COA Splits On Personal Jurisdiction Over Corporate Officer, Upholds Jurisdiction Over Parent On Veil-Piercing Allegations
Today the Court of Appeals, in a significant case, issued a split decision on personal jurisdiction over an officer of a foreign corporation, while unanimously agreeing that personal jurisdiction could be exercised over an affiliated corporation on a veil-piercing theory. The case is Saft America, Inc. v. Plainview Batteries, Inc. Judge Tyson wrote the majority decision, joined by Judge Jackson. Judge Arrowood dissented.
Saft is a N.C. manufacturer. Defendant Plainview is a NY corp which had a business relationship with Saft, purchasing millions of dollars of goods from Saft pursuant to contracts between them. The relationship broke down after a dispute over payments. Saft sued Plainview. But Saft also sued Bernie Erde, an officer of Plainview and owner of 49% of Plainview's stock (I'll refer to Erde as the "CEO"). And Saft also sued another NY corp, Energex, which apparently owned a stake in Plainview, and which had overlapping management and ownership with Plainview (I'll refer to Energex as the "Parent"). Both the CEO and the Parent moved to dismiss for lack of personal jurisdiction.
1. Jurisdiction Over The CEO
Saft alleged that it dealt with the CEO as Plainview's representative and that the CEO had visited N.C. in connection with their business relationship, for purposes of touring Saft's facility and negotiating a contract. The CEO submitted an affidavit admitting he had visited Saft's factory in N.C. in his role as a corporate officer of Plainview, but he contended that any dealings he had with Saft were solely in his capacity as an officer of Plainview. The trial court found he was subject to personal jurisdiction.
The Court split on this issue. The majority held there was no personal jurisdiction over the CEO. Judge Arrowood disagreed.
From the principle that personal jurisdiction over an individual officer of a corporation may not (consistent with due process) be predicated upon the corporation's contacts with the forum, the majority reasoned that contacts undertaken by an officer in his official capacity on behalf of the corporation can't establish personal jurisdiction over the officer. The majority distinguished earlier cases that had found jurisdiction against corporate officers, holding that those cases involved acts taken by the officers in their individual capacities (e.g., signing personal guarantees or a promissory note in their individual capacities). Because Saft failed to allege any act against the CEO that was committed in his individual capacity, the majority held that he was not subject to personal jurisdiction.
Judge Arrowood didn't disagree with the proposition that personal jurisdiction over an officer can't be based merely on the corporation's contacts. But he disagreed that acts taken by an individual as an officer and principal shareholder of a corporation don't count. In his view, the precedents "did not hold either that (1) personal jurisdiction over a defendant may only be based on the contacts he has with the state in the course of his private life; or, conversely, that (2) in assessing personal jurisdiction we may not 'count' a defendant's contacts if they were made as part of his employment." "Indeed," he contended, "relevant precedent consistently interprets the requirement that a defendant act in his 'individual capacity' to mean only that he must personally have minimum contacts with North Carolina, and not that these contacts must arise from his 'personal life.'" As he read the case law, "the determination of whether personal jurisdiction is properly exercised over a defendant does not exclude consideration of defendant's actions merely because they were undertaken in the course of his employment. The corporate actions of a defendant who is also an officer and principal shareholder of a corporation are imputed to him for purposes of deciding the issue of personal jurisdiction." He relied heavily on this statement by the Supreme Court: "We hold that where, as in this case, defendant is a principal shareholder of the corporation and conducts business in North Carolina as principal agent for the corporation, then his corporate acts may be attributed to him for the purpose of determining whether the courts of this State may assert personal jurisdiction over him." United Buying Group, Inc. v. Coleman, 296 N.C. 510, 515, 251 S.E.2d 610, 614 (1979).
2. Jurisdiction Over The Parent
Even though the contracts in question were signed by Plainview, not the Parent, the panel was unanimous in holding that Saft could establish personal jurisdiction over the Parent based on veil-piercing allegations.
Saft's complaint alleged (1) that defendants violated certain corporate laws and formalities; (2) that the CEO and another individual defendant exercised control over the finances, policies, and business practices of both corporate defendants; and (3) that assets were diverted from Plainview to the Parent, leaving Plainview inadequately capitalized. The CEO (who also was an officer and owner of the Parent) submitted an affidavit on behalf of the Parent stating that the Parent "has never had any dealings with the [Saft]"; that all transactions between the parties were made on behalf of Plainview, not the Parent; and that the Parent "is an independent corporation, completely and totally separate from Plainview." But the COA said these generalized allegations had to be ignored because they were conclusions, not facts, and they failed to contradict Saft's allegations on veil-piercing (i.e., its allegations that defendants violated certain corporate laws and formalities, that the individual defendants exercised control over the finances, policies, and business practices of both corporate defendants, and that assets were diverted from Plainview to the Parent, leaving Plainview inadequately capitalized).
