MEMORANDUM OF DECISION AND ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS
Plaintiffs Forum Financial Group, LLC and John Y. Keffer ("Plaintiffs")have filed a Complaint against the Defendants President and Fellows ofHarvard College ("Harvard"), Jonathan R. Hay, ("Hay") and Andrei N.Shleifer ("Shleifer") (collectively "Defendants"), for claims arising outof a failed business transaction. Specifically, Plaintiffs assert claimsfor fraudulent misrepresentation, negligent misrepresentation, andtortious interference with prospective economic advantage against Hay(Counts I, III, and V); Plaintiffs assert claims for aiding and abettingfraudulent misrepresentation, aiding and abetting negligentmisrepresentation, and aiding and abetting tortious interference withprospective economic advantage against Shleifer (Counts II, IV, and VI);and Plaintiffs assert claims for vicarious liability and negligenceagainst Harvard (Counts VII, VIII, and IX). Plaintiffs request bothcompensatory and punitive damages (Count X). Now before the Court areDefendants' Motions to Dismiss Or, In The Alternative, Transfer the caseto the District of Massachusetts. For the reasons that follow, the Courtwill DENY Defendants' Motions to Dismiss and the Motion for Transfer ofVenue.
I. PROCEDURAL POSTURE
On October 24, 2000, Plaintiffs filed this action against Defendants.Defendants Shleifer filed a Motion to Dismiss on November 20, andDefendant Harvard filed a Motion to Dismiss, Or in the Alternative,Motion to Transfer on November 22, 2000. On December 21, 2000 Plaintiffsfiled a Motion for Court-Ordered Service in regards to Defendant Hay. OnDecember 13, 2000, Plaintiffs filed an Opposition to Defendants' Motionsto Dismiss and requested discovery specifically related to jurisdiction.On January 24, 2001, Chief Judge Hornby denied without prejudiceDefendants Shleifer's and Harvard's Motions to Dismiss for lack ofpersonal jurisdiction, and granted Plaintiffs' request for discoverylimited solely to personal jurisdiction issues over Defendants HarvardCollege and Andrei Shleifer. On February 16, 2001, Judge Hornby orderedcourt-directed service of process to be made on Defendant Hay. On April6, 2001, Defendant Hay filed a Motion to Dismiss Plaintiffs' Complaint,alleging lack of personal jurisdiction, for forum non-conveniens, andpursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim forfraudulent and negligent misrepresentation (Counts I and III) andtortious interference with prospective economic advantage (Count V).Defendant Hay additionally contends that Plaintiffs failed to effectproper service upon him.1 On July 20, 2001, Defendant Shleifer renewedhis Motion to Dismiss for lack of personal jurisdiction or, in thealternative, to dismiss Count IV, aiding and abetting negligentmisrepresentation (Count IV), for failure to state a claim upon whichrelief can be granted, and to dismiss Count VI for failure to join anindispensable party. On July 24, 2001, Defendant Harvard renewed itsMotion to Dismiss on all grounds raised in the original motion exceptwant of jurisdiction, including: the act of state doctrine, the effectof the release agreement, the application of the doctrine of immunity asa non-profit, charitable organization, for lack of vicarious liability, aclaim of lack of duty, failure to plead with sufficient particularity inviolation of Fed.R.Civ.P. 9(b),applicability of punitive damages, or inthe alternative, for transfer to the United States District Court for theDistrict of Massachusetts. Additionally, Harvard has moved to dismisspursuant to Fed.R.Civ.P. 19 for failure to join indispensable parties,namely the Russian Commission on Securities and Capital Markets ("RussianSEC"), and Dimitri Vasiliev. In the event that Shleifer and/or Hay aresuccessful in their motions to dismiss, Harvard contends, under theoriesof vicarious liability, that Harvard's agents, Shleifer and Hay, are alsoindispensable parties. Defendants also adopt each other's arguments tothe extent they apply to the individual claims of Defendants.2
The Plaintiffs' Complaint makes the following relevant factualassertions. Plaintiff Forum Financial Group, LLC ("Forum") is a Delawarelimited liability company with a principal place of business at TwoPortland Square, Portland, Maine. John Y. Keffer ("Keffer") is anindividual residing in Cumberland, Maine, who is the owner of Forum.Forum is in the business of the administration and operation of mutualfunds in the United States, Poland, Bermuda and Malta. Complaint ¶39. Forum's expertise includes the technical aspect of operationsmanagement, with a particular expertise in the operation andadministration of mutual funds in foreign countries. Complaint ¶ 39.Forum was the first company to provide independent third-party fundadministration services in Poland. Complaint ¶ 39. DefendantHarvard is a corporation incorporated under the laws of the Commonwealthof Massachusetts with a principal place of business in Massachusetts.Harvard received money from the United States Agency for InternationalDevelopment ("USAID") to provide strategic guidance to the capital marketdevelopment effort in Russia and "to provide unbiased input into, andoverall day-to-day management, review, and evaluation of, theprivatization and market reforms."3 Complaint ¶ 14. With USAIDfunds, Harvard conducted business in Russia as the Harvard Institute forInternational Development ("HIID" or "the Russia Program").
Defendant Andrei Shleifer is a United States citizen residing inNewton, Massachusetts. Shleifer is a tenured Professor in Harvard'sDepartment of Economics. Complaint ¶ 8. In 1993, Harvard appointedDefendant Shleifer as Home Office Coordinator/ Principle Investigator ofits Russia Program. Harvard authorized Shleifer to act on Harvard'sbehalf concerning the Russia Program. Complaint ¶ 20. Shleifer hadthe authority and primary responsibility for creating, overseeing, andmanaging Harvard's Russia Program and insuring adherence to all ofHarvard's obligations under the USAID agreements. Complaint ¶ 20.Defendant Jonathan R. Hay is a United Statescitizen currently residingin Moscow, Russia.4 In 1993, Harvard hired Defendant Hay, Shleifer'sformer student, to work with Shleifer as Harvard's Field Associate inRussia. At Shleifer's recommendation, Harvard promoted Hay to GeneralDirector/Field Coordinator of the HIID Russia Program in Moscow.Complaint ¶ 21. Plaintiffs allege that "Hay reported directly toShleifer and the two of them shared responsibility for management andcontrol over Harvard's performance under the USAID Agreements. Theircontrol included . . . identifying and retaining subcontractors [and]controlling the other USAID contractors" to accomplish the programobjectives. Complaint ¶ 21. Harvard held out Shleifer and Hay ascompetent and qualified to direct the Russia Program. Complaint ¶22. Plaintiffs allege that Shleifer and Hay, as employees, were agentsof Harvard, with apparent authority to act within the scope of theiremployment on the Russia Program by, inter alia, subcontracting withbusinesses such as Forum, and exercising their authority over the USAIDinitiative in Russia. Complaint ¶¶ 136, 23. Shleifer and Hay usedUSAID funds to establish the Institute for Law-Based Economy ("ILBE"), aRussian nonprofit corporation.5 Complaint ¶ 26.
Nancy Zimmerman ("Zimmerman") is Shleifer's wife. Elizabeth Hebert("Hebert ") was Hay's girlfriend during 1995 and 1996, and she is nowHay's wife. Complaint ¶ 3. Julia Zagachin ("Zagachin") was employedby HIID as a Russia Program associate. Complaint ¶¶ 3, 51.
Beginning in late 1995 or early 1996, Hay, Hebert, Shleifer,Zimmerman, and Zagachin put together a plan to launch the first Russianmutual fund and the first Russian specialized depository for their ownpersonal profit. Complaint ¶ 35. Michael Butler, Esq. ("Butler") washired by Harvard, pursuant to Hay's request, to work directly withShleifer and Hay on Harvard's Russia Program.6 Complaint ¶ 72.
A. The Alleged Contract and Fraud
Dimitri Vasiliev ("Vasiliev") was Chairman of an entity identified asthe Russian SEC. Complaint ¶ 31. Albert Sokin ("Sokin") wasVasiliev's political advisor. Id. The Russian SEC executed a contract(the "Contract") on July 25, 1996, with Forum Financial Group ConsultingLLC ("Forum Consulting"), an entity created by Plaintiffs for the purposeof creating a mutual fund industry in Russia. Complaint ¶¶ 62, 67.Under that Contract, Forum Consulting was to assist the Russian SEC withdeveloping and implementing a Russian mutual fund market. ForumConsulting established a new entity, Forum Financial Group Russia LLC("Forum Russia"), in order to execute the First Russian SpecializedDepository ("FRSD"), a management and custodian service company necessaryto administer mutual funds. Complaint ¶ 62. Forum Russia was setup to own and operate the specialized depository; and Keffer and Forumproposed prospective Russian investors to own fifty-one percent of theFRSD, with Forum Russiaretaining management control and forty-ninepercent of the FRSD. Complaint ¶ 63.
Plaintiffs allege that Hay and Shleifer fraudulently conspired withButler, Zimmerman, Zagachin, and Hebert to defraud Keffer and Forum oftheir ownership, control, and prospective economic advantage to bederived from Forum Consulting and Forum Russia. Complaint ¶ 3. Priorto Plaintiffs executing the Contract with the Russian SEC, Plaintiffsallege that Hay and others initiated contact, cultivated a relationship,and facilitated or orchestrated Plaintiffs receiving the Contract withthe Russian SEC. In early March 1996, Vasiliev asked Keffer to allowVasiliev's advisor, Hay, to visit Forum's offices in Poland. Complaint¶ 44. Hebert and Zagachin actually appeared and toured Forum inPoland. Complaint ¶ 44. On March 18, 1996, Hay "further representedthat Keffer and Forum would have management control and a substantialownership interest in the specialized depository." Complaint ¶ 47.Plaintiffs believed that the Consulting Contract, based on Hay'sassurances, "was an opportunity for Forum to earn revenues which wouldsupport at least a portion of the start-up costs associated with Forummaintaining a high-level staff in Russia to create and operate aspecialized depository." Complaint ¶ 47. Defendants told Plaintiffsthat their efforts would be funded by the World Bank for up to$2,500,000. Complaint ¶ 52. Hay, it is alleged, knew theserepresentations were false. Complaint ¶ 47.
Plaintiffs also allege that Shleifer and Hay improperly influencedSokin and his associates by employing him in Harvard's Russia Program, byproviding him with a housing allowance and car service, and by paying himan exorbitant salary funded with USAID funds.7 Complaint ¶ 32.As of August 23, 1996, Keffer was unaware of Hay's alleged improperinfluence over Vasiliev, Sokin, and the Russian SEC. Complaint ¶76. Plaintiffs allege that Defendants fraudulently induced them byfalsely promising Forum and Keffer that Forum would own and manage thefirst specialized depository after using their own resources to createit.8 Complaint ¶¶ 3, 38.
Shleifer and Zimmerman traveled to Moscow to meet with Zagachin,Hebert, and Hay in early May 1996. Complaint ¶ 58. On May 13,1996, the Russian SEC mailed to Forum in Maine written notification, onRussian SEC stationery and signed by a Harvard employee, that Forum'sproposal had been selected by the Russian SEC, and Forum was requested tobegin negotiating the terms of the Consulting Contract with the RussianSEC. Complaint ¶ 54. The day after Forum was informed that it wouldget the Contract with the Russian SEC, Hay, Hebert, Shleifer, andZimmerman were all actively marketing the forthcoming specializeddepository for sale to American investors.9 Complaint ¶¶ 56, 57.This is thedepository that Forum was to create, and Forum believed itwould retain substantial ownership of the depository. Hebert'sdescription, however, of the "management team" included Hebert as ChiefExecutive Officer and Zagachin as Chief Operating Officer. Complaint¶ 57. Hebert predicted large profits as a result of the managementteam's position of trust with the Russian SEC and the hiring of ILBE as aconsultant. Id. Also in May 1996, Hebert and Shleifer formed PalladaAsset Management ("Pallada"), with funds from USAID and Zimmerman, forthe purpose of obtaining the first mutual fund license.10 Complaint¶¶ 59, 60. Hay, Hebert and Sokin also used United States funds totravel to Russia's industrial heartland to generate investment interestin Pallada.11
Russian SEC regulations required Keffer and Forum to deposit FourHundred Thousand Dollars ($400,000) in a cash custody account in Russiaas a prerequisite for capitalizing the FRSD. Complaint ¶ 65. Inreliance on Hay's representations of the profitability of Forum'scontinued ownership interest, on July 5, 1996, Keffer and Forum depositedthat amount into a cash custody account at Citibank's Moscow branch.Complaint ¶ 66. On July 25, 1996, Forum Consulting and the RussianSEC executed the final Consulting Contract. Complaint ¶ 67. OnAugust 1, 1996, the Russian SEC granted the FRSD the first license tooperate a specialized depository. Complaint ¶ 68. On August 8,1996, Pallada received the first Russian mutual fund license from theRussian SEC, describing the FRSD as its specialized depository.Complaint ¶ 70.
