MFS SERIES TRUST III v. Grainger, 20020719.

96 P.3d 927

2004 UT 61

MFS SERIES TRUST III (on behalf of MFS MUNICIPAL HIGH INCOME FUND), Merrill Lynch High Yield Municipal Bond Fund, Inc., Muniholdings Fund, Inc., Merrill Lynch Municipal Bond Fund, The National Portfolio, Merrill Lynch Municipal Strategy Fund, Eaton Vance Distributors, Inc., T. Rowe Price Associates, Inc., John Hancock Funds, Inc., and Putnam Investments, Inc., Plaintiffs and Appellants, v. John R. GRAINGER, James R. Bullock, John W. Rollins, Jr., John W. Rollins, Sr., Leslie W. Haworth, David B. Thomas, Jr., Henry B. Tippie, James L. Wareham, Grover C. Wrenn, Michael J. Bragagnolo, Henry H. Taylor, Paul R. Humphreys, and Kenneth W. Winger, Defendants and Appellees.

No. 20020719.

Supreme Court of Utah.

July 16, 2004.

Scott C. Walker, Provo, Richard M. Heimann, San Francisco, California, for plaintiffs.

Andrew G. Deiss, Michael W. Homer, Jesse C. Trentadue, Paul C. Farr, John D. Luthy, E. Barney Gesas, Walter A. Romney, Mark O. Morris, Salt Lake City, Terence H. Campbell, Chicago, Illinois, Carl E. Poli, Northbrook, Illinois, William R. Warne, Tory E. Griffin, Sacramento, California, Dhaivat H. Shah, Menlo Park, California, for defendants.

Kenneth W. Winger, defendant pro se.

DURHAM, Chief Justice:

¶ 1 Plaintiffs MFS Series Trust III, Merrill Lynch High Yield Municipal Bond Fund, Inc., Muniholdings Fund, Inc., Merrill Lynch Municipal Bond Fund, The National Portfolio, Merrill Lynch Municipal Strategy Fund, Eaton Vance Distributors, Inc., T. Rowe Price Associates, Inc., John Hancock Funds, Inc., and Putnam Investments, Inc. appeal the trial court's dismissal of their complaint for lack of personal jurisdiction. We affirm, because defendants' minimum contacts with Utah are insufficient for Utah's courts to exercise jurisdiction over them.

BACKGROUND

¶ 2 Plaintiffs, nonresidents of Utah, filed their original complaint against thirteen defendants: James R. Bullock, John R. Grainger, Leslie W. Haworth, all residents of Canada (Canadian directors); David E. Thomas, Jr., John W. Rollins, Sr., John W. Rollins, Jr., James L. Wareham, Grover C. Wrenn, Henry B. Tippie (outside directors); Henry H. Taylor, Michael J. Bragagnolo, Kenneth W. Winger, and Paul R. Humphreys (inside directors). The Canadian directors are former officers and directors of Laidlaw Environmental Services, Inc. (LES), a partially-owned subsidiary of Laidlaw, Inc. (Laidlaw), and its successor, Safety-Kleen Corporation (Safety-Kleen). Rollins, Sr., Rollins, Jr., and Tippie were outside directors of LES and Safety-Kleen since before May 1997. Thomas and Wareham were outside directors of LES since June 1997. Wrenn became an outside director of LES in July 1997. Taylor, Bragagnolo, Winger and Humphreys were executives of Safety-Kleen and/or its predecessors. Winger and Humphreys did not respond to the original complaint or file a motion to dismiss, and therefore are not parties to this appeal. Therefore, for purposes of this appeal, Winger and Humphreys are excluded when we refer to defendants.

¶ 3 Tooele County issued Pollution Control Refunding Revenue Bonds (the bonds) on July 1, 1997. These were secured by a loan agreement of $45.7 million between LES and Tooele County for funding of LES-operated hazardous waste disposal facilities in Tooele County. LES merged with Safety-Kleen during April and May, 1998. LES assumed the name of Safety-Kleen at that time and Safety-Kleen assumed all obligations of LES.

¶ 4 LES incorporated its 1997 financial reports into the bond offering documents. Subsequent to the sale of securities, LES admitted that these financial statements contained material misstatements, and Safety-Kleen filed for chapter 11 bankruptcy. Plaintiffs allege that they relied on the financial statements provided by LES when purchasing the bonds. The bonds became worthless and Safety-Kleen placed several LES officers, Humphreys, Winger and Bragagnolo, on administrative leave.

