Young v. Colgate-Palmolive Co.

• Decision Date: 02 May 1986
• Docket Number: No. 85-1442,COLGATE-PALMOLIVE,85-1442
• Citation: 790 F.2d 567
• Parties: Fed. Sec. L. Rep. P 92,718, 4 Fed.R.Serv.3d 994 Quentin YOUNG, individually, and on behalf of those similarly situated, Plaintiff-Appellant, v.COMPANY, a foreign corporation, and Keith Crane, Reuben Mark, Vernon R. Alden, Albert V. Casey, Frank Pace, Jr., Thomas R. Wilcox, Howard W. Blauvelt, John P. Kendall, and Howard B. Wentz, Jr., respectively as Directors of Colgate-Palmolive Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 567

790 F.2d 567

Fed. Sec. L. Rep. P 92,718, 4 Fed.R.Serv.3d 994

Quentin YOUNG, individually, and on behalf of those similarly situated, Plaintiff-Appellant, v. COLGATE-PALMOLIVE COMPANY, a foreign corporation, and Keith Crane, Reuben Mark, Vernon R. Alden, Albert V. Casey, Frank Pace, Jr., Thomas R. Wilcox, Howard W. Blauvelt, John P Kendall, and Howard B. Wentz, Jr., respectively as Directors of Colgate-Palmolive Company, Defendants-Appellees.

No. 85-1442.

United States Court of Appeals Seventh Circuit.

Argued Oct. 22, 1985.

Decided May 2, 1986.

Marshall Patner, Orlikoff, Flamm & Patner, Chicago, Ill., Frederic Brace, Brace & O'Donnell, Chicago, Ill, Robert A. Holstein, Holstein, Mack & Associates, Chicago, Ill. for plaintiff-appellant.

George A. Katz, William C. Sterling, Jr., Warren R. Stern, Wachtell, Lipton, Rosen & Katz, New York City, Bernard J. Nussbaum, Jay I. Bratt Sonnenschein, Carlin, Nath & Rosenthal, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, Chief Judge, COFFEY, Circuit Judge, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

Plaintiff shareholder filed this derivative action against the Colgate-Palmolive Company as the nominal defendant, and against the members of Colgate's board of directors. The complaint alleges that the directors breached their fiduciary duty to the corporation by adopting a "poison pill," or anti-takeover plan. On behalf of Colgate, plaintiff seeks a declaratory judgment that the plan and its adoption are invalid and unlawful; a temporary and permanent injunction against the plan's application; costs; and attorneys' fees. The corporation has been properly served and Chicago counsel for the directors accepted service for them as a professional courtesy as if each had been served out of state and without waiving any jurisdictional objections.

Jurisdiction is properly based on diversity of citizenship, 28 U.S.C. Sec. 1332. Plaintiff is an Illinois resident; Colgate is a Delaware corporation that is qualified to do business in Illinois, with its principal place of business in New York; the directors are variously residents of Connecticut, New York, Massachusetts, Texas and Vermont. For the purpose of subject matter jurisdiction, Colgate is properly treated as a defendant. The actual controversy or real collision of interests is between the shareholders, in the right of the corporation, and the directors, in control of the corporation. "The cause of action, to be sure, is that of the corporation. But the corporation has become through its managers hostile and antagonistic to the enforcement of the claim.... [This is] resolved by the pleadings and the nature of the dispute." Smith v. Sperling, 354 U.S. 91, 97, 77 S.Ct. 1112, 1115, 1 L.Ed.2d 1205 (1957); see also Liddy v. Urbanek, 707 F.2d 1222, 1224 (11th Cir.1983) (corporation remains a defendant where management malfeasance alleged); Schmidt v. Esquire, Inc., 210 F.2d 908, 912 (7th Cir.1954). Neither party addresses the question of which state's law governs the plaintiff's standing to bring this action or the substantive duties of the directors. "In general, the law of the state of incorporation is held to govern the liabilities of officers or directors to the corporation and its stockholders. See RESTATEMENT [ (SECOND) OF CONFLICT OF LAWS] Sec. 309." Shaffer v. Heitner, 433 U.S. 186, 215 n. 44, 97 S.Ct. 2569, 2585 n. 44, 53 L.Ed.2d 683 (1977). As disposition of the case does not turn on the choice of law, we do not address it.

The directors moved to dismiss, arguing that they were not subject to personal jurisdiction in Illinois and that the suit could not proceed in their absence. The district court agreed that in personam jurisdiction was lacking, and as plaintiff appeared to take the position before the district court that the directors were indispensable, dismissed the suit without prejudice.

Rather than amending his complaint to allege a cause of action against the corporation alone, or filing in an appropriate forum, plaintiff appeals. For the reasons set forth below, we will AFFIRM.

I

A federal district court has personal jurisdiction over a party in a diversity suit only if a court of the state in which it sits would have such jurisdiction. Snyder v. Smith, 736 F.2d 409, 415 (7th Cir.1984). A nonresident individual may be sued in Illinois if he or she performs one of the acts enumerated in the Illinois long-arm statute, ¹ so long as the "minimum contacts" required by due process are present. Deluxe Ice Cream v. R.C.H. Tool Corp., 726 F.2d 1209, 1212 (7th Cir.1984). See International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). As the Illinois Supreme Court has made clear, long-arm jurisdiction may not be exercised in every situation due process would permit. The court should first determine whether the alleged jurisdictional facts fall within the ambit of the long-arm statute; if they do not, it is unnecessary to reach the due process question. Green v. Advance Ross Electronics Corp., 86 Ill.2d 431, 56 Ill.Dec. 657, 427 N.E.2d 1203, 1206 (1981); Deluxe Ice Cream, 726 F.2d at 1214.

