Sanford et al v. Maid-Rite Corporation et al

Filing 43

ORDER. IT IS HEREBY ORDERED: 1. The Court ADOPTS the Report and Recommendation of United States Magistrate Judge Leo I. Brisbois dated January 3, 2014 36 . 2. Defendants Tania Burt, Copple, Kirke, and Lewis's Motion to Dismiss 9 is G RANTED insofar as all of Plaintiffs' claims against Defendants Copple, Kirke, and Lewis be DISMISSED WITHOUT PREJUDICE for lack of personal jurisdiction. 3. Defendants Tania Burt, Copple, Kirke, and Lewiss Motion to Dismiss 9 is GRANTED in sofar as all fraud-by-omission claims against Defendant Tania Burt (Counts 7, 20, 29, 39, and 45 of Plaintiffs' Amended Complaint) be DISMISSED WITHOUT PREJUDICE as insufficiently pled under Rule 9(b) of the Federal Rules of Civil Procedure. (Written Opinion). Signed by Chief Judge Michael J. Davis on 4/21/14. (GRR)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

DON SANFORD, et al.,
Plaintiffs,

v.

ORDER
Civil File No. 13-2250 (MJD/LIB)

MAID-RITE CORPORATION, et al.,
Defendants.
W. Michael Garner and Elliot R. Ginsburg, W. Michael Garner, PA, Counsel for
Plaintiffs.
Michael W. McNee and Robyn K. Johnson, Cousineau McGuire Chartered,
Counsel for Defendants.

The above-entitled matter comes before the Court upon the Report and
Recommendation of United States Magistrate Judge Leo I. Brisbois dated January
3, 2014. [Docket No. 36] Plaintiffs filed objections to the Report and
Recommendation. [Docket No. 38]
Pursuant to statute, the Court has conducted a de novo review upon the
record. 28 U.S.C. § 636(b)(1); Local Rule 72.2(b). Based upon that review, the

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Court adopts the Report and Recommendation of United States Magistrate Judge
Leo I. Brisbois dated January 3, 2014.
I.

Corporate Shield Doctrine
The Court has taken into account the Eighth Circuit’s treatment of

personal jurisdiction in cases involving corporate fiduciaries. The Report and
Recommendation provides a short summary of this treatment, and describes the
fiduciary or “corporate shield doctrine.” (See Report and Recommendation, at
11.) Plaintiffs take issue with the appearance of the corporate shield doctrine in
the Report and Recommendation, as this doctrine has not been adopted by the
Eighth Circuit.
However, the Report and Recommendation goes on to provide the Eighth
Circuit’s general rule regarding personal jurisdiction over corporate officers, and
then returns to applying the appropriate rules to the facts of this case; it does not
apply the corporate shield doctrine to the facts of the present case. Additionally,
it is clear from the briefs and the proceedings in this matter that Defendants are
not requesting application of corporate shield doctrine, as they have conceded
that other Maid-Rite fiduciaries (who are more active in managing the
corporation) are subject to personal jurisdiction in this matter. (See Audio Tr.,

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Docket No. 42, at 6.) The Report and Recommendation was written with this
understanding. Because of this, the Court overrules Plaintiffs’ objections to the
mention of corporate shield doctrine.
II.

Personal Jurisdiction
Plaintiffs also object to the Report and Recommendation’s treatment of Dr.

Performance of Minn., Inc. v. Dr. Performance Mgmt., LLC, No. 01-1524, 2002
WL 31628440 (D. Minn. Nov. 12, 2002). Plaintiffs argue that the Report and
Recommendation did not adequately consider that case or the case of State v.
Continental Forms, 356 N.W.2d 442 (Minn. Ct. App. 1984). Plaintiffs assert that
these cases establish that Defendants Copple, Kirke, and Lewis are subject to the
Court’s personal jurisdiction, based upon (1) their potential liability under the
Minnesota Franchise Act (“MFA”) and (2) a “plus factor,” such as a tax
identification form or a Franchise Disclosure Document (“FDD”) registered with
the forum state. The Court concludes, upon a review of the case law, that the
MFA cannot extend application of Minnesota’s long-arm statute beyond the
reach of constitutional due process, and Plaintiffs have not established a basis for
minimum contacts as to these Defendants that fall within that reach.

