Court Finds that “Corporate Shield” Doctrine Does Not Preclude Assertion of Personal Jurisdiction over Partner of Company on Whose Behalf he Acted in Forum

The World in U.S. Courts: Summer and Fall 2016 - Personal Jurisdiction/Forum Non Conveniens/ Foreign Sovereign Immunity Act (FSIA)

Kapu Gems, et al. v. Diamond Imports, Inc., U.S. District Court for the Northern District of California, August 12, 2016

In this procedurally complicated case, Diamond Imports, a U.S. importer and retailer of diamonds, countersued Kapu Gems (an Indian company), Kapu Gems Ltd. (a Hong Kong company), and Vaghani (an Indian citizen) over a failed business venture.  Vaghani moved to dismiss for lack of personal jurisdiction.

California’s personal jurisdiction requirements are the same as the requirements of the Due Process Clause of the U.S. Constitution, which provide that a defendant have certain minimum contacts with the forum and that maintenance of the suit not offend traditional notions of fair play and substantial justice.  Diamond Imports alleged that the Court had personal jurisdiction over Vaghani (who was not a plaintiff in the original suit) because Kapu Gems, over which the Court has jurisdiction, is merely Vaghani’s “alter ego.”  Under the alter ego doctrine, courts will “pierce the corporate veil” and hold its controlling individual liable if: (1) there is such a unity of interest and ownership between the corporation and the individual controlling it that their separate personalities no longer exist; and (2) inequity would result if the controlling individual were not held liable.  Factors that can support the first element include: commingling of funds or other assets, use of the same office or business location, employment of the same employees, and failure to maintain arm's length relationships among related entities.  Here, Diamond Imports failed to plead any facts tending to show that Kapu Gems is Vaghani’s alter ego. Thus, alter ego liability did not support the exercise of personal jurisdiction over Vaghani.

In the alternative, Diamond Imports argued that Vaghani personally had sufficient contacts with California to be subject to its specific personal jurisdiction.  Vaghani’s contacts included visiting San Francisco to set up the alleged joint venture and to meet with one of the customers that was allegedly unlawfully solicited.  In response, Vaghani asserted the “fiduciary shield doctrine,” which in some circumstances shields individuals from personal jurisdiction if their contacts with the forum occur only as an officer or employee of a company.  The District Court in California rejected the argument, finding that it only prevents courts from exercising personal jurisdiction over a corporate officer who performs activities solely in a corporate or employment capacity. Here, Vaghani was a partner of Kapu Gems and could not rely on the doctrine as a valid defense. Thus, the Court found that minimum contacts were adequately pleaded and refused to dismiss the counterclaim for lack of personal jurisdiction.

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