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Rollin v. Frankel3/23/2000
AFFIRMED
In this putative class action, plaintiffs/appellants Lawrence S. Rollin and J. William and Barbara Mandelbaum appeal from the trial court's order dismissing their complaint against defendants/appellees William V. Frankel & Co. (Frankel) and Hill, Thompson, Magid & Co. (HTM) for lack of personal jurisdiction. We affirm.
BACKGROUND
This action arises out of the purchase and sale of worthless public stock in a company called Discovery Zone. On July 29, 1997, a bankruptcy court extinguished all of Discovery Zone's publicly owned stock pursuant to a confirmed plan of reorganization under Chapter 11 of the Bankruptcy Code. The Securities and Exchange Commission (SEC) did not suspend trading on that stock, however, until August 1, 1997. In the interim, on July 31, plaintiffs purchased Discovery Zone stock through their brokers in Tucson, Fidelity Investments and Merrill Lynch. Fidelity, through its Boston office, purchased 2,000 shares on Rollin's behalf from Frankel. Through transactions occurring in New York and New Jersey, Merrill Lynch purchased the same number of shares on the Mandelbaums' behalf from HTM.
Plaintiffs, Arizona residents, filed this action against Frankel and HTM, the market makers on the National Association of Securities Dealers Automated Quotation (NASDAQ)() system who had sold the Discovery Zone stock to plaintiffs' agents. Plaintiffs brought the action on behalf of themselves and a class of approximately 5,000 similarly situated persons who had purchased Discovery Zone stock from Frankel or HTM on or after July 29, 1997. In their amended complaint, plaintiffs alleged causes of action for rescission, restitution, unjust enrichment, and negligence.
Frankel, a New Jersey corporation with its principal place of business there, and HTM, a New York corporation with its principal place of business in New Jersey, moved to dismiss the action for lack of personal jurisdiction pursuant to Rule 12(b)(2), Ariz. R. Civ. P., 16 A.R.S. The trial court granted the motions, and this appeal followed. We have jurisdiction under A.R.S. ยง 12-2101(D).
DISCUSSION
We review de novo a trial court's dismissal for lack of personal jurisdiction, viewing the facts in the light most favorable to the plaintiffs. A. Uberti and C. v. Leonardo, 181 Ariz. 565, 567, 569, 892 P.2d 1354, 1356, 1358 (1995). Frankel and HTM are securities broker-dealers registered with the SEC and the National Association of Securities Dealers (NASD). Both companies function as market makers on the NASDAQ stock market. Market makers are independent dealers that openly compete with each other for investors' orders in NASDAQ-listed stock by using their own capital to buy and sell NASDAQ securities. Because NASDAQ does not have a traditional trading floor, it relies on the market makers to generate competition and immediate, continuous trading and to ensure liquidity for stocks listed on NASDAQ.
Although market makers operate from individual offices, they conduct much of their activity through a vast computer network, linked by NASDAQ. Market makers provide quotations electronically to the NASDAQ stock exchange. Depending upon the level of NASDAQ work station terminal maintained at their particular office, NASDAQ broker-dealers may then access those quotes and place orders with market makers on behalf of customers located throughout the United States and abroad.() Market makers generally do not deal directly with the public, but rather, transact business only with other broker-dealers that are NASDAQ members. Market makers are obligated by the NASD to sell to or buy from any such firm that agrees to the posted pric
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