Opinion
Case No. 2:03CV 0016.
June 12, 2003.
MEMORANDUM DECISION
This matter is before the court on three motions to dismiss filed by defendant Richard R. Conte ("defendant" or "Conte"). The motions have been fully briefed by the parties and are ready for decision. Finding that oral argument would not materially assist the court in its determination of the motions, the court elects to 1(f).
Defendant filed a motion dismiss for lack of personal jurisdiction, a motion to dismiss for improper venue, or, in the alternative, to transfer action, and a motion to dismiss for failure to state a claim upon which relief can be granted.
Background
Plaintiff originally filed this action in the Third Judicial District Court, Salt Lake County, State of Utah. The action was removed to the United States District Court for the district of Utah by defendant pursuant to 28 U.S.C. § 1332(a)(1) and 1441(a). The United States District Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a)(1) by reason of the diversity of the citizenship of the parties. The complaint in this action alleges three causes of action — Fraud, Breach of Fiduciary Duty, and Negligent Misrepresentation.
Standard of Review for Motion to Dismiss for Lack of Personal Jurisdiction
The plaintiff in a civil case bears the burden of establishing that the court has personal jurisdiction over the defendant.See OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.2d 1086, 1091 (10th Cir. 1998). When a defendant files a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2), the plaintiff must make only a prima facie case of personal jurisdiction in order to defeat the motion. See OMI Holdings, 179 F.3d at 1091; accord Patriot Sys., Inc. v. C-Cubed Corp., 21 F. Supp.2d 1318, 1320 (Utah 1998). This may be done through well-pleaded facts in the complaint or in supporting affidavits. See OMI Holdings, 149 F.3d at 1091. "The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits. If the parties present conflicting affidavits, all factual disputes are resolved in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party." Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir. 1988); accord Far West Capital, Inc. v. Towne, 46 F.3d 1071 1075 (10th Cir. 1995)
Factual Background for Motion to Dismiss for Lack of Personal Jurisdiction
This case involves a finance lease for a telephone messaging system. The lease agreement was negotiated by and between Applied Financial, Inc. ("Applied"), which is a Utah corporation whose principal place of business is in Salt Lake County, Utah, and The IT Group ("IT"), which is a Delaware corporation with its principal place of business in Pennsylvania. Defendant Conte is a corporate officer of IT who, in his capacity as Vice President and Treasurer of IT, signed the Lease, the Amendment of the Lease, and the Acceptance Certificate for delivery of the equipment at IT's offices in Monroeville, Pennsylvania. Applied thereafter assigned its rights in the lease to plaintiff Republic Bank ("Republic").
The following jurisdictional facts are established in the complaint ("Compl."), the Richard Conte Affidavit ("Cont. Aff."), and Boyd Lindquist Affidavit ("Lind. Aff."):
Applied approached IT and solicited John Mance, a Senior Buyer of IT, to interest Mr. Mance and IT in Applied's services in connection with purchase/lease of the telephone voice messaging system. Cont. Aff. ¶¶ 7, 9. IT, through Mr. Mance, negotiated with Applied about the purchase. Compl. ¶ 7; Cont. Aff. ¶ 7, 8. On December 5, 2001 IT entered into a Master Lease Agreement and Lease Schedule, No. 001 ("Lease") with Applied, whereby Applied agreed to finance IT's purchase of certain telephone equipment. Compl. ¶¶ 7, 10. Defendant Conte is the Vice President and Treasurer of IT, and he signed the Lease on behalf of IT "as Vice President, Treasurer of IT." Id. ¶ 6, 10. Defendant Conte also signed, as Vice President and Treasurer of IT, an Amendment No. 1 to Lease Schedule No. 001 and a "Certificate of Acceptance," whereby IT accepted delivery of the telephone equipment. Id. ¶¶ 11, 14. According to its terms, the Lease was executed in Utah and was to be performed in Utah. Lind. Aff. ¶ 9. The Lease is also construed and governed according to the laws of the State of Utah. Id. ¶ 10. Defendant Conte is not a party to the Lease, the Amendment, or the Assignment. Exhibits A, B, C to Cont. Aff. Defendant received no personal or economic benefit from IT entering into the Lease with Applied. Cont. Aff. ¶ 13.
