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State v. The McGraw-Hill Companies Inc.

Superior Court of Maine, Kennebec

November 26, 2014



M. Michaela Murphy, Justice


Defendants, McGraw-Hill Companies, Inc., n/k/a/ McGraw-Hill Financial, Inc. ("McGraw-Hill") and Standard & Poor's Financial Services, LLC ("S&P") (collectively "Defendants") move this court to dismiss the State of Maine's ("State of Maine" or "Plaintiff) Complaint for lack of personal jurisdiction. The Defendants argue that the State of Maine has no specific jurisdiction over the Defendants, as the State's cause of action does not arise from the Defendants' conduct within the forum state.

The State alleges in its Complaint that the Defendants directed misleading statements about S&P's independence and objectivity over a period of time that began in 2001 and continued through 2011 to Maine consumers in violation of the Maine Unfair Trade Practices Act. The State further avers that the allegations in the Complaint fulfill the State's prima facie burden of establishing that tins court has personal jurisdiction over the parties and asks that if this court fails to find personal jurisdiction, the State, in the alternative, be allowed to conduct discovery relevant to the Defendants' motion and file an amended Complaint.


Plaintiff, State of Maine, filed the subject Complaint on February 5, 2013, in Kennebec County Superior Court, pursuant to 5 M.R.S.A § 207 ("UTPA"). (Compl. ¶ 1.) Defendant McGraw-Hill is a New York corporation with its principal place of business at 122 Avenue of the Americas, New York, NY 10020. McGraw-Hill is registered with the Maine Secretary of State to conduct business within the State of Maine. (Compl. ¶ 2.) Defendant S&P is a Delaware limited liability company and a wholly owned subsidiary of McGraw-Hill. (Compl. ¶ 3) Within the S&P business unit is Standard & Poor's Rating Services ("SPRS"). SPRS operates as a credit rating agency that assigns credit ratings on a broad range of securities. Id.

In 2001, S&P rated various structured finance products. (Compl, ¶ 5.) Said products included various Residential Mortgage Backed Securities ("RMBS") and Collateralized Debt Obligations ("CDO") which comprised many mutual funds and pension funds of Maine residents, retirees, and workers. (Compl. ¶ 18.) Objectivity and independence are material to the services provided by S&P. (Compl. ¶ 23.) As a result, S&P advertised its objectivity and independence and vowed to such behavior in its Code of Conduct, (Compl. ¶ 26.) However, the Plaintiff believes that the Defendants' use of the "Issuer Pays Model" compromised S&P's independence and integrity.[1](Compl. ¶ 34.) This established a conflict of interest because the revenues earned came from batiks and other entities whose securities it rated. (Compl. ¶ 36.) Said conflict was not disclosed to the public. (Compl. ¶ 37.) The State further alleges that S&P knew that its analytical models could not assess certain complex securities with the requisite accuracy, yet it continued to rate these products. (Compl. ¶ 40.)


The question of jurisdiction is always fundamental, and is a question of law. See Lindner v. Barry, 2002 WL 1974091, at *2 (Me. Super. Aug. 9, 2002) (citing 20 Am Jur. 2d Courts § 54). "The proper exercise of personal jurisdiction in Maine hinges on the satisfaction of two requirements: first. .. the Maine Long-Arm statute, 14 M.R.S.A. § 704-A . . . [must confer] personal jurisdiction on the court; and second., . the exercise of jurisdiction pursuant to the long-arm statute [must comply) with constitutional due process requirements, " Jackson v. Weaver, 678 A.2d 1036, 1038 (Me. 1996).

