Newsome v. Gallacher , 722 F.3d 1257 ( 2013 )

FILED
United States Court of Appeals
Tenth Circuit
July 17, 2013
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
P. DAVID NEWSOME, JR.,
Liquidating Trustee of Mahalo Energy
(USA), Inc.,
Plaintiff-Appellant,
v. No. 12-5068
WILLIAM GALLACHER, DUNCAN
CHISHOLM, GARY H. DUNDAS,
JEFF G. LAWSON, JAMES BURNS,
KEVIN WOLFE, DAVID E.
BUTLER, and BURNET,
DUCKWORTH AND PALMER, LLP,
Defendants-Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
(D.C. NO. 4:11-CV-00140-GKF-PJC)
Ali M. M. Mojdehi, Cooley LLP, San Diego, California (Janet D. Gertz, Cooley
LLP, San Diego, California, and William B. Federman and Joshua D. Wells,
Federman & Sherwood, Oklahoma City, Oklahoma, with him on the briefs) for
Appellant.
Craig Fitzgerald, GableGotwals, and Paula J. Quillin, Franden, Woodard, Farris,
Quillin + Goodnight (John Henry Rule, GableGotwals, and Joseph R. Farris,
Franden, Woodard, Farris, Quillin + Goodnight, with them on the brief) Tulsa,
Oklahoma, for Appellees.
Before TYMKOVICH, SEYMOUR, and GORSUCH, Circuit Judges.
TYMKOVICH, Circuit Judge.
This case requires us to answer a classic personal jurisdiction question—
who was injured, and where? The answer to that question will determine whether
the representative of a Canadian-owned Delaware corporation operating
exclusively in Oklahoma may sue the corporation’s Canadian officers and
directors in Oklahoma.
To bring a suit, the plaintiff must show the defendants are subject to
personal jurisdiction in Oklahoma. The Constitution allows for personal
jurisdiction only when the requirements of due process are met. Here we
conclude the Constitution allows this lawsuit to proceed in Oklahoma.
Plaintiff David Newsome is a litigation trustee appointed by the Bankruptcy
Court for the Eastern District of Oklahoma to administer the legal claims of
Mahalo Energy (USA), Inc. Newsome brought suit in the Northern District of
Oklahoma alleging various breaches of fiduciary duty against the corporation’s
former directors and officers, other closely affiliated persons, and a law firm that
provided legal services to the corporation. All defendants are Canadian citizens
or entities domiciled in Alberta. The defendants moved to dismiss for lack of
personal jurisdiction and the district court granted that motion.
We conclude the district court erred in part. Specifically, we hold the
individual defendants (every defendant but the law firm) cultivated sufficient
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contacts with Oklahoma to justify suit there. We also hold that the fiduciary
shield doctrine—under which personal jurisdiction may not attach to a corporate
agent by virtue of actions the agent takes solely on the corporation’s behalf—does
not apply here. We therefore reverse as to the individual defendants and remand
for further proceedings.
As for the law firm, however, we affirm. Given the law firm’s out-of-state
character and that it performed all of its relevant services out-of-state on an out-
of-state transaction, it did not cultivate sufficient contacts with Oklahoma to
justify personal jurisdiction there. The district court therefore correctly dismissed
the law firm.
I. Background
A. Mahalo USA and Mahalo Canada
Mahalo Energy (USA), Inc. is a Delaware corporation which, before its
bankruptcy, operated exclusively in Oklahoma. Mahalo USA was in the business
of exploring for and producing natural gas. Mahalo USA had a field office,
employees, equipment, and real estate interests in Oklahoma.
Mahalo USA is wholly owned by Mahalo Energy Ltd., a Canadian
corporation we will refer to as “Mahalo Canada.” The basic thrust of this lawsuit
is that Mahalo Canada’s directors (some of whom were also directors or officers
of Mahalo USA) conspired to maximize their own profits by shifting
unsustainable debt to Mahalo USA. This course of action began in 2006, when
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Mahalo Canada acquired another company and assumed its debt. Mahalo Canada
then transferred all of that debt to Mahalo USA while keeping the equity. Mahalo
Canada also encumbered Mahalo USA’s assets as partial security for Mahalo
Canada’s $50 million revolving line of credit. Finally, Mahalo Canada sold some
of its Canadian assets to an investment vehicle in which most Mahalo Canada
directors were invested, leaving Mahalo USA’s encumbered assets as the primary
security for Mahalo Canada’s credit line.
B. The Ableco Transaction
Newsome claims things got worse for Mahalo USA in July 2008, when
Mahalo Canada caused Mahalo USA to pay off Mahalo Canada’s line of credit
and enter into a new $105 million line of credit with a company called Ableco.
Ableco supposedly has a “loan to own” reputation (i.e., loaning to failing
companies with hopes of seizing assets upon default). Newsome says that Mahalo
USA’s directors and officers knew the company could never service the new $105
million debt, but entered into the Ableco transaction anyway because it
maximized their equity in Mahalo Canada. Mahalo USA defaulted on the Ableco
loan about three weeks after closing.
Apparently Mahalo USA soon received an offer from a third party to
purchase Mahalo USA’s assets for an amount that would pay off its debts. But
Mahalo Canada’s directors scuttled the deal because the offered purchase price
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was barely more than Mahalo USA’s outstanding debt, meaning the equity holders
(i.e., defendants) would see little or no profit.
After rejecting the purchase offer, Mahalo Canada caused Mahalo USA to
sign an amendment with Ableco that increased the credit line and the fees
charged. Mahalo USA still could not pay off its debts and filed for bankruptcy
protection in the Eastern District of Oklahoma in May 2009.
C. The Nature of Newsome’s Lawsuit
After receiving his charge to administer Mahalo USA’s legal claims for the
benefit of its creditors, Newsome brought suit against seven Canadian citizens
and a Canadian law firm, all domiciled in Alberta. The individual defendants—
James Burns, David Butler, Duncan Chisholm, Gary Dundas, William Gallacher,
Jeff Lawson, and Kevin Wolfe—generally had overlapping roles as directors or
officers (or both) at Mahalo Canada or Mahalo USA (or both). All have equity
stakes in Mahalo Canada. Jeff Lawson was also a partner at the law firm (Burnet,
Duckworth & Palmer LLP), to which both Mahalo entities frequently turned for
legal services. The law firm itself had no equity stake in Mahalo Canada.
Newsome claims all defendants breached their fiduciary duties to Mahalo
USA with respect to the debt transactions that sank the company. To the extent a
defendant did not have a fiduciary duty toward Mahalo USA, Newsome claims the
defendant aided and abetted a breach of fiduciary duty. As to the law firm, he
claims it represented both Mahalo Canada and Mahalo USA but had an
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irreconcilable conflict of interest because Mahalo Canada directed the firm to take
actions that favored Mahalo Canada at Mahalo USA’s expense. Newsome also
asserts that the law firm aided and abetted the individual defendants’ breaches of
fiduciary duty.
D. Defendants’ Contacts with Oklahoma
Every alleged breach originated in Alberta without any contact with
Oklahoma. As officers of Mahalo USA, Chisholm and Burns both traveled to
Oklahoma frequently to check up on Mahalo USA’s physical operations, but only
two of those trips—taken by Burns in January 2009—have any conceivable
connection to the debt transactions that gave rise to this lawsuit. Those two trips
involved presentations to potential purchasers of Mahalo USA’s assets.
The other individual defendants had significantly fewer travels to
Oklahoma. Dundas made one trip in 2005 (before the period relevant to this
lawsuit) in his dual capacity as a director of Mahalo Canada and Mahalo USA.
Gallacher traveled with Dundas on the same trip as a director of Mahalo Canada,
but otherwise never traveled to Oklahoma on Mahalo business. Butler and
Lawson have never traveled to Oklahoma on Mahalo business. Wolfe has never
set foot in Oklahoma for any reason. None of the individual defendants have ever
owned or leased real property in Oklahoma, held bank accounts in Oklahoma,
appointed agents in Oklahoma, filed suit in Oklahoma, or registered to do
business in Oklahoma.