Aside from signing the Lease and related documents in his capacity as Vice President and Treasurer of IT, Conte had no direct involvement with the Lease or IT's underlying purchase of the telephone voice messaging system. Conte did not participate in the negotiations and never spoke with anyone at Applied about the Lease or about anything else. Cont. Aff. ¶¶ 8, 9, 12. While the Fjeldsted Affidavit asserts contact with Mr. Conte, it references and relies on "contact notes" attached as Exhibit A to the Fjeldsted Affidavit. The contact notes confirm Mr. Conte's lack of involvement and refute the statement in the Fjeldsted affidavit.
All of the documents defendant signed in his business office in President and Treasurer of IT were signed in his business office in Monroeville, Pennsylvania. Cont. Aff. ¶¶ 11, 17, 19. Defendant's only involvement with the Lease was to approve the terms and sign it in his capacity as Vice President and Treasurer of IT. id. ¶ other information to give to Applied in connection with the Lease. Cont. Aff. ¶ 15. The financial information provided to Applied or earlier. Comp. ¶ 17. All of the financial information that is created by IT is generated and stored in its Monroeville, Pennsylvania office. Id.
On December 13, 2001, IT issued a press release stating that IT would not be in compliance with financial covenants required by its secured creditors as of December 28, 2001. Compl. ¶ 19. On December 27, 2001, IT issued a press release stating that IT was having severe liquidity problems, that it appeared unlikely that satisfactory arrangements could be negotiated with its lenders, and that IT was considering all alternatives, including the filing of a Chapter 11 bankruptcy case. Id. Defendant Conte was listed as the "Investor Contact" on each of these press releases. Id.
On January 7, 2002 Defendant Conte signed, in his capacity as Vice President and Treasurer of IT, a letter sent by Applied to John Mance notifying IT of assignment of the Lease by Applied Affidavit. Republic is a community bank located in Davis County. Utah. Lind. Aff. ¶ 19. Before Conte signed the letter acknowledging Applied's assignment of the Lease to Republic, Conte was unaware of any involvement of Republic with the Lease.Id. ¶ 20. On January 9, 2002, Applied and Republic entered into a Sales and Assignment Agreement, wherein Applied assigned all of its rights and interests in the Lease to Republic. Compl. ¶ 16.
On January 16, 2002, 19 days after IT accepted delivery of the telephone equipment at its offices in Pennsylvania, IT filed a voluntary bankruptcy petition in the United States Bankruptcy Court for the District of Delaware. Id. ¶ 21. IT rejected the Lease in the Bankruptcy and Republic has been damaged. Compl. ¶ 23, Reply Affidavit of Richard R. Conte.
Defendant Conte has never sent any letters, facsimiles, electronic mail, or any other correspondence to anyone at Applied or Republic. Id. ¶ 14. Defendant has no personal connection with Utah. He is an individual who resides in Pennsylvania, and no other state. Id. ¶ 2. Defendant has never been to Utah, and does not own any real property in Utah. Id. ¶¶ 3, 4.
Discussion Personal Jurisdiction
The basis for jurisdiction in this case is the diversity of the parties' citizenship. This court must therefore apply the law of the forum state, Utah, in determining whether personal jurisdiction exists. See Fidelity and Casualty Co. of New York v. Philadelphia Resins Corp., 766 F.2d 440, 442 (10th Cir. 1985); Harnischfeger Eng'rs, Inc. v. Uniflo Conveyor, Inc., 883 F. Supp. 608, 612 (Utah 1995).