"Maine's jurisdictional reach is coextensive with the Due Process Clause of the Constitution, " Murphy v. Keenan, 667 A.2d 591, 593 (Me. 1995) (citing U.S. Const, amend. XIV, § 1; Interstate Food Processing Corp. v. Petterilo Foods, Inc., 622 A.2d 1189, 1191 (Me. 1993); Frazier v. Bankamerka Int'l, 593 A.2d 661, 662 (Me. 1991); Calurl v. Rypkema, 570 A.2d 830, 831 (Me. 1990), cert, denied, 498 U.S. 818 (1990); Tyson v. Whilaker & Son, Inc., 407 A.2d 1, 2-3 (Me. 1979)). Due process in the exercise of jurisdiction over an out-of-state defendant requires the satisfaction of the following three-pronged test: (1) Does the forum state have a legitimate interest in the subject matter of the action? (2) Should the defendant by his conduct reasonably have anticipated litigation in the forum state? and (3) Would the exercise of jurisdiction comport with "traditional notions of fair play and substantial justice[?]” Murphy, 667 A.2d at 593 (citations omitted); see also Foreside Common Dev. Corp. v. Bleisch, 463 A, 2d 767, 769 (Me. 1983). "The burden of establishing (hat jurisdiction is proper under the first two prongs falls on the plaintiff; once the plaintiff has met that burden, it is up to the defendant to show that jurisdiction is improper under the third prong." Eke. Media Int'l v. Pioneer commc'ns of Am., 586 A.2d 1256, 1258-59 (1991) (citing Rypkema, 570 A.2d at 831 n.2) (emphasis in original).

"Facts regarding jurisdictional questions may be determined by reference to affidavits, by a pretrial evidentiary hearing, or at trial when the jurisdictional issue is dependent upon a decision on the merits." Dorf v. Complastik Corp., 1999 ME 133, ¶ 6, 735 A.2d 984 (citing Federal Deposit Ins. Corp. v. Oaklawn Apartments, 959F.2d 170, 174 (10th Cir. 1992)). The Method chosen by the trial court in determining said motion dictates the evidentiary showing necessary for the a plaintiff to survive a defendant's Motion to Dismiss. Id. (citing Bolt v. Gar-Tec Prods., Inc., 967 F.2d 671, 675 (1st Cir.1992)). When the court determines a motion to dismiss for lack of personal jurisdiction prior to trial, without holding an evidentiary hearing, "[t]he plaintiff's showing in opposition to the motion 'must be made on specific facts set forth in the record, ...'" Id. ¶ 13 (citing Suttie v. Sloan Sates, Inc., 1998 ME 121, ¶ 5, 711 A.2d at 1286). This means the Plaintiff' must go beyond the pleadings and make affirmative proof" United Eke. Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp., 987 F.2d 39, 44 (1st Cir. 1993) (quoting Bolt, 967 F.2d at 675). This showing may be made by affidavit or otherwise. See Serras v. First Tennessee Bank Nat'l Assoc, 875 F.2d 1212, 1214 (6th Cir, 1989).

However, when:

The court proceeds only upon the pleadings and affidavits of (he parties, the plaintiff 'need only make a prima facie showing that jurisdiction exists, ' and the plaintiffs written allegations of jurisdictional facts should be construed in its favor." Determining personal jurisdiction based on initial affidavits alone, without additional evidence, is a "useful means of screening out cases in which personal jurisdiction is obviously tacking, and those in winch the jurisdictional challenge is patently bogus, " Moreover, it prevents defendants from defeating personal jurisdiction merely by filing a written affidavit opposing the jurisdictional facts alleged by the plaintiff.

Dorf v. Complastik Corp., 1999 ME 133, ¶¶ 4-16, 735 A.2d 984 (citations omitted). In this case, the hearing is non-testimonial, meaning the court proceeds only upon the pleadings and affidavits of the parties, and the plaintiff "need only make a prima facie showing that jurisdiction exists ..." Rypkema, 570 A, 2d at 832 (quoting Kowalski v. Doherty Wallace, Pillsbury & Murphy 787 F.2d 7, 8 (1st Cir, 1986)).


The Parties make no claim that general jurisdiction exists in this case, thus the court has reserved its analysis for determining whether specific jurisdiction exists in order to subject the Defendants to suit in this Court.

