Remigius G. Shatas v. Andrew M. Snyder ( 2016 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
REMIGIUS G. SHATAS,
No. 73716-3-1
Appellant,
DIVISION ONE CT3
v.
UNPUBLISHED OPINION R
ANDREW M. SNYDER, an individual,
and the marital community composed
of Andrew M. Snyder and Jane Doe
Snyder; CAMBRIDGE INFORMATION
GROUP I LLC, a Delaware limited CO
liability company; and CAMBRIDGE cr-
INFORMATION GROUP, INC., a
Maryland corporation,
Respondents,
and
BLUCORA, INC., a Delaware
corporation, FILED: October 17, 2016
Nominal Defendant/Respondent.
Trickey, J. — Remigius Shatas appeals the orders dismissing his
shareholder derivative action against Andrew Snyder and Snyder's two companies
for insider trading in breach of their fiduciary duties to Blucora, Inc. Shatas
contends that the trial court erred when it dismissed his action under Civil Rule
12(b)(3) after concluding that the state of Delaware was the proper venue under
the forum selection clause in Blucora's bylaws. In reaching this conclusion, the
trial court rejected Shatas's arguments that venue was proper in King County
because Blucora consented in writing to King County Superior Court and because
No. 73716-3-1/2
Delaware courts lacked personal jurisdiction over one of the defendants, an
indispensable party.
The trial court properly rejected Shatas's first argument, because Blucora
did not consent in writing to King County. However, the trial court erroneously
rejected Shatas's second argument. Delaware courts do not have personal
jurisdiction over the defendant for the reason cited by the trial court. And, on this
record, we cannot determine whether Delaware has personal jurisdiction over the
defendant for any of the reasons raised for the first time in this appeal. Accordingly,
we reverse and remand for further proceedings.
FACTS
In March 2015, Shatas, as a shareholder of Blucora Inc., filed a verified
derivative complaint in King County Superior Court against Snyder and Snyder's
two companies: Cambridge Information Group (CIG), a Maryland corporation, and
Cambridge Information Group I LLC (CIG I), a Delaware corporation (collectively,
the Snyder defendants). In the complaint, Shatas asserted that he was "and at all
times since October 12, 2000 has been, a shareholder of Blucora."1 Blucora is a
Delaware corporation headquartered in King County, Washington.
The complaint alleged that on November 20, 2013, CIG I sold over one
million shares of its Blucora stock "on the basis of material, insider information that
had not been disclosed to the investing public."2 The sale occurred just after a 14-
year stock price peak and just before a drastic decline of Blucora's stock price. At
the time of the sale, Snyder was sitting on the Blucora board as the designated
1 Clerk's Papers (CP) at 15.
2CPat13.
No. 73716-3-1/3
representative of CIG, which was the managing member, sole owner, and
investment decision-maker of CIG I. Shatas alleged that, through Snyder, CIG I
had access to the nonpublic information at the time of this sale.
Based on these allegations, Shatas brought a claim of breach of the duty of
loyalty—insider trading. Among the relief requested, Shatas sought disgorgement
of insider trading profits resulting from the sale of the 1,006,093 shares of Blucora
common stock on November 20, 2013.
Blucora, a nominal defendant, moved to dismiss the derivative complaint
for improper venue under Washington's Civil Rule (CR) 12(b)(3). It argued that
Shatas was obligated to bring this action in Delaware based on a forum selection
clause in Blucora's bylaws, which expressly specified Delaware courts as the
exclusive forum for litigation over intra-corporate matters, including shareholder
derivative suits and actions for breach of fiduciary duty except in certain
circumstances. The Snyder defendants joined this motion.
Shatas opposed Blucora's motion. He argued that under the forum
selection clause, venue was proper in King County for two separate reasons: (1)
because Blucora had consented in writing to King County Superior Court as a
proper forum, and (2) because Delaware courts lacked jurisdiction over CIG, an
indispensable party.
