Columbia Briargate Co. v. First Nat. Bank in Dallas

Citation713 F.2d 1052
Decision Date10 August 1983
Docket NumberNo. 82-2054,82-2054
PartiesCOLUMBIA BRIARGATE COMPANY, a limited Partnership, Appellant, v. FIRST NATIONAL BANK IN DALLAS; Vaughn Pearson and A.S. Kyzer, Jr., Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Cynthia Hall Ouzts, Camden, S.C. (T. Alexander Beard, Cooper, Bowen, Beard & Smoot, Camden, S.C., on brief), for appellant.

A. Erin Dwyer, Dallas, Tex. (Ernest E. Figari, Jr., Johnson & Swanson, Dallas, Tex., William L. Pope, Robert C. Kelly, Robinson, McFadden, Moore, Pope, Williams, Taylor & Brailsford, P.A., Columbia, S.C., on brief), for appellees.

Before WINTER, Chief Judge, RUSSELL, Circuit Judge, and JAMES C. FOX, United States District Judge for the Eastern District of North Carolina, sitting by designation.

DONALD RUSSELL, Circuit Judge:

This is an action to recover for alleged fraudulent representations in the negotiations of a contract of sale of a group of fourteen (14) apartment buildings containing three hundred, thirty-six (336) apartment units, known as the Briargate Apartments in Columbia, South Carolina. As filed in the district court of South Carolina it asserted federal diversity jurisdiction. The plaintiff purchaser is a limited partnership organized and existing under the laws of the State of California with its principal place of business in that State. The defendants are the First National Bank In Dallas, a national banking association with its principal place of business in the State of Texas, its vice-president, individually, a resident of Texas (Pearson), and an engineer employed by the Bank, a resident of South Carolina (Kyzer), who had given, allegedly at the instance of Pearson, a certificate to the plaintiff on behalf of the bank "that the apartments were in proper repair, that all deferred maintenance had been performed, and that corrective repairs had been accomplished with respect to the water seepage problem and no further problems were anticipated."

The defendant Bank and its vice-president Pearson, both of whom had been served under the South Carolina long arm statute, 1 joined in a motion to dismiss the action against them on jurisdictional grounds. There is no issue made of the amenability to suit of the defendant engineer in the district court and the sole ground of appeal raised concerns the amenability of the Bank and its vice-president, the defendant Pearson, to jurisdiction herein. In their initial motion, the joint contention of the Bank and its vice-president Pearson, was, so far as the Bank itself was concerned, that "the sole venue of this action against the Bank is the Dallas Division and, as a result, the United States District Court for the District of South Carolina, Columbia Division, is an improper venue" for this action. It rests this contention on § 94, 12 U.S.C. 2 As to the individual defendant Pearson, their claim was that he had "acted solely in a representative capacity on behalf of the Bank in all his contacts with the State of South Carolina," and that, under those circumstances, "the assertion of jurisdiction over [his] person ... would be contrary to the Fourteenth Amendment." The motion, also, raised the contention that Pearson had a "derivative" immunity under § 94, 12 U.S.C. as a national bank officer acting in his agency capacity against suit in any venue other than the Division of Dallas. Certain affidavits pro and con were filed with the district court in connection with this motion.

After a hearing, the district court granted the motion to dismiss on behalf both of the Bank and of Pearson. It sustained the Bank's claim under § 94, 12 U.S.C. and that of Pearson under what it declared is the controlling "fiduciary shield" doctrine. The plaintiff has appealed the dismissal of the action against Pearson but does not contest the dismissal of the Bank as a defendant.

We reverse.

I

The plaintiff's complaint alleged that, in the course of negotiating the sale of the Briargate Apartments by the Bank to the plaintiff, the defendant Pearson either made, or induced others to make, a number of false and fraudulent representations about the conditions of the apartments, representations on which the plaintiff had a right to rely in contracting to buy the apartments, and that, as a result of such misrepresentations, it (the plaintiff) sustained substantial damages. For purposes of the motion, these allegations must be assumed to be true. Also for purposes of the motion, it appears to have been agreed at the hearing (1) that the subject-matter or res of the contract negotiation was real estate located in Columbia, South Carolina, owned at the time by the Bank, (2) that all the negotiations for the purchase and sale of such real property between the purchaser and seller were carried out and the contract resulting from such negotiations was executed by both parties thereto in Columbia, South Carolina, (3) that the individual defendant Pearson was at all times the agent of the Bank in negotiating such sale and in furnishing the various certificates and representations required under the terms of the sale and that he executed on the Bank's behalf the deed to the purchaser, and (4) that all such activities of the defendant Pearson occurred in Columbia, South Carolina, over a period of several days.

