Opinion
Civil No. 3:03-CV-3062-H
April 2, 2004
MEMORANDUM OPINION AND ORDER
Before the Court are the Motion of Defendants Cumberland, Nicolson, and Salter to Dismiss Plaintiff s Amended Complaint Based on Lack of Personal Jurisdiction, filed February 17, 2004, and the response and the reply thereto. Due to a clerical error, this Court's Memorandum Opinion and Order of April 2, 2004, reflected on the docket sheet as entry number 46, is hereby VACATED and the following is SUBSTITUTED therefor.
I. Background
On November 25, 2003, Plaintiff Organic Metals, Inc. ("OMI"), filed the instant action in Dallas County Court at Law No. 1 against Defendants Aquasium Technologies, Ltd. ("ATL"); John Cumberland ("Cumberland"); Bob Nicolson ("Nicolson"); and John Salter ("Salter"). Defendants removed the action to this Court on December 29, 2003. OMI asserts causes of action for theft and conversion of intellectual property, fraud, conspiracy to defraud, negligent misrepresentation, breach of fiduciary duty, and breach of contract. ATL asserts counterclaims for declaratory judgment, sequestration and replevin, breach of contract, and breach of fiduciary duty. Cumberland, Nicolson, and Salter move to dismiss the claims against them for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. The Court will now relate the facts pertinent to the personal jurisdiction inquiry, resolving all factual conflicts in favor of OMI. See Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999) ("When a court rules on a motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, it must accept as true the uncontroverted allegations in the complaint and resolve in favor of the plaintiff any factual conflicts posed by the affidavits.").
Frank L. Carbone ("Carbone") created OMI in 2001 and incorporated it on November 20, 2002. OMI develops, optimizes, and commercializes Directed Energy Metal Deposition ("DEMD") technologies. In the course of its business, OMI has acquired intellectual property rights to certain improvements in existing technology. ATL, on the other hand, is a company based in the United Kingdom with which OMI sought a business partnership to assist in the development and commercialization of DEMD technology. Cumberland is ATL's Chairman; Nicolson is ATL's Managing Director; and Salter is ATL's Financial Director and Company Secretary.
On April 8, 2002, Carbone met with Cumberland and Nicolson in Texas for the purpose of discussing the possible business partnership. During the meeting, Cumberland proposed a partnership between OMI and ATL for the purpose of researching, developing, and commercializing Electronic Beam Metal Disposition ("EBMD") technology, a subset of DEMD technology. In May 2002, Cumberland sent Carbone a letter of intent proposing a joint venture, subject to certain conditions.
On June 30, 2002, Carbone traveled to the United Kingdom and met with Cumberland, Nicolson, and Salter. During the meeting, Cumberland represented that ATL would provide two particular machines to the joint venture for a 24.5% interest in the joint venture. ATL would provide the first machine ("Machine 611") pursuant to a convertible loan, and ATL would sell the second machine to OMI after several conditions had been satisfied. Carbone agreed to this arrangement on behalf of OMI. Cumberland represented that the agreement would be reflected in ATL's next board meeting.
In the ensuing months, Carbone selected the situs of Machine 611. He chose the Automation and Robotics Research Institute ("ARRI") of the University of Texas at Arlington. On October 10, 2002, Nicolson and another ATL representative met with Carbone at ARRI, and, on November 7, 2002, ATL shipped Machine 611 to Dallas, Texas. After Machine 611 arrived in November 2002, Carbone provided extensive confidential and proprietary information to Defendants.
On January 17, 2003, Nicolson and the other ATL representative returned to Texas to review Machine 611's integration process, the business plan for the joint venture, and to discuss details concerning the second machine. Nicolson represented that ATL would provide a second machine to the joint venture, subject to certain conditions, and would finalize a formal joint venture with OMI, also subject to certain conditions.
On February 3 and 4, 2003, Nicolson and Salter visited Texas to discuss the joint venture. Subject to OMI's delivery of an established business plan, an acceptable shareholder and joint venture agreement, and substantial industry contacts, Nicolson and Salter represented that they would either provide the second machine or modify another machine to OMI's specifications. They also represented that ATL would provide a large chamber within six months after the delivery of the second machine. Salter stayed in Texas an additional day to discuss the project.
