Fornaro v. McManus CV-97-89-SD 12/16/97 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Rex Fornaro

v. Civil No. 97-89-SD

James McManus; George Lindemann; Bryan Bedford; Gary E. Ellmer; Edmund R. McGill Marketing Corporation of America; Pamela Cantin

O R D E R

This negligence claim arises from the alleged wrongful

termination of plaintiff Rex Fornaro from employment at Business

Express (BEX). Before the court are defendants' motions to

dismiss, to which plaintiff objects.

Statement of Facts

In December 1992 plaintiff Fornaro began work as a flight

dispatcher for BEX. In January 1994 Fornaro called the FAA

hotline complaining of alleged understaffing of flight

dispatchers at BEX. Shortly thereafter, BEX fired Fornaro. He

repeatedly contacted various of his supervisors seeking appeal of

his termination, but BEX supervisors never granted Fornaro's requested appeal.

Fornaro then filed a claim against BEX alleging wrongful

discharge and breach of contract in the Connecticut Superior

Court. Subsequently, BEX filed for bankruptcy, and the

Connecticut action was stayed under the automatic stay of section

362 of the Bankruptcy Code,

(1997).

Fornaro filed the present action against various BEX

employees and shareholders alleging negligence.

Discussion

Defendants George Lindemann, Edmund R. McGill, Bryan Bedford,

and Marketing Corporation of America (MCA) move to dismiss the

claims against them for lack of personal jurisdiction.

When a court asserts personal jurisdiction over a defendant,

it is exercising power which, like all government exercises of

power, is subject to constitutional limits. See Foster-Miller,

Inc. v. Babcock & Wilcox Canada,

(1st Cir.

1993). Here, those limits stem from the Due Process Clause of

the Fourteenth Amendment. See Helicopteros Nacionales de

Colombia, S.A. v. Hall,

(1984) (citing

Pennoyer v. Neff,

(1877)). For the court to properly

assert personal jurisdiction, the defendant must have had

"certain minimum contacts with [the forum] such that the

2 maintenance of the suit does not offend 'traditional notions of

fair play and substantial justice.'"

(quoting International Shoe Co. v. Washington,

(1945)); accord Burnham v. Superior Court of Cal.,

County of Marin,

(1990). Minimum contacts

analysis focuses on the expectations of the defendant requiring

that his conduct bear such a "substantial connection with the

forum [s]tate" that the defendant "should reasonably anticipate

being haled into court there." Burger King Corp. v. Rudzewicz,

(1985) (internal quotations omitted).

The First Circuit uses a three-part test to determine

whether the defendant has had sufficient minimum contacts with

the forum state to support personal jurisdiction:

First, the claim underlying the litigation must directly arise out of, or relate to, the defendant's forum-state activities. Second, the defendant's in­ state contacts must represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state's laws and making the defendant's involuntary presence before the state's courts foreseeable. Third, the exercise of jurisdiction must, in light of the Gestalt factors, be reasonable.

United Elec. Workers v. 163 Pleasant Street Corp.,

,

1089 (1st Cir. 1992).

In this case, personal jurisdiction over defendants

Lindemann, McGill, Bedford, and MCA fails for lack of

relatedness. The "relatedness" inquiry focuses on the causal

3 nexus between the injury underlying plaintiff's cause of action

and the defendants' forum-based activities. Here, Fornaro's

injury by loss of employment is not causally related to

defendants' New Hampshire activities, which were minimal at best.

Fornaro's loss of employment was caused by defendants' allegedly

negligent acts that occurred at BEX's principal place of business

in Westport, Connecticut, where all the individual defendants

worked. Defendants' only New Hampshire activities were brief

business trips which bore no relation to plaintiff Fornaro or his

employment at BEX. Thus, plaintiff's injuries arose from

defendants' Connecticut activities, not their New Hampshire

activities.

Granted, for minimum contacts analysis, it is not always

necessary that a defendant engage in activity in the forum.

Anderson v. Century Products Co.,

(D.N.H.

1996). Under the effects test, Calder v. Jones,

(1984), out-of-state activity that is intended to cause a

tortious injury in the forum may suffice. However, defendants'

Connecticut activities do not gualify as New Hampshire contacts

under the Calder effects test for two reasons. First, the Calder

doctrine applies to out-of-state tortious conduct that is

directed at the forum and intended to cause injury there, as

opposed to undirected negligence. California Software, Inc.

4 Reliability Research,

(C.D. Cal. 1986).

Here, Fornaro merely alleges that defendants acted negligently,

not intentionally. Second, and more important, defendants'

allegedly tortious Connecticut activities did not cause any

effects in New Hampshire because plaintiff lived in New Jersey

and worked in BEX's Connecticut offices.

