DocketNumber: No. 9:18-cv-03157-DCN
Citation Numbers: 367 F. Supp. 3d 469
Judges: Norton
Filed Date: 2/15/2018
Status: Precedential
Modified Date: 7/25/2022
*473The following matter is before the court on Jane Vaden Thacher ("Thacher") and Vaden of Beaufort Inc's ("the Corporation"), (together, "defendants") motion to dismiss for failure to state a claim, ECF No. 5, and motion to dismiss for lack of personal jurisdiction, ECF No. 7. For the reasons set forth below, the court grants the motion to dismiss Thacher for lack of personal jurisdiction and grants in part and denies in part the motion to dismiss for failure to state a claim.
I. BACKGROUND
Plaintiff Ashley Shane Gault ("Gault") brings this action against the Corporation and against Thacher, the President and majority shareholder of the Corporation. Gault argues that Thacher and the Corporation engaged in a course of self-interested dealings that depleted the Corporation's assets and therefore harmed him by decreasing the value of his 10% ownership interest in the Corporation. The Corporation is incorporated under the laws of Georgia, has its headquarters in Georgia, and has its principal place of business ("PPB") in Georgia or South Carolina. Defendants attached to their motions to dismiss the Shareholders' Agreement and Stock Purchase Agreement that Gault signed in order to obtain his shares in the Corporation. While the Shareholders' Agreement states that the Corporation's PPB is in Savannah, Georgia, the Stock Purchase Agreement states that the Corporation's PPB is in Beaufort, South Carolina.
Both documents were signed on November 16, 2011. These documents constitute an agreement between Gault, the Corporation, and Vaden of South Carolina ("Vaden of SC"). Thacher signed each agreement on behalf of the Corporation and on behalf of Vaden of SC. Gault's complaint and his responses to the motions to dismiss treat these agreements as though they exist between Gault, the Corporation, and Thacher as an individual. However, it is clear that he actually entered into an agreement with the Corporation and Vaden of South Carolina, another corporation of which Thacher is the President. Defendants have not asked the court to pierce the corporate veil.
In 2011, Gault became a 10% shareholder in the Corporation and his ownership interest fully vested in 2016. Sometime after October 2017, Gault resigned. He now contends that Thacher and the Corporation engaged in a course of conduct that disadvantaged the Corporation, and thus diminished the amount of money that Gault received for this 10% stock ownership, while benefitting other businesses owned by members of Thacher's family ("Vaden Family Entities"). On October 19, 2018, Gault filed suit in the Beaufort County Court of Common Pleas and then filed an amended complaint on November 7, 2018. Defendants removed the action on November 21, 2018. On November 26, 2018, defendants filed their motions to dismiss. ECF Nos. 5 and 7. On December 8, 2018, Gault filed its responses to these motions. ECF Nos. 10 and 11. On December 17, defendants filed their replies. ECF Nos. 15 and 16. The court held a hearing on these matters on February 5, 2019. The motions are ripe for review.
II. STANDARD
When personal jurisdiction is challenged by the defendant, the plaintiff *474has the burden of showing that jurisdiction exists. See In re Celotex Corp.,
A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted "challenges the legal sufficiency of a complaint." Francis v. Giacomelli,
III. DISCUSSION
A. Motions to Dismiss for Lack of Personal Jurisdiction
Defendants filed a motion to dismiss alleging that the court does not have personal jurisdiction over Thacher in her individual capacity. ECF No. 7. Defendants concede that the court has personal jurisdiction over the Corporation. ECF No. 16 at 3. In evaluating a challenge to personal jurisdiction under a state's long-arm statute, the court engages in a two-step analysis. Ellicott Mach. Corp. v. John Holland Party Ltd.,
The due process test for personal jurisdiction involves two components: minimum contacts and fairness. See World-Wide Volkswagen Corp. v. Woodson,
Personal jurisdiction over a nonresident defendant can be either specific or general. ESAB Group, Inc.,
*476Burger King v. Rudzewicz,
The first prong of the Nolan test for specific jurisdiction concerns whether a defendant has "purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." J. McIntyre Mach., Ltd. v. Nicastro,
whether the defendant maintains offices or agents in the forum state; whether the defendant owns property in the forum state; whether the defendant reached into the forum state to solicit or initiate business; whether the defendant deliberately engaged in significant or long-term business activities in the forum state; whether the parties contractually agreed that the law of the forum state would govern disputes; whether the defendant made in-person contact with the resident of the forum in the forum state regarding the business relationship; the nature, quality and extent of the parties' communications about the business being transacted; and whether the performance of contractual duties was to occur within the forum.
