BJ McAdams, Inc. v. Boggs
| Decision Date | 14 February 1977 |
| Docket Number | Civ. A. No. 75-3054. |
| Citation | 426 F. Supp. 1091 |
| Parties | B. J. McADAMS, INCORPORATED v. Winston M. BOGGS et al. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Peter Hearn, Patricia L. Freeland, Philadelphia, Pa., for plaintiff.
Tom P. Monteverde, Philadelphia, Pa., for all defendants except Boggs.
Michael J. Rotko, Philadelphia, Pa., for defendant Boggs.
This is an action for breach of a fiduciary duty by a corporate officer and employee and for diversion of a corporate opportunity. Jurisdiction is based upon diversity of citizenship, 28 U.S.C. § 1332(a)(1). The action is before me on the following motions: (a) by twelve of the fourteen defendants, to quash the return of service of summons and dismiss the action for lack of personal jurisdiction, Fed.R.Civ.P. 12(b)(2); (b) by seven of the defendants to dismiss because venue is not proper, Fed.R.Civ.P. 12(b)(3); (c) by thirteen of the defendants, to transfer the action to the United States District Court for the Middle District of Florida pursuant to 28 U.S.C. § 1404(a); and (d) by one defendant, to dismiss for failure to state a claim upon which relief can be granted, Fed.R.Civ.P. 12(b)(6). The motions may be heard before trial. See Fed.R.Civ.P. 12(d). The record consists of affidavits, depositions, and other documents. See generally Fed.R.Civ.P. 43(e).
Plaintiff, B. J. McAdams, Incorporated, is an Arkansas corporation engaged in interstate trucking. The primary defendant is Winston M. Boggs, an employee of plaintiff in 1974 and 1975 whose duties included the solicitation of new business and acquisition of new operating rights for plaintiff. In 1974, while in Philadelphia on business for plaintiff, Boggs met W. W. Hughes and, acting on plaintiff's behalf, began inquiries regarding the purchase from Hughes of an Interstate Commerce Commission (ICC) certificate of public convenience and necessity authorizing the hauling of frozen foods in twenty-six Eastern states. Plaintiff subsequently undertook extensive negotiations with Hughes for purchase of the certificate.
Hughes died in February, 1975, and shortly thereafter Boggs undertook negotiations with the Hughes estate to purchase the certificate for himself. Most of these negotiations were conducted by letter or by telephone while Boggs was at plaintiff's offices in North Little Rock, Arkansas. Boggs and a representative of the estate agreed upon a purchase price in the spring of 1975.
To facilitate transfer of the certificate, the Hughes estate formed Hughes Refrigerated Express, Inc., a Pennsylvania corporation, and, upon ICC approval, transferred the certificate to the corporation. This allowed subsequent transfer of the certificate to be made through sale of the corporation's stock, a transaction which, unlike sale of the certificate itself, did not require ICC approval.
To obtain the capital needed for the purchase, Boggs telephoned David E. Green, a Haines City, Florida, physician, and offered him an opportunity to invest in the new Hughes corporation. Green and some of his friends and associates — defendants Ralph T. Stalnaker, John W. Moore, Edward M. Schlein, Edward F. Jukes, J. C. Long, Hal Davis, Doris Beasley, R. V. Phillips, L. B. Carnes, and Robert E. Taylor1 (hereinafter collectively referred to as the investors) — agreed to join Boggs in purchasing the Hughes stock. All of the investors were and still are Florida residents. Because some of the investors did not have sufficient funds to purchase the stock, the group borrowed money from Exchange Bank of Central Florida, which took a lien on the ICC certificate and on the Hughes stock as security.
An attorney for the investors drafted an agreement of sale and a "trust agreement" whereby Boggs was to be appointed by the investors as "Trustee or agent to represent them in the acquisition of the Hughes stock." On June 24, 1975, while in the Philadelphia area on business for plaintiff, Boggs executed the trust agreement and the agreement of sale and made a down payment; he signed the agreement of sale in his capacity as "trustee." The trust agreement was signed by the investors in Florida on July 3, 1975.
The closing took place in Cornwells Heights, Pennsylvania, a Philadelphia suburb, on August 25, 1975, following ICC approval of transfer of the certificate to the Hughes corporation. Boggs signed the closing documents for the investors and paid the balance of the purchase price, using the funds borrowed from Exchange Bank. The funds had been transferred by wire to Philadelphia from Exchange Bank's offices in Haines City, Florida.
