The opinion of the court was delivered by: JOHN LIFLAND, Senior District Judge
Plaintiffs Rocker Management, LLC, Rocker Partners, LP, Rocker
Offshore Management Company, Inc., and Compass Holdings Ltd.
(collectively, "Rocker") have asserted claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5,
17 C.F.R. § 240.10b-5, promulgated thereunder by the United States
Securities and Exchange Commission ("SEC"), against Defendants
Jozef Lernout, Pol Hauspie, Gaston Bastiaens, Carl Dammekens,
Allan Forsey, Ellen Spooren, Erwin Vandendriessche, Gerald
Calabrese,*fn1 Klynveld Peat Marwick Goerdeler
Bedrijfsrevisoren (a/k/a KPMG Bedrijfsrevisoren or KPMG Belgium),
KPMG International ("KPMG"), KPMG UK, KPMG LLP, Paul Behets, and
SG Cowen Securities Corporation ("Cowen").*fn2 Plaintiffs also assert
state law claims for tortious interference with prospective
economic advantage, conspiracy to tortiously interfere, and
aiding and abetting tortious interference.
Before the Court are the Motions of Defendant KPMG UK to
dismiss the Amended Complaint pursuant to Federal Rules of Civil
Procedure 12(b)(2),*fn3 12(b)(6), and 9(b). As discussed
more fully below, the Motion to dismiss the Amended Complaint
pursuant to Federal Rule of Civil Procedure 12(b)(2) will be
denied and the Motion to dismiss the Amended Complaint pursuant
to Federal Rules of Civil Procedure 12(b)(6) and 9(b) will be
The facts of this case are described at length in the Court's
June 7, 2005 Memorandum and Order denying the motions to dismiss
on behalf of individual defendants Jozef Lernout, Pol Hauspie,
and Gaston Bastiaens. Allegations relevant to resolving this
motion are discussed herein, and are, as noted, taken from the Amended Complaint and supporting
Plaintiff Rocker Management LLC ("Rocker Management") is a New
Jersey company that administers and manages Plaintiff hedge fund
Rocker Partners LP ("Rocker Partners"). (Am. Compl. ¶ 10).
Plaintiff Rocker Offshore Management Company, Inc. ("Rocker
Offshore") is a New York corporation that manages Plaintiff hedge
fund Compass Holdings, Ltd. (Id.).
Defendant KPMG UK (now a Limited Liability Partnership) is a
partnership organized under the laws of England and Wales.
Plaintiffs engaged in "short selling," which means identifying
and purchasing stock that they expect to decline in price. (Am.
Compl. ¶¶ 5, 11). Profits result from borrowing stock from
various sources, selling that stock at current market prices,
purchasing shares of the stock at a lower price to "cover" the
original position, and then returning the stock to the original
Plaintiffs began to short sell Lernout & Hauspie Speech
Products N.V. ("L&H" or "the Company") stock in June 1998. (Am.
Compl. ¶¶ 6, 100). The price of L&H stock subsequently increased,
forcing Plaintiffs between December 1999 and March 2000 to purchase stock at a loss to cover their
own short positions. (Id. ¶¶ 6, 104). Plaintiffs charge that
the increase in L&H stock prices was the result of fraud on the
part of L&H and/or SG Cowen. Plaintiffs further allege that the
rise in L&H stock may be attributed to certain financial
statements issued by L&H for the fiscal year 1998, which
overstated L&H revenue. (Am. Compl. ¶¶ 51-52, 259). L&H's
independent auditor was Defendant KPMG Belgium.
On April 9, 1999, KPMG Belgium published its Independent
Auditor's Report on L&H's financial statements for the year
ending December 31, 1998 (Id. ¶ 51). KPMG Belgium allegedly
made several false statements in those certified financials.
First, financial statements falsely reported L&H's 1998 revenues.
KPMG Belgium itself withdrew its own certification in late 2000
and disclosed to the investing public that its financial
statements "should not be relied upon." (Id. ¶¶ 4, 123). L&H's
Audit Committee later acknowledged that the statements inflated
L&H's actual income by nearly $28 million (including by 24% and
23% in the last two quarters of 1998, respectively). Second, KPMG
Belgium represented that it conducted an "independent" audit,
thereby indicating that it had no financial interest or ties to
L&H management. In fact, the KPMG "global account partner" for
L&H who was responsible for overseeing the audit, Paul Behets, took a position with a L&H-related entity shortly after
overseeing and certifying these falsified financials. (Id. ¶
267). Third, KPMG Belgium represented that "[w]e conducted our
audits in accordance with generally accepted auditing standards
in the United States." In fact, the financials violated many
important aspects of United States generally accepted accounting
principles ("U.S. GAAP"), including the backdating of contracts,
contracts entered into with related parties, and the existence of
side agreements releasing customers of their obligation to pay.
