Poole & Kent Co. v. Equilease Associates I

BLOOM, Judge. Appellant, The Poole and Kent Company, a Maryland corporation, filed in the Circuit Court for Baltimore City an action against The Stone Group Ltd. (Stone Group), a California limited partnership; Stone Services Corporation (Stone Services), a California corporation which is the general partner in Stone Group; Equilease Associates I Limited Partnership (Equilease), a Connecticut limited partnership; Equilease General Corporation (Equilease General), a Connecticut corporation which is the general partner in Equilease; Communigraphics, Inc., a New Jersey corporation; and John R. Wilkins, a resident of New Jersey who is the president of Communigraphics. The Stone Group and Stone Services failed to respond and a default order was entered against them. The other defendants moved to dismiss the complaint as to them on the ground that the court lacked in personam jurisdiction over them and that Poole & Kent was bound by contract to litigate in New York the issues raised in its complaint.

The court granted the motions to dismiss, on the basis of lack of jurisdiction, and entered final judgment in favor of Equilease, Equilease General, Communigraphics, and Wilkins, the appellees herein. Appealing from that judgment, Poole & Kent raises the following issues: I. Did the acts of Wilkins and Communigraphics, Inc., render them subject to personal jurisdiction under subsections (b)(1) and (b)(3) of Maryland’s long arm statute?

II

Did the circuit court apply the wrong standard of proof to appellant’s conspiracy theory of jurisdiction under subsection (b)(3) of the long arm statute? ¹² III. Are appellees subject to jurisdiction under subsection (b)(1) for transacting business in Maryland through an instate agent?

IV

Does Maryland have personal jurisdiction over Equilease and Equilease General under subsection (b)(4) of the long arm statute? We answer the first, third and fourth questions in the negative. We need not fully consider the issues presented in the second question because the court found, and we concur, that Poole & Kent Co. failed to demonstrate personal jurisdiction over appellees under any standard of proof. Facts On 13 September 1982, Stone Services mailed to appellant, at appellant’s request, a brochure prepared by Stone Group entitled “A Capital Formation Strategy for the Eighties.” In that booklet, Stone Group explained the benefits of leveraged lease transactions and its role in marketing them.

The booklet identified the president of Stone Services as being a former executive of “Equilease Corp.” who had devoted the last twelve years to structuring leveraged lease transactions with “Equilease” and another company. Equilease is engaged in the business of purchasing, leasing and selling computer equipment. Some time prior to 23 September 1982, it acquired certain computer equipment which it then leased to various businesses, all of which are located outside the state of Maryland. On 23 September 1982, Equilease, by and through its general partner, Equilease General, sold the computer equipment to Stone Group for $5,506,598.00, taking back a lease on the equipment, with an assignment of the right to receive all rent from the equipment’s users.

The following day (24 September 1982) representatives of Stone Group met with Poole & Kent Co. officials in Maryland to negotiate the sale and purchase of the above-described equipment. Poole & Kent Co. was supplied by telex with an appraisal, addressed to the Stone Group, of the ¹³ computer equipment. The appraisal had been prepared for Stone Group by Wilkins, as president of Communigraphics, which is engaged in the business of providing appraisal services and acting as a broker-dealer of computers. Because the key paragraph of the appraisal, in which Wilkins rendered his opinion as to the total value of the equipment, was garbled in the telex transmission, Ms. Lawler, a secretary employed by Poole & Kent’s attorneys, telephoned Wilkins and requested him to read the illegible paragraph. 1 The appraisal valued the equipment at $5,506,598.00, the sum paid by Stone Group on the previous day to purchase the equipment from Equilease.

Poole & Kent bought the equipment for the appraised value, subject to the lease held by Equilease Associates. Three years later, on 23 September 1985, Poole & Kent filed this action, charging Stone Group, Stone Services, Equilease, Equilease General, Communigraphics, and Wilkins with fraud, negligent misrepresentation and violation of securities laws. Appellant alleged that it discovered in January 1985 that the computer equipment it had purchased from Stone Group was worth between one million dollars and three million dollars less than its appraised value at the time of sale, that each defendant knew Poole & Kent would be the ultimate purchaser, and that they acted in concert with the intent that Poole & Kent would rely on the erroneous appraisal. Attached to the complaint were the purchase agreement between Stone Group and appellant; the purchase agreement between Equilease and Stone Group; subordination agreements between Stone Group, Equilease, several lending institutions and appellant; fi ¹⁴ nancing statements; and the allegedly false or erroneous appraisal.

