Court Opinion

ID: 9696532
Source: CourtListenerOpinion
Date Created: 2023-08-25 18:50:55.583673+00
Date Added: 2024-06-11T18:20:23.294113
License: Public Domain

HARRIS, Justice
(dissenting)
The nonresident defendants insist they are not subject to Iowa jurisdiction and hence should not be put to the expense and trouble of coming here to defend the suit. The majority seems to respond by holding they must nevertheless appear'and defend on the merits and, at the conclusion of trial, we can properly decide the jurisdiction issue. I do not find the jurisdiction issue and the merits to be so intertwined as to demand such a requirement. Under the circumstances it would be possible, and certainly more appropriate, to place the burden on the plaintiff initially to demonstrate a more tenable claim of jurisdiction. Accordingly, I dissent.
I disagree with the majority’s premise that each count of the trustee’s petition implicates all five defendants individually. Each prayer in each count lists the five defendants but the same cannot be said of the specific claims in each count. Where it is only the prayer of a count that mentions a defendant, unsupported by any claim, such a defendant should not be considered implicated even under the wide parameters of notice pleading.
The majority summarized the first count of the petition this way:
The first count bases a claim on defendants’ failure to contribute adequate capital to Ju-Li and breach of fiduciary and *876managerial duties to it, alleges that Ju-Li was the alter ego of C. Patel Corp., and charges that defendants’ acts were fraudulent, oppressive, and unjust to the damage of Ju-Li and its employees and creditors.
It seems clear that recovery is sought only against Mr. and Mrs. Patel. As for C. Patel Corp., the petition seeks only that its corporate veil be pierced in order to reach those two individuals. Mr. and Mrs. Patel are the only two defendants who could contribute adequate capital to Ju-Li. They are the sole shareholders of the C. Patel Corp., Ju-Li’s sole shareholder and, it is alleged, alter ego. A corporation’s shareholders are responsible for providing adequate capital to their corporation; the responsibility does not fall on the corporate directors. See, e.g., Briggs Transp. Co. v. Starr Sales Co., 262 N.W.2d 805, 810 (Iowa 1978); 19 Am Jur 2d, Corporations, § 713, at 214-15 (1965); 18 C.J.S. Corporations § 193 at 616 (1939). I fail to see how Ju-Li’s directors are implicated in count I.
Although I concede that, under count I, the first prong of the Larsen [Larsen v. Scholl, 296 N.W.2d 785, 787 (Iowa 1980)] test was met regarding Mr. and Mrs. Patel, I disagree that the second prong was met. In State ex rel. Miller v. Internal Energy Management Corp., 324 N.W.2d 707, 716 (Iowa 1982), we attributed the minimum contacts of a Texas corporation to its nonresident directors for jurisdictional purposes, based on the attorney general’s extensive allegation of fraud. Here, on the other hand, when the corporate veil of Ju-Li is pierced under count I, we find an Illinois corporation having virtually no contact with Iowa. I am not willing to pierce this second corporate veil to reach Mr. and Mrs. Patel. To do so will lead to claims of jurisdiction through lines of several corporations spread through various states. In order to justify such an expansion of jurisdiction through corporate offices in other states we should, as a minimum, have what we had in Miller where the ingredients of the claimed fraud were alleged.
Plaintiff’s second count contains allegations of mismanagement and waste of Ju-Li and its assets. Again the majority believes all five defendants are involved. Mrs. Patel, however, is only a shareholder of Ju-Li’s sole shareholder, the C. Patel Corp. In Iowa an action for corporate mismanagement and waste is derivative, brought on behalf of a corporation against its directors. See, e.g., Holi-Rest, Inc. v. Treloar, 217 N.W.2d 517, 525 (Iowa 1974); State ex rel. Weede v. Bechtel, 244 Iowa 785, 811, 56 N.W.2d 173, 187 (1953); 19 Am.Jur.2d, Corporations, § 1336 at 743; 19 C.J.S. Corporations § 821 at 223-26. Accordingly I think the second count of the trustee’s petition could only be brought against the directors of Ju-Li, those in a position to mismanage Ju-Li and waste its assets. Ghareeb does not contest Iowa jurisdiction, leaving Chuck Patel, Mr. Patel, and Landsman. As to them the first prong of the Larsen test is satisfied under count II. Again, however, the second prong is not.
In Larsen we identified five factors that are useful in determining whether the exercise of jurisdiction over nonresidents offends due process:
(1) the quantity of the contacts;
(2) the nature and quality of the contacts;
(3) the source and connection of the cause of action with those contacts;
(4) the interest of the forum state; and
(5) the convenience of the parties.
296 N.W.2d at 788.
The trial court applied these factors and declined to exercise its jurisdiction:
The court concludes that the quality of the contacts by these specially-appearing defendants is insignificant; the quantity of the contacts is minimal; the source and connection of the cause of action with the contacts is nebulous at best.... [TJhere certainly is an interest of the forum state insofar as aggrieved parties in Iowa are concerned, and . .. the convenience of the parties is relatively insignificant. ... [T]he case could be brought just as easily in Illinois as in Iowa.
*877The trial court specifically found that the directors’ acts were taken on behalf of their corporation, a conclusion that should be binding on us. Normally, in a special appearance proceeding, we give a trial court’s findings the force and effect of a jury verdict. Larsen, 296 N.W.2d at 787. The liability of the directors under count II is based on their action, or lack of action, taken as directors of Ju-Li. I would hold that the nonresident directors are protected by the fiduciary shield doctrine under count II.
I would affirm.
McGIVERIN and CARTER, JJ., join in this dissent.