Consulting Eng'rs Corp. v. Geometric Ltd.,
The second factor in the specific jurisdiction analysis-that the litigation results from alleged injuries that "arise out of or relate to" the defendants purposeful availment into the state in question-is an equally important element in the court's analysis of this case. The court must consider whether Gault has sufficiently alleged that Thacher's wrongdoing was purposefully directed towards South Carolina, such that the court may exercise jurisdiction over her regarding these particular claims. The court finds that Gault has failed to sufficiently allege such contacts with South Carolina under both prongs.
Before turning to the amended complaint's specific allegations of Thacher's wrongdoing, the court briefly addresses what role the fiduciary shield doctrine plays in the court's analysis of personal jurisdiction over Thacher. "Under the 'fiduciary shield' doctrine, as it has generally been phrased, the acts of a corporate officer or employee taken in his corporate capacity within the jurisdiction generally do not form the predicate for jurisdiction over him in his individual capacity."
*477Columbia Briargate Co. v. First Nat. Bank in Dallas,
In determining whether Thacher exercised sufficient minimum contacts in South Carolina to commit the wrongdoings alleged by Gault, the court may rely on information set forth in the complaint, Thacher's affidavit attached to her motions to dismiss, Gault's affidavit attached to his response to the motion to dismiss, and the various agreements submitted by both parties.
Gault alleges that the "Corporation also pays management fees to Vaden Family Entities. It also has the opportunity to sell insurance products to its customers. Defendants allowed other Vaden Family Entities to profit from these activities, diverting potential revenue from the Corporation." Am. Comp. ¶ 20. Later, Gault reiterates that "Thacher required the Corporation to pay 'management fees' and 'support fees' to other Vaden Family Entities for salaries and benefits of administrative personnel despite the fact that the Corporation employed its own administrative personnel since it needed staff knowledgeable in South Carolina DMV, Tax, and other legal requirements." Id. ¶ 33. Specifically, Gault claims that when he began as the General Manager of the dealership, the store was paying $ 10,500 a month in management fees to other Vaden Entities, and that they were paying $ 43,500 in fees by the time he resigned. Gault Affid. ¶ 36. Again, these allegations do not demonstrate that Thacher purposefully availed herself of the benefits of operating South Carolina in relation to this alleged wrongdoing. This is clearly a shareholder's complaint about minimized returns due to corporate mismanagement. These corporate decisions would have been made at the Georgia headquarters, and Gault has not alleged otherwise. Thacher Affid. ¶¶ 10-13.
Gault also claims that
Thacher transferred corporate opportunities, funds, and assets of the Corporation in excess of nine million dollars [ ] to other Vaden Family Entities. While those funds appear as receivable on the books of the Corporation, no promissory notes were signed, no repayment terms were required, and no interest has been charged. Thus, Defendant Thacher, as controlling shareholder and Board Member, charged [Gault] 4% interest for his loan, but no interest for $ 9 million in loans to the Vaden Family Entities, in which she had an interest. This has deprived the Corporation of approximately $ 1.5 million in interest payments from the Vaden Family Entities.
Am. Comp. ¶ 30. Here, Gault is talking about the transfer of the Corporation's opportunities and funds. The Corporation is incorporated and headquartered in Georgia. Just because it has a profitable dealership in South Carolina does not mean the Corporation's decisions-which form the basis for the alleged wrongdoing-are made in South Carolina. Those are the types of decisions made by the officers and directors at the Corporation's Georgia headquarters. Thacher Affid. ¶¶ 10-13.
