Appendix — Rowland v. Goodson
Supreme Court brief1998
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No. : Supreme Cour: -
— :
wrne 2 ¢ 2888 APR 1 41998
Suprene Court of the United States:
OCTOBER TERM, 1997
$$$
In Re:
PINTLAR CORPORATION and GULF USA CORPORATION,
Debtors
$$ $$ gg ——_—__—_
DAVID J. ROWLAND, JEREMY E. JAMES, DAVID L. HUDD
and DEREK J. MORAN,
dott ror
Petitioner ‘
—y\y oo
BERNARD GOODSON, FORD ELSAESSER, LOWELL FINLEY
and JAY J. MILLER, as Trustees,
> }
Kespondents.
ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUT
APPENDIX TO PETITION
FOR A WRIT OF CERTIORARI
Lawrence A. Blatte
Counsel of Record
James K. Landau
ROSEN & READE, LLP
757 Third Avenue
New York, New York 10017
(212) 303-9000
( ‘oun sel fe a Pertti wrers
David J. Rowland, Jeremy
E. James, David L. Hudd
and Derek J. Moran
ho
INDEX TO APPENDIX
P*.GE
Amended Opinion of the Court of Appeals for
the Ninth Circnit, dated January 14, 1998,
officially reported at 133 F.3d 1141
Pee Gpee: SIG vu is v5 s0 oka pidad een bak beac seb eees la
Opinion of the Court of Appeals for the Ninth
Ciscunt, filed November 3S, 0997... 6... ccc ineeess 15a
Order of the Court of Appeals for the Ninth Circuit
Granting Permission to Appeal to Petitioners David
J. Rowland, Jeremy E. James, David L. Hudd
and Derek J. Moran, filed October 11, 1996....... 27a
Order of the Court of Appeals for the Ninth
Circuit Granting Permission to Appeal to
Petitioner Inoco Plc, filed October 11, 1996...... 29a
Order of the United States District Court for the
District of Idaho, filed September 16, 1996....... 31a
Memorandum Decision and Order of the United
States District Court for the District of Idaho,
NE FAMINE. Py STG Ss seine ous heetins fawenval 34a
Order of the United States District Court for the
District of Idaho Consolidating Appeals,
ga BL ee: MPR te pun Pie ere 58a
Order of the United States Bankruptcy Court for
the District of Idaho, dated January 25, 1996 ..... 62a
Order of the United States District Court for the
District of Idaho, dated December 11, 1995....... 66a
PAGE
10. Second Amended Order of the United States
Bankruptcy Court for the District of Idaho,
Gates Peovewiyed 6, Tele va so cn xckasidenbscns canes: 69a
11. Amended Order of the United States Bankruptcy
Court for the District of Idaho, dated
Gctever:G, FOF cvs pct asserewskeen an 73a
2. Order of the United States Bankruptcy Court for
the District of Idaho, dated October 2, 1995 ...... 76a
13. Memorandum of Decision of the United States
Bankruptcy Court for the District of Idaho,
Gated SOMUCMDeS CP, BFRe ok rk ee dseserwsndcssecas 79a
14. Former Bankruptcy Rule 7004 .................... 169a
15. Revised Bankruptcy Rule 7004.................... 174a
16. 1996 U.S. Order 96-14 (Order of the Supreme
Court of the United States Adopting and
Amending Rules, April 23, 1996) ................. 179a
la
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 96-36062
D.C. No. CV-96-00010-EJL
\
In re: PINTLAR CORPORATION; GULF USA CORP.,
Debtors.
BERNARD GOODSON; FORD ELSAESSAR;
LOWELL FINLEY; and JAY J. MILLER, as TRUSTEES,
Plaintiffs-Appellees,
—y\V ene
Davip J. ROWLAND; JEREMY E. JAMES;
DAVID L. HUDD; DEREK J. MORAN.
Defendants-Appellants.
2a
No. 96-36063
D.C. No. CV-96-00011-EJL
In re: PINTLAR CORPORATION: GULF USA CORP.,
Debtors.
BERNARD GOODSON; FORD ELSAESSAR;:
LOWELL FINLEY; and JAY J. MILLER, as TRUSTEES,
Plaintiffs-Appellees,
DAVID J. ROWLAND; JEREMY E. JAMES;
DAVID L. HUDD; DEREK J. MORAN.
Defendants,
—and—
INOCO PLC, a United Kingdom corporation,
Defendant-Appellant.
AMENDED OPINION
Appeals from the United States District Court
for the District of Idaho
Edward J. Lodge, Chief Judge, Presiding
Argued and Submitted September 9, 1997
(No. 96-36062)
Submitted on the Briefs September 9, 1997*
(No. 96-36063)
Seattle, Washington
ys The panel unanimously finds this case suitable for decision
without oral argument. Fed. R. App. P. 34(a) and 9th Cir. R. 34-4.
3a
Filed November 3, 1997
Amended January 14, 1998
Before: Eugene A. Wright and Mary M. Schroeder,
Circuit Judges, and William W Schwarzer, *
Senior District Judge.
Opinion by Judge Schwarzer
SUMMARY
Bankruptcy/Litigation and Procedure
The court of appeals affirmed a judgment of the district
court. The court held that a new bankruptcy rule of personal
jurisdiction over foreign residents applies to an action pend-
ing on its effective date if it is “just and practicable.”
Appellee Bernard Goodson and other trustees of a litigation
trust brought a bankruptcy adversary proceeding in 1994
against appellants Inoco Plc, David Rowland, Jeremy James,
David Hudd, and Derek Moran (Rowland Directors) to
recover assets of debtors Gulf USA Corporation and its sub-
sidiary, Pintlar Corporation. The complaint alleged that the
Rowland Directors and Inoco had looted and wasted Gulf’s
assets.
The Rowland Directors were foreign citizens who resided
outside the United States. Inoco is a publicly traded United
Kingdom corporation headquartered in England. The alleged
liabilities arose out of Pintlar’s former ownership of the
Bunker Hill Mine in Idaho, whose operation caused environ-
mental damage. Other claims related to medical and pension
benefits of retired Idaho employees. The creditors owning
these claims were the beneficiaries of the litigation trust.
* Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
4a
The bankruptcy court granted a defense motion to dismiss
certain claims. On appeal, the district court ruled that the
Idaho contacts of directors Rowland, Hudd and James were
sufficient to find that they purposefully availed themselves of
the Idaho forum. As to Moran and Inoco, the court determined
that allegations of conspiracy were sufficient to satisfy the
“purposeful availment” test. The court concluded that the
exercise of specific personal jurisdiction under the Idaho
longarm statute would not be unreasonable, and held them
subject to personal jurisdiction on all the trustees’ claims
except one.
On appeal, the trustees asserted that personal jurisdiction
over the defendatts was provided by Bankruptcy Rule
7004(f), which became effective in 1996 while the adversary
action was pending. The Rowland Directors and Inoco con-
tended that to apply Rule 7004(f) to them would prejudicially
revive Claims that were otherwise barred by the prior rule,
which did not authorize personal jurisdiction over nonresi-
dents on the basis of national contacts, in the absence of
statutory authority.
If the exercise of jurisdiction is consistent with the
Constitution and the laws of the United States, personal juris-
diction may be obtained over nonresidents sued in proceed-
ings under the Bankruptcy Code who are served in conformity
with Rule 7004(a) or the applicable subdivision of Fed. R.
Civ. P. 4. The threshold question was whether the new Rule
7004(f) could be applied to an action commenced in 1994.
The Supreme Court’s order adopting the amended rules states
that insofar as just and practicable, they govern all pending
bankruptcy proceedings.
Applying the rule to this action was plainly practicable.
Jurisdictional statutes speak to the power of the court rather
than to the rights or obligations of the parties. The pre-
sumption against retroactive application of new legislation to
pending cases does not apply to rules conferring or with-
drawing jurisdiction.
ws
a
The argument that the defendants could not reasonably have
expected being haled into court in Idaho was unpersuasive,
since they had at least to reckon with application of the Idaho
longarm statute to their dealings affecting Idaho creditors.
None of the defendants offered facts to show that they would
have behaved differently had they expected Rule 7004(f) to
apply, or that they were otherwise prejudiced. Also weighing
against their arguments was the policy favoring consolidation
in a common forum of all litigation relating to a bankruptcy.
The complaint was a civil proceeding arising under the
Bankruptcy Code. The defendants were served in accordance
with Rule 7004. Rowland contended that he was not properly
served under pre-amendment Rule 7004(e), which states that
the summons and complaint may be served as provided in
Rule 4(d)(1) and (d)(3) for service in a foreign country. Row-
land was served pursuant to Rule 4(i), which is made appli-
cable to adversary proceedings in bankruptcy under Rule
7004(a). As it was in 1990, Rule 4(i) stated that a defendant
in a foreign country could be served in any one of five spec-
ified methods. The district court correctly held the service
under Rule 4(i) to be sufficient. Its ruling was consistent with
that of other court’s, finding Rule 7004(e) to be permissive,
not mandatory.
The exercise of jurisdiction was consistent with the Con-
stitution and laws of the United States. The defendants
reached out to Gulf in the United States and forged a con-
tinuing relationship with it. The alleged looting foreseeably
caused Gulf injury in the United States. The alleged injuries
arose out of the defendants’ purposeful direction of their
activities toward the United States. As part of the conspiracy
to loot Gulf, Inoco purposefully injected itself into the United
States.
6a
COUNSEL
Lawrence E. Carnevale, Carter, Ledyard & Milburn, New
York, New York; John T. Mitchell, Mitchell & Mitchell,
Coeur D’ Alene, Idaho, for the defendants-appellants.
Richard W. Reinthaler, New York, New York; Dianne
Coffino, New York, New York; Givens, Pursley & Huntley,
Boise, Idaho, for the plaintiffs-appellees.
OPINION
SCHWARZER, Senior District Judge:
We must decide whether the bankruptcy court had personal
jurisdiction over the defendants in this adversary proceeding
under Fed. R. Bankr. P. 7004(f) (“Rule 7004(f)”), as amended
subsequent to the commencement of this action.
I. Procedural Background
Plaintiffs, the trustees (the “Trustees”) of a litigation trust
(the “Litigation Trust”), brought this adversary proceeding
against defendants David J. Rowland, Jeremy E. James, David
L. Hudd, Derek J. Moran (the “Rowland Directors”) and
Inoco Ple (“Inoco”) to recover certain assets belonging to
debtors Gulf USA Corporation (“Gulf”) and its subsidiary,
Pintlar Corporation (“Pintlar”). The amended complaint
alleged counts for fraudulent conveyance under Bankruptcy
Code §§ 544, 548 and 550, and for misrepresentation, breach
of fiduciary duties, civil conspiracy, breach of contract and
violation of Delaware corporation law. The bankruptcy court
granted defendants’ motion to dismiss count II (corporate
waste and mismanagement) for lack of personal jurisdiction
but denied the motion with respect to the other counts. On
interlocutory appeal, the district court affirmed the
bankruptcy court’s order as to all counts except count VI
(breach of contract), dismissing that count, and count II (cor-
7a
porate waste and mismanagement), reinstating that count. The
district court certified its order for interlocutory appeal and
we granted the Rowland Directors and Inoco permission to
appeal under 28 U.S.C. § 1292(b); the Trustees do not appeal
the dismissal of the breach of contract count.
Il. Factual Background
The Rowland Directors are-foreign citizens who reside out-
side of the United States. Inoco is a publicly traded United
Kingdom corporation, headquartered in England. At all rel-
evant times, the Rowland Directors were officers of Inoco and
Rowland, through intermediaries, owned a controlling inter-
est in Inoco. The Rowland Directors acquired control of Gulf
in 1989 when Inoco, through a subsidiary, purchased 34% of
Gulf’s outstanding shares. At the time, Gulf had assets
exceeding $177 million but it also had potentially large lia-
bilities. These liabilities arose out of the former ownership of
the Bunker Hill mine by Gulf’s subsidiary, Pintlar. They
largely involve claims for environmental damage caused by
the Idaho operations of Bunker Hill and claims for medical
and pension benefits by its retired Idaho employees. The cred-
itors holding these claims are beneficiaries of the Litigation
Trust.
In their complaint, the Trustees allege that the Rowland
Directors and Inoco, after taking control of Gulf, engaged in
a course of conduct to loot and waste the assets of the com-
pany. They allege that the defendants entered into a series of
transactions by which they transferred Gulf’s assets into their
control. When creditors became concerned over Gulf’s abil-
ity to meet its obligations, Rowland sent a letter to former
employees of Bunker Hill in Idaho, assuring them that Gulf
would meet its obligations for employee benefits and envi-
ronmental clean-up, assurances alleged to be false and fraud-
ulent. In 1991, the Rowland Directors sold Inoco and their
shares in Gulf. In 1993, involuntary bankruptcy petitions were
filed against Gulf and Pintlar in the District of Idaho. This
adversary proceeding followed. In it the Trustees seek to
8a
recover for the benefit of the Litigation Trust the assets of
Gulf and Pintlar, which they claim were looted by defendants.
The district court held that the Idaho contacts of Rowland,
Hudd and James were sufficient to find that they purposefully
availed themselves of the Idaho forum. With respect to Moran
and Inoco, the court found that, although they were not
alleged to have taken actions directed at Idaho, the allegations
of conspiracy were sufficient to satisfy the purposeful avail-
ment test. Parsing the controlling factors, the court concluded
that the exercise of specific personal jurisdiction over the
defendants under the Idaho long-arm statute would not be
unreasonable and held them subject to personal jurisdiction
on all claims other than the contract claim. We affirm, but on
a different ground.
Ill. Standard of Review
Plaintiffs have the burden of establishing personal juris-
diction but need to make only a prima facie showing of juris-
dictional facts to avoid a motion to dismiss. Farmers Ins.
Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 912
(9th Cir. 1990). We review the record in the district court de
novo to determine whether plaintiffs have established a prima
facie case for personal jurisdiction over defendants. Omeluk
v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 269 (9th Cir.
1995). Factual findings are reviewed for clear error. Hunt
Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 78 n.2
(9th Cir. 1987). All factual disputes are resolved in favor of
the Trustees. Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir.
1987).
IV. Personal Jurisdiction under Rule 7004(f)
A. Application of the Rule to the Pending Action
In 1994, when the Trustees commenced this action, Rule
7004 did not authorize personal jurisdiction over nonresidents
on the basis of national contacts. The rule was amended,
9a
effective December 1, 1996,' to add subsection (f) which
provides;
(f) Personal Jurisdiction
If the exercise of jurisdiction is consistent with the
Constitution and the laws of the United States, serving a
summons or filing a waiver of service in accordance with
this rule or the subdivisions of Rule 4 F.R.Civ.P. made
applicable by these rules is effective to establish per-
sonal jurisdiction over the person or any defendant with
respect to a case under the Code, ora civil proceeding
arising under the Code, or arising in or related to a case
under the Code.
Fed. R. Bankr. P. 7004(f). Thus, under the new rule, personal
jurisdiction may be obtained in proceedings under the
Bankruptcy Code over nonresidents who are served in con-
formity with Rule 7004(a) or the applicable subdivisions of
Fed. R. Civ. P. 4 (“Civil Rule 4”) so long as the exercise of
jurisdiction is consistent with the Constitution. See Fed. R.
Bankr. P. 7004(f) and advisory committee notes (1996
Amendments) (“{SJervice or filing a waiver of service in
accordance with this rule or the applicable subdivisions of
F.R.Civ.P. 4 is sufficient to establish personal jurisdiction
over the defendant.”).
The threshold question is whether the new Rule 7004(f)
may be applied to an action commenced in 1994. The
Supreme Court’s order adopting the amended rules states that
they “shall govern all proceedings. . . thereafter commenced
and, insofar as just and practicable, all proceedings in
bankruptcy then pending.” Communication from the Chief
Justice. Amendments to the Federal Rules of Bankruptcy Pro-
cedure that Have Been Adopted by the Court, at 2, Apr. 24,
1996 (emphasis added). Application of the rule to this action
therefore turns on whether it would be just and practicable.
' The district court took note of the forthcoming amendment but
its order was issued before the effective date of the amendment.
10a
While in some circumstances we would remand so that the
district court may exercise its discretion, we see no need to do
so here. Remand is not necessary where the issue has been
fully briefed on appeal, the record is clear and remand would
“impose needless additional expense and delay. . . .” Foster
v. Skinner, 70 F.3d 1084, 1089 (9th Cir. 1995) (citing
Roundtree v. United States, 40 F.3d 1036, 1040 (9th Cir.
1994)); Hoffman v. GMAC, 814 F.2d 1385, 1387 (9th Cir.
1987).
This appeal is interlocutory and is limited to the issue of
personal jurisdiction. Both sides have thoroughly briefed the
issue, and applying the rule to this action 1s plainly practi-
cable. Defendants argue, however, that to do so would be
prejudicial because the claims against them would otherwise
be barred by the prior rule. Their reliance on Chenault v.
USPS, 37 F.3d 535 (9th Cir. 1994), is misplaced. We held
there that a newly enacted statute that shortens the applicable
statute of limitations may not be applied retroactively to bar
a plaintiff’s claim that might otherwise be brought “because
to do so would be manifestly unjust.” /d. at 539. This clearly
is not such a case. As the Supreme Court stated in Landgraf
v. USI Film Products, 511 U.S. 244, 274 (1994), “[wJe have
regularly applied intervening statutes conferring or ousting
jurisdiction, whether or not jurisdiction lay when the under-
lying conduct occurred or when the suit was filed. . .
Present law normally governs in such situations because juris-
dictional statutes ‘speak to the power of the court rather than
to the rights or obligations of the parties.’ ” See also Duldu-
lao v. INS, 90 F.3d 396, 399 (9th Cir. 1996) (stating that “the
‘presumption against retroactive application of new legisla-
tion to pending cases. . . does not apply to rules conferring
or withdrawing jurisdiction.’ ” (citation omitted)); Arrowhead
Estates Dev. Co. v. United States Trustee, 42 F.3d 1306, 1311
(9th Cir. 1994) (same); Friel v. Cessna Aircraft Co., 751 F.2d
1037, 1039 (9th Cir. 1985) (stating that “when a statute is
addressed to remedies or procedures and does not otherwise
alter substantive rights, it will be applied to pending cases”);
lla
see also Driscoll v. Gebert, 458 F.2d 421 (9th Cir. 1972)
(holding that newly enacted California long-arm statute
applied to previously filed pending action).
