Court Opinion

ID: 4090280
Source: CourtListenerOpinion
Date Created: 2016-10-18 15:29:35.275844+00
Date Added: 2024-06-11T08:45:02.171047
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

REMIGIUS G. SHATAS,
                                               No. 73716-3-1
                    Appellant,
                                               DIVISION ONE                  CT3

             v.
                                               UNPUBLISHED OPINION           R
ANDREW M. SNYDER, an individual,
and the marital community composed
of Andrew M. Snyder and Jane Doe
Snyder; CAMBRIDGE INFORMATION
GROUP I LLC, a Delaware limited                                               CO
liability company; and CAMBRIDGE                                              cr-

INFORMATION GROUP, INC., a
Maryland corporation,

                    Respondents,

             and

BLUCORA, INC., a Delaware
corporation,                                   FILED: October 17, 2016

      Nominal Defendant/Respondent.

      Trickey, J. — Remigius Shatas appeals the orders dismissing his

shareholder derivative action against Andrew Snyder and Snyder's two companies

for insider trading in breach of their fiduciary duties to Blucora, Inc. Shatas

contends that the trial court erred when it dismissed his action under Civil Rule

12(b)(3) after concluding that the state of Delaware was the proper venue under

the forum selection clause in Blucora's bylaws. In reaching this conclusion, the

trial court rejected Shatas's arguments that venue was proper in King County

because Blucora consented in writing to King County Superior Court and because
No. 73716-3-1/2

Delaware courts lacked personal jurisdiction over one of the defendants, an

indispensable party.

       The trial court properly rejected Shatas's first argument, because Blucora

did not consent in writing to King County. However, the trial court erroneously

rejected Shatas's second argument.         Delaware courts do not have personal

jurisdiction over the defendant for the reason cited by the trial court. And, on this

record, we cannot determine whether Delaware has personal jurisdiction over the

defendant for any of the reasons raised for the first time in this appeal. Accordingly,

we reverse and remand for further proceedings.

                                       FACTS

       In March 2015, Shatas, as a shareholder of Blucora Inc., filed a verified

derivative complaint in King County Superior Court against Snyder and Snyder's

two companies: Cambridge Information Group (CIG), a Maryland corporation, and

Cambridge Information Group I LLC (CIG I), a Delaware corporation (collectively,

the Snyder defendants). In the complaint, Shatas asserted that he was "and at all

times since October 12, 2000 has been, a shareholder of Blucora."1 Blucora is a

Delaware corporation headquartered in King County, Washington.

       The complaint alleged that on November 20, 2013, CIG I sold over one

million shares of its Blucora stock "on the basis of material, insider information that

had not been disclosed to the investing public."2 The sale occurred just after a 14-

year stock price peak and just before a drastic decline of Blucora's stock price. At

the time of the sale, Snyder was sitting on the Blucora board as the designated

1 Clerk's Papers (CP) at 15.
2CPat13.
No. 73716-3-1/3

representative of CIG, which was the managing member, sole owner, and

investment decision-maker of CIG I. Shatas alleged that, through Snyder, CIG I

had access to the nonpublic information at the time of this sale.

       Based on these allegations, Shatas brought a claim of breach of the duty of

loyalty—insider trading. Among the relief requested, Shatas sought disgorgement

of insider trading profits resulting from the sale of the 1,006,093 shares of Blucora

common stock on November 20, 2013.

       Blucora, a nominal defendant, moved to dismiss the derivative complaint

for improper venue under Washington's Civil Rule (CR) 12(b)(3). It argued that

Shatas was obligated to bring this action in Delaware based on a forum selection

clause in Blucora's bylaws, which expressly specified Delaware courts as the

exclusive forum for litigation over intra-corporate matters, including shareholder

derivative suits and actions for breach of fiduciary duty except in certain

circumstances. The Snyder defendants joined this motion.

       Shatas opposed Blucora's motion.         He argued that under the forum

selection clause, venue was proper in King County for two separate reasons: (1)

because Blucora had consented in writing to King County Superior Court as a

proper forum, and (2) because Delaware courts lacked jurisdiction over CIG, an

indispensable party.