Gault also takes issue with the manner in which the Corporation handled property leasing matters in South Carolina. The dealership initially leased its property from a third party. Gault claims that when an opportunity arose to purchase land and build a new location, one of the Vaden Family Entities became the landlord and raised the rent significantly, all the while depriving Gault of the opportunity to participate in the decision-making process. Am. Comp. ¶ 19. While the building of the new property and raising of the rent took *479place in South Carolina, Gault has not alleged that Thacher personally had any contacts in South Carolina in regards to these actions. Cf. Columbia Briargate Co. v. First Nat. Bank in Dallas,
Gault also raises several miscellaneous claims. First, Gault claims that "Thacher had a duty to hold regular Board and Shareholders meetings but failed to do so. This failure prevented Shane from being informed of business practices detrimental to him." Am. Comp. ¶ 17. This alleged harm has nothing to do with South Carolina. It is merely Gault's complaint as a shareholder that the officers and directors-all of whom are based Georgia, along with the Corporation's headquarters-failed to hold regular meetings. The Corporation's shareholder meetings take place in Georgia. Thacher Affid. ¶ 7.
None of these allegations give rise to the court's personal jurisdiction over Thacher because they either involve (1) allegations that the Corporation, not Thacher, committed the wrongdoing,
This case resembles Sheppard v. Jacksonville Marine Supply, Inc.,
*480By contrast, the court found that "the litigation does not directly rise as a result of [the Vice President's] involvement with the Jax Marine warehouse in South Carolina and its sales and distribution activities within the state" and that "the allegations asserted against [the Vice President] are general in nature." Sheppard,
Gault cites to Pittsburgh Terminal Corp. v. Mid Allegheny Corp.,
Pittsburgh differs significantly from this case. The defendants in Pittsburgh, while not physically travelling to West Virginia, had played an integral role in a merger which resulted in a new corporation existing under the laws of West Virginia. Thus, their actions were clearly directed towards West Virginia, and they had availed themselves of the benefits of operating under West Virginia law with this newly merged corporation. By contrast, Gault has not alleged that Thacher directed actions towards South Carolina that had as substantial an impact on the state of South Carolina such as creating a new corporation that operates under the laws of South Carolina. Gault claims that Thacher came to Beaufort, South Carolina "six or seven times to view the store and to review the profits and losses in the sales and services departments," and that he "spoke frequently with Thacher by telephone from the Beaufort store regarding the financial operations of Vaden of Beaufort." Gault Affid. ¶ 33, 34. A handful of visits and regular phone calls do not provide the court with enough evidence to find that Thacher availed herself of the opportunity of operating in South Carolina in regards specifically to Gault's claims of corporate malfeasance. The harms of which Gault complains are shareholder losses, which result from the corporate decisions made *481in Georgia, not from purposeful actions by Thacher individually in South Carolina. Therefore, the court grants Thacher's motion to dismiss for lack of personal jurisdiction.
B. Motion to Dismiss for Failure to State a Claim
Defendants also filed a motion to dismiss each cause of action for failure to state a claim, ECF No. 5. "A federal court exercising diversity jurisdiction is obliged to apply the substantive law of the state in which it sits, including the state's choice-of-law rules." Volvo Const. Equip. N. Am., Inc. v. CLM Equip. Co., Inc.,
i. First Cause of Action: Demand for Inspection of Corporate Records
In his first cause of action, Gault asks to inspect the documents and financial records regarding any transactions described in Paragraph 8(b) of the Shareholders' Agreement so that a proper valuation can be determined. Paragraph 8(b) states that:
The Corporation is one of several retail automotive dealerships operated by the Vaden family (the Daniels and Thachers). The parties to this agreement understand and agree that the Corporation is currently purchasing services and engaged in certain expense-sharing practices designed to benefit the Corporation. The parties further understand that certain insurance products sold by the Corporation may be issued and administered by one or more insurance companies owned and/or operated by the Vaden family [ ]. These arrangements will continue when deemed to be in the best interest of the corporation by the Board of Directors and the majority shareholders [ ].