In mid-May 2003, Carbone traveled to the United Kingdom to finalize the joint venture and to evaluate the status of the second machine. Salter represented that there would be no delays in sending the second machine, subject to certain conditions. In addition, Cumberland and Nicolson proposed a financial arrangement for the joint venture, subject to certain conditions. Carbone agreed to the terms discussed at the meeting and continued to work on the project. On June 30, 2003, and July 1, 2003, respectively, OMI and ATL executed a Memorandum Agreement (Phase I).
Shortly after the execution of the Memorandum Agreement, Defendants refused to perform under the agreement due to the failure of Carbone and OMI to satisfy certain conditions. The instant action ensued. As noted above, Cumberland, Nicolson, and Salter now move to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure.
II. Legal Standards
A federal court may exercise personal jurisdiction over a nonresident defendant if: 1) the defendant has committed an act that confers jurisdiction under the Texas long-arm statute, see TEX. CIV. PRAC. REM. CODE ANN. § 17.042 (Vernon 1997); and 2) the exercise of jurisdiction under that statute does not deprive the defendant of the due process of law guaranteed by the Fourteenth Amendment of the United States Constitution. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); Jones v. Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1067 (5th Cir. 1992), cert. denied, 506 U.S. 867, 113 S.Ct. 193, 121 L.Ed.2d 136 (1992). Because courts have interpreted the Texas long-arm statute to extend to the limits of due process, see Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990), the sole inquiry is whether the assertion of personal jurisdiction over a defendant comports with federal constitutional requirements. Aviles v. Kunkle, 978 F.2d 201, 204 (5th Cir. 1992).
Obtaining personal jurisdiction over a nonresident comports with constitutional requirements if the nonresident purposefully availed itself of the benefits and protections of Texas law by establishing minimum contacts with Texas such that it could reasonably anticipate being haled into court in Texas, and the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. See Wien Air Alaska, Inc. v. Brandt, 195 F.3d 208, 211 (5th Cir. 1999) (citing Holt Oil Gas Corp. v. Harvey, 801 F.2d 773, 777 (5th Cir. 1986)).
Minimum contacts with a forum state may arise incident to a federal court's "general" or "specific" jurisdiction over a nonresident defendant. Bullion v. Gillespie, 895 F.2d 213, 216 (5th Cir. 1990). General jurisdiction exists when a nonresident defendant has engaged in continuous and systematic contacts with the forum state. Jones, 954 F.2d at 1068. Specific jurisdiction exists if the plaintiff can establish that the lawsuit arises out of, or relates to, the nonresident defendant's particular activity or contacts with or within the forum state. Id.; Holt Oil, 801 F.2d at 777.
In all cases, the plaintiff ultimately bears the burden of showing that the defendant is subject to personal jurisdiction in the forum state. See Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th Cir. 1985). However, on a motion to dismiss, the plaintiff need only make out a prima facie case of personal jurisdiction; proof by a preponderance of the evidence is not required. Id. at 1165. Conflicts between the facts contained in the parties' affidavits must be resolved in the plaintiff's favor for purposes of determining whether a prima facie case for personal jurisdiction exists. Bullion, 895 F.2d at 215.
III. Analysis
Cumberland, Nicolson, and Salter contend that this Court lacks personal jurisdiction over them because they are protected by the fiduciary-shield doctrine. OMI counters that the fiduciary-shield doctrine does not apply in cases, such as this, where only specific jurisdiction is alleged. In the alternative, OMI contends that the fiduciary-shield doctrine does not apply because OMI has submitted sufficient evidence to establish a prima facie case of fraud against Cumberland, Nicolson, and Salter. For the following reasons, the Court concludes that the fiduciary-shield doctrine applies and that therefore the Court lacks personal jurisdiction over Cumberland, Nicolson, and Salter.