Defendants’ argument that they could not reasonably have
expected being haled into court in Idaho is unpersuasive since
they had at least to reckon with application of the Idaho long-
arm statute to their dealings affecting Idaho creditors. None
of the defendants offer facts to show that they would have
behaved differently had they expected Rule 7004(f) to apply
or that they have been otherwise prejudiced.” See McGee v.
International Life Ins. Co., 355 U.S. 220, 224 (1957) (stating
that defendant “had no vested right not to be sued in Cali-
fornia”). Moreover, weighing against defendants’ arguments
is the policy favoring consolidation in a common forum of all
litigation relating to a bankruptcy in the interest of economy
and efficiency—as opposed to having the litigation dispersed
across two continents.
B. Applying Rule 7004(f)
Defendants contend that even if Rule 7004(f) applies, per-
sonal jurisdiction cannot be exercised until the court deter-
mines that the defendants are “not subject to the jurisdiction
of the courts of general jurisdiction of any state.” Fed. R. Civ.
P. 4(k)(2). Defendants’ argument rests on the assumption that
jurisdiction under Rule 7004(f) is subject to this limitation
found in Civil Rule 4(k)(2). For support they rely on the
introductory sentence of the advisory committee notes to the
1996 Amendment of Rule 7004 which states, “The new sub-
division (f) is consistent with the 1993 amendments to
FR Civ.P. 4(k)(2).” Fed. R. Bankr. P. 7004 advisory com-
mittee notes (1996 Amendments).
In their Petitions for Rehearing, appellants argue that they did
not have an opportunity to offer facts to show “that they would have
behaved differently had they expected amended Rule 7004(f) to apply.”
It is difficult to see how Rule 7004(f) might have induced them into
behavior that the long-arm statute did not. The argument, in any event,
is not persuasive in light of their failure to give any indication in their
briefs or petitions what facts they might have offered for this purpose.
12a
The plain language of Rule 7004(f) refutes the argument. It
omits the critical language of Civil Rule 4(k)(2) that limits
application to “any defendant who is not subject to the juris-
diction of the courts of general jurisdiction of any state.” That
the rule is not cloned from Civil Rule 4(k)(2) is shown, as
well, by other differences in the text of the two rules. First,
Rule 7004 cross-references only to those subdivisions of Civil
Rule 4 “made applicable by these rules” and that does not
include Rule 4(k)(2). See Fed. R. Bankr. P. 7004(a) (“Rule
4(a), (b), (c)(1), (d)(1), (e)-G), (1), and (m) F.R.Civ.P. applies
in adversary proceedings.”). Second, Rule 7004(f)’s appli-
cation is narrower than Civil Rule 4; Rule 7004(f) is limited
to cases or civil proceedings arising or related to a case under
the Bankruptcy Code. Finally, the advisory committee state-
ment relied on by defendant is further explained by the sen-
tence immediately following which states, “[Rule 7004(f)]
clarifies that service or filing a waiver of service in accor-
dance with this rule or the applicable subdivisions of
F.R.Civ.P. 4 is sufficient to establish personal jurisdiction
over the defendant.” Fed. R. Bankr. P. 7004(f) advisory com-
mittee notes. That statement confirms that the drafters’ pur-
pose was to incorporate the service provisions of the amended
Civil Rule 4, not its limitation on personal jurisdiction.* We
therefore decline to import into Rule 7004(f) the “not subject
to the jurisdiction. . . of any state” limitation of Civil Rule
4(k)(2).
Applying Rule 7004(f) as written, all of the requisite ele-
ments to support the exercise of jurisdiction are present.
The complaint, alleging claims under 11 U.S.C. §§ 544,
548, and 550, is a “civil proceeding arising under the
[Bankruptcy] Code.” Fed. R. Bankr. P. 7004(f).
The defendants were served “in accordance with [Rule
7004] or the subdivisions of Rule 4 F.R.Civ.P. made appli-
This makes Rule 7004(f) consistent with the expansive juris-
dictional reach of the bankruptcy courts, which are empowered to exer-
cise jurisdiction over a debtor’s property wherever located. See 28 U.S.C.
§ 1334(e).
13a
cable by [Rule 7004].” Fed. R. Bankr. P. 7004(f). Rowland
contends he was not properly served under pre-amendment
Rule 7004(c) which states, “[t]he summons and complaint
_ may be served as provided in [Civil Rule] 4(d)(1) and
(d)(3)” for service in a foreign country. Fed. R. Bankr. P.
7004(e) (emphasis added). Rowland was served instead pur-
suant to Civil Rule 4(i) which is made applicable to adversary
proceedings in bankruptcy under Rule 7004(a). See Fed. R.
Bankr. P. 7004(a). Civil Rule 4(i), as it was in 1990, contained
“Alternative Provisions for Service in a Foreign Country,”
and stated that a defendant in a foreign country may be served
by any one of five specified methods. The district court cor-
rectly held service under Rule 4(1) to be sufficient. Its ruling
was consistent with that of other courts, finding Rule 7004(e)
to be permissive, not mandatory. See Schwinn Plan. Comm. v.
AFS Cycle & Co., 190 B.R. 599, 608 (Bankr. N.D. Ill. 1995);
Official Comm. of Unsecured Creditors of Southold Dev.
Corp. v Mittemyer, 148 B.R. 726, 728 (Bankr. E.D.N.Y.
1992): In re Crysen/Montenay Energy Co. v. E & C Trading
Ltd., 166 B.R. 546, 548-49 (Bankr. S.D.N.Y. 1994).
Finally, “the exercise of jurisdiction is consistent with the
Constitution and the laws of the United States.” Fed. R.
Bankr. P. 7004(f). While the Rowland Directors do not contest
the constitutional basis for personal jurisdiction, Inoco con-
tends that it lacked sufficient contacts with the United States.
The bankruptcy judge’s findings suffice to establish defen-
dants’ contacts with the United States:
Thus. these alien defendants reached out to Gulf in the
United States and forged a continuing relationship with
it. The alleged looting of Gulf foreseeably caused Gulf
injury in the United States where it was located... .
[T]he alleged injures arise out of the defendants’ pur-
poseful direction of their activities toward the United
Stawes. .. s
l4a
Inoco’s sale of property located in Texas and New York
to Gulf was activity directed to the United States. . . As
part of the conspiracy to loot Gulf, Inoco took control of
a United States corporation. . . . Inoco purposefully
interjected itself into the United States.
V. Conclusion
The order of the district court is AFFIRMED and the matter
is REMANDED for further proceedings.
15a
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 96-36062
D.C. No. CV-96-00010-EJL
In re: PINTLAR CORPORATION; GULF USA CorpP.,
Debtors.
BERNARD GOODSON; FORD ELSAESSAR; LOWELL FINLEY;
and JAY J. MILLER, as TRUSTEES,
Plaintiffs-Appellees,
—_VY—_—
DAVID J. ROWLAND; JEREMY E. JAMES; DAvID L. HUDD;
DEREK J. MORAN,
Defendants-Appellants.
No. 96-36063
D.C. No. CV-96-00011-EJL
In re: PINTLAR CORPORATION; GULF USA CorpP.,
Debtors.
l6a
BERNARD GOODSON; FORD ELSAESSAR: LOWELL FINLEY;
and JAY J. MILLER, as TRUSTEES,
Plaintiffs-Appellees,
pumas, * Speen
DAVID J. ROWLAND; JEREMY E. JAMES; DAVID L. HUDD;
DEREK J. MORAN,
Defendants,
—and—
INOCO PLC, a United Kingdom corporation,
Defendant-Appellant.
OPINION
Appeals from the United States District Court
for the District of Idaho
Edward J. Lodge, Chief Judge, Presiding
Argued and Submitted September 9, 1997
(No. 96-36062)
Submitted on the Briefs September 9, 1997*
(No. 96-36063)
Seattle, Washington
Filed November 3, 1997
*
The panel unanimously finds this case suitable for decision
without oral argument. Fed. R. App. P. 34(a) and 9th Cir. R. 34-4.
Before:
Eugene A. Wright and Mary M. Schroeder, Circuit Judges,
and William W Schwarzer,* Senior District Judge.
Opinion by Judge Schwarzer
SUMMARY
The summary, which does not constitute a part of the opin-
ion of the court, is copyrighted © 1994 by Barclays Law Pub-
lishers.
Bankruptcy/Litigation and Procedure
The court of appeals affirmed an order of the district court.
The court held that a new bankruptcy rule of personal juris-
diction over foreign residents applies to an action pending on
its effective date if its is “just and practicable.”
Appellee Bernard Goodson and other trustees of a litigation
trust brought a bankruptcy adversary proceeding in 1994
against appellants Inoco Plc, David Rowland, Jeremy James,
David Hudd, and Derek Moran (Rowland Directors) to
recover assets of debtors Gulf USA Corporation and its sub-
sidiary, Pintlar Corporation. The complaint alleged that the
Rowland Directors and Inoco had looted and wasted the assets
of the company.
The Rowland Directors were foreign citizens who resided
outside the United States. Inoco is a publicly traded United
*
Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
18a
Kingdom corporation headquarted in England. Their alleged
liabilities arose out of Pintlar’s former ownership of the
Bunker Hill Mine in Idaho, whose operation caused environ-
mental damage. Other claims related to medical and pension
benefits of retired Idaho employees. The creditors owning
these claims were the beneficiaries of the litigation trust.
The bankruptcy court granted a defense motion to dismiss
certain claims. On appeal, the district court ruled that the
Idaho contacts of directors Rowland, Hudd and James were
sufficient to find that they purposefully availed themselves of
the Idaho forum. As to Moran and Inoco, the court determined
that allegations of conspiracy were sufficient to satisfy the
purposeful availment test. The court concluded that the exer-
cise of specific personal jurisdiction under the Idaho
longarm statute would not be unreasonable, and held them
subject to personal jurisdiction on all the trustees’ claims
except one.
On appeal, the trustees asserted that personal jurisdiction
over the defendants was provided by Bankruptcy Rule
7004(f), which became effective in 1996, while the adversary
action was pending. The Rowland Directors and Inoco con-
tended that to apply Rule 7004(f) to them would prejudicially
revive claims that were otherwise barred by the prior rule,
which did not authorize personal jurisdiction over nonresi-
dents on the basis of national contacts, in the absence of statu-
tory authority.
So long as the exercise of jurisdiction is consistent with the
Constitution, jurisdiction may be obtained over nonresidents
sued on a federal claim who are served in conformity with
Rule 7004(a) and Fed. R. Civ. P. 4(f). The threshold question
was whether the new Rule 7004(f) could be applied to an
action commenced in 1994. The Supreme Court’s order adopt-
ing the amended rules states that insofar as just and practi-
cable, they govern all pending bankruptcy proceedings.
Applying the rule to this action was plainly practicable.
Jurisdictional statutes speak to the power of the court rather
than to the rights or obligations of the parties. The pre-
sumption against retroactive application of new legislation to
19a
pending cases does not apply to rules conferring or with-
drawing jurisdiction.
The argument that the defendants could not reasonably have
expected being haled into court in Idaho was unpersuasive,
since they had at least to reckon with application of the Idaho
longarm statute to their dealings affecting Idaho creditors.
None of the defendants offered facts to show that they would
have behaved differently had they expected Rule 7004(f) to
apply, or that they were otherwise prejudiced. Also weighing
against their arguments was the policy favoring consolidation
in acommon forum of all litigation relating to a bankruptcy.
The complaint alleged claims arising under federal law. The
Rowland Directors did not challenge the constitutional basis
for personal jurisdiction. With respect to their contacts and
those of Inoco with the United States, they reached out to
Gulf and forged a continuing relationship with it. The alleged
looting foreseeably caused Gulf injury in the United States.
The alleged injuries arose out of the purposeful direction of
their activities toward the United States. Inoco’s sale of prop-
erty was actively directed to the United States. Inoco took
control of a United States corporation and purposefully inter-
jected itself into the United States.
Rowland was served pursuant to Rule 4(i). As it was in
1990, that rule stated that a defendant in a foreign country
could be served in any one of five specified methods. Rule
7004(a) stated that Rule 4(i) applied in adversary proceed-
ings. The district court correctly held the service under Rule
4(i) to be sufficient.
20a
COUNSEL
Lawrence E. Carnevale, Carter, Ledyard & Milburn, New
York, New York; John T. Mitchell, Mitchell & Mitchell,
Coeur D’ Alene, Idaho, for the defendants-appellants.
Richard W. Reinthaler, New York, New York; Dianne
Coffino, New York, New York; Ramona S. Neal, Givens,
Pursley & Huntley, Boise, Idaho, for the plaintiffs-appellees.
OPINION
SCHWARZER, Senior District Judge:
We must decide whether the bankruptcy court had personal
jurisdiction of the defendants in this adversary proceeding
under Bankruptcy Rule 7004(f), as amended subsequent to the
commencement of this action.
I. Procedural Background
Plaintiffs are the trustees of a litigation trust (the Trustees)
who brought this adversary proceeding against defendants
David. J. Rowland, Jeremy E. James, David L. Hudd, Derek
J. Moran (the Rowland Directors) and Inoco Plc (Inoco) to
recover certain assets belonging to debtors Guif USA Cor-
poration (Gulf) and its subsidiary, Pintlar Corporation (Pint-
lar). The amended complaint alleged counts for fraudulent
conveyance under Bankruptcy Code sections 544, 548 and
550, and for misrepresentation, breach of fiduciary duties,
civil conspiracy, breach of contract and violation of Delaware
corporation law. The bankruptcy court granted defendants’
motion to dismiss count II (corporate waste and mismanage-
ment) for lack of personal jurisdiction but denied the motion
with respect to the other counts. On interlocutory appeal, the
district court affirmed the bankruptcy court’s order as to all
counts except count VI (breach of contract), dismissing that
count, and count II (corporate waste and mismanagement),
reinstating that count. The district court certified its order for
2la
interlocutory appeal and we granted the Rowland Directors
and Inoco permission to appeal under 28 U.S.C. § 1292(b);
the Trustees do not appeal the dismissal of the breach of con-
tract count.
II. Factual Background
The Rowland Directors are foreign citizens who reside out-
side of the United States. Inoco is a publicly traded United
Kingdom corporation, headquartered in England. At all rele-
vant times, the Rowland Directors were officers of Inoco and
Rowland, through intermediaries, owned a controlling inter-
est in Inoco. The Rowland Directors acquired control of Gulf
in 1989 when Inoco, through a subsidiary, purchased 34% of
Gulf’s outstanding shares. At the time, Gulf had assets
exceeding $177 million but it also had potentially large lia-
bilities. These liabilities arose out of the former ownership of
the Bunker Hill mine by Gulf’s subsidiary, Pintlar. They
largely involve claims for environmental damage caused by
the Idaho operations of Bunker Hill and claims for medical
and pension benefits by its retired Idaho employees. The cred-
itors holding these claims are beneficiaries of the plaintiff
Litigation Trust.
In their complaint, the Trustees allege that the Rowland
Directors and Inoco, after taking control of Gulf, engaged in
a course of conduct designed to loot and waste the assets of
the company. They allege that the defendants entered into a
series of transactions by which they transferred Gulf’s assets
into their control. When creditors became concerned over
Gulf’s ability to meet its obligations, Rowland sent a letter to
former employees of Bunker Hill in Idaho, assuring them that
Gulf would meet its obligations for employee benefits and
environmental clean-up, assurances alleged to be false and
fraudulent. In 1991, the Rowland Directors sold Inoco and
their shares in Gulf. In 1993, involuntary bankruptcy petitions
were filed against Gulf and Pintlar in the District of Idaho.
This adversary proceeding followed. In it the Trustees seek to
22a
recover for the benefit of the Litigation Trust the assets of
Gulf and Pintlar, which they claim were looted by defendants.
The district court held that the Idaho contacts of Rowland,
Hudd and James were sufficient to find that they purposefully
availed themselves of the Idaho forum. With respect to Moran
and Inoco, the court found that, although they were not
alleged to have taken actions directed at Idaho, the allegations
of conspiracy were sufficient to satisfy the purposeful avail-
ment test. Parsing the controlling factors, the court concluded
that the exercise of specific personal jurisdiction over the
defendants under the Idaho long-arm statute would not be
unreasonable and held them subject to personal jurisdiction on
all claims other than the contract claim. We affirm, but on a
different ground.
Ill. Standard of Review
We review the district court’s dismissal for lack of personal
jurisdiction de novo. Oneluk v. Langsten Slip & Batbyggeri
A/S, 52 F.3d 267, 269 (9th Cir. 1995). Factual findings under-
lying the judgment are reviewed for clear error. Hunt Wesson
Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 78 n.2 (9th Cir.
1987). Plaintiffs have the burden of establishing personal
jurisdiction but need to make only a prima facie showing of
jurisdictional facts to avoid a motion to dismiss. Farmers Ins.
Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 912
(9th Cir. 1990). All factual disputes are resolved in favor of
the Trust. Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir. 1987).
IV. Personal Jurisdiction under Bankruptcy Rule 7004(f)
A. Application of the Rule to the Pending Action
In 1994, when the Trustees commenced this action, Fed. R.