Shleifer and Hay could not sell shares of Pallada to investors untilthe FRSD commenced its fund administration, so Hay requested that Kefferand Forum commence fund administration services to Pallada. Id.Plaintiffs refused to do so until the drafting and revising of thenecessary Russian government regulations was completed and Pallada had aprospectus that disclosed its operating procedures. Id. Around August19, 1996, Hay informed Keffer that Forum Consulting would not be paidunder the Consulting Contract unless: (1) Zagachin owned fifty-onepercent of the FRSD, (2) Zagachin had management control of the FRSD, and(3) the FRSD began administering Pallada's mutual fund by September 2,1996. Complaint ¶ 71. Keffer told Hay that these demands wereunacceptable and warned that the critical legal and institutionalinfrastructures had not been completed, and that Hay's insistence thatthe FRSD administer live operations for Pallada's mutual fund onSeptember 2, 1996, would be commercially premature and damaging to thelong-term development of a stable mutual fund industry. Complaint ¶76.
In order to resolve the alleged dispute, Plaintiffs contend that Hayproposed a meeting with Keffer and Forum where Butler would act as a"neutral mediator." Complaint ¶ 72. Plaintiffs allege that Hayintentionally failed to disclose Hay's and Harvard's relationship toButler or the fact that the Russia Program was the subject of an ongoingfederal investigation. Complaint ¶ 72.
On August 19, 1996, Keffer, Forum staff members, Hebert, and Hay metwith Butler, where Keffer disclosed to Butler that "Hay's conduct waspreventing Forum Consulting from completing thenecessary recommendationsfor revisions to the Russian SEC regulations and [that] Forum Consultingwas not being paid for its work." Complaint ¶ 73. Plaintiffs alsoinformed Butler that Hay insisted Zagachin have ownership and managementcontrol and that Zagachin was not qualified to manage the FRSD. Id.Keffer and his staff also "informed Butler of Hay's insistence that theFRSD administer Pallada's mutual fund when the Russian SEC regulationshad not been revised and Pallada did not have an adequate prospectus."Id. On August 19, 1996, unknown to Forum and Keffer, Shleifer andZimmerman had a private meeting with Zagachin, Hebert, and Hay.12Id.
On August 20, 1996, Butler proposed a change in Forum's role, includingthat Keffer sell both Forum Consulting and Forum Russia (owner of theFRSD) to Zagachin for $400,000. Complaint ¶ 74. Butler's proposalalso provided that: (1) Zagachin would continue to perform theobligations set forth in the Consulting Contract, under ForumConsulting's name; (2) Zagachin would be paid by the World Bank; and (3)Forum would be "precisely defined" as a "subcontractor" and "wouldprocess for the first fund to go live on September 2, 1996." Complaint¶ 74. Over the course of the next several days, Keffer and Vasilievargued over specific terms of the Consulting Contract, includingtimelines and creation of the legal and institutional frameworkprerequisites necessary to protect Russian investors. Complaint ¶78.
Keffer had followed Hay's guidance in prioritizing work under theContract,13 and was now receiving conflicting demands from Vasiliev.Id. At this time, Plaintiffs continued to rely on statements byVasiliev, who "promised to work with Forum on its problems with theConsulting Contract once ownership of the FRSD was `stabilized.'" Id.
Only after Vasiliev requested that Keffer provide the Russian SEC witha proposal for altering the ownership of the FRSD did Hay's influenceover Vasiliev finally become clear to the Plaintiffs. Complaint ¶¶78, 79. Plaintiffs then believed that "the representations that Hay hadmade to them about the ownership and control of the FRSD and receivingpayment under the Consulting Contract [had been] false." Complaint ¶79. On August 27, 1996, Vasiliev repeated Hay's demand that Keffer andForum have the specialized depository working on an aggressive timeline,and he requested that Keffer provide the Russian SEC with a proposal foraltering the ownership of the FRSD. Complaint ¶ 78. Plaintiffsconcluded at this time "that they had no choice but to stem theirmounting financial losses by selling Forum Russia" in its entirety.Complaint ¶ 79. According to Plaintiffs' allegations, Shleifer andHay had
planned to influence the Russian SEC to withhold payments due Forum under the Consulting Contract so that they could use the resulting financial pressure on Forum as leverage to force Forum to relinquish ownership and control of the specialized depository to them and their co-conspirators after Forum had obtained the license.
Complaint ¶ 55. Plaintiffs allege that, due to the financialpressures placed on them and the threats of Hay that he would see to itthat the Russian SEC would not perform the Consulting Contract, theyreluctantly agreed to sell Forum Russia, including Forum Russia'sownership of the FRSD and the $400,000 in the Citibank capital account,to Zagachin. Complaint ¶¶ 79, 80.
On September 3, 1996 Oasis Financial Services, LLC ("Oasis") purchasedForum Russia, including the FRSD, from Keffer and Forum Financial for$408,000. Complaint ¶ 80. Hay provided financing to Oasis to assistwith the completion of this transaction.14 Id. Zagachin was therecord owner of 99% of Oasis and of Sage Capital, which owned theremaining 1% of Oasis. Id.
Plaintiffs allege that Defendants were motivated by ill will, wereoutrageous, and acted with malice. Complaint ¶ 151. To support thiscontention, Plaintiffs maintain that Harvard failed to establish acompetent system to administer, audit, oversee, supervise and/or controlShleifer's and Hay's exercise of their duties, responsibilities,authority and influence in Russia. Complaint ¶ 24. Harvard lackedproper oversight over HIID because "Harvard administrators [includingShleifer] were aware of abuses [in HIID programs] and allowed them tocontinue." Complaint ¶¶ 27, 53. Harvard was aware that ILBE andHarvard employees in Russia "were hired for improper reasons, wereunqualified and/or did not show up for work on a regular basis other thanto collect their pay." Complaint ¶ 28. Harvard, ILBE, and USAIDknew, or had reason to know, of evidence of mismanagement of the RussiaProgram before the Consulting Contract was executed with Forum.Complaint ¶ 26. Additionally, Plaintiffs allege that Shleifer knewof Hay's activities and gave substantial assistance and encouragement toHay regarding his dealings with Plaintiffs and the Russia Program.Complaint ¶ 101. Finally, Shleifer acted "in concert with" Hay and"pursuant to a common design with Hay" in the conspiracy to defraud Forumfor their own personal financial gain. Complaint ¶ 102.
B. Final Developments
In January 1997, Forum Consulting executed an Agreement with theRussian SEC ("Release Agreement") for release of certain claims relatingto their previously executed Contract, which terminated on October 10,1996.15 See Hay's Motion toDismiss with Incorporated Memorandum ofLaw (Docket No. 30, citing Ex. B). On May 20, 1997, USAID suspended theUSAID Contracts based upon findings by its Inspector General ofmisconduct by Shleifer and Hay in Russia. Complaint ¶ 83. On May23, 1997, Harvard removed Shleifer and Hay from their positions withHarvard's Russia Program. Complaint ¶ 84. On August 1, 1997, USAIDterminated Harvard's USAID Contracts. Id. On February 7, 2000, Harvarddisbanded HIID. Complaint ¶ 86. On September 26, 2000, the UnitedStates filed a civil action in the United States District Court, Districtof Massachusetts, against Harvard, Shleifer, Hay, Zimmerman, and Hebert,alleging against them, inter alia, claims for violations of the FalseClaims Act, 31 U.S.C. § 3729, and for fraud and civil conspiracyarising out of their activities to launch the first Russian mutual fundmanagement company and the first Russian specialized depository.Complaint ¶ 87.
C. Defendants' Contacts with Maine
For purposes of these Motions to Dismiss, Plaintiffs have alleged thatDefendants or their agents made the following relevant contacts with theState of Maine. In February 1996, Hebert telephoned Keffer in Maine todiscuss Forum creating a mutual fund service company in Russia. Complaint¶ 41. Beginning in March 1996 and continuing through August 1996, Haymade and received a series of phone calls and faxes to and from Keffer inMaine concerning Forum's creation of the FRSD. Complaint ¶ 44, 50,52; Keffer Decl. ¶ 15. Plaintiffs allege that these communicationspertained to negotiating the terms of the alleged representations Hay madeto Keffer; namely, that Forum would retain substantial ownership andmanagement control of the specialized depository entity they were to helpcreate, and that the venture would be profitable to Forum. Complaint¶¶ 49, 52. Hebert telephoned Keffer in Maine to advise that she andZagachin were considering Forum as their fund administrator in Russia.Complaint ¶ 41.
In February 1996, Hebert sent three facsimiles to Keffer in Maineregarding her and Zagachin's plans for mutual fund administration.Complaint ¶¶ 42, 43. Specifically, Plaintiffs allege that Hay draftedand faxed to Forum in Maine a letter dated March 5, 1996, from DimitriVasiliev, Chairman of the Russian SEC, encouraging Forum to establish "acompany in Russia that would supply fund administrative services to thelarge number of mutual funds that are being launched in Russia."Complaint ¶ 44. When Keffer met Hay in Russia on March 18, 1996, Hayidentified himself as working for Harvard, explained that he was usingUSAID grant money to assist the Russian government on the capital marketproject, and gave Keffer his Harvard business card, which clearlyidentified his Harvard affiliation. Complaint ¶ 47. Hay sent Keffera facsimile on March 22, 1996, in Maine, providing his e-mail and mailingaddresses in Russia, in care of HIID. Complaint ¶ 50. On April 12,1996, Shleifer and Hay caused Vasiliev to fax to Forum in Maine a requestto submit another proposal for the Specialized Depository Project.Complaint ¶ 52. At Hay's request, another Harvard employee sent afax to Forum on May 16, 1996, regarding arrangements for an upcomingvisit by Forum to Moscow. Keffer Decl. ¶ 4.
From April 5-15, 1996, while Zagachin was an employee of HIID, Zagachinvisited Forum in Maine and met with Keffer to conduct due diligence onForum for Hay, i.e. to meet with Keffer and observe Forum's operations inorder to assist Hay in determining whether Forum was capable of creatingthe specialized depositoryin Russia. Complaint ¶ 51. Zagachin'sexpenses for this trip were submitted to, and approved by, Hay.16 SeePlaintiffs' Supplemental Memorandum of Law in Opposition to DefendantsShleifer's and Hay's Motions to Dismiss (Docket No. 48); Ex. 7A, 7C(Docket No. 49); see also Reply Memorandum to Plaintiffs' SupplementalMemorandum of Law in Opposition to Defendants Shleifer's and Hay'sMotions to Dismiss With Incorporated Memorandum of Law (Docket No. 51).On May 20, 1996, and on other occasions, Hay sent electronic mail to DanaA. Lukens, Esq., a Forum employee in Maine, concerning creation of aspecialized depository. Lukens Decl. at ¶ 4. On May 13, 1996, theRussian SEC mailed to Forum in Maine written notification, on Russian SECstationery signed by a Harvard employee, that Forum's proposal had beenselected by the Russian SEC. Complaint ¶ 54. In August 1996,Zagachin traveled to Forum's Maine office for a second time to reviewForum's operations for Hay; and her expenses for this trip were againsubmitted to, and approved by, Hay.17 Plaintiffs' SupplementalMemorandum of Law in Opposition to Defendants Shleifer's and Hay'sMotions to Dismiss (Docket No. 48), Ex. 7A, 7C (Docket No. 49). Zagachinmade twelve telephone calls to Forum in Maine in August 1996 as part ofher effort to review Forum's operations for Hay. Id. On September 3,1996, Oasis Financial Services wired $400,000 to Forum in Maine forpurchase of the specialized depository created by Forum and Keffer. Ex.7D (Docket No. 49).