       The trial court heard argument on Blucora's motion on May 8, 2015. It later

granted the motion and dismissed the case without prejudice "and on the condition

that CIG consents to the personal jurisdiction of state or federal courts in
No. 73716-3-1/4

Delaware."3 Shatas moved for reconsideration, which the court denied.              This

appeal followed.

          After filing the notice of appeal, Shatas moved in this court to add his

counsel as an additional plaintiff/appellant. He asserted that his counsel became

aware of a March 2015 letter from Blucora's stock transfer agent stating that

Shatas's Blucora shares were escheated to the state of Alabama in 2012, prior to

Shatas filing this lawsuit.      Shatas expressed doubts about the validity of the

escheatment but sought to add his counsel as an interim plaintiff "out of an

abundance of caution" until his shareholder status had been favorably resolved or

a permanent alternative plaintiff was substituted."4 A commissioner of this court

denied Shatas's motion.

                                        ANALYSIS

                                Motion to Dismiss Appeal

          As a threshold matter, Blucora moves to dismiss this appeal under RAP

17.1(a) on the basis that Shatas "is not and has never been a Blucora shareholder

. . . and thus is not an 'aggrieved party'5 under RAP 3.1."6 In support of this

assertion, Blucora claims that Shatas's shares of Blucora stock escheated to the

state of Alabama in 2012, Alabama sold those shares, Shatas filed a claim for the

proceeds, Alabama approved the claim and issued a check payable to Shatas in

3 CP at 310-19.
4 Plaintiff/Appellant's Motion to Add an Add'l Plaintiff/Appellant at 5.
5"An aggrieved party is one who was a party to the trial court proceedings, and one whose
property, pecuniary and personal rights were directly and substantially affected by the
lower court's judgment." In re Welfare of Hansen. 24 Wash. App. 27, 35, 599 P.2d 1304
(1979).
6 Defendant/Respondent Blucora, Inc.'s Motion to Dismiss Appeal at 1.
No. 73716-3-1/5

the amount of the proceeds, and Shatas cashed this check in July 2014 prior to

filing his derivative complaint.

       We deny Blucora's motion. RAP 17.1(a) provides that a party may seek

relief "other than a decision of the case on the merits." Here, the motion to dismiss

requires us to resolve a merits-based issue—Shatas's alleged lack of derivative

standing. This issue was not raised in the trial court. And, for reasons we explain

next, we decline to consider standing for the first time on appeal.

                                      Standing

       Based on the same allegations presented in its motion to dismiss, Blucora

argues that Shatas's lack of derivative standing provides an alternative ground to

affirm. We decline to consider this issue.

       "Washington law clearly establishes that standing cannot be maintained

without a proprietary interest in the corporation." Sound Infiniti. Inc. v. Snyder, 169
Wash. 2d 199, 212, 237 P.3d 241 (2010).           A derivative plaintiff must remain a

shareholder in order to maintain standing for a derivative action. Sound Infiniti.
169 Wash. 2d at 212-13.

       But our Supreme Court has said that "[i]f the issue of standing is not

submitted to the trial court, it may not be considered on appeal." Tvler Pipe Indus..

Inc. v. Wash. Dep't of Revenue. 105 Wash. 2d 318, 327, 715 P.2d 123 (1986),

vacated. 483 U.S. 232, 107 S. Ct. 2810, 97 L Ed. 2d 199 (1987)).

       Here, the issue of Shatas's derivative standing was not submitted to the trial

court. Moreover, the issue involves factual disputes on which the appellate record

is not fully developed. The trial court is in a better position to address these
No. 73716-3-1/6

disputes.     For these reasons, we decline to consider the issue of Shatas's

derivative standing. We leave this to be resolved by the trial court on remand.

                          Dismissal for Improper Venue

      The main dispute in this appeal is whether the trial court erred when it

dismissed this action for improper venue. Specifically, the question presented is

whether the trial court properly concluded that Delaware is the proper forum under

the forum selection clause in Blucora's bylaws.