Bankr. P. 7004(g) incorporated Fed. R. Civ. P. 4 “in effect on
January |, 1990, notwithstanding any amendment. . . sub-
sequent thereto.” Rule 4, as of 1990, did not authorize per-
sonal jurisdiction over nonresidents on the basis of national
contacts, in the absence of statutory authority. The rule was
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23a
amended, however, effective December 1, 1996.' The amend-
ment added a new Rule 7004(f), which incorporates Rule 4
without any limitation. Rule 4 in turn had been amended in
1993 by the addition of Rule 4(k)(2) which provides:
If the exercise of jurisdiction is consistent with the Con-
stitution and laws of the United States, serving a sum-
mons or filing a waiver of service is also effective, with
respect to claims arising under federal law, to establish
personal jurisdiction over the person of any defendant
who is not subject to the jurisdiction of the courts of
general jurisdiction of any state.
Fed. R. Civ. P. 4(k)(2). Thus, so long as the exercise of juris-
diction is consistent with the Constitution, personal juris-
diction may be obtained over nonresidents sued on a federal
claim who are served in conformity with Bankruptcy Rule
7004(a) and Fed. R. Civ. P. 4(f). See Fed. R. Civ. P. 4(k)(2)
advisory committee’s note (1993 Amendments) (stating that
the rule authorizes “jurisdiction over the person of any defen-
dant against whom is made a claim arising under any federal
law if that person is subject to personal jurisdiction in no
state.”).
The threshold questions is whether the new Rule 7004(f)
may be applied to an action commenced in 1994. The
Supreme Court’s order adopting the amended rules states that
they should “govern all proceedings. . . thereafter com-
menced and, insofar as just and practicable. all proceedings in
bankruptcy then pending.” Communication from the Chief
Justice, Amendments to the Federal Rules of Bankruptcy Pro-
cedure that Have Been Adopted by the Court, at 2, Apr. 24,
1996 (emphasis added). Application of the rule to this action
therefore turns on whether it would be just and practicable.
While in some circumstances we would remand so that the
district court may exercise its discretion, we see no need to do
so here. Remand is not necessary where the issue has been
' The district court took note of the forthcoming amendment but
its order was issued before the effective date of the amendment.
24a
fully briefed on appeal, the record is clear and remand would
“impose needless additional expense and delay. . . .” Foster
v. Skinner, 70 F.3d 1084, 1089 (9th Cir. 1995) (citing
Roundtree v. United States, 40 F.3d 1036, 1040 (9th Cir.
1994)); Hoffman v. CMAC, 814 F.2d 1385, 1387 (9th Cir.
1987).
This appeal is interlocutory and is limited to the issue of
personal jurisdiction. Both sides have thoroughly briefed the
issue, and applying the rule to this action 1s plainly practi-
cable. Defendants argue, however, that to do so would be
prejudicial because the claims against them would otherwise
be barred by the prior rule. Their reliance on Chenault v.
USPS, 37 F.3d 535 (9th Cir. 1994), is misplaced. We held
there that a newly enacted statute that shortens the applicable
Statute of limitations may not be applied retroactively to bar
a plaintiff's claim that might otherwise be brought “because
to do so would be manifestly unjust.” Id. at 539. This clearly
is not such a case. As the Supreme Court stated in Landgraf v.
USI Film Products, 511 U.S. 244, 274 (1994), “[w]Je have reg-
ularly applied intervening statutes conferring or ousting juris-
diction, whether or not jurisdiction lay when the underlying
conduct occurred or when the suit was filed. . . . Present law
normally governs such situations because jurisdictional
Statutes ‘speak to the power of the court rather than to the
rights or obligations of the parties.’ ” See also Duldulao v.
INS, 90 F.3d 396, 399 (9th Cir. 1996) (stating that “the ‘pre-
sumption against retroactive application of new legislation to
pending cases. . . does not apply to rules conferring or with-
drawing jurisdiction.”” (citation omitted)); Arrowhead
Estates Dev. Co. v. United States Trustee, 42 F.3d 1306, 1311
(9th Cir. 1994) (same); Priel v. Cessna Aircraft Co., 751 F.2d
1037, 1039 (9th Cir. 1985) (stating that “when a statute is
addressed to remedies or procedures and does not otherwise
alter substantive rights, it will be applied to pending cases”);
see also Driscoll v. Gebert, 458 F.2d 421 (9th Cir. 1972)
(holding that newly enacted California long-arm statute
applied to previously filed pending action).
;
Fe ee ee
25a
Defendants’ argument that they could not reasonably have
expected being haled into court in Idaho is unpersuasive since
they had at least to reckon with application of the Idaho long-
arm statute to their dealings affecting Idaho creditors. None
of the defendants offer facts to show that they would have
behaved differently had they expected Rule 7004(f) to apply
or that they have been otherwise prejudiced. See McGee v.
International Life Ins. Co., 355 U.S. 220, 224 (1957) (stating
that defendant “had no vested right not to be sued in Cali-
fornia.”). Weighing against defendants’ arguments, moreover,
is the policy favoring, in the interest of economy and effi-
ciency, consolidation in a common forum of all litigation
relating to a bankruptcy—as opposed to having it dispersed
across two continents.”
B. Applicability of the Rule
All of the requisite elements of Rule 4(k)(2) are present and
not contested, except for Inoco’s contention that it lacks suf-
ficient contacts with the United States. The complaint alleges
claims arising under federal law (11 U.S.C. §§ 544, 548 and
550), and defendants’ position is that they are not subject to
the jurisdiction of Idaho (and, so far as appears in the record,
of any other state). The Rowland Directors do not challenge
the constitutional basis for personal jurisdiction over them in
the United States. With respect to their contacts and those of
Inoco with the United States, the bankruptcy judge's findings
are compelling:
Thus, these alien defendants reached out to Gulf in the
United States and forged a continuing relationship with
it. The alleged looting of Gulf foreseeably caused Gulf
. Inoco argues that even if the rule applied to this-action, it could
not retroactively validate service that was invalid when made. Inoco’s
argument confuses the effect of a change in the rule governing the pro-
cedure for making service, which might not apply to service previously
completed, with a change in the rule determining the presence of personal
jurisdiction. As we have said, it is the law in effect at the time of the
decision that normally governs the latter determination.
26a
injury in the United States where it was located. .. .
[T]he alleged injuries arise out of the defendants’ pur-
poseful direction of their activities toward the United
States. ..
*x* *
Inoco’s sale of property located in Texas and New York
to Gulf was activity directed to the United States. . . As
part of the conspiracy to loot Gulf, Inoco took control of
a United States corporation. . . . Inoco purposefully
interjected itself into the United States.
V. Service on Rowland
Rowland contends that he was not properly served under
pre-amendment Bankruptcy Rule 7004(c). That rule states
that for service in a foreign country, “[t]he summons and
complaint. . . may be served as provided in Rule 4(d)(1) and
(d)(3). . . .” (emphasis added). Rowland was served instead
pursuant to Rule 4(1). That rule, as it was in 1990, contained
“Alternative Provisions for Service in a Foreign Country,” and
stated that a defendant in a foreign country may be served by
any one of five specified methods. Rule 7004(a) further stated
that Rule 4(i) applied in adversary proceedings. The district
court correctly held the service under Rule 4(i) to be suffi-
cient. Its ruling was consistent with that of other courts, find-
ing Rule 7004(e) to be permissive, not mandatory. See
Schwinn Plan. Comm. v. AFS Cycle & Co., 190 B.R. 599, 608
(Bankr. N.D. Ill. 1995); Official Comm. of Unsecured Cred-
itors of Southold Dev. Corp. v. Mittemyer, 148 B.R. 726, 728
(Bankr. E.D.N.Y. 1992); In re Crysen/Montenay Energy Co.
v. E&C Trading Ltd., 166 B.R. 546, 548-49 (Bankr. S.D.N_Y.
1994).
CONCLUSION
The order of the district court is AFFIRMED and the matter
is REMANDED for further proceedings.
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27a
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 96-80357
DC# CV-96-10-EJL
Idaho (Boise)
Filed October 11, 1996
In re PINTLAR CORPORATION and
GULF USA CORPORATION,
Debtors.
BERNARD GOODSON, FORD ELSAESSER,
LOWELL FINLEY, and JAY J. MILLER, as TRUSTEES,
Plaintiffs-Respondents,
—Vvs.—
DAVID J. ROWLAND, et al.
Defendants.
DAVID J. ROWLAND, JEREMY E. JAMES,
DaviID L. HuppD and DEREK J. MORAN,
Defendants-Petitioners.
28a
ORDER
Before: BEEZER and KOZINSKI, Circuit Judges
The petition for permission to appeal under 28 U.S.C.
§ 1292(b) is granted. Within 10 days from the date of this
order, petitioner shall perfect the appeal pursuant to Fed. R.
App. P. 5(d).
29a
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 96-80368
DC# CV-96-10-EJL
Idaho (Boise)
Filed October 11, 1996
In re PINTLAR CORPORATION and
GULF USA CORPORATION,
Debtors.
BERNARD GOODSON, FORD ELSAESSER,
LOWELL FINLEY, and JAy J. MILLER, as TRUSTEES,
Plaintiffs-Respondents,
oS .<——
DAVID J. ROWLAND, et al.
Defendants.
INOCO PLC,
Defendant-Petitioner.
30a
ORDER
Before: BEEZER and KOZINSKI, Circuit Judges
The petition for permission to appeal under 28 U.S.C.
§ 1292(b) is granted. Within 10 days from the date of this
order, petitioner shall perfect the appeal pursuant to Fed. R.
App. P. 5(d).
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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
Bk. Case Nos. 93-02986, 93-02987
Adv. Case No. 94-6016
Case No. CV 96-0+410-N-EJL
In re: PINTLAR CORPORATION and
GULF USA CORPORATION,
Debtors.
BERNARD GOODSON, FORD ELSAESSER,
LOWELL FINLEY, and JAY J. MILLER, as Trustees,
Plaintiffs/Appellees,
—_V$.—
DAVID J. ROWLAND, JEREMY E. JAMES, DAVID L. HUDD,
DEREK J. MORAN, ROBERT G. BOULTON, SEYMOUR
GRAUBARD. HANS W. WANDERS, GRAHAM F. LACEY, F.
ALEY ALLAN, WARREN C. HABER, WILLIAM C. HORN,
LWRENCED R. MEHL, JOHN W. HERRING, ANTHONY
WALTERS. CYRIL WARREN MCKENZIE, PETER L. WHIT-
TAKER. LANE NEAVE RONALDSON, WYNN WILLIAMS &
Co.. ALISTER G. MCDONALD, OLLY R. MATSON,
EDWARD LYNCH, INOCO PLC., NYCAL CORPORATION,
INTERALLIANZ BANK ZURICH, A.G. (formerly known as
INTERALLIANZ BANK ZURICH, A.G. INTERALLIANZ
SECURITIES CORP., BIKUBEN-WHITEFRIARS LIMITED,
MONACO GROUP FUND, S.A., BRIERLEY INVESTMENTS
32a
LTD., PORTFOLIO MANAGEMENT LIMITED, FELPARK
LIMITED (formerly known as SINO INFOMATION SER-
VICES LIMITED), FERRIS INVESTMENTS LIMITED and
LAWRENCE P. HOCKEY-SWEENEY,
Defendants.
INOCO PLc., DAvID J. ROWLAND, JEREMY E. JAMES,
DAviID L. HUDD and DEREK J. MORAN,
Defendants/Appellants.
Filed September 16, 1996
ORDER
Pursuant to 28 U.S.C. § 1292(b), appellants-defendants
David J. Rowland, Jeremy E. James, David L. Hudd and
Derek J. Moran, and appellant-defendant Inoco Plc, move the
court for an order certifying for appeal to the Court of
Appeals for the Ninth Circuit this court's Memorandum Deci-
sion and Order dated August 16, 1996 (the “Order”). Plain-
tiffs-appellees oppose the motions.
After careful consideration, the court concludes that issues
regarding the legal standards governing the requisite juris-
dictional contacts of a foreign defendant, and the extend to
which such contacts may be imputed to other defendants,
involve controlling questions of law as to which there is a
substantial ground for a difference of opinion. Cf, e.g., Am.
Tel. & Tel. Co. v. Compagnie Bruxelles Lambert, No. 94-
16368, slip op. 10797 (9th Cir. Aug. 28, 1996), Underwager
v. Channel 9 Australia, 69 F.3d 361 (9th Cir. 1995); Ziegler v.
Indian Rtver Country, 64 F.3d 470 (9th Cir. 1995); Sher v.
Johnson, 911 F.2d 1357 (9th Cir. 1990). The court also con-
33a
cludes that an immediate determination of these issues will
materially advance the ultimate termination of the litigation.
Accordingly, the court will grant the motions.
ORDER
Based on the foregoing, and being otherwise fully advised
in the premises, the court HEREBY ORDERS that the this
court’s Memorandum Decision and Order dated August 16,
1996, be and hereby is amended to include the following
statement certifying ihe Order for interlocutory appeal to the
United States Court of Appeals for the Ninth Circuit pursuant
to 28 U.S.C. § 1292(b):
This Order involves controlling questions of law as to
which there are substantial grounds for difference of
opinion and an immediate appeal may materially
advance the ultimate termination of the litigation.
Accordingly this Order is certified pursuant to 28 U.S.C.
§ 1292(b) for interlocutory appeal to the United States Court
of Appeals for the Ninth Circuit. Dated this 13th day of
September, 1996.
EDWARD J. LODGE
Edward J. Lodge
United States District Judge
34a
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
Bk. Case Nos. 93-02986
93-02987
Adv. Case No. 94-6016
Case No. CV 96-010-N-EJL
In re: PINTLAR CORPORATION
and GULF USA CORPORATION,
Debtors.
BERNARD GOODSON, FORD ELSAESSAR, LOWELL FINLEY,
and JAY J. MILLER, as TRUSTEES,
Plaintiffs/Appellees,
ome §
DAVID J. ROWLAND, JEREMY E. JAMES, DAviID L. HuUDD,
DEREK J. MORAN, ROBERT G. BOULTON, SEYMOUR
GRAUBARD, HANS W. WANDERS, GRAHAM F. LACEY, F. -
ALEY ALLAN, WARREN C. HABER, WILLIAM C. HORN,
LWRENCED R. MEHL, JOHN W. HERRING, ANTHONY
WALTERS, CYRIL WARREN MCKENZIE, PETER L. WHIT-
TAKER, LANE NEAVE RONALDSON, WYNN WILLIAMS &
Co., ALISTER G. MCDONALD, OLLY R. MATSON,
EDWARD LYNCH, INOCO PLC., NYCAL CORPORATION,
INTERALLIANZ BANK ZURICH, A.G. (formerly known as
INTERALLIANZ BANK ZURICH, A.G. INTERALLIANZ
SECURITIES CORP., BIKUBEN-WHITEFRIARS LIMITED,
MONACO GROUP FUND, S.A., BRIERLEY INVESTMENTS
35a
LTD, PGRTFOLIO MANAGEMENT LIMITED, FELPARK
LIMITED (formerly known as SINO INFORMATION SER-
VICES LIMITED), FERRIS INVESTMENTS LIMITED and
LAWRENCE P. HOCKEY-SWEFENEY,
Defendants.
INOCO PLc., DAVID J. ROWLAND, JEREMY E. JAMES,
DAVID L. HUDD And DEREK J. MORAN,
Defendants/Appellants.
Decided August 16, 1996
MEMORANDUM DECISION AND ORDER
OVERVIEW
Defendants David J. Rowland, Jeremy E. James, David L.
Hudd, Derek L. Moran (collectively, the “Rowland Direc-
tors”), and Inoco Ple (“Inoco”) appeal the interlocutory order
of the bankruptcy court denying their motions to dismiss for
lack of personal jurisdiction and improper service of process
the adversary action brought by trustees of a litigation trust
(“the Trustees”) to recover certain assets belonging to debtors
Gulf USA Corporation (“Gulf”) and Pintlar Corporation
(“Pintlar”). The Trustees, in turn, cross-appeal the bankruptcy
court’s decision to dismiss for lack of personal jurisdiction
the Trustees’ claim alleging breach of fiduciary duties, cor-
porate waste and mismanagement. The court affirms in part,
reverses in part and remands.'
1
The court finds that the facts and legal arguments are adequately
presented in the briefs and record, and that therefore oral argument would
not aid in the resolution of the issues presented by this appeal. Fed. R.
Bankr. P. 8012.
36a
BACKGROUND
1. Parties
Defendants Rowland, James, Hudd and Moran are foreign
citizens who reside outside the United States. Defendant
Inoco is a publicly traded United Kingdom corporation, head-
quartered in England. At all times relevant to this action,
Rowland, Hudd, James and Moran were officers of Inoco, and
Rowland, through a corporate intermediate, owned a con-
trolling interest in Inoco. During the same time period, Gulf
was headquartered first in Boston, Massachusetts, and then in
Washington, D.C.
The Rowland Directors gained control of Gulf in the spring
of 1989, when Downshire, N.V., a wholly owned subsidiary of
Inoco, purchased 34% of Gulf’s outstanding shares from
David and Frederick Barclay. At the time of the purchase,
Gulf had accumulated substantial assets totaling over $177
million. This is despite the fact that by 1989 Gulf also had
incurred potentially enormous debts and liabilities. The bulk
of Gulf’s liabilities grew out of the former ownership of
the Bunker Hill Mine by Gulf’s wholly owned subsidiary,
Pintlar.” The Bunker Hill Mine is located in the State of Idaho.
Although Pintlar sold the Bunker Hill Mine in 1982, Gulf
remiins responsible for many of the obligations incurred by
Pinti..* prior to divestment of the mining operation. First, and
foremost, Gulf has been identified by the Environmental Pro-
teciion Agency (“the EPA”) as a potentially responsible party
for the extensive environmental damage that occurred as a
result of the company’s mining operations. In this regard,
Gulf’s creditors include the EPA, the State of Idaho, and the
Coeur d’ Alene Indian Tribe (the “environmental creditors”).
Gulf’s creditors also include retired employees of the Bunker
Hill Mine who are entitled to medical and pension benefits
(the “retirees”). Finally, Gulf remains indebted to certain pub-
lic bondholders and other unsecured creditors. All of the above
2
Pintlar’s principal place of business is in Kellogg, Idaho.
