Court Rules LLC Form Provided No Fiduciary Shield To Personal Jurisdiction

by Allen Matkins
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Last Friday’s post concerned whether a plaintiff could establish jurisdiction by tagging a corporate officer attending a conference in California.  The question was whether a corporation is present wherever its officers are present.  Today’s post considers the converse question.  Is a member of an LLC present where the LLC is present?

In Poga Mgmt Ptnrs LLC v. Medfiler LLC, 2014 U.S. Dist. LEXIS 111764 (N.D. Cal. Aug. 12, 2014), the plaintiff (POGA) filed a lawsuit against a New York LLC and two individuals claiming breach of fiduciary duty and conspiracy to commit breach of fiduciary duty.  The two individuals are residents of New York who never lived in California.  The plaintiff, somewhat inconsistently alleged that one individual was the “100% owner and member” of the defendant LLC and the other individual was a “member” of the defendant LLC.  The defendants moved to dismiss on the basis of lack of personal jurisdiction.  Initially, they were successful but the plaintiff was granted leave to amend.

Judge Saundra Brown Armstrong previously ruled that the court had personal jurisdiction over the defendant LLC.  Poga Mgmt. Partners, LLC v. Medfiler, 2013 U.S. Dist. LEXIS 143749 (N.D. Cal. 2013).  However, she noted that “[t]he mere fact that a corporation is subject to local jurisdiction does not necessarily mean its nonresident officers, directors, agents, and employees are suable locally as well.”  (quoting Colt Studio, Inc. v. Badpuppy Enter., 75 F.Supp.2d 1104, 1111 (C.D. Cal. 1999)).  She also noted that the status of these individuals as such does not “somehow insulate them from jurisdiction”.  (quoting Calder v. Jones, 465 U.S. 783, 790, 104 S. Ct. 1482, 79 L. Ed. 2d 804 (1984)).  In this case, Judge Armstrong found that the complaint sufficiently alleged personal jurisdiction:

POGA has alleged facts showing that the individual defendants were the primary participants and central figures in the alleged wrongdoing.  The allegations in the FAC, if proven, establish that the individual defendants had control of, and directly participated in the activities giving rise to this suit. Because the Court previously determined that the tortious conduct alleged in this action was purposefully directed at California, and that POGA’s claims arise out of forum-related conduct, the first two prongs of the test for specific jurisdiction have been met.  The remaining question is whether the exercise of personal jurisdiction over the individual defendants is reasonable.  The individual defendants bear the burden to “present a compelling case” that the exercise of jurisdiction would be unreasonable. Schwarzenegger [v. Fred Martin Motor Co.], 374 F.3d [797] at 802 [(9th Cir. 2004)].  They have failed to do so. Indeed, the individual defendants have not offered any argument in this regard.  Accordingly, Defendants’ motion to dismiss the individual defendants for lack of personal jurisdiction is DENIED.

Footnote omitted.

Both Delaware and Nevada have enacted statutes that deem the consent of directors and officers to the jurisdiction of those states.  See Why October 1, 2014 Is An Important Date For Management Persons Of Nevada Entities.  It is hard to square these statutes with the principle enunciated in Colt Studio, Inc. quoted above.  Moreover, Professor Eric Chiappinelli has argued that Delaware’s statute is unconstitutional.  See The Implications of Walden v. Fiore for Delaware’s Officer and Director Consent Statute.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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