Pleaded guilty for illegal kickbacks

Federal District Court Opinions

NIMIR PETROLEUM CO., LTD. v. BAUMGART, (E.D.Va. 2006) NIMIR
PETROLEUM CO., LTD., Plaintiff, v. STEVEN W. BAUMGART, et
al., Defendants. No. 1:06cv471 (JCC). United States
District Court, E.D. Virginia, Alexandria Division. July
17, 2006

MEMORANDUM OPINION

JAMES CACHERIS, Senior District Judge

This matter is before the Court on Defendant’s motion to
dismiss pursuant to Rules 12(b)(2) and 12(b)(5) of the
Federal Rules of Civil Procedure. For the following
reasons, the Court will deny Defendant’s motion.

I. Background

Plaintiff, Nimir Petroleum Company, Ltd. (“Nimir”) has
brought this action against Defendants, Steven W. Baumgart,
Midway Oil Holdings, Ltd. (“MOHL”), and Midway Trading,
Inc. (“Midway”), alleging breach of contract, fraud, and
negligent misrepresentation. The action arises from a
December 11, 2002 Memorandum of Agreement (“MOA”) in which
Nimir agreed to advance $5 million to MOHL through the
purchase of ten $500,000 convertible promissory notes.
Baumgart signed the MOA and the promissory notes as
president of MOHL.

In the MOA, MOHL represented and warranted that neither it
nor any of its employees had made illegal kickbacks with
falsely recorded corporate funds, payments from corporate
funds Page 2 to government officials for improper
purposes, or illegal payments from corporate funds to
obtain or retain business. On October 20, 2005, however,
MOHL pleaded guilty in a New York state court to paying
Saddam Hussein’s regime more than $440,000 in illegal
kickbacks in 2000 and 2001 to purchase discounted Iraqi
crude through the United Nations Oil-for-Food program.
Nimir learned of MOHL’s conduct through media reports of
the guilty plea. Nimir also learned that Baumgart had
diverted some of the invested funds for his own personal
use and for the use of Midway, in violation of certain
restrictions contained within the MOA. MOHL also breached
various promissory notes by failing to make required
payments of principal and accrued interest.

On November 10, 2005, Nimir notified MOHL of the defaults
but received no response. Subsequently, on February 24,
2006, Nimir invoked the MOA’s acceleration provision and
informed MOHL that the entire principal amount of the
promissory notes, together with interest, was immediately
due. After MOHL failed to pay, Nimir filed the instant
action against Defendants. On May 24, 2006, MOHL filed a
motion to dismiss for lack of personal jurisdiction and
insufficient service of process.[fn1] On June 9, 2006, the
Court entered an Agreed Order continuing MOHL’s motion to
dismiss for approximately one month to permit the parties
to conduct jurisdictional discovery. The parties have
since Page 3 conducted informal discovery, and MOHL’s
motion to dismiss is now before the Court.

II. Standard of Review

Federal Rule of Civil Procedure 12(b)(2) permits dismissal
of an action where the court lacks the requisite personal
jurisdiction. To establish jurisdiction over a non-resident,
this Court must consider whether jurisdiction is authorized
by Virginia law and whether the exercise of personal
jurisdiction is consistent with traditional notions of fair
play and due process. See Ellicott Mach. Corp. v. John
Holland Party Ltd., 995 F.2d 474, 477 (4th Cir. 1993); Blue
Ridge Bank v. Veribanc, Inc., 755 F.2d 371, 373 (4th Cir.
1985). Virginia’s long-arm statute extends personal
jurisdiction to the fullest extent permitted by due
process. See English & Smith v. Metzger, 901 F.2d 36, 38
(4th Cir. 1990). It may, however, be possible for the
contacts of a non-resident defendant to satisfy due process
but not meet the specific grasp of a Virginia long-arm
statute provision. See Blue Ridge Bank v. Veribanc, Inc.,
755 F.2d 371, 373 (4th Cir. 1985); DeSantis v. Hafner
Creations, Inc., 949 F.Supp. 419, 423 (E.D. Va. 1996). Once
the existence of personal jurisdiction is properly
challenged by a defendant, the plaintiff bears the burden
of demonstrating personal jurisdiction by a preponderance
of the evidence. Combs v. Bakker, 886 F.2d 673, 676 (4th
Cir. 1989). Page 4

