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Schonau-Riedweg v. Rothschild Bank AG

Appeals Court of Massachusetts, Suffolk

June 17, 2019

CORINNA von SCHÖNAU-RIEDWEG & another[1]
v.
ROTHSCHILD BANK AG & others.[2]

          Heard: September 14, 2018.

         Civil action commenced in the Superior Court Department on December 27, 2012.

         A motion to dismiss was heard by Thomas P. Billings, J.; motions for summary judgment were heard by Mitchell H. Kaplan, J.; the case was tried before Edward P. Leibensperger, J., and the entry of judgment was ordered by him.

          Myles W. McDonough (Philip A. O'Connell, Jr., also present) for the plaintiffs.

          R. Miles Clark, of the District of Columbia, for Rothschild Bank AG.

          A. Neil Hartzell for Continuum Energy Technologies, LLC, & others.

          Present: Hanlon, Sullivan, & Desmond, JJ.

          SULLIVAN, J.

         Corinna von Schonau-Riedweg (von Schonau), a Swiss citizen, inherited a considerable fortune in the stock of Novartis International AG, a Swiss pharmaceutical company, upon her mother's death in 2002. She turned for advice to Baron Wilfrid von Plotho, a director of Rothschild Bank AG (Rothschild, RBZ, or bank), a Swiss bank, who suggested that he would assist in managing and investing her inheritance. She agreed, and von Plotho proposed, among other things, that she invest in various companies seeking private equity investors. Among the investments recommended were two Massachusetts-based companies, Continuum Energy Technologies, LLC (CET), a science-based technology company, and C Change Investments, LLC (CCI), a venture capital firm. CET and CCI claimed to be on the cusp of scientific breakthroughs that would, among other things, change the composition of base metals.[3] Von Schonau and her holding company, Ebur Investments, LLC (collectively, von Schonau), invested approximately $39 million in these two companies. When her investments proved worthless, she sued (among others) CET, CCI, Rothschild, von Plotho, John Preston (a founder of both CET and CCI), and Michael Porter (a manager of CET).[4]

         Default judgment entered against von Plotho and his holding company, ARA Management Corporation (ARA Management).[5] After extensive motion practice, in which a judge of the Superior Court was deluged with a voluminous record and multiple briefs, Rothschild was dismissed for lack of personal jurisdiction. Later, a different judge granted summary judgment for CET, CCI, and Porter, and for Preston with respect to the CET- and CCI-related claims against him.[6] Remaining claims concerning two other companies and Preston's involvement with those companies went to trial, resulting in a defendants' verdict.

         Von Schonau appeals from so much of the final judgment as dismissed Rothschild for lack of personal jurisdiction, entered judgment for CET (and for Preston and Porter on the CET-related claims against them) on statute of limitations grounds, and entered summary judgment for CCI and Preston on the merits. Von Schonau does not appeal from the jury verdict. We vacate so much of the judgment as dismissed Rothschild for lack of personal jurisdiction, concluding that von Schonau has made a prima facie showing that von Plotho was Rothschild's agent, such that von Plotho's contacts with Massachusetts could be attributed to Rothschild. We remand for an evidentiary hearing or trial on the issue of personal jurisdiction. In all other respects, the judgment is affirmed.

         Background.

         We summarize the evidence relevant to the dispositive motions in the light most favorable to von Schonau, reserving additional facts for later discussion. See Cepeda v. Kass, 62 Mass.App.Ct. 732, 737-738 (2004) (personal jurisdiction). See also Boazova v. Safety Ins. Co., 462 Mass. 346, 350 (2012) (summary judgment). Because the sequence of events is relevant to both personal jurisdiction over Rothschild and the applicability of the statute of limitations to the CET-related claims, we summarize the facts related to CET with particular attention to chronology. We summarize the facts concerning CCI's conduct separately.