In support of their motions to dismiss, under Md. Rule 2-322(a), for lack of personal jurisdiction, Equilease and Equilease General submitted a detailed schedule of income indicating that from all its operations it receives $470 in monthly rent from Maryland sources (out of $1,171,877 from all sources) and no Maryland sales income. Communigraphics and Wilkins submitted with their motion to dismiss the affidavit of Mr. Wilkins to the effect that neither he nor the company had ever transacted any business in Maryland. Poole & Kent responded with a memorandum in opposition to dismissal and several attachments thereto including: the affidavit of the company’s vice president to the effect that Equilease had mailed five letters and six rent checks to Poole & Kent in Maryland; a copy of the purchase agreement between Poole & Kent and Stone Group; the booklet entitled “A Capital Formation Strategy for the Eighties” prepared by Stone Group; a copy of the partially illegible cover letter to Wilkins’s appraisal that had been telexed to Poole & Kent; an affidavit of Jane Lawler, a secretary working for appellant’s counsel in Baltimore, in which she declared that she spoke by telephone on 24 September 1982 with a person who identified himself as John Wilkins and who read to her the text of the illegible portion of the appraisal telex; and a file memorandum purportedly prepared by Lawler as a result of that phone conversation with Wilkins. Equilease responded with its own reply memorandum and an affidavit from the vice president of Equilease General to the effect that Stone Group was not and had never been an agent of Equilease; that Equilease had neither seen nor authorized the Stone Group booklet; that Stone Group’s president (Wayne Curry) had never been an employee of Equilease; that neither Equilease nor Equilease General was. engaged in a conspiracy, agency or concerted action with any of the other named defendants. ¹⁵ Communigraphics and Wilkins also filed a reply memorandum and attached thereto an affidavit in which Wilkins declared that Communigraphics was asked by Stone Group to appraise computer equipment in September 1982, and that he did so based upon documents supplied by Stone Group.

Moreover, Wilkins declared that the appraisal was mailed to Stone Group in California; that neither he nor Communigraphics telexed that appraisal to Maryland; that they lack telex capability; and that he recalls no conversation with Ms. Lawler. A hearing on the motions was conducted on 26 February 1986 at which time, according to Poole & Kent’s counsel, the court denied his oral motion to permit Poole & Kent to file interrogatories related to the issue of jurisdiction. No reporter was present at that hearing, and no such motion is in the record. Moreover, the record is devoid of any indication that either party filed interrogatories or otherwise attempted to conduct discovery during the five month period between the commencement of the action and the hearing on motions to dismiss.

Judge Elsbeth Bothe, by written opinion, granted the motion to dismiss for lack of personal jurisdiction over the non-defaulting defendants on the basis that they do not come within the purview of Maryland’s long arm statute, Cts. & Jud.Proc.Code Ann. § 6-103. I Appellant analogizes Wilkins and Communigraphics to a manufacturer of a defective product. By providing the appraisal to the Stone Group, appellant contends, Wilkins and Communigraphics utilized a middleman to distribute their defective product in Maryland and thus may be rightly viewed as having transacted business in Maryland or otherwise having qualified under subsections (b)(1) and (b)(3) of ¹⁶ Maryland’s long arm statute. 2 Accepting appellees’ analogy for argument’s sake, we reach a different conclusion. We do not dispute the general proposition that a “manufacturer whose products pass through the hands of one or more middlemen before reaching their ultimate users cannot disclaim responsibility for the total distribution pattern of the products.” Lamprecht v. Piper Aircraft Co., 262 Md. 126, 131 , 277 A.2d 272 (1971) (quoting Buckeye Boiler Co. v. Superior Court, 71 Cal.2d 893 , 80 Cal.Rptr. 113, 120 , 458 P.2d 57, 64 (1969)).

That proposition, however, is qualified by the requirements of constitutional due process. In order to meet constitutional muster it must be shown that the manufacturer sold its products with the knowledge or reasonable anticipation that they would ultimately be resold in the forum state. See Lamprecht v. Piper Aircraft Co., 262 Md. at 131 , 277 A.2d 272 . Cf World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98 , 100 S.Ct. 559, 567 , 62 L.Ed.2d 490 (1980).

But see Asahi Metal Industry Co. v. Superior Court, — U.S. -, 107 S.Ct. 1026 , 94 L.Ed.2d 92 (1987). 3 No such showing was made in the case sub judice. ¹⁷ Wilkins provided the court below with an uncontested affidavit to the effect that, at the time of performing the appraisal, neither he nor Communigraphics had any knowledge that a Maryland person or entity was involved with the equipment being appraised. There is nothing in the record that would permit the court to infer such knowledge on the part of these appellees. The appraisal was sought by a California entity and was based on information provided by that entity. Moreover, none of the equipment was located in Maryland.

Therefore, there is no basis for an inference that appellees had any reason to anticipate that their appraisal would eventually find its way into Maryland. It appears from the record that the only direct link between Maryland and either of the appellees is the alleged telephone conversation occasioned by the