Rhode Island personal jurisdiction found in breach of contract suit

A federal judge has determined that Rhode Island enjoys specific personal jurisdiction over an out-of-state mortgage servicer accused of breach of contract in the sale of a mortgage loan, consistent with the three-prong test used by the 1st U.S. Circuit Court of Appeals of relatedness, purposefulness and reasonableness.

Under a May 2019 contract, plaintiff GRE Property Investments agreed to buy from defendant Isanthes a mortgage loan encumbering real property on Florence Street in Providence, Rhode Island. Although Isanthes as the seller made certain representations and warranties, including that it had “good title to and [was] the sole owner and holder” of the mortgage, it later came to light that before Isanthes was assigned the mortgage loan, a prior assignment had transferred it to another company.

According to GRE, that created a chain of title issue precluding it from servicing the loan. It therefore demanded that Isanthes repurchase the mortgage under the agreement’s provision related to the cure period and repurchase rights if the seller breached the warranties. When Isanthes refused, GRE filed the subject complaint for breach of contract and breach of the covenant of good faith and fair dealing.

On Isanthes’ motion to dismiss for lack of personal jurisdiction, U.S. District Court Chief Judge John J. McConnell Jr. in Rhode Island ruled that the exercise of jurisdiction in Rhode Island is proper.

Since the allegations of breach arise from and relate directly to the defendant’s contacts with Rhode Island, relatedness is established, McConnell said.

“[T]he court is unconvinced that Isanthes did not purposefully avail itself of the privilege of conducting activities within Rhode Island,” McConnell added as to the 1st Circuit’s second element. “Without the benefits and protections of Rhode Island law, Isanthes could not have made the warranties that GRE alleges it has violated, which ‘involved the existence or non-existence of restrictions on the use and value’ of property in Rhode Island.”

According to the judge, that activity represented the type of “purposeful availment” of the privilege of conducting business that makes it reasonably foreseeable that Isanthes could be “haled into court” in Rhode Island.

Finally, McConnell found it would be reasonable to exercise jurisdiction over the defendant based on the five “gestalt factors.”

“In their entirety, the gestalt factors favor jurisdiction in Rhode Island and Isanthes has not met its burden in showing that the exercise of such jurisdiction would raise constitutional concerns,” he concluded.

The 17-page decision is GRE Property Investments, LLC v. Isanthes, LLC. The full text of the ruling can be found here.