Sanders v. State Street Bank and Trust Co.

813 F. Supp. 529

W.E. "Sonny" SANDERS, et al., individually and on behalf of all others similarly situated, v. STATE STREET BANK AND TRUST COMPANY.

Civ. A. No. G-92-500.

United States District Court, S.D. Texas, Galveston Division.

February 18, 1993.

Gregory B. Enos, Burwell & Enos, Inc., Texas City, TX, for plaintiffs.

Ervin A. Apffel, McLeod Alexander Powel & Apffel P.C., Galveston, TX, Alice J. Smith, Zachary D. Fasman, Paul Hastings Janofsky & Walker, Washington, DC, for defendant.

ORDER

KENT, District Judge.

Before the Court are several motions filed by Defendant State Street Bank and Trust Company ("State Street"): a Motion to Dismiss Plaintiffs' Securities Act Claim Pursuant to F.R.C.P. 12(b)(6); a Motion to Dismiss Pursuant to F.R.C.P. 12(b)(2) for Lack of Personal Jurisdiction over the Defendant; a Motion to Dismiss Plaintiffs' ERISA Count Pursuant to F.R.C.P. 12(b)(3) for Improper Venue; a Motion to Transfer Venue; and a Motion to Dismiss Plaintiffs' Common Law Fraud and Negligent Misrepresentation Claims. Because the Plaintiffs' First Amended Complaint omits any allegation that State Street violated the Securities Act, the Court does not address the motion concerning this matter, and that motion is hereby STRICKEN as moot. As to the other motions, for the reasons set forth below, the Court DENIES State Street's: Motion to Dismiss for Lack of Personal Jurisdiction; Motion to Dismiss Plaintiffs' ERISA Claim for Improper Venue; and Motion to Transfer Venue. However, the Court GRANTS State Street's Motion to Dismiss the Plaintiffs' Common Law Fraud and Negligent Misrepresentation (and grossly negligent) Claims.

Facts

This suit arises out of the alleged mishandling of an employee savings plan which State Street administers for the employees of Amoco Corporation. According to the Plaintiffs' First Amended Complaint, this savings plan permits employees to make contributions from their paychecks to individual accounts that are matched dollar for dollar by Amoco up to certain levels. Participants in the plan then choose to invest these funds into Amoco stock, the money market, and/or U.S. Savings Bonds.

As the plan was originally formulated, employees adjusted the orientation of their investments among the three investment alternatives—called a "spot transaction"— by making a written request at the personnel office where they worked. However, when Amoco hired State Street to administer the plan on October 1, 1991, State Street abolished this system, instituting instead a system wherein spot transactions could be made over the telephone. The Plaintiffs' allegations against State Street revolve around problems that State Street apparently experienced with this telephonic spot transaction system.

The alleged problems began soon after State Street assumed the administration of the savings plan when the price of Amoco's stock began to fall. Naturally, those employees who had invested their savings plan funds in Amoco stock desired to reinvest in the money market or savings bonds. However, although there are approximately 33,000 participants in Amoco's employee savings plan, the Plaintiffs allege that State Street assigned only six operators to handle the spot transactions from the Amoco plan, a number wholly and manifestly insufficient to manage the enormous volume of calls caused by the drop in Amoco stock. Apparently, many plan participants were unable to get through to the State Street operators to make their spot transactions and, consequently, suffered a substantial decrease in the value of their savings plans.

Subsequent to these events, the nine Plaintiffs who seek to be certified as a class representing all plan participants filed suit in this Court. The Plaintiffs' First Amended Complaint contains four causes of action. The first two claims allege that both Amoco and State Street breached the fiduciary duty imposed by section 1104(a)(1)(B) of the Employee Retirement Income Security Act ("ERISA") which savings plan administrators owe to plan participants. The other two claims allege that State Street both engaged in common law fraud and made negligent and grossly negligent misrepresentations. The Plaintiffs also seek equitable relief ordering State Street to alter the system of making spot transactions by telephone so that it handles a large number of calls more efficiently.

