PAUL HYAMS, et al. v. HALIFAX PLC and HBOS PLC

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A- 1078-04T3

PAUL HYAMS, KELLY LOUISE

EATON, FINOLA BROPHY and

JUDITH HATFIELD, Individually

and On Behalf of All Others

Similarly Situated,

Plaintiffs-Appellants,

v.

HALIFAX PLC and HBOS PLC,

Defendants-Respondents.

_______________________________________

 
Argued telephonically November 9, 2005 - Decided

Before Judges A. A. Rodr guez and Yannotti.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. MON-L-2365-03.

Kevin K. Green, of the California bar, admitted pro hac vice, argued the cause for appellants (Cohn, Lifland, Pearlman, Herrmann & Knoff, attorneys; Mr. Green, Peter S. Pearlman, Mark Solomon and Audra DePaolo; of counsel and on the brief).

Philip L. Graham, Jr., of the New York bar, admitted pro hac vice, argued the cause for respondents (McCarter & English, attorneys; Mr. Graham, Gita F. Rothschild and Robert P. Lesko, on the brief).

PER CURIAM

Plaintiffs Paul Hyams, Kelly Louise Eaton, Finola Brophy and Judith Hatfield appeal from an order entered September 17, 2004 dismissing their complaint for lack of personal jurisdiction over defendants Halifax PLC (Halifax) and HBOS PLC (HBOS). We affirm in part, reverse in part and remand for further proceedings.

I.

Halifax Building Society (HBS) was established in 1853. On November 25, 1994, HBS announced its intention to merge with Leeds Permanent Building Society (Leeds), which was based in Leeds, England, and convert the merged entity into a public company through a process called demutualization. As building societies, both HBS and Leeds offered certain banking services to customers, who could become "members" by either investing in savings accounts or savings bonds or borrowing money.

Neither HBS nor Leeds operate branches in the United States. Individuals could open accounts in person or by mailing an application to a branch in the United Kingdom. HBS and Leeds did not distribute applications in the United States. A resident of the United States could open an account but first was required to contact a branch in the United Kingdom and obtain the application by mail. Once the account was opened, members would receive account statements and other informational mailings which were sent to the members' registered addresses on file with the institution.

With the approval of their members, HBS and Leeds merged on August 1, 1995 and Leeds' property, rights and obligations vested on that date in HBS. In November 1996, HBS sent its members information about the proposed demutualization. The company advised members about their right to vote for or against the proposal and the possibility that members would receive free shares in the company if demutualization was approved. HBS provided members with a copy of a brochure entitled, "Next steps to Conversion, How it affects you" which stated in part that "[i]t is intended that free shares in the public company will be distributed to qualifying . . . members."

In January 1997, HBS sent its members a voting packet which included a voting form and a copy of a "Transfer Document," which informed the members of the details of the conversion. The "Transfer Document" stated that if demutualization was approved, each qualifying member "will receive, or be allocated, free shares in, and become the new owners of, Halifax plc." On February 24, 1997, a majority of HBS's members voted in favor of demutualization and on June 2, 1997, HBS converted into defendant Halifax, a public limited company.

However, the only members who qualified for the distribution of free shares were those who had a registered address in the United Kingdom or one of certain "permitted territories." Halifax made a business decision not to file a registration statement with the Securities and Exchange Commission and therefore it was prohibited from offering, selling or engaging in securities transactions in the United States.

Consequently, the United States was not a "permitted territory" and members residing in this country did not qualify for distribution of the free Halifax shares. At the time of the conversion, HBS had about 9 million members who were potentially eligible to receive shares. Of these, approximately 8,000 had registered addresses in the United States and 718 had registered addresses in New Jersey.

In September 2001, Halifax's parent company, Halifax Group plc "transferred to" HBOS, as a result of a so-called "scheme of arrangement" permitted under the applicable law of the United Kingdom. In July 2002, ownership of Halifax was transferred from Halifax Group plc to HBOS.

