Oliver et al v. Crump et al
Filing
12
MEMORANDUM OPINION. Signed by Judge Ellen L. Hollander on 9/15/11. (hmls, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
CASEY R. OLIVER, et al.,
Plaintiffs,
v.
Civil Action No. ELH-11-1925
ALFRED E. CRUMP, SR., et al.,
Defendants.
MEMORANDUM OPINION
Plaintiffs, Casey Oliver and Ellen Knipp-Hughes, “for their own use and the use of all
common shareholders of and for the use of Elkview Shores, Inc.,” Complaint (ECF 3), filed suit
against defendants Alfred E. Crump, Sr.; Alfred E. Crump, Jr.; and Irma G. Crump, alleging
“Breach Of Duty Of Loyalty” (Count I), “Breach Of Fiduciary Duty” (Count II), “Civil
Conspiracy” (Count III), and “Aiding And Abetting” (Count IV).1 Defendants have filed a
Motion to Dismiss (“Motion”) (ECF 6) under Rule 12(b)(2) of the Federal Rules of Civil
Procedure, seeking dismissal of plaintiffs’ Complaint based on a lack of personal jurisdiction.
For the reasons that follow, I will deny their Motion.
Background2
Defendants are former officers, directors, and employees of Elkview Shores, Inc.
(“Elkview”), a Maryland corporation that owns and operates a “family oriented summer
1
Plaintiffs initially filed suit in the Circuit Court for Cecil County, Maryland.
Defendants timely removed the case to this Court on the basis of diversity jurisdiction (ECF 2).
The plaintiffs all are residents of Maryland, while the defendants all are residents of Delaware,
and more than $75,000 is in controversy. See 28 U.S.C. §§ 1332(a) (diversity jurisdiction); 1441
(removal jurisdiction).
2
I will assume the parties’ familiarity with many of the underlying factual allegations.
waterfront campground” in Earleville, Maryland. Complaint ¶ 2. In particular, both Alfred
Crump père et fils served as managers of Elkview from March 2005 through July 2009, and
served on its board of directors. Id. ¶¶ 4, 6. Irma Crump also served on the board of directors,
and was Secretary of Elkview.
Id. ¶ 5.
All three defendants were shareholders of the
corporation. Id. ¶¶ 4-6.
In June 2009, Elkview’s board elected Oliver as its president, and hired Knipp-Hughes as
Elkview’s Office and Park Manager. Id. ¶ 14. In their Complaint, plaintiffs claim that, when
they assumed their respective positions, they discovered that defendants had engaged in a course
of misconduct in their roles as officers and employees of the corporation. Specifically, plaintiffs
allege that defendants “were improperly receiving compensation from Elkview Shores, doublebilling Elkview Shores for the same services, and ‘reimbursing’ themselves for illegitimate
expenditures.” Id. ¶ 15. These expenditures allegedly involved sham purchases, made on
Elkview’s behalf, of propane gas, health insurance, and road repair and “erosion control”
services from other companies owned by defendants. See id. ¶¶ 16-17. Plaintiffs also claim that
Crump, Jr. and an individual named Michael Crump (who is not a party) made personal
purchases using petty cash and a credit card belonging to Elkview. Id. ¶ 18. Moreover, plaintiffs
allege that, during defendants’ tenure on Elkview’s board, defendants improperly held meetings
of the board of directors without notice to Oliver, who was also a board member, and that, at
these meetings, they increased Crump, Jr.’s salary; issued new shares paying quarterly dividends
to Crump, Jr.; and purported to modify Elkview’s bylaws pertaining to voting requirements, the
number of directors, and the calculation of dividends. Id. ¶¶ 9-13.
In their Motion, defendants contend that this Court lacks personal jurisdiction over them,
because all three defendants are residents of Delaware and, as they see it, plaintiffs’ Complaint
“is devoid of any allegations of conduct occurring in Maryland.” Their motion is supported by
an affidavit of Crump, Sr. (ECF 6-2), who claims, in sum, that defendants have no connection to
Maryland, other than their former positions as officers, board members, and employees of
Elkview. Defendants rely on case law iterating that “a corporate officer is not subject to this
Court’s jurisdiction simply by virtue of his or her corporation’s activities in Maryland.” AGV
Sports Gp., Inc. v. Protus IP Solutions, Inc., Civ. No. RDB-08-3388, 2009 WL 1921152, at *7
(D. Md. July 1, 2009); see also Glynn v. EDO Corp., 536 F. Supp. 2d 595, 604 (D. Md. 2008)
(“[S]imply because Caprario and Puzzo worked for IST does not make them subject to
jurisdiction wherever IST might be sued.”); Harte-Hanks Direct Mkt. v. Varilease Tech., 299 F.