37a
named creditors are beneficiaries of the litigation trust, and it
is on their behalf that the Trustees bring this adversary action.
2. Trustees’ Allegations*
In their written submissions, the Trustees allege that after
taking control of Gulf, the Rowland Directors and Inoco pur-
posely engaged in a course of action designed to loot and
waste the assets of the company. According to the Trustees,
Gulf was purchased precisely for this purpose. And, as proof
of this allegation, the Trustees point out that during negoti-
ations for the purchase of Gulf, an investigation of Rowland,
commissioned by Gulf’s Board of Directors (“Board”), char-
acterized Rowland as having a “clear history of related-parts
transactions” and an “uneven past.” In light of this informa-
tion, before the Board would approve the proposed sale, it
required Rowland, Hudd, James, Moran and Inoco to enter
into a “Standstill Agreement” with the Barclays and Gulf. The
agreement placed certain restrictions on the ability of an offi-
cer, director or stockholder to enter into a business transaction
with Gulf, or make an unauthorized business commitment on
behalf of the company.
The Trustees allege that after the purchase of Gulf was
completed in March of 1989, and the Rowland Directors were
installed as controlling members of the Board,* the defendants
ignored the Standstill Agreement and entered into a series of
transactions that transferred Gulf’s assets into their own pock-
ets. For instance, in the fall of 1989 and spring of 1990, the
Rowland Directors are alleged to have caused Gulf to buy cer-
’ As explained more fully below, when determining whether the
plaintiffs have carried their burden to establish that personal jurisdiction
is appropriate, the court assumes that the facts set forth in the plaintiffs’
written submissions are true. Sher v. Johnson, 911 F.2d 1357, 1361 (9th
Cir. 1990).
. Besides serving on Gulf’s Board of Directors, several of the defen-
dants acted as officers of the company. In September of 1989, Rowland
became President mo Chief Executive Officer; James and Hudd became
Executive Vice-Presidents; and Moran became Senior Vice-President.
38a
tain New Zealand real estate in a complicated scheme that
resulted in the diversion of millions of dollars of company
funds to the defendants and their associates.°
When the New Zealand transactions became public, many
of the company’s creditors became concerned that Gulf would
not be able to meet its obligations. Several Idaho newspapers
ran articles discussing Gulf’s activities in New Zealand and
the possible effect of the transactions on the company’s Idaho
creditors. On September 17, 1990, Gulf released a letter,
signed by Rowland, and addressed to former employees of the
Bunker Hill Mine and their families, assuring the families that
the New Zealand transactions would not prevent the company
from meeting its obligations to its former employees or its
responsibilities to the EPA and the State of Idaho for the envi-
ronmental clean-up of the former mining site. The trustees
allege that the letter’s assurances were false and were made in
an effort to cover-up the illicit transfers of Gulf’s assets.
The Trustees also allege that while the defendants were
engaged in various schemes to siphon-off Gulf’s assets for
their personal use, Hudd and James were meeting with H.P.
Harbert, then President of Pintlar, in an effort to sidetrack the
environmental creditors. To this end, Hudd attended at least
nime-meetings in Idaho, and James attended one Idaho meet-
ing, to prepare for negotiations with the environmental cred-
itors. In addition, Hudd participated with Harbert in at least
eighteen phone calls, to and from Idaho, to discuss Gulf’s
environmental problems and, at Hudd’s request, Harbert sent
to Hudd Idaho newspaper articles reporting Gulf’s responses
to its environmental obligations. Harbert states that Hudd and
James directed him to implement strategies which he believes
had the purpose of delaying any action by the creditors.°
5 ' °
| The New Zealand transactions are but one example of the alleged
efforts by the Rowland Directors and Inoco to loot and waste Gulf’s
assets. A complete rendition of the Trustees’ allegations are recounted
in the bankruptcy court's Memorandum of Decision, Tab 67 at 11-26.
6
After the bankruptcy court issued its decision, Harbert submit-
ted a supplemental affidavit wherein he withdrew his prior statement that
39a
In mid-1991, the Rowland Directors arranged for the sale of
Inoco and Downshire’s shares in Gulf to Nycal Corporation.
Shortly after the sale was completed, Gulf’s new owners dis-
covered several improprieties related to the transactions ini-
tiated and carried out by the Rowland Directors during their
tenure. The new owners and the defendants eventually entered
into a settlement agreement resolving the discovered impro-
prieties. As part of that settlement, the Rowland Directors
and Inoco were released from any potential future liabilities
based on their ownership and/or management of Gulf and its
subsidiaries.
PRIOR PROCEEDINGS
1. Claims nen
In October of 1993, involuntary bankruptcy petitions were
filed against both Gulf and Pintlar in the Bankruptcy Court
for the District of Idaho. This adversary action is an out-
growth of those bankruptcy proceedings.
The Trustees seek to recover, for the benefit of the litiga-
tion trust, assets of Gulf and Pintlar which they claim were
looted by the defendants. The Trustees assert that at all times,
each defendant that is the subject of this appeal acted in
concert with, and as an agent for, all other defendants in a
general conspiracy to “loot and wastes” Gulf’s assets. In their
amended complaint, the Trustees base their right to relief
on several discrete causes of action. Against defendants
Rowland, Hudd, James, Moran and Inoco, the Trustees seek
the recovery of the transferred property and/or damages based
on theories of 1) fraudulent conveyances; 2) breach of fidu-
ciary duties, corporate waste and mismanagement; 3) mis-
representation; 4) civil conspiracy; and 5) breach of contract.
Hudd had attended a meeting with then Governor Andrus. Tab 83 at 2-3.
In the supplemental affidavit, Harbert also corrected the place and dates
of the meetings that James attended. Jd. These admitted errors by Harbert
are not grounds for discounting his remaining declarations.
40a
2. Motions to Dismiss
The defendants moved the bankruptcy court for dismissal
of the Trustees’ action for lack of personal jurisdiction and
improper service of process. In a 121-page Memorandum of
Decision, the bankruptcy court granted the defendants’
motions to dismiss for lack of personal jurisdiction the count
alleging breach of fiduciary duties, corporate waste and mis-
management, but denied the defendants’ motions with respect
to all other counts. The bankruptcy court also denied the
motions of Hudd, James and Moran to quash service. Row-
land’s motion to quash service was granted in part and con-
tinued in part.
Following the bankruptcy court’s entry of judgment, the
Rowland Directors and Inoco each filed a motion with this
court for leave to file an interlocutory appeal. Relying on 28
U.S.C. § 158(a), and employing the standard set forth in 28
U.S.C. § 1292(b), the court granted the defendants’ motions.’
The appeals were then consolidated and briefing followed.
With the submission of all the parties’ filings complete, the
court rules as follows.
DISCUSSION
1. Standard of Review
Where, as here, the personal jurisdiction determination is
made on the basis of written submissions, the Trustees need
only make a prima facie showing of jur sdictional facts to
avoid the defendants’ motions to dismiss. Data Disc, Inc. v
Systems Technology Assocs., Inc., 557 F.2d 1280, 1284-85
(9th Cir. 1977). The court reviews the materials presented to
the bankruptcy court de novo to determine whether the
For purposes of this appeal, the court assumes, as did the
bankruptcy court below, that each claim asserted in the amended com-
ptaint either is a “core proceeding” or, at a minimum, is related to the
underlying bankruptcy cases. See Diamond Mortgage Corp. v. Sugar, 913
F.2d 1233, 1237-39 (7th Cir. 1990), cert. denied, 498 U.S. 1089 (1991).
4la
Trustees have met their burden. Lake v. Lake, 817 F.2d 1416,
1420 (9th Cir. 1987). Because the bankruptcy court did not
hold an evidentiary hearing, and thus did not reach issues of
credibility, all factual disputes are resolved in the Trustees
favor. Id.; Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir.
1990); Metropolitan Life Ins. Co. v. Neaves, 912 F.2d 1062,
1064 n.1 (9th Cir. 1990).
2. Personal Jurisdiction Requirements
Before a court may properly exercise personal jurisdiction
over a nonresident defendant, it must be satisfied that two
independent requirements have been met: first, that an appli-
cable rule or statute affirmatively authorizes the assertion of
personal jurisdiction over the defendant, and second, that the
assertion of such jurisdiction “accords with constitutional
principles of due process.” Data Disc, Inc., 557 F.2d at 1285,
Petrik v. Public Serv. Mut. Ins. Co., 879 F.2d 682, 684 (9th
Cir. 1989). Although the two requirements are independent,
they are often interrelated. For example, where federal sub-
‘ect matter jurisdiction is predicated on diversity, Rule 4 of
the Federal Rules of Civil Procedure incorporates the state’s
long-arm statute as the authorizing source for service of pro-
cess. In such a case, the defendant's amenability to suit in
federal district court is limited by the state’s rule or statute.
Because a state’s ability to authorize service of process 1s
restricted by the due process clause to cases in which the
defendant has certain minimum contacts with the state, a fed-
eral district court sitting in diversity will analyze the due pro-
cess inquiry by assessing the defendant's contacts with the
forum state. Neaves, 912 F.2d at 1065; Fields v. Sedgwick
Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986).
In contrast, where the federal court’s subject matter juris-
diction is predicated on a federal question and service is
accomplished pursuant to a federal law authorizing nation-
wide or worldwide service of process, and not by reference to
the state’s long-arm statute, the court is no longer restricted
by the due process limitations inhérent to a state's autho-
42a
rization of service. Go-Video, Inc. v. Akai Elec. Co., Ltd., 885
F.2d 1406, 1414-15 (9th Cir. 1989); Securities Investor Pro-
tection Corp. v. Vigman, 764 F.2d 1309, 1315-16 (9th Cir.
1985). Under these circumstances, then, due process concerns
may be satisfied by a determination that the defendant has
sufficient contacts with the United States as a whole. Go-
Video, Inc., 885 F.2d at 1414-16; Vigman, 764 F.2d at 1315-
16: Kramer Motors, Inc. v. British Leyiand Ltd., 628 F.2d
1175, 1177 (9th Cir.), cert. denied, 449 U.S. 1062 (1980).
The more difficult case, and a potential issue here, occurs
when the federal court’s jurisdiction is based on a federal
question bur incorporation of the state’s long-arm statute pro-
vides the only authorizing source of service. The Trustees
argue, and the bankruptcy court concluded, that in such a sit-
uation, the due process analysis should not be limited to a
consideration of the defendants’ contacts with the forum state,
but instead, should be expanded to consider the defendants’
“aggregated national contacts.” This conclusion, however, has
not been accepted by the vast majority of courts addressing
the question, and more importantly, has not been accepted by
the Ninth Circuit.
Courts have recognized the “anomalous situation” created
by a “federal court in a nondiversity case being limited by due
process restrictions imposed on the states by the fourteenth
amendment as opposed to those imposed on the federal gov-
ernment by the fifth amendment.” DeJames v. Magnificence
Carriers, Inc., 654 F.2d 280, 284 (3rd Cir.), cert. denied, 454
U.S. 1085 (1981). Nonetheless, they have generally concluded
that “it would be equally anomalous to utilize a state long-
arm rule to authorize service of process on a defendant in a
manner that the state body enacting the rule could not con-
stitutionally authorize.” /d. Accordingly, in a suit involving
a federal question, where the absence of a federal service of
process statute requires the use of the state’s long-arm statute,
the cases direct the federal district court to make the due pro-
cess determination by assessing the defendant's contacts with
the forum state. /d. at 283-84; accord Cable/Home Commu-
43a
nication Corp. v. Network Prods., Inc., 902 F.2d 829, 855-56
(11th Cir. 1990); Point Landing, Inc. v. Omni Capital Int'l,
Ltd., 795 F.2d 415, 422-27 (Sth Cir. 1986) (en banc), aff'd,
484 U.S. 97 (1987); Max Daetwyler Corp. v. R. Meyer, 762
F.2d 290, 294-97 (3rd Cir.), cert. denied, 474 U.S. 980
(1985); Johnson Creative Arts, Inc. v. Wool Masters, Inc., 743
F.2d 947, 950 (Ist Cir. 1984); Textor v. Board of Regents of
N. Il. Univ., 711 F.2d 1387, 1392 (7th Cir. 1983). But see
Handley v. Indiana & Michigan Elec. Co., 732 F.2d 1265,
1268-72 (6th Cir. 1984) (applying a less demanding due pro-
cess inquiry where subject matter jurisdiction is predicated on
federal law); United Rope Distrib., Inc. v. Seatriumph Marine
Corp., 930 F.2d 532, 534-36 (7th Cir. 1991) (noting that the
panel’s “sympathies” lie with Handley).
Consistent with the majority rule, the Ninth Circuit has, in
cases where service is accomplished by reference to the
state’s long-arm statute, required that due process be satisfied
by a review of the defendant's contacts with the forum state,
regardless of the fact that a federal question is in issue. See,
e.g., Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d
406, 414-19 (9th Cir. 1977) (declining to apply a “aggregated
national contacts” test in suit brought pursuant to the Lanham
Act where service of process was accomplished under the
state’s long-arm statute); Pacific Atlantic Trading Co., Inc. v.
M/V Main Express, 758 F.2d 1325, 1327 (9th Cir. 1985) (cit-
ing DeJames, 654 F.2d at 283, and holding that in an admi-
ralty case, where service is accomplished pursuant to the
state’s long-arm statute, due process requires that the defen-
dant have certain minimum contacts with the forum state);
T.M. Hylwa, M.D., Inc. v. Palka, 823 F.2d 310, 312-13 (9th
Cir. 1987) (analyzing defendant’s contact with forum state in
ERISA action): Rano v. Sipa Press, Inc., 987 F.2d 580, 587-
88 (9th Cir. 1993) (analyzing defendant's contact with forum
state in federal copyright action); Core-Vent Corp. v. Nobel
Indus. AB, 11 F.3d 1482, 1484 (9th Cir. 1993) (analyzing
defendants contact with forum state in federal antitrust
action); Reebok Int'l Ltd. v. McLaughlin, 49 F.3d 1387, 1393-
44a
94 & n.7 (9th Cir.) (analyzing defendant’s contact with forum
state in Lanham Act action), cert. denied, 116 S. Ct. 276
(1995).§
Moreover, as one Ninth Circuit opinion noted, “a recent
Supreme Court decision implies that a national [or world-
wide] service provision is a necessary prerequisite for a court
even to consider a national contacts approach.” Go-Video,
Inc., 885 F.2d at 1416 (citing Omni Capital Int'l v. Rudolf
Wolff & Co., Ltd., 484 U.S. 97, 104-05 & n.5 (1987)). Thus,
even though the present action involves a federal question,
the determination of whether personal jurisdiction “accords
with constitutional principles of due process,” turns in large
part on whether the “applicable rule or statute” that affirma-
tively authorizes service on the foreign-based defendants is a
federal law or, instead, the state’s long-arm statute. Accord-
ingly, the court first addresses this issue.
a. Applicable Rule or Statute
In all instances, the service of the summons and complaint
on the defendants bringing this appeal occurred outside the
United States. The current version of the Federal Rules of
Bankruptcy Procedure provides for service on any person in
. The Trustees contend that in Ballard v. Savage, 65 F.3d 1495
(9th Cir. 1995), the Ninth Circuit adopted an “aggregated national con-
tacts” test for cases that involve a federal question. The Ballard court
inexplicably failed to identify the source of the court's subject matter
jurisdiction or the statute authorizing service. There is no way of know-
ing, therefore, if the case involved a federal question and, if so, whether
service was made pursuant to federal law or the state’s long-arm statute.
The defendants have submitted a copy of the complaint filed in the
underlying district court case, which suggests that service occurred under
a federal] statute allowing worldwide service of process. If this is so, Bal-
lard falls in line with other Ninth Circuit decisions, such as Go-Video,
that permit the use of the national contacts test when service is accom-
plished pursuant to a federal law authorizing nationwide or worldwide
service of process. 885 F.2d at 1413-16. In any event, when a federal dis-
trict court is forced to look outside the circuit court’s discussion in order
to divine the meaning of the opinion, the decision ceases to act as a
meaningful source of guidance and cannot serve as binding precedent.
45a
a foreign country that is “authorized by a federal or state law
referred to in Rule 4(c)(2)(C)(i) or (e) F.R.Civ.P.” Fed. R.
Bankr. P. 7004(e). Bankruptcy Rule 7004(g) incorporates the
version of Rule 4 of the Federal Rules of Civil Procedure
(hereinafter “Rule 4”) in effect on January 1, 1990, “notwith-
standing any amendment to Rule 4 F.R.Civ.P. subsequent
thereto.”
The version of Rule 4(e) in effect on January |, 1990, per-
mits service on a party not an inhabitant of or found within
the state which the district court is held, “[w]henever a statute
of the United States or an order thereunder provides for ser-
vice of a summons,” or “[w]henever a statute or rule of court
of the state in which the district court is held provides .
for service of a summons.” Similarly, Rule 4(c)(2)(C)(i)
allows service upon a party not found within the state when-
ever a summons and complaint may be served upon a defen-
dant “pursuant to the law of the State.”
Taken together, the applicable rules permit the bankruptcy
court to exercise jurisdiction over a alien defendant residing
outside the United States only when a federal statute or order,
or a State statute, rule or law, authorizes service in a foreign
country. The Trustees argue that in this case, service was
properly accomplished under a federal statute or order
referred to by Rule 4(e). The Trustees contend that Rule 4(e)
can be read to refer to Bankruptcy Rule 7004(d), which autho-
rizes nationwide service of process, and that in conjunction
with Federal Rule of Civil Procedure 4(i)(1), which sets forth
an alternative manner for service in a foreign country, service
upon the defendants was properly accomplished pursuant to
a federal law that authorizes worldwide service of process.
. A substantially revised version of the Federal Rules of Civil
Procedure became effective December 1, 1993. Rule 4 was amended to
expressly permit the exercise of personal jurisdiction over an individual
in a foreign country. Fed. R. Civ. P. 4(f), (k)(2). As explained above, this
amended version does not presently apply to bankruptcy cases, although
a proposed amendment of Bankruptcy Rule 7004, due to take effect
December 1, 1996, will, inter alia, incorporate the current version of
Rule 4.