Specific Jurisdiction and Due Process Requirements

Maine's long-arm statute, 14 M.R.S, § 704-A, applies to the fullest extent permitted by the Due Process Clause of the United States Constitution. As mentioned above, due process is satisfied when: (1) Maine has a legitimate interest in the subject matter of the litigation; (2) the defendant, by his or her conduct, reasonably could anticipate litigation in Maine; and (3) the exercise of jurisdiction would not offend traditional notions of fair play and substantial justice. Fore, LLC v. Benoit, 2012 ME 1, ¶ 7, 34 A.2d 1125. The court analyzes each prong of the test below.

a. The State's Legitimate Interest in the Subject Matter of This Litigation

The question the Court must answer here is whether "Maine has 'a minimal governmental interest in the litigation and consequent power to decide if it is fair to assert it."' Tyson v. Whitaker & Son, Inc., 407 A.2d 1, 4 (Me, 1979) (citing Woods, Pennoyer's Demise: Personal Jurisdiction after Shaffer and Kulko and a Modest Prediction Regarding World-Wide Volkswagen Corp. v. Woodson, 20 Ariz. L. Rev. 861, 881-82 (1978)). "To demonstrate that Maine has a legitimate interest in the subject matter of the litigation, a plaintiff must assert more than a mere interest 'in providing a Maine resident with a forum for redress against a nonresident.'"[2] Grimm v. Allen, 2006 WL 3707895, at *2 (Me. Super. Oct. 16, 2006) (citing Murphy v. Keenan, 667 A.2d 591, 594 (Me. 1995)), The Stale this "an interest in regulating and/or sanctioning parties who reach out beyond one state and create continuing relationships and obligations with Maine citizens for the consequences of their activities." Id. (citing Eke. Media Int'l, 586 A.2d at 1259 (citations omitted)).

The State argues that this action was brought by the Maine Attorney General's office in the interest of the public to protect Maine citizens from the Defendants' unfair and misleading business practices, (PL's Opp, Mot 5.) Specifically, the State alleges that S&P misrepresented that its business models were independent, objective, and free from influence from those paying for the ratings. (Compl, ¶ 46(A).) Further, S&P misrepresented its competence to provide expert analysis of structured finance products. (Compl. ¶ 46(B).) In this case, "none of the representations made by S&P are [Maine-specific], Rather, they exist on the Internet and in other public sources accessible to anyone." State of Ariz, v. McGraw-Hill Companies, Inc, CV-2013-001188 (Ariz. Super. Ct., Mar. Cnty., Sept, 29, 2014).[3] However, the State of Maine alleges that S&P are provided credit ratings to asset backed securities that were used within the State of Maine. (Compl, ¶ 44.) By engaging in said acts and practices, S&P made or caused to be made representations to Maine consumers which are material and likely to mislead in violation of 5 M.R.S. § 207.[4] (Compl. 45.) Thus, reviewing the facts in light most favorable to the Plaintiff, the Court finds that the State of Maine has a legitimate interest in the subject matter due to the Defendants intentionally entering into business relationships with consumers and entities in the State of Maine.

b. Anticipation of Litigation in Maine

Maine requires an assessment of whether a foreign corporation has sufficient contacts with (he forum State to "make it reasonable ... to require (lie corporation to defend the particular suit which is brought there." Harriman, 518 A.2d 1035, 1037 (1986) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 317 (1945)). "[T]he defendant must 'purposefully avail itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws."[5] Murphy v. Keenan, 667 A, 2d 591, 594 (Me. 1995). The requisite minimum contacts are present when "(1) the activities of the defendant have been directed at the forum's residents; (2) the defendant deliberately engages in significant activities in the forum; or (3) the defendant creates continuing obligations between itself and residents of the forum." Cavers v. Houston McLane Co., Inc., 2008 ME 164, ¶ 24, 958 A.2d 905.