(Id. ¶ 209-10). Finally, KPMG Belgium represented that the
financials were "free of material misstatements," and that the
financials "present fairly, in all material respects, the
financial position of Lernout & Hauspie Speech Products, N.V.,"
when, in fact, they falsely inflated L&H's revenue by almost $28
million. (Id. ¶ 52).
At times, the Amended Complaint uses "KPMG" to refer
collectively to KPMG Belgium, KPMG US, and KPMG UK. The following
allegations refer to KPMG UK: that "KPMG UK audited L&H's
financial statements with KPMG Belgium and KPMG [US]," (id. ¶
25); that KPMG UK "actively participated in the reviews and audit
of L&H's financial statements," (id. ¶ 184); and that "a KPMG
UK division called the US Capital Markets Group had vetted the
[L&H] audits before they were filed with the SEC," (id. ¶ 187).
In addition, the Amended Complaint alleges involvement in the L&H audits by Robert P.
McLamb, a reviewing partner who was "based in KPMG's US Capital
Markets Group or in KPMG US's Houston, Texas office" for the
relevant period. (Id.).
I. Motion to Dismiss for Lack of Personal Jurisdiction
Federal Rule of Civil Procedure 4(e) permits district courts to
exercise jurisdiction over non-resident defendants as authorized
by the laws of the state where the court resides. Fed.R. Civ.
P. 4(e);*fn5 Sunbelt Corp. v. Noble, Denton & Assocs.,
Inc., 5 F.3d 28, 31 (3d Cir. 1993); Provident Nat'l Bank v.
California Fed. Sav. & Loan Ass'n, 819 F.2d 434, 436 (3d Cir.
1987); Dent v. Cunningham, 786 F.2d 176, 175 (3d Cir. 1986).
New Jersey's long-arm rule permits the exercise of jurisdiction
to the fullest extent allowed under the Fourteenth Amendment to
the United States Constitution. N.J. Ct. R. 4:4-4(b)(1)
(permitting exercise of jurisdiction "consistent with due process
of law"); Charles Gendler & Co., Inc. v. Telecomm. Equip.
Corp., 102 N.J. 460, 469 (1986); Avdel Corp. v. Mecure, 58 N.J. 264, 268 (1971); see also Mesalic v.
Fiberfloat Corp., 897 F.2d 696, 698 (3d Cir. 1990); DeJames v.
Magnificence Carriers, Inc., 654 F.2d 280, 284 (3d Cir. 1981).
The Constitutional guarantee of Due Process limits federal
jurisdiction to shield "persons from the judgments of a forum
with which they have established no substantial ties or
relationship." General Elec. Co. v. Deutz Ag, 270 F.3d 144, 150
(3d Cir. 2001). Personal jurisdiction is thus appropriate only
when the defendant has "purposefully established `minimum
contacts' in the forum State." Burger King Corp. v. Rudzewicz,
471 U.S. 462, 474 (1985) (quoting Int'l Shoe Co. v. Washington,
326 U.S. 310, 316 (1945)); World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980) (personal jurisdiction rests
on conduct and connection with forum State such that defendant
"should reasonably anticipate being haled into court there").
Minimum contacts describe actions by which the defendant
"purposefully avails itself of the privilege of conducting
activities within the forum State," and thereby invokes "the
benefits and protections of its laws." Asahi Metal Indus. Co.,
Ltd. v. Superior Court of California, 480 U.S. 102, 109 (1987)
(quoting Burger King, 471 U.S. at 475); Remick v. Manfredy,
238 F.3d 248, 255 (3d Cir. 2001). In addition to adequate minimum
contacts, courts must determine that the exercise of personal
jurisdiction sought by the plaintiff would not offend "traditional notions of fair play and
substantial justice." Burger King, 471 U.S. at 476-77; Int'l
Shoe, 326 U.S. at 316; Remick, 238 F.3d at 255. The
sufficiency of the defendant's minimum contacts with the forum
state will therefore vary with the "quality and the nature of the
defendant's activity." Hanson v. Denckla, 357 U.S. 235, 253
A defendant may be subject to either the general or specific
jurisdiction of the forum state. Helicopteros Nacionales de
Colombia v. Hall, 466 U.S. 408, 414-15 (1984); Deutz,
270 F.3d at 150. Specific jurisdiction describes contacts that are
"purposefully directed" at a resident of the forum state, where
"the injury arises from or is related to those activities."