Plaintiffs commenced this action in June 2003 on their own behalf as well as on behalf of other persons who are allegedly similarly situated. Plaintiffs assert in their First Amended Complaint filed on July 23, 2003 that that they were "tricked into" voting for demutualization. Plaintiffs allege that defendants intended to and arbitrarily denied them the right to receive free shares upon demutualization. Plaintiffs maintain that they qualify for the distribution of free Halifax shares. They claim that, in the documentation distributed to them, defendants misled them and created the impression that they would qualify to receive shares.

Plaintiffs further allege that defendants failed to advise them of the actions they might need to take to ensure that they receive free Halifax shares. Defendants allegedly encouraged members residing outside of the United Kingdom to confirm that their addresses were correct. Plaintiffs assert:

21. Defendants concealed from Class Members what action Class members in fact needed to take in order to qualify for the shares, namely to provide a postal address in the United Kingdom. Incredibly, the Share Allocation Guide of April/May 1997, which dealt quite clearly with this topic, was not sent to overseas members. The first time that the expression "registered address" was defined was in the Transfer Document and simply meant obtaining a postal address; yet the Transfer Document purports to prohibit any address change because it stated (buried at page 66): "Any person receiving a copy of this document who has an address in any jurisdiction other than the UK or one of the permitted territories is not entitled to receive free shares under any circumstances."

22. Defendants failed to allow Class members sufficient time or opportunity (particularly with regard to the risks of overseas mailing) to take the one step which would have enabled them to receive the shares, namely the provision of a postal address in the United Kingdom or other "permitted territory." Defendants should have informed Class members of this requirement in clear and unequivocal terms, in reasonable time before the date of the Conversion and could have informed Class members many months before such date.

23. Defendants failed to implement any arrangement or advise/assist Class members on any arrangement whereby Class members could receive the shares or a cash equivalent. For example: (i) Halifax could have paid a cash equivalent to claimants who were qualifying Investing Members. Under Part C, 1.11, of the Transfer Document, the right of any member to receive the statutory cash bonus (on account of his or her not being eligible to vote on the Investing Members' resolution) would not be affected by the fact that he or she did not have a registered address in the United Kingdom or a permitted territory; and (ii) Halifax failed to allow the members in non-permitted territories to use Halifax's nominee service/shareholding service.

24. Further, or in the alternative, the Board of Halifax was in breach of the implied term of the Rules of Halifax, and/or in breach of its fiduciary duties, in that it wrongfully or deliberately excluded Class members from receiving the shares to which they were entitled on the Conversion and failed to give them proper assistance in obtaining such shares.

Plaintiffs assert claims for breach of the financial services agreement between Halifax and its members; wrongful retention of monies due and owing to plaintiffs; unjust enrichment; conversion; imposition of a constructive trust; wrongful retention of plaintiffs' chattels; fraud and misrepresentation; constructive fraud; and negligent misrepresentation.

Defendants subsequently filed a motion to dismiss for lack of personal jurisdiction. We briefly summarize the facts in the record that bear upon the jurisdictional question.

Halifax is not authorized to do business in New Jersey. It does not have any offices or branches in this State and has not paid taxes to the State of New Jersey. HBOS is a financial holding company and it does not conduct any business on its own. HBOS also is not authorized to do business in New Jersey. It has no offices or branches in New Jersey and has not paid any taxes to this State.

In 1997, when demutualization was approved, HBS had 718 New Jersey members. By June 2003, when this action was filed, Halifax had more than 1,000 members then residing in New Jersey, which was .005% of Halifax's members.

Eaton's account was opened in 1992 at the HBS branch in Blackburn, England. Her address at the time was in Allentown, New Jersey. That was her address at the time of demutualization, however, in November 2003, Eaton moved to New Egypt, New Jersey, where she currently resides.

Hyams opened an account in 1989 at the HBS branch in Oxford, England. His address at the time was in Oxford. At the time of conversion, Hyams' address was in Ithaca, New York. His current address in again Oxford, England.

Brophy opened an account in 1990 at an HBS branch in Uxbridge, England. Her address at the time was in Herts, England. At the time of conversion, Brophy's address was in Mexico. In 2001, she changed her address to Moorestown, New Jersey.