In sum, Fornaro's claims against defendants Lindemann,

McGill, Bedford, and MCA have no relation to New Hampshire, and

jurisdiction over them is improper.

Defendants Cantin and Ellmer do not contest jurisdiction,

presumably because they currently reside and work in New

Hampshire. Discussion will now turn to the claims against them.

First, Fornaro claims that Cantin and Ellmer negligently

failed to perform their employer BEX's contractual obligations

owed to Fornaro as an employee who enjoyed the substantive and

procedural job protections promised in BEX's Employee Handbook.

Long gone are the days when the Constitution preserved employers'

liberty and property interests in discharging employees for good

cause, no cause, or bad cause. Coppage v. Kansas,

(1915). Since that time, state courts have carved out

significant exceptions to the employment-at-will doctrine, noting

that in some cases "the employer's interest in running his

business as he sees fit must be balanced against the interest of

5 the employee in maintaining his employment, and the public's

interest in maintaining a proper balance between the two." Monqe

v. Beebe Rubber Co.,

,

(1974).

Under a recognized exception to the employment-at-will doctrine.

Snow v. Ridgeview Medical Center, No. 96-2224,

(8th Cir. Oct. 16, 1997), an employer may not terminate an

employee in breach of promises contained in the employee handbook

and incorporated into the employment contract. According to

Fornaro, BEX's Employee Handbook promised employees both

"progressive discipline" as a precondition to termination and, in

addition, a right to appeal termination decisions. Fornaro

alleges that he was terminated without those procedural and

substantive job protections. However, Fornaro1s cause of action

for breach of contract runs against BEX, his employer, which is

the party contractually bound to Fornaro under the Employee

Handbook, not against BEX's agents, Cantin and Ellmer, who have

no contractual relation with Fornaro. Apparently cognizant of

this, Fornaro labels his cause of action against Cantin and

Ellmer as negligent failure to perform BEX's contractual duties

to Fornaro. However, out of respect to New Hampshire lawmakers,

this court remains hesitant to blaze new inroads into the

employment-at-will doctrine by recognizing plaintiff's novel

cause of action against his employer's agents.

6 Under established tort principles, Cantin and Ellmer owed

Fornaro no affirmative duty to perform the contractual

obligations that BEX owed Fornaro. Generally, the law of

negligence does not impose such affirmative duties to act for the

benefit of others. See Walls v. Oxford Management Co.,

,

(1993). Even if Cantin and Ellmer

assumed a duty to BEX to perform BEX's contractual obligations

under the Employee Handbook, this is not a duty owed to Fornaro.

The R estatement notes,

[a]n agent is not liable for harm to a person other than his principal because of his failure adeguately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things.

R estatement (Se c o n d ) o f A g e n c y § 352, at 122 (1958) . Under

plaintiff's theory, every breach of contract would entitle the

injured party to two claims, one against the party bound by the

contract, and another against that party's agents who assumed

employment duties to perform the party's contractual obligations.

There is no support for such an extension of the law.

Next, Fornaro sues Cantin and Ellmer for negligently hiring,

retaining, and supervising the employees directly responsible for

wrongfully terminating his employment from BEX. R e s t a t e m e n t of

A gency § 213, at 458 (1958) provides that "[a] person conducting

7 an activity through servants or other agents is subject to

liability for harm resulting from his conduct if he is negligent

or reckless . . . in the employment of improper persons or

instrumentalities in work involving risk of harm to others . . .

." The New Hampshire Supreme Court has broadened the tort,

placing the duty to avoid negligent hiring on not only the

employer but also on "[t]hose [employees] who have hiring and

firing authority with respect to subordinates." Marquav v. Eno,

(1995) . However, plaintiff has failed to

claim that his alleged wrongful termination was caused by any

specific BEX employee hired by Cantin and Ellmer. In the absence

of evidence that Cantin or Ellmer breached their duty to exercise

due care in hiring BEX employees, plaintiff has not stated a

cause of action for negligence.

Even if Fornaro had stated a claim against Cantin and

Ellmer, this court would be inclined to abstain from asserting

jurisdiction over the case. Fornaro originally sued his employer

BEX for wrongful discharge and breach of contract in Connecticut

state court. However, BEX subseguently was placed in chapter 11

bankruptcy, and Fornaro's state court proceedings against BEX

were automatically stayed under section 362 of the Bankruptcy

Code, which shields a chapter 11 debtor from all actions to

collect pre-petition debt. Thwarted in his efforts to recover against BEX, Fornaro then

brought the present action against the named defendants as

employees and shareholders of the bankrupt BEX. By its terms,

section 362 does not stay actions against co-debtors of the

bankrupt party. Under some circumstances, courts have exercised

their eguity powers under section 105(a) of the Bankruptcy Code,

to enjoin actions against co-debtors of the bankrupt party.