      Generally, when reviewing decisions on the enforceability of forum selection

clauses, the abuse of discretion standard applies. If, however, a pure question of

law is presented, a de novo standard of review should be applied as to that

question. Dix v. ICT Group, Inc., 160 Wash. 2d 826, 833-34, 161 P.3d 1016 (2007).

"[Wjhen there are no disputed facts, the proper standard of review of the

application of a contract's forum selection clause is de novo." Keystone Masonry.

Inc. v. Garco Const.. Inc.. 135 Wash. App. 927, 932, 147 P.3d 610 (2006).

       Here, the parties agree that Blucora's bylaw controls and is valid and

enforceable. The bylaw provides:

       2.16  Forum for Adjudication of Disputes
             Unless the corporation consents in writing to the selection of
      an alternative forum, the sole and exclusive forum for (i) any
      derivative action or proceeding brought on behalf of the corporation,
       (ii) any action asserting a claim of breach of a fiduciary duty owed by
       any Director, officer, or other employee of the corporation to the
       corporation or the corporation's stockholders, (iii) any action
       asserting a claim arising pursuant to any provision of the [Delaware
       General Corporation Law], or (iv) any action asserting a claim
       governed by the internal affairs doctrine shall be a state or federal
       court located within the state of Delaware, in all cases subject to the
       court's having personal jurisdiction over the indispensable parties
No. 73716-3-1/7

      named as defendants.[7]

       Under the plain language of this provision, Delaware is the "sole and

exclusive forum" for any derivative action except when (1) the corporation

"consents in writing to the selection of an alternative forum" or (2) Delaware lacks

"personal jurisdiction over the indispensable parties named as defendants."8
       Before the trial court, Shatas argued that both of these exceptions applied.

The trial court rejected these arguments. Shatas contends that this was error. He

again asserts that King County is the proper venue for both ofthese reasons. We

address these arguments in turn.

                           Consent to Alternative Forum

       Shatas argues that the trial court erred when it rejected his argument that

Blucora consented in writing to venue in King County by entering into three

agreements in August 2011. We disagree.

       The three August 2011 agreements were the Securities Purchase

Agreement, whereby CIG I purchased 764,192 shares of its stock and a warrant
to purchase an additional one million shares of stock; the Warrant to Purchase
Common Stock; and the Stockholder Agreement, whereby the parties agreed that

Snyder, CIG's representative, would serve as a member of Blucora's board of
directors.

       The Stockholder Agreement contains the following forum selection clause:
              8.9 Governing Law; Consent to Jurisdiction. This Agreement
       shall be governed by, and construed in accordance with, the internal
       laws of the State of Delaware without regard to the choice of law
       principles thereof. Each of the parties hereto irrevocably submits to

7 CP at 61 (emphasis added).
8CPat61.
No. 73716-3-1/8

       the exclusive jurisdiction of the courts of the State of Washington
       located in King County and the United States District Court for the
       Western District of Washington for the purpose of any suit, action,
       proceeding or judgment relating to or arising out of this Agreement
       and the transactions contemplated hereby. Service of process in
       connection with any such suit, action or proceeding may be served
       on each party herein anywhere in the world by the same methods as
       are specified for the giving of notices under this Agreement. Each of
       the parties hereto irrevocably consents to the jurisdiction of any such
       court in any such suit, action or proceeding and to the laying of venue
       in such court. Each party hereto irrevocably waives any objection to
       the laying of venue of any such suit, action or proceeding brought in
       such courts and irrevocably waives any claim that any such suit,
       action or proceeding brought in any such court has been brought in
       an inconvenient forum.[9]

The Warrant to Purchase Common Stock and the Securities Purchase Agreement

contain nearly identical forum selection clauses.

       Shatas relies on the emphasized language in this forum selection clause to

assert that "Blucora consented in writing to insider trading claims, such as this one,

being brought in King County Superior Court."10 Specifically, he claims that the

breach of fiduciary duty claim "relat[es] to" and "arisfes] out of the August 2011

agreements.11 We reject this argument.