III. Analysis

A. Personal Jurisdiction

Nimir’s assertion of personal jurisdiction over MOHL is
based on its allegation that Baumgart resides in Reston,
Virginia, and that MOHL operates and transacts business out
of Baumgart’s residence. In response, MOHL has submitted an
affidavit signed by Baumgart in his capacity as president
of MOHL. Baumgart attests that MOHL is incorporated under
the laws of the Turks and Caicos islands and that its
principal place of business is in Vienna, Austria. He
states that MOHL’s only object of business is to acquire
oil production rights in Iraq, Syria, and Russia, and that
in addition to doing business in those three countries,
MOHL maintains offices in Greece, Switzerland, and Austria.

According to Baumgart’s affidavit, three Virginia
residents have acted on behalf of MOHL. MOHL has, on its
letterhead and in a brochure, published a Virginia post
office box and telephone numbers, together with the
addresses and telephone numbers of its European offices.
Baumgart has also occasionally used a telephone in Virginia
to provide information concerning the status of MOHL’s
business to individuals located outside of the United
States. Baumgart attests, however, that MOHL is structured
to avoid conducting any business within the United States
in order to avoid liability for U.S. taxes. Page 5

Furthermore, according to Baumgart, MOHL entered into the
MOA with Nimir in the United Kingdom. Baumgart subsequently
met with Tucker Link, Nimir’s president, on various
occasions in London, Dubai, Athens, Geneva, Beirut, and
Paris to discuss the status of MOHL’s attempt to acquire
oil production rights in Iraq. Using a telephone located in
Virginia, Baumgart also briefed Link, who was located
outside of the United States, on the status of this project
as many as three times per month over the course of one
year. Baumgart also attests that MOHL used a bank account
located in Virginia to receive and disburse funds, which
presumably were related to the promissory notes purchased
by Nimir and the acquisition of oil production rights in
Iraq.

Nimir’s complaint alleges personal jurisdiction over MOHL
both because it regularly transacts business within
Virginia and because some of the business transacted within
Virginia is connected to the MOA and the promissory notes.
Thus, Nimir alleges a case for the exercise of both
specific jurisdiction and general jurisdiction. The Court
needs not address both aspects of Nimir’s argument,
however, as the allegations and evidence before the Court
are sufficient to satisfy the Virginia long-arm statute and
support the exercise of specific jurisdiction.

The Virginia long-arm statue permits the exercise of
personal jurisdiction over any person “who acts directly or
by an Page 6 agent, as to a cause of action arising from
the person’s . . . [t]ransacting any business in this
Commonwealth.” Va. Code § 8.01-328.1(A)(1). This
provision extends the Court’s personal jurisdiction to
encompass any nonresidents who transact business within
Virginia. Peanut Corp. of Am. v. Hollywood Brands, Inc.,
696 F.2d 311, 313-14 (4th Cir. 1982). One act of
transacting business is sufficient. Id. at 314. The
long-arm statute can be satisfied where the nonresident
defendant has not procured a certificate of authority to
operate in Virginia. See id.

In this case, MOHL’s own affidavit establishes facts
sufficient to satisfy the long-arm statute. In Baumgart’s
own words, “[a]s many as three (3) times per month over the
period of a year, Mr. Baumgart, from a telephone in
Virginia, briefed Mr. Link, located outside the United
States, on the Project.” (Aff. of Midway Oil Holdings,
Inc., at 2.) Furthermore, MOHL used a Virginia-based bank
account to receive and disburse funds related to this
project. Any single act of briefing or any single financial
transaction related to the MOA, the promissory notes, or
the project conducted by MOHL pursuant to these agreements
would be sufficient to meet the requirements of Va. Code
§ 8.01-328.1(A)(1).