¶ 5 Plaintiffs brought suit alleging violations of Utah's securities laws and common law fraud and negligence. Particularly, plaintiffs allege reliance on LES's incorrect financial statements. Defendants moved for dismissal of the complaint for lack of personal jurisdiction. The trial court issued an order of dismissal on June 19, 2002. Plaintiffs filed a timely notice of appeal. Plaintiffs concede that there is no basis for personal jurisdiction over defendant Wrenn, and do not appeal the trial court's ruling regarding him.

STANDARD OF REVIEW

¶ 6 When determining whether the trial court correctly granted a motion to dismiss, we "accept the factual allegations in the complaint as true and consider them, and all reasonable inferences to be drawn from them, in the light most favorable to the nonmoving party." Krouse v. Bower, 2001 UT 28, ¶ 2, 20 P.3d 895.

¶ 7 The question before this court is whether the trial court erred in granting defendants' motion for dismissal for lack of personal jurisdiction. "Where a pretrial jurisdictional decision has been made on documentary evidence only, an appeal from that decision presents only legal questions that are reviewed for correctness." Arguello v. Indus. Woodworking Mach. Co., 838 P.2d 1120, 1121 (Utah 1992).

ANALYSIS

I. PERSONAL JURISDICTION

¶ 8 Plaintiffs argue that Utah's securities statute, Utah Code Ann. § 61-1-22(4) (1997 & Supp.2000), grants the state personal jurisdiction over defendants when a prima facie case for liability under the statute has been made. They argue that defendants were officers or directors of Safety-Kleen or LES and that the statute extends liability to officers and directors to the same extent as to the corporation. Plaintiffs further argue that the statute, in creating liability, confers personal jurisdiction over defendants. Finally, they claim that section 61-1-26(8)(a) grants personal jurisdiction and provides a method of serving process on nonresident defendants. See Utah Code Ann. § 61-1-26(8)(a) (1997 & Supp.2000).

¶ 9 Due process requires minimum contacts between the forum and defendants before a court may properly exercise personal jurisdiction. Synergetics v. Marathon Ranching Co., 701 P.2d 1106, 1110 (Utah 1985). The Fourteenth Amendment to the United States Constitution requires the states to provide due process. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). Therefore, we analyze the due process questions under the Fourteenth Amendment.

II. MINIMUM CONTACTS

¶ 10 A court cannot exercise personal jurisdiction against a defendant unless there exist "minimum contacts with [the forum state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Intl. Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (internal quotation omitted). Establishing minimum contacts with the forum state requires that the defendant must have "`purposefully avail[ed] itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.'" Mallory Eng'g, Inc. v. Ted R. Brown & Assocs., 618 P.2d 1004, 1008 (Utah 1980) (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)). Courts properly exercise personal jurisdiction only "where the contacts proximately result from actions by the defendant himself that create a `substantial connection' with the forum state." Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 109, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987). We exercise specific personal jurisdiction "`only on claims arising out of defendant's forum-state activity,'" Neways, Inc. v. McCausland, 950 P.2d 420, 423 (Utah 1997), and the contact between the defendant and the forum state must be such that the defendant "`should reasonably anticipate being haled into court there.'" Synergetics, 701 P.2d at 1110 (quoting World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559.) Finally, "minimum requirements inherent in the concept of `fair play and substantial justice' may defeat the reasonableness of jurisdiction even if the defendant has purposefully engaged in forum activities." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477-78, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Thus, "the determination of whether Utah can justify asserting jurisdiction over defendants hinges on the balancing of fairness to the parties and the interests of the State in assuming jurisdiction." Synergetics, 701 P.2d at 1110-11 (footnote omitted).

¶ 11 Mere corporate status can never be the basis for jurisdiction; "[e]ach defendant's contacts with the forum State must be assessed individually." Calder v. Jones, 465 U.S. 783, 790, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984). Thus, contacts giving rise to jurisdiction over a corporation cannot automatically be attributed to its officers and directors; rather, each individual defendant must have sufficient contacts. Id. Due process is only satisfied based on the "quality and nature of the activity" for each individual defendant. Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).

¶ 12 In response to defendants' affidavits, plaintiffs submitted LES's offering memorandum for the bond issuance. This document listed the corporate roles of each defendant. Bragagnolo was the chief operating officer. Taylor was general counsel and secretary. Bullock, Grainger and Haworth were directors holding high executive offices with Laidlaw. Rollins, Sr., Rollins, Jr., Thomas, Tippie and Wareham were outside directors.

¶ 13 Plaintiffs alleged that Taylor had signed some of the "irregular" corporate financial statements in his role as general counsel and secretary. Taylor submitted an affidavit, however, stating that his purpose in doing so was solely to attest to Humphreys' signature on the document. He had also sent a letter expressing certain opinions regarding the bond placement agreement. His affidavit, however, points out that this...