Plaintiff instituted this action on October 1, 1975, naming as defendants Boggs, the eleven investors, Exchange Bank of Central Florida, and Hughes Refrigerated Express, Inc. Alleging breach of a fiduciary duty and diversion of a corporate opportunity, plaintiff contends that the stock is held by Boggs and the investors in constructive trust, demands transfer of the stock to it upon payment by it of the purchase price, demands an accounting and payment to it of all profits generated from use of the certificate, and asks for damages. Plaintiff also seeks to void the loan agreement with Exchange Bank.
Defendants' motions will be considered separately.
The eleven investors and Exchange Bank of Central Florida move to quash the return of service of summons and to dismiss the action for lack of personal jurisdiction. Fed.R.Civ.P. 12(b)(2).
Because there is no federal personal jurisdiction statute, personal jurisdiction is challenged by an attack on service of process. See Gkiafis v. Steamship Yiosonas, 342 F.2d 546, 548 (4th Cir. 1965). Pursuant to Federal Rule 4(d)(7),2 plaintiff served these defendants in accordance with the provisions of the Pennsylvania Long-Arm Act of 1972, 42 Pa.C.S.A. §§ 8301 et seq. (Supp.1976-1977, App.),3 by service upon the Secretary of the Commonwealth.4 Defendants contend that the Long-Arm Act does not apply to them, and that, in the event that it does, service pursuant to the Act deprives them of due process of law.
All of the investors are residents of Florida. None of them participated personally in the stock purchase; instead they appointed Boggs as their "trustee and agent" to complete negotiations and consummate the transaction. Because of the agency relationship, the acts of Boggs are attributable to the investors, and therefore jurisdiction over the investors depends upon the sufficiency of Boggs' conduct.
Exchange Bank is a Florida banking institution. Its only connection with this action is through the loan which it made to the investors. It does not otherwise conduct business in Pennsylvania.
The Long-Arm Act divides nonresidents into two categories for purposes of extra-territorial service. Sections 8301-02 deal with nonresident corporations such as Exchange Bank. Sections 8303-05 deal with nonresidents "acting individually," thus excluding corporations. See Sipe v. Local 191, Carpenters and Joiners, 393 F.Supp. 865, 873-74 (M.D.Pa.1975); General Heat and Power Co. v. Diversified Mortgage Investors, 65 F.R.D. 697 (M.D.Pa.1975).
The only nonresident corporation involved in this action is Exchange Bank, and plaintiff purports to reach it pursuant to § 8302(a), which provides for service of process through the Department of State for "any foreign corporation which shall have done any business in this Commonwealth without procuring a certificate of authority to do so from the Department of State". Exchange Bank has not procured a certificate of authority. Although "doing business" is defined in § 8309(a) of the Act, the scope of that provision is broadened by § 8309(b), which provides:
"In addition to the provisions of subsection (a) of this section the jurisdiction and venue of courts of the Commonwealth shall extend to all foreign corporations and the powers exercised by them to the fullest extent allowed under the Constitution of the United States."
Jurisdiction over the Bank, therefore, is solely a question of due process and will be discussed hereinafter under that heading.
Application of the statute is more restricted with regard to the individual investors. Jurisdiction over them must be obtained pursuant to either § 8303, § 8304, or § 8305, and plaintiff contends that all three of these sections are applicable. I agree that service is proper either under § 8303 or § 8305.
Section 8303 provides:
"Any nonresident of this Commonwealth who, acting individually, under or through a fictitious business name, or through an agent, servant or employee, shall have committed a tortious act within this Commonwealth . . . shall be conclusively presumed to have designated the Department of State as his agent for the receipt of service of process in any civil action or proceeding instituted in the courts of this Commonwealth against such individual."
The issue under this section is whether the investors committed a "tortious act" within Pennsylvania.5
Breach of a fiduciary duty and diversion of a corporate opportunity may be considered tortious. See Barnes & Tucker Co. v. Bird Coal Co., 32 Pa.D. & C. 535, 539-40 (C.P.Phila.1938), aff'd, 334 Pa. 324, 5 A.2d 146 (1939). Boggs consummated the stock purchase transaction in Cornwells Heights, Pennsylvania, and in doing so committed the allegedly "tortious act within this Commonwealth" which plaintiff alleges caused injury to it. Since Boggs performed these acts within Pennsylvania as agent for the investors under the trust agreement, the investors have thus, acting through an agent, committed a tortious act within Pennsylvania and are subject to service under § 8303.
Section 8305 provides:
"Any nonresident of this Commonwealth who, acting outside of this Commonwealth, individually, under or through a fictitious...
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