In Maine, the level of minimum contacts necessary to support jurisdiction is relatively low. For example, as the State has noted, the Law Court has found such minimum contacts for the mere preparation of tax services, [6] out-of-state fraudulent credit reporting, [7] and single contractual transactions.[8] In (his case, McGraw-Hill is a New York based corporation and is registered as a foreign business entity with the Maine Secretary of State to conduct business within the State of Maine. McGraw-Hill has employees working in the State of Maine.[9] (Hallett Aff. ¶¶ 2-4.) In 2012, the most recent year for which final revenue data is available, McGraw-Hill generated $6, 305, 078 in revenue from the State of Maine. (Sacks Aff. ¶ 3.) S&P generated $1, 059, 140. (Sacks Aff. ¶ 4.) Further, S&P contacted the State on numerous occasions via email to provide the State Treasurer with reports and publications as well as promotional and contact information about S&P.[10] (Carlow Aff. ¶ 7.) Finally, while S&P has no employees in Maine, in May of 2011, S&P personnel met with employees of the Maine Bureau of Insurance in Gardiner, Maine. In said meeting, S&P prepared a presentation as to how S&P's rating services could be used to evaluate insurance companies within the State. (Coates Aff. ¶ 3.)

The court finds (hat the Defendants' contacts in Maine are not merely fortuitous or incidental. Rather, the Defendants have purposefully availed themselves of the benefits and protections of Maine law, Based on the totality of the contacts the Defendants have with the State, it is foreseeable that the Defendants may have to defend themselves in Maine. The Defendants routinely conduct business in Maine and advertise and promote S&P by targeting Maine Businesses and governmental offices.[11] Thus, viewing the facts in the record in the light most favorable to (he plaintiff for the purposes of the pending motion to dismiss, the court finds that there is a sufficient basis to conclude that the defendants availed themselves of Maine's jurisdiction through their actions.

c. Traditional notions of Fair Play and substantial justice

The third part of the test concerns whether it is reasonable to require the defendant to litigate in Maine. See Cavers, 2008 ME 164, ¶¶ 36-40, 958 A.2d 905. The court looks to the resources of the defendant to make this determination, Id. ¶ 39. Because the court has found the first two prongs of the jurisdictional due process test to be satisfied "[t]he burden .. . shifts to the defendant to show that jurisdiction is improper..." Interstate Food Processing Corp. v. Pellerito Foods, Inc., 622A.2d 1189, 1191 (Me. 1993).

In determining fairness, "the court considers the number, nature and purpose of the defendant's contacts with Maine, the connection between those contacts and the cause of action, the interest of Maine in the controversy, and the convenience to both parties, " Mammon v. Demoulas Supermarkets, Inc., 518 A.2d 1035, 1038 (Me. 1986) (citing Labbe v. Nissen Corp., 404 A.2d 564, 570 (Me. 1979)). "[I]n most instances it is less unfair to require a non-resident defendant to try a case in a state in which he has voluntarily chosen to engage in business than to require a plaintiff to travel out of state and try Ms case in a jurisdiction which has no nexus whatsoever with the event which gave rise to the action, " Labbe, 404 A.2d at 573.

In this case, the Defendants have not demonstrated that litigation in Maine would be "so gravely difficult and inconvenient" that the Defendants are at a "severe disadvantage in comparison to the [Plaintiff]." Burger King Corp. v. Petkiewicz, 471 U.S. 462, 477 (1985). The nature and purpose of the Defendants' contacts were not so "random, fortuitous, or attenuated" that jurisdiction is unreasonable. Finally, while the extent of S&P's activity is small compared to its activity in other parts of the United States, “[l]ess extensive activity is required where the cause of action arises out of or in connection with the defendant's forum-related activity." Caluri v. Rypkema, 570 A.2d 830, 833 (Me, 1990). The court believes that litigation in this action is consistent with the traditional notions of fair play and substantial justice.

