Abstract
A manufacturer sued one of its distributors and the distributor's majority owner in a North Dakota court. The majority owner tried to have the court dismiss him from the lawsuit because he was an Indiana citizen and because he should not be held personally liable for acts he performed as an employee of his company. The court rejected both arguments and concluded that the majority owner should remain in the lawsuit. It found the majority owner's involvement in the relationship between the manufacturer and the distributor subjected him to the jurisdiction of the court in North Dakota and that he could be held personally liable for wrongful acts he committed as an employee.
Background
Clean Waste Systems (CWS) designs, manufactures, and services ozone-based medical waste treatment systems.
Timothy J. Miller formed a company to sell those systems, signing a Master Independent Sales Representative Agreement with CWS's exclusive distributor. The rights and obligations of the agreement eventually transferred from Miller's company to WasteMedX (in which Miller had a controlling stake) and from CWS's distributor to CWS.
WasteMedX then began negotiations with Indiana University Bloomington for the sale of CWS treatment systems. As those negotiations progressed, WasteMedX's relationship with CWS deteriorated, and ultimately, WasteMedX informed CWS of its intent to terminate the Agreement. After providing this notice, WasteMedX allegedly stopped working on the negotiations with IU-Bloomington. Instead, CWS asserted that Miller worked with an engineer to design an ozone-based medical waste treatment system using CWS's confidential information and trade secrets, and WasteMedX then sold the waste treatment system to IU-Bloomington.
These actions prompted CWS to sue both WasteMedX and Miller in North Dakota for (1) breach of contract; (2) unlawful interference with business expectancies; (3) state and federal trade secret misappropriation (4) unfair competition; and (5) conversion. Miller moved to dismiss, challenging the court's personal jurisdiction over him and arguing he could not be held personally liable for acts undertaken in his official capacity as an employee of WasteMedX.
The Clean Waste Systems Order
The first question for the court was whether it had personal jurisdiction over Miller. Personal jurisdiction refers to the court's authority to make a legally binding decision regarding the party being sued in a case. The Constitution requires that a person have sufficient contacts with a state before he can be sued in that state. Thus, if a person does not have sufficient contacts with the state, the state's courts do not have personal jurisdiction over that person.
Because Miller was a citizen of Indiana, the question became whether the forum selection clause in the Agreement could subject him to suit in North Dakota. CWS argued the answer was yes, asserting that Miller was a party to the Agreement in his individual capacity. The court disagreed, finding that Miller was not named as a party in the agreement and had sufficiently held himself out to be a representative of his company. Nevertheless, the court found that Miller was subject to its jurisdiction because his close relationship to the dispute made it foreseeable that he would be bound by the forum selection clause, citing his role in the Agreement's formation and performance. In particular, he personally benefitted from the agreement through his ownership of a controlling stake in WasteMedX as well as the company that had originally contracted with CWS's distributor. Miller had also participated in the negotiation and signing of the Agreement and performed the obligations of the agreement for more than 6 years. These factors together meant that Miller had sufficient contacts with the state of North Dakota for the court to exercise jurisdiction over him.
The second question for the court was whether Miller could be held personally liable for acts he performed as an employee of his company. Miller argued that, even if everything in CWS's complaint were true, the answer was no. The court largely disagreed. While it found that Miller could not be sued for breach of the Agreement, as he was not a party to that contract, CWS's remaining tort claims alleged that both Miller and WasteMedX committed wrongful acts that caused CWS harm. If Miller had in fact committed these wrongful acts, his status as an employee would not protect him from liability, and so the Court declined to dismiss the suit.
Strategy and Conclusion
The Clean Waste Systems order shows that both organizations and their employees may be sued for wrongdoing. Company executives should also be aware that sufficient involvement in and benefit from their company's contracts may expose them to suit in states other than their home state.
Further Information
The Clean Waste Systems order can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