         1. Von Plotho, Rothschild, and von Schonau's investments in CET.

         In 2002, von Schonau inherited stock in Novartis worth approximately 573 million Swiss francs, an amount the parties estimate to be worth approximately $500 million or more in today's dollars. Von Plotho, a Swiss and German citizen, was an employee of Rothschild, and a long-time acquaintance of von Schonau's. While employed by Rothschild, von Plotho approached von Schonau about diversifying her holdings, selling some unspecified (but substantial) portion of her Novartis shares, and moving her money to Rothschild. Von Plotho advised her to invest in both CET and CCI.

         In early 2003, von Schonau met with von Plotho at a Rothschild office in Switzerland. Thereafter, in 2003 and 2004, she opened a total of six accounts at Rothschild. Only two of those accounts are at issue here. Account number 20200 (20200 account) was designated for private equity investments. Account number 12000 (12000 account) was designated for investment in European bonds, although it was also later used for private equity investments.

         Von Schonau signed an "Asset Management Mandate" for the 12000 account in January 2003.[7] She also signed an "Extension of the Asset Management Mandate," which stated:

"In addition to the above provisions of the Asset Management Mandate, the Account Holder gives the Bank the express authority to perform non-traditional investment types in its own discretion (such as for example Hedge Funds or similar investment instruments) including investment instruments which do not fall within the definition of the standard banking investment types pursuant to the Guidelines of the Swiss Bankers' Association" (emphasis added).

         In May 2003, von Schonau opened the 20200 account and signed an "Asset Management Mandate" that did not include the above-quoted extension for nontraditional investments. Von Schonau paid fees to Rothschild in connection with both accounts. Although Rothschild submitted affidavits stating that private equity investments were not permitted for bank-managed assets (at least not without the written direction of the client), there is no indication in the record that Rothschild communicated this to von Schonau.

         At the same time, in Massachusetts, Preston and a scientist named Christopher Nagel were working on establishing a new company called Atomic Ordered Materials LLC (AOM). Incorporated in 1999, AOM (later called CET)[8] was in the business of "researching, developing, and attempting to commercialize experimental technologies based on electromagnetic chemistry and modification of the electronic structure of elements." In somewhat plainer English, the company's goal was to change the composition of base metals for commercial purposes.

         At some point in 2003, von Plotho was introduced to Preston. In October 2003, von Plotho traveled to the Boston area to meet with Preston and others in Massachusetts regarding CET. Von Plotho was Preston's house guest for at least part of that trip. According to minutes from the meeting, "It was concluded that Baron von Plotho will investigate the possibility of a financing through one of his clients. If this is successful, it will satisfy the needs of the company." All told, over the next seven years, von Plotho made five separate visits to Massachusetts with von Schonau to investigate and monitor private equity investments in CET, CCI, and other companies.

         After the October 2003 meeting, Preston sent a letter to von Plotho at his Rothschild business address in Zurich, to which he attached a description of CET "that should be appropriate for your discussion with the potential investor." By December 31, 2003, von Plotho had discussed a potential investment in CET with von Schonau.

         On January 6, 2004, von Plotho sent a letter to Preston via a facsimile number in the 508 area code, in which he confirmed von Schonau's interest in investing $10 million in CET. On January 15, 2004, Preston sent a letter by facsimile to von Plotho at Rothschild offering to sell von Schonau a two percent interest in CET for $10 million.

         On January 23, 2004, von Schonau entered into a share purchase agreement with CET by which she agreed to buy a two percent interest in CET for $10 million. At the time, according to von Schonau, although other employees at Rothschild "advised on other types of investments, . . . only von Plotho was recommending private equity investments to her."

         Prior to von Schonau's execution of the share purchase agreement, von Plotho told her that, according to Preston, CET had developed technology that could allow it to change elements in metals, and that the company was "roughly six-to-nine months or up to a year away" from generating profits. Accordingly, when von Schonau made her initial investment in CET, she was under the impression that the production and sale of products using its technology was "imminent."