D. Recent Supreme Court Case Law

The Defendants argue that the Supreme Court's recent decision in Walden v. Fiore, prevents the Court's exercise of personal jurisdiction. However, Walden is distinguishable from the case at hand. Unlike the defendant in Walden, nothing about S&P's contacts with the State of Maine was "random, fortuitous, or attenuated." 134 S, Ct, 1115, 1123 (2014). In Walden a deputized DEA agent seized a large amount of cash held by two individuals traveling from San Juan to Las Vegas through the Atlanta airport. Id. at 1119. The agent allegedly filed a false or misleading affidavit in support of the forfeiture of the cash. Id. at 1120-21. Ultimately, the legitimacy of the cash was proven and the couple brought an action against the agent in Nevada where one of the two resided. Id.

The Court reasoned that the Federal District Court in Nevada lacked personal jurisdiction over the defendant police officer, concluding that the officer did not shave the requisite "minimal contacts" with Nevada. Id. at 1124-25. In particular, the Court noted "[w]e have consistently rejected attempts to satisfy the defendant-focused 'minimum contacts' inquiry by demonstrating contacts between (he plaintiff (or thud parties) and the forum state."[12] Id. at 1122. In making such determination, the Court relied on well-established principles of personal jurisdiction to decide the case and held, "[f]or a State to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State." Id.

In establishing such connection, the Court reviewed the well-established jurisdictional principles and noted:

First, the relationship must arise out of contacts that the "defendant himself" creates with the forum State. Burger King Corp. v. Petkiewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Due process limits on the State's adjudicative authority principally protect the liberty of the nonresident defendant-not the convenience of plaintiffs or third parties. See World-Wide Volkswagen Corp., supra, at 291-292, 100 S.Ct. 559... . Put simply, however significant the plaintiffs contacts with the forum may be, those contacts cannot be "decisive in determining whether the defendant's due process rights are violated." Rush, 444 U.S., at 332, 100 S.Ct. 571.

. . .

Second, our "minimum contacts" analysis looks to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there. See, e.g., International Shoe, supra, at 319, 66 S.Ct. 154 (Due process "does not contemplate that a stale may make binding a judgment in personam against an individual... with which the state has no contacts, ties, or relations"); Hanson, supra, at 251, 78 S.Ct, 1228 ("However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has had the 'minimal contacts' with that State that are a prerequisite to its exercise of power over him"). Accordingly, we have upheld the assertion of jurisdiction over defendants who have purposefully "reach[ed] out beyond" (heir State and into another by, for example, entering a contractual relationship that "envisioned continuing and wide-reaching contacts" in the forum State, Burger King, supra, at 479-480, 105 S.Ct. 2174, or by circulating magazines to "deliberately exploi[t]" a market in the forum State, Keefon, supra, at 781, 104 S.Ct. 1473. And although physical presence in the forum is not a prerequisite to jurisdiction, Burger King, supra, at 476, 105 S.Ct. 2174, physical entry into the State-either by the defendant in person or through an agent, goods, mail, or some other means-is certainly a relevant contact, See, e.g., Keefon, supra, at 773-774, 104 S.Ct. 1473.

Walden v. Fiore, 134 S.Ct. at 1122 (2014). Thus, Walden does not alter the well-established due process analysis necessary for establishing personal jurisdiction. Rather, the Court reiterates that the plaintiff cannot be the only link between the defendant and the forum, The defendant's conduct must form the necessary connection with the forum State that is the basis for its jurisdiction over him.[13]

The Court disagrees with Defendants' contention that Walden dictates the result in this case. S&P directed its activity to Maine consumers through email correspondence and targeted presentations advertising rating services. The Defendants1 relationship with the State of Maine is fundamentally different from (he agent's connection to Nevada in Walden.


The entry shall be: Defendants' Motion to Dismiss is DENIED.

Pursuant to M.R. Civ. P. 79, the clerk is hereby directed to incorporate this order into the docket by reference.

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