46a
The Trustees’ argument is bolstered somewhat by the
Eleventh Circuit case Nordberg v. Granfinanciera (In re
Chase & Sanborn Corp.), 835 F.2d 1341, 1344 (11th Cir.
1988), rev'd on other grounds, 492 U.S. 33 (1989), in which
the court seems to conclude that the authorization of nation-
wide service by Bankruptcy Rule 7004(d) somehow also per-
mits worldwide service. The Nordberg court reached its
conclusion with little analysis, and its decision has not been
well received. See, e.g., In re Old Elec. Inc., 142 B.R. 189,
190-92 (Bankr. N.D. Ohio 1992).
This court also rejects Nordberg, and refuses the Trustees’
invitation to adopt the tortured construction they suggest.
Even assuming, arguendo, that Bankruptcy Rule 7004(d) is a
statue or order within the meaning of Rule 4(e), its autho-
rization allows nationwide, not worldwide, service of process.
And Rule 4(i)(1) is not a proper source of authorization as
that provision is expressly limited by its own terms to the
manner of service. Wells Fargo & Co., 556 F.2d at 414; In re
Old Elec. Inc., 142 B.R. at 191-92. In sum, after careful con-
sideration, the court concludes that no federal statute or order
provides authorization for the assertion of personal jurisdic-
tion over the foreign-based defendants and service must be
accomplished, if at all, pursuant to the applicable state long-
arm statute as provided for by Rule 4(e) and/or Rule
4(c)(2)(C)(i)."°
b. Idaho’s Long-Arm Statute'!
Under Idaho’s long-arm statute a person is subject to per-
sonal jurisdiction “if, among other things, he transacts busi-
10
The similarities between Rule 4(e) and Rule 4(c)(2)(C)(1) result
in an identical analysis under either rule. Kina v. McAllister Bros., Inc.,
659 F. Supp. 39, 41-42 & n. 1 (S.D. Ala. 1987).
uN The face that Bankruptcy Rule 7004(d) authorizes nationwide
service, and that a national contacts test could be employed if the defen-
dants had been properly served in the United States, may make the
analysis of the defendants’ contacts with Idaho under that state's long-
arm statute seem somewhat incongruous. An inverse, but equally incon-
sistent result, is obtained under the current version of Rule 4. L.H.
47a
ness or commits a tortuous act in Idaho and the alleged cause
of action arises from that transaction or act.” Lake, 817 F.2d
at 1420 (citing Idaho Code § 5-514). However, because the
Idaho legislature “intended to exercise all the jurisdiction
available to the State of Idaho under the due process clause of
the United States Constitution,” the question of whether per-
sonal jurisdiction is appropriate under the Idaho statute can be
answered by deciding whether the exercise of jurisdiction
over the defendants “accords with constitutional principles of
due process.” /d. (citing Doggett v. Electronics Corp. of Am.,
454 P.2d 63, 67 (Idaho 1969)."*
3. Due Process Requirements
Consistent with due process principles, a state may assert
either general or specific jurisdiction over a nonresident
defendant. Ziegler v. Indian River County, 64 F.3d 470, 473
(9th Cir. 1995); Haisten v. Grass Valley Medical Reimburse-
ment Fund, Ltd., 784 F.2d 1392, 1397 (9th Cir. 1986). Here,
the Trustees do not argue that the defendants are subject to
general jurisdiction. Accordingly, jurisdiction is only proper
in this case if the defendants’ forum-related activities gave
rise to the claims asserted against them by the Trustees. Hais-
ten, 784 F.2d at 1397 (defining specific jurisdiction). To help
Carbide Corp. v. Piece Maker Co., 852 F. Supp. 1425, 1428-32 (N.D.
Ind. 1994) (noting that in a patent case, under current version of Rule 4,
national contacts tests may be used when nonresident alien is served in
a foreign country, but not when service is accomplished in the United
States pursuant io a state’s long-arm statute). As has often been stated,
anomalies of this sort are for Congress to correct. Omni Capital Int'l, 484
U.S. at 413.
2 The parties in their briefing, and the bankruptcy court in its
decision, spend a considerable amount of effort discussing state court
decisions construing the state’s long-arm statute. the interpretation of a
state statute is, of course, a matter of state law. However, in Lake v. Lake,
817 F.2d at 1420, the Ninth Circuit conclusively determined the scope of
the state’s long-arm statute as construed by the Idaho Supreme Court.
Absent an intervening change in state law, not present here, the Lake
decision is binding on the lower federal courts. Cf. In re Visness, 57 F.3d
775, 778 (9th Cir. 1995), cert denied, oe S. Ct. 828 (1996).
ae 48a
the courts determine whether specific jurisdiction is present,
the Ninth Circuit has articulated a three-part test: (1) the non-
resident defendants must have purposefully availed them-
selves of the privilege of conducting activities in Idaho,
thereby invoking the benefits and protections of the state’s
laws; (2) the claims must arise out of the defendants’ state-
related activities; and (3) the exercise of jurisdiction must be
reasonable. Ziegler, 64 F.3d at 473; Lake, 817 F.2d at 1421.
a. Purposeful Availment
When conducting the purposeful availment analysis, the
court must be careful to distinguish between claims sounding
in tort and those based on a breach of contract. Ziegler, 64
F.3d at 473; Roth v. Garcia Marquez, 942 F.2d 617, 621 (9th
Cir. 1991). Where tort, and tort-like, claims are in issue, the
purposeful availment prong may be satisfied by showing the
defendant's efforts were intentionally directed toward the
forum state residents. Hirsch v. Blue Cross, Blue Shield, 800
F.2d 1474, 1478 (9th Cir. 1986); Lake, 817 F.2d at 1421.
Actual physical contact with the forum state is not necessary,
and personal jurisdiction may be exercised over a defendant
“whose only ‘contact’ with the foreign state is the ‘purpose-
ful direction’ of a foreign act having effect in the forum
state.” Haisten, 784 F.2d at 1397, 1399; Lake, 817 F.2d at
1423; Neaves, 912 F.2d at 1065. Relying on the above prin-
ciples, the Ninth Circuit has reduced the purposeful availment
inquiry in tort cases to a minimum of three elements: “(1)
intentional action; (2) aimed at the forum state; and (3) caus-
ing harm that the defendant should have anticipated would be
suffered in the forum state.” Ziegler, 64 F.3d at 474.
Although contending throughout that the present action is
all about a general conspiracy to “loot and waste, Gulf’s
assets, the Trustees’ amended complaint asserts several dis-
crete causes of action against the defendants that are tort, or
tortlike, claims. These claims include the count alleging
fraudulent conveyances of funds or property (“count I’); the
count alleging breach of fiduciary duties, corporate waste and
49a
mismanagement (“count II”); the count alleging misrepre-
sentation (“count III”); the count alleging a civil conspiracy
(“count V"); and the count seeking to avoid fraudulently pro-
cured releases (“count IX”). The bankruptcy court distin-
guished between the corporate waste and mismanagement
count and all other tort counts, on the basis that such a claim
is grounded on negligent, rather than intentional, conduct.
The court disagrees. “3
As set forth in the complaint and other written submissions,
the Trustees allege that the defendants breached their fidu-
ciary duties, and committed corporate waste and misman-
agement, by “using their positions of trust and confidence to
further their private interests,” instead of acting in the best
interest of Gulf and its creditors. In this regard, the Trustees’
claim is based on the defendants’ alleged willful self-dealing
and conflict of interests. The court sees no reason to treat this
count differently than the other tort claims.
The Trustees’ also assert a claim alleging breach of contract
(“count VI"). Ninth Circuit case law requires the court to sub-
ject the breach of contract count to a somewhat stricter stan-
dard than that employed to test the tort claims. Roth, 942 F.2d
at 621-22. To satisfy the purposeful availment prong, the
Trustees must show a significant nexus between the defen-
dants’ contacts with the forum state and the formation of the
contractual relationship. /d.
(1) Rowland
Assuming, as it must, that the allegations contained in the
Trustees’ written submissions are true, the court has no trou-
ble concluding that Rowland intentionally directed his actions
into Idaho, knowing that the brunt of the injuries alleged in
the tort counts would fall on the resident creditors. Allegedly,
Rowland purposefully directed his letter to the former
employees of the Bunker Hill Mine to placate Idaho creditors,
including the retirees and the environmental creditors. Thus,
by furthering the deceptions necessary to complete the torts
committed by the defendants, Rowland intended for the let-
50a
ter’s alleged misrepresentations to have effect in the forum
state. Cf. Lake, 817 F.2d at i423 (nonresident attorney who
“directed” a California ex parte order at Idaho is subject to
personal jurisdiction in that state); Neaves, 912 F.2d at 1065
(nonresident defendant who mailed fraudulent information to
forum state resident is subject to personal jurisdiction in that
State).
On the other hand, Rowland’s contacts with Idaho appear
unrelated to the Trustees’ breach of contract claim in count
VI. That claim is concerned with the defendants’ alleged fail-
ure to abide by the Standstill Agreement. The agreement was
negotiated and entered into outside of Idaho, between parties
who were not Idaho residents, and the agreement created no
continuing relationship with the forum state. See Roth, 942
F.2d at 622. Under the Ninth Circuit’s purposeful availment
test for analyzing contract claims, jurisdiction 1s not appro-
priate on count VI.'°
(2) Hudd
Similar to Rowland, Hudd’s alleged effort to conceal the
defendants’ illicit transfers was intentionally directed at the
environmental creditors through delay tactics implemented at
various meetings held in Idaho. The Trustees allege that Hudd
sought to stall Idaho creditors until the defendants could
safely abscond with Gulf’s assets. The alleged wrongful con-
duct was aimed at idaho and was intended to be felt in the
forum state. Therefore, Hudd, like Rowland, purposefully
availed himself of the privilege of conducting activities in the
state of Idaho.
“ The Trustees ask the court to exercise “pendent personal juris-
diction” over any claim that cannot stand by itself. The Ninth Circuit has
never adopted the doctrine, Data Disc, Inc., 557 F.2d at 1289 n.8, and a
recent Supreme Court’s decision, Omni Capital Int'l, 484 U.S. at 108-
111, appears to foreclose this avenue. The court therefore rejects the
Trustees’ request.
a aan SS Re NEL nae ado
see
a
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&
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However, as discussed above, Hudd’s activity in Idaho is
not sufficient to support jurisdiction on count VI, alleging
breach of contract.
(3) James
Although James attended only one meeting in Idaho, at that
meeting he is alleged to have directed Pintlar President, H.P.
Harbert, to implement strategies to delay any action by the
environmental creditors. The trustees allege that James inten-
tionally aimed his conduct at Idaho in the hopes of side-
tracking any inquiry by Idaho creditors that might have upset
the looting of Gulf. If proved, such conduct satisfies the pur-
poseful avaiiment prong."
As with Rowland and Hudd, exercise of personal jurisdic-
tion over James for the breach of contract claim, count VI, is
not appropriate.
(4) Moran and Inoco
Neither Moran nor Inoco are alleged to have personally
directed any action at Idaho that caused harm within the state.
However, each is alleged to have acted in concert with the
other defendants in a joint effort to mislead Idaho creditors
and loot Gulf’s assets. Accordingly, the Trustees urge the
court to impute to Moran and Inoco, as co-conspirators, the
jurisdictional contacts of the other defendants-conspirators.
is The bankruptcy court erroneously stated that James “did not
make any misrepresentation in Idaho,” and that he did not “perform any
acts in furtherance of the conspiracy to loot Gulf in Idaho.” Mem. of
Decision, Tab 67 at 56. The bankruptcy court reached this conclusion by
relying on the affidavit submitted by James. At this stage of the litiga-
tion, where there has not been an evidentiary hearing to resolve issues of
credibility, the “documents submitted by the plaintiff ‘are construed in
the light most favorable to the plaintiff and all doubts are resolved in its
favor.’ Neaves, 912 F.2d at 1062 n.1; see also Sher, 911 F.2d at 1361
(plainuff’s allegations are assumed to be true). Thus, the bankruptcy
court erred as a matter of law in referring to the James declaration and
ignoring the Trustees’ written submissions.
52a
Until recently the Ninth Circuit had not determined whether
due process concerns would permit the forum contacts of one
conspirator to be imputed to a co-conspirator. However, cases
indicated that where positive law created an agency-type rela-
tionship, the jurisdictional contacts of the “agent” could be
attributed to the “principal.” See, e.g., Wells Fargo & Co..,
556 F.2d at 419-20, 422-24 (concluding that under case law a
corporation can be an “agent” and therefore its contacts with
forum state can be imputed to the “principal”); Sher, 911 F.2d
at 1362 (holding that under state law a partner is an agent of
the partnership and therefore the partner’s contacts with
forum state can be imputed to the partnership). Consistent
with these decisions, the Ninth Circuit has now expressed its
willingness to accept a conspiracy theory of jurisdiction, so
long as the jurisdictional facts are adequately alleged. Under-
wager v. Channel 9 Australia, 69 F.3d 361, 364-65 (9th Cir.
1995).
The court finds that, as required by Underwager, the
Trustees have alleged facts which satisfy their burden to make
a prima facie showing of a conspiracy, sufficient to support
the purposeful availment test. The Trustees have alleged that
the Rowland Directors controlled Inoco, which in turn con-
trolled Gulf; that the Rowland Directors voted as a block and
knowingly acted in concert with each other and Inoco; that
certain overt acts in furtherance of the conspiracy occurred in
Idaho; that all defendants knew of the efforts to loot Gulf; and
that all benefited from the wrongful conduct. Because the
court concludes that the above allegations meet the require-
ments of the “conspiracy theory of jurisdiction,” each of the
contacts that support jurisdiction over Rowland, Hudd and
James also support the exercise of persoual jurisdiction over
Moran and Inoco. Cf. Sher, 911 F.2d at 1362.
b. Arising Out Of
“The second prong of the specific jurisdiction test is met if
‘but for’ the contacts between the defendant and the forum
State, the cause of action would not have arisen.” Jerracom v.
as
Aa ae a gee
Pe
DELETE
ABA Sip GES Vth
Liisa Saba
53a
Valley Nat. Bank, 49 F.3d 555, 561 (9th Cir. 1995). The defen-
dants appear to argue that at least as to count IX, alleging
fraudulent procurement of releases, the “but for” test has not
been satisfied because the releases were obtained after the
Idaho contacts, and after the defendants ceased to be owners
and directors of Gulf.'> The Trustees contend, in turn, that the
defendants’ successful effort to mislead Idaho creditors was
a necessary step to the completion of all of the alleged torts,
including the fraudulent procurement of the releases. Accord-
ing to the Trustees, had the defendants not deceived Idaho
creditors, the resident creditors would have prevented the
defendants from “looting” Gulf and fraudulently obtaining the
subsequent releases, which potentially shield the defendants
from any action to recover the company’s assets.
The court believes the Trustees’ argument is supported by
case law and therefore concludes that “but for” the contacts
with Idaho, the claims would not have arisen. See Shute v
Carnival Cruise Lines, 897 F.2d 377, 385-86 (9th Cir. 1990)
(explaining “but for” test and concluding that test is satisfied
if the defendant’s forum-related activities put the parties
within “tortious striking distance”), rev'd on other grounds,
499 U.S. 585 (1991); see also Ziegler, 64 F.3d at 474; Bal-
lard, 65 F.3d at 1500.
c. Reasonableness of Exercising Jurisdiction
Once the first two prongs of the test are satisfied, the bur-
den is on the defendants to “present a compelling case that the
presence of some other considerations would render juris-
diction unreasonable.” In evaluating reasonableness the court
should consider: the extent of the defendants’ purposeful
interjection into the forum state; the defendants’ burdens from
litigating in the forum; the extent of the conflict with the
sovereignty of the defendants’ state; the forum state’s inter-
est in adjudicating the dispute; the most efficient forum for
15 mas 2 : :
‘ The defendants present a related argument with regard to the
breach of contract claim, count VI. In light of the court’s disposition of
count VI, it need not address this argument.
4 ™“,
&.
54a
judicial resolution of the controversy; the Trustees’ interests
in convenient and effective relief; and the availability of an
alternative forum. Ziegler, 64 F.3d at 475;-Sher, 911 F.2d at
1364. The court must balance the seven factors to determine
whether the exercise of jurisdiction would be reasonable.
(1) Extent of Purposeful Injection
As discussed above, the defendants purposefully directed
their activities into Idaho by attempting to influence resident
creditors. They directed their actions at creditors they knew
resided in Idaho with the alleged intention of causing harm to
those creditors. Thus, the extent of purposeful injection into
Idaho was significant. See Ziegler, 64 F.3d at 475 (conclud-
ing that agent’s actions, and thus actions imputed to principal,
constituted significant purposeful injection into forum state
where actions were directed at a person known to be in the
forum, with the intended purpose of causing harm in the
forum state).
(2) Burden on the Defendants
To succeed on this factor, the defendants must show that the
inconvenience of litigating this action in Idaho is so great that
it would amouni to a due process violation. Roth, 942 F.2d at
623; Sher, 911 F.2d at 1365. The defendants fail to make this
showing. Moreover, the court notes that “modern advances in
communications and transportation have significantly reduced
the burden of litigating in another country.” Roth, 942 F.2d at
623; see also Sher, 911 F.2d at 1365. Finally, the defendants
can hardly complain that they would be unduly burdened by
travel to this country when they “had no problems in [their]
globetrotting endeavors” to control and manage the far-flung
enterprises associated with Gulf. See Roth, 942 F.2d at 623.
(3) Extent of Conflict with Sovereignty of Foreign State
; Given that the defendants are foreign citizens, the present
action in Idaho will no doubt conflict to some degree with
55a
another country’s sovereignty. However, this consideration “is
not dispositive because, if given controlling weight, it would
always prevent suit against a foreign national in a United States
Court.” /d. And although the defendants argue that because cer-
tain of the Trustees’ claims may implicate English law, liti-
gation in Idaho is inappropriate, “competing sovereignty
interests are best addressed through choice-of-law rules rather
than jurisdictional tests.” Sher, 911 F.2d at 1365 n.5.