The trial court heard argument on Blucora's motion on May 8, 2015. It later
granted the motion and dismissed the case without prejudice "and on the condition
that CIG consents to the personal jurisdiction of state or federal courts in
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Delaware."3 Shatas moved for reconsideration, which the court denied. This
appeal followed.
After filing the notice of appeal, Shatas moved in this court to add his
counsel as an additional plaintiff/appellant. He asserted that his counsel became
aware of a March 2015 letter from Blucora's stock transfer agent stating that
Shatas's Blucora shares were escheated to the state of Alabama in 2012, prior to
Shatas filing this lawsuit. Shatas expressed doubts about the validity of the
escheatment but sought to add his counsel as an interim plaintiff "out of an
abundance of caution" until his shareholder status had been favorably resolved or
a permanent alternative plaintiff was substituted."4 A commissioner of this court
denied Shatas's motion.
ANALYSIS
Motion to Dismiss Appeal
As a threshold matter, Blucora moves to dismiss this appeal under RAP
17.1(a) on the basis that Shatas "is not and has never been a Blucora shareholder
. . . and thus is not an 'aggrieved party'5 under RAP 3.1."6 In support of this
assertion, Blucora claims that Shatas's shares of Blucora stock escheated to the
state of Alabama in 2012, Alabama sold those shares, Shatas filed a claim for the
proceeds, Alabama approved the claim and issued a check payable to Shatas in
3 CP at 310-19.
4 Plaintiff/Appellant's Motion to Add an Add'l Plaintiff/Appellant at 5.
5"An aggrieved party is one who was a party to the trial court proceedings, and one whose
property, pecuniary and personal rights were directly and substantially affected by the
lower court's judgment." In re Welfare of Hansen. 24 Wash. App. 27, 35, 599 P.2d 1304
(1979).
6 Defendant/Respondent Blucora, Inc.'s Motion to Dismiss Appeal at 1.
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the amount of the proceeds, and Shatas cashed this check in July 2014 prior to
filing his derivative complaint.
We deny Blucora's motion. RAP 17.1(a) provides that a party may seek
relief "other than a decision of the case on the merits." Here, the motion to dismiss
requires us to resolve a merits-based issue—Shatas's alleged lack of derivative
standing. This issue was not raised in the trial court. And, for reasons we explain
next, we decline to consider standing for the first time on appeal.
Standing
Based on the same allegations presented in its motion to dismiss, Blucora
argues that Shatas's lack of derivative standing provides an alternative ground to
affirm. We decline to consider this issue.
"Washington law clearly establishes that standing cannot be maintained
without a proprietary interest in the corporation." Sound Infiniti. Inc. v. Snyder, 169
Wash. 2d 199, 212, 237 P.3d 241 (2010). A derivative plaintiff must remain a
shareholder in order to maintain standing for a derivative action. Sound Infiniti.
169 Wash. 2d at 212-13.
But our Supreme Court has said that "[i]f the issue of standing is not
submitted to the trial court, it may not be considered on appeal." Tvler Pipe Indus..
Inc. v. Wash. Dep't of Revenue. 105 Wash. 2d 318, 327, 715 P.2d 123 (1986),
vacated. 483 U.S. 232, 107 S. Ct. 2810, 97 L Ed. 2d 199 (1987)).
Here, the issue of Shatas's derivative standing was not submitted to the trial
court. Moreover, the issue involves factual disputes on which the appellate record
is not fully developed. The trial court is in a better position to address these
No. 73716-3-1/6
disputes. For these reasons, we decline to consider the issue of Shatas's
derivative standing. We leave this to be resolved by the trial court on remand.
Dismissal for Improper Venue
The main dispute in this appeal is whether the trial court erred when it
dismissed this action for improper venue. Specifically, the question presented is
whether the trial court properly concluded that Delaware is the proper forum under
the forum selection clause in Blucora's bylaws.