         Shortly thereafter, von Schonau met Preston in Switzerland for the first time. During that meeting, Preston told her that CET was "only one or two tests away from a 'major breakthrough.'" By February 10, 2004, her $10 million payment had been received by CET from the 20200 (private equity) account.

         Sometime before March 1, 2004, the three managers of CET --Preston, Nagel, and Porter -- offered share options to certain people, including CET's academic advisors and von Plotho. Preston also offered von Plotho membership on a CET advisory board. On March 3, 2004, von Plotho signed a mutual nondisclosure agreement with CET, including a choice of law clause stating that the agreement "shall be governed by the laws of the Commonwealth of Massachusetts with the exception of its conflict of laws rules." In an internal Rothschild memorandum dated April 21, 2004, von Plotho disclosed that he had been invited to join the CET advisory board and stated that he "agreed in princip[le] and subject to approval by [Rothschild's] Management Committee as well as Board."[9]

         In May 2004, von Schonau and von Plotho traveled to Massachusetts and attended meetings in Fall River and Boston with Preston, Nagel, and Porter. Von Schonau discussed the CET investment with von Plotho on this trip.[10] During the May 2004 meeting, von Schonau was again told that CET was a step away from a breakthrough that would result in a commercial profit.

         In June 2004, von Schonau began to compensate von Plotho separately. She transferred shares in CET valued at $1 million to ARA Overseas Ltd. (ARA Overseas), an offshore holding company organized under the laws of the British Virgin Islands and owned by von Plotho and his wife.[11] A letter signed by von Schonau in June 2004 stated that the transfer was a gift. However, von Schonau later stated it represented a "finder's fee" in the form of ten percent of the shares she had purchased in CET. In 2005, she signed a letter indicating that she had promised von Plotho a "brokerage fee" of ten percent for his role in private equity investments.

         Von Plotho's complicated role became ever more complicated on March 21, 2005, when, in a letter to von Plotho concerning another investment, von Schonau stated, "It is fully clear to me that this, as well as past and future private equity investments do not constitute investment recommendations made by Rothschild Bank AG." However, von Schonau's affidavit, which we must credit for purposes of these motions, stated that von Plotho dictated this letter to her and told her that she was required to sign it. She averred that she thought the letter would help von Plotho obtain recognition for his contributions as an employee of Rothschild, but that she still understood that Rothschild, where von Plotho was employed, was "advis[ing] me concerning private equity investments." That same month, von Schonau and von Plotho again traveled to Boston and Fall River to meet with Preston, where they continued to discuss the CET investment. Then, in November 2005, von Schonau signed an extension of the asset management mandate for the 20200 account including the language giving Rothschild authority to invest in "non-traditional investment types" that had already appeared in the agreement for the 12000 account.

         Shortly thereafter, however, von Schonau began the process of transferring her private equity business from Rothschild to another entity. According to a Rothschild bank record, at a December 13, 2005 visit in Basel, Switzerland, von Schonau indicated "that she wants to pull out the private equity investments from the above [20200] account, in order to give them to a family office for management. ... We will be receiving a letter shortly that will outline this transfer order." On December 21, 2005, von Schonau signed a letter addressed to von Plotho which stated:

"In the past months you assisted me in successfully building up my investments in the private equity field. . . .
"These investments have since reached such considerable volumes that I have decided to reorganize their management. As part of this necessary reorganization, the management of my investments is being transferred to a Family Office of ATAG Private Client Services AG, Basel, which implies the transfer of all related documents and securities. I kindly request that you take all the necessary steps to ensure that this transfer is carried out as per the start of 2006. . . .
"I would like to take this opportunity to thank you again for your assistance in building up my investments and herewith expressly discharge you, the Rothschild Bank AG and their staff in connection with all related activities. I highly appreciate that I may continue to rely on your advice" (emphasis added).

         The 20200 account was closed as of December 2005. The 12000 account at Rothschild remained open and appears to have been treated primarily as a cash account to fund private equity investments. Von Schonau sent a letter dated January 19, 2006, to Preston stating that future mailings related to her private equity investments should go to the office of ATAG Private Client Services AG (ATAG) in Basel. Nonetheless, von Plotho, while still a Rothschild employee, remained involved.