(4) Forum State’s Interest in Adjudication
Idaho has a substantial interest in the litigation of this
action. The fraudulent conveyance claims are “core pro-
ceedings,” tied to the Idaho bankruptcy cases and controlled
by federal bankruptcy law. As part of the action, the Trustees,
on behalf of the environmental creditors, seek the recovery of
assets to remedy environment damage in the State of Idaho.
Similarly, retirees of the Bunker Hill Mine seek benefits
related to their past employment in Idaho. Finally, Idaho has
a strong interest in litigating claims alleged to have caused
tortious injury to its residents.
(5S) Most Efficient Judicial Resolution
As the bankruptcy court noted, much of the evidence
regarding Gulf’s solvency, and most of Gulf’s corporate
records are located in Idaho. Otherwise, witnesses and addi-
tional evidence are not concentrated in one forum.
(6) Convenience and Effectiveness of Relief for the
Plaintiffs
Unquestionably, this factor weighs heavily in favor of the
Trustees. Both debtors are now located in Idaho, as are many
of the creditors. Furthermore, the Trustees’ action is related
to other Idaho bankruptcy proceedings, and involves addi-
tional defendants who have conceded to Idaho’s jurisdiction.
56a
(7) Availability of an Alternative Forum
In light of the fact that the Trustees’ action implicates fed-
eral bankruptcy law and involves additional defendants who
are United States citizens, there appears to be no other forum
outside the United States that could accommodate this case.
d. Summary
After balancing all the factors, the court concludes that the
defendants have not demonstrated that the exercise of per-
sonal jurisdiction would be unreasonable. Accordingly, per-
sonal jurisdiction exists over all the defendants as to all
counts except count VI, the breach of contract claim.'®
4. Service on Rowland Pursuant to Rule 7004(e)
Rowland argues that he was not properly served because
service was made pursuant to Rule 4(1). According to Row-
land, service in a foreign country must be accomplished in the
manner prescribed by Bankruptcy Rule 7004(e), which refers
only to Rule 4(d)(1) and (d)(3). The court cannot agree.
Bankruptcy Rule 7004(a) expressly incorporates the appli-
cation of Rule 4(1) to adversary proceedings. Rule 4(1) is con-
cerned solely with the manner of service “upon a party in a
foreign country.” Thus, by its very terms, Bankruptcy Rule
7004 permits service pursuant to Rule 4(i) where, as here, that
rule pertains to the case.
- On appeal, the defendants challenge the Trustees’ standing to
bring certain claims. Standing is a distinct component of a federal court's
ability to hear a case. See Medina v. Clinton, 86 F.3d 155, 157 (9th Cir.
1996). Its focus is on the plaintiff, and whether he has suffered an “injury
in fact.” /d. On the other hand, personal jurisdiction is concerned with the
defendant, and whether he can be required to litigate in the chosen forum.
In the bankruptcy court, the defendants based their motions to dismiss on
lack of personal jurisdiction and improper service of process. Leave to
appeal was granted on these same issues and only these issues. Because
the defendants did not raise the standing challenge in the bankruptcy
court, the court will not address the issue.
TN Tn
i ee ee
57a
ORDER
Based on the foregoing, and being otherwise fully advised
in the premises, the court HEREBY ORDERS that:
The bankruptcy court’s decision to deny the defendants’
motions to dismiss for lack of personal jurisdiction and
improper service of process is AFFIRMED as to all counts
except count VI. As to count VI, regarding breach of contract,
the bankruptcy court’s decision to deny the defendants’
motions to dismiss for lack of personal jurisdiction 1s
REVERSED.
IT IS FURTHER ORDERED that the bankruptcy court's deci-
sion to grant the defendants’ motions to dismiss for lack of
personal jurisdiction count II, regarding breach of fiduciary
duties, corporate waste and mismanagement, is REVERSED.
The case is REMANDED for further proceedings consistent
with this opinion.
Each party shall bear its own costs.
Dated this 16th day of August, 1996.
EDWARD J. LODGE
EDWARD J. LODGE
United States District Judge
58a
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
Bk. Case Nos. 93-02986
93-02987
Adv. Case No. 94-6016
Case No. CV 96-010-N-EJL
PINTLAR CORPORATION and GULF USA CORPORATION,
Debtors.
PINTLAR CORPORATION, GULF USA CORPORATION,
and H.P. HARBERT, as TRUSTEE,
Plaintiffs/Appellees,
—against—
DAVID J. ROWLAND, et al.,
Defendants.
INOCO PLC,
Defendant/Appellant.
59a
Bk. Case Nos. 93-02986
93-02987
Adv. Case No. 94-6016
Case No. CV 96-011-N-EJL
PINTLAR CORPORATION and GULF USA CORPORATION,
Debtors.
PINTLAR CORPORATION, GULF USA CORPORATION,
and H.P. BARBERT, as TRUSTEE,
Plaintiffs/Appellees,
—against—
DAVID J. ROWLAND, et al.,
Defendants.
DAVID J. ROWLAND, JEREMY E. JAMES, DAVID L. HUDD,
and DEREK J. MORAN,
Defendants/Appellants.
Decided February 16, 1996
ORDER CONSOLIDATING APPEALS
Having read the Stipulation among the plaintiffs/appellees
and the defendants/appellants dated February , 1996, IT Is
HEREBY ORDERED that:
|. The two above-captioned appeals shall be consolidated.
60a
5
The appellants may file a joint record for the consoli
dated appeals
3. The “lead case” in which all filings shall be made shall
be Case No. CV 96-010-N-EJL.
4. The Bankruptcy Court, by order dated January 25, 1996,
having substituted “Bernard Goodson, Ford Elsaessar, Low-
ell Finley, and Jay J. Miller, as Trustees” for the prior plain
tiffs in Adversary Proceeding No. 94-6016, said substitution
shall also apply to these appeals
5. The caption for the consolidated appeals shall be
Bk. Case Nos. 93-02986
93-02987
Adv. Case No. 94-6016
Case Nos. CV 96-010-N-EJL
CV 96-011-N-EJL
PINTLAR CORPORATION and GULF USA CORPORATION,
Debtors
BERNARD GOODSON, FORD ELSAESSAR, LOWELL FINLEY,
and JAY J. MILLER, as TRUSTEES,
Plaintiffs/Appellees,
—against-—
DAVID J. ROWLAND. et al..
Defendants.
6la
INOCO PLC, DAvipD J. ROWLAND. JEREMY E. JAMES
DAVID L. HUDD, and DEREK J MORAN,
Defendants/Appellants
DATED this 16th day of February, 1996
EDWARD J. Lopat!
U.S.D.J
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
John M. Friedman, Jr., Esq.
Dianne Coffino, Esq
Givens, Pursley & Huntley
Suite 200, Park Place
277 North Sixth Street
Boise, Idaho 83701
(208) 342-6571
David R. Lombard, Esq
Ramona S. Neal, Esq
Counsel to Plaintiffs
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Chapter 11 Case
Case Nos. 93-02986
93-02987
Adversary Proceeding
No. 94-6016
,
O54
In re PINTLAR CORPORATION
and GULF USA CORPORATION.
Debtors
PINTLAR CORPORATION, et al..
Plaintiffs.
DAVID J. ROWLAND. et ai..
Defendants
Decided and Filed January 25, 1996
ORDER, UNDER BANKRUPTCY RULE 7025,
(A) SUBSTITUTING BERNARD GOODSON, FORD
ELSAESSAR, LOWELL FINLEY AND JAY J. MILLER.
TRUSTEES, AS PLAINTIFFS, AND
(B) AMENDING CAPTION TO REFLECT
THE SUBSTITUTION OF PARTIES
Upon the motion dated December 11, 1995 (the “Motion”)
of Bernard Goodson, Ford Elsaessar, Lowell Finley and Jay J
Miller (collectively, the “Trustees”), as trustees of a litigation
trust (“Trust”) created on November 17, 1994 and approved
by this Court by Order dated June 29, 1995, for an order.
under Fed. R. Civ. P. 25(c), as made applicable to these pro
ceedings by Bankruptcy Rule 7025, directing that (a) the
Trustees, not in their individual capacities but solely as
trustees of the Trust, be substituted for Pintlar Corporation,
Gulf USA Corporation and H. P. Harbert, as pla:ntiffs in this
adversary proceeding and (b) the caption for pleadings filed
in this adversary proceeding be amended to reflect the sub-
64a
stitution of parties; and adequate notice of the Motion having
been given to all parties to this adversary proceeding; and no
other or further notice of the Motion being necessary or
required; and after due deliberation and for cause shown; it is
| hereby
ORDERED, that Bernard Goodson, Ford Elsaessar, Jay J.
Miller and Lowell Finley, are substituted, not in their indi-
vidual capacities but solely as trustees of the Trust, for Pint-
lar Corporation, Gulf USA Corporation and H. P. Harbert, as
plaintiffs in this adversary proceeding; and it is further
ORDERED, that, commencing seven (7) days after the date
hereof, any party filing a pleading in this adversary pro-
ceeding shall use the following caption in its papers:
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Chapter 11 Case
Case Nos. 93-02986
93-02987
Adversary Proceeding
No. 94-6016
In re PINTLAR CORPORATION
and GULF USA CORPORATION,
Debtors.
6Sa
BERNARD GOODSON. FORD ELSAESSAR. LOWELL FINLEY
AND JAY J. MILLER. as Trustees.
Plaintiffs.
DAVID J. ROWLAND. et al..,
Defendants.
and it is further.
ORDERED, the Trustees Shall, within five (
5) business days
after the date hereof.
serve a copy of this Order on each
defendant in this adversary proceeding.
Dated: Boise, Idaho
January 25, 1996
ALFRED C. HAGAN
UNITED STATES BANKRUPTCY JUDGE
66a
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
Bk. Case Nos. 93-02986
93-02987
Adv. Case No. 94-6016
Case No. CV 95-
In re: PINTLAR CORPORATION
and GULF USA CORPORATION,
Debtors.
PINTLAR CORPORATION, et al.,
Plaintiffs,
—vVsS.—
DAVID J. ROWLAND, et al.,
Defendants.
Decided December 11, 1995
ORDER GRANTING LEAVE TO APPEAL
On November 1, 1995, David J. Rowland, Jeremy E. James,
David L. Hudd, and Derek L. Moran, defendants to an adver-
sary proceeding in the bankruptcy court, filed a motion for
leave to appeal from the October 6, 1995, amended order of
the bankruptcy court denying their motions to dismiss for lack
’
t
67a
of personal jurisdiction and improper service of process. Sep-
arately, on November |, 1995, defendant Inoco Plc also filed
a motion for leave to appeal from the bankruptcy court's
October 6, 1995, amended order denying Inoco’s motion to
dismiss for lack of personal jurisdiction. On November 13,
1995, the d«” ndants filed an amended motion for leave to
appeal from the second amended order of the bankruptcy
court issued November |, 1995. The plaintiffs to the adver-
sary proceeding filed a notice of cross-appeal November 13,
1995.
The parties agree that the bankruptcy court’s second
amended order is an interlocutory decision. Under 28 U.S.C.
§ 158(a), a district court may properly exercise appellate
jurisdiction over an interlocutory order of the bankruptcy
court. The determination whether to accept such an appeal is
within the court’s discretion. See Bankruptcy Rule 8003. In
granting leave to appeal pursuant to 28 U.S.C. § 158, several
courts have followed the standard set out in 28 U.S.C.
§ 1292(b). which governs interlocutory appears from the dis-
trict courts to the courts of appeal. See, e.g., In re Sperna, 173
B.R. 654, 658 (Bankr. 9th Cir 1994). Under § 1292(b), grant-
ing leave is appropriate if the interlocutory order involves a
controlling question of law as to which there is a substantial
ground for difference of opinion and an immediate appeal
may materially advance the ultimate termination of the liti-
gation. /d.
Here, the defendants challenge the bankruptcy court’s
choice of legal standards in making the personal jurisdiction
determination. As the bankruptcy court’s memorandum of
decision demonstrates, there is substantial ground for a dif-
ference of opinion on this issue. Finally, a resolution of this
issue now will advance the ultimate termination of the liti-
gation. Accordingly, the court concludes that the motions for
leave to appeal should be granted.
68a
ORDER
Based on the foregoing, and the court being otherwise fully
advised in the premises;
IT 1S HEREBY ORDERED that the motion and amended
motion of defendants David J. Rowland, Jeremy E. James,
David L. Hudd, and Derek J. Moran for leave to appeal to the
district court from the amended order of the bankruptcy court
dated October 6, 1995, and the second amended order of the
bankruptcy court dated November 1, 1995, is GRANTED.
IT IS FURTHER ORDERED that the motion and amended
motion of defendant Inoco Plc for leave to appeal to the dis-
trict court from the amended order of the bankruptcy court
dated October 6, 1995, and the second amended order of the
bankruptcy court dated November |, 1995, is GRANTED.
Dated this 11th day of December, 1995.
EDWARD J. LODGE
EDWARD J. LODGE
UNITED STATES DISTRICT JUDGE
69a
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Adversary No. 93-6016
Case No. 93-02986
Case No. 93-02987
5
|
In re: PINTLAR CORPORATION
and GULF USA CORPORATION.
Debtors.
PINTLAR CORPORATION, GULF USA CORPORATION
and H.P. HARBERT, as TRUSTEE.
Plaintiffs,
—_—VS—_—
DAVID J. ROWLAND, JEREMY E. JAMES, Davip L. Hupp.
DEREK J. MORAN, ROBERT G. BOULTON, SEYMOUR
GRAUBARD, HANS W. WANDERS, GRAHAM F. LACEY, F.
ALEY ALLAN, WARREN C. HABER, WILLIAM C. Horn.
LAWRENCE R. MEHL, JOHN W. HERRING, ANTHONY
WALTERS, CYRIL WARREN MCKENZIE, PETER L.
WHITTAKER, LANE NEAVE RONALDSON, WYNN
WILLIAMS & Co., ALISTER G. MCDONALD, OLLY R.
MATSON, EDWARD LYNCH, INOCO PLC., NYCAL CorRPo-
2. RATION, INTERALLIANZ BANK A.G. formerly known as
INTERALLIANZ BANK ZURICH, A.G.), INTERALLIANZ
SECURITIES CORP., BIKUBEN-WHITEFRIARS LIMITED.
MONACO GROUP FUND, S.A., BRIERLEY INVESTMENTS
LTD., PORTFOLIO MANAGEMENT LIMITED, FELPARK
|
70a
LIMITED (formerly known as SINO INFORMATION
SERVICES LIMITED), FERRIS INVESTMENTS LIMITED, and
LAWRENCE P. HOCKEY-SWEENEY,
Defendants.
Decided and Filed November 1, 1995
SECOND AMENDED ORDER
Upon the Plaintiffs’ motion for clarification and reconsid-
eration of the Amended Order of October 13, 1995, filed in
this case, the Amended Order is amended and restated as fol-
lows:
ORDERED:
1. The motions to dismiss for lack of personal jurisdiction
of the following defendants are GRANTED: Monaco Group
Fund, Interallianz Bank A.G., Interallianz Securities Corp.,
Bikuben-Whitefriars Limited, Cyril Warren McKenzie, Peter
L. Whittaker, Wynn Williams & Co., Olly R. Matson,
Brierley Investments LTD., Lawrence P. Hockey-Sweeney, and
Graham F. Lacey.
2. The remaining motions filed by Monaco Group Fund,
Interallianz Bank A.G., Interallianz Securities Corp.,
Bikuben-Whitefriars Limited, Cyril Warren McKenzie, Peter
L. Whittacker, Wynn Williams & Co., Olly R. Matson,
Brierley Investments LTr.. Lawrence P. Hockey-Sweeney, and
Graham F. Lacey are DENIED as moot.
3. The motions to dismiss for lack of personal jurisdiction
of Defendants INoco, PLc., David J Rowland, Jeremy E.
James, David L. Hudd, and Derek J. Moran are GRANTED as
to the torts of corporate waste and mismanagement and
DENIED with respect to all other counts.
PRI Ie
Tla
4. The motion to dismiss of William C. Horn to dismiss for
lack of personal jurisdiction is DENIED.
5. Defendant William C. Horn’s motion to quash service
and his motion to dismiss for failure to make timely service
are GRANTED and this proceeding is dismissed without prej-
udice as to Defendant Horn.
6. The remaining motions filed by William C. Horn are
DENIED as moot.
7. The motions to quash service of Jeremy E. James, David
L. Hudd and Derek J. Moran are DENIED.
8. David J. Rowland’s motion to quash service is GRANTED
in PART and CONTINUED in PART:
a. David J. Rowland’s motion to quash service in Monaco
is GRANTED.
b. With regard to David J. Rowland’s motion to quash ser-
vice in London, England: David J. Rowland shall have until
November 15, 1995 to submit copies of the legal authority
relied upon by affiant Paul Mallalieu Stanley; and the Plain-
tiffs shall have until November 15, 1995 to submit copies
of the legal authority relied upon by affiant Peter John
Fitzpatrick. The motion shall remain under advisement pend-
ing the submission of the above mentioned legal authority.
9. The Plaintiffs’ motion for reconsideration of this Court's
order of October 6, 1995 (as amended October 13. 1995) is
DENIED as to its request for reconsideration of the following:
a. The granting the motions to dismiss for lack of personal
jurisdiction of Defendants Graham F. Lacey, Interallianz Bank
A.G., Interallianz Securities Corp. and Bikuben-Whitefriars
Limited;
b. The granting of the motions to dismiss for lack of per-
sonal jurisdiction of Defendants David J. Rowland. Jeremy E.
James, David L. Hudd, and Derek J. Moran: and
72a
c. The granting of Defendant William C. Horn’s motion to
quash service.
