Greenspun v. Del E. Webb Corp.

• Citation: 634 F.2d 1204
• Decision Date: 29 December 1980
• Docket Number: No. 78-1900,78-1900
• Parties: H. M. GREENSPUN, Plaintiff-Appellant, v. DEL E. WEBB CORPORATION, etc. et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1204

634 F.2d 1204

H. M. GREENSPUN, Plaintiff-Appellant, v. DEL E. WEBB CORPORATION, etc. et al., Defendants-Appellees.

No. 78-1900.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Sept. 11, 1980.

Decided Dec. 29, 1980.

Vincent H. Chieffo, Beverly Hills, Cal., on brief; Milton A. Rudin, Rudin & Perlstein, Beverly Hills, Cal., for plaintiff-appellant.

Philip R. Higdon, Brown & Bain, Phoenix, Ariz., George A. Cromer, Cromer, Barker & Michaelson, Las Vegas, Nev., W. D. Milliken (argued), Parker, Milliken, Clark & O'Hara, Los Angeles, Cal., Samuel S. Lionel, Lionel, Sawyer & Collins, Las Vegas, Nev., on brief, for defendants-appellees.

Appeal from the United States District Court for the District of Nevada.

Before CHOY, Circuit Judge, KASHIWA, ^* Court of Claims Judge, and FERGUSON, Circuit Judge.

FERGUSON, Circuit Judge:

Shareholder Greenspun brought a derivative suit against the Del E. Webb Corporation, its directors, and its auditors, Peat, Marwick, Mitchell & Co. The district court granted motions to dismiss in favor of all defendants on the grounds that: (1) the Nevada long-arm statute did not grant personal jurisdiction over any defendant; (2) plaintiff had not made the demand upon the board of directors required by Fed.R.Civ.P. 23.1 or adequately explained this failure; and (3) plaintiff was unable to join the Del E. Webb Foundation, an indispensable party. We hold that personal jurisdiction should have been exercised over defendants Johnson and Peat, Marwick, Mitchell & Co. We further hold that plaintiff did not comply with Fed.R.Civ.P. 23.1. Finally, we hold erroneous the district court's ruling that the Foundation was an indispensible party.

I. FACTS

Greenspun initiated a shareholder's derivative action for waste and mismanagement against Del E. Webb Corporation (Webb Corp.), an Arizona corporation ¹; its nine directors; director Johnson in his capacity as executor of the Del E. Webb estate ²; and the corporation's independent auditor, Peat, Marwick, Mitchell & Co. (Peat Marwick), a New York partnership.

Greenspun claimed that the directors of Webb Corp., assisted by Peat Marwick, conspired to preserve Johnson's control over the corporation and to divert its assets to further their interests. In furtherance of the conspiracy, Johnson allegedly misused his authority as chairman of the board of directors, president, and chief executive officer of Webb Corp.; executor of the Del E. Webb estate, which owned a controlling block of Webb Corp. shares; and member of the board of directors of the Del E. Webb Foundation, an Arizona non-profit corporation and beneficiary of the estate.

Greenspun alleged the following acts were committed in furtherance of the conspiracy: (1) defendant Johnson delayed distributing the estate in California so that he could vote its controlling block of Webb Corp. stock; (2) defendant Johnson voted the stock in favor of management proposals at the annual shareholders' meeting in Stateline, Nevada in April, 1975; (3) all but two defendant directors caused Webb Corp. to amend its articles of incorporation to change its board from six members elected annually to nine directors elected in three classes with staggered three-year terms; (4) those same defendants caused the Webb Corp. shareholders to approve an extension of Webb Corp. option warrants, thus diluting shareholders' equity; (5) two defendants not present in Nevada consented to their nomination to the board of directors, while members of the law firm which represented Webb Corp.; (6) acting at a meeting of the executive committee in Las Vegas, defendants Johnson and Nerdrum extended the terms of more than $670,000 in loans which had been made to Johnson and other corporate officers to enable them to take advantage of a stock option program; (7) defendants caused Webb Corp. to fail to disclose adequately the corporation's losses in connection with two community developments outside Nevada; (8) defendants caused Webb Corp. to incur excessive losses without sufficient funds to cover those losses; (9) defendants caused Webb Corp. to fail to develop fully its Nevada hotel and casino properties; and (10) defendants caused diversion of Webb Corp. assets from Nevada in various ways, including the purchase of two parcels of California real estate.

Greenspun met twice with defendants Johnson and the general counsel of Webb Corp. to air his grievances and demand corrective action. He did not meet with the other defendants.

