Park Miller, LLC v. Durham Group, Ltd.

Background

Park Miller, LLC, described in the opinion as a wealth advisory firm, advised clients to invest in Durham Group, Ltd. The clients entered into promissory notes with Durham Group to fund Durham Commercial Capital Corp.’s factoring business. After Durham Group defaulted on the notes in November 2018, the contracting plaintiffs brought breach-of-contract claims.

The plaintiffs also sued Craig McGrain, identified as Durham Group’s president and owner, and three allegedly related corporations: Durham Commercial Capital Corp., First Austin Funding Corp., and Maasai Holdings LLC. They alleged that the defendants misrepresented and concealed Durham Group’s and Durham Commercial Capital Corp.’s financial condition. The plaintiffs alleged that financial statements continued to list receivables connected to 1-800 Solar as active assets even after that entity allegedly defaulted and filed for bankruptcy. Park Miller also alleged that these misrepresentations caused it to lose clients, fees, and reputation-related business.

The plaintiffs’ amended complaint asserted breach-of-contract claims, fraud and misrepresentation claims, and interference claims. The defendants conceded that the breach-of-contract claims against Durham Group and Durham Commercial Capital Corp. stated plausible claims. They sought dismissal of the remaining contract claims, all fraud-related claims, and the claims against McGrain, First Austin, and Maasai Holdings for lack of personal jurisdiction.

Fraud and interference claims

The court held that the fraud-related claims did not satisfy Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particular details about who committed the alleged misconduct, what happened, when and where it happened, and how it was fraudulent. The amended complaint did not adequately identify or connect the alleged 1-800 Solar problems to the financial statements, explain how the plaintiffs discovered that the receivables were worthless, or show why the statements were false.

The court also found that the allegations supporting Park Miller’s intentional and negligent interference claims were too general. Park Miller alleged that it lost clients and suffered reputational harm, but did not specify how many clients it lost, whether the losses resulted from the defendants’ conduct, or which contracts or prospective relationships were affected.

The court concluded that the allegations might support a promissory-fraud theory concerning a 2018 promissory note involving Lawson Land, Inc. if the underlying fraud allegations were adequately amended. But the plaintiffs had not alleged facts showing that Durham Group entered into the earlier notes knowing it could not perform. The court therefore granted the motion to dismiss the fraud claims with leave to amend.

Personal jurisdiction

Personal jurisdiction is a court’s authority over a particular defendant. The court found that the plaintiffs had not adequately alleged specific personal jurisdiction over McGrain. Although the plaintiffs pointed to his contacts with California, including signing some promissory notes, helping draft another note, and being copied on communications, those facts were not sufficiently pleaded in the amended complaint or connected to the alleged 2018 misrepresentations.

The court also rejected the plaintiffs’ arguments that McGrain’s corporate positions or alleged participation in the conduct established jurisdiction. It found that merely being copied on emails did not show that McGrain personally participated in the alleged wrongdoing. The plaintiffs also failed to plead enough facts to treat McGrain as the alter ego of Durham Group or Durham Commercial Capital Corp.—a theory that can disregard separate corporate identities when the required unity of interest and resulting fraud or injustice are adequately shown.

The court likewise found insufficient allegations to exercise personal jurisdiction over First Austin and Maasai Holdings under an alter-ego theory. Common ownership, shared management or contact information, and the alleged purchase of Durham Commercial Capital Corp.’s line-of-credit debt did not, by themselves, establish the required unity of interest or show that respecting the companies’ separate identities would cause fraud or injustice.

Rulings and disposition

The court dismissed McGrain, First Austin, and Maasai Holdings for lack of personal jurisdiction. It granted the defendants’ motion to dismiss the breach-of-contract claims against all defendants except Durham Group and Durham Commercial Capital Corp. It also granted the motion to dismiss the fraud claims against all defendants for failure to state a claim. The plaintiffs were given thirty days from the order’s date to amend their complaint, and the court stated that the request for jurisdictional discovery was denied at that stage but could be renewed depending on a second amended complaint.