The fiduciary-shield doctrine holds that personal jurisdiction over an individual cannot be based on jurisdiction over a corporation. See Stuart v. Spademan, 111 F.2d 1185, 1197 (5th Cir. 1985). See also 4A CHARLES ALAN WRIGHT ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE: Civil 3d § 1069.4 (3d ed. 2002) ("[T]he corporation ordinarily will insulate the individuals from being subject to the court's personal jurisdiction.). Thus, the fiduciary-shield doctrine prohibits a court from exercising personal jurisdiction over an individual whose only actions in the forum state were taken in the individual's capacity as a corporate representative, even if the court has personal jurisdiction over the corporation itself. See Stuart, 772 F.2d at 1197. However, the fiduciary-shield doctrine does not apply when the corporation is the alter ego of the individual. See Patin v. Thoroughbred Power Boats, Inc., 294 F.3d 640, 653 n. 18 (5th Cir. 2002); Stuart, 772 F.2d at 1197-98. Nor does the fiduciary-shield doctrine apply when the individual's actions in the forum state are motivated by fraud or personal interest. See Lewis v. Fresne, 252 F.3d 352, 359 n. 6 (5th Cir. 2001); Stuart, 772 F.2d at 1198 n. 12.
The Court concludes that the fiduciary-shield doctrine protects Cumberland, Nicolson, and Salter from the Court's exercise of personal jurisdiction over them in this case. The evidence before the Court establishes that the only contacts of Cumberland, Nicolson, and Salter with Texas were in their corporate capacities. Furthermore, as will be discussed in more detail below, the evidence fails to establish that any exception to the fiduciary-shield doctrine applies in this case. Accordingly, the Court concludes that it lacks personal jurisdiction over Cumberland, Nicolson, and Salter due to the applicability of the fiduciary-shield doctrine.
As noted above, OMI contends that the fiduciary-shield doctrine does not protect Cumberland, Nicolson, and Salter in the instant case because OMI alleges only specific jurisdiction, not general jurisdiction. A survey of the cases in this district appears to establish exactly the opposite, i.e., that the fiduciary-shield doctrine often applies in cases where specific jurisdiction would be the only basis for exercising personal jurisdiction. See, e.g., Dynamo v. Warehouse of Vending Games, 168 F. Supp.2d 616, 620 (N.D. Tex. 2001); Roque v. Bank One, N.A., No. 4:02-CV-868-A, 2002 WL 31875609, at *3 (N.D. Tex. Dec. 16, 2002); Admiral Ins. Co., Inc. v. Briggs, No. 3:02-CV-310-P, 2002 WL 1461911, at *5-6 (N.D. Tex. July 2, 2002); Frosty Bites, Inc. v. Dippin' Dots, Inc., No. 3:01-CV-1532-M, 2002 WL 1359704, at *3 (N.D. Tex. June 20, 2002); Electric Gas Technology, Inc. v. Mazurek, No. 3:01-CV-2756-G, 2002 WL 1125086, at *6 (N.D. Tex. May 28, 2002); St. Claire v. EnsureLink, No. 3:01-CV-1548-G, 2002 WL 663570, at *4 (N.D. Tex. April 19, 2002); Burchfield v. Stein, No. 3:01-CV-2529-G, 2002 WL 318341, at *5-7 (N.D. Tex. Feb. 27, 2002); Kisiel v. RAS Securities Corp., No. 3:01-CV-294-X, 2001 WL 912425, at *5-6 (N.D. Tex. Aug. 9, 2001); Southern Bleacher Co., Inc. v. Husco, Inc., No. 7:01-CV-009-R, 2001 WL 497772, at *6 (N.D. Tex. May 7, 2001). Accordingly, OMI's contention is without merit.
Finally, OMI contends that the fraud exception to the fiduciary-shield doctrine applies because it has presented prima facie evidence that Cumberland, Nicolson, and Salter committed fraud in Texas. The Court acknowledges that OMI has presented Carbone's sworn statements that Cumberland, Nicolson, and Salter misrepresented certain material facts regarding the proposed joint venture and that Carbone relied upon those misrepresentations to his detriment. However, Cumberland, Nicolson, and Salter have presented uncontradicted evidence that their representations were subject to certain conditions and that OMI failed to satisfy those conditions. OMI has not presented any evidence to dispute that the agreements between the parties were subject to certain conditions. Nor has OMI presented any evidence to dispute that it failed to satisfy the relevant conditions. Thus, for purposes of this jurisdictional analysis only, OMI has conceded that a set of circumstances existed that removes this case from the realm of fraud and into the realm of contracts. Accordingly, the fraud exception to the fiduciary-shield doctrine does not apply.
IV. Conclusion
For the foregoing reasons, the motion to dismiss for lack of personal jurisdiction is GRANTED, and Defendants Cumberland, Nicolson, and Salter are DISMISSED without prejudice.
SO ORDERED.