Opinion
Case No. 2:99-CV-816C
April 20, 2000
ORDER
Plaintiffs Fred Gray and E. Drew Crowley filed this action in the Third Judicial District Court of the State of Utah, claiming that defendants EssXSport Corporation ("EXS") and Bruce Caldwell breached their obligations under the Exchange and Employment Agreements entered into by the parties. Defendants filed a notice of removal, claiming this court had diversity jurisdiction over the case.
Plaintiffs also assert causes of action for quantum meruit, breach of fiduciary duty and duty of loyalty, declaratory judgment, and specific performance.
This matter is before the court on: (1) EXS's and Caldwell's motion to transfer this case to the United States District Court for the Southern District of California, or alternatively, to the United States District Court for the Northern District of Texas; and (2) Caldwell's motion to dismiss the claims against him personally. Having fully considered the arguments of counsel, the submissions of the parties and applicable legal authorities, the court denies EXS's and Caldwell's motion to transfer and grants Caldwell's motion to dismiss.
EXS has not filed a motion to dismiss the complaint against it.
Analysis
1. Motion to TransferEXS and Caldwell claim that this case should be transferred because: first, although this court has personal jurisdiction over EXS, it does not have personal jurisdiction over Caldwell; second, venue is not proper in this judicial district; and third, the Southern District of California or the Northern District of Texas is a more convenient forum.
A. Personal Jurisdiction
Before deciding whether this case should be transferred or dismissed, the court must determine whether it has personal jurisdiction over Caldwell. Plaintiffs bear the burden of establishing personal jurisdiction over Caldwell, however, in the preliminary stages of litigation this burden is light. See OMI Holdings, Inc. v. Royal Ins. Co., 149 F.3d 1086, 1091 (10th Cir. 1998); Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995).
Where, as in the present case, there has been no evidentiary hearing, and the [determination] of jurisdiction is decided on the basis of affidavits and other written material, the plaintiff[s] need only make a prima facie showing that jurisdiction exists. The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant[s'] affidavits. If the parties present conflicting affidavits, all factual disputes must be resolved in the plaintiff[s'] favor, and the plaintiff[s'] prima facie showing is sufficient notwithstanding the contrary presentation by the moving party. However, only the well pled facts of plaintiff[s'] complaint, as distinguished from mere conclusory allegations, must be accepted as true.
Wenz, 55 F.3d at 1505 (citations and quotations omitted). Plaintiffs must show that personal jurisdiction over Caldwell, a nonresident defendant in a diversity action, is proper under the laws of the forum state and that the exercise of jurisdiction would not offend due process. See Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1074 (10th Cir. 1995).
To determine whether the exercise of personal jurisdiction is proper under the laws of Utah, the court first considers whether Caldwell's activities fall within the activities listed in Utah's long-arm statute. Utah's long-arm statute provides that "[a]ny person . . . who . . . does any of the following enumerated acts, submits himself . . . to the jurisdiction of the courts of this state as to any claim arising out of or related to: (1) the transaction of any business within this state; . . . (3) the causing of any injury within this state. . . ." U.C.A. § 78-27-24. The statute defines the transaction of business as "activities of a non-resident person . . . in this state which affect persons or businesses within the state of Utah." Id. § 78-27-23. Jurisdiction over Caldwell is appropriate under the long-arm statute because plaintiffs suffered injury in Utah and their claims are related to Caldwell's business activities within Utah. Also, Utah's "legislature has declared that the long-arm statute must be interpreted broadly `so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution.'" Soma Med. Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1297 (10th Cir. 1999). Therefore, the exercise of personal jurisdiction over Caldwell is proper under Utah law if it is consistent with due process.
According to Crowley, Caldwell breached his personal commitments to provide capital for the operations of American Team Uniforms (a Utah corporation), and to recollaterize or retire a SBA loan secured by Crowley's primary residence in Utah. (See Crowley Decl. ¶ 17.)
Under the Due Process Clause, personal jurisdiction may be exercised over a nonresident defendant "so long as there exist minimum contacts between the defendant and the forum State." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980) (quotation and citation omitted). The "minimum contacts" may give rise to either general or specific personal jurisdiction.