Utah Courts may apply either "general" or "specific" personal jurisdiction. As explained by the Utah Supreme Court:
General personal jurisdiction permits a court to exercise power over a defendant without regard to the subject of the claim asserted. For such jurisdiction to exist, the defendant must be conducting substantial and continuous local activity in the forum state. In contrast, specific personal jurisdiction gives a court power over a defendant only with respect to claims arising out of the particular activities of the defendant in the forum state. For such jurisdiction to exist, the defendant must have certain minimum local contacts.First Mortgage Corp. v. State Street Bank and Trust Co., 173 F. Supp.2d 1167, 1171 (Utah, 2001), citing Arguello v. Industrial Woodworking Mach. Co., 838 P.2d 1120, 1122 (Utah 1992); accord Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414 n. 9 (1984). The parties agree that three is no basis for exercising general jurisdiction over Defendant Conte. Hence the issue before the court on defendant's motion to dismiss for lack of personal jurisdiction is whether there are sufficient facts to warrant finding specific personal jurisdiction over the defendant.
"In Utah, a three-part inquiry is used to determine whether specific personal jurisdiction exists: (1) the defendant's acts or contacts must implicate Utah under the Utah long-arm statute: (2) a `nexus' must exist between the plaintiff's claims and the defendant's acts or contacts; and (3) application of the Utah long-arm statute must satisfy the requirements of federal due process." Harnischfeger, 883 F. Supp. at 612-13; accord First Mortgage Corp., 173 F. Supp.2d at 1173; STV Int'l Marketing v. Cannondale Corp. 750 F. Supp. 1070, 1074 (Utah 1990); Far West, 46 F.3d at 1074 (plaintiff must demonstrate that "jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.").
A. Utah's Long-Arm Statute and Federal Due Process
By statute, the Utah Legislature has determined that Utah's long-arm statute should be "applied so as to assert jurisdiction to the fullest extent permitted by the due process clause." Utah Code Ann. § 78-27-22. As a result, the first and third parts of the specific jurisdiction inquiry are identical, and Utah courts "frequently make a due process analysis first because any set of circumstances that satisfies due process will also satisfy the long-arm statute." SII MegaDiamond, Inc. v. American Superabrasives Corp., 969 P.2d 430, 433 (Utah 1998); see also Soma Medical Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1298 (10th Cir. 1999) (proceeding directly to constitutional analysis); Far West, 46 F.3d at 1075 (same).
Determining whether the court's exercise of personal jurisdiction over the nonresident defendant violates the Due Process Clause involves a two-step inquiry:
First, we must determine whether the defendant has such minimum contacts with the forum state that he should reasonably anticipate being haled into court there. . . . Within this inquiry we must determine whether the defendant purposefully directed its activities at residents of the forum, . . . and whether the plaintiff's claim arises out of or results from actions by the defendant himself that create a substantial connection with the forum state. . . . Second, if the defendant's actions create sufficient minimum contacts, we must then consider whether the exercise of personal jurisdiction over the defendant offends traditional notions of fair play and substantial justice.OMI Holdings, 149 F.3d at 1091-92 (internal citations and quotations omitted) (emphasis in original).