The only remaining question is whether the exercise of
personal jurisdiction would satisfy the Due Process Clause
of the Fourteenth Amendment. The assertion of personal
jurisdiction Page 7 over a nonresident defendant satisfies
due process requirements where the defendant has “certain
minimum contacts with [the forum] such that the maintenance
of the suit does not offend `traditional notions of fair
play and substantial justice.'” Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v.
Meyer, 311 U.S. 457, 463 (1940)). As the Supreme Court has
stated, “the constitutional touchstone remains whether the
defendant purposefully established `minimum contacts’ in
the forum State.” Burger King Corp. v. Rudzewicz, 471 U.S.
462, 474 (1985) (quoting Int’l Shoe Co., 326 U.S. at 316).
In other words, personal jurisdiction is appropriate where
“the defendant’s conduct and connection with the forum
State are such that he should reasonably anticipate being
haled into court there.” World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980). Where, as here, a court
asserts specific jurisdiction over a non-resident
defendant, the litigation must arise out of or be related
to the defendant’s contacts with the forum. See
Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S.
408, 414 n. 8 (1984).

In this case, MOHL claims that its only business is the
acquisition of oil production rights in Iraq, Syria, and
Russia, that its only offices are Greece, Switzerland, and
Austria, and that it conducts no business within the United
States. The evidence is sufficient, however, to support an
inference at this Page 8 stage that Baumgart directed the
conduct of at least some of MOHL’s business from within
Virginia. It is clear that MOHL maintained a business
address and a business telephone number within Virginia and
that MOHL listed this contact information in its
promotional material as its U.S. office. From this office,
MOHL engaged in a series of actions related to the claims
set forth by Nimir in the instant suit. Baumgart used this
office to brief Nimir’s president on a repeated basis
regarding MOHL’s endeavors to acquire Iraqi oil production
rights. MOHL’s attempts to acquire these oil production
rights and the briefings about these attempts were
conducted pursuant to MOHL’s agreements with Nimir.
Furthermore, MOHL used a bank account in Virginia to
receive and disburse funds, including funds that are at
issue in this case.

As this series of purposeful actions demonstrates, MOHL’s
contacts with Virginia were neither random, fortuitous, nor
attenuated. See Burger King, 471 U.S. at 475. In light of
the Virginia contacts that were related to the MOA and the
funds issued under the promissory notes, MOHL cannot
legitimately claim surprise at the prospect of being haled
into a Virginia court. Accordingly, the Court finds that
the exercise of personal jurisdiction over MOHL is proper.
Page 9

B. Service of Process

Nimir attempted to serve process upon MOHL by serving
Baumgart at his residence in Reston, Virginia. MOHL claims,
however, that it is not authorized to transact business in
Virginia. As such, MOHL argues that Virginia law does not
permit service to be made upon MOHL in this manner and that
Baumgart had no authority to accept service of process in
Virginia on behalf of MOHL. MOHL seeks dismissal of the
claims against it for insufficiency of service of process,
pursuant to Rule 12(b)(5) of the Federal Rules of Civil
Procedure.

Virginia law permits service of process on a foreign
corporation transacting business in Virginia without
authorization. Such service of process must be effected “by
personal service on any agent of a foreign corporation
transacting business in the Commonwealth without such
authorization, wherever any such officer, director, or
agents be found within the Commonwealth.” Va. Code §
8.01-301(1). As stated in the preceding discussion, the
evidence demonstrates that MOHL was transacting business in
Virginia through Baumgart. Furthermore, as president of the
corporation, Baumgart is an officer of MOHL. Because MOHL
was transacting business within Virginia and because Nimir
served process upon an agent of MOHL within Virginia, the
requirements of Va. Code § 8.01-301(1) have been
satisfied. As such, the service of process is sufficient to
Page 10 withstand a Rule 12(b)(5) motion. See Fed.R.Civ.P.
4(e)(1), (h)(1) (permitting service of process upon a
corporation pursuant to the law of the state in which the
district court is located).

IV. Conclusion

For the reasons stated above, the Court will deny
Defendant MOHL’s motion to dismiss. An appropriate Order
will issue.

[fn1] Baumgart and Midway have both filed answers in which
neither has contested personal jurisdiction or service of
process. Page 1