Generally, when reviewing decisions on the enforceability of forum selection
clauses, the abuse of discretion standard applies. If, however, a pure question of
law is presented, a de novo standard of review should be applied as to that
question. Dix v. ICT Group, Inc., 160 Wash. 2d 826, 833-34, 161 P.3d 1016 (2007).
"[Wjhen there are no disputed facts, the proper standard of review of the
application of a contract's forum selection clause is de novo." Keystone Masonry.
Inc. v. Garco Const.. Inc.. 135 Wash. App. 927, 932, 147 P.3d 610 (2006).
Here, the parties agree that Blucora's bylaw controls and is valid and
enforceable. The bylaw provides:
2.16 Forum for Adjudication of Disputes
Unless the corporation consents in writing to the selection of
an alternative forum, the sole and exclusive forum for (i) any
derivative action or proceeding brought on behalf of the corporation,
(ii) any action asserting a claim of breach of a fiduciary duty owed by
any Director, officer, or other employee of the corporation to the
corporation or the corporation's stockholders, (iii) any action
asserting a claim arising pursuant to any provision of the [Delaware
General Corporation Law], or (iv) any action asserting a claim
governed by the internal affairs doctrine shall be a state or federal
court located within the state of Delaware, in all cases subject to the
court's having personal jurisdiction over the indispensable parties
No. 73716-3-1/7
named as defendants.[7]
Under the plain language of this provision, Delaware is the "sole and
exclusive forum" for any derivative action except when (1) the corporation
"consents in writing to the selection of an alternative forum" or (2) Delaware lacks
"personal jurisdiction over the indispensable parties named as defendants."8
Before the trial court, Shatas argued that both of these exceptions applied.
The trial court rejected these arguments. Shatas contends that this was error. He
again asserts that King County is the proper venue for both ofthese reasons. We
address these arguments in turn.
Consent to Alternative Forum
Shatas argues that the trial court erred when it rejected his argument that
Blucora consented in writing to venue in King County by entering into three
agreements in August 2011. We disagree.
The three August 2011 agreements were the Securities Purchase
Agreement, whereby CIG I purchased 764,192 shares of its stock and a warrant
to purchase an additional one million shares of stock; the Warrant to Purchase
Common Stock; and the Stockholder Agreement, whereby the parties agreed that
Snyder, CIG's representative, would serve as a member of Blucora's board of
directors.
The Stockholder Agreement contains the following forum selection clause:
8.9 Governing Law; Consent to Jurisdiction. This Agreement
shall be governed by, and construed in accordance with, the internal
laws of the State of Delaware without regard to the choice of law
principles thereof. Each of the parties hereto irrevocably submits to
7 CP at 61 (emphasis added).
8CPat61.
No. 73716-3-1/8
the exclusive jurisdiction of the courts of the State of Washington
located in King County and the United States District Court for the
Western District of Washington for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement
and the transactions contemplated hereby. Service of process in
connection with any such suit, action or proceeding may be served
on each party herein anywhere in the world by the same methods as
are specified for the giving of notices under this Agreement. Each of
the parties hereto irrevocably consents to the jurisdiction of any such
court in any such suit, action or proceeding and to the laying of venue
in such court. Each party hereto irrevocably waives any objection to
the laying of venue of any such suit, action or proceeding brought in
such courts and irrevocably waives any claim that any such suit,
action or proceeding brought in any such court has been brought in
an inconvenient forum.[9]
The Warrant to Purchase Common Stock and the Securities Purchase Agreement
contain nearly identical forum selection clauses.
Shatas relies on the emphasized language in this forum selection clause to
assert that "Blucora consented in writing to insider trading claims, such as this one,
being brought in King County Superior Court."10 Specifically, he claims that the
breach of fiduciary duty claim "relat[es] to" and "arisfes] out of the August 2011
agreements.11 We reject this argument.