10. The Plaintiffs shall have until November 15, 1995 to
submit briefs and other material in support of their motion for
reconsideration of this Court’s order quashing service on
Defendant David J. Rowland in Monaco and Defendant
Rowland shall have thirty days thereafter to submit briefs and
other legal materials in opposition to the Plaintiffs’ motion to
reconsider this Court’s order quashing service on Rowland in
Monaco.
Dated this Ist day of November, 1995
ALFRED C HAGAN
ALFRED C . HAGAN
U.S . BANKRUPTCY JUDGE
73a
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Adversary No. 93-6016
Case No. 93-02986
Case No. 93-02987
In re: PINTLAR CORPORATION
and GULF USA CORPORATION.
Debtors.
PINTLAR CORPORATION. GULF USA CORPORATION
and H.-P. HARBERT, as TRUSTEE,
Plaintiffs,
—VS.—
DAVID J. ROWLAND, JEREMY E. JAMES, Davin L. Hupp,
DEREK J. MORAN, ROBERT G. BOuLton, SEYMOUR
GRAUBARD, HANS W. WANDERS, GRAHAM F. LACEY, F.
ALEY ALLAN, WARREN C. HABER, WILLIAM C. HORN,
LAWRENCE R. MEHL, JOHN W. HERRING, ANTHONY
WALTERS, CYRIL WARREN MCKENZIE, PETER L. WuitT-
TAKER, LANE NEAVE RONALDSON, WYNN WILLIAMS &
Co., ALISTER G. MCDONALD, OLLY R. MATSON,
EDWARD LYNCH, INOCO PLC., NYCAL CORPORATION.
INTERALLIANZ BANK A.G. formerly known as INTER-
ALLIANZ BANK ZURICH. A.G.), INTERALLIANZ SECU-
RITIES CORP., BIKUBEN-WHITEFRIARS LIMITED,
MONACO Group FuNp. S.A., BRIERLEY INVESTMENTS
LTD., PORTFOLIO MANAGEMENT LIMITED. FELPARK
74a
LIMITED (formerly known as SINO INFORMATION
SERVICES LIMITED), FERRIS INVESTMENTS LIMITED, and
LAWRENCE P. HOCKEY-SWEENEY,
Defendants.
Decided and Filed October 6, 1995
AMENDED ORDER
In accordance with the contents of the memorandum of
decision entered on September 29, 1995, it is hereby,
ORDERED:
1. The motions to dismiss for lack of personal jurisdiction
of the following defendants are GRANTED: Monaco Group
Fund, Interallianz Bank A.G., Interallianz Securities Corp.,
Bikuben-Whitefriars Limited, Cyril Warren McKenzie, Wynn
Williams & Co., Olly R. Matson, Brierley Investments LTD.,
Lawrence P. Hockey-Sweeney, and Graham F. Lacey.
2. The remaining motions filed by Monaco Group Fund,
Interallianz Bank A.G., Interallianz Securities Corp.,
Bikuben-Whitefriars Limited, Cyril Warren McKenzie, Wynn
Williams & Co., Olly R. Matson, Brierley Investments LTD.,
Lawrence P. Hockey-Sweeney, and Graham F. Lacey are
DENIED as moot.
3. The motions to dismiss for lack of personal jurisdiction
of the following defendants are DENIED: INOCO, PLC., David
J. Rowland, Jeremy E. James, David L. Hudd, Derek J. Moran
and William C. Horn.
4. Defendant William C. Horn’s motion to quash service
and his motion to dismiss for failure to make timely service
are GRANTED.
ee
f
at
q
%
2
Z
75a
5. The remaining motions filed by Villiam C. Horn are
DENIED as moot.
6. The motions to quash service of Jeremy E. James, David
L. Hudd and Derek J. Moran are DENIED.
7. David J. Rowland’s motion to quash service is GRANTED
in PART and CONTINUED in PART:
a. David J. Rowland’s motion to quash service in Monaco
is GRANTED.
b. With regard to David J. Rowland’s motion to quash ser-
vice in London, England: David J. Rowland shall have thirty
(30) days from the date of this order to submit copies of the
legal authority relied upon by affiant Paul Mallalieu Stanley;
and the Plaintiffs shall have thirty (30) days from the date of
this order to submit copies of the legal authority relied upon
by affiant Peter John Fitzpatrick. The motion shall remain
under advisement pending the submission of the above men-
tioned legal authority.
Dated this 6th day of October, 1995.
ALFRED C. HAGAN
ALFRED C. HAGAN
U.S. BANKRUPTCY JUDGE
76a
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Adversary No. 93-6016
Case No. 93-02986
Case No. 93-02987
In re: PINTLAR CORPORATION
and GULF USA CORPORATION,
Debtors.
PINTLAR CORPORATION, GULF USA CORPORATION
and H.P. HARBERT, as TRUSTEE,
Plaintiffs,
= 5
DAVID J. ROWLAND, JEREMY E. JAMES, DAviID L. HUDD,
DEREK J. MORAN, ROBERT G. BOULTON, SEYMOUR
GRAUBARD, HANS W. WANDERS, GRAHAM F. LACEY, F.
ALEY ALLAN, WARREN C. HABER, WILLIAM C. HORN,
LAWRENCE R. MEHL, JOHN W. HERRING, ANTHONY
WALTERS, CYRIL WARREN MCKENZIE, PETER L. WHIT-
TAKER, LANE NEAVE RONALDSON, WYNN WILLIAMS &
Co., ALISTER G. MCDONALD, OLLY R. MATSON,
EDWARD LYNCH, INOCO PLC., NYCAL CORPORATION,
INTERALLIANZ BANK A.G. formerly known as INTER-
ALLIANZ BANK ZURICH, A.G.), INTERALLIANZ SECU-
RITIES CORP., BIKUBEN-WHITEFRIARS LIMITED,
MONACO GROUP FUND, S.A., BRIERLEY INVESTMENTS
LTD., PORTFOLIO MANAGEMENT LIMITED, FELPARK
arrester a ere a erie uC Re rae
77a
LIMITED (formerly known as SINO INFORMATION
SERVICES LIMITED), FERRIS INVESTMENTS LIMITED. and
LAWRENCE P. HOCKEY-SWEENEY,
Defendants.
Decided and Filed October 2, 1995
ORDER
In accordance with the contents of the memorandum of
decision entered on September 29, 1995, it is hereby,
ORDERED:
1. The motions to dismiss for lack of personal jurisdiction
of the following defendants are GRANTED: Monaco Group
Fund, Interallianz Bank A.G.. Interallianz Securities Corp.,
Bikuben-Whitefriars Limited. Cyril Warren McKenzie, Wynn
Williams & Co., Olly R. Matson. Brierley Investments LTp..
Lawrence P. Hockey-Sweeney, and Graham F. Lacey.
2. The remaining motions filed by Monaco Group Fund,
Interallianz Bank A.G.. Interallianz Securities Corp.,
Bikuben-Whitefriars Limited. Cyril Warren McKenzie, Wynn
Williams & Co., Olly R. Matson. Brierley Investments LTp..
Lawrence P. Hockey- Sweeney, and Graham F. Lacey are
DENIED as moot.
3. The motions to dismiss for lack of personal jurisdiction
of the following defendants are DENIED: David J. Rowland,
Jeremy E. James, David L. Hudd, Derek J. Moran and
William C. Horn.
4. Defendant William C Horn’s motion to quash service and
his motion to dismiss for failure to make timely service are
GRANTED.
78a
5. The remaining motions filed by William C. Horn are
DENIED as moot.
6. The motions to quash service of Jereme E. James, David
L. Hudd and Derek J. Moran are DENIED.
7. David J. Rowland’s motion to quash service is GRANTED
in PART and CONTINUED in PART:
a. David J. Rowland’s motion to quash service in Monaco
is GRANTED.
b. With regard to David J. Rowland’s motion to quash ser-
vice in London, England: David J. Rowland shall have thirty
(30) days from the date of this order to submit copies of the
legal authority relied upon by affiant Paul Mallalieu Stanley;
and the Plaintiffs shall have thirty (30) days from the date of
this order to submit copies of the legal authority relied upon
by affiant Peter John Fitzpatrick. The motion shall remain
under advisement pending the submission of the above men-
tioned legal authority.
Dated this 2nd day of October, 1995.
ALFRED C. HAGAN
ALFRED C. HAGAN
U.S. BANKRUPTCY JUDGE
2 ORS. Senet: va OR, Sag etaelatentick ars
79a
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
Adversary No. 93-6016
Case No. 93-02986
Case No. 93-02987
In re: PINTLAR CORPORATION and
GULF USA CORPORATION,
Debtors.
PINTLAR CORPORATION, GULF USA CORPORATION
and H.P. HARBERT, as TRUSTEE,
Plaintiffs,
—vs.—
DAVID J. ROWLAND, JEREMY E. JAMES, DAVID L. HUDD,
DEREK J. MORAN, ROBERT G. BOULTON, SEYMOUR
GRAUBARD, HANS W. WANDERS, GRAHAM F. LACEY.
F. ALEY ALLAN, WARREN C. HABER, WILLIAM C.
HORN, LAWRENCE R. MEHL, JOHN W. HERRING.
ANTHONY WALTERS, CYRIL WARREN MCKENZIE, PETER
L. WHITTAKER, LANE NEAVE RONALDSON, WYNN
WILLIAMS & Co., ALISTER G. MCDONALD, OLLY R.
MATSON, EDWARD LYNCH, INOCO PLC., NYCAL Cor-
PORATION, INTERALLIANZ BANK A.G. formerly known as
INTERALLIANZ BANK ZURICH, A.G.), INTERALLIANZ
SECURITIES CORP., BIKUBEN-WHITEFRIARS LIMITED,
MONACO GrRouP FUND, S.A.. BRIERLEY INVESTMENTS
LTD., PORTFOLIO MANAGEMENT LIMITED, FELPARK
LIMITED (formerly known as SINO INFORMATION
80a
SERVICES LIMITED), FERRIS INVESTMENTS LIMITED, and
LAWRENCE P. HOCKEY-SWEENEY,
Defendants.
Decided and Filed September 29, 1995
MEMORANDUM OF DECISION
John M. Friedman, Jr. and Dianne F. Coffino, DEWEY BAL-
LANTINE, New York, New York and Terry L. Meyers, GIVENS
PURSLEY WEBB & HUNTLEY, Boise, Idaho, for plaintiff.
H. Jim Magnuson, Coeur d’Alene, Idaho, for William C.
Hern.
Susan A. Cahoon, KILPATRICK & Copy, Atlanta, Georgia, for
Interallianz Bank A.G. & Interallianz Securities Corporation.
John F. Kurtz, Jr.,. HAWLEY TROXELL ENNIS & HAWLEY,
Boise, Idaho, for Bikuben-Whitefriars Limited, Wynn Williams
& Company, Olly R. Matson, Cyril Warren McKenzie, Peter
L. Whittaker and Brierley Investments Ltd.
John T. Mitchell, MITCHELL & MITCHELL, Coeur d’Alene,
Idaho, and Lawrence F. Carnevale, CARTER LEDYARD & MIL-
BURN, New York, New York, for David J. Rowland, Derek J.
Moran, David L. Hudd, Jeremy E. James, and INOCO PLC.
Barry M. Okun, ROSENMAN & COLIN, New York, New York,
for INOCO, PLC.
Robert L. Dell Angelo, Los Angeles, California, for Brierley
Investments.
Richard S. Taffet, GOLENBOCK EISEMANN ASSOR & BELL,
New York, New York, for Bikuben-Whitefriars Limited.
Scott D. Hess, EBERLE BERLIN KADING TURNBOW &
MCKLVEEN, Boise, Idaho, for Graham F. Lacey.
Patrick J. Kole, MOFFATT THOMAS BARRETT ROCK &
FIELDS, Boise, Idaho, for Lawrence P. Hockey-Sweeney.
Rr sree on eam arc
=. oe TH ere he ea)
8la
TABLE OF CONTENTS
NATURE OF THE ACTION
FACTUAL BACKGROUND
The Sale to Rowland
The Rowland Era
I.
Il.
Il.
IV.
Ow >
ae
Qn
7AMOOWS>AO> GS
The Bermuda Proposal
Stock Speculation
Storehouse
Excessive Compensation and Employment of
INOCO’s Employees
The New Zealand Purchases
1. The Felpark Transactions
The Unisys Transaction
The CRL Transaction
4. The Settlement with Brierley
Houston Office Space
Stock Repurchase
Aviva Petroleum
Kidderminster
Sunken Treasure
WwW bo
he Sale to Lacey
Meeting the Cash Requirement of Lacey
Excessive Severance
he Lacey Era
The Settlement with the Rowland Group
Expenses and Salaries
Continued Stock Redemption
Continued Investment in Aviva
UDG Shares’
Release of Mehl
DISCUSSION
Burden of Proof
Amenable to Service
3
II.
A.
Nationwide Service
1. Horn
2: mz
III. Due
IV.
oO
a |
<
SEPP Re Reel oe Shee
im
P.
82a
3. The Alien Defendants
Worldwide Service
1. Bankruptcy Rules 7004(d) and (e)
2. The Idaho Long Arm Statute
a. The Rowland Directors
INOCO
Wynn Williams and Matson
Whittaker and McKenzie
Brierley
IBZ
IBZ Securities
Whitefriars
Monaco
Hockey-Sweeney
Lacey
Process
Horn
The Rowland Directors
INOCO
Wynn Williams and Matson
Whittaker ang McKenzie
Brierley
IBZ
IBZ Securities
Whitefriars
Monaco
Hockey-Sweeney
Lacey
ee Pee. Om ee
rice
Service under Rule 7004: Horn
Rowland
Worldwide Service by Mail: INOCO
Application of the 120 Day Rule to Service
Abroad
Application of the 10 Day Rule to Personal Ser-
vice Abroad
Application of the 10 Day Rule to Service by Mail
CONCLUSION
ee
1
bs
f
1
:
4
:
|
F:
83a
Motions to dismiss this adversary proceeding against
them for lack of personal jurisdiction have been filed by
Defendants David J. Rowland (“Rowland”), Jeremy E. James
(“James”), David L. Hudd (“Hudd”) Derek J. Moran (“Moran”).
INOCO, PLC (“INOCO”), Monaco Group (“Monaco”), Inter-
allianz Bank A.G. (“IBZ”), Interallianz Securities. Corp.
(“IBZ-Securities”), Bikuben-Whitefriars Ltd. (“Whitefriars”),
Cyril McKenzie (“McKenzie”), Peter Whittaker (“Whit-
taker”), Wynn Williams & Co. (“Wynn Williams”), Olly R.
Matson (“Matson”), Brierley Investments (“Brierley”),
Lawrence Hockey-Sweeney (“Hockey-Sweeney”), William C.
Horn (“Horn”), and Graham F. Lacey (“Lacey”).
The following defendants have also moved to quash ser-
vice: Rowland, James, Hudd, Moran, INoco, Monaco, IBZ.
McKenzie, Whittaker, Wynn Williams, Matson. Brierley,
Hockey-Sweeney and Horn.
Additionally, IBZ has moved in the alternative for change
of venue to the Southern District of New York. Horn has
moved in the alternative to dismiss for lack of subject matter
jurisdiction and failure to state a cause of action on which
relief may be granted. Defendant Brierley has moved in the
alternative to dismiss for failure to state a cause of action on
which relief may be granted.
For the reasons discussed below, the following defendants
motions to dismiss for lack of personal jurisdiction are
granted: Monaco, IBZ, IBZ Securities, Whitefriars, McKenzie.
Whittaker, Wynn Williams, Matson, Brierley, Hockey-
Sweeney, and Lacey. The motions to dismiss for lack of per-
sonal jurisdiction of Rowland, James, Moran, Hudd, INoco.
and Horn are denied.
Horn’s motion to quash service will be granted and the
amended complaint will be dismissed as to defendant Horn
for failure to serve the summons and complaint within 120
days of the filing of the complaint. The motions to quash ser-
vice of James, Hudd, Moran, and INoco, will be denied. The
motions to quash service of Monaco, IBZ, McKenzie, Whit-
taker, Wynn Williams, Matson, Brierley, Hockey-Sweeney are
84a
moot and therefore will be denied. The motion to quash ser-
vice of Rowland will continue under advisement until after
the submission of additional legal materials.
The remaining motions of IBZ, Brierley and Horn are moot
and will be denied.
NATURE OF THE ACTION
H.P. Harbert (the “Trustee”) as trustee for the Creditors’
Litigation Claims Trust’ brings this action on behalf of the
creditors of debtors Gulf U.S.A. Corp. (“Gulf”) and Pintlar
Corporation (“Pintlar”) against certain of Gulf’s former offi-
cers and directors and others and alleges the following facts.
Former directors Rowland, James, Hudd and Moran (the
“Rowland Directors”) controlled Gulf’s board of directors
(the “Board”) between 1989 and 1991 (the “Rowland Era”).
During the Rowland Era, the Rowland Directors conspired to
loot the assets of Gulf and engaged in various schemes to
defraud the creditors of Guif by making fraudulent con-
veyances of Gulf property overseas and causing Gulf to
engage in highly speculative investments. Various -other
defendants joined in the Rowland conspiracy to loot Gulf and’
participated in the fraudulent conveyances. The following
moving defendants are included in this group: INOCO,
Monaco, IBZ, IBZ Securities, Whitefriars, McKenzie, Whit-
taker, Wynn Williams, and Matson. Some of the defendants
participated in or benefited from the fraudulent transactions,
but did not join in the conspiracy to loot Gulf. Brierley and
Hockey-Sweeney are in this group.
Former directors Lacey, Horn, and F. Aley Allan (“Allan”)
(collectively referred to as the “Lacey Directors”) controlled
I
On November 17, 1994, subject to the approval of the Bankruptcy
Court the debtors in possession, Gulf and Pintlar, transferred the claims
asserted in this action to a Idaho trust formed for the purpose of liqui-
dating certain claims including the claims alleged herein for the benefit
of certain of Gulf and Pintlar’s creditors.