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Similarly, the law firm has very few Oklahoma connections. It is not
licensed to practice law or otherwise do business in Oklahoma, does not advertise
in Oklahoma, has no offices or other real property in Oklahoma, has no bank
accounts in Oklahoma, and does not pay taxes in Oklahoma. In terms of its
actions toward Mahalo USA, the law firm performed all legal services relevant to
this lawsuit in Canada.
II. Analysis
A. Personal Jurisdiction Generally
We begin with an overview of personal jurisdiction, in particular the
requirements of state and federal law in assessing the power of courts to assert
jurisdiction over these Canadian defendants.
Federal courts may exercise personal jurisdiction over a defendant “who is
subject to the jurisdiction of a [state] court . . . in the state where the [federal]
court is located.” Fed. R. Civ. P. 4(k)(1)(A). This requires us to focus first on
state law, and particularly, the relevant state’s long-arm statute. That statute
establishes the extent to which the state intends its courts to exercise jurisdiction
over nonresidents. Thus, any personal jurisdiction analysis must begin there.
The Oklahoma legislature has authorized Oklahoma courts to “exercise
jurisdiction on any basis consistent with the Constitution of this state and the
Constitution of the United States.” Okla. Stat. Ann., tit. 12, § 2004(F). No party
has argued any state constitutional objection, so we turn to the only relevant
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inquiry for this case—whether the United States Constitution places any limits on
Oklahoma’s ability to exercise jurisdiction.
“The Supreme Court has held that, to exercise jurisdiction in harmony with
due process, defendants must have ‘minimum contacts’ with the forum state, such
that having to defend a lawsuit there would not ‘offend traditional notions of fair
play and substantial justice.’” Dudnikov v. Chalk & Vermilion Fine Arts, Inc.,
514 F.3d 1063, 1070 (10th Cir. 2008) (quoting Int’l Shoe Co. v. Washington, 326
U.S. 310, 316 (1945)). As a general matter, then, if a nonresident party has
“continuous and systematic general business contacts with the forum state,”
general personal jurisdiction might exist. Trujillo v. Williams, 465 F.3d 1210,
1218 n.7 (10th Cir. 2006) (internal quotation marks omitted). General personal
jurisdiction over a party permits the forum to resolve any dispute involving that
party, not just the dispute at issue. Helicopteros Nacionales de Colombia, S.A. v.
Hall, 466 U.S. 408, 414–16 (1984). Newsome has not argued that any defendant
has sufficiently systematic contacts with Oklahoma to warrant general personal
jurisdiction there. Thus, we focus on specific personal jurisdiction—i.e.,
jurisdiction specific to this dispute—and its attendant “minimum contacts” test.
“Because a state’s sovereignty is territorial in nature, a defendant’s contacts
with the forum state must be sufficient such that, notwithstanding its lack of
physical presence in the state, the state’s exercise of sovereignty over it can be
described as fair and just.” Dudnikov, 514 F.3d at 1070. To implement this
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principle, courts typically make three inquires: (1) whether the defendant
purposefully directed its activities at residents of the forum state; (2) whether the
plaintiff’s injury arose from those purposefully directed activities; and
(3) whether exercising jurisdiction would offend traditional notions of fair play
and substantial justice. Id. “We review de novo questions of personal
jurisdiction.” ClearOne Commc’ns, Inc. v. Bowers, 651 F.3d 1200, 1214 (10th
Cir. 2011).
B. Personal Jurisdiction for the Individual Defendants1
1. Purposeful Direction
In tort-based lawsuits such as this one, “purposeful direction” has three
elements: “(a) an intentional action . . . that was (b) expressly aimed at the forum
state . . . with (c) knowledge that the brunt of the injury would be felt in the
forum state . . . .” Dudnikov, 514 F.3d at 1072. To resolve the purposeful
direction inquiry in this case, however, we must settle certain preliminary
questions about whether Newsome can attribute the acts of the individual
defendants to each other through a conspiracy allegation, and whether Mahalo
USA is really the injured party.
1
The individual defendants comprise Burns, Butler, Chisholm, Dundas,
Gallacher, Lawson (in his capacity as a Mahalo Canada director), and Wolfe.
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a. The Conspiracy Question
Purposeful direction analyses traditionally tend to focus on a defendant’s
contacts such as travels to the forum, communications with forum residents, the
course of business dealings with forum residents, and so forth. Newsome,
however, does not attempt to establish such traditional contacts between these
defendants and the State of Oklahoma. Newsome instead accuses the individual
defendants of conspiring to maximize their personal gain at Mahalo USA’s
expense, arguing that personal jurisdiction can be obtained over all of them
through the conspiracy. 2
As authority for this proposition, Newsome cites Melea, Ltd. v. Jawer SA,
where we stated that “[t]he existence of a conspiracy and [overt] acts of a
co-conspirator within the forum may, in some cases, subject another
co-conspirator to the forum’s jurisdiction.” 511 F.3d 1060, 1069 (10th Cir.
2007). But Melea, by its terms, requires at least one of the conspirators to have
pursued the conspiracy within the forum state. Cf. id. at 1070 (“a co-
conspirator’s presence within the forum might reasonably create the ‘minimum
2
The district court struck some of the evidence Newsome submitted in
support of personal jurisdiction, and Newsome challenges that ruling here. But if
the district court committed error (which we do not decide), then it was harmless.
As to evidence concerning the individual defendants, the district court may have
struck Newsome’s supporting materials but it took Newsome’s assertions at face
value—indeed, it reprinted them verbatim. See App. 1775–76. The district court
did not do likewise with the evidence concerning the law firm, but having
reviewed that evidence ourselves, we conclude the district court nonetheless
reached the right result in dismissing the firm. See infra Part II.C.
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contacts’ with the forum necessary to exercise jurisdiction over another co-
conspirator if the conspiracy is directed towards the forum, or substantial steps in
furtherance of the conspiracy are taken in the forum”). Newsome makes no such
allegation against any of the individual defendants. Melea therefore does not help
us here.
This case, instead, presents an unusual situation: a conspiracy that takes
place entirely outside of the forum, but with the conspirators’ knowledge that the
forum would bear the brunt of the conspiracy’s harmful effects. Outside of the
conspiracy context, this sort of situation would pose no doctrinal problem. In
Calder v. Jones, for instance, the Supreme Court permitted California to exercise
jurisdiction over parties—in that case a newspaper editor and a reporter—acting
entirely from Florida to cause injuries in California. 465 U.S. 783, 789–91
(1984). The question is whether the result should be different if a conspiracy is
involved.
We recognize parties could potentially stretch the conspiracy cause of
action to subvert the due process principles that govern personal jurisdiction. See
generally Ann Althouse, The Use of Conspiracy Theory to Establish In Personam
Jurisdiction: A Due Process Analysis, 52 Fordham L. Rev. 234 (1983). We also
acknowledge that personal jurisdiction requirements “must be met as to each
defendant.” Rush v. Savchuk, 444 U.S. 320, 332 (1980). But we cannot dismiss
out of hand the jurisdictional theory Newsome presents. If three Kansans
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conspired to fire a cannonball into Oklahoma, we do not believe the Constitution
would foreclose Oklahoma courts from exercising jurisdiction over the
conspirators simply because they confined themselves to Kansas.
Nonetheless, we need not decide the precise standard to apply to this
circumstance. Newsome treats the individual defendants as identical in all
material respects. As he alleges, all reside in Alberta, all knew that Mahalo USA
operated exclusively in Oklahoma, all had a fiduciary duty to Mahalo USA or
aided and abetted someone who did, and all collectively took intentional actions
that caused breaches of fiduciary duties owed to Mahalo USA. If true, there is no
theoretical problem with analyzing these allegations as applying to them both
individually and as a group.
Defendants counter by asserting generically that they should not be treated
as a group, but their only specific argument in that regard is that the law firm
differs from the group as a whole. We agree and will analyze the law firm
separately. See infra Part II.C. But defendants do not explain why any other
defendant differs from the group for personal jurisdiction purposes.
Accordingly, we accept Newsome’s contention that the individual
defendants are materially identical for personal jurisdiction purposes.
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b. The Injured Party
Our analysis of purposeful direction also requires us to examine the
claimed injuries giving rise to the lawsuit in the forum, which inevitably leads us
to the question, “Who was injured, and where?” In this case, the answer turns out
to be somewhat complicated.