         Von Schonau attended a meeting in Fall River in February 2006, with von Plotho, Preston, and Nagel, where she was again told that "various tests had been performed and that the breakthrough will come in a couple of months." On May 24, 2006, von Schonau signed a second share purchase agreement with CET in which she agreed to purchase another 0.767 percent interest in the company (59, 302 shares) for $4 million. Before von Schonau signed this agreement, Preston and von Plotho told her that CET was six months away from having a commercial product. As of May 2006, however, von Schonau knew that CET had not yet developed any commercial products, despite its prior optimistic predictions to the contrary. Von Schonau's second, $4 million investment in CET was paid in three separate installments of $1, 333, 333 each, made in June 2006, June 2007, and June 2008. These payments all came from the 12000 account.

         On June 8, 2006, von Schonau attended a meeting in London concerning CET, also attended by von Plotho and Preston. Von Schonau confirmed at deposition that by that June 8, 2006 meeting, she knew that the breakthrough she had repeatedly been promised had not yet occurred. According to von Schonau, she was again told, "[T]he breakthrough . . . [is] imminent and . . . only a few more tests need to be conducted to make the result commercially viable."

         Later in June, von Schonau signed a "Financial Consulting" agreement with von Plotho, agreeing to pay him 500, 000 Swiss francs annually, plus expenses and value added tax, for his investment advice. She also continued to pay von Plotho an additional fee in the form of ten percent of all private equity shares she acquired.

         On August 31, 2006, von Plotho retired from his employment at Rothschild. That same month, von Plotho signed a consulting agreement with Rothschild effective September 1, 2006.[12] By September 12, 2006, von Plotho had an office at ATAG in Basel, Switzerland, paid for by von Schonau. Both before and after his retirement von Plotho had Rothschild business cards, access to Rothschild stationery, a Rothschild e-mail address, use of a secretary or administrative assistant at Rothschild, and the ability to receive communications (telephone messages and mail) through Rothschild.

         During the length of her client relationship with Rothschild, von Schonau attended many regularly scheduled meetings with von Plotho at bank offices, usually in Zurich. Often, but not always, other bank employees attended. From July 3, 2003, through January 12, 2006, the bank's records consistently listed von Plotho as attending these routine meetings "on our side." Beginning with a meeting held on September 28, 2006, the records consistently listed him as attending the meetings "on their side."[13]

         At various times between February 2004 and December 2008, Preston provided von Schonau (personally or through von Plotho) with tax documents and profit and loss statements that showed CET was not profitable and had, in fact, incurred losses. From at least 2008 forward, many of these documents were housed at ATAG's office and were available for review by von Schonau (and by ATAG employees working on her behalf).[14] In December of 2008, Preston represented that with respect to CET, "[w]e anticipate making first sales of products in 2009." As far as the record reveals, however, CET did not produce or sell a commercial product, turn a profit, or pay dividends to investors.

         In 2007 and 2008, CET continued to tell von Schonau (and other investors) that a breakthrough allowing commercialization of its technology was just around the corner. In a May 5, 2007 e-mail to von Schonau, von Plotho, and others, Preston wrote: "We have been making considerable progress at [CET] and believe we now have a strategy that will enable us to release an interesting new product." In an April 20, 2008 letter to "[CET] Owners" regarding an upcoming meeting in Fall River that von Schonau subsequently attended, Preston wrote, "We have made significant progress in the fundamental science, which is helping us write new run plans to achieve target." However, von Schonau was aware in November 2008 that CET had not been able to produce a commercial product.

         Nonetheless, von Schonau contends that she did not know the extent of her losses from her investment in CET until after July 2011. At that time she was reorganizing her financial affairs. For tax purposes, her advisors required a valuation of von Schonau's private equity interests.[15] This process, von Schonau ...


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