Supp. 2d 505, 513 (D. Md. 2004) (“Personal jurisdiction over an individual officer, director, or
employee of a corporation does not automatically flow from personal jurisdiction over the
corporation.”); Birrane v. Master Collectors, Inc., 738 F. Supp. 167, 169 (D. Md. 1990) (finding
“no basis whatsoever for holding that merely because a corporation transacts business in the state
. . . or has other substantial contacts with the state, an individual who is its principal should be
deemed to have engaged in those activities personally”); Quinn v. Bowmar Publ’g Co., 445
F.Supp. 780, 785 (D. Md. 1978) (stating that a court cannot obtain jurisdiction over individual
officers or employees based “upon jurisdiction over the corporation”).
Plaintiffs acknowledge the validity of the general principle enunciated in the foregoing
cases, but argue that it is not applicable here, because “the Defendants are not being sued for
their actions done in the course of their respective duties but rather for the very breach of those
duties.” According to plaintiffs, defendants’ various acts of misconduct or malfeasance in their
roles as corporate officers amount to persistent contacts and activities within Maryland that
support personal jurisdiction.3
Discussion
When personal jurisdiction is challenged by a Rule 12(b)(2) motion, “the jurisdictional
question thus raised is one for the judge, with the burden on the plaintiff ultimately to prove the
existence of a ground for jurisdiction by a preponderance of the evidence.” Combs v. Bakker,
886 F.2d 673, 676 (4th Cir. 1989). Discovery and an evidentiary hearing are not required to
resolve the motion, however. See generally 5B WRIGHT & MILLER, FEDERAL PRACTICE &
PROCEDURE § 1351, at 274-313 (3d ed. 2004, 2010 Supp.). Rather, the district court may address
the question of personal jurisdiction as a preliminary matter, ruling solely on the basis of motion
papers, supporting legal memoranda, affidavits, and the allegations in the complaint. Consulting
Engineers Corp. v. Geometric Ltd., 561 F.3d 273, 276 (4th Cir. 2009). Ordinarily, when
considering a motion in that posture, “the court must take all disputed facts and reasonable
inferences in favor of the plaintiff.” Carefirst of Maryland, Inc. v. Carefirst Pregnancy Centers,
Inc., 334 F.3d 390, 396 (4th Cir. 2003).
Although the parties clearly dispute many facts concerning this case, their disputes are
not relevant to resolution of the Motion. Disposition of defendants’ Motion turns largely on a
question of law.
3
Plaintiffs have also submitted an affidavit of Knipp-Hughes (ECF 10-2), who attests to
various specific acts of defendants in Maryland. Defendants challenge Knipp-Hughes’
competency to testify from personal knowledge regarding the contents of her affidavit. I need
not resolve the dispute regarding Knipp-Hughes’ affidavit, however, in view of the conclusion I
reach on other grounds.
Rule 4(k)(1) of the Federal Rules of Civil Procedure authorizes a federal district court to
exercise personal jurisdiction over a defendant in accordance with the law of the state where the
district court is located. Carefirst, 334 F.3d at 396. Therefore, “to assert personal jurisdiction
over a nonresident defendant, two conditions must be satisfied: (1) the exercise of jurisdiction
must be authorized under the state’s long-arm statute; and (2) the exercise of jurisdiction must
comport with the due process requirements of the Fourteenth Amendment.” Id.
Maryland’s long-arm statute is codified at Md. Code (2006 Repl. Vol., 2010 Supp.),
§ 6-103(b) of the Courts & Judicial Proceedings Article (“C.J.”). It authorizes, inter alia,
“personal jurisdiction over a person, who directly or by an agent . . . [t]ransacts any business or
performs any character of work or service in the State.” Maryland’s courts have “consistently
held that the purview of [Maryland’s] long arm statute is coextensive with the limits of personal
jurisdiction set by the due process clause of the Federal Constitution.” Beyond Systems, Inc. v.