Despite the court's decision to rely on Georgia law to resolve disputes under the Shareholders' Agreement, this cause of action requires the court to consider both South Carolina and Georgia statutes. Defendants contend that Gault's request for corporation documents can only be made in Georgia courts, arguing that South Carolina law "does not authorize this State to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this State."
[i]f a corporation, within a reasonable time, does not allow a shareholder to inspect and copy any other record, the shareholder who complies with Section 33-16-102(b) and (c) may apply to the circuit court in the county where the corporation's principal office (or, if none in this State, its registered office) is located for an order to permit inspection and copying of the records demanded.
In response, Gault contends that the court should follow the lead of other courts that have relied upon the forum state's shareholder inspection statutes where the corporation is authorized to do business in the state. ECF No. 10 at 8. The District Court of Appeal of Florida, for instance, found that:
Section 607.157, standing alone, applies only to Florida corporations. That is so because the definition of "corporation," as used in the Florida General Corporation Act, expressly excludes foreign corporations. § 607.004(5), Fla.Stat. The Act goes on to provide, however, that a foreign corporation,id. § 607.004(8), which has applied for authority to transact business in Florida "shall ... enjoy the same, but no greater, rights and privileges as a domestic corporation ... and, except as otherwise provided in this chapter, shall be subject to the same duties, restrictions, penalties, and liabilities now or hereafter imposed upon a domestic corporation of like character."Id. § 607.307. Thus, a foreign corporation authorized to do business in Florida is subject to Florida's statutory provisions respecting access to corporate books and records, and the statutory penalty is applicable should access be wrongfully refused.4
Hollander v. Rosen,
Although the court has not found any South Carolina case law about this, it agrees with Gault and these other courts. If a court may exercise jurisdiction over a corporation because it is authorized to do business and has substantial business activities in a certain state, then it is logical to assume that the plaintiff would be able to fully litigate their grievances regarding the corporation before this court, including the ability to inspect the corporation's records. As the Supreme Court of Pennsylvania found, although "a court will not take jurisdiction for the purpose of regulating or interfering with the internal management or affairs of a foreign corporation ... the granting of a right to inspect a foreign corporation's books and records, which are within the jurisdiction, does not so offend." Kahn v. Am. Cone & Pretzel Co.,
ii. Second Cause of Action: Breach of Fiduciary Duty
Gault's second cause of action alleges that Thacher and the Corporation breached their duty to Gault to act in the best interests of the Corporation and pursuant to the Shareholders' Agreement. As discussed above, Georgia law controls the court's analysis of Gault's breach of fiduciary duty claims. "Establishing a claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3)
*483damage proximately caused by the breach." McConnell v. Dep't of Labor,
However, defendants rightly argue that "under Georgia law, a corporation does not have a fiduciary relationship with stockholders," Rigby v. Flue-Cured Tobacco Coop. Stabilization Corp.,
The law has developed since these very early cases to clarify that corporations themselves do not owe fiduciary duties its shareholders. See, e.g., Onex Food Svcs. v. Grieser,
When faced with the question of whether an LLC owed a fiduciary duty to its members, the Georgia Court of Appeals held that "[b]ased on this rationale, various foreign jurisdictions have held that a corporation owes no fiduciary duty to its shareholders ... [a]nalogously, we hold that a limited liability company owes no fiduciary duty to its members, either directly or vicariously, for actions taken by its manager." ULQ, LLC v. Meder,
[i]t would be an analytical anomaly, therefore, to treat corporate directors as agents of the corporation when they are acting as fiduciaries of the stockholders *484in managing the business and affairs of the corporation. Holding the corporation vicariously liable for the directors' breach of a fiduciary duty would be flatly inconsistent with the rationale of vicarious liability since it would shift the cost of the directors' breach from the directors to the corporation and hence to the shareholders, the class harmed by the breach.