A court has general jurisdiction over a defendant if the defendant has continuously and systematically purposefully availed himself of the privilege of conducting activities within the forum state, such that the defendant should reasonably anticipate being haled into court there. See Asahi Metal Indus. Co. v. Superior Crt., 480 U.S. 102, 109 (1987); Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985); World-Wide Volkswagen, 444 U.S. at 291. "A nonresident defendant may be subjected to the forum's general jurisdiction even where the alleged activities of the defendant upon which the claims are based are unrelated to his contacts with the forum." In re Application to Enforce Admin. Subpoenas Duces Tecum of S.E.C. v. Knowles, 87 F.3d 413, 418 (10th Cir. 1996) (quotation and citation omitted).
In contrast, "[s]pecific jurisdiction may be exercised where the defendant has `purposely directed' its activities toward the forum jurisdiction and where the underlying action is based upon activities that arise out of or relate to the defendant's contacts with the forum." Id. (citation omitted). "Even a single purposeful contact may be sufficient to meet the minimum contacts standard when the underlying proceeding is directly related to that contact." Id. at 419 (citation omitted).
However, neither general nor specific jurisdiction will be exercised over a defendant if it would "offend traditional notions of fair play and substantial justice." Trierweiler v. Croxton Trench Holding Corp., 90 F.3d 1523, 1533 (10th Cir. 1996) (quotation omitted).
Plaintiffs have failed to make a prima facie case that Caldwell engaged in substantial and continuous activities in Utah sufficient to subject Caldwell to this court's general personal jurisdiction; they have not shown that Caldwell has a substantial connection with Utah such that he should reasonably anticipate being haled into court on matters unrelated to his contacts with Utah.
Having determined that there is not general jurisdiction over Caldwell, the next question is whether plaintiffs have made a prima facie showing that Caldwell's activities in Utah and the underlying action are related. It is undisputed that Caldwell has traveled to Utah on several occasions to conduct business related to the Exchange Agreement which provided for the merger of American Team Uniforms with EXS. (See Gray Decl. ¶ 10; Crowley Decl. ¶ 19; Caldwell Decl. ¶ 5.) From October 13-15, 1998, Caldwell was in Utah meeting the personnel of American Team Uniforms and performing due diligence upon the books. (See Gray Decl. ¶ 12.) Also, Caldwell was in Utah conducting business from April 15-17, 1999. (See id. ¶ 14.) On April 15, 1999, Caldwell toured the production facility of American Team Uniforms and discussed with Gray the company's production capacity, orders, and sales. (See id.) On April 16, 1999, Caldwell and Gray met with Malaysian investors, provided them with a tour of American Team Uniforms' facility, discussed marketing and product strategies with them, and attempted to sell the investors on the strengths of American Team Uniforms. (See id. ¶¶ 15-19.) On April 17, 1999, Caldwell attended a breakfast business meeting with the Malaysian investors and participated in the discussion of marketing strategies for American Team Uniforms. (See id. ¶ 20.) Caldwell returned to Utah on April 27, 1999, and stayed until April 29, 1999. (See id. ¶¶ 21-26.) On April 27, 1999, Caldwell participated in a sales presentation made to an assistant general manager of a Utah professional soccer team. (See id. ¶ 21.) Later that day, Caldwell met with personnel of American Team Uniforms and discussed marketing new product lines. (See id. ¶ 22.) On April 28, 1999, Caldwell participated in taking two businessmen on a tour of the American Team Uniforms' facility. (See id. ¶¶ 23-24.) Caldwell then participated in a meeting regarding new product lines and marketing strategies. (See id. ¶ 25.) On April 29, 1999, Caldwell attended a business breakfast meeting regarding the proposed new product lines. (See id. ¶ 26.) From August 19-21, 1999, Caldwell was again in Utah, touring the American Team Uniforms' facility, discussing marketing and production strategies, and reviewing American Team Uniforms' financial statements. (See id. ¶¶ 28-33.)
Plaintiffs were the sole shareholders of American Team Uniforms.
These contacts with Utah are related to the underlying claims of the plaintiffs. Plaintiffs claim that Caldwell breached his agreements with them, in part, because Caldwell and EXS "failed to devote their best efforts to the management and business of American." (Compl. ¶ 37.) Therefore, Caldwell's acts and omissions in Utah are at issue in this case.