The named plaintiff, Newsome, is simply a court-appointed trustee. The
bankruptcy court, however, gave Newsome charge over Mahalo USA’s legal
claims, instructing him to administer them “for the benefit of creditors.” App. 11.
This connection to the creditors is important. In Delaware, 3 if a wholly-owned
subsidiary is solvent, the subsidiary’s directors owe their fiduciary duties to the
parent and its shareholders. Anadarko Petroleum Corp. v. Panhandle E. Corp.,
545 A.2d 1171, 1174 (Del. 1988). Thus, loading debt on a solvent subsidiary to
maximize the parent’s value is not a breach of fiduciary duty to the subsidiary.
Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 192 (Del. Ch.
2006).
Things change, however, when the subsidiary becomes insolvent. At that
point, the subsidiary’s “creditors take the place of the shareholders as the residual
beneficiaries of any increase in value,” and the director therefore owes fiduciary
duties to the creditors as well as the corporation. N. Am. Catholic Educ.
3
The parties agree that Delaware law governs at least the Mahalo USA
directors’ duties.
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Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101 (Del. 2007). Thus, if
Newsome has a prima facie breach of fiduciary duty claim against the individual
defendants, such a claim must derive from the duty Mahalo USA’s directors may
have owed to the company and its creditors when the company became insolvent.
Typically, this scenario leads to questions of standing, such as whether a
creditor may bring a direct claim for breach of fiduciary duty, or only a derivative
claim. Also important is whether a bankruptcy trustee brings a fiduciary duty
claim on the creditors’ behalf, or only on the company’s behalf (although the
trustee’s efforts might benefit the creditors).
No one has challenged standing here, but these questions are not merely
academic for our purposes. They are a necessary starting point for answering the
question, “Who was injured, and where?” Fortunately, recent Delaware case law
has resolved the standing questions.
First, creditors of an insolvent corporation can almost never bring a direct
action for breach of fiduciary duty. Gheewalla, 930 A.2d at 101–03. Such an
action “would create a conflict between . . . directors’ duty to maximize the value
of the insolvent corporation for the benefit of all those having an interest in it,
and the newly recognized direct fiduciary duty to individual creditors.” Id. at
103. More specifically, “[d]irectors of insolvent corporations must retain the
freedom to engage in vigorous, good faith negotiations with individual creditors
for the benefit of the corporation.” Id.-14-
Second, creditors of an insolvent corporation (like shareholders generally)
may bring a derivative action for breach of fiduciary duty—i.e., an action to force
the corporation to sue the relevant directors and officers. Id. at 101.
Third, a bankruptcy trustee has standing to pursue the creditors’ claim for
breach of fiduciary duty, but not because the trustee is somehow stepping into the
shoes of the creditors. Rather, “a bankruptcy trustee may assert only the claims
that belong to the bankruptcy estate,” but “those claims may include the interests
of creditors in the sense that the trustee has the duty to marshal the assets of the
estate so that they can be distributed to creditors on a pro rata basis.” In re Scott
Acquisition Corp., 344 B.R. 283, 290–91 (Bankr. D. Del. 2006) (quoting Bondi v.
Grant Thorton Int’l (In re Parmalat Sec. Litig.), 377 F. Supp. 2d 390, 420
(S.D.N.Y. 2005)) (emphasis added).
These answers generally make sense, although applying them to the
question here—“Who was injured, and where?”—is not straightforward.
Specifically, if Newsome is not considered to be asserting the creditors’ claims,
but rather Mahalo USA’s claims, then where was Mahalo USA injured? And may
we nonetheless consider injury to and location of Mahalo USA’s creditors when
evaluating personal jurisdiction?
In other contexts, identifying the location of the corporation is fairly
simple. For example, when evaluating diversity jurisdiction, a corporation is
considered domiciled where it is incorporated and where it has its “principal place
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of business,” 28 U.S.C. § 1332(c)(1), which the Supreme Court defines as “the
place where a corporation’s officers direct, control, and coordinate the
corporation’s activities,” Hertz Corp. v. Friend, 130 S. Ct. 1181, 1192 (2010). In
Mahalo USA’s case, this would mean it exists in Delaware (place of
incorporation) and Canada (principal place of business).
But these answers come by way of interpreting § 1332—a statute governing
subject-matter jurisdiction, not personal jurisdiction. Personal jurisdiction
restrictions come by way of the due process clause. Does the due process clause
require us to treat Mahalo USA as located in any particular place for purposes of
the injury it suffered? Similarly, does the due process clause require us to ignore
where the alleged harm was principally felt?
We believe the answer to both questions is no. When Delaware courts say
that the injured party is the corporation principally, and the creditors only
derivatively, these courts are really responding to the question of when and how
creditors may sue for those injuries. Thus, to say, “This is the corporation’s
injury,” does not mean that the creditors have suffered no harm, just that the
creditors may not sue directly for that harm—because, among other reasons,
allowing such suits would create the same undesirable consequences as allowing
each shareholder to sue directly for loss of value to his or her stock.
But that is a question of state substantive law and policy with respect to
corporations. There is no reason to think that due process requires us to treat the
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corporation and its creditors in the same way for purposes of determining
personal jurisdiction. In particular, we do not believe due process requires us to
ignore where the injury was actually felt, even if those who felt it face some
impediment to suit on account of substantive corporation law. Thus, in a lawsuit
claiming breach of fiduciary duty, we believe it is appropriate to consider harm to
those to whom a fiduciary duty was owed—in this case, the creditors—when
answering the question of who was injured and where.
We do not mean to imply that a forum may obtain personal jurisdiction
over corporate officers simply because one to whom a fiduciary duty was owed is
located in that forum. But a court evaluating personal jurisdiction need not
ignore the creditors’ or shareholders’ places of residence simply because the
cause of action belongs to the corporation.
Here, Newsome alleges that all or nearly all of Mahalo USA’s creditors are
Oklahoma residents. Defendants do not dispute this claim. In addition, Mahalo
USA filed for bankruptcy in Oklahoma, which strongly suggests that many
creditors reside in Oklahoma. We therefore conclude that we may appropriately
consider the alleged injury in this case to have occurred in Oklahoma.
Thus, the answer to our question—“Who was injured, and where?”—is that
Mahalo USA and its creditors were injured primarily in Oklahoma. Having
concluded as much, we may turn to the purposeful direction analysis itself.
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c. Purposeful Direction Elements
As noted, purposeful direction in this suit has three requirements:
(1) intentional action, (2) express aiming at the forum state, and (3) knowledge
that the brunt of the injury would be felt in the forum state. Dudnikov, 514 F.3d
at 1072. We analyze each element in turn.
The intentional action element requires little discussion. The record
contains no suggestion that the individual defendants acted unintentionally when
they took the steps that allegedly led to Mahalo USA’s failure. Accordingly,
Newsome satisfies the intentional action requirement.
The express aiming element requires Oklahoma to have been the “focal
point” of the tort. Dudnikov, 514 F.3d at 1074. As we noted in Dudnikov, two
Ninth Circuit cases help to illustrate the contours of this element.
In Bancroft & Masters, Inc. v. Augusta National Inc., 223 F.3d 1082 (9th
Cir. 2000), overruled in part on other grounds in Yahoo! Inc. v. La Ligue Contre
Le Racisme Et L’Antisemitisme, 433 F.3d 1199 (9th Cir. 2006) (en banc), the
Georgia owner of The Masters golf tournament sent a letter to a Virginia domain
name registrar, invoking the registrar’s procedures for disputing a California
computer business’s entitlement to “masters.com.” The California business was
then required to relinquish the domain name or obtain a declaratory judgment in
its favor. The business chose the latter route, suing the Georgia entity in
California. The Georgia entity challenged personal jurisdiction. Bancroft, 223
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F.3d at 1084–85. Although the Georgia entity’s letter “was formally sent to
Virginia rather than California,” it satisfied the “express aiming” requirement
because its “purpose was specifically to target a known California business.”
Dudnikov, 514 F.3d at 1076 (citing Bancroft, 223 F.3d at 1087–88).