A. The Choice of Law Question
A preliminary question for this Court is whether the law of Maine orthe law of Massachusetts should be applied in this diversity action.18A federal court that "exercises diversity jurisdiction over state-lawclaims must apply thechoice-of-law rules of the state in which it sits."Burr v. Melville Corporation, 868 F. Supp. 359, 363 (D.Me. 1994) (citingKlaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496(1941)). This Court looks to the Restatement (Second) of Conflictswhich
directs courts to consider which state has the most significant relationship to the occurrence and parties considering the following factors: (1) the place where the injury occurred; (2) the place where the conduct causing injury occurred; (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties; and (4) the place where the relationship, if any, between the parties is centered.
Burr, 868 F. Supp. at 363 (citing RESTATEMENT (SECOND) OF CONFLICTS§ 145); see also Adams v. Buffalo Forge Company, 443 A.2d 932, 934-45(Me. 1982).
Any injury caused by Defendants occurred in Maine or in Russia, but notin Massachusetts.
Plaintiffs never traveled to Massachusetts, and Defendants' residenceor domicile in Massachusetts is not determinative because Plaintiffsreside in Maine. Plaintiffs alleged that the relevant misrepresentationstook place, initially, in Maine and, subsequently, in Russia. Defendants'agents traveled to Maine to initiate the business dealings withPlaintiffs, and the rest of the actions giving rise to the claims tookplace either in Maine or outside the United States — in Russia andat Plaintiffs' offices in Poland. Massachusetts certainly has nostronger connection to or greater interest in this case than doesMaine.19 The application of Maine law in these circumstances serves toprotect the "more significant relationship . . . to the occurrence and theparties." Mahon v. East Moline Metal Products, 579 A.2d 255, 256-57 (Me.1990) (citing Adams, 443 A.2d at 934). Because Maine has the mostsignificant relationship to the occurrence and to the parties, the Courtwill apply Maine law to Plaintiffs' claims.
B. The Motion to Dismiss
In deciding a motion to dismiss, the Court assumes that all of thefactual allegations in the complaint are true, and it draws allinferences in favor of the Plaintiffs. Resolution Trust Corp. v.Driscoll, 985 F.2d 44, 48 (1st Cir. 1993). A "complaint should not bedismissed unless it appears beyond doubt that Plaintiffs can prove no setof facts that would entitle them to relief." See Federal DepositInsurance Corporation v. S. Prawer & Co., 829 F. Supp. 453, 455(D.Me.1993) (citations omitted). Defendants have moved jointly for dismissalon several grounds, and Defendants have also raised several personalaffirmative defenses. The Court will address each argument in turn.
1. Lack of Personal Jurisdiction under Fed.R.Civ.P. 12(b)(2) Over Defendants
In a motion to dismiss for lack of personal jurisdiction, the plaintiffbears the burden of demonstrating that jurisdiction is proper. SeeRodriguez v. Fullerton Tires Corp., 115 F.3d 81, 83 (1st Cir. 1998)(citing Sawtelle v. Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995);Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46 F.3d 138, 145 (1stCir. 1995)). The plaintiff must make a prima facie showing of personaljurisdiction by citing to specific evidence inthe record. See, Boit v.Gar-Tec Products, 967 F.2d 671, 675 (1st Cir. 1992). A Plaintiff mustsatisfy two cornerstone conditions: "first, that the forum in which thefederal district court sits has a long-arm statute that purports to grantjurisdiction over the defendant; and second, that the exercise ofjurisdiction pursuant to that statute comports with the strictures of theConstitution." Foster-Miller, Inc., 46 F.3d at 144 (citations omitted).In a case arising under diversity jurisdiction, a federal court'spersonal jurisdiction is equivalent to that of the forum's state court.See Sawtelle, 70 F.3d at 1387. Thus, in this case, Maine's long-armstatute defines the limits of the Court's personal jurisdiction. See 14M.R.S.A. § 704-A. Because the Law Court has determined that thelimits of Maine's long-arm statute are coextensive with the limits of theDue Process Clause of the Fourteenth Amendment, the Due Process Clauseactually determines the limits of the Court's jurisdictional reach inthis diversity case. See Electronic Media Int'l v. PioneerCommunications of America, Inc., 586 A.2d 1256, 1258 (Me. 1991) (citingHarriman v. Demoulas Supermarkets, Inc., 518 A.2d 1035, 1036 (Me.1986)). The first condition is met because Maine law authorizes long-armjurisdiction over out-of-state defendants by statute. See 14 M.R.S.A.§ 704-A.
The second of the cornerstone conditions "implicates three distinctcomponents, namely, relatedness, purposeful availment (sometimes called"minimum contacts"), and reasonableness." Foster-Miller, Inc., 46 F.3d at144. The Court will construe the allegations in the record in the lightmost favorable to the nonmoving party, herein Plaintiffs. See Coolidgev. Judith Gap Lumber Co., 808 F. Supp. 889, 891 (D.Me. 1992).Additionally, the Court considers any uncontradicted facts put forward byDefendant. See Boit, 967 F.2d at 675. Once the Court determines thatPlaintiffs have made a prima facie showing of Maine's legitimate interestin the controversy and the requisite minimum contacts, the burden shiftsto the Defendants, who, in order to defeat Plaintiffs' claim ofjurisdiction, must show that the Court's exercise of jurisdiction wouldnot comport with "traditional notions of fair play and substantialjustice." Coolidge, 808 F. Supp. at 891.
If a defendant's activities within the forum state are "continuous andsystematic," the defendant has a sufficient relationship with the forumstate to support a finding of general jurisdiction. HelicopterosNacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 413-414, 104 S. Ct.1868, 80 L.Ed.2d 404 (1984). Plaintiffs assert that Defendant Harvard issubject to general personal jurisdiction within the state of Maine on thegrounds that Harvard carries on continuous and systematic activitieswithin the state of Maine including, inter alia, ownership of real estatein Maine, sending employees to recruit students in Maine, and thederivation of substantial revenues from tuition paid by Maine residents.See 13-A M.R.S.A. § 1213. Although Harvard originally raised thedefense of lack of personal jurisdiction, Harvard does not now contestthat it is subject to personal jurisdiction in Maine,20 and hasthereby waived this defense. See 13 CHARLES ALAN WRIGHT AND ARTHUR R.MILLER, FEDERAL PRACTICE AND PROCEDURE § 3522, at 78 (1984)("Jurisdiction over the person is a waivable defect.");see also, 14 M.R.S.A. § 704-A.
Accordingly, the Court has personal jurisdiction over Defendant Harvardin Maine. Plaintiffs assert that the Court has specific personaljurisdiction over Defendants Shleifer and Hay on the grounds that they,in person or through their agents, did or caused a tortious act to bedone, or caused the consequences of the tortious act to occur, within thestate of Maine.21 See 14-A M.R.S.A. § 704A. If a court cannotassert general jurisdiction over a defendant, it may, nevertheless, stillassert specific jurisdiction. See United Elec., Radio and Mach. Workersof America v. 163 Pleasant Street Corp., 960 F.2d 1080, 1088 (1st Cir.1992). The First Circuit has formulated a tripartite test for theascertainment of specific jurisdiction. Id., 960 F.2d at 1089. 20 Thus,"[s]pecific personal jurisdiction may be asserted where the cause ofaction arises directly out of, or relates to, the defendant's forum-basedcontacts." Id., 960 F.2d at 1088-89 (citations omitted). The"defendant's in-state contacts must represent a purposeful availment ofthe privilege of conducting activities in the forum state, therebyinvoking the benefits and protections of that state's laws and making thedefendant's involuntary presence before the state's courts foreseeable."Id., 960 F.2d at 1089. Finally, the exercise of jurisdiction must alsobe reasonable in light of certain "Gestalt factors." Id.
Plaintiffs contend that their claims relate to Maine. The FirstCircuit has distinguished the relatedness inquiries essential forcontract claims as opposed to tort claims. See Massachusetts School ofLaw at Andover, Inc. v. American Bar Association, 142 F.3d 26, 35 (1stCir. 1998).
For a contract claim, the Court looks to "whether the defendant'sforum-based activities are `instrumental in the formation of thecontract,'" id. (citing Hahn v. Vermont Law Sch., 698 F.2d 48, 51 (1stCir. 1983)); whereas, for a tort claim, the court examines whether theplaintiff has established both "`cause in fact (i.e. that the injury wouldnot have occurred `but for' the defendant's forum-state activity) andlegal cause (i.e. the defendant's in-state conduct gave birth to thecause of action).'" Id. (citing United Elec., Radio & Mach. Workers, 960F.2d at 1089).
Plaintiffs' claims in this case sound in tort. Thus, the Court willlook to see whether Plaintiffs have established cause in fact as well aslegal cause. Plaintiffs have alleged that the relevant contacts betweenShleifer and Hay with Maine stem from Harvard/HIID's business dealingswith Forum Consulting, including actions taken by agents22 of thenamed Defendants.Specifically, Plaintiffs have alleged thatrepresentations made to them in Maine adversely affected and interferedwith their prospective economic advantage in Forum's Contract with theRussian SEC, and that the Maine injury was a foreseeable consequence ofDefendants' alleged tortious conduct.
Plaintiffs have alleged that a conspiracy existed from the inception ofthe plan to involve Forum Consulting in the USAID project. The firstcontacts with Keffer and Forum Financial in Maine, Plaintiffs contend,gave birth to the injury because Defendants were planning to defraudPlaintiffs and, in fact, needed Plaintiffs in order to accomplish theirscheme.
But for Defendants' original contacts with and solicitation ofPlaintiffs' participation in the Russia Program, including Defendants'alleged misrepresentations about Plaintiffs' prospects for profits inhelping to set up a mutual fund industry in Russia, as alleged,Plaintiffs would not have been harmed. Plaintiffs have alleged atortious conspiracy relating to and arising from the very firstconverstations and meetings held by agents of Harvard, Shleifer, and Haywith Forum Financial in Maine. Since Plaintiffs allege that a conspiracyor fraudulent intent existed from the very beginning relating to theinitial contacts with Defendants in Maine, they have sufficiently allegedboth cause-in-fact and legal cause for the tort claims in Maine.
b. Minimum Contacts
Minimum contacts are particularly important to a jurisdictionalanalysis of tort claims: "In contradistinction to contractual cases,specific jurisdiction in tort cases depends largely on the strength of theconnection between the tortious conduct and the contact with the forum,rather than the purposeful availment of benefits in the forum." BarrerasRuiz v. The American Tobacco Company, 964 F. Supp. 613, 614 (D.P.R. 1997)(citing Thompson Trading v. Allied Lyons PLC, 123 F.R.D. 417, 426(D.R.I. 1989)). "[E]ven a single intended act may be sufficient tooblige a foreign corporation to submit to jurisdiction" in the forumstate. Barreras Ruiz, 964 F. Supp. at 614 (citing International Shoe v.Washington, 326 U.S. 310, 318, 66 S.Ct. 154, 159, 90 L.Ed. 95 (1945)).By knowingly initiating contact with and shipping a product into Maine,this Court has previously held that, a defendant "could have anticipatedinvoking the benefits of Maine law." Coolidge, 808 F. Supp. at 891.Similarly, this Court has previously found that a manufacturer'sawareness that its distributors' sales territories included Maine as atarget market was "the sort of conduct that `may indicate an intent orpurpose to serve the market in the forum State.'" Unicomp, Inc. v.Harcros Pigments, Inc., 994 F. Supp. 24, 27 (D.Me. 1998) (quoting AsahiMetal Industry Co., Ltd. v. Superior Court of California, Solano County,480 U.S. 102, 112, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987) (emphasis addedin Unicomp).