Hatfield maintains an account with Halifax under the name of Judith Hubbell. The account was opened in 1992 with agents of HBS in South Yorkshire, England. Hatfield's address at the time was in Santa Barbara, California. Hatfield has not since changed her registered address.

HBS and later Halifax periodically sent account statements and informational material to all members, including those residing outside of the United Kingdom. Under the law of the United Kingdom, HBS and Halifax were required to provide their customers with information about their investment products so that depositors would have the opportunity to determine whether they had the most appropriate accounts.

In addition, in the period relevant to this case, Halifax and its predecessor published and distributed two newsletters to depositors who did not reside in the United Kingdom. One was entitled "Contact," which was published biannually between the fall of 1996 and the spring of 2000. This newsletter provided information about various savings options. For example, the issue of "Contact" published in Autumn 1997, included a description of the "wide range" of accounts offered by HBS and included a coupon to be mailed to England for more information. Another issue of "Contact" provided members with information about transferring monies for deposit into an HBS account. Prior to publication of "Contact," HBS published and distributed a similar newsletter called "Exchange."

HBS sent numerous mailings to its members concerning the conversion of HBS to a public limited company. In August 1995, July 1996 and October 1996, HBS distributed to its members documents entitled, "The Next Steps to Conversion: Q & A;" "The Next Steps to Conversion: Your Questions Answered" and "Next Steps to Conversion: How it Affects You." HBS also sent its members a conversion voting packet and related brochures.

In addition, Halifax employees traveled to New Jersey from time-to-time to conduct business for another HBOS subsidiary, HBOS Treasury Services plc. In 2003, Halifax employees traveled to New Jersey in February, May, June, July, October, and November. HBOS Treasury Services engages in the issuance of debt, securitization of assets and certain Securities transactions. In their meetings, Halifax employees discussed investments and provided information about HBOS Treasury Services.

The motion judge concluded that defendants did not have sufficient contacts with New Jersey for the exercise by the New Jersey courts of either general or specific jurisdiction. An order was entered dismissing the complaint and this appeal followed.

II.

Under R. 4:4-4(b)(1), New Jersey courts may exercise personal jurisdiction over non-resident defendants to the extent "consistent with due process of law." Due process requires that a defendant have certain minimum contacts with the forum so that maintenance of the suit does not offend "traditional notions of fair play and substantial justice." Lebel v. Everglades Marina, Inc., 115 N.J. 317, 322 (1989)(quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95, 102 (1945)). "Critical to the due-process analysis is the question whether the defendant should reasonably anticipate being haled into court in the forum state." Waste Management, Inc. v. Admiral Ins. Co., 138 N.J. 106, 120 (1994)(citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S. Ct. 2174, 2183, 85 L. Ed. 2d 528, 542 (1985)).

In determining whether a defendant's contacts with this State are sufficient to support the exercise of in personam jurisdiction, we consider whether "general or specific jurisdiction is asserted." Citibank, N.A. v. Estate of Simpson, 290 N.J. Super. 519, 526-27 (App. Div. 1996). General jurisdiction allows the forum to exercise jurisdiction over any claim against the defendant, if the defendant's activities in the forum are "continuous and systematic." Lebel, supra, 115 N.J. at 323 (quoting Helicopteros Nationales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S. Ct. 1868, 1873, 80 L. Ed. 2d 404, 412 (1984)). Specific jurisdiction may be asserted when plaintiff's cause of action "arises directly out of a defendant's contacts with the forum state." Waste Management, supra, 138 N.J. at 119 (1994)(citing Lebel, supra, 115 N.J. at 322)).

A. General Jurisdiction

In our view, plaintiffs have not shown the requisite continuous and systematic contacts between defendants and New Jersey that would allow our courts to exercise general jurisdiction over defendants. As we have explained, neither HBOS nor Halifax are authorized to transact business in New Jersey. They have no offices or branches in this State. Defendants also have no employees who are based in New Jersey. They have not paid taxes to this State.