Section 105(a) of the Bankruptcy Code,

(a) (1997),

provides, "The court may issue any order, process, or judgment

that is necessary or appropriate to carry out the provisions of

this title." The First Circuit has held that courts have power

under section 105(a) to enjoin actions against co-debtors "where

the court reasonably concludes that such actions would entail or

threaten adverse 'impact' on the administration of the chapter 11

estate." Monarch Life Ins, v. Ropes & Gray,

(1st Cir. 19 95).

A finding of a "threatened adverse impact" is appropriate

when "there is such identity between the debtor and the third-

party defendant that the debtor may be said to be the real party

defendant and that a judgment against the third-party defendant

will in effect be a judgment or finding against the debtor."

A .H . Robins Co. v. Piccinin,

, 999 (1986); see also

In Re Metal Center,

(D. Conn. 1983) ("[W]here, however, a debtor and nondebtor are so bound by statute or

contract that the liability of the nondebtor is imputed to the

debtor by operation of law, then the Congressional intent to

provide relief to debtors would be frustrated by permitting

indirectly what is expressly prohibited in the Code.") . For

instance, when

[s]uch liability exposes the corporation to both vicarious liability under the doctrine of respondeat superior, see Donsco, Inc. v. Casper Corp.,

(3d Cir. 1978), and the risk of being collaterally estopped from denying liability for its directors' actions, see United States v. Ward,

(E.D.N.C. 1985) (corporation was collaterally estopped from denying its knowing participation in illegal dumpings as a result of corporate officer's conviction for same); United States v. DiBona,

(E.D. Pa. 1984) (because "[i]t seems but a truism to state that corporations may act only through persons," corporation collaterally estopped from denying civil liability under the False Claims Act after corporate officers pled guilty to making such statements in previous criminal trial).

In re American Film Technologies, Inc.,

(1994)

(other citations omitted)

The doctrines of both collateral estoppel and vicarious

liability would transform judgment against BEX's employees in the

present action into a judgment against BEX. Thus maintenance of

this action threatens to undermine the relief from all civil

actions that section 362 of the Bankruptcy Code confers on BEX as

a chapter 11 debtor. This would usually trigger the court's

10 equity power under section 105(a) to enjoin these proceedings

against Ellmer and Cantin.

However, only the bankruptcy court currently administering

the chapter 11 estate is granted equity power under section

105(a) to enjoin collateral proceedings brought against co­

debtors in another court. There are no known cases in which a

district court has invoked section 105(a) to terminate collateral

proceedings against co-debtors brought before that court.

Nonetheless, this court believes that Burford v. Sun Oil Co.,

(1943), permits district courts to abstain from

asserting jurisdiction over proceedings against a co-debtor under

circumstances where the bankruptcy court administering the

chapter 11 estate could have issued an injunction under section

105(a). Burford permits abstention "where deference to a state's

administrative processes for the determination of complex,

policy-laden, state-law issues would serve a significant local

interest and would render federal-court review inappropriate."

Fragoso v. Lopez,

(1st Cir. 1993) . While

Burford is grounded in federalism concerns, which are not at

issue in this case, there are important separation-of-powers

concerns that arise when a Article III court is called upon to

adjudicate a dispute that may adversely impact ongoing

proceedings in an Article I bankruptcy court. These separation-

11 of-powers concerns counsel an extension of Burford abstention to

avoid interfering with the bankruptcy court's functions in

administering the chapter 11 estate. The court highlights the

narrowness of this extension of Burford abstention, as it would

only apply when the bankruptcy court handling the chapter 11

estate would have power under section 105(a) to enjoin the

district court proceedings against the co-debtor. In such a

case, the proper administration of the chapter 11 estate is an

important enough interest to justify terminating the district

court proceedings against the co-debtor, and it makes no

difference whether that termination is initiated by the

bankruptcy court under section 105(a) or by the district court

under Burford abstention.

Conclusion

For the foregoing reasons, the motions to dismiss of

defendants Ellmer and Cantin (document 5), Lindemann, McGill, and

Marketing Corporation (document 18),* and Bedford (document 24)

must be and herewith are granted. James McManus thus becomes the

*When this motion was originally filed, defendant James J. Malski was one the moving parties. He, however, was dismissed from the case by order of this court dated July 8, 1997.

12 sole defendant remaining in this action.

SO ORDERED.

Shane Devine, Senior Judge United States District Court

December 16, 1997

cc: Robert E. Murphy, Jr., Esg. Debra Weiss Ford, Esg. Peter Bennett, Esg. Garry R. Lane, Esg. Madeleine F. Grossman, Esg.

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