Under Delaware law, a forum selection clause "no matter how broadly
construed, can extend only so far as the series of obligations set forth in the
underlying agreement." Parfi Holding AB v. Mirror Image Internet. Inc.. 817 A.2d
149,156 (2002). "Thus, [a forum selection clause] should be applied only to claims
that bear on the duties and obligations under the Agreement." Parfi. 817 A.2d at
156. It does not apply to fiduciary duty claims when the defendant's fiduciary duties
9 CP at 192-93 (emphasis added).
10 Appellant's Br. at 24.
11 Appellant's Br. at 24 (alterations in original).
8
No. 73716-3-1/9
to the plaintiff "consist of a set of rights and obligations that are independent of any
contract." 817 A.2d at 157.
For example, in Parfi, the Delaware Supreme Court concluded that fiduciary
duty claims brought by a stockholder were beyond the scope of an arbitration
clause,12 because the fiduciary duty claims were not based on the legal rights and
obligations created by the agreement. 817 A.2d at 155. It pointed out that the
fiduciary duty claims were "independently and separately assertable" had there
been no agreement, there was no contract term that created an obligation upon
which the plaintiff could base a breach of fiduciary duty claim, and the fiduciary
duties owed to the plaintiff rested on an independent set of rights provided for in
the Delaware general corporation law. 817 A.2d at 157-58.
By contrast, when a forum selection clause appears in the document that
gives rise to the fiduciary relationship governing fiduciary claims, the forum
selection clause applies. OTKAssocs.. LLC v. Friedman. 85 A.3d 696, 721 (2014);
Parfi, 817 A.2d at 160 n.42.
For example, in Elf Atochem North America. Inc. v. Jaffari. the Supreme
Court of Delaware concluded that an arbitration clause and forum selection clause
applied to the fiduciary duty claims brought by a member of the limited liability
company (LLC), because the agreements containing these clauses created a
system of setting forward the governance and operation of the parties' joint
venture. 727 A.2d 286, 287-88 (1998). It reasoned that the fiduciary duty claims
12 The Delaware Supreme Court has recognized arbitration clauses as "'a specialized kind
of forum-selection clause.'" Nat'l Indus. Group (Holding) v. Carlvle Inv. Mqmt. LLC, 67
A.3d 373, 384 n.41 (2013) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94
S. Ct. 2449, 41 L. Ed. 2d 270 (1974)).
No. 73716-3-1/10
were directly related to the defendant's action or inaction in his role as a manager
and the remedies bore directly on the defendant's duties and obligations under the
agreement. 727 A.2d at 294-95; see also Douzinas v. Am. Bureau of Shipping,
Inc., 888 A.2d 1146,1149-50 (2006) (concluding that the arbitration clause applied
to fiduciary duty claims brought by minority members of a LLC, because the LLC
agreement created the governance system for the LLC and established the
framework governing all of the members' rights and duties toward one another).
Here, the source of Snyder's fiduciary duty is not the Stockholder
Agreement. Rather, Snyder's duty is imposed by Delaware general corporation
law. Shatas relied on Delaware common law and "principles of restitution and
equity" to argue that the defendants breached their duty of loyalty and were
obligated to disgorge any and all profits from such sale.13 Shatas does not point
to any term in the Stockholder Agreement that creates an obligation upon which
he can base his breach of fiduciary duty claim.
Further, the Stockholder Purchase Agreement does not give rise to or
govern the defendants' status as fiduciaries. It does not set out a detailed set of
duties or responsibilities that Snyder assumed by virtue of his role on the board.
Although the Stockholder Agreement prohibits CIG Iand Snyder from engaging in
insider trading, both parties agree that the contract merely restates obligations
imposed by federal and state securities laws or state corporations laws.
Additionally, this agreement was between the corporation and a limited number of
shareholders, rather than all members of the LLC.