Realtime Gaming Holding Co., 388 Md. 1, 15, 878 A.2d 567, 576 (2005) (citing Mohamed v.
Michael, 279 Md. 653, 657, 370 A.2d 551, 553 (1977)). “Because the limits of Maryland’s
statutory authorization for the exercise of personal jurisdiction are coterminous with the limits of
the Due Process Clause, the statutory inquiry necessarily merges with the constitutional inquiry,
and the two inquiries essentially become one.” Stover v. O’Connell Assocs., Inc., 84 F.3d 132,
135-36 (4th Cir. 1996). Thus, the question here is whether the exercise of personal jurisdiction
over defendants offends the due process guarantee of the Fourteenth Amendment.
Personal jurisdiction over a non-resident defendant comports with due process so long as
the defendant has “minimum contacts with [the forum state] such that the maintenance of the suit
does not offend ‘traditional notions of fair play and substantial justice.’” International Shoe Co.
v. Washington, 326 U.S. 310, 316 (1945). Courts have separated this test into individual
“prongs,” first ascertaining whether the threshold of “minimum contacts” is met, and then
considering whether the exercise of jurisdiction on the basis of those contacts is “constitutionally
reasonable.” Consulting Engineers, supra, 561 F.3d at 278-79.
The “minimum contacts” test is met where the defendant has “purposefully avail[ed]
himself of the privilege of conducting business under the laws of the forum state.” Id. at 278. A
determination that the defendant has established minimum contacts with the forum state amounts
to a conclusion that “‘it is presumptively not unreasonable to require him to submit to the
burdens of litigation in that forum as well.’” Id. (quoting Burger King Corp. v. Rudzewicz, 471
U.S. 462, 476 (1985)).
Generally, the court must consider the prong of constitutional reasonableness “[i]f, and
only if” the minimum contacts test is met.
Consulting Engineers, 561 F.3d at 278. The
constitutional reasonableness inquiry permits a defendant “who purposefully has directed his
activities at forum residents” to defeat jurisdiction, if he can “present a compelling case that the
presence of some other considerations would render jurisdiction unconstitutional.” Burger King,
471 U.S. at 477.
As I see it, resolution of defendants’ Motion is controlled by Pittsburgh Terminal Corp.
v. Mid Allegheny Corp., 831 F.2d 522 (4th Cir. 1987), a case that strongly supports plaintiffs’
position, although it is not cited by either party. In Pittsburgh Terminal, the Fourth Circuit
applied the minimum contacts analysis, described above, in the context of a shareholder
derivative suit, filed in federal court in West Virginia, against a West Virginia corporation and
two of its directors, Hawk and Griffith, who resided in Virginia. Id. at 524. The directors
successfully moved to dismiss for lack of personal jurisdiction, but the Fourth Circuit reversed.
Id. It held that, ordinarily, “the acceptance of a directorship constitutes minimum contacts in a
derivative suit.” Id. at 527.
The Court noted that “West Virginia law in general commits the affairs of a corporation
to its board of directors,” and quoted the relevant state statute: “‘The business and affairs of a
corporation shall be managed by a board of directors except as may be otherwise provided in the
articles of incorporation.’” Id. at 527 (quoting W. Va. Code § 31-1-95, as then codified).4 The
Court observed that Hawk and Griffith had participated personally in the business decisions at
issue in the lawsuit, and that those decisions had their primary effects in the forum state, which
was the exclusive location where the corporation did business. Id. at 527-28. In the Court’s
view, “the acts of Hawk and Griffith amounted to ‘transacting any business’ under the West
Virginia long-arm statute.’” Id. at 528.5 It explained, id. at 528-29 (internal footnotes omitted):
Excellent reasons exist for allowing a State to assert jurisdiction over nonresident directors of domestic corporations. A chartering State has a strong, even
compelling, interest in providing a forum for redressing harm done by corporate
fiduciaries, harm endured principally by a resident of that State, the
corporation. . . . Given the high degree of regulation over corporate fiduciaries,
the State’s interest in providing a convenient forum for a derivative suit charging
misfeasance or nonfeasance of a director cannot be overemphasized.
