Heil v. Morrison Knudsen Corp.
| Decision Date | 01 December 1988 |
| Docket Number | No. 88-2537,88-2537 |
| Citation | 863 F.2d 546 |
| Parties | Fed. Sec. L. Rep. P 94,114 Edward F. HEIL, Plaintiff-Appellant, v. MORRISON KNUDSEN CORPORATION, William M. Agee, William J. Deasy, William C. Douce, George W. Gilfillan, Robert A. McCabe, Velma V. Morrison, K.M. Price, J.L. Scott, and Richard H. Vortmann, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Keith F. Bode, Jenner & Block, Chicago, Ill., for plaintiff-appellant.
David E. Springer, Skadden, Arps, Slate, Meagher & Flom, Chicago, Ill., for defendants-appellees.
Before CUDAHY, POSNER, and EASTERBROOK, Circuit Judges.
Edward Heil appeals from a judgment dismissing, for lack of personal jurisdiction over the defendants, his diversity suit against Morrison Knudsen Corporation and the members of its board of directors. The suit, filed in the federal district court in Chicago, charges Morrison Knudsen and its directors with having violated their fiduciary duty to Heil, a shareholder, by adopting a shareholders' rights agreement directed against hostile takeovers--the proverbial "poison pill." Heil is a citizen of Illinois. Morrison Knudsen is a Delaware corporation with its principal place of business in Idaho. The directors live in different states but none is a resident of Illinois. For jurisdiction over the defendants Heil relies primarily on the Illinois long-arm statute, which subjects nonresidents to the jurisdiction of Illinois courts with respect to Ill.Rev.Stat. ch. 110, p 2-209(a).
In 1986, meeting in a conference room at Chicago's O'Hare Airport, Morrison Knudsen's board (several members "attending" by speakerphone) adopted a bylaw which provided that if any person or group became the beneficial owner of 20 percent or more of Morrison Knudsen stock, or made a tender offer for 30 percent or more, every other shareholder would become entitled to buy, at a steep discount, as many new shares of the stock of the corporation as he already owned. The result would be to dilute the value of the 20 percent acquirer's share by about 50 percent. The purpose and probable effect of a poison pill is to discourage hostile takeovers; and where its motivation is to protect incumbent management at the shareholders' expense, the adoption of a poison pill may violate the directors' fiduciary duty to the shareholders. See Dynamics Corp. of America v. CTS Corp., 794 F.2d 250, 253-56 (7th Cir.1986), rev'd on other grounds, 481 U.S. 69, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987); Dynamics Corp. of America v. CTS Corp., 805 F.2d 705 (7th Cir.1986). As is usual with poison pills, the shareholders of Morrison Knudsen were not consulted about the board's action or asked to vote on it.
Heil did not begin buying stock in Morrison Knudsen until May 1988. By the end of June he had acquired 6.2 percent of that stock, and having thus passed 5 percent he filed with the Securities Exchange Commission, as required by the Williams Act, 15 U.S.C. Sec. 78m(d)(1), a Schedule 13D disclosing his acquisition. See 17 C.F.R. Sec. 240.13d-1. A few days later Morrison Knudsen sued Heil in the federal district court in Idaho, charging that his Schedule 13D was materially false and misleading; among other things, it failed to disclose that the State of Illinois was seeking an order barring any corporation of which Heil was a director from doing business with any public body in the state. Morrison Knudsen engages in substantial construction activities in Illinois through subsidiaries, and according to its complaint in the Idaho suit it fears that if Heil became a director of Morrison Knudsen those subsidiaries might be barred from bidding on public works projects in Illinois. Two days after Morrison Knudsen filed the suit in Idaho, the board of directors, this time meeting in New York, amended the poison pill so that its provisions would be triggered by the acquisition of only 10 percent of the corporation's stock by an "adverse person," defined (so far as is relevant here) to match Heil's status in the administrative proceedings in Illinois: a "defendant in or target of any action, proceeding or investigation ... [that] could hinder or prevent [Morrison Knudsen] from doing any significant business ... as a result of such person's affiliation with" the corporation. In his original complaint in the present suit, Heil had challenged only the amended pill. But when the defendants moved to dismiss the complaint for lack of personal jurisdiction, Heil quickly amended it to challenge the original poison pill as well, noting that the amendment had changed only the trigger of the poison pill and not its operation once triggered.
The long-arm statute authorizes the state courts of Illinois (and the federal district courts there as well, by virtue of Fed.R.Civ.P. 4(e)) to exercise jurisdiction over nonresidents with respect to causes of action arising either from the transacting of business in Illinois or the commission of a tort there. And independent of the statute there is jurisdiction if the nonresident is doing business in Illinois in a substantial way; the plaintiff need not show that the cause of action arose from that business. Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 199-203, 57 Ill.Dec. 730, 734-35, 429 N.E.2d 847, 851-52 (1981).
In this court Heil asserts that his cause of action for breach of fiduciary obligation arose both from the 1986 meeting at O'Hare at which the board of directors adopted the original poison pill and from Morrison Knudsen's construction business in Chicago, the fulcrum of the corporation's suit against Heil in Idaho. If we were willing to overlook the fact that Heil did not apprise the district judge of the argument that the relevant business transactions in Illinois included Morrison Knudsen's construction business, and if we pierced the corporate veil that separates Morrison Knudsen's subsidiaries from Morrison Knudsen--not an implausible move, given Morrison Knudsen's litigating posture in Idaho--this ground for personal jurisdiction over the corporation would be persuasive. True, the long-arm statute does not authorize jurisdiction on the basis of the defendant's transacting business in Illinois; the cause of action must arise from that transacting. But if the allegations in Morrison Knudsen's complaint in the Idaho suit are taken at face value, the breach of fiduciary obligation in adopting a poison-pill amendment aimed directly and unmistakably at Edward Heil arose from Morrison Knudsen's construction business in Illinois. For that was the business that allegedly would be jeopardized if Heil became a director of Morrison Knudsen. Moreover, the construction business in Illinois, once it is attributed to Morrison Knudsen, is the kind of substantial, ongoing business activity that would make Morrison Knudsen subject to jurisdiction under the "doing business" doctrine, which has no "arising from" component.
But we are not disposed to relieve Heil of his waiver in the district court. Although the amended complaint refers to Morrison Knudsen's construction activities in Illinois, it does so--as far as one can tell from reading either the complaint or any other part of the record before the district court--merely to set the background for the Idaho suit. Heil never asserted that these activities were relevant to personal jurisdiction. This is big-time commercial litigation, with experienced lawyers on both sides, and even less than elsewhere are we here inclined to allow a party to urge reversal of the district judge on grounds not presented to him. Moreover, this may not be a case merely of inadvertence. Heil may have had a tactical reason for not trying to base jurisdiction on Morrison Knudsen's business in Illinois. For if he had done so, he would have supplied ammunition for Morrison Knudsen's argument that the directors were acting in the best interests of the corporation by amending the poison pill: they wanted to protect the subsidiaries' extensive public works business in Illinois.
Standing by itself, the meeting at O'Hare was not enough "doing business" in Illinois to support jurisdiction apart from the long-arm statute. It could, however, constitute the "transaction of any business" in Illinois, and therefore support jurisdiction if Heil's cause of action arose out of it. The usual "transaction of any business" to which the provision applies is the negotiation, making, or execution of a...
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