Court Opinion

ID: 2796640
Source: CourtListenerOpinion
Date Created: 2015-04-27 18:00:54.468534+00
Date Added: 2024-06-11T15:24:18.189604
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SEISMIC RESERVOIR 2020, INC.,            No. 13-55413
                          Plaintiff,
                                            D.C. No.
                 v.                      8:09-cv-00561
                                           JAK-RNB
BJÖRN PAULSSON,
       Defendant-Counterclaimant-
                       Appellant,          OPINION

                 v.

WANDA DOROSZ, an individual;
MICKEY ABOUGOUSH, an individual;
ROBERT HEMING, an individual,
 Third-Party Defendants-Appellees.

      Appeal from the United States District Court
         for the Central District of California
      John A. Kronstadt, District Judge, Presiding

                Argued and Submitted
       February 12, 2015—Pasadena, California

                  Filed April 27, 2015
2                      PAULSSON V. DOROSZ

      Before: David Bryan Sentelle,* Morgan Christen,
          and Andrew D. Hurwitz, Circuit Judges.

                    Opinion by Judge Sentelle

                           SUMMARY**

                            Jurisdiction

    The panel affirmed the district court’s dismissal of Bjorn
Paulsson’s counterclaim seeking damages for breach of
fiduciary duties owed by directors of an Alberta company
under § 242 of the Alberta Business Corporations Act.

    The panel held that the district court had jurisdiction to
entertain the controversy, but Paulsson’s counterclaim arising
under the Alberta Act did not raise a cause of action for
which the district court could grant relief. The panel
concluded that the district court should have dismissed
Paulsson’s counterclaim under Fed. R. Civ. P. 12(b)(6) for
failure to state a cause of action rather than under Fed. R. Civ.
P. 12(b)(1) for lack of jurisdiction. The panel noted that there
was no occasion to remand to provide Paulsson an
opportunity to amend his pleadings because he could not
possibly win relief in the district court where the right created

 *
  The Honorable David Bryan Sentelle, Senior Circuit Judge for the U.S.
Court of Appeals for the District of Columbia Circuit, sitting by
designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                    PAULSSON V. DOROSZ                        3

by § 242 of the Alberta Act can only be enforced in the
designated tribunal – the Queens Bench of Alberta.

                         COUNSEL

John M. Whelan (argued), and Lawrence J. Hilton, O’Neil
LLP, Irvine, California, for Defendant-Counterclaimant-
Appellant.

Joe Sibley (argued), and Kiwi Alejandro Danao Camara,
Camara & Sibley LLP, Houston, Texas, for Third-Party
Defendants-Appellees.

                          OPINION

SENTELLE, Senior Circuit Judge:

    Björn Paulsson appeals from the dismissal of his
counterclaim seeking damages under § 242 of the Alberta
Business Corporations Act for breach of fiduciary duties
owed by directors of an Alberta company. The district court
dismissed Paulsson’s claim under Federal Rule of Civil
Procedure 12(b)(1), concluding it did not have subject matter
jurisdiction to issue a remedy because the Alberta Act vested
exclusive jurisdiction in the Court of the Queen’s Bench of
Alberta. Paulsson argues that the Act’s exclusive jurisdiction
provision did not deprive the federal district court of subject
matter jurisdiction, and asks this Court to vacate the
dismissal. For the reasons set forth below, we affirm the
judgment of dismissal, although we do so under Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim, rather
than Rule 12(b)(1) for lack of jurisdiction.
4                  PAULSSON V. DOROSZ

                             I.

    In 2009, Seismic Reservoir 2020, Inc. (“Seismic”), a
California company with its principal place of business in
California, brought suit against Paulsson alleging violations
of the Lanham Act and breach of fiduciary duty. In response,
Paulsson raised counterclaims against two Canadian directors
of Seismic arising from his status as a shareholder and
director of Seismic’s parent company, Seismic Reservoir
2020, Ltd., “a corporation organized and existing under the
laws of the Province of Alberta, Canada.” First Am.
Counterclaim at 2, Seismic Reservoir 2020, Inc. v. Paulsson,
et al., No. 09-00561 (C.D. Cal. Oct. 19, 2011), ECF No. 57.
Originally the counterclaim alleged three causes of action:
(1) fraud and conspiracy to defraud; (2) breach of fiduciary
duty; and (3) unfair business practices in violation of
California Business and Professions Code § 17200, et seq.