The requirements of the Due Process Clause are met "only so long as there exist `minimum contacts' between the [nonresident] defendant and the forum State." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, quoted in Far West, 46 F.3d at 1074. "A defendant's contacts are sufficient if the defendant `purposefully avails itself of the privilege of conducting activities within the forum State.'" Far West, 46 F.3d at 1074, quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958). The "purposeful availment" requirement ensures "that a defendant will not be haled into a jurisdiction solely as a result of `random,' `fortuitous,' or `attenuated' contacts." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) The defendant must therefore have "deliberately" created some relationship with the forum state that would serve to make that state's potential exercise of jurisdiction foreseeable. Id. at 474-76. "The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful contacts, ties, or relations."Id. at 471-71, quoting International Shoe Co. v. Washington, 326 U.S. 310, 319 (1945). Purposeful availment requires that the non-resident defendant engage in activity that is "purposefully directed" at forum residents, or "expressly aimed" and "intentionally directed" at forum residents. Asahi Metal Indus. Co., Ltd. v. Superior Court, 480 U.S. 102, 112 (1987); Calder v. Jones, 465 U.S. 783, 789-790 (1984). To establish minimum contacts, the plaintiff's claims must arise out of or result from "actions by the defendant himself that creates a substantial connection with the forum states." Asahi, 480 U.S. at 109 (internal quotations omitted) (emphasis is added); see also OMI Holdings, 149 F.3d at 1091. Consequently, a connection with the forum initiated by the plaintiff or arising from the plaintiff's place of residence, does not satisfy the purposeful availment requirement. See id. (emphasis added);see also Hanson, 357 U.S. at 251-254 (holding that trustee's obligation that arose from trust not in forum state and "that was entered without any connection" with the forum state and not from any "privilege the defendant exercised in" forum state was insufficient to establish purposeful availment or minimum contacts).
In this case, defendant has not purposefully availed himself of the privilege to conduct activities in Utah. Defendant Conte's only contact with plaintiff was in his capacity as an officer of IT in connection with one transaction which was the result of Applied soliciting IT.
Throughout its briefing, plaintiff continually attributes actions of IT to Conte without distinguishing his capacity as a representative of that company versus his capacity in this suit as an individual. Even accepting as true all of plaintiff's factual allegations (as opposed to legal conclusions and implications) the court cannot find even one "single purposeful contact" between Utah and Conte as an individual. When Defendant Conte signed the Lease and related documents, he could not have possibly imagined he was purposefully availing himself of the privilege of doing business in Utah, nor thereby subjecting himself to the jurisdiction of Utah courts. To find otherwise with the facts presented to the court would turn the Due Process Clause on its head.
Much discussion was had in the briefs regarding the fiduciary shield doctrine. The court has carefully surveyed the law cited by the parties and considered the supplemental briefing on this issue and finds the doctrine is recognized by the State of Utah and applied with specificity by the Tenth Circuit, even post Calder, 465 U.S. 783. See e.g., Ten Mile Indus. Park v. Western Plain Service Corp., 810 F.2d 1518, 1527 (10th Cir. 1987) (fraud case); Caldwell-Baker Co. v. Southern Illinois Railcar Co., 225 F. Supp.2d 1243 (Kansas 2002) (fraud case).
See Van Kleeck Creamery, Inc. v. Western Frozen Products, Inc., 465 P.2d 544, 546 (Utah 1970) (recognizing doctrine in principal where court vacated judgment entered against individuals in an Idaho court for lack of jurisdiction where "the acts of the individual defendants within the state of Idaho were performed solely in their capacity as officers in the defendant corporation"). Defendant also correctly cites cases from the Utah District Court applying the fiduciary shield doctrine in cases brought under Utah common law. See Segil v. Gloria Marshall Management Co., Inc., 568 F. Supp. 915, 919 (D. Utah 1983) (breach of contract claims dismissed against defendant corporate officer for lack of jurisdiction where plaintiff failed to allege "any other sound basis [other than defendant's status as an officer] for personal jurisdiction");National Petroleum Marketing, Inc. v. Phoenix Fuel Co., Inc., 902 F. Supp. 1459 (D. Utah 1995) (dismissing Utah common law defamation complaint against individual defendants for lack of personal jurisdiction — enforcing the rule that an employee's contacts with a jurisdiction are not to be judged by his employer's activities there).
Regarding the choice of law issue addressed by Defendant Conte, the court is persuaded that application of the "most significant relationship" test from the Restatement (Second) of conflicts of Laws, § 145 (1971) compels the conclusion that either Utah or Pennsylvania law applies to Republic's claims of alleged misrepresentation.