Additionally, the court has conducted extensive research on this issue and had not discovered another case outside of Frye in which a shareholder sued the corporation itself for breach of fiduciary duty. Those claims are always brought by shareholders against officers, directors, or majority shareholders of a corporation-sometimes as derivative suits on behalf of a corporation-but never directly against the corporation alone. Since the only officer in this suit, Thacher, has been dismissed for lack of personal jurisdiction, the court finds that Gault cannot sustain his breach of fiduciary duty claim against the Corporation alone. Thus, the court dismisses the second cause of action.
iii. Third Cause of Action: Negligence
Gault brings a negligence claim against Thacher only, not against the Corporation. Am. Comp. ¶¶ 61-63. As Thacher has been dismissed, the court also dismisses this cause of action.
iv. Fourth Cause of Action: Unjust Enrichment
Gault's fourth cause of action for unjust enrichment is also brought solely against Thacher and not the Corporation. Am. Comp. ¶¶ 64-67. Thus, the court dismiss this cause of action.
v. Fifth Cause of Action: Breach of Contract
Gault next claims that defendants breached the Shareholder's Agreement by acting in the best interest of Thacher and the Vaden Family Entities at the expense of the Corporation. He also alleges that the Corporation has improperly demanded that he pay interest on the $ 153,255 asserted stock value of his shares as of September 30, 2010, rather than the $ 142,022.70 as agreed upon in the Promissory Note. Am. Comp. ¶ 74. Because the parties agreed that the Shareholders' Agreement would be construed under Georgia law, the court should analyze this breach of contract claim pursuant to Georgia law. Shareholders' Agreement ¶ 16. "The elements for a breach of contract claim in Georgia are the (1) breach and the (2) resultant damages (3) to the party who has the right to complain about the contract being broken." Collins v. Athens Orthopedic Clinic,
Defendants argue that Gault has failed to allege a proper breach of contract claim regarding the Corporation's dealings with the Vaden Family Entities because, "as discussed above, the agreement explicitly authorized the activities about which [Gault] complains with respect to other Vaden entities." ECF No. 5 at 12. However, defendants do not specify what they mean by "activities" or even which portion of the Shareholders' Agreement authorizes these activities. Defendants merely refer the court to some vague former portion of the motion by the phrase "as discussed above." The court ventures a guess that defendants refer to their arguments regarding the breach of fiduciary duty on pages 7 to 9 of their motion. However, even this text fails to properly argue exactly why the Shareholder Agreement "contemplates *485the very interaction between Vaden and the other Vaden Entities about which [Gault] complains." ECF No. 5 at 9. As for Gault's claims regarding the interest he owes, defendants merely allege that "[t]his claim is not properly brought as a breach of contract claim and is instead an attempt to restate his breach of fiduciary duty claim."
Defendants have not provided the court with sufficient reasons for dismissing this breach of contract claim, and as the court is not inclined to make defendants' arguments for them, it denies the motion to dismiss the fifth cause of action.
vi. Sixth and Seventh Causes of Action: Punitive Damages and Attorney's Fees and Costs
Defendants ask the court to dismiss Gault's claims for punitive damages and attorney's fees and costs, arguing that under Georgia law, these are derivative claims and cannot succeed in the absence of an underlying substantive claim. Defendants also contend that Gault has not sufficiently pleaded either malice to support a claim for punitive damages or bad faith to support a claim for attorney's fees. First, the court refrains from dismissing these derivative claims at this stage because several underlying causes of action survive this motion to dismiss. Next, presuming the truth of Gault's allegations of intentional corporate malfeasance, the court finds that the complaint alleges enough malice and bad faith to survive a 12(b)(6) motion to dismiss.
vii. Eighth Cause of Action: Accounting
Defendants ask the court to dismiss Gault's claim for an accounting, arguing that "an equitable claim for accounting will not lie where an adequate remedy is available at law." Rigby v. Flue-Cured Tobacco Co-op.,
viii. Ninth Cause of Action: Unfair Trade Practices
The South Carolina Unfair Trade Practices Act ("SCUTPA") provides that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful."
ix. Tenth Cause of Action: Conversion
Yet again, defendants' main argument in support of dismissing this cause of action is that "[f]or the reasons explained above, the conduct complained above by Plaintiff was specifically authorized by the Agreement, which he executed." ECF No. 5 at 16. Defendants also argue that Gault has not alleged any wrongful acts by the Corporation that could constitute a conversion.
