forth below, the First Circuit correctly

ruled that its own earlier decision in Donatelli does not

govern this case.

A. The Donatelli “Substantial Influence” Requirement,

On Its Face, Arose Out Of Considerations Applicable

In General Jurisdiction Cases. —

Donatelli was a suit by professional hockey player

against the National Hockey League (“NHL”) challenging

aspects of the NHL draft and its failure to declare him a free

agent in Donatelli, 893 F.2d at 462. He sued the NHL in

Rhode Island, where it had no direct contacts, and the dispute

had nothing to do with any Rhode Island transactions. It was,

accordingly, a claim based on alleged general jurisdiction,

and the sole basis for the claimed jurisdiction was alleged

Rhode Island contacts by the Boston Bruins, which operated

a minor league hockey team in Providence. Jd. The Court

expressly noted that “although minimum contacts suffice

in and of themselves for specific jurisdiction under

International Shoe, the standard for general jurisdiction is

considerably more stringent.” Donatelli at 463 (quoting

Glater v. Eli Lilly & Co., 744 F.2d 213, 216 (1st Cir. 1984)).

/

11

After reciting some of the relevant legal history, the Court

said the following:

It is against this chiaroscuro backdrop that

we must attempt to formulate a method for

determining when, if at all, general in personam

Jurisdiction is conferred over an unincorporated

association which does not itself conduct

significant activities within the forum. Jd. at 465

(emphasis supplied).

There simply is no doubt that Donatelli’s logic, and

holding, are grounded in the “more stringent” requirements

imposed in general jurisdiction cases. The opinion below

clearly recognized an obvious truth — that the Donatelli

Court’s “focus” was.on general jurisdiction cases. (App. 24).

Equally important, the First Circuit explained —

convincingly and at length — why specific jurisdiction cases,

such as that at issue herein, simply do not pose “the same

risk of unfairness.” (App. 25).°

B. The Donatelli Holding Applies To “Unincorporated

Associations,” Not To Partnerships Or Joint

Ventures.

As previously noted, the question at issue in Donatelli

was whether contacts by one NHL team (the Bruins) could

be imputed to an unincorporated association (the NHL).

The First Circuit started its analysis in Donatelli by looking

at the relationships between corporate parents and

subsidiaries, and noted that where personal jurisdiction is to

6. The Court reasoned that the risk of unfairness lurks when

the in-forum activities of an agent bear no relationship to the activities

of the principal that give rise to a lawsuit. (App. 24-25).

12

be imputed to a parent, a “plus factor” is required. Donatelli,

893 F.2d at 465-66. Turning to partnerships, the Donatelli

Court stated that, “[t]he general rule is that jurisdiction

Over a partner confers jurisdiction over the partnership,”

citing a number of cases, as well the Uniform Partnership

Act, Section 9. Jd. at 466. The Donatelli Court carefully

distinguished partnerships from corporations, pointing out

that “a partnership, unlike a corporation, possesses no

institutional existence apart from its partners. . . . To attribute

the partners’ scope-of-business contacts to the partnership,

therefore, is not only permissible, but mandated.” Id. at 467.

(emphasis supplied).

Having surveyed that legal landscape, the Court in

Donatelli then observed that “unincorporated associations

are unlike corporations . . . or partnerships. . . .” Jd. It is for

iat reason, the Court held, that constitutional constraints

required a showing of “substantial influence” over the

member’s in-forum activities. The present case, however,

does not involve an unincorporated association, but rather

alleges an apparent joint venture or agency relationship.

The First Circuit, therefore, properly declined to apply the

test formulated in Donatelli to address the amorphous

relationship between members of an unincorporated

association to the more direct agency relationship alleged in

this case.

13

CONCLUSION

For the reasons set forth above, the Petition for Writ of

Certiorari should be denied.

Respectfully submitted,

ANTHONY M. DoniGER

Counsel of Record

EDWARD J. BARSHAK

JEFFREY S. STERN

REGINA E. ROMAN

DarreLt C. WAUGH

SUGARMAN, ROGERS,

BARSHAK & CoHEN, P.C.

Attorneys for Respondent

101 Merrimac Street

Boston, MA 02114-4737

(617) 227-3030 ‘