        Under Delaware law, a forum selection clause "no matter how broadly

construed, can extend only so far as the series of obligations set forth in the

underlying agreement." Parfi Holding AB v. Mirror Image Internet. Inc.. 817 A.2d

149,156 (2002). "Thus, [a forum selection clause] should be applied only to claims

that bear on the duties and obligations under the Agreement." Parfi. 817 A.2d at

156. It does not apply to fiduciary duty claims when the defendant's fiduciary duties

9 CP at 192-93 (emphasis added).
10 Appellant's Br. at 24.
11 Appellant's Br. at 24 (alterations in original).
                                                8
No. 73716-3-1/9

to the plaintiff "consist of a set of rights and obligations that are independent of any

contract." 817 A.2d at 157.

       For example, in Parfi, the Delaware Supreme Court concluded that fiduciary

duty claims brought by a stockholder were beyond the scope of an arbitration

clause,12 because the fiduciary duty claims were not based on the legal rights and

obligations created by the agreement. 817 A.2d at 155. It pointed out that the

fiduciary duty claims were "independently and separately assertable" had there

been no agreement, there was no contract term that created an obligation upon

which the plaintiff could base a breach of fiduciary duty claim, and the fiduciary

duties owed to the plaintiff rested on an independent set of rights provided for in

the Delaware general corporation law. 817 A.2d at 157-58.

       By contrast, when a forum selection clause appears in the document that

gives rise to the fiduciary relationship governing fiduciary claims, the forum

selection clause applies. OTKAssocs.. LLC v. Friedman. 85 A.3d 696, 721 (2014);

Parfi, 817 A.2d at 160 n.42.

       For example, in Elf Atochem North America. Inc. v. Jaffari. the Supreme

Court of Delaware concluded that an arbitration clause and forum selection clause

applied to the fiduciary duty claims brought by a member of the limited liability

company (LLC), because the agreements containing these clauses created a

system of setting forward the governance and operation of the parties' joint

venture. 727 A.2d 286, 287-88 (1998). It reasoned that the fiduciary duty claims

12 The Delaware Supreme Court has recognized arbitration clauses as "'a specialized kind
of forum-selection clause.'" Nat'l Indus. Group (Holding) v. Carlvle Inv. Mqmt. LLC, 67
A.3d 373, 384 n.41 (2013) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94
S. Ct. 2449, 41 L. Ed. 2d 270 (1974)).
No. 73716-3-1/10

were directly related to the defendant's action or inaction in his role as a manager

and the remedies bore directly on the defendant's duties and obligations under the

agreement. 727 A.2d at 294-95; see also Douzinas v. Am. Bureau of Shipping,

Inc., 888 A.2d 1146,1149-50 (2006) (concluding that the arbitration clause applied

to fiduciary duty claims brought by minority members of a LLC, because the LLC

agreement created the governance system for the LLC and established the

framework governing all of the members' rights and duties toward one another).

       Here, the source of Snyder's fiduciary duty is not the Stockholder

Agreement. Rather, Snyder's duty is imposed by Delaware general corporation
law. Shatas relied on Delaware common law and "principles of restitution and

equity" to argue that the defendants breached their duty of loyalty and were
obligated to disgorge any and all profits from such sale.13 Shatas does not point
to any term in the Stockholder Agreement that creates an obligation upon which
he can base his breach of fiduciary duty claim.

       Further, the Stockholder Purchase Agreement does not give rise to or

govern the defendants' status as fiduciaries. It does not set out a detailed set of
duties or responsibilities that Snyder assumed by virtue of his role on the board.
Although the Stockholder Agreement prohibits CIG Iand Snyder from engaging in
insider trading, both parties agree that the contract merely restates obligations
imposed by federal and state securities laws or state corporations laws.
Additionally, this agreement was between the corporation and a limited number of
shareholders, rather than all members of the LLC.

