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Bullen v. CohnReznick, LLP

Superior Court of Massachusetts, Suffolk, Business Litigation Session

June 17, 2019

B. BULLEN et al.


          Kenneth W. Salinger, Justice

         The forty-eight plaintiffs were investors in, and allege they were defrauded of tens of millions of dollars by, a defunct hedge fund. The defendant in this case, CohnReznick, LLP, was the outside auditor and accountant for the Fund. Plaintiffs claim that CohnReznick aided and abetted fraud and other misconduct by the Fund, was negligent and committed fraud on its own, conspired with the Fund to defraud its investors, and committed an unfair or deceptive act in violation of G.L.c. 93A.

         CohnReznick has moved to dismiss this action for lack of personal jurisdiction and on other grounds. The Court agrees that it cannot exercise personal jurisdiction over CohnReznick in this action. It will therefore ALLOW the motion and dismiss this action without prejudice, [1] without reaching CohnReznick’s other arguments.[2]

         1. Legal and Procedural Background

         "The question of personal jurisdiction ... goes to the court’s power to exercise control over the parties." Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979). If a judgment were to enter against a defendant over which the court had no personal jurisdiction, the judgment would be void, thus a "nullity." See Lamarche v. Lussier, 65 Mass.App.Ct. 887, 889 (2006) ("void"); Vazquez-Robles v. CommoLoCo, Inc., 757 F.3d 1, 4 (1st Cir. 2014) ("nullity").

         A court generally may not exercise personal jurisdiction over a non-resident defendant unless it determines "that doing so comports with both the forum’s long-arm statute and the requirements of the United States Constitution." SCVNGR, Inc. v. Punchh, Inc., 478 Mass. 324, 325 (2017). Thus, in most cases "[a]n assertion of personal jurisdiction over a nonresident defendant poses a two-pronged inquiry: ‘(1) is the assertion of jurisdiction authorized by statute, [3] and (2) if authorized, is the exercise of jurisdiction under State law consistent with basic due process requirements mandated by the United States Constitution?’" Lamarche, 65 Mass.App.Ct. at 892, quoting Good Hope Indus., Inc. v. Ryder Scott Co., 378 Mass. 1, 5-6 (1979). Massachusetts courts must first consider whether some statute authorizes the exercise of personal jurisdiction, and only reach the constitutional issue if there is a statutory basis for jurisdiction. SCVNGR, 478 Mass. at 330.

         When a defendant moves to dismiss an action for lack of personal jurisdiction, the plaintiff bears the "burden of proving facts sufficient to establish" that the court may exercise jurisdiction over the defendant. Bulldog Inv’rs Gen. P’ship v. Secretary of the Commonwealth, 457 Mass. 210, 219 (2010); accord, e.g., American Int’l Ins. Co. v. Robert Seuffer GMBH & Co. KG, 468 Mass. 109, 120 n.12 (2014) ("burden of demonstrating the existence of minimum contacts").

         If the defendant does not dispute jurisdictional facts alleged in the complaint, then the court may accept those facts and the plaintiff’s burden is only one of production, not persuasion. Cepeda v. Kass, 62 Mass.App.Ct. 732, 737-38 (2004); see also Callahan v. First Congregational Church of Haverhill, 441 Mass. 699, 709 (2004) (same as to "facial attack" on subject matter jurisdiction based on factual allegations in complaint).

         But where the defendant presents competent evidence to contradict the jurisdictional facts alleged in the complaint, "the prima facie evidence loses its artificial force" and the plaintiff has the burden to prove the existence of personal jurisdiction "by a preponderance of the evidence at an evidentiary hearing or at trial." Id. at 738 (quoting Burns v. Commonwealth, 430 Mass. 444, 451 (1999) as to "artificial force"); accord Abate v. Fremont Inv. & Loan, 470 Mass. 821, 830-31 (2015); see also Callahan (same as to "factual challenge" to subject matter jurisdiction). In deciding a motion to dismiss for lack of personal jurisdiction, a court has "discretion to determine personal jurisdiction by [a] preponderance of evidence without waiting for trial on merits." Miller v. Miller, 448 Mass. 320, 324-25 (2007).

         In this case, CohnReznick presented affidavits and documentary evidence in an attempt to contradict Plaintiffs’ factual allegations regarding personal jurisdiction. Plaintiffs responded by submitting their own affidavits and exhibits to describe the conduct by CohnReznick that gave rise to this lawsuit, the alleged connections between that conduct and Massachusetts, and CohnReznick’s presence and activities in Massachusetts in general. The parties asked the Court to decide whether it has personal jurisdiction based on this evidentiary record.[4]

         Neither side asked the Court to defer final resolution of personal jurisdiction until trial. In the exercise of its discretion, the Court declines to defer a final decision as to personal jurisdiction until trial because it would be unfair to force CohnReznick to defend itself in a Massachusetts court that lacks the power to act.[5]

         Nor did either side request an opportunity to present live testimony or other additional evidence beyond their affidavits and exhibits, or to cross examine any witness. It was "not necessary ... to conduct an evidentiary hearing simply because facts proffered by the plaintiff are disputed by the defendant." Cepeda, supra, at 740.[6]

         Since CohnReznick has presented evidence challenging Plaintiffs’ recitation of the jurisdictional facts, and Plaintiffs had a full opportunity to present their own evidence on the issue, the Court must now "consider all relevant evidence proffered by the parties," "make all factual findings necessary for the determination of jurisdictional facts," and "determine whether the plaintiff has met its burden of proof by a preponderance of the evidence." Cepeda, supra, at 739-40.

         2. Findings of Fact

         The court makes the following findings of fact based on the affidavits submitted in support of or in opposition to CohnReznick’s motion to dismiss this action for lack of personal jurisdiction over the Defendant.[7]

         CohnReznick is a New Jersey limited liability partnership. Its headquarters is in New York. It has had an office in Boston, Massachusetts, since 2008. After a merger in 2014, CohnReznick had 15 partners and almost 100 employees working out of its Boston office. It appears to be undisputed that after that merger CohnReznick also had (and has) another office in or near Springfield, Massachusetts, and that it employed 55 to 60 certified public accounts in Massachusetts. At that time CohnReznick had 26 offices and 2, 500 employees nationwide, so its Massachusetts business activities were and apparently are a fairly small part of the company’s overall operations.

         CohnReznick audited the annual financial statements for the Platinum Partners Credit Opportunities Fund ("the Fund")[8] for each year from 2011 to 2014. It was retained to do this work by the Platinum Partners entities that ran the Fund ("Platinum"). Like CohnReznick, Platinum was based in New York. The engagement letters for this work provided that the audit reports prepared by CohnReznick should not be "made available to recipients of any document to be used in connection with the sale of securities" without CohnReznick’s "written consent." CohnReznick never provided written consent for such use of these audit reports.

         CohnReznick’s staff performed their audit work related to the Fund’s annual financial statements at Platinum’s New York office. CohnReznick issued these audit opinions from its New York office and sent them to Platinum in New York.

         In September 2013, representatives of Shepherd Kaplan, LLC ("SK")- which is a Registered Investment Advisor based in Boston, Massachusetts- met with Platinum representatives at a conference in Boston. They discussed the Fund. SK conducted due diligence into the Fund over the next six or seven months.

         As part of its initial due diligence, SK asked Platinum to provide copies of the Fund’s audited financial statements. Platinum did so. Platinum also sent SK other financial and business records, as well as marketing and offering materials, concerning the Fund. SK received, reviewed, and analyzed all of the materials provided by Platinum at SK’s Boston office. ...

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