Defendants, invoking the "fiduciary shield doctrine, argue that the court should not consider the contacts Caldwell had with Utah because he was acting as an agent of EXS, not as an individual. However, "`[a]s an equitable principle, the fiduciary shield doctrine is not applied mechanically; the determination of the appropriateness of its application requires an analysis of the particular facts of the case. In each instance, fairness is the ultimate test. . . .'" Home-Stake Prod. Co. v. Talon Petroleum, C.A., 907 F.2d 1012, 1017 (10th Cir. 1990) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 903 (2d Cir. 1981)). The Supreme Court has "reject[ed] the suggestion that employees who act in their official capacity are somehow shielded from suit in their individual capacity." Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n. 13 (1984). Rather, "employees of a corporation that is subject to the personal jurisdiction of the courts of the forum may themselves be subject to jurisdiction if those employees were primary participants in the activities forming the basis of jurisdiction over the corporation." Knowles, 87 F.3d at 418 (citing Calder v. Jones, 465 U.S. 783, 790 (1984)). Caldwell concedes that he traveled to Utah, in his capacity as president and director of EXS, in furtherance of business related to the Exchange and Employment Agreements. (See Caldwell Decl. ¶¶ 5-6.) Caldwell was a primary participant in the activities forming the basis of jurisdiction over EXS, therefore, the fiduciary shield doctrine does not make the exercise of personal jurisdiction over Caldwell improper.
Having determined that the exercise of personal jurisdiction over Caldwell is proper under Utah's long-arm statute, and that Caldwell's contacts with Utah are related to the underlying action, the court must determine whether the exercise of jurisdiction would offend traditional notions of fair play and substantial justice. See Trierweiler, 90 F.3d at 1533. The factors that the court considers are: (1) the burden on the defendant, (2) the forum state's interest in resolving the dispute, (3) the plaintiffs' interests 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. See Burger King, 471 U.S. at 477.
First, Caldwell is the president and director of EXS, and the defendants have conceded that the court has personal jurisdiction over EXS. The burden on Caldwell to litigate his claim in the same court at the same time as the suit against EXS is minimal. Second, Utah has a "manifest interest" in providing a forum in which its residents can seek redress for injuries caused by nonresident defendants. See Burger King, 471 U.S. at 473. Third, plaintiffs are individuals with limited resources who have chosen to file this case in the state in which they and the business at issue, American Team Uniforms, reside. The financial burden of litigating in another forum may significantly limit plaintiffs' ability to pursue the lawsuit. See OMNI Holdings, 149 F.3d at 1097; (see also Mem. Opp'n Defs.' M. to Transfer, at 8 n. 3 (stating that if the court found that it did not have personal jurisdiction over Caldwell, they would seek leave to dismiss Caldwell from the action, so that the case against EXS could be heard in Utah)). Fourth, Utah is the most efficient place to litigate the dispute. The plaintiffs reside in Utah; the business defendants sought to acquire is in Utah; and plaintiffs' witnesses and documentary evidence are located in Utah. Although many of the documents and witnesses that Caldwell may use at trial are located outside of Utah, there is no evidence that the burden on Caldwell would be greater than the burden that plaintiffs would suffer if this court decided not to exercise jurisdiction over Caldwell. The fifth factor does not appear to apply in this case. Considering these factors, the court finds that the exercise of specific personal jurisdiction over Caldwell would not offend traditional notions of fair play and substantial justice.
According, the court has specific personal jurisdiction over Caldwell.
B. Venue
Defendants claim that regardless of the question of personal jurisdiction, venue in this judicial district is not proper under 28 U.S.C. § 1391, which states:
(a) A civil action wherein jurisdiction is founded only on diversity of citizenship may . . . be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, . . . or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.
. . .
(c) For purposes of venue under this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced.28 U.S.C. § 1391. According to defendants, venue in this judicial district is not proper because Caldwell does not reside in Utah, the events or omissions giving rise to plaintiffs' claims did not occur in Utah, and the action could have been commenced in Texas or California.
Defendants' arguments are not persuasive. Venue is proper in this judicial district because a substantial part of the events or omissions giving rise to the claim occurred in Utah. Plaintiffs' claims arise from an Exchange Agreement providing for American Team Uniforms (whose headquarters, books, and manufacturing facility are in Utah), to merge with EXS. (See Compl. ¶¶ 3, 8, 10.) According to plaintiffs, defendants breached their agreement to recollaterize or retire a SBA loan held at a Utah bank, to provide working capital for American Team Uniforms, and to devote their best efforts to the management and business of American Team Uniforms. (See id. ¶¶ 14, 24.) Defendants' actions and omissions in Utah are a substantial part of the events that gave rise to plaintiffs' claims.