Deutz, 270 F.3d at 150 (discussing Burger King,
471 U.S. at 472). General jurisdiction exists when a defendant engages in
"continuous and systematic" contacts with the forum state,
whether or not the contacts are related to the injury giving rise
to the cause of action. BP Chems. Ltd. v. Formosa Chem. & Fibre
Corp., 229 F.3d 254, 259 (3d Cir. 2000). The greater reach of
general jurisdiction requires "significantly more than mere
minimum contacts," and the plaintiff seeking to exert general
jurisdiction must show that the defendant's contacts to the forum
are "continuous and substantial." Provident Nat'l Bank,
819 F.2d at 437 (citations omitted).
When a defendant challenges jurisdiction over his person, the
plaintiff has the burden to demonstrate that jurisdiction over the defendant
satisfies the requirements of Due Process. Deutz,
270 F.3d at 150; Carteret Sav. Bank, F.A. v. Shushan, 954 F.2d 141, 146
(3d Cir. 1992); Mellon Bank (East) PSFS, Nat'l Ass'n v. Farino,
960 F.2d 1217, 1223 (3d Cir. 1992). The Third Circuit has stated
that when a challenge to personal jurisdiction is raised, "the
plaintiff must sustain its burden of proof in establishing
jurisdictional facts through sworn affidavits or other competent
evidence," and "at no point may a plaintiff rely on the bare
pleadings alone." Time Share Vacation Club v. Atlantic Resorts,
Ltd., 735 F.2d 61, 66 n. 9 (3d Cir. 1984); see also Stranahan
Gear Co., Inc. v. NL Indus., Inc., 800 F.2d 53, 58 (3d Cir.
Where plaintiffs have not had the opportunity to conduct
jurisdictional discovery, plaintiffs need only make a prima
facie showing that the defendant is subject to personal
jurisdiction in the forum. See, e.g., Bryan v. Assoc.
Container Transp., 837 F. Supp. 633, 639 (D.N.J. 1993). Once
plaintiffs have "established a prima facie case of
jurisdiction, that suffices, regardless of any controverting
presentation by the moving party, to defeat the motion." LaRose
v. Sponco Mfg. Inc., 712 F. Supp. 455, 458 (D.N.J. 1989).
A. KPMG UK's Contacts with the United States
KPMG UK maintains that there is no basis for this Court to
assert general or specific jurisdiction over KPMG UK. According to the declaration
of KPMG UK's Senior Partner Michael Derek Vaughan Rake, KPMG UK
is a partnership organized under the laws of England and Wales.
KPMG UK maintains its principal place of business in London and
has no offices in the United States. (Declaration of Michael
Derek Vaughan Rake, April 8, 2002, ¶¶ 1, 3) ("Rake Decl."). KPMG
UK does not have an agent for service of process in the
United States. (Rake Decl. ¶ 3). On the premises of KPMG UK in London is
an entity known as U.S. Capital Markets Groups. The sole purpose
of that entity with respect to L&H was to assist KPMG Belgium on
technical issues concerning U.S. GAAP. (Rake Decl. ¶ 6).
KPMG UK is a dues-paying member of KPMG. KPMG UK does not own
and is not owned by KPMG. (Rake Decl. ¶ 4). KPMG does not perform
professional services, but instead distributes practice and other
voluntary guidelines that may be followed by member firms that
wish to use the KPMG name. A Membership Agreement and License
Agreement between KPMG UK and KPMG expressly provide that
"[n]othing contained herein shall be construed to place the
parties in the relationship of agents, partners or joint
venturers, and the Member Firm shall have no power to obligate or
bind [KPMG] or any other Member Firm in any manner whatsoever."
(Rake Decl. ¶ 4). KPMG holds itself out as a single, world-wide accounting firm.
For example, KPMG's global brochure states that its global
clients "have extraordinary needs that can be met only by global
advisers operating in a truly integrated fashion." (Hermann
Cert., Ex. 17). KPMG coordinates the provision of services to its
clients through three main operating regions: the Americas,
Europe/Middle East/Africa, and Asia Pacific. (Id.). KPMG offers
"client service teams [that] operate wherever . . . clients need
them," made up of KPMG employees from around the globe. (Hermann
Cert., Ex. 17). KPMG employees rotate on "international
assignments" through the more than 150 countries in which KPMG
has offices. Indeed, KPMG promotes its employees' ability to work
in different offices throughout the globe as an advantage to both
its employees and its ...