At the time of HBS's demutualization, about 700 New Jersey residents were HBS members, and when plaintiffs commenced this action, some 1,000 New Jersey residents maintained Halifax accounts. However, the accounts were not opened as a result of any advertisement or solicitation by HBS or Halifax in New Jersey. The accounts were either opened in the United Kingdom by persons who later moved to New Jersey or opened for persons who were or later became residents of this State.

There is no evidence that either HBS, Halifax or HBOS engaged in any advertising or marketing to encourage residents of New Jersey who were not already HBS/Halifax members to open accounts. Indeed, although plaintiffs produce several pages from a publication called "Union Jack" which contained advertisements placed by the then Halifax subsidiary, Halifax International (Jersey) Limited, there is no evidence that these ads were ever distributed in New Jersey.

The record additionally shows that in 2003, certain Halifax employees visited New Jersey for meetings with customers concerning business conducted by another HBOS subsidiary, HBOS Treasury Services. The total number of Halifax employees who visited New Jersey in 2003 was 16. The Halifax employees made about 8 visits to New Jersey in 2003. However, the evidence concerning the employee visits is limited to one year. The relatively small number of business-related meetings in one year is not evidence of continuous or systematic contacts between defendants and New Jersey.

In support of their appeal, plaintiffs rely upon Provident National Bank v. California Federal Savings & Loan Ass'n, 819 F.2d 434 (3d Cir. 1987). We are convinced, however, that plaintiffs' reliance upon this decision is misplaced.

In Provident, the plaintiff brought an action against a California bank to recover money allegedly due under the terms of a certificate of deposit. The defendant was a California savings and loan association, chartered and headquartered in California. The defendant had no branches in Pennsylvania, maintained no Pennsylvania office and had no employees in that State. Between 700 and 1,000 of the defendant's depositors resided in Pennsylvania and their deposits made up about .066% of the defendant's depositors. Only about .083% of the defendant's outstanding loans had any relationship to Pennsylvania residents. Id. at 435-36. In addition, the defendant maintained an account with a Pennsylvania bank, through which it cleared checks on a daily basis. Id. at 436.

In Provident, the Third Circuit held that a federal court sitting in Pennsylvania could exercise general jurisdiction over the defendant. The court stated that the size and percentage of the defendant's total business represented by its Pennsylvania contacts was "generally irrelevant" in resolving the question of whether the defendant engaged in continuous and systematic activity in Pennsylvania. Id. at 437-38. The court noted, however, that the nature of the defendant's contacts with Pennsylvania was "central to the conduct of its business." Id. at 438. The court added that the maintenance by defendant of its account in the Pennsylvania bank for purposes of clearing checks amounted to "substantial, ongoing, and systematic activity in Pennsylvania." Ibid. In addition, the court noted that the defendant had essentially admitted that it had engaged in continuous business activity in Pennsylvania through the purchase of mortgages secured by Pennsylvania property. Ibid.

It is clear therefore that the holding in Provident that the California bank had continuous and systematic contacts with Pennsylvania does not rest upon the fact that between 700 and 1,000 of its depositors resided in Pennsylvania. Rather, the decision turned upon the fact that the California bank maintained an account with a Pennsylvania bank through which it engaged in "substantial, ongoing, and systematic activity," and the fact that the California bank engaged in continuous business activity in Pennsylvania by its acquisition of loans secured by Pennsylvania property. Ibid. Evidence of similar substantial and ongoing contacts between defendants and New Jersey are lacking in this case.

B. Specific jurisdiction

Although we are not convinced that defendants' contacts with New Jersey are sufficient to justify the exercise of general jurisdiction, we are satisfied that the New Jersey courts may exercise specific jurisdiction over Eaton's claims against Halifax; however we remand to the trial court for a determination on the issue of whether New Jersey may exercise specific jurisdiction over HBOS. We also conclude that there is no basis for the exercise of specific jurisdiction over Halifax or HBOS in respect of the claims asserted by Hyams, Brophy and Hatfield.