    In January 2012, Paulsson dismissed his counterclaims for
fraud and unfair business practices with prejudice. He also
specified that his remaining counterclaim alleged a breach of
fiduciary duties “owed by directors to shareholders as
codified in Alberta law.” Counterclaimant Björn Paulsson’s
Trial Br. Re: Duties Owed to Shareholders Under Alberta
Business Corporations Act § 242, at 4, Seismic Reservoir
2020, No. 09-00561 (C.D. Cal. Dec. 19, 2011), ECF No. 71.
As the district court explained: “Paulsson did not merely
seek the application of Alberta law concerning breach of
fiduciary duty”—rather, he “brought an action for shareholder
oppression pursuant to [the Alberta] statute.” Order at 5,
Seismic Reservoir 2020, No. 09-00561 (C.D. Cal. Sept. 14,
2012), ECF No. 111 (hereinafter “Order”).
                   PAULSSON V. DOROSZ                        5

                              A.

    Titled “Relief by Court on the ground of oppression or
unfairness,” § 242 of the Alberta Business Corporations Act
allows a complainant to “apply to the Court for an order . . .
to rectify the matters complained of” if the alleged activities
are “oppressive or unfairly prejudicial” or if the corporation
or its directors “unfairly disregard[ed] the interests of any
security holder, creditor, director or officer.” § 242(1), (2).
The Act defines “Court” as “the Court of Queen’s Bench of
Alberta,” § 1(m), and gives that Court broad equitable powers
to regulate corporate matters, see § 242(3). The Queen’s
Bench of Alberta may, among other things, issue “an order
for the liquidation and dissolution of the corporation,”
regulate corporate affairs “by amending the articles or
bylaws,” direct the “issue or exchange of securities,” appoint
directors, set aside contracts or transactions, and, as is
relevant here, issue “an order compensating an aggrieved
person.” § 242(3).

                              B.

    The district court requested additional briefing regarding
its jurisdiction to issue a shareholder oppression remedy
under § 242 and appointed Peter T. Linder to act as an
independent expert on Alberta corporate law. In his expert
report, Linder explained how § 242 provides the designated
court broad powers to regulate matters of internal corporate
management. Canadian courts have recognized that § 242 of
the Alberta Business Corporations Act gives “complete
jurisdiction” for the purpose of the Act to “the Court of
Queen’s Bench of Alberta.” Ironrod Invs. Inc. v. Enquest
Energy Servs. Corp., 2011 CarswellOnt 1045 (Can. Ont. Sup.
Ct. J.) (WL). Linder surveyed Canadian law and concluded
6                   PAULSSON V. DOROSZ

that “the prevailing authorities establish that only an Alberta
Court has jurisdiction to grant a remedy for oppression
brought in respect of an Alberta corporation.” Indep. Expert
Rep. of Peter T. Linder, Q.C. at 10, Seismic Reservoir 2020,
No. 09-00561 (C.D. Cal. Aug. 21, 2012), ECF No. 109-1.

    Relying on Linder’s report as well as analyses from other
courts that have considered similar questions, the district
court concluded that it could not issue a remedy for
shareholder oppression under § 242 of the Alberta Business
Corporations Act. Citing Tennessee Coal, Iron, & Railroad
Co. v. George, 233 U.S. 354 (1914), the district court noted,
“in some actions, the location and the remedy could be so
united such that the remedy could be administered only in a
specified court.” Order at 8. It concluded: “This is such a
matter.” Id. Because it is not an Alberta court, the district
court dismissed Paulsson’s counterclaim pursuant to Federal
Rule of Civil Procedure 12(b)(1). Paulsson timely appealed.

                              II.

    We have jurisdiction to review the district court’s order
under 28 U.S.C. § 1291. “We review de novo dismissals
under Rules 12(b)(1) and 12(b)(6).” Rhoades v. Avon Prods.,
Inc., 504 F.3d 1151, 1156 (9th Cir. 2007).

    Paulsson argues the district court erred when it dismissed
his counterclaim for lack of subject matter jurisdiction. We
agree. In this anomalous case, the district court had
jurisdiction to entertain the controversy, but Paulsson’s
counterclaim arising under the Alberta Act does not raise a
cause of action for which the district court could grant relief.
Thus, the district court should have dismissed Paulsson’s
                    PAULSSON V. DOROSZ                        7

counterclaim under Rule 12(b)(6) for failure to state a cause
of action rather than Rule 12(b)(1) for lack of jurisdiction.