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The Report and Recommendation provides that the Court lacks personal
jurisdiction over Defendants Copple, Kirke, and Lewis because the Amended
Complaint “fails to allege with any specificity any particular individual contacts
by Copple, Kirke, or Lewis with Minnesota.” (Report and Recommendation, at
11.) The Report and Recommendation goes on to state that “Plaintiffs rely solely
on broad legal conclusions and alleged actions largely attributable to [Maid-Rite
Corporation] as a corporation.” (Id.)
The Report and Recommendation only briefly raises Dr. Performance as
support for its appropriate conclusion that the MFA alone cannot establish
jurisdiction in this matter. The Report and Recommendation does not reach the
potential jurisdictional basis established in Continental Forms and acknowledged
by Dr. Performance, a basis upon which Plaintiffs now rely in making their
arguments. In Continental Forms, the Court of Appeals of Minnesota held that a
tax statute imposing primary liability upon corporate officers, coupled with the
listing of corporate officers on a tax form filed with the state, “presents a prima
facie showing of minimum contacts.” Cont’l Forms, 356 N.W.2d at 444.
Dr. Performance, a franchising case, recognized this basis for jurisdiction.
See Dr. Performance, 2002 WL 31628440, at *4 (“[S]tatutory liability may establish

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an officer or director’s minimum contacts with the forum state.”) The Dr.
Performance decision provided that liability under the MFA, coupled with some
singular contact with the forum state, might establish personal jurisdiction. See
id. at *5. Regarding the statutory liability element, the Court explained that, “[i]n
order for personal liability to attach to controlling persons under the Minnesota
Franchise Act, they must have been in positions of control at the time of the
alleged violation, or actively participated in the violation.” Id. at *4 (citing Minn.
Stat. § 80C.17, subdiv. 2). While this liability may have been established, the Dr.
Performance court held that the defendant had no contact with the state because
no identifying form had been registered in Minnesota, as was the case in
Continental Forms. Id. at *5. Therefore, personal jurisdiction was not proper in
that case.
Here, Plaintiffs argue that personal jurisdiction is established because (1)
there is prima facie case for Defendants Copple, Kirke, and Lewis’s liability
under the MFA, and (2) the Defendants’ names are listed on FDDs filed with the
state. As to MFA liability, Plaintiffs argue that Defendants Copple, Kirke, and
Lewis are liable under the MFA because they were in positions of control at the
time of the alleged MFA violations.