13 CP at 133.

                                         10
No. 73716-3-1/11

       In short, the agreements in this case are more akin to the agreement in Parfi

than to the LLC agreement in Elf Atochem.             Shatas's claim is independently

assertable and is not dependent on the terms of the agreement for its resolution.

Accordingly, the trial court properly concluded that Shatas's fiduciary duty claims

are outside the scope of the forum selection clause in the agreement.

       Shatas asserts that his fiduciary duty claims "arise from" the August 2011

agreements because "it is only by virtue of the [August 2011 agreements] that

Snyder and the CIG entities became insiders and corporate fiduciaries."14 He
further claims that without the August 2011 agreements, his equitable claim "would

not exist."15

       But the relevant consideration is whether the agreements at issue govern

the fiduciary duties, not whether they merely give rise to the fiduciary status. In

fact, in Parfi. it was by virtue of the underwriting agreement that the corporate

investor became the controlling shareholder and was able to appoint directors to

the corporation's board of directors. 817 A.2d at 151-52. Nonetheless, the court

rejected the argument that the agreement governed the defendants' fiduciary
duties. In short, the relevant focus is on the source of the legal obligation. In this

case, that is Delaware common law, not the August 2011 agreements. Shatas's

arguments to the contrary are not persuasive.

                            Jurisdiction over Indispensable Parties

        Shatas argues that the trial court erred when it rejected his argument that
CIG, an indispensable party, is not subject to the personal jurisdiction of Delaware

14 Appellant's Br. at 26.
15 Appellant's Br. at 26.
                                              11
No. 73716-3-1/12

courts. In particular, Shatas contends that the trial court misapplied the law when

it concluded that CIG's postfiling willingness to consent to Delaware jurisdiction

was sufficient to establish personal jurisdiction. On this latter point, we agree.

         "'[Jurisdiction is normally determined as of the date of the filing of the suit.'"

Central States, Se. and Sw. Areas Pension Fund v. Phencorp Reinsurance Co.,

Inc., 440 F.3d 870, 877 (7th Cir. 2006) (quoting Wild v. Subscription Plus, Inc.. 292
F.3d 526, 528 (7th Cir. 2002)).           Thus, postfiling activities are irrelevant in

determining jurisdiction. See Allen v. Russian Fed'n. 522 F. Supp. 2d 167, 193-94

(D.D.C. 2007) (rejecting argument that postcomplaint contacts could establish

personal jurisdiction).

         Here, as of the date the suit was filed, CIG had not yet consented to

personal jurisdiction in Delaware.         Rather, CIG later consented to personal

jurisdiction in Delaware in its joinder to Blucora's motion to dismiss for improper

venue.      But CIG's postfiling consent does not establish that Delaware had

jurisdiction over CIG at the time jurisdiction was determined. Neither does the fact

that the trial court granted dismissal "on the condition that CIG consents to the

personal jurisdiction of state or federal courts in Delaware."16 In short, the trial

court erred when it relied on this postfiling consent to conclude that Delaware had

jurisdiction over CIG.

         Blucora relies on Worden v. Smith to argue that CIG's postfiling consent

was sufficient to establish personal jurisdiction. 178 Wash. App. 309, 314 P.3d 1125

(2013).    There, Division Three held that "a party waives the claim of lack of

16 CP at 318 (boldface omitted).
                                             12
No. 73716-3-1/13

personal jurisdiction by 'consenting], expressly or impliedly, to the court's

exercising jurisdiction.'"   Worden. 178 Wash. App. at 328 (alteration in original)

(quoting In re Marriage of Steele. 90 Wash. App. 992, 997-98, 957 P.2d 247 (1998)).

But Worden does not stand for the proposition that postfiling conduct can invalidate

properly invoked jurisdiction. Reliance on Worden is misplaced.

       Blucora points out that courts have dismissed suits pursuant to forum

selection clauses "even when the clauses were triggered by events that took place

during the course of the litigation."17 But none of the cases cited by Blucora

considered whether a party's postfiling consent could invalidate otherwise proper

jurisdiction. Rather, the courts merely determined that the forum selection clauses

applied on the occurrence of certain events.