By contrast, in Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797(9th Cir. 2004), an Ohio car dealership used a photograph of Arnold
Schwarzenegger in its local advertisements without Schwarzenegger’s permission.
Schwarzenegger sued the Ohio dealership in California, but the California court
determined it lacked personal jurisdiction. Id. at 799–800. “While [the
dealership] perhaps knew Mr. Schwarzenegger lived in California, this was
insufficient to convey jurisdiction there because the intention[] behind [the
dealership’s] advertisement was solely to entice local market Ohioans,” rather
than influence Schwarzenegger in California. Dudnikov, 514 F.3d at 1076 (citing
Schwarzenegger, 374 F.3d at 799) (emphasis in original).
Dudnikov itself is also helpful. There, a Connecticut company
communicated with eBay in California, attempting to cut short an eBay auction
that allegedly infringed the Connecticut company’s copyright. The promoters of
that auction—a Colorado couple—sued the Connecticut company for declaratory
judgment in Colorado. Id. at 1068–69. The Connecticut company sought
dismissal for lack of personal jurisdiction, arguing that the express aiming
requirement was not satisfied because it did not know the plaintiffs operated from
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Colorado. Id. at 1076. The plaintiffs’ allegations, however, established that their
Colorado location was obvious from the eBay auction page. Id. This, we said in
Dudnikov, was enough at the pleading phase to establish express aiming at
Colorado. Id. at 1076–77.
Here, the individual defendants do not contest that they knew Mahalo USA
operated exclusively in Oklahoma, making Oklahoma the focal point of any tort
against Mahalo USA they may have committed. Accordingly, Newsome has
established that these defendants expressly aimed their actions at Oklahoma when
they acted toward Mahalo USA.
The final requirement is knowledge that the brunt of the injury would be
felt in the forum state. We have already concluded Newsome established that the
individual defendants knew Mahalo USA’s business operated in Oklahoma. At
the pleading phase, then, it is a fair inference that the individual defendants knew
that the brunt of any injury to Mahalo USA would be felt in Oklahoma. See id. at
1077 (“in satisfying [the] first two [elements of the ‘purposeful direction’ test],
plaintiffs have established that defendants acted with more than foresight (or
knowledge) that effects would be felt in [the forum]”).
Newsome has therefore satisfied the three elements of the purposeful
direction test as to the individual defendants.
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2. “Arising Out Of”
Aside from purposeful direction, the specific personal jurisdiction test
requires “the plaintiff’s injuries [to] arise out of defendant’s forum-related
activities.” Id. at 1071. We have stated that there are potentially two tests here—
the but-for test and the proximate cause test:
Under the [but-for] approach, any event in the causal
chain leading to the plaintiff’s injury is sufficiently
related to the claim to support the exercise of specific
jurisdiction. The [proximate cause] approach, by
contrast, is considerably more restrictive and calls for
courts to examine whether any of the defendant’s
contacts with the forum are relevant to the merits of the
plaintiff’s claim.
Id. at 1078 (internal quotation marks omitted; certain alterations incorporated).
We have so far refused to choose one test over the other, id. at 1079, and
we still need not pick between the two to resolve this case. Here, Newsome
satisfies the more restrictive proximate cause test.
Newsome alleges that the individual defendants knowingly acted in Canada
to destroy a company operating entirely in Oklahoma. That allegation, along with
its supporting details, forms the basis of both Newsome’s claim to personal
jurisdiction and Newsome’s claim on the merits. Newsome therefore satisfies the
proximate cause test.
But this raises a question about just how far the merits of a plaintiff’s
claims should matter in the personal jurisdiction analysis. As noted, “the
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plaintiff’s injuries must arise out of [the] defendant’s forum-related activities.”
Id. at 1071 (emphasis added; internal quotation marks omitted). Thus, one might
reason that a plaintiff who fails to allege a recognized injury cannot possibly
establish that the defendant’s forum-related activities gave rise to the lawsuit.
Defendants present just such an argument here. They attempt to bolster the
lack of personal jurisdiction by claiming that no relevant injurious contacts exist
because Newsome’s complaint fails to allege a valid injury—or in other words,
Newsome fails to state a claim. This argument runs as follows.
First, as discussed above, under Delaware law, directors of a wholly-owned
subsidiary usually owe their fiduciary duties entirely to the parent, not the
subsidiary, as long as the subsidiary is solvent. Thus, if Mahalo USA was
solvent, its directors could—in theory at least—run it into the ground to enrich
Mahalo Canada.
Second, when a subsidiary becomes insolvent, its directors owe a fiduciary
duty to the subsidiary’s creditors. So if Mahalo USA reached a point of
insolvency, its directors could no longer act solely for Mahalo Canada’s benefit.
Third, some Delaware cases suggest a sort of twilight between solvency
and insolvency which they call the “zone of insolvency.” In Delaware, when a
solvent subsidiary is only “navigating in the zone of insolvency,” the subsidiary
directors’ fiduciary duties remain focused on the parent, and there is no duty
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owed to the subsidiary. Gheewalla, 930 A.2d at 101. 4 In other words, the zone
of insolvency is treated the same as solvency; only actual insolvency requires
subsidiary directors to focus on the creditors.
Here, Newsome’s claims for breach of fiduciary duty turn on Mahalo USA
being insolvent, rather than just close to it. But Newsome’s complaint repeatedly
(and ambiguously) alleges that Mahalo USA was “insolvent or in the zone of
insolvency” during the relevant time period. See, e.g., App. 5, 7, 14, 21, 27, 47,
48, 51, 53, 56, 57, 59, 62, 63. Thus, under a Rule 12(b)(6) analysis, Newsome’s
complaint might merit dismissal because “insolvent or in the zone of insolvency”
is effectively the same as alleging “liable or not liable.”
While we recognize the potential defect in the substance of Newsome’s
allegations, we believe it is important to keep the 12(b)(2) and 12(b)(6) analyses
distinct. Cf. Smith v. Sperling, 354 U.S. 91, 94–95 (1957) (admonishing lower
court for holding a hearing on the merits to determine whether diversity
jurisdiction existed); 5B Charles Alan Wright et al., Federal Practice &
Procedure § 1351 (3d ed., Dec. 2012 update) (“A contention that the complaint
states no claim against the defendant is not properly raised on a motion to dismiss
for want of jurisdiction . . . .”). When we require “the plaintiff’s injuries [to]
arise out of [the] defendant’s forum-related activities,” Dudnikov, 514 F.3d at
4
The Delaware Supreme Court has never defined “zone of insolvency.”
See id. at 98 n.20.
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1071 (internal quotation marks omitted), we do not mean to invite parties to argue
whether the law recognizes or grants redress for the plaintiff’s claimed injury.
The import of the “arising out of” analysis is whether the plaintiff can
establish that the claimed injury resulted from the defendant’s forum-related
activities. In this case, the answer is yes. Newsome has sufficiently alleged at
this stage of the proceedings that the individual defendants took actions that
caused Mahalo USA’s demise. Whether or not Newsome can present a legal
theory that would hold the individual defendants liable for that demise is a
question the district court may address on remand. 5 But Newsome, by showing
that this lawsuit arises out of the defendants’ purposefully directed forum-related
activities, has established “minimum contacts” sufficient to justify exercising
personal jurisdiction over the individual defendants.
3. “Fair Play and Substantial Justice”
When a plaintiff satisfies its minimum contacts burden, the burden shifts to
the defendant to demonstrate that exercising personal jurisdiction would
nonetheless “offend traditional notions of fair play and substantial justice.”
Dudnikov, 514 F.3d at 1080 (internal quotation marks omitted). “Such cases are
rare.” Rusakiewicz v. Lowe, 556 F.3d 1095, 1102 (10th Cir. 2009). The
defendant “must present a compelling case that the presence of some other
5
Defendants moved to dismiss under both Rules 12(b)(2) and 12(b)(6), but
the district court reached only the 12(b)(2) question.
-24-
considerations would render jurisdiction unreasonable.” Burger King Corp. v.