In the present case, Plaintiffs have alleged, "that Defendants traveledto Maine in connection with" the business transactions at issue. Inaddition to numerous mail, facsimile, and telephone communicationsdirected by Defendants to the state of Maine, it is uncontested thatHebert and Zagachin, who are alleged to be co-conspirators in thetortious activities, traveled to Maine at the direction of Hay to solicitthe contract with ForumFinancial. Additionally, Plaintiffs allege thatmoney was wired to Forum in Maine. Although mere awareness that one'sproduct (or financial payment) will end up in the forum state is notenough to foresee being subject to jurisdiction there, nevertheless,targeting and initiating an ongoing business relationship with a Mainecompany evinces an intent to avail oneself of the benefits of the forumstate, including participation in the market and access to its courts.See Unicomp, 999 F. Supp. at 26 (citing Asahi, 480 U.S. at 112, 107S.Ct. at 1026). Defendants in this case allegedly purposefully soughtout Forum, in Maine, because of its' expertise, and they traveled toMaine and initiated contacts with Forum in Maine in order to create thebusiness relationship, which became the subject of the ConsultingContract. Cf. Telford Aviation, Inc. v. Raycom National, Inc.,122 F. Supp.2d 44, 47 (D.Me. 2000) (holding that phone, fax, and mailcommunications alone were insufficient to constitute purposefulavailment). Such a course of conduct shows that Defendants focused theirbusiness efforts on entities and persons in the State of Maine. That issufficient "additional conduct," under Asahi, to establish "purposefulavailment" of the benefits of doing business in the Maine forum becauseit shows a specific intent on the part of Defendants to do so. SeeUnicomp, 999 F. Supp. at 26 (citing Asahi, 480 U.S. at 112, 107 S.Ct. at1026). The contacts with Maine are sufficiently related to thetransaction giving rise to the alleged torts to establish that Defendantspurposefully availed themselves of the jurisdiction of Maine.23 TheCourt finds Defendants Shleifer and Hay subjected themselves to personaljurisdiction in Maine by, inter alia, directing the actions of theiralleged agents in Maine.
The Court also looks to the "Gestalt factors" in order to determinewhether the exercise of jurisdiction is reasonable under the givencircumstances, i.e. whether it comports with "fair play and substantialjustice." These factors include: "the plaintiff's interest in obtainingconvenient and effective relief; the burden imposed upon the defendant byrequiring it to appear; the forum's adjudicatory interest; the interstatejudicial system's interest in the place of adjudication; and the commoninterest of all affected sovereigns, state and federal, in promotingsubstantive social policies." Donatelli v. National Hockey League,893 F.2d 459, 465 (1st Cir. 1990) (citations omitted). Defendants havethe burden to demonstrate that jurisdiction would not be reasonable. SeeCoolidge, 808 F. Supp. at 891.
In this case, the balancing of the Gestalt factors weighs in favor ofthe Court exercising personal jurisdiction over Defendants Shleifer andHay. As Maineresidents, Plaintiffs have a strong interest in litigatingthe case in Maine. Defendants, although residing outside the state, areboth United States citizens, and are not far away,24 and would not beunfairly burdened by being required to litigate in this Court as opposedto the District Court in Massachusetts. Litigating this case in Mainewould not be burdensome to Defendant Shleifer. Although Hay currentlylives in Russia, he formerly lived and worked in Massachusetts, and he isstill a United States citizen who maintains ties there. According to therecord, it appears that Defendant Hay has voluntarily consented topersonal jurisdiction in Massachusetts and, indeed, has been appearing inthe United States District Court for the District of Massachusetts as aDefendant against the United States. See United States v. President andFellows of Harvard College, Civ. No. 00-11977DPW (D. Mass., filed Sept.26, 2000). Hay cannot claim that jurisdiction in Maine — two hoursaway — is unreasonable. No other forum has a greater interest inhaving the case decided in its jurisdiction.25
Finally, Plaintiffs have further alleged that the Defendants soughtout, by activities directed into the state of Maine, Plaintiff Forum, aMaine company, for its expertise in international monetary policydevelopment and capital market abilities, and they might be expected toface litigation in the state of Maine, regardless of the fact that thesubject matter of the contract and the bulk of activities were performedoutside of the United States, e.g., in Russia. Consideration of theabove factors leads the Court to conclude that the exercise of specificpersonal jurisdiction over Defendants Shleifer and Hay is reasonable andappropriate in this case.
2. Personal Service on Hay
Defendant Hay reasserts the defense of lack of service of process byclaiming that personal service on his attorney was not "good andsufficient." Due process concerns require that notice be "reasonablycalculated, under all the circumstances, to apprise interested parties ofthe pendency of the action and afford them an opportunity to presenttheir objections." United States v. Giraldo, 45 F.3d 509, 511 (1st Cir.1995) (citing Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,314, 70 S.Ct. 652, 657, 94 L.Ed. 865 (1950)). In order to providepersonal service on Hay, Chief Judge Hornby directed that service ofprocess be made on attorney Lawrence Spiegel, Esq. of Skadden Arps SlateMeagher & Flom, LLP in New York pursuant to Fed.R.Civ.P. 4(f)(3). SeeOrder (Docket No. 22). Plaintiffs served, pursuant to that Order, aSummons and copy of the Complaint on Attorney Spiegel via certifiedmail, and the Return of Service was filed with this Court. Judge Hornbyconcluded "that service of process via Spiegel is appropriate given Hay'sefforts to evade service in Russia and Spiegel's recent acceptance ofservice on Hay's behalf in a case also involving Hay's business dealingsin Russia." Id. Attorney Speigel never argued that Hay failed to havenotice, or that Speigel was not in contact with Hay. In fact, DefendantHay obtained local counsel in Portland, Maine and filed a Motion toDismiss. It appears that the court-directed service toHay's attorney,Speigel, was reasonably calculated to, and did, in fact, accomplish suchnotice to Defendant Hay. The service of process on Hay comports with dueprocess, and is, therefore, "good and sufficient." United States v. OneUrban Lot, 885 F.2d 994, 998-99 (1st Cir. 1989) (quoting Mullane, 339U.S. at 314).
Defendants have moved for Transfer to the United States District Courtfor the District of Massachusetts because of improper venue, pursuant to28 U.S.C. § 1406, 1631, and 1404. Pursuant to 28 U.S.C. § 1406, aDistrict Court may transfer a case to another District Court if venue isimproper in the forum state or the Court lacks personal jurisdiction;under 28 U.S.C. § 1631, transfer is appropriate to cure want ofjurisdiction; and 28 U.S.C. § 1404 simply permits a change of venue"in the interest of justice" to any other district where it might havebeen brought.
Venue is proper in a judicial district (1) where any Defendantresides, (2) in which a substantial part of the events or omissionsgiving rise to the claim occurred, or (3) in which any Defendant issubject to personal jurisdiction. See 28 U.S.C. § 1391(a). If aDefendant is a corporation, venue is proper where there is personaljurisdiction. See 28 U.S.C. § 1391(c). Because the District ofMaine has personal jurisdiction over Defendants and a substantial part ofthe events giving rise to the claims occurred in Maine, venue is properin Maine, and transfer to Massachusetts is unnecessary under28 U.S.C. § 1406. Similarly, because the Court has jurisdiction overDefendants, 28 U.S.C. § 1631 is inapplicable here. See Pedzewick v.Foe, 963 F. Supp. 48 (D. Mass. 1997).
According to 28 U.S.C. § 1404(a), Plaintiff's choice of forum isentitled to great weight. See Ashmore, 925 F. Supp. at 39 (holding thatthe "First Circuit's clear directive [is] that [Plaintiff's] choice [offorum] should be given `substantial deference' whether or not Plaintiffsreside in the forum (citations omitted)). Defendants bear a substantialburden of demonstrating why there should be a change of forum, "[t]heevidence presented by Defendant must weigh heavily in favor of transferbefore this Court will disturb Plaintiff's choice of this forum —especially since this forum is Plaintiff's home forum." Demont &Associates v. Berry, 77 F. Supp.2d 171, 173 (D.Me. 1999) (citing, interalia, Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255-56, 102 S.Ct. 252,266, 70 L.Ed.2d 419 (1981)). While it appears that venue may also beproper in the District of Massachusetts, where the United States DistrictCourt would also have personal jurisdiction over the Defendants,Defendants have not met their burden of establishing that transfer iswarranted. Defendants' main argument in support of transfer appears tobe for their own convenience. This Court has held that the inconvenience"presumably due to the business costs of litigating in a venue a few hoursaway by car," when balanced with the "relative financial strength of theparties to absorb the costs of litigation," and "amorphous allegations ofinconvenience regarding unspecified documents, as with unnamedwitnesses, are inadequate to satisfy the required clear showing ofbalancing of conveniences in favor of [Defendant]." Ashmore, 925 F.Supp., at 39. Further, in Ashmore, this Court found that considerations"in the interest of justice" weighed in favor of denying the transfer ofvenue out of Maine because the parties could receive an earlierresolution of the matter in Maine than would likely be afforded becauseof a heavier Massachusetts docket, which would likely result in "sloweradjudication of the merits of the case." Ashmore, 925 F. Supp., at39-40.26 Additionally, Defendants have failed to show any significantburden imposed by a trial in Maine as opposed to Massachusetts (whereonly two of the Defendants reside) or Russia (where some of the eventsoccurred and only one Defendant resides). See Mahon, 579 A.2d at256-57. The convenience of Defendants when juxtaposed against theinterests of justice is simply insufficient to warrant transfer.
Defendants have further argued that this Court should exercise itsdiscretion in granting their motion for Transfer. Defendants rely onBayside Enterprises, Inc. v. Mattern's Hatchery, Inc., 741 F. Supp. 21,22 (D.Me. 1990), for support of their Motion for Transfer. In Bayside,the Court found that two similar cases proceeding in two differentfederal courts entailed duplicative litigation and granted Defendant'sMotion to Transfer. Bayside, 741 F. Supp. at 22. This Court's holdingin Bayside is distinguishable since there was not just an overlap ofissues with the same Defendants, as in this case, but the parties, bothPlaintiff and Defendants, were identical. The Court considered the orderin which jurisdiction was obtained by the two courts, the availability ofdocuments, and the possibilities of consolidation, and noted a generalpreference in a choice-of-venue decision for the first filed action. Id.Plaintiffs have argued that this case is not to be appropriatelyconsolidated with the case brought by the United States against theseDefendants in the District of Massachusetts because Plaintiffs are notparties to that case and Plaintiffs' claims represent only a small part ofthe factual issues presented in the pending Massachusetts case.
Consolidating Plaintiffs' case, they argue, would therefore risk itbecoming subservient to the more extensive and complex factual issuespresented in the federal lawsuit and would expose Plaintiffs tounnecessary and undue expense and delay. Weighing the factors notedabove, the Court finds that this suit does not warrant a discretionarytransfer under 28 U.S.C. § 1404(a). Accordingly, the Motion forTransfer will be denied.