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The alleged violation to which Plaintiffs refer is that Maid-Rite
Corporation violated the MFA when it allegedly provided information to
Plaintiffs that was inconsistent with its FDDs, and thus misleading. (See
Amended Complaint ¶¶ 1, 248, 326, 327, 410, 411, 467, 468.) The MFA prohibits
such inconsistent statements:
No person may offer to sell a franchise in this state by means of any
written or oral communication which includes an untrue statement
of material fact or which omits to state a material fact necessary in
order to make the statements made, in the light of the circumstances
under which they were made, not misleading.
Minn. Stat. § 80C.13, subdiv. 2 (emphasis added). Plaintiffs then cite Minn. Stat.
§ 80C.17, subdiv. 2, (“officer liability section”) which provides that directors of a
corporation are statutorily liable for the corporation’s MFA violations, unless
those directors had no knowledge of the violation:
Every person who directly or indirectly controls a person liable
under [the Act] . . . every principal executive officer or director of a
corporation so liable . . . is also liable jointly and severally with and
to the same extent as such person, unless the person who would
otherwise be liable hereunder had no knowledge of or reasonable
grounds to know of the existence of the facts by reason of which the
liability is alleged to exist.
Minn. Stat. § 80C.17, subdiv. 2. Plaintiffs conclude by arguing that Defendants
Copple, Kirke, and Lewis are liable under the MFA because they had actual or
constructive knowledge of Maid-Rite Corporation’s MFA violations. Based on
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this potential MFA liability and the filing of the FDDs, the Plaintiffs argue that
minimum contacts are established and personal jurisdiction exists over
Defendants Copple, Kirke, and Lewis. The Court disagrees.
Defendants’ potential MFA liability does not obviate the requirement that
minimum contacts must be established. As Magistrate Judge Brisbois aptly
noted during oral argument, “the mere fact of potential liability at the conclusion
of the lawsuit alone isn’t a contact.” (Audio Tr., at 11.) Minimum contacts have
not been established here, despite the existence of the FDDs. Maid-Rite
Corporation’s 2008 - 2012 FDDs merely list Defendants Copple, Kirke, and
Lewis’s biographical information and employment history (with Defendant
Kirke’s name listed on the 2008 and 2009 FDDs only). (See Docket No. 30, Garner
Decl. and Exs.; Am. Compl. ¶ 25.) These forms provide such a weak basis for
contacts with Minnesota that predicating personal jurisdiction on them would
offend traditional notions of fair play and substantial justice.
The forms are not signed by Defendants Copple, Kirke, and Lewis; they
merely list their names and job descriptions. At most, the Plaintiffs allege, “upon
information and belief, [that Maid-Rite Corporation], by its attorneys, solicited
this information from the Director Defendants for the purpose of creating the

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FDD[s] and put the Director Defendants on actual notice that an FDD was being
prepared.” (Am. Compl. ¶ 25.) Even considering this, there is no allegation that
Defendants Copple, Kirke, and Lewis individually wrote, filed, or otherwise
initiated contact with the forum. Therefore, the FDDs do not demonstrate that
Defendants Copple, Kirke, and Lewis individually interacted with the forum.
Because Plaintiffs have only made an insufficient showing of personal
jurisdiction under the Continental Forms test, the Court concludes that Plaintiffs
have failed to make a prima facie showing of minimum contacts. Accordingly,
the Court lacks personal jurisdiction over Defendants Copple, Kirke, and Lewis
in this matter.
III.

Failure to Plead Fraud
As the Report and Recommendation recognizes, “Plaintiffs’ Amended

Complaint attributes ‘fraud by omission’ to [Maid-Rite Corporation] as an
entity,” and it “largely fails to place any of the individual defendants [Defendant
Tania Burt, Copple, Kirke, and Lewis] on notice of their personal allegedly
fraudulent conduct and/or omissions.” (Report and Recommendation, at 15.)
Because the Court has held that it lacks personal jurisdiction over Defendants
Copple, Kirke, and Lewis, all arguments regarding the fraud-by-omission claims

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as to those Defendants are moot, and Section III of the Report and
Recommendation applies only to Defendant Tania Burt.
Accordingly, the Court adopts the Report and Recommendation signed by
Magistrate Judge Leo I. Brisbois, dated January 3, 2014, in its entirety. Based
upon the files, records, and proceedings herein, IT IS HEREBY ORDERED:
1. The Court ADOPTS the Report and Recommendation of United States
Magistrate Judge Leo I. Brisbois dated January 3, 2014 [Docket No. 36].
2. Defendants Tania Burt, Copple, Kirke, and Lewis’s Motion to
Dismiss [Docket No. 9] is GRANTED insofar as all of Plaintiffs’
claims against Defendants Copple, Kirke, and Lewis be
DISMISSED WITHOUT PREJUDICE for lack of personal
jurisdiction.
3. Defendants Tania Burt, Copple, Kirke, and Lewis’s Motion to
Dismiss [Docket No. 9] is GRANTED insofar as all fraud-byomission claims against Defendant Tania Burt (Counts 7, 20, 29,
39, and 45 of Plaintiffs’ Amended Complaint) be DISMISSED
WITHOUT PREJUDICE as insufficiently pled under Rule 9(b) of
the Federal Rules of Civil Procedure.

Dated: April 21, 2014

Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court

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