Rudzewicz, 471 U.S. 462, 477 (1985). This usually involves five considerations:
(1) the burden on the defendant, (2) the forum state’s
interest in resolving the dispute, (3) the plaintiff’s
interest in receiving convenient and effective relief,
(4) the interstate judicial system’s interest in obtaining
the most efficient resolution of controversies, and
(5) the shared interest of the several states in furthering
fundamental substantive social policies.
OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1095 (10th Cir.
1998).
OMI is worth summarizing because defendants rely upon it heavily. In the
mid-1980s, a Kansas company brought a patent lawsuit in Kansas against the
Iowa subsidiary of a Canadian corporation. Four years into the lawsuit, the
Canadian corporation brought a new lawyer into the team who was apparently the
first to ask whether the Canadian corporation’s insurance carrier would cover the
costs of defending the lawsuit. The Iowa subsidiary then notified the insurance
carrier—another Canadian company—which refused to indemnify. Id. at
1089–90.
The Iowa subsidiary then sued the Canadian insurance carrier in Kansas—
apparently because the patent lawsuit was also pending there. The insurance
carrier moved to dismiss for lack of personal jurisdiction. The district court
denied that motion but we reversed. Id. at 1090. Although we found sufficient
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minimum contacts, id. at 1095, we concluded that exercising jurisdiction over the
insurance carrier would offend fair play and substantial justice.
As we analyzed the five considerations quoted above, we discussed
numerous factors specific to the case. But one factor came back again and again,
namely, that Canadian law would govern the dispute. Indeed, we made that point
seven times and it favored the Canadian insurance carrier with respect to all five
considerations. Id. at 1096–98. Moreover, four times we mentioned that the
insurance carrier was Canadian and had negotiated and executed the insurance
contracts in Canada with the Canadian parent corporation. Id. Thus, everything
about the lawsuit looked Canadian, and so we held that “fair play and substantial
justice” could not accommodate the suit in Kansas. Id. at 1098.
A similar case on which defendants also rely is Benton v. Cameco Corp.,
375 F.3d 1070 (10th Cir. 2004). The plaintiff in Benton had entered into a
memorandum of understanding to create a joint venture with a Canadian uranium
mining company. The memorandum required approval by the Canadian
company’s board, but the board refused to sign off. The plaintiff, a Colorado
resident, then sued the Canadian company in Colorado for breach of contract and
tortious interference with business relationships. Id. at 1073.
As in OMI, we found sufficient minimum contacts but nonetheless held that
exercising jurisdiction would offend fair play and substantial justice. We
analyzed the five considerations set forth in OMI, and—again, just like OMI—the
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fact Canadian law would govern the dispute was a factor in favor of the Canadian
company with respect to all five considerations. Indeed, for most considerations
it was the only relevant factor. See id. at 1079–80.
Before we likewise analyze the five factors of fair play and substantial
justice as they relate to this case, we note that we do not accept defendants’
attempt to analogize OMI and Benton to the facts at hand. Given the heavy
weight given to the applicability of Canadian law in OMI and Benton, defendants
argue that Canadian law “may apply to some of the claims.” Aple. Br. at 51.
Specifically, they reason that Oklahoma’s conflict of laws principles might apply
Canadian law to the aiding and abetting claims, and therefore the principles
underlying OMI and Benton should also apply here.
This argument is far too speculative at this juncture. Although we need not
resolve the question here, there appears to be at least as much chance that
Delaware law would govern the aiding and abetting claims. It is undisputed that
Delaware law governs the breach of fiduciary duty claims against at least the
Mahalo USA directors. A claim of aiding and abetting such a breach is well
established in Delaware law. See In re Santa Fe Pac. Corp. S’holder Litig., 669
A.2d 59, 72 (Del. 1995) (“A claim for aiding and abetting requires the following
three elements: (1) the existence of a fiduciary relationship, (2) a breach of the
fiduciary’s duty, and (3) a knowing participation in that breach . . . .”). And
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according to Delaware courts’ interpretation of the internal affairs doctrine, 6 if
Delaware law governs the breach of fiduciary duty claim, “Delaware law
therefore also governs the aiding and abetting claim predicated on the underlying
fiduciary breach.” Hamilton Partners, L.P. v. Englard, 11 A.3d 1180, 1211–12
(Del. Ch. 2010).
Thus, we give no weight to defendants’ assertion that Canadian law may
govern some of the claims at issue here. We do not say that defendants are
necessarily incorrect, but they fail to establish anything close to the certainty
displayed in OMI and Benton.
With this background, we turn to the five factors as applied to this case.
a. “Burden on the Defendant”
“While not dispositive, the burden on the defendant of litigating the case in
a foreign forum is of primary concern in determining the reasonableness of
personal jurisdiction.” OMI, 149 F.3d at 1096.
Here, defendants analogize themselves to the Canadian mining company in
Benton which had “no office or property in Colorado, [was] not licensed to do
business in Colorado, and [had] no employees in Colorado.” 375 F.3d at 1079.
6
“The internal affairs doctrine is a conflict of laws principle which
recognizes that only one State should have the authority to regulate a
corporation’s internal affairs—matters peculiar to the relationships among or
between the corporation and its current officers, directors, and shareholders . . . .”
Edgar v. MITE Corp., 457 U.S. 624, 645 (1982).
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We accept that these defendants do not themselves have property or offices
in Oklahoma, but Mahalo USA does—or at least it did until creditors seized them.
In any event, defendants do not explain how that fact relates to the question of
burden. And we see no particular burden simply in the travel from Alberta to
Oklahoma that may be required as part of this lawsuit. We therefore believe this
factor does not weigh in the individual defendants’ favor.
b. “The Forum State’s Interest in Resolving the Dispute”
As to this factor, the individual defendants make a curious argument:
“[T]he forum does not have a strong interest in the plaintiff, because the plaintiff
is a trustee acting under the auspices of the United States Bankruptcy Court. As
such, it is the United States, not particularly Oklahoma, that has an interest in
resolving the dispute.” Aple. Br. at 53. This implies that Newsome can sue
defendants in any United States jurisdiction. If anywhere in the United States is
fair game, then Oklahoma has at least as strong an interest as anywhere else,
given the presence of the bankruptcy filing and many of the creditors.
Accordingly, defendants have not persuaded us that this factor cuts in their
favor.
c. “The Plaintiff’s Interest in Receiving Convenient and
Effective Relief”
“This factor may weigh heavily in cases where a Plaintiff’s chances of
recovery will be greatly diminished by forcing him to litigate in a another forum
-29-
because of that forum’s laws or because the burden may be so overwhelming as to
practically foreclose pursuit of the lawsuit.” OMI, 149 F.3d at 1097. Neither side
has offered any helpful arguments in this regard. We note, however, that if this
case cannot proceed in Oklahoma, the most likely alternative forum is not
Canada, but Delaware. Those who accept directorships of Delaware corporations
consent to Delaware jurisdiction for lawsuits arising out of their duties as
directors. Del. Code Ann. tit. 10, § 3114(a). Thus, at least the Mahalo USA
directors appear to be subject to personal jurisdiction in Delaware. Further,
Delaware courts do not hesitate to use an aiding-and-abetting cause of action to
exercise personal jurisdiction over nonresident defendants where a Delaware
corporation is involved. See Matthew v. Fläkt Woods Group SA, 56 A.3d 1023,
1026–30 (Del. 2012); Hamilton Partners, 11 A.3d at 1198–99.
We cannot see how litigating in Delaware would be more convenient or
effective. Defendants therefore have not convinced us that this factor favors
them.
d. “The Interstate Judicial System’s Interest in Obtaining
the Most Efficient Resolution of Controversies”
“Key to this inquiry are the location of witnesses, where the wrong
underlying the lawsuit occurred, what forum’s substantive law governs the case,
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and whether jurisdiction is necessary to prevent piecemeal litigation.” OMI, 149
F.3d at 1097 (citations omitted).
Location of Witnesses. Although impossible to say for certain at this early
stage, we presume that most witnesses and much of the documentary discovery
will be in Alberta.
Where the Wrong Underlying the Lawsuit Occurred. This, of course, is a
fundamental point of contention among the parties. The supposed breaches of
fiduciary duty happened in Canada but had their injurious effect mostly in
Oklahoma. Given Oklahoma’s interest in providing redress for injuries within its
borders, we consider the alleged “wrong underlying the lawsuit” to have occurred
in Oklahoma. See supra Part II.B.1.b.