4. Forum Non Conveniens
Defendants contend that the United States Court for the District ofMaine should decline to hear this case because the doctrine of forum nonconveniens provides that Russia would be a more appropriate forum for thedisposition of the matters at issue herein. "The doctrine of forum nonconveniens permits a trial court, on a discretionary basis, to dismiss acase where an alternative forum is a available in another country that isfair to the parties and substantially more convenient for them or thecourts." Nowak v. Tak How Investments, Ltd., 94 F.3d 708, 719 (1st Cir.1996) (citing Howe v. Goldcorp Invs., Ltd., 946 F.2d 944, 947 (1st Cir.1991), cert. denied, 502 U.S. 1095, 112 S.Ct. 1172, 117 L.Ed.2d 418.)Because "there is a strong presumption in favor of a plaintiff's forumchoice, the defendant must bear the burden of proving both theavailability of an adequate alternative forum and that considerations ofconvenience and judicial efficiency strongly favor litigating the claimin the alternative forum." Id. "Forum non conveniens is a flexible,practical doctrine designed to avoid trials in places so `inconvenient'that transfer is needed to avoid serious unfairness," and plaintiff'schoice of forum is to be disturbed only "rarely." Id. (citing Howe v.Goldcorp Investments, Ltd., 946 F.2d 944, 945 (1st Cir. 1991); PiperAircraft Co. v. Reyno, 454 U.S. 235, 259, 102 S.Ct. 252, 267, 70 L.Ed.2d419 (1981); Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507, 67 S.Ct. 839,842, 91 L.Ed. 1055 (1947)).
Assuming an adequate alternative forum exists in which the case may beheard, "the Court then must balance a series of private and publicinterests in determining whether to retain the case or dismiss it infavor of [the] alternative forum." Manela v. Garantia Banking Ltd.,940 F. Supp. 584, 590 (S.D.N.Y. 1996) (quoting citations omitted).Private interest factors include the "relative ease of access to sourcesof proof, availability of compulsory process, comparative trial costs,ability to enforce a judgment, `and all other practical problems thatmake trial of a case easy, expeditious and inexpensive.'" Nowak, 94 F.3dat 719 (quoting Gilbert, 330 U.S. at 508, 67 S.Ct. at 843). Publicinterest factors include "the practical difficulties of unnecessarilyimposing upon a busy court the obligation to hear a case more fairlyadjudicated elsewhere, the imposition on jurors called to hear a casethat has no relation to their community, and the familiarity of the courtwith applicable laws." Id. at 719-20. Defendants claim that this caseis at root a predominantly Russian affair, "Russian courts can decidecases arising out of economic torts" and that the alternative forum neednot be equivalent to the chosen forum to be adequate. Docket No. 44 at4.
Plaintiffs respond arguing that Defendants have failed to establishthat Russia would provide an adequate alternative forum for thislitigation. Specifically, Plaintiffs assert that all parties are UnitedStates citizens, there is no basis for the Court to conclude that eitherHarvard or Shleifer would be amenable to process in Russia or wouldconsent to suit there, and finally, although involving some transactionsand property losses in Russia, is essentially local to the MainePlaintiffs. Defendants also argue that issues of Russian law makeadjudication in Russia more appropriate. Plaintiffs deny that a UnitedStates Court will have to pass on any Russian laws in order to resolvethe controversy.
The Court finds that Defendants have failed to meet their burden ofdemonstrating either oppressiveness to them or that plaintiffs have no,or only a slight, interest in the convenience of Maine as the forum foradjudicating their claims. Some of the factors weighing against theapplication of the doctrine in this case include, inter alia, that allparties to this lawsuit are United States citizens, that all Plaintiffsare residents of Maine, that all Defendants but Hay are residents ofMassachusetts, and that a significant portion of the alleged tortiousactivity took place in Maine.
Defendants have failed to demonstrate that Russia provides an adequatealternative forum, that Defendants Shleifer and Harvard would be amenableto service of process in Russia or would consent to suit there, or theexistence of a specific witness or documents located in Russia, whichwould necessitate the litigation taking place there. Contrary toDefendants' assertions, it does not appear that the Court will have tointerpret or rule on any official Russian laws or decisions and, that,even if that should occur, the interpretation or application of someprovisions of Russian law would not be beyond the objective capacity ofthe Court. The fact that Russian SEC actions may be offered as proof inthe case may not require this Court's interpretation of underlyingRussian law. For the foregoing reasons, Defendants' motion for forum nonconveniens transfer is denied.
5. Failure to State a Claim Upon Which Relief Can Be Granted
Defendant Hay has moved to dismiss Plaintiffs' Complaint for failure tostate claims upon which relief can be grantedpursuant to Fed.R.Civ.P.12(b)(6). The Court will also address the sufficiency of the claimsagainst Defendants Shleifer and Harvard because each of those Defendantshas adopted the Hay's arguments. When evaluating a motion to dismissunder Rule 12(b)(6), the court takes the "well-pleaded facts as theyappear in the complaint, extending the plaintiff every reasonableinference in his favor." Pihl v. Massachusetts Dep't of Educ., 9 F.3d 184,187 (1st Cir. 1993). The First Circuit has stated, that in order tosurvive a motion to dismiss, "plaintiffs must set forth `factualallegations, either direct or inferential, regarding each materialelement necessary to sustain recovery.'" Doyle v. Hasbro, Inc.,103 F.3d 186, 190 (1st Cir. 1996) (citations omitted). The Court willaddress each claim, including each element of the claim, in turn.
a. Tortious Interference With Prospective Economic Advantage
In order to establish the elements of tortious interference withprospective economic advantage under Maine law, Plaintiffs must show "`theexistence of a valid contract or prospective economic advantage,interference with that contract or advantage through fraud orintimidation, and damages proximately caused by the interference.'"James v. MacDonald, 712 A.2d 1054, 1057 (Me. 1998) (quoting Barnes v.Zappia, 658 A.2d 1086, 1090 (Me. 1995)). In addition to the Contracthere, Plaintiffs have set forth allegations of the existence ofprospective economic advantage involving their business venture in Russiato create and launch the FRSD and the first mutual funds, and theirpotential advantage of earning profits over some period of time managingand administering the FRSD. The facts alleged in this case support aninference that Defendants' actions induced Plaintiffs to expect to profitfrom their substantial investment into developing a mutual fund industryin Russia. Plaintiffs have alleged that Hay told them that for theirefforts, they could expect to earn up to $2,500,000 from World BankFunds. Complaint ¶ 52. Plaintiffs also alleged that "Hay indicatedthat the Consulting Contract was an opportunity for Forum to earnrevenues which would support at least a portion of the start-up costsassociated with Forum maintaining a high-level staff in Russia to createand operate a specialized depository." Complaint ¶ 47.
Plaintiffs have also sufficiently alleged interference through fraud.Under Maine law a plaintiff alleges evidence sufficient to support a juryfinding of fraud for purposes of establishing tortious interference whena defendants "repeatedly promised the plaintiffs that they would receivea permit for the 1994-95 urchin buying season while at the same timeentering into formal agreements with other buyers, and that in relianceon [defendants'] assertions, [plaintiffs] failed to make alternativearrangements for urchin buying or to challenge the permit process."James, 712 A.2d at 1058. Similarly, Plaintiffs in this case have allegedthat Defendants solicited investors from California and around the UnitedStates, while simultaneously promising Plaintiffs that they would own(except for any necessary Russian ownership, e.g., 51 percent) andcontrol management of the FRSD. On May 14, 1996, one day after Forum wasnotified that the Russian SEC had selected its proposal, Hay, Hebert, andZagachin began offering to sell ownership of the FRSD to Zimmerman andother American investors. Complaint ¶ 56. Specifically, Hebertdescribed the management team of the specialized depository as includingherself as Chief Executive Officer and Zagachin as Chief OperatingOfficer, and she predicted large profits as a result of the managementteam's position of trust with the Russian SEC and the hiring of ILBE as aconsultant. Complaint ¶ 57. In James, the jury was permitted toinfer from circumstantial evidence an intent to interfere based ondefendants' repeated assurances to the contrary that plaintiffs would beissued a license, while they were accepting money and issuing permits toothers. James, 712 A.2d at 1058. Another aspect of the fraudulentinterference is evidenced by the contention that the Russian SEC, underShleifer's and Hay's influence, turned down qualified applications tooperate mutual funds and specialized depositories in Russia from CreditSuisse First Boston and Pioneer Group, Inc. as a part of a conspiracy towait for Shleifer and Hay to secure the first licenses for themselves.
Plaintiffs have also alleged interference through intimidation. InAugust of 1996, a series of events are alleged to have contributed toPlaintiffs' actions in selling their interest in Forum Russia and theFRSD, which they allege was done under duress. Shleifer and Hay toldPlaintiffs they had to sell or they would lose their Contract with theRussia SEC. After having been notified in May that Forum had beenselected to receive — or at least after July when Forum was granted— the World Bank Contract, Forum expected to earn profits beyondthe remuneration provided for in the Contract for consultant services,including profits from the continued management of the FRSD that theyhelped create. Around August 19, 1996, Hay informed Keffer that ForumConsulting would not be paid under the Consulting Contract unless certainconditions were met, which included Zagachin owning at least 51% of theFRSD, Zagachin managing control of the FRSD, and the FRSD administeringPallada's mutual fund by September 2, 1996. Initially, Keffer told Haythat these demands were unacceptable; however, after the meeting withButler, and exchanges between Keffer and Vasiliev, Plaintiffs determinedthey had no choice but to sell their interest in the Contract as it wasoriginally construed, i.e., as owners of Forum Russia and the FRSD.Hay's and Zagachin's attempt to transfer Plaintiffs' money beforeZagachin was the record owner is further evidence that Defendants weredetermined either to pressure Plaintiffs or simply go around them inorder to gain ownership themselves of the FRSD. After the meetings withButler, and under pressure from Hay and Vasiliev, Forum eventually soldnot only 51%, but all of Plaintiffs' ownership in the new entitites theyhad just created — namely Forum Russia and the FRSD — to acompany owned by Zagachin and financed by Hay. Plaintiffs,nevertheless, still thought they would have a role in the Russian mutualfund industry, i.e., as a "subcontractor." Plaintiffs, in fact,continued to work to make the fund operational and expected that theywould still be involved with the Consulting Contract, until they realizedHay's influence over Vasiliev. At that point Plaintiffs believed "thatthey had no choice but to stem their mounting financial losses by sellingForum Russia." Complaint ¶ 79. Plaintiffs have sufficiently allegeddamages resulting from the anticipated profits lost by the sale of theseentities to the Defendants and their agents. On the basis of theseallegations and inferences reasonably drawn from them, the Court findsthat Plaintiffs have stated a claim for which relief may be granted ontheir claim of Tortious Interference with Prospective Economic Advantage(Count V).
b. Aiding & Abetting Tortious Interference With Prospective Economic Advantage
Contrary to Defendant Shleifer's assertions, a defendant may be heldliable in tort under aiding and abetting liability theory, even fornegligence. Maine has recognized the tort of aiding and abettinga tortious action on the basis of section 876 of the RESTATEMENT OF TORTS.See Barnes v. McGough, 623 A.2d 144, 145 (Me. 1993); see also Prawer, 829F. Supp. at 457. Section 876 of the RESTATEMENT (SECOND) provides:
For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he (a) does a tortious act in concert with the other or pursuant to a common design with him, or (b) knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, or (c) gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to a third person.
RESTATEMENT (SECOND) OF TORTS § 876 (1979). The Comment on Clause(b) in the RESTATEMENT (SECOND) states,
If the encouragement or assistance is a substantial factor in causing the resulting tort, the one giving it is himself a tortfeasor and is responsible for the consequences of the other's act. This is true both when the act done is an intended [tort] and when it is merely a negligent act. . . . The rule applies whether or not the other knows his act is tortious. It likewise applies to a person who knowingly gives substantial aid to another who, as he knows, intends to do a tortious act.