II

The principle appears settled that a federal action for fraud or misrepresentation in the diversity jurisdiction is governed by the substantive law of the state where the fraudulent action took place. § 148, Second Conflict of Laws (1971). In this case, the controlling law would accordingly be that of South Carolina. Donsco, Inc. v. Casper Corp., 587 F.2d 602, 606 (3d Cir.1978). Under the law of that jurisdiction, "[a]n agent's liability for his own tortious acts [in such an action is plain and] is unaffected by the fact that he acted in his representative capacity." Lawlor v. Scheper, 232 S.C. 94, 98-99, 101 S.E.2d 269, 271 (1957). That principle was recently applied in another South Carolina case similar factually to this case. A corporation and its president were sued for fraudulent representations allegedly made by the president in negotiating a sale of a business to the plaintiffs. The officer-defendant "moved for a directed verdict on the ground there was no evidence he acted in his individual capacity." The motion was denied and the Supreme Court of South Carolina affirmed, quoting the language of Lawlor, supra. Gilbert v. Mid-South Machinery Co., Inc., 267 S.C. 211, 221, 227 S.E.2d 189, 193 (1976).

This South Carolina rule on the liability of the agent for torts committed in his fiduciary capacity either in a suit against him individually or in a joint suit against him and his principal, is similar to that in other jurisdictions, provided the alleged tort was committed or participated in by the agent. See Tillman v. Wheaton-Haven Recreation Ass'n., Inc., 517 F.2d 1141, 1144 (4th Cir.1975); Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 907 (1st Cir.1980); Donsco, Inc. v. Casper Corp., supra, 587 F.2d at 606; A & M Records, Inc. v. M.V.C. Dist. Corp., 574 F.2d 312, 315 (6th Cir.1978); Zubik v. Zubik, 384 F.2d 267, 275-6 (3d Cir.), cert. denied, 390 U.S. 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968); 3A Fletcher, Cyclopedia of the Law of Private Corporations § 1135, at 202, 203 (1975); and Restatement (Second) of Agency § 343 (1957). Of course, "[i]f [an officer] does not personally participate in the corporation's tort, general corporation law does not subject him to liability simply by virtue of his office." Tillman v. Wheaton-Haven Recreation Ass'n., Inc., supra, 517 F.2d at 1144; Monsen v. Consol. Dressed Beef Co., Inc., 579 F.2d 793, 804 (3d Cir.1978), cert. denied, 439 U.S. 930, 99 S.Ct. 318, 58 L.Ed.2d 323.

We do not understand the defendants to question this South Carolina rule with respect to the substantive liability of an agent or officer for tortious conduct committed by him whether he was acting solely for the benefit of his employer or for his personal benefit. It is, however, their argument that the substantive liability of a non-resident agent-defendant such as the defendant Pearson and his amenability to jurisdiction claimed under a service pursuant to a state long-arm statute, are questions subject to entirely different, even contradictory, rules, and that Pearson, who was at all times acting in his capacity as an officer of the Bank in the matters involved in this suit and a non-resident of South Carolina, is entitled to immunity under what is known as the "fiduciary shield" doctrine from valid service of process under the South Carolina long-arm statute for an alleged tort committed by him in South Carolina, even though concededly he is substantively liable for his participation in the tort. Such doctrine constitutes the defendant's asserted ground for quashing the service herein on him and for dismissing the action against him. The validity of this claim is the single issue in this appeal.

III

This doctrine of "fiduciary shield," as invoked by Pearson, emerged "with little notice and with no critical examination" 3 as a novel principle by way of dicta in a series of decisions of the New York state and federal courts in the mid-sixties just as a more liberal and relaxed rule was developing in federal courts in favor of the application of state long-arm statutes themselves. 4 Its source is generally identified as a dictum in Boas & Associates v. Vernier, 22 A.D.2d 561, 563, 257 N.Y.S.2d 487, 490 (1st Dep't. 1965). The first identification of the doctrine in the New York federal courts was in United States v. Montreal Trust Company, 358 F.2d 239 (2d Cir.1966), cert. denied, 384 U.S. 919, 86 S.Ct. 1366, 16 L.Ed.2d 440. "[U]nder the 'fiduciary shield' doctrine," 5 as it has generally been phrased, "the acts of a corporate officer or employee taken in his corporate capacity within the jurisdiction generally do not form the predicate for...

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