What Forum’s Substantive Law Governs the Case. As already noted above,
Delaware law will govern the Mahalo USA directors’ claims, and a fair chance
exists that Delaware law will also govern the aiding and abetting claims.
Whether Jurisdiction is Necessary to Prevent Piecemeal Litigation. This
factor, of course, can become somewhat circular. One reason why litigation
becomes piecemeal is lack of jurisdiction over a particular defendant. But if a
court lacks jurisdiction, it cannot then turn around and say that it should have
jurisdiction to prevent litigation from becoming piecemeal.
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In any event, Oklahoma jurisdiction is probably not necessary to prevent
piecemeal litigation. From our current vantage point, at least, it appears that
Delaware is an available alternative forum for all parties.
Synthesis. On balance, we believe that the sub-factors are effectively
neutral. Thus, defendants have not convinced us that “the interstate judicial
system’s interest in obtaining the most efficient resolution of controversies”
necessarily counsels in favor of a forum other than Oklahoma.
e. “The Shared Interest of the Several States in Furthering
Fundamental Substantive Social Policies”
“Important to this inquiry is the extent to which jurisdiction in the forum
state interferes with the foreign nation’s sovereignty.” OMI, 149 F.3d at 1098.
This too can be broken into multiple sub-factors, including “whether one of the
parties is a citizen of the foreign nation, whether the foreign nation’s law governs
the dispute, and whether the foreign nation’s citizen chose to conduct business
with a forum resident.” Id.We do not believe these various sub-factors need individual treatment.
Defendants are foreign citizens but a foreign nation’s law will not govern the bulk
of these claims (or maybe any of them), and these defendants definitely ran a
business operating solely in Oklahoma. And again, the Mahalo USA directors
have almost certainly consented to be sued in the United States (in Delaware).
Thus, the interests of Canadian sovereignty are limited.
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* * *
A handful of considerations favor defendants. But they have not carried
their overall burden of convincing us that Oklahoma jurisdiction would offend
fair play and substantial justice. We conclude that Oklahoma courts may properly
exercise personal jurisdiction over the individual defendants.
4. The Fiduciary Shield Doctrine
The district court alternatively held that the fiduciary shield doctrine would
protect the individual defendants even if personal jurisdiction were otherwise
appropriate. “Under the ‘fiduciary shield doctrine,’ a nonresident corporate agent
generally is not individually subject to a court’s jurisdiction based on acts
undertaken on behalf of the corporation.” 3A William Meade Fletcher et al.,
Fletcher Cyclopedia of the Law of Corporations § 1296.20 (Sept. 2012 update).
On two fronts, our case law displays significant confusion over this
doctrine. First, we have sometimes failed to distinguish between the fiduciary
shield doctrine and a related concept that cautions against imputing contacts to a
business’s operators—which we will call the “no-imputed-contacts rule.” Second,
at times we have failed to clarify whether the fiduciary shield doctrine is dictated
by federal due process (i.e., whether it is integral to the minimum contacts test) or
whether it only exists, if at all, as a matter of state law.
As we explain below, the no-imputed-contacts rule is integral to the
minimum contacts due process test. The fiduciary shield doctrine, however, only
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exists as a matter of state law. We review interpretations of state law de novo.
Willis v. Bender, 596 F.3d 1244, 1254 (10th Cir. 2010). We conclude that
Oklahoma has not yet adopted the fiduciary shield doctrine, and we refrain from
predicting whether it would. Even if it adopted the doctrine generally, we predict
it would not apply the doctrine to allegations of breach of fiduciary duty, as in
this case. The fiduciary shield doctrine therefore has no application here.
a. The Fiduciary Shield Doctrine vs. the No-Imputed-
Contacts Rule
Jurisdiction over a corporation in a particular forum does not automatically
confer jurisdiction over that corporation’s employees. If, for example, a Kansas
company markets a defective product in Oklahoma and the product ends up
injuring an Oklahoma resident, that is usually enough to confer personal
jurisdiction over the company in Oklahoma courts in the ensuing product liability
suit. But under the no-imputed-contacts rule, Oklahoma’s jurisdiction over the
company does not necessarily give Oklahoma jurisdiction over the company’s
Kansas employees. Employees’ “contacts with [the forum state] are not to be
judged according to their employer’s activities there.” Calder, 465 U.S. at 790.
The fiduciary shield doctrine, by contrast, gives even greater protection to
employees of companies. It maintains that even if a particular Kansas employee
has substantial contacts with Oklahoma—e.g., the employee repeatedly traveled to
Oklahoma to promote the product—those contacts will not count against the
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employee in the personal jurisdiction analysis so long as the employee acted
solely on the corporation’s behalf.
Both the fiduciary shield doctrine and the no-imputed-contacts rule are on
display—although neither one by name—in the famous Supreme Court cases of
Calder v. Jones, supra, and Keeton v. Hustler Magazine, Inc., 465 U.S. 770(1984). At least by implication, if not explicitly, these cases hold that the no-
imputed-contacts rule flows from considerations of due process, whereas the
fiduciary shield doctrine does not enjoy constitutional status.
In Calder, a California plaintiff brought a libel suit in California against
two National Enquirer employees residing in Florida. The defendants tried to
defeat personal jurisdiction, arguing that they were not responsible for circulating
the offending article in California: “ordinary employees [cannot] control their
employer’s marketing activity.” Calder, 465 U.S. at 789. This, in essence,
claims the protection of the fiduciary shield.
The Supreme Court rejected this argument:
[Defendants’] intentional, and allegedly tortious, actions
were expressly aimed at California. [One defendant]
wrote and [the other] edited an article that they knew
would have a potentially devastating impact upon [the
plaintiff]. And they knew that the brunt of that injury
would be felt by respondent in the State in which she
lives and works . . . .
Id. at 789–90. Accordingly, the fiduciary shield (although not invoked by name)
did not apply. The defendants were “correct,” however, “that their contacts with
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California are not to be judged according to their employer’s activities there.” Id.
at 790. But as to the fiduciary shield doctrine, the Court emphasized that the
defendants’ “status as employees does not somehow insulate them from
jurisdiction.” Id. Nonetheless, it is improper to impute contacts to employees:
“Each defendant’s contacts with the forum State must be assessed individually.”
Id.
Keeton, decided the same day as Calder, was also a libel suit where the
defendants arguably had little contact with the forum state, but with the added
fact that the plaintiff likewise had little contact with the forum state. Keeton
largely focused on the problem of the plaintiff’s lack of contacts, and on some
quirks specific to the forum state’s laws. But Keeton also contained the following
footnote that, like Calder, alternates between rejection of the fiduciary shield
doctrine and endorsement of the no-imputed-contacts rule:
In addition to [defendant] Hustler Magazine, Inc., Larry
Flynt, the publisher, editor and owner of the magazine,
and L.F.P., Inc., Hustler’s holding company, were
named as defendants in the District Court. It does not of
course follow from the fact that jurisdiction may be
asserted over Hustler Magazine, Inc., that jurisdiction
may also be asserted over either of the other defendants
[i.e., the no-imputed-contacts rule]. In Calder v. Jones,
we today reject the suggestion that employees who act in
their official capacity are somehow shielded from suit in
their individual capacity [i.e., rejecting the fiduciary
shield doctrine]. But [returning to the no-imputed-
contacts rule] jurisdiction over an employee does not
automatically follow from jurisdiction over the
corporation which employs him; nor does jurisdiction
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over a parent corporation automatically establish
jurisdiction over a wholly owned subsidiary. Each
defendant’s contacts with the forum State must be
assessed individually.
Keeton, 465 U.S. at 781 n.13 (citations omitted).