The case before the court is a sound candidate for application of the fiduciary shield doctrine. Defendant Conte's only contacts with this forum are limited to his representative capacity as an officer of IT. There are no allegations of any additional contact. This court concurs with the court inMcClelland v. Watling Ladder Co., 729 F. Supp. 1316, 1319 (W.D.Okla. 1990), that "it is unfair to force an individual to defend a suit brought against him personally in a forum with which his only relevant contacts are acts performed not for his own benefit but for the benefit of his employer."
The court agrees with defendant that the facts ofCaldwell-Baker, 225 F. Supp.2d 1243, are remarkably similar to the present case. That case involved a lease which was breached by defendants. After the breach, Caldwell-Baker sued the corporation for breach of contract and four corporate officers for fraud in their individual capacity. The Tenth Circuit was not persuaded by Caldwell-Baker's arguments that the individual officers were liable for fraud because of their failure to disclose their corporation's financial position to the plaintiff. Id. at 1263. Finding that all of the individual defendants' contacts with the forum state arose while they were acting in their official capacity as officers, the court found insufficient minimum contacts and no personal jurisdiction.Id. at 1262.
The Tenth Circuit's reference in Caldwell-Baker to "no factual basis to pierce the corporate veil" is also relevant to the case before this court. Id. There is no cause of action in the complaint for piercing the corporate veil and no factual allegations which could support any "alter ego" arguments. Hence, the facts in this case are readily distinguishable from a situation where the corporate officer may be dealing in the name of the corporation for his own personal benefit.
Furthermore, the court finds no factual basis for applying the "tortious behavior" exception to the fiduciary shield doctrine cited by plaintiff. Defendant's discussion of Application to Enforce Admin. Subpoenas Duces Tecum of S.E.C. v. Knowles, 787 F.2d 413 (10th Cir. 1995), is right on point and will not be restated by the court. Furthermore, the court finds no factual basis for finding individual participation by Conte in alleged corporate torts.
In addition, the mere allegation of an intentional tort does nor create personal jurisdiction. Rather, the defendant must have "additional contacts with the forum." See Far West, 46 F.3d at 1077 (Where the plaintiff argued jurisdiction was established because the defendants intentionally committed torts against the plaintiff in Utah, the Tenth Circuit held that there is no " per se rule that an allegation of an intentional tort creates personal jurisdiction;" rather, the defendant must have "additional contacts with the forum.") In this case, there are no facts alleged to support finding any individual contact, let alone tortious conduct by Conte.
"Jurisdiction by association" has never been sufficient. Every case cited by the parties requires analysis of the individual contacts of the defendant before subjecting him/her to personal jurisdiction. See Berrett v. Life Ins. Co., 623 F. Supp. 945 (D. Utah 1985) (court carefully looked at actions of each individual defendant to determine jurisdiction question); National Petroleum, 902 F. Supp. 1459 (D. Utah 1995) (individual defendants dismissed from defamation complaint where the only contacts defendants had with Utah were the actions of their employers); Ten Mile Indus. Park v. Western Plain Service Corp., 810 F.2d 1518, 1527 (10th Cir. 1987) (fraud case holding that jurisdiction must ordinarily be based on corporate officer's personal, rather than corporate, contacts with the forum).
Plaintiff's allegations of breach of fiduciary duty are likewise insufficient to support finding personal jurisdiction over Conte. The court is not persuaded that IT's apparent financial difficulties required Defendant Conte to update its financial disclosures or reveal "inside information." Neither the documents in question (to which Conte is not a party) nor the cases cited by Republic support such a finding. To the contrary, as a publicly traded company, neither IT nor Conte could selectively disclose "inside" financial information. Rather, "the duty imposed on a company and its officers is an alternative one: they must disclose material insider information either to no outsiders or to all outsiders equally." Elkind v. Liggett Myers, Inc., 635 F.2d 156, 165 (2nd Cir. 1980). This is precisely what IT did with the press releases issued in December 2001.