RESTATEMENT (SECOND) OF TORTS § 876, comment on clause (b) (1979).Furthermore, this Court has previously held, "as with a claim of civilconspiracy, there must be alleged tortious conduct by another beforeaiding and abetting liability can be imposed." Prawer, 829 F. Supp. at457. Unlike the Plaintiff in Prawer, who failed to allege an independenttort, Keffer and Forum have alleged independent torts to which the aidingand abetting liability can attach. Id. In this case, as discussedbelow, Plaintiffs have sufficiently alleged that Shleifer committedindependent actions, including directing and supervising Hay and otheragents involved in committing the alleged fraudulent interference withPlaintiffs' prospective economic advantage, and, therefore, that Shleiferis culpable on each of the claims for which Hay must answer. Inparticular, Plaintiffs have stated a claim for relief on the Aiding andAbetting Tortious Interference with Prospective Economic Advantage (CountVI).
c. Fraudulent Misrepresentation
In order to establish liability in an action for fraudulentmisrepresentation under Maine common law, a plaintiff must show thatdefendant (1) made a false representation (2) of a material fact (3) withknowledge of its falsity or in reckless disregard of whether it is trueor false (4) for the purpose of inducing another to act or to refrainfrom acting in reliance upon it, and (5) the plaintiff justifiably reliedupon the representation as true and acted upon it to his damage. Letellierv. Small, 400 A.2d 371, 376 (Me. 1979). Plaintiffs allege that Hay madefalse representations to them regarding their ownership and control ofthe proposed mutual fund venture in Russia, which is the material issuein the case. Plaintiffs allege that Hay knew it was false when he toldPlaintiffs that they would own and control the proposed mutual fundspecialized depository and that they might expect to make millions fromthis business venture, e.g. he promised that up to $2.5 million dollarsin USAID funds would be spent on the Russia Program. The simultaneousattempts to secure alternate investors in the United States, while Hayallegedly promised Plaintiffs that they would own and controlthe entire portion not required by Russian law to be held by Russianinvestors or owners, further corroborate the notion that Hay intentionallymisled Plaintiffs. These representations by Hay were allegedly made toinduce Forum to invest its time, resources, and expertise in establishingthe necessary technical support to launch a mutual fund industry, whiledenying them an opportunity to profit from their own investment.Plaintiffs have also sufficiently alleged that they justifiably relied onrepresentations made by Hay — in making substantial investments oftime, money, staff, and other resources in order to make Forum Russia andthe FRSD operational — because they had no reason to know that thestatements were ill-motivated or false when made.
Under Maine law, "a principal is liable for the fraudulentmisrepresentations made by his agent within the scope of the agent'sauthority, whether or not the principal knows or is unaware of hisagent's misconduct." Crowley v. Dubuc, 430 A.2d 549, 552 (Me. 1981)(citing Leavitt v. Seaney, 113 Me. 119, 122, 93 A. 46, 47-48 (Me.1915)). Plaintiffs' claims against Hay apply with equal force toShleifer because Hay was allegedly Shleifer's agent.
Defendants have argued that Plaintiffs have failed to plead theirclaims of fraud with sufficient particularity as required byFed.R.Civ.P. 9(b). The Federal Rules have a liberal system of noticepleading, wherein Rule 8(a)(2) requires that a complaint include only "ashort and plain statement of the claim showing that the pleader isentitled to relief." Fed.R.Civ.P. 8(a)(2).
Rule 9 imposes a heightened pleading requirement for allegations offraud in order to give notice to defendants of the plaintiff's claim.See Fed.R.Civ.P. 9(b). Rule 9(b) states, "the circumstances constitutingfraud or mistake shall be stated with particularity. Malice, intent,knowledge and other condition of mind of a person may be averredgenerally." Fed.R.Civ.P. 9(b). The First Circuit has stated, "`Rule 9requires specification of the time, place, and content of an allegedfalse representation, but not the circumstances of evidence from whichfraudulent intent could be inferred.'" Doyle, 103 F.3d 186 at 194(quoting McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 (1stCir. 1980)). "[I]n considering a motion to dismiss, the Court must weighRule 9 against the general policy of Rule 8 notice pleading." Driscollv. Landmark Bank for Savings, 758 F. Supp. 48, 51 (D.Mass. 1991). "Rule9(b) does not require the plaintiff to present specific evidence;however, the plaintiff must identify some facts or circumstances tosupport the allegations of fraud, beyond the mere allegation of corporatemismanagement or general economic downturn." Driscoll, 758 F. Supp. at52 (citations omitted). "Complaints that merely restate the elements ofa claim are not sufficient to meet Rule 9(b). Thus, a complaint mustmake some step toward explaining how and why the statements made by thedefendants were false and misleading when made." Id. (internal citationomitted).
Plaintiffs have alleged that Hay and Hay's agents made statements toForum for the purpose of inducing Forum to enter into a contract with theRussian SEC. These statements consisted of promises that, after creatingand establishing a specialized depository, Plaintiffs could retainsignificant management and/or ownership control, from which they couldthereby derive substantial profits, above and beyond any contractualprice, which would reimburse them for the significant investments of timeand money required to set up such an institution from the ground up,including start-up costs. These statementswere alleged to have beenmade by Hay and his agents in March 1996 and again in May through July1996. Plaintiffs' Complaint has also alleged theories regarding themotives behind the false statements, i.e. Defendants were conspiring todefraud Forum of financial profits in order to benefit personally fromthe endeavor, which conflict-of-interest guidelines squarely forbade themfrom doing more openly. That is, based on their contractual agreementwith USAID, Defendants or their agents were barred from investingpersonally in the Russia Program operations, so they created and fundedother entities, such as Pallada and Oasis for that purpose. It isobvious why such statements would be misleading to Plaintiffs, ifDefendants not only intended to benefit themselves, but also offeredinvestment opportunities to American investors other than Plaintiffs.The simultaneity of Hay promising one thing to Plaintiffs, whilesoliciting other non-Russian investors the very next day, stronglysuggests that Hay and his agents knew the statements made to Plaintiffwere false at the time they were made. Therefore, Plaintiffs havealleged their claim of fraud with sufficient particularity, andDefendants' Motions to Dismiss on that ground will be denied.
d. Aiding and Abetting Fraudulent Misrepresentation
Plaintiffs have sufficiently alleged that Shleifer may be liable foraiding and abetting any fraudulent representations made by Hay.Plaintiffs have alleged that: (1) Shleifer was directly responsible forthe Russia Program, (2) Shleifer was Hay's supervisor, (3) Shleifer andhis wife traveled to Russia in connection with the Program, and (4)Shleifer's wife invested in the company that obtained the first mutualfund license. Defendant Shleifer contends that Plaintiffs have failed toallege facts that would show Shleifer was aware of the substance ofconversations that Hay had with Forum and Keffer, and that the conspiracyclaim is insufficient to establish liability on the part of Shleifer.The tort of misrepresentation requires not only that defendants made afalse statement, but also that plaintiffs relied on it to theirdetriment. See Salvador v. Meese, 641 F. Supp. 1409, 1414 (D.Mass.1986), (citing Kolikof v. Samuelson, 488 F. Supp. 881, 883 (D.Mass.1980)). Under Maine law, "`conspiracy' fails as the basis for theimposition of civil liability absent the actual commission of someindependently recognized tort." Prawer, 829 F. Supp. at 455, (citingCohen v. Bowdoin, 288 A.2d 106, 110 (Me. 1972) (emphasis in Prawer).
Here, plaintiffs have alleged several tort claims, including thatDefendant Shleifer aided and abetted Hay by acting "in concert" with himin committing the alleged torts. Plaintiffs rely on common law agencytheory and, alternatively, on a "conspiracy" theory,27 a "jointtortfeasor," or "joint enterprise" theory. See Complaint ¶¶ 101,116, 117, 129. As discussed above, by alleging that Hay was an employeeand agent of Defendant Shleifer, coupled with allegations of Shleifer'sdirect involvement in the scheme and indirect involvement through helpingto finance his wife's investments in the scheme, Plaintiffs havesufficiently alleged that Shleifer thereby committed an independent tortto support their opposition to Defendant Shleifer's motion to dismiss.
e. Negligent Misrepresentation and Aiding & Abetting Negligent Misrepresentation
Maine has adopted section 552 of the RESTATEMENT (SECOND) OF TORTS asthe appropriate standard for negligent misrepresentation claims, whichprovides:
One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
Perry v. H.O. Perry & Son Co., 711 A.2d 1303, 1305 (Me. 1998) (citingRESTATEMENT (SECOND) OF TORTS § 552(1) (1977)). Because Hayallegedly (1) made representations directly to Plaintiffs, (2) sent hisagents to Maine, and because (3) while in Maine, these agents alsoallegedly made representations, upon which Plaintiffs allegedly relied totheir detriment, Plaintiffs have stated a claim for relief on thiscount. Shleifer's supervisory role and his personal economic interestsin the deal sufficiently implicate him in Hay's and/or their agents'negligence for the purposes of this Motion to Dismiss.
f. Vicarious Liability Based on Apparent Authority
As a preliminary matter, Harvard may be vicariously, or derivatively,liable for actions taken by its agents, Shleifer and Hay. Under Mainelaw, "[a]gency is the fiduciary relationship which results from themanifestation of consent by one person to another that the other shallact on his behalf and subject to his control, and consent by the other soto act." Perry, 711 A.2d at 1305 (citing Defosses v. Notis, 333 A.2d 83,86 (Me. 1975)). An employer may be vicariously liable for the negligenceof its employees. See Legassie v. Bangor Publishing Co., 741 A.2d 442,444 (Me. 1999) (citing Bonk v. McPherson, 605 A.2d 74, 78 (Me. 1992)(referring to RESTATEMENT (SECOND) OF TORTS §§ 409-429 (1965))).Plaintiffs have credibly alleged that Harvard held out its employees— Shleifer and Hay — as cloaked with apparent authority toact on the institution's behalf and good name to conduct the business ofadministering and carrying out the USAID contracts. Therefore, to theextent that Plaintiffs have alleged their prima facie case againstShleifer and Hay and by positing that Harvard failed to properlysupervise, oversee or control Shleifer, Hay and their agents, Harvard maybe liable in tort to Plaintiffs.
Defendant Harvard contends that it has no vicarious liability in thiscase because Maine law provides no respondeat superior liability foremployers. Defendants rely on Swanson v. Roman Catholic Bishop ofPortland, 692 A.2d 441, 443-44 (Me. 1997), for the proposition that Mainecourts "have never decided that the negligent supervision of an employeeconstitutes an independent basis for liability on the part of anemployer." Id. Defendants have not accurately characterized the Mainelaw of respondeat superior. An employer could still be vicariouslyliable for actions of an employee based on agency principles. In Maine,"[u]nder the doctrine of respondeat superior, liability for tortious actsof a servant may be imputed to the master, [citations omitted] and theacts of an agent may be imputed to the principal." DiCentes v. R.P.Michaud, 719 A.2d 509, 513 (Me. 1998) (citing to W. PAGE KEETON, PROSSERAND KEETON ON THE LAW OF TORTS §§ 69, 70, at 499, 501 (5th ed. 1984);Bonk, 605 A.2d at 78). Maine recognizes the doctrine of apparent agencywherein "the principal knowingly or negligently holds someone out aspossessing authority to act for him or her, even though no actualauthority has been given." Williams v. Inverness Corporation,664 A.2d 1244, 1246 (Me. 1995) (citing Twin Island Dev. Corp. v.Winchester, 512 A.2d 319, 324 (Me. 1986)).
Defendant Harvard argues that Shleifer and Hay had no apparentauthority to act on Harvard's behalf and that Harvard had no knowledge oftheir activities. Plaintiffs respond that Harvard is liable on an agencytheory for tortious acts committed by its employees, who were cloakedwith apparent authority to act on behalf of Harvard. Shleifer and Haytransacted business with Plaintiffs and others using Harvard and HIIDletterhead, business cards, and credentials and were otherwise conductingvarious activities under the apparent aegis of Harvard. Therefore,Plaintiffs have sufficiently alleged that Shleifer and Hay had theapparent authority from Harvard to engage in the subject business dealingswith Plaintiffs.
g. Vicarious Liability Based on Scope of Employment
Defendant Harvard argues that it is not liable to Plaintiffs becauseShleifer, Hay, and other Harvard employees were acting outside the scopeof their employment when they allegedly committed the aforementionedtorts, including, inter alia, usurping personal opportunities for profitin violation of Harvard's and USAID's conflict-of-interest policies.Maine law does recognize vicarious liability for an employer under anintentional tort theory for an employee's actions while acting within thescope of his employment or when the employee acts outside the scope ofemployment if "the servant purported to act or to speak on behalf of theprincipal and there was reliance upon apparent authority, or he was aidedin accomplishing the tort by the existence of the agency relation."McLain v. Training and Development Corp., 572 A.2d 494, 498, (Me. 1990)(citing RESTATEMENT (SECOND) OF AGENCY, § 219 at 481 (1958) (emphasisin McLain). Plaintiffs point out that Shleifer's and Hay's expressauthority and responsibilities for HIID included obtaining and hiringsubcontractors to help administer the USAID Russia Project.
