Does Nevada Have Jurisdiction? Part II

This is the second part of what will be a three-part blog. See yesterday’s blog for the issue that the following argument addresses:

A. The Fiduciary Shield Doctrine Is Not Law In Nevada And Even If It Were It Would Not Preclude An Exercise Of Jurisdiction

The fiduciary shield doctrine, a flawed legal theory that has generated confusion and countless inconsistent exceptions, provides that acts performed by an individual in his capacity as a corporate officer may not form the predicate for the exercise of jurisdiction over him as an individual. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 901 (2d Cir. 1981). The primary rationale in support of this doctrine is that “it is unfair to force an individual to defend a suit brought against him personally in a forum with which his only relevant contacts are acts performed not for his own benefit but for the benefit of his employer.” Id. at 902.

The purpose of the fiduciary shield doctrine is to protect individuals from unreasonable and unjust subjection to personal jurisdiction, not to protect them from liability. Merkel Assocs. v. Bellofram Corp., 437 F. Supp. 612, 618 (W.D.N.Y. 1977). Therefore, the issue that the fiduciary shield doctrine addresses is where a claim can be litigated, not whether a claim can be asserted. See The Fiduciary Shield Doctrine: Minimum Contacts in a Special Context, 65 B.U.L. Rev. 967 (1985).

Many legal commentaries assail the fiduciary shield doctrine as a product of misanalysis and mistake and advocate its total abandonment. Id. at 967.

Courts have sometimes stated that acts performed on behalf of a corporate employer cannot supply minimum contacts for the purpose of jurisdiction over the actor. See Personal Jurisdiction and the Corporate Employee: Minimum Contacts Meet the Fiduciary Shield, 38 Stan. L. Rev. 813 (1986), citing Marine Midland Bank v. Miller, 664 F.2d 899, 902 (2d Cir. 1981); Wilshire Oil Co. v. Riffe, 409 F.2d 1277, 1281 & n.8 (10th Cir. 1969); Allen v. Toshiba Corp., 599 F. Supp. 381, 384 (D.N.M. 1984); Bulova Watch Co. v. K. Hattori & Co., 508 Supp. 1322, 1347 (E.D.N.Y. 1981).

While this approach has been termed the “fiduciary shield rule,” the label is misleading for three reasons. First, this approach is usually applied to corporate employees alone, who comprise only a limited subset of all fiduciaries recognized in law. Id., citing Grove Press, Inc. v. CIA, 483 F. Supp. 132, 135-36 (S.D.N.Y. 1980) (fiduciary shield rule does not protect CIA agents from jurisdiction based on wrongful acts performed in their official capacity). See also Idaho Potato Comm’n v. Washington Potato Comm’n, 410 F. Supp. 171, 180-83 (D. Idaho 1975) (fiduciary shield rule does protect state potato commissioners). Second, this approach can operate in a variety of ways, not all of which actually shield an employee from jurisdiction that might otherwise exist. Third, and contrary to Petitioner’s contention, the uncertain authority for this approach, and its random application, make it far less than a settled rule.

In fact, several U.S. Supreme Court opinions seem to reject outright the constitutional underpinnings of the rule.
In Calder v. Jones, 465 U.S. 783, 790 (1984), the Court upheld California’s exercise of jurisdiction over a reporter who lived in Florida and who was employed by a Florida-based newspaper. The reporter had written an allegedly libelous article about a California resident, which the newspaper published and distributed in California. The Court said that the reporter’s acts directed at California justified jurisdiction there. The Court also held that California had properly exercised jurisdiction over the newspaper’s president, who had edited the article. In reaching these results, the Court stated that each defendant’s contacts with the forum must be “assessed individually.” The Court recognized that an employee is not subject to jurisdiction merely by virtue of the employer corporation’s contacts with the forum. But it does not follow from this proposition, according to the Court, that an employee is never subject to jurisdiction when he acts in a corporate capacity. The Court did not mention the fiduciary shield rule by name, but held that defendants’ “status as employees does not somehow insulate them from jurisdiction.” Id.; See also Personal Jurisdiction and the Corporate Employee: Minimum Contacts Meet the Fiduciary Shield, 38 Stan. L. Rev. 813 (1986).

In the companion case of Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984), the Court reversed a lower court decision that it did not have jurisdiction over a corporate publisher in a libel action. In a footnote, the Court discussed whether the individual owner and publisher of the magazine might also be subject to jurisdiction. The Court stated, “[i]n Calder v. Jones…. we today reject the suggestion that employees who act in their official capacity are somehow shielded from suit in their individual capacity. Id. at 781, n. 13; See also Personal Jurisdiction and the Corporate Employee: Minimum Contacts Meet the Fiduciary Shield, 38 Stan. L. Rev. 813 (1986)

Courts have frequently expressed dissatisfaction with the results of a blanket application of the fiduciary shield rule. Some courts have recognized that the fiduciary shield rule may represent an improper deviation from minimum contacts analysis. Others have stated that the fiduciary shield is an equitable doctrine that should be applied with discretion. Still other courts have articulated various explicit exceptions to the rule. See Personal Jurisdiction and the Corporate Employee: Minimum Contacts Meet the Fiduciary Shield, 38 Stan. L. Rev. 813, 823 (1986).

One thing that is clear is that the fiduciary shield doctrine is not the law of Nevada. Under Nevada law, the inquiry as to whether a state may assert personal jurisdiction over a nonresident defendant entails a two-pronged analysis. First, a court must determine whether Nevada’s long-arm statute authorizes the assertion of jurisdiction under the given set of facts. Second, the application of the long-arm statute to those facts must satisfy the constitutional demands of due process. If both requirements are met, then jurisdiction over the nonresident defendant exists.

In its Order denying Defendant’s Motion to Dismiss, the District Court held that Plaintiff must establish a prima facie showing of personal jurisdiction and cited to Trump v. Eighth Judicial Dist. Court, 109 Nev. 687, 694, 857 P .2d 740, 744-745 (1993). See Order Denying Motion to Dismiss, p.2.

The District Court further recognized that “[d]ue process requires ‘minimum contacts’ between the defendant and the forum state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Order, p. 2;109 Nev. at 694. The defendant must have sufficient contact with the forum such that he or she could reasonably anticipate being haled into court there. Id. The defendant must purposefully avail herself of the privilege of acting in the forum state or of causing important consequences in that state. The cause of action must arise from the consequences in the forum state of the defendant’s activities, and those activities, or the consequences thereof, must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable. Id.

A state may exercise specific personal jurisdiction only where: (1) the defendant purposefully avails herself of the privilege of serving the market in the forum or of enjoying the protection of the laws of the forum, or where the defendant purposefully established contacts with the forum state, and (2) the cause of action arises from that purposeful contact with the forum or conduct targeting the forum. Id.

The guarantee of due process contained in the fourteenth amendment has been construed as limiting the jurisdiction of state courts to enter judgments affecting the rights or interests of nonresident defendants. Kulko v. Superior Court, 436 U.S. 84, 91 (1978). The parameters for such a constitutional exercise of jurisdiction have been set by the minimum contacts standard.