13 CP at 133.
10
No. 73716-3-1/11
In short, the agreements in this case are more akin to the agreement in Parfi
than to the LLC agreement in Elf Atochem. Shatas's claim is independently
assertable and is not dependent on the terms of the agreement for its resolution.
Accordingly, the trial court properly concluded that Shatas's fiduciary duty claims
are outside the scope of the forum selection clause in the agreement.
Shatas asserts that his fiduciary duty claims "arise from" the August 2011
agreements because "it is only by virtue of the [August 2011 agreements] that
Snyder and the CIG entities became insiders and corporate fiduciaries."14 He
further claims that without the August 2011 agreements, his equitable claim "would
not exist."15
But the relevant consideration is whether the agreements at issue govern
the fiduciary duties, not whether they merely give rise to the fiduciary status. In
fact, in Parfi. it was by virtue of the underwriting agreement that the corporate
investor became the controlling shareholder and was able to appoint directors to
the corporation's board of directors. 817 A.2d at 151-52. Nonetheless, the court
rejected the argument that the agreement governed the defendants' fiduciary
duties. In short, the relevant focus is on the source of the legal obligation. In this
case, that is Delaware common law, not the August 2011 agreements. Shatas's
arguments to the contrary are not persuasive.
Jurisdiction over Indispensable Parties
Shatas argues that the trial court erred when it rejected his argument that
CIG, an indispensable party, is not subject to the personal jurisdiction of Delaware
14 Appellant's Br. at 26.
15 Appellant's Br. at 26.
11
No. 73716-3-1/12
courts. In particular, Shatas contends that the trial court misapplied the law when
it concluded that CIG's postfiling willingness to consent to Delaware jurisdiction
was sufficient to establish personal jurisdiction. On this latter point, we agree.
"'[Jurisdiction is normally determined as of the date of the filing of the suit.'"
Central States, Se. and Sw. Areas Pension Fund v. Phencorp Reinsurance Co.,
Inc., 440 F.3d 870, 877 (7th Cir. 2006) (quoting Wild v. Subscription Plus, Inc.. 292
F.3d 526, 528 (7th Cir. 2002)). Thus, postfiling activities are irrelevant in
determining jurisdiction. See Allen v. Russian Fed'n. 522 F. Supp. 2d 167, 193-94
(D.D.C. 2007) (rejecting argument that postcomplaint contacts could establish
personal jurisdiction).
Here, as of the date the suit was filed, CIG had not yet consented to
personal jurisdiction in Delaware. Rather, CIG later consented to personal
jurisdiction in Delaware in its joinder to Blucora's motion to dismiss for improper
venue. But CIG's postfiling consent does not establish that Delaware had
jurisdiction over CIG at the time jurisdiction was determined. Neither does the fact
that the trial court granted dismissal "on the condition that CIG consents to the
personal jurisdiction of state or federal courts in Delaware."16 In short, the trial
court erred when it relied on this postfiling consent to conclude that Delaware had
jurisdiction over CIG.
Blucora relies on Worden v. Smith to argue that CIG's postfiling consent
was sufficient to establish personal jurisdiction. 178 Wash. App. 309, 314 P.3d 1125
(2013). There, Division Three held that "a party waives the claim of lack of
16 CP at 318 (boldface omitted).
12
No. 73716-3-1/13
personal jurisdiction by 'consenting], expressly or impliedly, to the court's
exercising jurisdiction.'" Worden. 178 Wash. App. at 328 (alteration in original)
(quoting In re Marriage of Steele. 90 Wash. App. 992, 997-98, 957 P.2d 247 (1998)).
But Worden does not stand for the proposition that postfiling conduct can invalidate
properly invoked jurisdiction. Reliance on Worden is misplaced.
Blucora points out that courts have dismissed suits pursuant to forum
selection clauses "even when the clauses were triggered by events that took place
during the course of the litigation."17 But none of the cases cited by Blucora
considered whether a party's postfiling consent could invalidate otherwise proper
jurisdiction. Rather, the courts merely determined that the forum selection clauses
applied on the occurrence of certain events.