Saft is a N.C. manufacturer. Defendant Plainview is a NY corp which had a business relationship with Saft, purchasing millions of dollars of goods from Saft pursuant to contracts between them. The relationship broke down after a dispute over payments. Saft sued Plainview. But Saft also sued Bernie Erde, an officer of Plainview and owner of 49% of Plainview's stock (I'll refer to Erde as the "CEO"). And Saft also sued another NY corp, Energex, which apparently owned a stake in Plainview, and which had overlapping management and ownership with Plainview (I'll refer to Energex as the "Parent"). Both the CEO and the Parent moved to dismiss for lack of personal jurisdiction.
1. Jurisdiction Over The CEO
Saft alleged that it dealt with the CEO as Plainview's representative and that the CEO had visited N.C. in connection with their business relationship, for purposes of touring Saft's facility and negotiating a contract. The CEO submitted an affidavit admitting he had visited Saft's factory in N.C. in his role as a corporate officer of Plainview, but he contended that any dealings he had with Saft were solely in his capacity as an officer of Plainview. The trial court found he was subject to personal jurisdiction.
The Court split on this issue. The majority held there was no personal jurisdiction over the CEO. Judge Arrowood disagreed.
From the principle that personal jurisdiction over an individual officer of a corporation may not (consistent with due process) be predicated upon the corporation's contacts with the forum, the majority reasoned that contacts undertaken by an officer in his official capacity on behalf of the corporation can't establish personal jurisdiction over the officer. The majority distinguished earlier cases that had found jurisdiction against corporate officers, holding that those cases involved acts taken by the officers in their individual capacities (e.g., signing personal guarantees or a promissory note in their individual capacities). Because Saft failed to allege any act against the CEO that was committed in his individual capacity, the majority held that he was not subject to personal jurisdiction.
Judge Arrowood didn't disagree with the proposition that personal jurisdiction over an officer can't be based merely on the corporation's contacts. But he disagreed that acts taken by an individual as an officer and principal shareholder of a corporation don't count. In his view, the precedents "did not hold either that (1) personal jurisdiction over a defendant may only be based on the contacts he has with the state in the course of his private life; or, conversely, that (2) in assessing personal jurisdiction we may not 'count' a defendant's contacts if they were made as part of his employment." "Indeed," he contended, "relevant precedent consistently interprets the requirement that a defendant act in his 'individual capacity' to mean only that he must personally have minimum contacts with North Carolina, and not that these contacts must arise from his 'personal life.'" As he read the case law, "the determination of whether personal jurisdiction is properly exercised over a defendant does not exclude consideration of defendant's actions merely because they were undertaken in the course of his employment. The corporate actions of a defendant who is also an officer and principal shareholder of a corporation are imputed to him for purposes of deciding the issue of personal jurisdiction." He relied heavily on this statement by the Supreme Court: "We hold that where, as in this case, defendant is a principal shareholder of the corporation and conducts business in North Carolina as principal agent for the corporation, then his corporate acts may be attributed to him for the purpose of determining whether the courts of this State may assert personal jurisdiction over him." United Buying Group, Inc. v. Coleman, 296 N.C. 510, 515, 251 S.E.2d 610, 614 (1979).
2. Jurisdiction Over The Parent
Even though the contracts in question were signed by Plainview, not the Parent, the panel was unanimous in holding that Saft could establish personal jurisdiction over the Parent based on veil-piercing allegations.
Saft's complaint alleged (1) that defendants violated certain corporate laws and formalities; (2) that the CEO and another individual defendant exercised control over the finances, policies, and business practices of both corporate defendants; and (3) that assets were diverted from Plainview to the Parent, leaving Plainview inadequately capitalized. The CEO (who also was an officer and owner of the Parent) submitted an affidavit on behalf of the Parent stating that the Parent "has never had any dealings with the [Saft]"; that all transactions between the parties were made on behalf of Plainview, not the Parent; and that the Parent "is an independent corporation, completely and totally separate from Plainview." But the COA said these generalized allegations had to be ignored because they were conclusions, not facts, and they failed to contradict Saft's allegations on veil-piercing (i.e., its allegations that defendants violated certain corporate laws and formalities, that the individual defendants exercised control over the finances, policies, and business practices of both corporate defendants, and that assets were diverted from Plainview to the Parent, leaving Plainview inadequately capitalized).
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