The principles that govern our decision are well established. "So long as it creates a 'substantial connection' with the forum, even a single act can support jurisdiction." Burger King, supra, 471 U.S. at 476 n. 18, 105 S. Ct. at 2184, 85 L. Ed. 2d at 543 (quoting McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223, 78 S. Ct. 199, 201, 2 L. Ed. 2d 223, 226 (1957)). A single or occasional act related to the forum may be sufficient for the exercise of personal jurisdiction if the nature of the acts, their quality and the surrounding circumstances show more than an "attenuated" affiliation with the forum. Ibid.

The Court in Burger King concluded that the Florida courts could exercise specific jurisdiction over a non-resident defendant in an action arising from a franchise agreement. Defendant was a resident of Michigan. However, the contract had been negotiated and supervised from Burger King's Florida offices. The contract required that payments be made in Florida and contained a Florida choice of law clause. Based on these facts, the Supreme Court concluded that defendant had purposefully availed himself of the protection of Florida law and could reasonably anticipate that he might face litigation in the Florida courts. Id. at 478-82, 105 S. Ct. at 2185-87, 85 L. Ed. 2d at 544-47. The Court added that

[a]lthough territorial presence frequently will enhance a potential defendant's affiliation with a State and reinforce the reasonable foreseeability of suit there, it is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business in conducted. So long as a commercial actor's efforts are "purposefully directed" towards residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.

[Id. at 476, 105 S. Ct. at 2184, 85 L. Ed. 2d at 543.]

We are convinced that there is sufficient evidence in the record to establish that HBS "purposefully directed" it actions towards Eaton in New Jersey in respect of the contract for financial services and the demutualization of HBS. These actions permit New Jersey to exercise specific jurisdiction over Halifax, as the successor to HBS, in respect of Eaton's claims arising from those activities.

We are satisfied that there are sufficient contacts to allow New Jersey to exercise jurisdiction over Eaton's contractual claims against Halifax. We recognize that Eaton's HBS account was opened for her by a relative in the United Kingdom. However, Eaton was at the time a resident of New Jersey. HBS allowed the account to be established. In the period that followed, HBS maintained its contractual relationship with Eaton by sending her periodic account statements. HBS also provided depositors residing outside of the United Kingdom with newsletters that provided information about other HBS accounts and informed depositors about the manner in which additional deposits could be made to their HBS accounts. The information disseminated by HBS concerning the demutualization, with the alleged promise of free shares, also was an inducement to members to maintain their contractual relationships with HBS. In our view, there is a sufficient relationship between Eaton's contract and the State to allow the exercise by the New Jersey courts of specific jurisdiction over claims arising from the agreement.

Eaton's contract was not, as Halifax argues, an agreement that had no connection with New Jersey. The account was opened in the United Kingdom but because the funds always were subject to withdrawal, continued maintenance of the account required Eaton's agreement. Eaton also was asked to vote to approve or disapprove the proposed demutualization. Any loss or harm arising from the alleged wrongful failure to tender the shares would be sustained at the member's residence.

We are also convinced that the New Jersey courts may exercise specific jurisdiction over Eaton's claims against Halifax for fraud and misrepresentation. Specific jurisdiction may be exercised where, as in this case, a non-resident defendant is alleged to have made false and misleading statements that result in harm to New Jersey residents. Lebel, supra, 115 N.J. at 326. When "a non-resident defendant purposely directs its activities to the forum, and the litigation results from alleged injuries that arise out of or relate to those activities, the forum may assert personal jurisdiction over the defendant." Ibid. (quoting Hughes v. Balemaster, Inc., 652 F. Supp. 1350, 1351-52 (E.D. Mo. 1987)).

As we have explained, the alleged misrepresentations by HBS respecting the demutualization were purposely directed to its New Jersey depositors, including Eaton. To the extent that Eaton relied on any misrepresentation, she did so in New Jersey and any harm resulting from such reliance would have occurred in this State. In our view, these actions are a sufficient basis for the exercise of specific jurisdiction by the New Jersey courts over Halifax.