Defendants moved to dismiss for lack of personal jurisdiction and failure to state a claim upon which relief could be granted. The second motion was grounded on plaintiff's failure to set forth with particularity efforts to secure relief from the board of directors under Fed.R.Civ.P. 23.1 and failure to join the Del E. Webb Foundation as an alleged indispensible party under Fed.R.Civ.P. 19(b). The district court granted both motions and this appeal followed.

II. PERSONAL JURISDICTION

A. Legal Principles

We have established a two-step test to determine the propriety of asserting personal jurisdiction. First, the relevant state's long-arm statute must permit jurisdiction. Second, the exercise of jurisdiction must be consistent with the demands of due process. H. Ray Baker v. Associated Banking Corp., 592 F.2d 550, 551 (9th Cir.), cert. denied, 444 U.S. 832, 100 S.Ct. 63, 62 L.Ed.2d 42 (1979); Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 413-414 (9th Cir. 1977).

The first segment of this test requires an analysis of Nevada's long-arm statute. ³ Nevada's interpretation of its statute binds this court. See Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1286 n. 3 (9th Cir. 1977). Though Nevada has interpreted its statute liberally, Wells Fargo, supra, at 415, the statute "clearly contemplates that only causes of action 'arising from' enumerated 'acts' which took place 'within' Nevada may be reached," id. at 417. The enumerated acts relevant to this case are business transactions and tortious acts. See Nevada Revised Statutes § 14.065(2)(a)-(b). Accordingly, we must determine whether the defendants' actions constituted either business transactions or tortious acts within Nevada.

The second step of our analysis looks to due process concerns. Defendants must have sufficient minimum contacts with Nevada so that an assertion of jurisdiction will not offend notions of fair play. See International Shoe v. Washington, 326 U.S. 310, 311, 66 S.Ct. 154, 156, 90 L.Ed. 95 (1945). A three-pronged test governs our analysis:

(1) The non-resident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws. (2) The claim must be one which arises out of or results from the defendant's forum-related activities. (3) Exercise of jurisdiction must be reasonable.

H. Ray Baker v. Associated Banking Corp., supra, 592 F.2d at 552, citing Data Dis., Inc. v. Systems Technology Associates, Inc., supra, 557 F.2d at 1287.

B. Application to the Parties

The district court failed to make a specific finding as to contacts between each defendant and the state of Nevada, as the above principles require. Rather, it refused jurisdiction on the ground that the tortious acts alleged to have taken place in Nevada occurred in furtherance of a pre-existing out-of-state conspiracy. We must accordingly evaluate each defendant's actions to determine whether Nevada could assert personal jurisdiction over that party.

1. Peat Marwick

Peat Marwick rendered extensive accounting, auditing, tax, and consulting services and maintained an office in Nevada. Its agents often traveled there to service the Webb Corp. account. These business transactions bring it within the Nevada long-arm statute, Nev.Rev.Stat. § 14.065.

Peat Marwick purposefully conducted activities in the forum. It was sued for those activities. We therefore find jurisdiction over Peat Marwick reasonable and consequently consistent with the demands of due process. See H. Ray Baker v. Associated Banking Corp., supra, 592 F.2d at 552.

2. Johnson

While a director and managing officer of Webb Corp., Johnson entered Nevada to attend an executive committee meeting and a shareholders' meeting. Johnson allegedly received excessive compensation when he and defendant Nerdrum extended the terms of loans made to him at the executive committee meeting. Further, he voted a controlling block of Webb Corp. stock at the shareholders' meeting in order to maintain personal control over the corporation. Johnson also made frequent trips to Nevada, acting as president and chief executive officer of the corporation. These business transactions brought Johnson within the Nevada long-arm statute. With respect to the due process requirement, the stated reasons for finding jurisdiction reasonable with respect to Peat Marwick apply with equal force to Johnson. See H. Ray Baker v. Associated Banking Corp., supra, 592 F.2d at 552.

3. Remaining Corporate Directors

The remaining directors did not have sufficient contact ⁴ with the state of Nevada to support personal jurisdiction. Their contact with Nevada was limited to attendance at a shareholders' meeting at which they allegedly acted to divert and mismanage corporate assets. ⁵ The cumulative impact of these acts does not trigger application of Nevada's long-arm statute. See Abbott v. Second Judicial District Court, 90 Nev. 321, 526 P.2d 75, 76 (1974). Moreover, the impact of the directors' external acts on the forum is irrelevant to jurisdictional analysis. Wells Fargo, supra, 556 F.2d at 417.

III. COMPLIANCE WITH FEDERAL RULE OF CIVIL PROCEDURE 23.1

The district court concluded that Greenspun failed to comply with Rule 23.1 of the Federal Rules of Civil Procedure by not seeking relief from the board of directors prior...