Accordingly, venue is proper in this judicial district.
C. Inconvenient Forum
Defendants argue that even if venue is proper in this judicial district, the case should be transferred, pursuant to 28 U.S.C. § 1404 or § 1406. Section 1406 applies only if the court finds that venue is improper in the judicial district the action was filed, but would be proper in another judicial district. See 28 U.S.C. § 1406(a). Because this court has determined that there is no defect in venue, the court will analyze defendants' argument under the provisions of 28 U.S.C. § 1404(a).
28 U.S.C. § 1404(a) states:
For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.
"The party moving to transfer a case pursuant to § 1404(a)bears the burden of establishing that the existing forum is inconvenient." Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1515 (10th Cir. 1991). In deciding a motion to transfer pursuant to § 1404, the following factors are relevant:
the plaintiff's choice of forum; the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of witnesses; the cost of making the necessary proof; questions as to the enforceability of a judgment if one is obtained; relative advantages and obstacles to a fair trial; difficulties that may arise from congested dockets; the possibility of the existence of questions arising in the area of conflicts of law; the advantage of having a local court determine questions of local law; and all other considerations of a practical nature that make a trial easy, expeditious and economical.
Id. (quoting Texas Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir. 1967).
Here, these factors do not clearly weigh in favor of transferring venue. Plaintiffs chose to litigate this case in Utah, and "unless the balance is strongly in favor of the movant the plaintiff's choice of forum should rarely be disturbed." Scheidt v. Klein, 956 F.2d 963, 965 (10th Cir. 1992) (quoting William A. Smith Contracting Co. v. Travelers Indem. Co., 467 F.2d 662, 664 (10th Cir. 1972)). Plaintiffs' witnesses and documentary evidence related to the merger of American Team Uniforms with EXS are located in Utah. Although some of the defendants' documents and witnesses may be located outside of Utah, transferring venue would merely shift the inconvenience and the costs from defendants to plaintiffs. See id. at 966 ("Merely shifting the inconvenience from one side to the other, however, obviously is not a permissible justification for a change of venue").
Defendants argue that unless venue is transferred, they may be unable to secure the attendance of their witnesses. However, the defendants have not identified specific witnesses who have material testimony that will not attend if the trial is held in Utah. See id. at 966 ("it is necessary that some factual information relative to the materiality of witness testimony . . . be supplied to the trial court").
Defendants also have not provided the court with evidence that a different forum would affect the enforceability of a judgment, or make the trial easier, more expeditious or economical. The agreements at issue have choice of law provisions: one agreement states that Texas law will apply, the other that California law will apply. Therefore, regardless of whether a court in Utah, Texas or California hears this case, that court will have to apply a different jurisdiction's laws to at least a portion of the case. However, this task should not be difficult as the legal issues raised by this lawsuit are not complex. In sum, defendants have failed to meet their burden of establishing that this judicial district is not a convenient forum.
Accordingly, defendants' motion to transfer is DENIED.
2. Motion to Dismiss
Defendant Caldwell filed a motion to dismiss plaintiffs' complaint against him for failure to state a claim. Plaintiffs' complaint alleges five causes of action against Caldwell: (1) breach and anticipatory breach of Exchange Agreement, (2) breach and anticipatory breach of Employment Agreement, (3) quantum meruit-contract implied in fact, (4) breach of fiduciary duty and duty of loyalty, and (5) declaratory judgment.
Caldwell also argued that the complaint should be dismissed against him because this court lacks personal jurisdiction over him and venue is not proper. Having already decided these issues, the only issue left to resolve is whether plaintiffs have failed to plead a claim against him.
For purposes of a motion to dismiss, the court accepts all well-pleaded allegations in the complaint as true, and draws all reasonable inferences in the plaintiffs' favor. See Kamplain v. Curry County Bd. of Comm'rs, 159 F.3d 1248, 1250 (10th Cir. 1998).
A. Breach of the Exchange and Employment Agreements
The complaint states that Caldwell "executed both the Employment Agreement and the Exchange Agreement on EssXSport's behalf." (Compl. ¶ 18.) Thus, according to plaintiffs, Caldwell was acting in a representative capacity, not a personal capacity, and the Exchange and Employment Agreements are between the plaintiffs and EXS, not between plaintiffs and Caldwell personally. Although plaintiffs allege that Caldwell made certain personal promises that caused them to sign the agreements, (see Compl. ¶¶ 24-26), those promises are not part of the Agreements. Therefore, plaintiffs have not pled a claim against Caldwell in the first and second causes of action.