Therefore, Plaintiffs maintain, the solicitation and business dealingssurrounding Forum's involvement with the Russia Program were well withinthe scope of Shleifer's and Hay's responsibilities, and Harvard had aduty to supervise them properly. Plaintiffs' only burden at this stagewith regard to knowledge is to allege that Harvard knew or should haveknown of Shleifer's and Hay's dealings with Plaintiffs, the statementsmade to Plaintiffs, and subsequent financial arrangements involvingHarvard staff's pecuniary interest. Plaintiffs have alleged significantabuses of USAID funds, and high-level mismanagement of the HIID RussiaProgram. Whether Hay and Shleifer actually acted outside the scope oftheir employment will have to be addressed more precisely when theevidentiary record is more developed. At this time, however, Harvard hasfailed to sufficiently support such a defense.
Defendant Harvard avers that it owed no duty to Plaintiffs and,therefore, cannot be liable for negligence. In Maine, "the necessaryelements of a cause of action for negligence are a duty owed, a breach ofthat duty proximately causing the plaintiff's injuries and resultingdamages." Macomber v. Dillman, 505 A.2d 810, 812 (Me. 1986) (citationsomitted). Under Maine common law, negligence does not exist in theabstract, and whether one party owes a duty of care to another isa question of law. Williams, 664 A.2d at 1246 (citations omitted).Plaintiffs assert that Harvard's duty to the public and to subcontractingbusinesses stems from its holding out the ILBE, the HIID Russia Project,and other projects funded by USAID as legitimate, Harvard-sponsoredenterprises. Plaintiffs allege that Defendants Shleifer and Hay wereacting within the scope of their employment, thereby implicating theiremployer in their tortious actions. See McLain, 572 A.2d at 497; Nyerv. Carter, 367 A.2d 1375, 1378 (Me. 1977) (citing Harlow v. Perry,114 Me. 460, 463, 96 A. 775, 776 (1916)). Plaintiffs have not offeredspecific proof that Harvard knew of Shleifer's and Hay's actions, butPlaintiffs have credibly alleged that Harvard should have known of theiractions. Plaintiffs have made sufficient allegations of a general dutyowed to the public in its business transactions and of wrongful conducton Harvard's part to justify denial of the Motion to Dismiss on thisground.
6. Punitive Damages
Defendants claim that Plaintiffs are not entitled to punitive damagesas claimed in Count X.
With regard to Harvard's, Shleifer's, and Hay's liability for punitivedamages, the Supreme Court has held,
The Restatement of Agency places strict limits on the extent to which an agent's misconduct may be imputed to the principal for purposes of awarding punitive damages:
Punitive damages can properly be awarded against a master or other principal because of an act by an agent, if, but only if: (a) the principal authorized the doing and the manner of the act, or (b) the agent was unfit and the principal was reckless in employing him, or (c) the agent was employed in a managerial capacity and was acting in the scope of employment, or (d) the principal or a managerial agent of the principal ratified or approved the act.
Kolstad v. American Dental Association, 527 U.S. 526, 542-43, 119 S.Ct.2118, 2128 (1999) (holding that common law agency principles limitvicarious liability for punitive awards)(citing RESTATEMENT (SECOND) OFAGENCY (1957), § 217C; RESTATEMENT (SECOND) OF TORTS §909 (1977)). An evidentiary showing is necessary to discern whether aplaintiff qualifies for a punitive award, and the standards for imputingliability to an employer in the punitive damages context necessarilyrequire more facts than are before the Court on this Motion to Dismiss.Id. 527 U.S. at 540, 119 S.Ct. 2127; see also Kopenga v. Davric MaineCorporation, 727 A.2d 906, 911 (Me. 1999) (vacating punitive damage awardunder the Maine Human Rights Act because employer had no knowledge ofwrongdoing). Plaintiffs allege that Shleifer and Hay were acting in thescope of their employment when they contacted Forum and commenced abusiness relationship. Defendants were authorized by Harvard tosubcontract with businesses for transactions with the Russia Program.Plaintiffs have alleged that Harvard knowingly authorized Shleifer andHay to act on behalf of the Russia Program.
Maine law recognizes the availability of punitive damages based upontortious conduct only if the defendant acted with malice, express orimplied. Tuttle v. Raymond, 494 A.2d 1353, 1354 (Me. 1985). Punitivedamages based on implied malice is available "where deliberate conduct bythe defendant, although motivated by something other than ill will towardany particular party, is so outrageous that malice toward a personinjured as a result ofthat conduct can be implied." Id. 494 A.2d at1361; see also, Larose v. Berman, 122 A. 433 (Me. 1923) (upholdingpunitive damages for a tenant against a landlord whose agent willfullycommitted a tortious act where landlord authorized agent's actions).Under Maine law, a defendant may be liable for punitive damages "if hisagent acted willfully, but only in case the acts complained of wereauthorized by the defendant." Larose, 122 A. 433. The Restatementfurther provides that "a principal may be liable for punitive damages ifit authorizes or ratifies the agent's tortious act, or if it actsrecklessly in employing the malfeasing agent. The Restatement alsocontemplates liability for punitive awards where an employee serving in a`managerial capacity' committed the wrong while `acting in the scope ofemployment.'" Kolstad, 527 U.S. at 543, 119 S.Ct. at 2128.
Plaintiffs have alleged actions by Shleifer, Hay, and their agents,including the existence of a conspiracy to defraud Plaintiffs andintentionally manipulating the business relationship sufficient for theCourt to infer implied malice on Defendants' part. The details ofwhether Harvard authorized Defendants Shleifer's and Hay's specificconduct, as opposed to generally holding them out as agents or whethermalice on Harvard's part can be implied cannot be determined at thisstage of the case. Plaintiffs have sufficiently alleged the requisiteagency and employment relationships necessary to potentially implicateHarvard, and, therefore, Defendants' Motion to Dismiss the claim forpunitive damages is denied without prejudice at this time.
C. Affirmative Defenses
1. Failure to Include Indispensable Party in Count VI: Aiding and Abetting Tortious Interference
Defendants argue that Forum Consulting, Forum Russia, Vasiliev, and theRussian SEC are indispensable parties because the claims should have beenbrought by or against them in Contract, and because they are "the onlypersons (and entities) who could put the lie to these allegations." DocketNo. 5 at 24. Defendants are mistaken because, even assuming Vasiliev orother members of the Russian SEC may be necessary witnesses in theirdefense, that does not make them indispensable parties to this action,which is not a contractual claim. Nor is it clear to the Court thatDefendants have shown that these corporations even still exist, afterhaving been sold by Plaintiffs to Zagachin and the names apparentlychanged. This Motion will be denied because Defendants have not shownwhy these parties are indispensable in this action.28
2. Act of State Doctrine
Defendants have introduced the act of state doctrine as a defense tothis action. Having raised the act of state doctrine as an affirmativedefense, the burden of proof rests on Defendants to justify itsapplication. See Bigio v. Coca Cola Co., 239 F.3d 440, 453 (2d Cir. 2000)(citing Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682,694, 96 S.Ct. 1854, 48 L.Ed. 2d 301 (1976)). The United States SupremeCourt has made clear that "[a]ct of state issues only arise when a courtmust decide — that is, when the outcome of the case turns upon— the effect ofofficial action by a foreign sovereign. When thatquestion is not in the case, neither is the act of state doctrine."W.S. Kirkpatrick & Co., Inc. v. Environmental Tectonics Corporation,International, 493 U.S. 400, 406, 110 S.Ct. 701, 705, 107 L.Ed.2d 816(1990) (emphasis in original). Defendants have presented no evidencethat any official action by a foreign sovereign is an issue on which thisCourt must rule, let alone that the outcome of the case turns upon suchan action. Defendants have failed to offer any evidence to establishthat the essence of these claims require the Court to pass on thelegitimacy of a foreign act of state. They have instead merely profferedconclusory statements alleging that Shleifer and Hay are agents ofVasiliev and, therefore, agents of a foreign sovereign. This falls farshort of the necessary burden Defendants carry on this issue. Plaintiffshave alleged, regardless of any actions by the Russian SEC to terminatetheir contract, that Hay made certain misrepresentations to Forum.Moreover, the Contract with the Russian SEC is not itself in issue inthis litigation; rather, it is the alleged tortious interferencetherewith, as well as other tortious conduct on the part of Defendants,that are at issue here. The Court finds the act of state doctrineinapplicable as an affirmative defense upon the evidence in the recordcurrently before the Court, and will deny Defendants' Motion to Dismisson this ground.
3. Release Agreement/Enforceability of the Contract Waiver
Defendants argue that the Release Agreement bars each of Plaintiffs'claims because they are "connected to," "in connection with," or made"under" Plaintiffs' Contract with the Russian SEC. Plaintiffs contendthat the recovery they seek is not on the contract and, therefore, thatthe Release Agreement they executed with the Russian SEC does not barthis action. Docket No. 8 at 20. Specifically, Plaintiffs maintain thattheir claims: (1) do not involve the consulting services renderedpursuant to the Consulting Agreement executed on July 25, 1996, and (2)rather, they involve Defendants' alleged misrepresentations thatPlaintiffs would own, and control the management of, the FRSD.Plaintiffs further contend that, even if the Contract is relevant totheir claims, the Release Agreement is specific and relates only toissues regarding the "performance and payment for services rendered" underthe Consulting Contract and that they are seeking to recover for a broaderand different type of claim. The Law Court has held that parties maycontractually limit negligence liability where the plain language of theagreement "`expressly spell[s] out with the greatest particularity theintention of the parties contractually to extinguish negligence liability.'"Hardy v. St. Clair, 739 A.2d 368, 369-70 (Me. 1999) (quoting Doyle v.Bowdoin College, 403 A.2d 1206, 1207 (Me. 1979) (internal quotationsomitted)). In Hardy, the parties contracted to release the defendants fromany and all claims "arising out of" or "related to" the events at issue.Id. 739 A.2d at 370. Further, in Hardy, there was other broader languageindicating that the agreement was to be "`A COMPLETE AND UNCONDITIONALRELEASE OF ALL LIABILITY TO THE GREATEST EXTENT ALLOWED BY LAW.'" Id.The Release at issue in the case at bar significantly differs from therelease in Hardy. The Release is specifically addressed to "claims . . .or causes of action of every kind and nature in connection with theContract." Docket No. 30, Ex. B. This language is insufficient toplainly and unequivocally release claims for damages not based on theContract. In sum,Plaintiffs have brought no contractual claims in theirComplaint and, therefore, the specific provisions in the Release relatingto such claims do not now appear to bar these claims.
4. Immunity as a Nonprofit, Charitable Organization
Defendant Harvard has also claimed immunity as a nonprofit, charitableorganization. Under Maine common law, the defense of charitable immunityis an affirmative defense that a corporate defendant must plead and provein order to escape liability under that doctrine. See Isaacson v. HussonCollege, 297 A.2d 98, 102 (Me. 1972). As the Law Court has explained,"in order to qualify for charitable immunity, an institution, must, interalia, derive its funds `mainly from public and private charity.'"Thompson v. Mercy Hospital, 483 A.2d 706, 707 (Me. 1984) (citationsomitted). Defendant Harvard has failed to carry its burden ofestablishing, on this record, that it derives its funds mainly fromcharity and, therefore, the affirmative defense of charitable immunity isinapplicable to it in this case.