In sum, the no-imputed-contacts rule prevents us from attributing
Oklahoma contacts to defendants solely because Mahalo USA had contacts in
Oklahoma. Our minimum contacts analysis, supra Part II.B.1–3, adheres to this
rule. The fiduciary shield doctrine, however, has no necessary connection to the
minimum contacts analysis. Thus, if the fiduciary shield doctrine exists at all, it
must be a matter of state law—such as “a judicial rule of construction for
interpreting the intended scope of a state’s long-arm statute.” 3A Fletcher
Cyclopedia of the Law of Corporations § 1296.20.
b. The Fiduciary Shield Doctrine in the Tenth Circuit
Although Calder and Keeton kept the fiduciary shield doctrine and the
no-imputed-contacts rule separate—and plainly put only the latter in the due
process category—we have conflated these distinctions in our own decisions.
Our first clear application of the fiduciary shield came in Ten Mile
Industrial Park v. Western Plains Service Corp., 810 F.2d 1518 (10th Cir. 1987).
Ten Mile involved a lawsuit in Wyoming against several South Dakota
corporations and their officers for breach of contract, fraud, negligence, tortious
interference with business relationships, and slander of business reputation. Our
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opinion never uses the words “fiduciary shield,” but it is often cited in subsequent
cases as a fiduciary shield case on account of this passage:
[The corporate defendants’] contacts cannot be
attributed to the [corporate officers]. Where the acts of
individual principals of a corporation in the jurisdiction
were carried out solely in the individuals’ corporate or
representative capacity, the corporate structure will
ordinarily insulate the individuals from the court’s
jurisdiction. Jurisdiction over the representatives of a
corporation may not be predicated on jurisdiction over
the corporation itself, and jurisdiction over the
individual officers and directors must be based on their
individual contacts with the forum state.
Id. at 1527 (citations omitted).
This language actually displays both the fiduciary shield doctrine and the
no-imputed-contacts rule, and does not specify whether the fiduciary shield was a
product of federal or Wyoming law. But in any event, Calder and Keeton make
clear that the fiduciary shield doctrine does not come by way of federal due
process. Thus, Ten Mile was at most a statement about Wyoming law.
We put the state-law nature of the fiduciary shield doctrine front and center
in Home-Stake Production Co. v. Talon Petroleum, C.A., 907 F.2d 1012 (10th Cir.
1990). Home-Stake began as a lawsuit in Oklahoma to pierce the corporate veil
and enforce a contract judgment against one of the corporation’s principals (who
lived abroad). The principal raised the fiduciary shield doctrine but we noted that
he had “not cited any Oklahoma cases discussing this equitable doctrine, nor has
our own research uncovered any.” Id. at 1017.
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We refused to predict whether Oklahoma would adopt the fiduciary shield
doctrine. We instead surveyed other jurisdictions’ approaches to the fiduciary
shield and determined it was based heavily in equity. In light of the principal’s
alleged unlawful behavior, we concluded that the fiduciary shield would not
protect the principal even if Oklahoma would adopt the fiduciary shield doctrine
generally. Id. at 1017–19.
A third, more recent case discusses the fiduciary shield doctrine:
Rusakiewicz v. Lowe, 556 F.3d 1095 (10th Cir. 2009). The plaintiff in
Rusakiewicz had sued certain California residents in Utah for abuse of process
and wrongful use of civil proceedings. The California residents argued that the
acts forming the basis of the plaintiff’s suit—voting as a corporate board to fund
an allegedly malicious lawsuit—were acts they took solely in their capacity as
directors of a corporation. They therefore invoked the fiduciary shield doctrine,
citing Ten Mile (but not Home-Stake). Id. at 1102.
We rejected the fiduciary shield, but our discussion shows some lingering
confusion over the difference between the fiduciary shield and the no-imputed-
contacts rule. We interpreted Ten Mile as establishing no more than the no-
imputed-contacts rule. See id. (“The rationale [of Ten Mile] was that . . .
jurisdiction over the representatives of a corporation may not be predicated on
jurisdiction over the corporation itself.”). And because the Rusakiewicz
complaint alleged the defendants’ own contacts with Utah, not simply “contacts
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that have been imputed to them on account of the actions of the corporation,” id.
at 1103, there was no due process problem.
Rusakiewicz therefore seems to treat the fiduciary shield doctrine as
nonexistent—or perhaps nonexistent in Utah, although the opinion nowhere
approaches the subject as a matter of Utah law.
c. The Fiduciary Shield Doctrine in Oklahoma
Despite the confusion displayed in our case law, the Supreme Court has
made clear that the fiduciary shield is a question of state law, not due process.
On this, the parties agree.
Naturally, then, Newsome argues that the fiduciary shield doctrine does not
exist in Oklahoma. In response, defendants claim Newsome waived any such
argument because he argued below (in response to their motion to dismiss) that
the fiduciary shield doctrine does exist in Oklahoma—but does not apply in this
case.
Defendants correctly characterize Newsome’s response argument below.
But in a supplemental brief solicited by the district court, Newsome switched
horses. Arguing from Keeton and Calder that due process itself does not give rise
to the fiduciary shield doctrine, Newsome asserted,
Importantly, there are, to date, no Oklahoma state court
cases we have been able to locate that adopt the
fiduciary shield doctrine as a limit on the extent of the
Oklahoma long arm statute. Rather, the Oklahoma
Revised Statutes extend personal jurisdiction to the
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furthest extent of the constitutional authority . . . .
Thus, the Defendants’ proposed construction of the
fiduciary shield doctrine cannot be coherently integrated
with the Oklahoma long arm statute.
App. 1618–19 (emphasis removed). Given that the district court authorized
Newsome to file the brief in which this argument appeared, we conclude that
Newsome did not waive it. We therefore must determine whether any Oklahoma
authority establishes the fiduciary shield as a matter of Oklahoma law.
We agree with Newsome that the Oklahoma long-arm statute does not
provide such authority. As noted previously, it permits Oklahoma courts to
exercise jurisdiction up to the limits of federal due process, Okla. Stat. Ann., tit.
12, § 2004(F), and due process does not incorporate the fiduciary shield. Further,
as in Home-Stake more than twenty years ago, the parties have “not cited any
Oklahoma [state-court] cases discussing [the fiduciary shield] doctrine, nor has
our own research uncovered any.” 907 F.2d at 1017.
Defendants rely heavily upon Oklahoma federal district court cases
applying the fiduciary shield. But all of these cases cite either Ten Mile or
Home-Stake as authority for the fiduciary shield doctrine in Oklahoma. See
Outdoor Channel v. Performance One Media, LLC, 826 F. Supp. 2d 1271, 1297
(N.D. Okla. 2011) (relying on Ten Mile); Hnath v. Hereford, 757 F. Supp. 2d
1130, 1136 (N.D. Okla. 2010) (relying on Home-Stake); McClelland v. Watling
Ladder Co., 729 F. Supp. 1316, 1319–21 (W.D. Okla. 1990) (relying on Ten
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Mile). As noted, Ten Mile’s statements about the fiduciary shield must be
confined to the doctrine as applied in Wyoming. And Home-Stake assumed
without deciding that Oklahoma would adopt the fiduciary shield doctrine.
Accordingly, these decisions’ reliance on Ten Mile and Home-Stake was
misplaced. They do not establish the existence of the fiduciary shield doctrine as
a matter of Oklahoma law.
Given this lack of authority, we question whether we can predict with any
confidence that Oklahoma courts would graft the fiduciary shield doctrine into a
long-arm statute intended to reach as far as due process allows. But similar to
Home-Stake, we feel sufficiently certain that Oklahoma would not apply the
fiduciary shield doctrine in this case, even if we assumed that Oklahoma courts
would adopt it as a general matter.
All of the fiduciary shield cases discussed above involve run-of-the-mill
contract and tort claims brought against both a corporation and its fiduciary. We
have not located any case in which the fiduciary shield doctrine was applied to a
claim for breach of fiduciary duty, which can only be brought against the
fiduciary.