    “‘Subject matter jurisdiction defines the court’s authority
to hear a given type of case.’” Carlsbad Tech., Inc. v. HIF
Bio, Inc., 556 U.S. 635, 639 (2009) (quoting United States v.
Morton, 467 U.S. 822, 828 (1984)). “Strictly speaking,
‘subject-matter jurisdiction’ concerns ‘the courts’ statutory or
constitutional power to adjudicate’ cases.” Leeson v.
Transamerica Disability Income Plan, 671 F.3d 969, 975 (9th
Cir. 2012) (quoting Steel Co. v. Citizens for a Better Env’t,
523 U.S. 83, 89 (1998)). In 28 U.S.C. § 1332(a)(2),
Congress, acting pursuant to Article III of the Constitution,
conferred upon the district courts jurisdiction over “all civil
actions where the matter in controversy exceeds the sum or
value of $75,000, exclusive of interest and costs, and is
between . . . citizens of a State and citizens or subjects of a
foreign state.” This action by Paulsson, a citizen of
California, against Canadian citizens seeking damages in
excess of $75,000, fits squarely within the language of
§ 1332(a)(2). Therefore, the district court had subject matter
jurisdiction.

    The exclusive jurisdiction provision in § 242 of the
Alberta Business Corporations Act cannot divest the district
court of its jurisdiction to entertain Paulsson’s counterclaim.
“Only the Constitution and the laws of the United States can
dictate what cases or controversies our federal courts may
hear.” Randall v. Arabian Am. Oil Co., 778 F.2d 1146, 1150
(5th Cir. 1985); see also Markham v. City of Newport News,
292 F.2d 711, 713 (4th Cir. 1961) (“In determining its own
jurisdiction, a District Court of the United States must look to
the sources of its power and not to acts of states which have
no power to enlarge or to contract the federal jurisdiction.”).
8                   PAULSSON V. DOROSZ

    In holding that it lacked subject matter jurisdiction, the
district court relied on several non-binding decisions it found
“instructive and persuasive.” Order at 6. The district court’s
reliance on these decisions, while understandable, is
ultimately misplaced.

    The district court first relied on Taylor v. LSI Logic Corp.,
715 A.2d 837 (Del. 1998), overruled on other grounds by
Martinez v. E.I. DuPont de Nemours & Co., Inc., 86 A.3d
1102, 1112 n.42 (Del. 2014). In Taylor, the plaintiff brought
an equitable action under the Canada Business Corporations
Act (a statute similar to the Alberta Business Corporations
Act) in the Delaware Court of Chancery seeking to enjoin a
Delaware company from acquiring a minority shareholder’s
interest in a Canadian company. Id. at 838. Because the Act
vested exclusive jurisdiction in Canadian courts, the
Delaware Supreme Court held that the Court of Chancery
lacked subject matter jurisdiction to grant equitable relief. Id.
at 841–42.

    Of note, the Court of Chancery is “Delaware’s
Constitutional court of equity,” and it “can acquire subject
matter jurisdiction over a cause in only three ways, namely,
if: (1) one or more of the plaintiff’s claims for relief is
equitable in character, (2) the plaintiff requests relief that is
equitable in nature, or (3) subject matter jurisdiction is
conferred by statute.” Candlewood Timber Grp., LLC v. Pan
Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004) (footnotes
omitted). The third method did not apply in Taylor because
no statute conferred subject matter jurisdiction on the Court
of Chancery. See 715 A.3d at 839–41. Therefore, the court
had to consider whether it had subject matter jurisdiction over
a claim for equitable relief arising under the Canadian Act.
Because “the right and the remedy were found to be so
                   PAULSSON V. DOROSZ                        9

inseparably intertwined that equitable relief under the
[Canadian Act] could only be obtained from one of the
specific Canadian tribunals mandated in the statute,” the
Court of Chancery lacked subject matter jurisdiction.
Candlewood, 859 A.2d at 1007 (summarizing Taylor).