* * *
4
Maryland law is substantially the same: “The business and affairs of a corporation shall
be managed under the direction of a board of directors.” Md. Code (2007 Repl. Vol., 2010
Supp.), § 2-401(a) of the Corporations & Associations Article.
5
As discussed, Maryland’s long-arm statute, C.J. § 6-103(b), likewise authorizes the
exercise of personal jurisdiction over a person who “[t]ransacts any business” in the State. The
Pittsburgh Terminal Court discussed at length, and expressly distinguished, the Supreme Court’s
decision in Shaffer v. Heitner, 433 U.S. 186 (1977), a shareholder derivative action in which the
Court held unconstitutional a Delaware statute permitting in rem jurisdiction over out-of-state
shareholders solely on the basis of their ownership of property (i.e., the stock of a Delaware
corporation) in the forum state. See Pittsburgh Terminal, 831 F.2d at 526-27.
An assertion of jurisdiction such as this one should not come as any
surprise. . . . Certainly, a director of a corporation has created a continuing
obligation between himself and the corporation, one which inures significantly to
the director's benefit, not to mention that of the corporation. Directors reap the
advantages and protections available to them under state law, and it is not unfair
to require them to answer for any alleged breaches of trust as a director in the
forum that has bestowed those protections. No one forced or tricked the
defendants into assuming their positions, and it seems clear that Hawk and
Griffith have purposefully availed themselves of the privilege of doing business
as directors under West Virginia’s laws.
Turning to the constitutional reasonableness prong of the due process inquiry, the
Pittsburgh Terminal Court opined that, “if anything, these factors make the assertion of
jurisdiction more reasonable.” Id. at 529. It noted that “the burden on the defendants of
litigating in West Virginia is de minimis,” because they lived in neighboring Virginia (similarly,
defendants in this case reside in neighboring Delaware). Id. The Court also reiterated that “West
Virginia has a strong interest in providing a forum for a claim such as this, where the directors of
one of its domestic corporations are alleged to have committed wrongful acts in the execution of
their duties as corporate directors and to the detriment of the corporation.” Id. at 529-30.
The Pittsburgh Terminal Court concluded with words equally applicable here, id. at 530:
The end point in any due process analysis of jurisdictional contacts is one
of fundamental fairness: are the defendants’ contacts with the forum state
significant enough that assertion of jurisdiction over the defendant comports with
traditional notions of fair play and substantial justice? We hold that, by accepting
and exercising directorships of this West Virginia corporation, whose place of
business is in West Virginia, and, by their various acts with respect to this
transaction, the defendants established sufficient contacts so that they should have
reasonably expected to be sued in West Virginia’s courts to defend any actions
regarding their conduct as directors. This is not a random or fortuitous exercise of
jurisdiction, and we have no problem in holding that, by accepting and exercising
directorships with Mid Allegheny, the defendants purposefully invoked the
benefits and protections of West Virginia law. . . . Directors and officers derive
many benefits from the legal fiction of the corporation. It does not seem unfair to
require them in turn to shoulder one of the few burdens of such a fiction. The
defendants had full knowledge that Mid Allegheny was a West Virginia
corporation when they accepted and exercised directorships. And, accepting a
directorship is not a frivolous business. The law imposes substantial
responsibilities, and substantial liability, upon corporate directors. Therefore, it
seems perfectly reasonable to require defendants Hawk and Griffith to defend this
action, concerning their conduct as directors, in a West Virginia court.
Pittsburgh Terminal is the law of this circuit. In my view, it compels the conclusion that
a court in Maryland may exercise personal jurisdiction over out-of-state directors of a Maryland
corporation that conducts its business operations in Maryland, in a suit alleging breach of the
defendants’ fiduciary obligations as directors of the corporation. As in Pittsburgh Terminal,
defendants have advanced no reasons that could suffice to render this Court’s exercise of
personal jurisdiction over them constitutionally unreasonable.
Accordingly, defendants’ Motion to Dismiss (ECF 6) will be denied.
implementing this ruling follows.
Date: September 15, 2011
/s/
Ellen Lipton Hollander
United States District Judge
An Order
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