Some jurisdictions hold that the fiduciary shield does not apply to claims
such as breach of fiduciary duty. Illinois, for example, holds that the fiduciary
shield does not protect an officer or director acting to “serve his personal
interests.” Rollins v. Ellwood, 565 N.E.2d 1302, 1318 (Ill. 1990). The Fifth
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Circuit agrees with this approach. Lewis v. Fresne, 252 F.3d 352, 359 n.6 (5th
Cir. 2001) (“‘[T]he shield is removed if the individual’s personal interests
motivate his actions . . . .’” (quoting Darovec Mktg. Grp., Inc. v. Bio-Genics, Inc.,
42 F. Supp. 2d 810, 819 (N.D. Ill. 1999))); cf. Dodson Int’l Parts, Inc. v.
Altendorf, 181 F. Supp. 2d 1248, 1255 (D. Kan. 2001) (relying on Lewis for the
idea that “[w]hen the claim alleges or necessarily involves the personal interests
or motives of the individual defendant, the fiduciary shield doctrine does not
apply”). And the Southern District of New York has stated, “If any suggestion of
self-dealing is made by the plaintiffs’ Complaint and other documents submitted
to this Court, the fiduciary shield doctrine will not be applied.” In re Union
Carbide Corp. Consumer Prods. Bus. Sec. Litig., 666 F. Supp. 547, 573 (S.D.N.Y.
1987). In essence, regardless of whatever else the fiduciary shield may protect, it
makes little sense to apply it to claims of breach of fiduciary duty—a claim
alleging, by its very nature, that the agent did not act on the principal’s behalf,
but in the agent’s own interest at the principal’s expense.
To conclude, whether or not Oklahoma would adopt the fiduciary shield
doctrine as a general matter, we believe it would not apply it to the claims
Newsome asserts against the individual defendants. The fiduciary shield doctrine
therefore does not provide a basis for defendants to avoid personal jurisdiction in
Oklahoma.
-43-
C. Personal Jurisdiction for the Law Firm 7
Finally, we turn to the remaining party—the law firm—against which
Newsome asserts two causes of action. First, he asserts breach of fiduciary duty
based on the law firm representing both Mahalo Canada and Mahalo USA when
the two companies’ interests allegedly conflicted. This is effectively a legal
malpractice claim. See, e.g., RFT Mgmt. Co., L.L.C. v. Tinsley & Adams L.L.P.,
732 S.E.2d 166, 173 (S.C. 2012) (stating, “as a general matter,” that the only
difference between breach of fiduciary duty based on a conflict of interest and
legal malpractice based on a conflict of interest is the need to prove an
attorney-client relationship in the latter), cert. denied, 133 S. Ct. 1255 (2012).
Second, Newsome claims the law firm aided and abetted the other defendants’
breaches of fiduciary duty by advising them and performing other legal services
to facilitate the Ableco transaction.
The law firm establishes by affidavit that it performed all of its services
related to this lawsuit in Canada. Newsome does not contradict this. Further, no
party claims that the Ableco transaction was negotiated, arranged, closed, or
documented anywhere but outside of Oklahoma (and mostly in Canada) save for
liens placed on Oklahoma property (which the law firm “facilitated,” App. 263).
7
This analysis also applies to Lawson in his capacity as an attorney for the
firm.
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The law firm did, however, receive payments from Mahalo USA’s Oklahoma
bank accounts.
Courts are split regarding whether out-of-state legal work on an out-of-state
matter can subject an out-of-state lawyer to personal jurisdiction in the client’s
home forum. See generally Marjorie A. Shields, In Personam Jurisdiction, Under
Long-Arm Statute, over Nonresident Attorney in Legal Malpractice Action, 78
A.L.R.6th 151 (2012). The majority view answers this query in the negative.
According to the majority, even though a client may feel the effects of the
lawyer’s misdeeds in the client’s home forum, the client cannot sue the lawyer
there on that account alone. See, e.g., Sawtelle v. Farrell, 70 F.3d 1381, 1391–94
(1st Cir. 1995) (no New Hampshire jurisdiction over Florida and Virginia
attorneys hired by New Hampshire residents to represent their son’s estate in
Florida litigation, despite defendants’ transmittal of legal advice in letters and
phone calls to New Hampshire); Sher v. Johnson, 911 F.2d 1357, 1363 (9th Cir.
1990) (no California jurisdiction over Florida law firm that represented California
resident in Florida); Austad Co. v. Pennie & Edmonds, 823 F.2d 223, 226–27 (8th
Cir. 1987) (no South Dakota jurisdiction over New York law firm that represented
South Dakota corporation in patent litigation in Maryland, even though firm had
sent an associate to South Dakota to gather information); Exponential
Biotherapies, Inc. v. Houthoff Buruma N.V., 638 F. Supp. 2d 1, 7–9 (D.D.C. 2009)
(no D.C. jurisdiction over Netherlands law firm that represented D.C. resident in
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European transaction); We’re Talkin’ Mardi Gras, LLC v. Davis, 192 F. Supp. 2d
635, 636–38, 639–41 (E.D. La. 2002) (no Louisiana jurisdiction over a Georgia
patent attorney who, while representing a Louisiana company and its Texas
partners, performed all legal work in Georgia). The majority reasons that
representing a client residing in a distant forum is not necessarily a purposeful
availment of that distant forum’s laws and privileges. See Sawtelle, 70 F.3d at
1394; Austad, 823 F.2d at 226–27. The client’s residence is often seen by the
majority as a “mere fortuity.” We’re Talkin’ Mardi Gras, 192 F. Supp. 2d at 640.
The minority view, by contrast, shows no hesitation to exercise jurisdiction
over out-of-state attorneys. See, e.g., Keefe v. Kirschenbaum & Kirschenbaum,
P.C., 40 P.3d 1267, 1272–73 (Colo. 2002) (Colorado could exercise jurisdiction
over New York attorney who represented Colorado client in New York litigation
over many years); Cartlidge v. Hernandez, 9 S.W.3d 341, 348 (Tex. App. 1999)
(Texas could exercise jurisdiction over Nevada attorney who represented Texas
client in Nevada litigation); Brown v. Watson, 255 Cal. Rptr. 507, 512–13 (Cal.
Ct. App. 1989) (California could exercise jurisdiction over Texas attorneys who
represented California clients in Texas). The minority view reasons that attorneys
can accept or reject representing clients in distant forums, and that those who
accept such representation have “fair warning” that they might be sued for
malpractice in the client’s forum. Keefe, 40 P.3d at 1272. The minority also
contends that the normal communications that make up an active attorney-client
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relationship are the sort of repeated, purposeful contacts with the client’s home
forum sufficient to establish personal jurisdiction. See Cartlidge, 9 S.W.3d at
348.
We agree with the majority that an out-of-state attorney working from out-
of-state on an out-of-state matter does not purposefully avail himself of the
client’s home forum’s laws and privileges, at least not without some evidence that
the attorney reached out to the client’s home forum to solicit the client’s business.
Other distinguishing factors may be relevant as well, which we need not catalogue
here. In this case, the law firm is a Canadian entity hired by Canadian-owned and
-headquartered companies to perform legal work from Canada on transactions
consummated in Canada. Further, the law firm never reached out to Mahalo USA
in Oklahoma to solicit its business, but instead had Mahalo USA’s business by
virtue of representing its Canadian parent company in Canada. Save for
“facilitat[ing]” the placement of liens on Oklahoma property and receiving
payments from Mahalo USA’s Oklahoma bank accounts, the law firm had
virtually no connection to Oklahoma as relevant to the circumstances that gave
rise to this lawsuit.
Newsome asserts the law firm made numerous Oklahoma contacts during
bankruptcy proceedings, but “the plaintiff’s injuries must arise out of defendant’s
forum-related activities.” Dudnikov, 514 F.3d at 1071. Newsome is not claiming
injury arising from the bankruptcy proceedings themselves—e.g., some sort of
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malpractice committed in representing Mahalo USA before the bankruptcy court.
Newsome instead claims injury that supposedly led to Mahalo USA’s demise. As
to that claim, the law firm did not purposefully direct its efforts at Mahalo USA
in Oklahoma. Accordingly, the district court properly dismissed the law firm for
lack of personal jurisdiction.
III. Conclusion
For the foregoing reasons, we AFFIRM the district court’s dismissal of
Burnet, Duckworth & Palmer and Jeff Lawson (in his capacity as an attorney for
Burnet, Duckworth & Palmer) but REVERSE as to James Burns, David Butler,
Duncan Chisholm, Gary Dundas, William Gallacher, Jeff Lawson (in his capacity
as a Mahalo Canada director), and Kevin Wolfe. We remand for further
proceedings consistent with this opinion.
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