    This case is different. The district court, unlike the
Delaware Court of Chancery, has statutory subject matter
jurisdiction to adjudicate Paulsson’s counterclaim under
28 U.S.C. § 1332. Even if the right created by § 242 of the
Alberta Act “is ‘so united’ with the remedies available under
the statute that” a remedy can be provided only by the Court
of Queen’s Bench of Alberta, Order at 9 (quoting Tenn. Coal,
233 U.S. at 359), the exclusive jurisdiction provision in the
Alberta Act cannot deprive the federal district court of its
statutory subject matter jurisdiction. As the Fifth Circuit
stated in Randall: “We reject outright the notion that the law
of a foreign country can unilaterally curtail the power of our
federal courts to hear a dispute even though the dispute
involves rights fixed by the laws of another nation.” 778 F.2d
at 1150. Otherwise put, “foreign law . . . cannot determine
the subject matter jurisdiction of an American court.” Flame
S.A. v. Freight Bulk Pte. Ltd., 762 F.3d 352, 366 (4th Cir.
2014) (Wilkinson, J., concurring); see also Veitz v. Unisys
Corp., 676 F. Supp. 99, 102 (E.D. Va. 1987) (“Even the Act
of State Doctrine, which functions somewhat as a parallel to
the Full Faith and Credit Clause at the international level, is
not violated by a federal court’s refusal to apply a foreign
exclusive jurisdiction provision.” (citing Randall, 778 F.2d at
1153)).

   “To allow foreign law to dictate the availability of
subject-matter jurisdiction would be to divest the Constitution
and Congress of their sovereign authority to decide the extent
10                 PAULSSON V. DOROSZ

of the power of the judicial branch.” Flame S.A., 762 F.3d at
363 (Wilkinson, J., concurring). We cannot do that.

    Nonetheless, dismissal was the proper judgment.
Although foreign law cannot limit the jurisdiction of an
Article III court to entertain controversies, when it creates a
right, that foreign law can determine the remedy. Here, the
Alberta Business Corporations Act provided a remedy
available only through “the Court of Queen’s Bench of
Alberta.” § 1(m). Thus, the counterclaim asserted by
Paulsson is one upon which no relief could be granted by the
district court. Rule 12(b)(6) provides the vehicle for
dismissal of a complaint (or in this case, a counterclaim) for
“failure to state a claim upon which relief can be granted.”

    “Rule 12(b)(6) authorizes a court to dismiss a claim on
the basis of a dispositive issue of law.” Neitzke v. Williams,
490 U.S. 319, 326 (1989). Whether the court can provide
Paulsson a remedy under § 242 of the Alberta Business
Corporations Act is a dispositive issue of law. Moreover, we
have recognized that “[a] trial court may dismiss a claim sua
sponte under Fed. R. Civ. P. 12(b)(6).” Omar v. Sea-Land
Serv., Inc., 813 F.2d 986, 991 (9th Cir. 1987). Of course, the
district court must give notice of its sua sponte intention to
dismiss and provide the plaintiff with “an opportunity to at
least submit a written memorandum in opposition to such
motion.” Wong v. Bell, 642 F.2d 359, 362 (9th Cir. 1981).
Here, however, the district court fulfilled its notice
requirement when it requested additional briefing regarding
its jurisdiction to issue a shareholder oppression remedy
under § 242 of the Alberta Business Corporations Act.
Although the district court spoke in terms of the wrong
subsection of Rule 12, it nonetheless provided Paulsson with
ample knowledge that it contemplated dismissing his
                    PAULSSON V. DOROSZ                        11

counterclaim because of its lack of authority to grant relief.
Indeed, the district court notified Paulsson and provided him
an opportunity to brief, argue, and, if he could, correct the
defect. He could not and therefore, of course, did not.

     In affirming the judgment of dismissal, we note that there
is no occasion to remand to provide Paulsson any opportunity
to amend his pleadings because he “cannot possibly win
relief.” Id. As the district court correctly stated: “[T]he right
created by § 242 of the [Alberta Business Corporations Act]
. . . can be enforced only in the designated tribunal—the
Court of Queen’s Bench of Alberta.” Order at 9. Because the
district court is not the Queen’s Bench of Alberta, Paulsson
cannot possibly win relief in the district court. Dismissal
under Rule 12(b)(6) is therefore proper.

                             ***

    For the reasons stated, we affirm the district court’s
dismissal of Paulsson’s counterclaim for breach of fiduciary
duties owed by directors under § 242 of the Alberta Business
Corporations Act.

    AFFIRMED.