Plaintiff first argues that the defendants are subject to the jurisdiction of the district court based on their transaction of business within Illinois under Sec. 2-209(a)(1). He points to the contacts of the directors with the corporation, which is present in Illinois by virtue of doing business here, and unspecified directors' mailings to shareholders in Illinois, in arguing that an allegation of injury to the corporation in Illinois is jurisdictionally adequate.

However, as cases from this circuit and Illinois made plain, Sec. 2-209(a)(1) will not support jurisdiction in this case. First, the individual board members cannot be said to have transacted business within Illinois merely because the corporation is qualified to do business here. Mergenthaler Linotype Co. v. Leonard Storch Enterprises, Inc., 66 Ill.App.3d 789, 23 Ill.Dec. 352, 358, 383 N.E.2d 1379, 1385 (1st Dist.1978), rejected just such an approach: "[t]he plaintiff ... has apparently assumed that if jurisdiction is found as to the [corporation] ... it must automatically follow that jurisdiction exists as to the claim against [the president]. But this is not so.... Any transaction of business with Illinois residents was by the corporation and not by the employee individually." See also Hurletron Whittier, Inc. v. Barda, 82 Ill.App.3d 443, 37 Ill.Dec. 838, 841, 402 N.E.2d 840, 843 (1st Dist.1980) ("Personal jurisdiction must be established by the acts of the [individual] defendant"); Knorr Brake Corp. v. Harbil, Inc., 550 F.Supp. 476, 479 (N.D.Ill.1982) ("Jurisdiction over a corporation simply does not translate into jurisdiction over those with whom it may have common interests."); Club Assistance Program, Inc. v. Zukerman, 594 F.Supp. 341, 345 (N.D.Ill.1984) ("Under Illinois law defendants cannot be haled into court in Illinois on the basis of acts committed here solely as fiduciaries of their corporation.").

Nor do mailings to shareholders support the exercise of individual jurisdiction. They simply are not the type of purposeful contacts recognized as the transaction of business under Sec. 2-209(a)(1). Cf. Snyder v. Smith, 736 F.2d at 415; O'Hare International Bank v. Hampton, 437 F.2d 1173, 1176-77 (7th Cir.1971). Moreover, plaintiff's claim for breach of fiduciary duties does not arise from them. While the term "arising from" is liberally construed by Illinois courts, the contacts must still have some relation to the cause of action; "[t]he minimum relationship required is that the plaintiff's suit be one which lies in the wake of the commercial activities by which the defendant submitted to the jurisdiction of the Illinois courts." Huffman v. Inland Oil & Transport Co., 98 Ill.App.3d 1010, 54 Ill.Dec. 306, 311, 424 N.E.2d 1209, 1214 (5th Dist.1981); cf. Cook Associates, Inc. v. Lexington United Corp., 87 Ill.2d 190, 57 Ill.Dec. 730, 733-34, 429 N.E.2d 847, 850-51 (1981).

Appellant also seems to argue that jurisdiction over the directors may be exercised pursuant to Sec. 2-209(a)(2), the commission of a tortious act within the state. ² This position is also without merit because plaintiff has failed to make a prima facie case that the directors have committed a tort in Illinois.

"[T]he place of a wrong is where the last event takes place which is necessary to render the actor liable." Green v. Advance Ross Electronics Corp., 86 Ill.2d 431, 56 Ill.Dec. 657, 661, 427 N.E.2d 1203, 1207 (1981); People of the State of Illinois v. City of Milwaukee, 599 F.2d 151, 156 (7th Cir.1979). This "last act" doctrine, first articulated in Gray v. American Radiator & Standard Sanitary Corp., 22 Ill.2d 434, 176 N.E.2d 761 (1961), was developed in the products liability context, where a physical injury to the plaintiff is necessary to establish a prima facie case. See Wimmer v. Koenigseder, 108 Ill.2d 435, 92 Ill.Dec. 233, 237-38, 484 N.E.2d 1088, 1092-93 (1985); Green, 56 Ill.Dec. at 661, 427 N.E.2d at 1207 ("The last event in Gray was in Illinois, where the injury to the plaintiff occurred, for to be tortious the act alleged in Gray had to cause injury"). In contrast, a claim for breach of fiduciary duty is sufficient if it alleges the fiduciary relationship and its breach, as these two elements alone would establish liability. Cf. RESTATEMENT (SECOND) OF TORTS Sec. 874 and comment b.

Thus, the situs of the tort alleged here is New York, where the plan was adopted. That shareholders may have been injured by some effect on their interest in the corporation does not mean that the tort was committed wherever they reside. Green, 56 Ill.Dec. at 660-61, 427 N.E.2d at 1206-07 (to hold otherwise would "open[ ] the gates of long-arm jurisdiction to every Illinois resident who incurs loss as the result of the fraud of a non-resident.... To permit no-holds barred jurisdiction of that type, even...