The World in U.S. Courts: Winter 2016 - Personal Jurisdiction
December.09.2016
Plaintiff Precision Orthopedic Implants is a California corporation engaged in the business of selling medical devices. In 2012, it entered into a contract with Limacorporate S.P.A., an Italian company that manufacturers shoulder replacement implants, to sell Limacorporate’s products in Southern California. Precision’s owner, Barry Dworkin, negotiated the terms of the contract through in-person meetings with Limacorporate’s business development director at an airport in Los Angeles and at a surgical conference in San Francisco, and via email with Limacorporate’s Italy-based business development associate, Stefano Cimatoribus. The contract permitted Limacorporate to terminate the five-year contract early if minimum sales “guarantees” were not met.
Limacorporate terminated the contract in 2014 for “lack of sales and market penetration.” The plaintiffs initiated arbitration and separately brought tort claims against various corporate and individual defendants. Defendants Gabriele Lualdi, president of Limacorporate’s board of directors and president of Lima USA, its US subsidiary, and Cimatoribus moved to dismiss on personal jurisdiction grounds.
Before analyzing whether defendants had the necessary minimum contacts with California, the District Court in Los Angeles considered whether the individual defendants were protected by the “fiduciary shield” doctrine, under which individuals’ contacts with a forum in their corporate, rather than individual, capacities in some cases are ignored for purposes of determining whether personal jurisdiction over the individuals exists. The Court found that the shield offered protection to Cimatoribus because he was neither the alter ego of Limacorporate nor the “guiding spirit” behind the alleged tortious conduct. The Court’s finding was based on the facts that Cimatoribus was neither an officer nor director and that he was involved in the contract with Precision only from an administrative standpoint—he was not involved in direct negotiations with Dworkin or anyone else. The Court reached a different conclusion as to Lualdi, who had signed the contract with Precision as President of Lima USA and the president of the board of directors of Limacorporate, and had ratified the alleged misrepresentations in the contract.
Turning to the minimum contacts analysis, the Court applied the usual three-prong test for specific jurisdiction required under the Due Process Clause of the federal constitution: (i) did the defendant “purposefully avail” itself of the privilege of conducting business in the forum? (ii) does the claim relate to or arise out of forum-related activities? and (iii) is exercise of jurisdiction reasonable? For the first prong, the court conducted a “purposeful direction analysis” typically used in tort cases and found that Lualdi’s signing of the contract was an act purposefully directed at California and indeed was intended to induce the plaintiffs to render distribution services in that State. In addition, the contract clearly showed that the plaintiffs resided in California and suffered the “brunt of the harm” in California. The Court rejected Lualdi’s argument that there was no purposeful direction because he was not involved in the contract negotiations and had no direct contact with Dworkin, noting that “Lualdi was involved at a much more important level: deciding whether to accept or reject the negotiated contract.” The Court pointed out that finding otherwise could lead to “heads of corporations effectively insulat[ing] themselves from personal jurisdiction by having low-level employees negotiate contracts.”
The Court found that the second prong of the minimum contacts test was also satisfied because the causes of action stemmed from terms in a contract that would not have been effectuated but for Lualdi’s signature. As to the third prong, the Court acknowledged that Lualdi carries the “heavy burden of litigating this case in California,” but noted that advances in communication and travel meant that the burden would not rise to the level of being a “compelling” factor, as would be required for due process principles to be implicated once minimum contacts had been shown.