[author: John S. Delikanakis]
On August 9, 2012, the Nevada Supreme Court issued a unanimous en banc decision holding that Nevada courts can properly exercise personal jurisdiction over nonresident officers and directors of Nevada corporations who “directly harm” a corporation. See Consipio Holding, BV et al. v. Carlberg et al., 123 Nev. Advance Opinion 43 (August 8, 2102). The full opinion can be viewed here.
Consipio was, in part, a derivative action brought by shareholders of Private Media Group, Inc. (Private), a Nevada corporation which traded publically under the symbol PRVT. Plaintiff-appellants alleged that the officers and directors of Private breached their fiduciary duties to the company.
The six defendant-respondent officers and directors were all citizens and residents of European nations. Of the six, three had never been to Nevada. A fourth respondent had only been to Nevada as part of the underlying lawsuit. The remaining two respondents had visited Nevada on only one occasion several years before the lawsuit was filed and only for personal reasons. None of the alleged acts by the respondent officers and directors giving rise to the breach of fiduciary duty claim occurred in Nevada. Private had no offices in Nevada, maintained no employees in Nevada, held no corporate meetings in Nevada and conducted no business in Nevada.
The court’s reasoning began with the simple premise that “[a] corporation that is incorporated in Nevada is a Nevada citizen. Quigley v. C.P.R.R. Co., 11 Neva. 350, 357 (1876)”. The court then continued:
When officers or directors directly harm a Nevada corporation, they are harming a Nevada citizen. By purposefully directing harm towards a Nevada citizen, officers and directors establish contacts with Nevada and ‘affirmatively direct [] conduct’ towards Nevada. (citation omitted)
The court continued by finding that:
Officers or directors ‘caus[e] important consequences’ in Nevada when they directly harm a Nevada corporation. (citations omitted)
In summary, evidence of “direct harm” to a Nevada corporation by its nonresident officers and directors constitutes a sufficient minimum contact with the State of Nevada to justify the exercise of specific, personal jurisdiction over those nonresidents regardless of whether the acts complained of actually occurred in Nevada or whether the nonresident officers or directors in question had any other contact with Nevada.
Finally, Consipio is notable because it is the Nevada Supreme Court's first opinion addressing the use of the fiduciary shield doctrine as a defense to protect nonresident corporate officers and directors from being subject to personal jurisdiction in Nevada. “Under the fiduciary shield doctrine, a person’s mere association with a corporation that causes injury in the forum state is not sufficient in itself to permit that form to assert jurisdiction over the person.” Davis v. Metro Productions, Inc. 885 F.2d 515, 520 (9th Cir. 1989). The court adopted the Ninth Circuit’s finding that the fiduciary shield doctrine does not limit jurisdiction in states that have statutes that extend jurisdiction to the limits of due process. The court concluded that because Nevada’s long-arm statute extends jurisdiction to the limits of due process, the fiduciary shield doctrine does not bar the assumption of jurisdiction over a nonresident officer or director.
Officers and directors of Nevada corporations often have little or no association with the State of Nevada, other than the fact that they serve as an officer or director of a Nevada corporation. Often, Nevada corporations are not headquartered in Nevada, have no offices or employees in Nevada, or even direct business towards Nevada.
Unlike Delaware, where officers and directors of Delaware corporations impliedly consent to the jurisdiction of Delaware courts by statute,[1] Nevada has no officer and director “implied consent statute.” Claimants wishing to bring a shareholder derivative suit in Nevada against officers and directors for violations of their fiduciary duty have the burden to show that a nonresident officer or director has the constitutionally required minimum contacts with Nevada in order for a Nevada court to assert jurisdiction. Consipio will make it considerably more difficult, expensive and impractical for nonresident officers and directors to get dismissed in the early stages of any shareholder derivative litigation. A motion to dismiss supported by a simple affidavit or limited, traditional, jurisdictional discovery showing that an officer or director had little to no actual contact with the State of Nevada is not likely to succeed after Consipio.
Instead, any motion to dismiss will now have to establish what is essentially the ultimate issue to be decided at trial - whether the nonresident officer and director “directly harmed” the corporation by her actions. Under Consipio, the limited scope of any court-ordered jurisdictional discovery is likely to expand to discovery on the claims. Parties considering a motion to dismiss should carefully consider whether it is strategically wise to be subjected to early “jurisdictional discovery” on an individual officer’s or director’s actions related to plaintiff’s claims, or whether it is cost effective to do so. In any event, Consipio is an important decision well worth reading.
[1] Del. Code Ann tit. 10, § 3114 (2006).