Blucora also points out that courts have decided forum non conveniens
motions based on stipulations made during the course of litigation. But the forum
non conveniens doctrine "presupposes that there are at least two forums in which
the defendant is amenable to process." Lisbv v. PACCAR. Inc.. 178 Wash. App. 516,
519-20, 316 P.3d 1097 (2013). More importantly, even if CIG's postfiling consent
was sufficient to make it amenable to process, Blucora did not move to dismiss
based on the doctrine of forum non conveniens, and the trial court did not invoke
this doctrine or balance any of the necessary private and public factors required
for dismissal under this doctrine. Sales v. Weyerhaeuser Co.. 163 Wash. 2d 14, 20,
177P.3d 1122(2008).
17 Br. of Nominal Defendant/Respondent Blucora, Inc. at 25 (citing Gen. Protecht Grp..
Inc. v. Leviton Mfg. Co., Inc.. 651 F.3d 1355, 1359 (Fed. Cir. 2011) and John Wveth &
Brother Ltd. v. Cigna Int'l Corp.. 119 F.3d 1070, 1076 (3d Cir. 1997)).
13
No. 73716-3-1/14
Finally, Blucora presents a number of alternative grounds to affirm. For the
first time on appeal, Blucora claims that CIG is not a necessary party under
Delaware's Chancery Rule 19(a)(1) or Washington's CR 19(a)(2). It also claims
that CIG is not an indispensable party18 under Washington's CR 19(b).
Also for the first time on appeal, Blucora asserts that Delaware courts have
personal jurisdiction over CIG under several federal rules and Delaware statutes.
Specifically, it argues that Delaware has jurisdiction over CIG because (1) CIG is
subject to jurisdiction under the "bulge" provision of Federal Rule of Civil Procedure
4(k)(1)(B); (2) CIG is subject to jurisdiction under the Delaware long-arm statute,
10 Del. Code § 3104; (3) CIG is subject to jurisdiction under the Delaware Limited
Liability Company Act, 6 Del. Code § 18-109; and (4) CIG is subject to jurisdiction
under the Delaware Director and Officer Consent statute, 10 Del. Code § 3114.
Blucora acknowledges that it did not argue any of these theories to the trial court
but asserts that this court should consider them because it can affirm on any
ground supported by the record. Shatas urges this court to disregard these
arguments and does not address them on the merits.
In general, "[arguments or theories not presented to the trial court will
generally not be considered on appeal." Washburn v. Beatt Eguip. Co.. 120 Wash. 2d
246, 290, 840 P.2d 860 (1992). However, "'[a] party may present a ground for
affirming a trial court decision which was not presented to the trial court ifthe record
18 Blucora did not challenge Shatas's characterization of CIG as indispensable in its
briefing before the trial court. It raised this contention for the first time in the trial court at
oral argument. Because of this lack of briefing, the trial court did not consider whether
CIG is an indispensable party, but rather, it"accepted] Shatas's contention that CIG is an
indispensable party" and decided the issue on the basis that Delaware had jurisdiction
over CIG. CP at 318.
14
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has been sufficiently developed to fairly consider the ground.'" State v. Barker.
162 Wash. App. 858, 863, 256 P.3d 463 (2011) (quoting RAP 2.5(a)).
Here, despite Blucora's assertions to the contrary, the record is not
sufficiently developed for us to fairly consider these new theories. Additionally,
Shatas fails to address these new arguments in his briefing. Without the benefit
of full development of the record and complete briefing, it would be imprudent for
this court to address these new arguments. For these reasons, we decline to
consider for the first time on appeal whether CIG is an indispensable party. We
also decline to consider for the first time on appeal whether the state of Delaware
has personal jurisdiction over CIG under any of these federal rules and Delaware
statutes. The parties may litigate these issues on remand.
We reverse and remand for further proceedings.
WE CONCUR:
15