United States District Court, S.D. New York
LEWIS WILDER, as Trustee for the Lewis Wilder Revocable Trusts, 12/10/2010, and IROW WORKERS LOCAL UNION NO. 17 PENSION FUND, Plaintiffs,
NEWS CORPORATION, NI GROUP LTD., K. RUPERT MURDOCH, JAMES MURDOCH, LES HINTON and REBEKAH BROOKS, Defendants. and AVON PENSION FUND, administered by Bath and North East Somerset Council, Individually and on Behalf of All Others Similarly Situated, Lead Plaintiff,
MEMORANDUM OPINION & ORDER
PAUL G. GARDEPHE, District Judge.
The Avon Pension Fund ("Avon") brings this action as lead plaintiff on behalf of a putative class that purchased News Corporation ("News Corp.") stock between February 15, 2011 and July 18, 2011 (the "Class Period"). (Consolidated Amended Class Action Complaint ("Cmplt." or "Complaint") (Dkt. No. 33) ¶ 1) News Corp. is a New York-based worldwide media conglomerate whose stock is listed and publicly traded on the NASDAQ exchange. (Id. at ¶¶ 2, 23) Plaintiffs allege that Defendants deliberately concealed information regarding illegal newsgathering practices at two News Corp. newspapers - The Sun and the now-defunct News of the World - and that the eventual public revelation of these practices harmed investors by causing News Corp.'s stock price to plummet. (Id. at ¶¶ 3-5, 10-14) The Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act against News Corp., its wholly-owned U.K. subsidiary NI Group Limited ("NI Group"),  and four of the companies' officers and directors - K. Rupert Murdoch, James Murdoch, Les Hinton, and Rebekah Brooks. (Id. at ¶¶ 194-209)
Defendants NI Group and Brooks have moved to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). All Defendants have moved to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6).
The following facts, accepted as true for purposes of this motion, are set forth in the Consolidated Amended Class Action Complaint filed on July 31, 2012. (Dkt. No. 33)
This action arises from Defendants' purported scheme to conceal the existence and extent of illegal newsgathering practices at the News of the World and The Sun. Evidence of those practices first came to light in 2006, when police arrested News of the World reporter Clive Goodman and investigator Glenn Mulcaire on suspicion of hacking the phones of royal family members. (Cmplt. ¶¶ 44-45) The ensuing investigation suggested rampant phone hacking by News of the World employees. (Id. ¶¶ 47-49) The police conveyed their concerns to NI Group privately to Brooks, but - aside from terminating Goodman and Mulcaire - no further action was taken by NI Group, News Corp. or the police. (Id. ¶¶ 46-47)
Goodman and Mulcaire were prosecuted and eventually sentenced to prison for their crimes. Defendants, meanwhile, repeatedly assured the public and News Corp. investors that the phone hacking was an isolated incident limited to a single rogue reporter. (Id. ¶¶ 44-45, 75, 100, 116, 127) It has since been revealed, however, that reporters at the News of the World and The Sun routinely hacked the phones of celebrities and other public figures, and paid bribes to government officials to acquire sensitive information. Details of these misdeeds emerged gradually as a result of several lawsuits filed by phone hacking victims. (Id. ¶¶ 42, 57, 63, 73, 74, 77, 80) The full extent of the illicit practices did not become apparent until July 4, 2011, when it was revealed that News Corp. reporters had hacked into the cell phone of Milly Dowler, a British teenager who disappeared in 2002 and was later found murdered. (Id. ¶¶ 174-75) Plaintiffs allege that the Dowler revelation precipitated a decline in News Corp.'s stock price and scuttled the company's plans to acquire British Sky Broadcasting Limited ("BSkyB"). (Id. ¶¶ 176-86)
Nearly all of the allegedly false statements cited in the Complaint were made by Defendants well before the start of the Class Period (February 15, 2011). (Id. ¶¶ 81-134) For example, the Complaint alleges that Defendants Brooks and Hinton made a number of false and misleading statements in connection with hearings before Parliament that took place between March 2007 and September 2009. (Id. ¶¶ 92-96, 104-05) The Complaint further alleges that Rupert and James Murdoch made similarly false and misleading statements on behalf of News Corp. and NI Group through company press releases, annual shareholder meetings, quarterly conference calls, media interviews, and public speeches - nearly all of which also occurred before the Class Period. (Id. ¶¶ 86, 90-91, 97-102, 131-32, 133-34) Plaintiffs contend that such statements are actionable because they "remained alive" during the Class Period and Defendants had a duty to correct them "before the first day of the Class Period." (Id. at 31, ¶¶ 140)
"Before addressing Defendants' Rule 12(b)(6) motion to dismiss, the Court must first address the preliminary question of... personal jurisdiction." Mende v. Milestone Tech., Inc. , 269 F.Supp.2d 246, 251 (S.D.N.Y. 2003) (citing Arrowsmith v. United Press Int'l , 320 F.2d 219, 221 (2d Cir. 1963) ("[L]ogic compel[s] initial consideration of the issue of jurisdiction over the defendant - a court without such jurisdiction lacks power to dismiss a complaint for failure to state a claim.")).