Motion to Dismiss for Lack of Personal Jurisdiction

The first motion that the Court considers is State Street's assertion that the Court lacks personal jurisdiction over this dispute. Once a court's ability to exercise personal jurisdiction is challenged, the party seeking to establish jurisdiction must make a prima facie showing that personal jurisdiction exists. See, e.g., Rittenhouse v. Mabry, 832 F.2d 1380, 1382 (5th Cir. 1987).

Two conditions must be met before a federal court can exercise jurisdiction over a non-resident defendant: (1) the long arm statute of the state in which the court resides authorizes the exercise of jurisdiction; and (2) the exercise of jurisdiction is consistent with federal constitutional guarantees. Rittenhouse, 832 F.2d at 1383-84. Because the Texas long arm statute extends to the limit permitted by the due process clause, Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex.1990), this determination necessarily only involves a determination of whether the exercise of jurisdiction is constitutional. See Helicopteros Nacionales de Colombia S.A. v. Hall, 466 U.S. 408, 413-14, 104 S.Ct. 1868, 1871-72, 80 L.Ed.2d 404 (1984); Rittenhouse, 832 F.2d at 1384.

To satisfy federal due process, a plaintiff must demonstrate that the defendant has established minimum contacts with the forum state and that the assertion of jurisdiction will comply with fair play and substantial justice. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476, 105 S.Ct. 2174, 2184, 85 L.Ed.2d 528 (1985); Hall, 466 U.S. at 414, 104 S.Ct. at 1872; International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Under the minimum contacts analysis, a court must determine "whether the nonresident defendant has purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws." Burger King, 471 U.S. at 474-75, 105 S.Ct. at 2183. Although not an independent component of minimum contacts analysis, the concept of foreseeability is implicit in the requirement that there be a substantial connection between Texas and the nonresident defendant arising from the conduct purposefully directed by the defendant toward this state. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

In the Court's estimation, State Street possesses ample contacts with this forum. First, State Street sends quarterly statements to all savings plan participants, 10,221 of whom live in Texas, and mails promissory notes and checks to plan participants who take out loans against their savings plan funds. Additionally, State Street has provided the plan participants with a toll free number with which they can contact State Street and obtain information concerning their account or conduct spot transactions. State Street points out with some justification that the purposeful direction of this contact towards Texas is somewhat militated by the fact that State Street provided this number to plan participants nationwide, not just in Texas. State Street further cites two cases in which the existence of a toll free number did not provide the courts with sufficient contact to exercise jurisdiction. Franceschi v. Hyatt Corp., 747 F.Supp. 138, 142 (D.P.R. 1990); Smith v. Outward Bound, Inc., No. 89-2007, 1990 WL 161044 (E.D.La. Oct. 15, 1990). However, the significance of the nationwide scope of the toll free number is diminished by the fact that State Street's number is not totally accessible to the general public. State Street assigned a personal identification number to each plan participant to use when calling. Without this identification number, the toll free number is largely useless. Moreover, the extension of these personal identification numbers to Texas plan participants is yet another contact with this state.

Still another contact that State Street has with Texas arises out of Amoco's selection of State Street as the plan administrator. In order to become the administrator, State Street had to obtain the approval of the various Amoco employee unions, one of which was the Oil, Chemical & Atomic Workers Local Union 4-449 in Texas City, Texas. The affidavit of W.E. "Sonny" Sanders indicates that before State Street was accepted by the Texas City union, presentations were made at a union meeting regarding the various attributes and benefits of allowing State Street to administer the Amoco savings plan. In the Court's mind, these presentations constitute an unambiguous and purposeful availment of the privilege of conducting activities within Texas.

Finally, the Court concludes that State Street possesses sufficient minimum contacts with this state simply by virtue of being the plan administrator. State Street administers the savings plans of over 10,000 individuals who reside in this state. These individuals earn the money that they contribute to their savings plans in this state and any transaction altering the orientation of their investments are, from their perspective, made within this state as well. While State Street may conduct its entire operation in Massachusetts, the unvarnished fact is that any action that it takes in regard to the savings plan has a real and important effect in Texas. It is not unreasonable to presume that State Street foresaw this fact and the fact that if any problems occurred with the plan that it would be called to account in the forum where huge numbers of the aggrieved plan participants reside.

Having determined that State Street has minimum contacts with this state, the Court must...