B. Quantum Meruit — Contract Implied in Fact
Plaintiffs have asserted a claim for quantum meruit-contract implied in fact against Caldwell. To establish a quantum meruit-contract implied in fact claim, "plaintiff[s] must show (1) the defendant requested the plaintiff[s] to perform work; (2) the plaintiff[s] expected the defendant to compensate him . . . for those services; and (3) the defendant knew or should have known that the plaintiff[s] expected compensation." Promax Dev. Corp. v. Mattson, 943 P.2d 247, 259 (Utah Ct. App. 1997) (internal quotation and citation omitted).
Under Utah law, "[q]uantum meruit is comprised of two distinct theories: (1) contract implied in law, also known as quasi-contract, and (2) contract implied in fact." Promax Dev. Corp. v. Mattson, 943 P.2d 247, 259 (Utah Ct.App. 1997). Plaintiffs have pled the quantum meruit theory of contract implied in fact.
The allegations in the complaint satisfy the first two prongs — but not the third prong. Plaintiffs have pled that Caldwell made promises that induced the plaintiffs into signing the agreements and performing their obligations under those agreements and that plaintiffs expected that Caldwell would perform his obligations. (See Compl. ¶¶ 51-53.) Plaintiffs also pled that Caldwell knew or should have known that plaintiffs expected EXS to fulfill its obligations. (See id. ¶ 56.) However, there is no allegation in the complaint that Caldwell knew or should have known that plaintiffs expected him to fulfill his obligations. Therefore, the cause of action for quantum meruit-contract in fact, as presently pled, does not state a claim against Caldwell.
C. Breach of Fiduciary Duty
The next claim asserted against Caldwell is breach of fiduciary duty and duty of loyalty. Plaintiffs claim that because of Caldwell's position with EXS, he owed high fiduciary duties to the shareholders of EXS. (See Compl. ¶ 61.) It is not clear from the complaint whether plaintiffs are asserting a derivative action as shareholders of EXS, or a direct action claiming that Caldwell had a fiduciary duty to uphold the agreements.
Plaintiffs claim that Caldwell owed a fiduciary duty to shareholders, however, the breach of duties that plaintiffs list are contractual duties.
Plaintiffs have now clarified that they are asserting a direct action for breach of fiduciary duty, not a derivative action. (See Mem. Opp'n to Bruce Caldwell's M. to Dismiss, at 14.) The duties that plaintiffs claim Caldwell breached are duties that defendants allegedly agreed to undertake in their agreements with the plaintiffs. (See Compl. ¶ 65.) "`Ordinarily there is no fiduciary relation in case of a contract duty, since the rights and duties of parties to a contract may generally be freely transferred, parties may act for their own interests during the execution of a contract, and they have no duty of loyal representation of the opposing party'" Semenov v. Hill, 982 P.2d 578, 580 (Utah 1999) (quoting with approval 17 C.J.S. Contracts § 1(2) (1963)). Therefore, the cause of action claiming breach of fiduciary duty does not state a claim against Caldwell.
D. Declaratory Judgment
Plaintiffs assert that their claim for declaratory judgment is against both Caldwell and EXS. (See Compl. at 12.) However, the relief plaintiffs seek does not apply individually to Caldwell. The declaration plaintiffs seek from this court is that "the Exchange and Employment Agreements, and all covenants and promises contained in and made incidental thereto, are binding upon EssXSport. . . ." (See Compl. ¶ 73(a).) Because plaintiffs are not seeking a declaration that the agreements are binding upon Caldwell, the cause of action for declaratory judgment, as presently pled, does not state a claim against Caldwell.
Caldwell's motion to dismiss is GRANTED because plaintiffs have failed to state a claim against Caldwell.
Order
In sum, the court hereby orders as follows:1. Defendants' motion to transfer is DENIED;
2. Caldwell's motion to dismiss the complaint against him is GRANTED without prejudice, and plaintiffs are granted twenty days from the date of this order to file a motion for leave to file an amended complaint in conformity with this order.
IT IS SO ORDERED.