I. PERSONAL JURISDICTION
A. Legal Standard
"The plaintiff bears the burden of establishing that the court has jurisdiction over the defendant when served with a Rule 12(b)(2) motion to dismiss." Whitaker v. Am. Telecasting, Inc. , 261 F.3d 196, 208 (2d Cir. 2001). Prior to discovery, a plaintiff may carry this burden "by pleading in good faith... legally sufficient allegations of jurisdiction, i.e., by making a "prima facie showing" of jurisdiction.'" Whitaker , 261 F.3d at 208 (quoting Jazini v. Nissan Motor Co., Ltd. , 148 F.3d 181, 184 (2d Cir. 1998) (quoting Ball v. Metallurgie Hoboken-Overpelt, S.A. , 902 F.2d 194, 197 (2d Cir. 1990))). "A district court has broad discretion' in deciding such a motion, including the discretion to conduct an evidentiary hearing if the Court believes one is warranted." Realuyo v. Villa Abrille , 01 CIV. 10158(JGK), 2003 WL 21537754, at *2 (S.D.N.Y. July 8, 2003) aff'd sub nom. Realuyo v. Abrille , 93 F.Appx. 297 (2d Cir. 2004) (quoting CutCo Indus. v. Naughton , 806 F.2d 361, 364 (2d Cir. 1986)).
"The Exchange Act permits the exercise of personal jurisdiction to the limit of the Due Process Clause of the Fifth Amendment.'" S.E.C. v. Compania Internacional Financiera S.A. , 11 CIV 4904 DLC, 2011 WL 3251813, at *4 (S.D.N.Y. July 29, 2011) (quoting S.E.C. v. Unifund SAL , 910 F.2d 1028, 1033 (2d Cir. 1990)). "The due process test for personal jurisdiction has two related components: the "minimum contacts inquiry" and the "reasonableness" inquiry.'" Id . (quoting Metro. Life Ins. Co. v. Robertson-Ceco Corp. , 84 F.3d 560, 567 (2d Cir. 1996)).
"Under the minimum contacts analysis, contacts with the forum may confer two types of jurisdiction - specific and general." In re Parmalat Sec. Litig. , 376 F.Supp.2d 449, 453 (S.D.N.Y. 2005) ("Parmalat I"). "Specific jurisdiction exists when a forum exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum.'" Id . (quoting Metropolitan Life Ins. Co. , 84 F.3d at 567-68 (internal quotation marks and citation omitted)). General jurisdiction "is based on the defendant's general business contacts with the forum state and permits a court to exercise its power in a case where the subject matter of the suit is unrelated to those contacts.'" Id . (quoting same).
"To support specific jurisdiction over a defendant based upon his or her conduct outside the United States, minimum contacts analysis will be satisfied (1) if those acts caused effects in the United States (2) that were the direct and foreseeable result of the actions abroad and (3) if the defendant knew or had good reason to know that the actions would have effects in the United States." S.E.C. v. Dunn , 587 F.Supp.2d 486, 509 (S.D.N.Y. 2008). "[T]he principal inquiry... is whether the defendant's activities manifest an intention to submit to the power of a sovereign." Compania International, 2011 WL 3251813, at *5 (quoting J. McIntyre Machinery, Ltd. v. Nicastro, ___ U.S. ___ , 131 S.Ct. 2780, 2788 (2011)). "In other words, it is essential in each case that there be some act by which the defendant ...