It is ORDERED that Defendants' Motions to Dismiss be, and they arehereby, DENIED. It is further ORDERED that Defendants' Motions toTransfer be, and they are hereby, DENIED. Finally, Defendant Hay's Motionto Strike Plaintiff's Supplemental Memorandum be, and it is hereby,DENIED.
1. Chief Judge Hornby recused himself by an Order of Disqualification(Docket No. 40) filed on April 27, 2001, because of an event occurring onApril 20, 2001. Plaintiffs subsequently waived the disqualification(Docket No. 42) but the Defendants did not agree to such waiver. Thecase was subsequently reassigned for further action to the undersignedjudge.
The record now before this Court is that which was before Chief JudgeHornby plus the fruits of the limited discovery on the jurisdictionalissues authorized by Judge Hornby and the findings made subsequent tocompletion of that discovery. No party questions this Court's relianceon the discovery results in considering the recent motion to dismiss onthe personal jurisdiction grounds. In fact, all parties have relied uponthese materials in arguing their respective positions on theseissues.
2. Although no party has objected to Keffer's standing as a Plaintiffin this case, the Court notes that the Complaint identifies ForumFinancial Group, LLC ("Forum") as the corporate Plaintiff. It alsoidentifies John Keffer as an owner of Forum, however the Court can findno further allegation set forth in the Complaint that would justify Mr.Keffer's standing as a Plaintiff in this case because of activities takenby or on behalf of Forum Financial Group, LLC. The Court is struck bythe lacunae of allegations sufficient to establish a predicate for Mr.Keffer to claim damages on his personal behalf. The issue not havingbeen raised by either party in the case, the Court makes nodisposition.
3. The USAID agreements with Harvard further required Harvard andHarvard employees to be "a completely neutral third party, void of anyvested interest in the contracting process." Complaint ¶¶ 14,17.
4. The Complaint speaks only of residence and citizenship. To theextent that the domicile of a Defendant would be relevant to or haveweight in any jurisdictional determination of this Court, there simply isno sufficient predicate for the Court to consider any Defendant'sdomicile in making its determination.
5. It also is alleged that Shleifer and Hay caused Harvard (doingbusiness as HIID) to execute a contract with the Institute for Law-BasedEconomy ("ILBE") to provide economic and legal advice to the Russiangovernment. Complaint ¶ 26.
6. Butler was also retained to represent Harvard, Shleifer, and Hay inthe federal investigation concerning the administration of the HarvardRussia Program. Complaint ¶ 72.
7. These payments, it is alleged, were made to a foreign bank accountto avoid the imposition of Russian taxes. Complaint ¶ 32.
8. To support this claim, Plaintiffs contend that the Russian SECturned down qualified applications to operate mutual funds andspecialized depositories in Russia from Credit Suisse First Boston andPioneer Group, Inc. as a part of the conspiracy because they were waitingfor Shleifer and Hay to secure the first licenses for themselves.Complaint ¶ 37.
9. Hay, with approval of Shleifer and Zimmerman, tried to convinceZimmerman's business partner, Thomas F. Steyer ("Steyer"), to buy thespecialized depository and first Russian mutual fund. Steyer was partowner with Zimmerman of Farallon Fixed Income Associates LimitedPartnership. Complaint ¶ 56. Hebert was actively marketing toAmerican investors ownership interest in the Russian mutual fund andspecialized depository. Complaint ¶ 56.
10. Hebert and Pallada were provided with the services of Harvardemployees, office equipment, and office space — all financed withUSAID funds. Complaint ¶ 60.
11. Plaintiffs make several references in the Complaint to the sourcesof funding. It is impossible to determine at this time whether thesource of funds may be significant or relevant.
12. It is alleged that, on August 20, 1996, before Plaintiffs hadagreed to sell the FRSD, Hay attempted to misappropriate Keffer andForum's capital investment by instructing Zagachin to transfer the fundsin Plaintiffs' Citibank account. Complaint ¶ 75. Under Hay'sdirection, Zagachin went to Citibank and instructed Citibank employees totransfer the $400,000 from the cash custody account into the operatingaccount of the FRSD. Citibank notified Forum of this attempt, and Foruminstructed Citibank that Zagachin did not have the authority to transferthe funds, and Citibank consequently refused to conduct the transaction.Complaint ¶ 75.
13. For example, Hay had instructed Forum to delay the work ofrevising Russian SEC regulations and the mutual fund infrastructure,including the regulatory framework for a mutual fund industry, and towork only on the portions of the Consulting Contract relating to creatingthe operational procedures necessary to create and license thespecialized depository. Complaint ¶ 61.
14. Plaintiffs point out in their Supplemental Memorandum of Law inOpposition to Defendants Andrei N. Shleifer's (sic) and Jonathan Hay'sMotions to Dismiss, that Hay admitted in his Answer (Hay Answer at ¶¶56-59), "that his father made a `bridge loan' to Hebert, of which$200,000 came from a joint account containing Hay's funds, and thatHebert then made a $400,000 loan to Zagachin — which funds wereused to purchase the First Russian Specialized Depository ("FRSD") forOasis Financial Services, Inc., a holding company standing in Zagachin'sname. Docket No. 48.
15. Plaintiffs made no mention of the Release in their Complaint;however, Defendants raised the issue of the Release as an affirmativedefense. Defendants attach as Exhibit B to Docket No. 2 two copies ofthe Release, each signed by only one party, which appear to have beenfaxed to each other. Neither the pleadings nor the record containsinformation regarding where geographically the release was signed.
16. The First Circuit Court of Appeals has held that when "acomplaint's factual allegations are expressly linked to — andadmittedly dependent upon — a document (the authenticity of whichis not challenged), that document effectively merges into the pleadingsand the trial court can review it in deciding a motion to dismiss underRule 12(b)(6)." Beddall v. State Street Bank and Trust Company,137 F.3d 12, 17 (1st Cir. 1998) (citing, inter alia, 2 JAMES WM. MOORE ETAL., MOORE'S FEDERAL PRACTICE § 12.34 (3d ed. 1997) (explainingthat courts may consider `[u]ndisputed documents alleged or referenced inthe complaint' in deciding a motion to dismiss); see generallyFed.R.Civ.P. 10(c) (stating that `[a] copy of any written instrumentwhich is an exhibit to a pleading is a part thereof'). Id. The Courtalso notes that Defendants do not dispute the legitimacy of the documentscontained in the exhibits offered in Plaintiffs' Supplemental Memorandumof Law in Opposition to Defendants Shleifer's and Hay's Motions toDismiss, rather Defendants contest the imputed meaning or inferences tobe drawn from the documents, material questions of fact which are notbefore the Court on a Motion to Dismiss. Notwithstanding that muchrecord evidence "is out-of-bounds in reviewing a 12(b)(6) dismissal, itis well-established that in reviewing the complaint, we `may properlyconsider the relevant entirety of a document integral to or explicitlyrelied upon in the complaint, even though not attached to the complaint,without converting the motion into one for summary judgment." CloroxCompany Puerto Rico v. Proctor & Gamble Commercial Company, 228 F.3d 24,32 (1st Cir. 2000) (citing Shaw v. Digital Equip. Corp., 82 F.3d 1194,1220 (1st Cir. 1996)).
17. The Court notes, again, that the source of funds used to payZagachin's expenses is not in the record or pleadings before theCourt.
18. Plaintiffs and Defendants have cited to Maine law in theirpleadings, and neither party has argued that Massachusetts law shouldapply. No contention is made that substantive Russian law, as opposed toMaine substantive law, should be applied in resolving the subjectmotions.
19. Moreover, Defendants would not be helped by the application ofMassachusetts agency law, for example, where a principle may be heldaccountable in tort for unauthorized acts of an agent not too far removedfrom the scope of his authority even though, strictly, they were notauthorized. See Doody v. John Sexton & Company, 411 F.2d 1119 (1st Cir.1969).
20. Defendant Harvard references a prior Statement of DefendantPresident and Fellows of Harvard College Regarding PersonalJurisdiction, made on February 15, 2001, in which Harvard waived itsright to contest personal jurisdiction. See Defendant President andFellows of Harvard College's Renewed Motion to Dismiss (Docket No.47).
21. Since Plaintiffs do not assert general jurisdiction over Shleiferand Hay, the Court will not address that basis for personaljurisdiction.
22. Specifically, Plaintiffs have alleged that Elizabeth Hebert, JuliaZagachin, and Nancy Zimmerman were agents of Hay, Shleifer, and Harvard,and that Shleifer and Hay were agents of Harvard. The Law Court has heldthat in order to establish a claim against a corporate entity based onvicarious liability, a plaintiff must show that the actor was anemployee, and the vital factor in determining that relationship is"`whether or not the employer has the power of control or superintendenceover' the other person." See Legassie v. Bangor Publishing Company,741 A.2d 442, 444 (Me. 1999) (citing Timberlake v. Frigon & Frigon,438 A.2d 1294, 1296 (Me. 1982)). Maine agency law similarly focuses oncontrol: "Agency is the fiduciary relationship `which results from themanifestation of consent by one person to another that the other shallact on his behalf and subject to his control, and consent by the other soto act.'" Perry v. H.O. Perry & Son Co., 711 A.2d 1303, 1305 (Me. 1998)(citing Desfosses v. Notis, 333 A.2d 83, 86 (Me. 1975)). For purposes ofthese Motions to Dismiss, the Court finds that Plaintiffs havesufficiently alleged such a relationship among the parties, based onMaine agency law and vicarious liability principles.
23. Although Plaintiffs' claims are not grounded in contract, anotherFirst Circuit case involving a contract nevertheless lends additionalsupport to the Court exercising personal jurisdiction over Defendants.In Pritzker v. Yari, 42 F.3d 53, 62 (1st Cir. 1994), the Court foundjurisdiction in part because the nonresident defendant, by contract, had"knowingly acquir[ed] an economically beneficial interest" in forum-basedlitigation involving forum-based real estate. Although the defendantswere not a party to Plaintiffs' Contract with the Russian SEC, Defendantsnevertheless sought to profit (albeit indirectly) from relationships andtransactions surrounding and resulting from that Contract.
Despite the fact that Harvard's own conflict of interest policies, aswell as USAID policies, strictly prohibited Defendants from obtaining anypersonal, financial or commercial interest in their dealings with Forum onthe Russia Project, Plaintiffs allege that Defendants neverthelessintended to, and attempted to, personally profit from their involvementwith Forum's Consulting Contract with the Russian SEC.
24. For a more detailed discussion see infra section on Transfer.See, e.g., Ashmore, 925 F. Supp. 36 (holding that transfer fromPortland, Maine to Boston, Massachusetts was unnecessary based on thealleged inconvenience to Defendants residing in Massachusetts, i.e., atwo-hour car ride away from the forum was not inconvenient enough towarrant transfer).
25. For a more detailed discussion of the Massachusetts' interest inthis litigation see infra Section on Transfer.
26. Administrative Office of the United States Courts, 2000 FederalCourt Management Statistics at 37 & 38 (2001).
27. See Abeloff v. Barth, 119 F.R.D. 315, 324 (D.Mass. 1988) (holdingthat a claim of conspiracy need not be separately pleaded in order forthe co-conspiracy theory of venue to apply and holding that alldefendants are properly subject to venue where it may be found over anydefendant, i.e., where "any act [was] committed material to and infurtherance of an alleged scheme.")
28. In the event that Shleifer and/or Hay are successful in theirmotions, Harvard has moved to dismiss pursuant to Fed.R.Civ.P. 19 forfailure to join an indispensable party, i.e., Shleifer and Hay. BecauseDefendants Shleifer's and Hay's Motions to Dismiss will be denied,Defendant Harvard's Rule 19 argument is moot and does not warrantfurther discussion.