We also are satisfied that the exercise of specific jurisdiction comports with "traditional notions of fair play and substantial justice." Charles Gendler & Co. v. Telecom Equipment Corp., 102 N.J. 460, 469 (1986)(quoting International Shoe Co., supra, 326 U.S. at 316, 66 S. Ct. at 158, 90 L. Ed. at 102). In this regard, we must consider "the burden on the defendant, the interests of the forum State, and the plaintiff's interest in obtaining relief," Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 113, 107 S. Ct. 1026, 1033, 94 L. Ed. 2d 92, 105 (1987), as well as "the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interest of the several States in furthering fundamental substantive social policies." Ibid. (quoting from World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S. Ct. 559, 564, 62 L. Ed. 2d 490, 498 (1980)).

We understand that relevant records and some witnesses with personal knowledge of this dispute are located in the United Kingdom. However, given the relative ease of travel between the United States and the United Kingdom, we are not convinced that the burden on Halifax to defend this action in New Jersey is substantial. On the other hand, Eaton would face a significant if not insurmountable burden if she is required to litigate the matter in the United Kingdom. In addition, New Jersey has a strong interest in ensuring that a New Jersey resident claiming breach of contract and fraud obtains relief if a right to such relief is established. Finally, we are convinced that the exercise of jurisdiction would advance the judicial system's interest in resolving the controversy and would further the important social policy of addressing civil wrongs that might go unaddressed if a New Jersey resident like Eaton were forced to bring this action in the United Kingdom.

Although we conclude that New Jersey may exercise specific jurisdiction over Halifax, we remand to the trial court to consider whether New Jersey may exercise such jurisdiction over HBOS. As we have explained, that entity did not come into existence until 2001. At the time of HBS's demutualization, HBS was a wholly owned subsidiary of Halifax Group pfc, which "transferred" to HBOS in 2001 pursuant to a "scheme of arrangement" permitted under the law of the United Kingdom. In July 2002, ownership of Halifax was transferred from Halifax Group to HBOS.

"[T]he forum contacts of a subsidiary corporation will not be imputed to a parent corporation for jurisdictional purposes without a showing of something more than mere ownership." Pfundstein v. Omnicom Group, Inc., 285 N.J. Super. 245, 252 (App. Div. 1995). Before a parent may be subjected to jurisdiction based on the contacts of a subsidiary, there must be evidence that the parent exercised "considerable control" over the subsidiary. Id. at 253 (quoting Mylan Laboratories, Inc. v. Akzo, N.V., 2 F.3d 56, 61 (4th Cir. 1993)). Jurisdiction over a subsidiary corporation will give the State jurisdiction over the parent "if the parent so controls and dominates the subsidiary as in effect to disregard the latter's independent corporate existence." Id. at 253 (citing Restatement (Second) of Conflicts of Laws, 52, comment b (1969)).

Because the motion judge found insufficient contacts to justify the exercise of general or specific jurisdiction over defendants, he did not make any findings regarding the relationship of HBOS and Halifax Group to Halifax and HBS. Therefore, we remand to the trial court to address the issue of whether Halifax Group controlled and dominated HBS and Halifax and, if so, whether New Jersey may exercise specific jurisdiction over HBOS as successor to Halifax Group.

Although we conclude that the New Jersey courts may exercise specific jurisdiction over Halifax respecting Eaton's claims, we reach a different conclusion with respect to the claims of the other named plaintiffs. At the time of demutualization, Hyams was a resident of New York. He presently resides in England. There is no connection whatsoever between Hyams and New Jersey. The same is the case with Hatfield, who was a resident of California at the time of demutualization and apparently still resides there. Brophy resided in Mexico at the time of demutualization. However, in 2001 she moved to Moorestown, New Jersey. There is no evidence that HBS or Halifax purposefully directed any actions concerning the demutualization to Brophy in New Jersey. Indeed, at the time, Brophy was living in Mexico. Brophy's later move to New Jersey does not justify the exercise of specific jurisdiction by New Jersey with regard to wrongs allegedly committed while she was living abroad.

We therefore affirm the dismissal of the claims asserted by Hyams, Brophy and Hatfield. We reverse the dismissal of Eaton's claims against Halifax and remand to the trial court to consider whether New Jersey may exercise specific jurisdiction over Eaton's claims against HBOS.

 
Affirmed in part, reversed in part and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.

(continued)

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A-1078-04T3

December 16, 2005