Defendant Conte's acts are further distinguished from those cases cited by Republic where fiduciary duty was found, in that he was not engaging in any self-dealing or misappropriation of corporate opportunities and obtained no personal benefit from the contract or its breach. The cases cited by Republic did not hold a corporate officer personally liable for the contractual obligations of a bankrupt corporation as plaintiff is attempting to do in this case; rather, they typically involved director usurpation of corporate opportunities or misappropriation of funds or property belonging to the corporation or creditors. There is no law in this jurisdiction that convinces or compels the court to find a fiduciary duty from the facts alleged in plaintiff's complaint.
The court also finds that exercising jurisdiction over Defendant Conte would offend the traditional notions of fair play and substantial justice. Despite Utah's asserted interest in determining fraud cases against its citizens, see SII Megadiamond, 969 P.2d 430 (holding that the public interest demands that the state protect its citizens from fraud), the court cannot get past the undisputed facts that Defendant Conte had no individual contact with Utah and insubstantial contacts in his corporate capacity.
The facts directly contradict plaintiff's statement that "Conte's contacts with Utah are significant in `quality and nature.'" Memorandum in Opposition to Defendant Richard R. Conte's Motion to Dismiss for Lack of Personal Jurisdiction at 16. The STV case cited by Defendant Conte is more analogous than any cited by Republic. Like in STV, Conte's contacts were "neither substantial nor continuous," and the "economic realities" were such that Defendant Conte essentially had no "economic ties with the state of Utah." STV, 750 F. Supp. at 1078. Unlike the defendant in STV, Defendant Conte did not even have telephone or mail contacts regarding the Lease or any other topic to anyone at Applied or Republic Bank. Cont. Aff. ¶ 14. In addition, the court finds the burden on Conte to litigate in Utah would be substantial. His only employer, IT, is in bankruptcy, and he does not have the economic means to litigate an action from across the country. Id. ¶ 21.
Finally, plaintiff's supplemental memorandum argues that "the fiduciary shield doctrine is `an equitable principle' and `is not applied mechanically. . . . In each instance, fairness is the ultimate test.'" Supplemental Memorandum Regarding the Fiduciary Shield Doctrine at 5 quoting Home-Stake Production Co. v. Talon Petroleum, C.A., 907 F.2d 1012, 1017 (10th Cir. 1990) (emphasis added). This court finds, given the facts plead in the complaint and outlined in affidavits submitted by plaintiff and defendant, that it would be patently unfair to exercise personal jurisdiction over Defendant Conte.
Addressing Utah's "nexus" requirement, the court finds it does not have specific personal jurisdiction over Conte because Republic's claims do not arise out of Conte's contacts with Utah. Conte has no contacts with Utah in his individual capacity. Furthermore, "the nexus requirement is not met whenever there is a creation or breach of contract with a Utah plaintiff." First Mortgage, 173 F. Supp.2d at 1175, citingSTV, 750 F. Supp. at 1077. Every action of Conte's in connection with the IT Lease was performed by him in Pennsylvania. None of his corporate duties were performed in Utah. And even if there were fiduciary duties which he allegedly breached, any action amounting to breach was performed in Pennsylvania. Cont. Aff. ¶ 5.
Accordingly, the court finds plaintiff has not carried its burden of making a prima facie case of personal jurisdiction over Defendant Conte. The motion to dismiss for lack of personal jurisdiction is granted.
The court has construed all facts in a light most favorable to Republic. Furthermore, there do not seem to be material facts in dispute. The parties disagreements have centered on legal issues and application of that law to the facts at hand. These are not areas aided by discovery. Accordingly, the court cannot find any basis for granting plaintiff's request to order discovery regarding personal jurisdiction and that request is denied.
Having dismissed the action for lack of personal jurisdiction, the court declines to rule on the two other pending motions to dismiss for failure to state a claim and for improper venue or in the alternative to transfer. Should plaintiff decide to file in another court that has jurisdiction over the defendant, that court would be the more appropriate forum to address the remaining motions. This matter is dismissed and the case closed.
SO ORDERED.