However, the court notes that the conversion claim only alleges that "Thacher [ ] converted to her own use and benefit property belonging to [Gault] by diverting assets to other Vaden Family Entities, thereby reducing the benefits of his ownership interest." Am Comp ¶ 89 (emphasis added). The conversion cause of action does not mention any wrongdoings by the Corporation. Although the complaint, when recapping the allegations against defendants, states that "defendants' ... divert[ed] retained earnings of the Corporation," id. ¶ 40, all of the allegations of fact in the amended complaint preceding this statement assert only that Thacher was diverting funds, and do not specify that the Corporation did as well, id. ¶¶ 30, 31, 33, 34, 39. As such, the court dismisses the tenth cause of action.
x. Eleventh Cause of Action: Specific Performance
Gault's claim for specific performance is based on the provision in the Shareholders' Agreement stating that the value of Gault's shares will be based upon the certified financial statement of the Corporation for the last year in which he was employed. Gault notes in his response to the motion to dismiss that defendants produced a copy of a "certified financial statement" after suit was filed, but that he still has questions regarding the work undertaken by the CPA to certify the statement which is identical to the previously uncertified report. As such, he asks the court to order the Corporation to provide him with a certified financial statement for 2017. Defendants argue that the Agreement does not provide that defendants will make a copy of this statement available to the Gault. They are correct. Section 3 of the Shareholders' Agreement states that Gault's stock value will be calculated as follows:
The 'Stockholder's Equity' in the corporation as defined by the certified financial statement of the corporation for the year immediately preceding the triggering event shall be increased by an amount equal to 75% of the corporation's LIFO reserve as defined in that same financial statement. This total value shall be divided by the total number of shares of the corporation outstanding and that individual share value shall then be multiplied by the number of shares owned by Gault as the retiring or selling shareholder.
Gault's resignation was a "triggering event." Section 3 provides that his stock value shall be calculated based on the financial statement but does not offer to provide a copy of this statement to Gault. For this reason, the court dismisses the eleventh cause of action.
*487IV. CONCLUSION
For the foregoing reasons, the court GRANTS the motion to dismiss for lack of personal jurisdiction over Thacher, ECF No. 7, and GRANTS IN PART and DENIES IN PART the motion to dismiss for failure to state a claim, ECF No. 5.
AND IT IS SO ORDERED.
At the hearing, Gault began to argue that the court had general personal jurisdiction over Thacher. When the court pointed out that these arguments were not raised in Gault's briefs, he persisted that his response to the motion to dismiss for lack of personal jurisdiction did in fact properly argue that the court had general jurisdiction over Thacher. However, upon review of his response, the court affirms that he did not present a general jurisdiction argument in regards to Thacher. Gault devotes the majority of his brief to specific personal jurisdiction and devotes six sentences to general jurisdiction. Of these, five sentences lay out the law of general jurisdiction, with the final sentence contending that "[t]his court clearly has general jurisdiction over Vaden of Beaufort, even if specific jurisdiction is absent, because it has 'continually endeavored to exploit the South Carolina market' for over 10 years.' " ECF No. 11 (internal quotations omitted). In contrast to his argument that the court has general personal jurisdiction over the Corporation, which defendants concede, Gault has not made any claim regarding the court's general personal jurisdiction over Thacher individually. Gault did not offer sufficient arguments at the hearing on this motion regarding general personal jurisdiction over Thacher to supplement his brief's shortcomings on this front, leaving the court unconvinced that it has general personal jurisdiction over Thacher.
"Where, as here, there has been no evidentiary hearing and the Court proceeds upon the written submissions, plaintiffs must make only a prima facie showing that jurisdiction exists." Magic Toyota, Inc.,
Gault has not alleged an alter-ego theory or asked that the court pierce the corporate veil to be able to hold Thacher responsible for all of the Corporation's actions.
South Carolina has a similar statute as Florida offering foreign corporations that have been authorized to transact business in this state "the same, but no greater rights, and [ ] the same, but no greater privileges, as ... a domestic corporation of like character." S.C. Code § 33-31-1505.