       Blucora also points out that courts have decided forum non conveniens

motions based on stipulations made during the course of litigation. But the forum

non conveniens doctrine "presupposes that there are at least two forums in which

the defendant is amenable to process." Lisbv v. PACCAR. Inc.. 178 Wash. App. 516,

519-20, 316 P.3d 1097 (2013). More importantly, even if CIG's postfiling consent

was sufficient to make it amenable to process, Blucora did not move to dismiss

based on the doctrine of forum non conveniens, and the trial court did not invoke

this doctrine or balance any of the necessary private and public factors required

for dismissal under this doctrine. Sales v. Weyerhaeuser Co.. 163 Wash. 2d 14, 20,

177P.3d 1122(2008).

17 Br. of Nominal Defendant/Respondent Blucora, Inc. at 25 (citing Gen. Protecht Grp..
Inc. v. Leviton Mfg. Co., Inc.. 651 F.3d 1355, 1359 (Fed. Cir. 2011) and John Wveth &
Brother Ltd. v. Cigna Int'l Corp.. 119 F.3d 1070, 1076 (3d Cir. 1997)).
                                            13
No. 73716-3-1/14

        Finally, Blucora presents a number of alternative grounds to affirm. For the

first time on appeal, Blucora claims that CIG is not a necessary party under

Delaware's Chancery Rule 19(a)(1) or Washington's CR 19(a)(2). It also claims

that CIG is not an indispensable party18 under Washington's CR 19(b).

       Also for the first time on appeal, Blucora asserts that Delaware courts have

personal jurisdiction over CIG under several federal rules and Delaware statutes.

Specifically, it argues that Delaware has jurisdiction over CIG because (1) CIG is

subject to jurisdiction under the "bulge" provision of Federal Rule of Civil Procedure

4(k)(1)(B); (2) CIG is subject to jurisdiction under the Delaware long-arm statute,

10 Del. Code § 3104; (3) CIG is subject to jurisdiction under the Delaware Limited

Liability Company Act, 6 Del. Code § 18-109; and (4) CIG is subject to jurisdiction

under the Delaware Director and Officer Consent statute, 10 Del. Code § 3114.

Blucora acknowledges that it did not argue any of these theories to the trial court

but asserts that this court should consider them because it can affirm on any

ground supported by the record.             Shatas urges this court to disregard these

arguments and does not address them on the merits.

        In general, "[arguments or theories not presented to the trial court will

generally not be considered on appeal." Washburn v. Beatt Eguip. Co.. 120 Wash. 2d
246, 290, 840 P.2d 860 (1992). However, "'[a] party may present a ground for

affirming a trial court decision which was not presented to the trial court ifthe record

18 Blucora did not challenge Shatas's characterization of CIG as indispensable in its
briefing before the trial court. It raised this contention for the first time in the trial court at
oral argument. Because of this lack of briefing, the trial court did not consider whether
CIG is an indispensable party, but rather, it"accepted] Shatas's contention that CIG is an
indispensable party" and decided the issue on the basis that Delaware had jurisdiction
over CIG. CP at 318.

                                                14
No. 73716-3-1/15

has been sufficiently developed to fairly consider the ground.'" State v. Barker.

162 Wash. App. 858, 863, 256 P.3d 463 (2011) (quoting RAP 2.5(a)).

      Here, despite Blucora's assertions to the contrary, the record is not

sufficiently developed for us to fairly consider these new theories. Additionally,

Shatas fails to address these new arguments in his briefing. Without the benefit

of full development of the record and complete briefing, it would be imprudent for

this court to address these new arguments. For these reasons, we decline to

consider for the first time on appeal whether CIG is an indispensable party. We

also decline to consider for the first time on appeal whether the state of Delaware

has personal jurisdiction over CIG under any of these federal rules and Delaware

statutes. The parties may litigate these issues on remand.

      We reverse and remand for further proceedings.

WE CONCUR:

                                        15