Rs oe ink Ai bis ot ah
Pies is Rae feiTutca t: £8 Whig at YAR es Minder ay Gees = Bek ACE SAR Sod IER Sas
PITA SSR es Be a ERPS IR OE ply RASS Sl od irae es a, M
85a
the Board between 1991 and 1993 (the “Lacey Era”). During
the Lacey Era, the Lacey Directors continued to loot Gulf and
the Lacey Directors failed to recover the fraudulent transfers
which occurred during the Rowland Era.
The Trustee has also named those directors who were not
affiliated with either Rowland or Lacey but who served dur-
ing the Rowland and/or Lacey Eras as defendants. None of the
outside directors has moved to dismiss.
FACTUAL BACKGROUND
Gulf, a Delaware corporation, is a holding company whose
principal assets consist of direct and indirect interests in var-
ious subsidiaries including Pintlar, Gulfpac Limited. UK
(“Gulfpac”), Gulf Resources (UK) Plc (“GRE UK”), Gulf
Resources Pacific Limited (“GRP”), formerly known as City
Realties Limited dpe Se
Although Gulf is currently headquartered in Kellogg,
Idaho, Gulf was headquartered in Boston, Massachusetts
between 1989 and 1991. Thereafter, Gulf moved its head-
quarters to Washington, D.C. Gulf did not relocate to Kellogg
until after the transactions at issue had taken place.
Pintlar, a Delaware corporation, is a wholly owned sub-
sidiary of Gulf, whose principal place of business is Kellogg,
Idaho. This Court has ruled that Pintlar and Gulf are alter
egos; therefore, there is no corporate veil between them.
Thus, the creditors of Gulf are also the creditors of Pintlar.
However, the holding does not extend to the time the alleged
transactions took place.
Pintlar formerly owned the Bunker Hill silver and lead min-
ing site (the “Bunker Hil] Mine”). The mine was closed in
1981. By 1982, the Bunker Hill Mine had been sold to the
Bunker Hill Limited Partnership (“Bunker Hill Ltd.”). After
the mine was sold, Gulf did not conduct any commercial busi-
ness in Idaho directly or indirectly except to pay pension and
medical benefits to the former employees of the Bunker Hil!
Mine. However, in 1992, Pintlar acquired some of Bunker
86a
Hill Ltd.’s assets in connection with Bunker Hill Ltd.’s
bankruptcy.
In September of 1983, the Environmental Protection
Agency (the “EPA”) placed Bunker Hill on the Superfund
National Priorities list. The EPA named Gulf as a potential
responsible party for the extensive environment damage at the
Bunker Hill Mine.
Although Gulf had accumulated about $177 million in
assets by 1989, the Trustee contends Gulf was insolvent at
that time because of Pintlar’s environmental, pension, med-
ical benefit, bond and other obligations incurred in connection
with the Bunker Hill Mine. The majority of these creditors
were located in Idaho and the debts and liabilities were
incurred as a result of Pintlar’s operations in Idaho.
I. The Sale to Rowland
The Rowland Directors gained control of Gulf in the spring
of 1989, when Downshire, N.V. (“Downshire”), a wholly
owned subsidiary of INOCO (a United Kingdom company),
purchased 34% of Gulf’s outstanding shares from David and
Frederick Barclay. At that time Monaco (a Panamanian
investment company) held 48% of the shares of INOCO and
Rowland had a controlling interest in Monaco. Amend.Comp.
158.
Delaware Business Corporations Law § 203 prohibits cer-
tain transactions with shareholders who have more than 15%
of the corporation’s voting stock for a period of three years
following the acquisition of 15% of the corporation’s stock,
unless the board of directors approves the initial stock pur-
chase. Rowland insisted that Downshire’s purchase be
approved by the Board. Amend.Comp. 951. As a condition
for its approval, the Board required Rowland, INocO, Down-
shire, Hudd, James and Moran to enter into a Standstill
Agreement and Undertaking (the “Rowland Standstill Agree-
ment’) with the Barclays and Gulf. Amend.Comp. 459. The
Rowland Standstill Agreement prohibited Gulf, but not its
subsidiaries, from entering into a business relationship with
RiePied nig Rea La.
Sty toe yee
sti ates DEM oh ees
87a
any officer, director or stockholder who held more than 5%
of the stock of Gulf if such officer, director or stockholder
had a direct or indirect financial interest in the transaction.
Amend.Comp. 9460. The Rowland Standstill Agreement
also prohibited the officers of Gulf from making commit-
ments of more than $100,000.00 on behalf of Gulf.
Amend.Comp. 460. The limitations imposed by the Rowland
Standstill Agreement could be modified by consent of two-
thirds of the Board. Jd. The Rowland Standstill Agreement
States that it is to be governed and interpreted according to
the laws of New York.
II. The Rowland Era
The Trustee’s allegations regarding the Rowland Era trans-
fers are hereafter summarized.
A. The Bermuda Proposal
At the May 1989 Board Meeting, the Rowland Directors
proposed that Gulf reorganize as a subsidiary of a newly
formed Bermuda Company. Amend.Comp. 4167. A strategy
report presented to the Board by the Rowland manage-
ment team, describes the merger as an attempt “to raise
new equity capital for acquisitions insulated from environ-
mental claims.” Amend.Comp. 969. Publicly, the Rowland
Directors described the proposed reorganization as an
attempt, “to avoid the income tax on future income of any
non-U.S. entity subsequently acquired by Gulf.” Amend.
Comp. 967.
The U.S. Department of Justice and the EPA opposed the
reorganization and threatened to bring an action to enjoin it.
Amend.Comp. 9 68.
Later, after deciding to transfer ownership of recently
acquired real estate in New Zealand to a New Zealand com-
pany, the Rowland Directors decided to abandon the Bermuda
reorganization. Amend.Comp. 9117; See subsection E, “The
New Zealand Purchases,” infra.
88a
The Trustee alleges that the Bermuda proposal is evidence
of the Rowland Directors’ conspiracy.
B. Stock Speculation
Also at the May 1989 Board Meeting, Rowland reported on
what he called potential stock opportunities. Amend.Comp.
9154. The Board gave Rowland discretion to invest up to
$20 million in marketable securities. Amend.Comp. 4 154.
Four months later, at a Board Meeting in France, the Board
raised Rowland’s securities investment cap to $50 million.
Amend.Comp. 9155.
All of the authorized securities transactions took place
through Gulf’s wholly owned subsidiary, Sexton Limited
(“Sexton”). All of the transactions were executed through
defendant Whitefriars, an Anglo-Danish brokerage concern.
Amend.Comp. 4 157.
The Trustee alleges that acting in a conspiracy with White-
friars and IBZ Securities (a Panamanian company) Rowland
directed that the trades be documented in the first instance as
trades on IBZ Securities’ account. Amend.Comp. 4158. If
these trades resulted in a loss, they were booked by hand-
written entry to the Sexton account and Gulf paid the losses.
Amend.Comp. 9158. If the trades resulted in a gain, IBZ
Securities kept the trades on its account. Between October
and December of 1990, Gulf lost approximately $6.7 million
as a result of these trades. During this period the stock mar-
ket was generally rising.
In addition, Rowland caused Gulf to pay Whitefriars fees it
was not entitled to. Amend.Comp. 4 159.
C. Storehouse
In June 1989, Rowland proposed that Gulf acquire Store-
house Plc. (“Storehouse”), a British retailer. Amend.Comp.
981. At that time, Monaco held a 3.5% interest in Storehouse.
The Trustee alleges Whitefriars and Rowland then com-
menced a scheme to inflate the value of Storehouse shares.
Amend.Comp. qf 83-90.
89a
In August of 1989, Whitefriars issued a “fairness opinion”
addressed to the Directors of Gulf in Boston Massachusetts,
in which Whitefriars stated that the price to be paid by Gulf
subsidiary GRE was reasonable. In September of 1989, after
Rowland had allegedly driven up the price of Storehouse
shares, the Board approved the purchase of the Storehouse
shares from Monaco and affirmed its consent to a waiver of
the Rowland Standstill Agreement and GRE purchased the
shares. Amend.Comp. 9 87 and 88.
D. Excessive Compensation and Employment
of INOcO’s Employees
At the September, 1989, Board Meeting, held in Cap Ferret,
France, Rowland became President and Chief Executive Offi-
cer of Gulf. James and Hudd became Executive Vice Presi-
dents and Moran became Senior Vice President of Gulf.
Amend.Comp. 9/66 and 70. At this time James, Hudd and
Moran were and continued to be employed on a full time basis
by INoco. Amend.Comp. 477. The Trustee alleges the
salaries paid to the Rowland Directors for serving as officers
were extravagant. Amend.Comp. 477.
The fees paid to the outside directors were also increased
during this period. Amend.Comp. 478. .
Additionally, Rowland proposed Gulf employ INOCo’s Lon-
don secretarial staff and that Gulf lease office space in Lon-
don and Monte Carlo and purchase office space in New York.
Amend.Comp. 9/71. At that time, Gulf was headquartered in
Boston, Massachusetts. Amend.Comp. 4.71. However, rather
than purchase New York office space, Gulf leased the space
from INOcO. Amend.Comp. 9/73. The office space in London
and Monte Carlo was also leased from INOCO. Amend.Comp.
972.
Also at the September of 1989 Board Meeting, the Board
authorized negotiations to purchase property located in Hous-
ton, Texas and New York from a wholly owned subsidiary of
INOCO. Amend.Comp. 991.
90a
E. The New Zealand Purchases
At the September, 1989, meeting, the Board also approved
Rowland’s proposal that Gulf invest in the Triangle Centre, a
shopping center located in New Zealand. Amend.Comp.
19 93-94.
A couple of days later, Rowland sent a letter to the former
employees of the Bunker Hill Mine and their families
assuring them that the New Zealand purchase was not an
attempt to hide assets from Pintlar’s former employees, the
State of Idaho, or the EPA. Amend.Comp. 495. The Trustee
alleges that the contents of this letter were misleading
and false and that as a consequence the recipients took no
action to block the New Zealand transactions. Amend.Comp.
195.
At a subsequent Board Meeting held on October 20, 1989,
Hudd (acting on behalf of Rowland) proposed Gulf continue
with the proposed New Zealand acquisitions by purchasing
office buildings in Auckland, Wellington and Christchurch.
Amend.Comp. 996. He also proposed Gulf acquire a con-
trolling interest in a publicly traded New Zealand company
which would then be used a vehicle for the purchases.
Amend.Comp. 4 96.
The Trustee alleges that Gulf retained Whittaker and
McKenzie as accountants and Wynn Williams and Lane Neave
as solicitors to assist it in the transactions. Amend.Comp.
91103. The Trustee alleges that De» ‘dant Matson was
the solicitor at Wynn Williams and Alislter McDonald
(“McDonald”) was the solicitor at Lane Neave for Gulf.’
However, Wynn Williams, Matson, Whittaker and Mc-
Kenzie have all submitted affidavits contending that they
The Trustee also alleges that two partners of Wyan Williams
were directors of De Valdor until November 24, 1989. Matson explains
that until late November of 1989, De Valdor was a shell corporation cre-
ated by Wynn Williams to speed the incorporation process for its clients.
Accordingly, Wynn Williams sold this shell corporation to Gulf at which
time both partners resigned as directors. Matson Supp.Aff. 417.
+
9la
were hired by and acted on behalf of Gulf’s subsidiaries. not
Gulf itself. Matson Aff. 919.4,5,9; Matson Supp.Aff. 14; Whit-
taker Supp.Aff.; McKenzie Supp.Aff. The correspondence
between Gulf and these defendants submitted by the Trustee
is not determinative of who these parties actually represented.
1. The Felpark Transactions
As proposed by the Board, nineteen of the New Zealand
properties were to be purchased by De Valdor (a Gulf sub-
sidiary) from Glentree Holdings Limited, a wholly owned
subsidiary of Felpark, a Cook Islands company. However,
despite this representation, the initial negctiations were made
by the Rowland Directors with Mutual Life Association of
Astralasia (“National Mutual”).
The Trustee alleges that at Whittaker’s direction, Lane
Neave acquired Felpark, a Cook Islands corporation. Lynch
was named as the beneficial owner. Amend.Comp. 4105.
Prior to the close of the sale of the National Mutual and
Chase properties to De Valdor, Moran directed Lane Neave to
replace De Valdor with Felpark as the purchaser in the agree-
ments. Amend.Comp. 9106. The Trustee alleges that McDon-
ald made the change with full knowledge that Gulf was the
real purchaser.
The Trustee alleges Felpark received a finders’ fee from
Gulf for allowing De Valdor to acquire the properties.
Amend.Comp. 9106. Matson and McDonald, then caused
Felpark to transfer the unearned finders’ fee to IBZ.
Amend.Comp. 4106. The Trustee alleges Matson knew at the
time of the transfer that Felpark had not earned a finder’s fee.
In contrast, Matson testified that he never transferred any
money of behalf of Felpark and that with one exception Lane
Neave handled the entire Felpark transaction. Moran told
Matson that Gulf had agreed to pay Felpark a negotiation fee
and asked Matson to draft a document setting forth the nego-
tiation fee agreement. Matson Supp.Aff. 99 12, 16, 6. Whit-
taker and McKenzie have submitted similar denials of any
92a
knowledge of any wrongdoing on the part of Gulf’s directors.
Whittaker Supp.Aff.; McKenzie Supp.Aff.
2. The Unisys Transaction
De Valdor also purchased a property known as Unisys
House located in Wellington, New Zealand from Sunflower
Services (“Sunflower”), a subsidiary of Citibank. The Trustee
alleges that Wynn Williams Securities, Ltd., a corporation
controlled by Wynn Williams, acquired an option to purchase
Sunflower’s common stock which it assigned to Glentree, a
wholly-owned subsidiary of De Valdor. Amend.Comp. 4 109
Wynn Williams also acquired an option to purchase Sun-
flowers’ preferred stock as a nominee. Amend.Comp. 4 110.
On Moran’s behalf, Whittaker directed McDonald to
acquire Kingsley from European Pacific. Amend.Comp. 9 111.
Matson was designated as the owner of Kingsley and McKen-
zie was named as its sole director. Amend.Comp. 4111.
Kingsley was then designated as the purchaser of the Sun-
flower preferred stock. Amend.Comp. 4111.
In February of 1990, Sunflower redeemed the 100 preferred
shares from Kingsley. Sunflower financed the redemption by
issuing 100 new common shares to Glentree. Glentree used
money supplied by Gulf from its trust account at Wynn
Williams to purchase the new common shares. Amend.Comp.
4113. The funds were subsequently transferred to a bank
accouni held by IBZ in Zurich.
The Trustee also alleges that Whittaker, McKenzie, Wynn
Williams and Lane Neave were paid fees to which they
were not entitled in connection with these transactions.
Amend.Comp. 9115. The Trustee alleges these professionals
conspired with Rowland and his affiliates to fraudulently con-
vey $8.9 million in Gulf assets to themselves and others by
means of the New Zealand purchases. Amend.Comp. 4115.
Matson responds that Wynn Williams Securities is a com-
pany owned by Wynn Williams for the purpose of holding
securities for the benefit of overseas clients. He testifies that
Wynn Williams involvement in the transaction was limited to
93a
documenting the October 25, 1989, agreement with Sunflower
and to advice McKenzie with regard to the loan from
Citibank. Matson did send funds to Hong Kong on the express
instructions of McKenzie. Matson states that the transfer of
funds as directed by a client is the legal duty of a New
Zealand attorney. Supp.Aff.Matson 99 14,20,22.
Wynn Williams, Matson, Whittaker, and McKenzie have
also made detailed denials of any knowledge of wrongdoing
on the part of Gulf’s Directors with regard to this transaction.
3. The CRL Transaction
At the December 7, 1989 Board Meeting, Hudd proposed
Gulf invest in CRL, a company listed on the New Zealand
stock exchange, for the purpose of holding Gulf’s recently
acquired New Zealand real estate. Amend.Comp. 9116. On
December 12, 1989, Rowland circulated a memorandum to
the Board proposing Gulf exchange its interest in De Valdor
for 54% of CRL’s stock.
Accordingly, twenty-five of the New Zealand properties
were transferred to CRL in exchange for 230 million newly-
issued shares of CRL’s stock at $.036 per share, plus CRL’s
assumption of $65.3 million of debt on the properties. The
New Zealand Properties were worth approximately $147 mil-
lion at that time. Gulfpac., Gulf’s wholly owned United King-
dom subsidiary held the CRL shares when the transaction was
completed. Amend.Comp. 4 120.
As part of the transaction, Rowland suggested in a Decem-
ber 12, 1989, memorandum to the Board that Gulf enlist the
aid of a company named Zelas to gain CRL’s consent to the
transaction in return for a $10.7 million loan to be secured by
the Zelas’ CRL shares. Rowland told the Board that Zelas was
an investment company that controlled CRL. Amend.Comp.
97125.
Zelas was a New Zealand corporation formed in 1989 by
Gulf’s accountants Whittaker and McKenzie for the sole pur-
pose of acquiring shares in CRL from Tower Corporation.
Zelas had no business operations. In October of 1989. Zelas
94a
contracted to purchase 100 million shares or 72% of CRL
from Tower Corporation for $0.33 per share.
Zelas financed the first $1.2 millon of the acquisition with
a loan from a business associate of Rowland. Amend.Comp.
9128. Zelas financed the next installment of the purchase
price and the repayment of the initial loan with a December,
1989, loan of $11.1 million from Gulf. Amend.Comp. 4 130.
Ata March 22, 1990 Board Meeting, Rowland proposed Gulf
lend Zelas an additional $33.2 million. Zelas used these funds
to repay its first loan from Gulf and to pay the final install-
ment on its purchase of shares from Tower Corporation.
Amend.Comp. 4.131.
Zelas was unable to repay the second Gulf loan and in 199]
Gulf foreclosed on its CRL shares, thereby becoming the
91.17% owner of CRL. Amend.Comp. 9134. The Trustee
alleges that Rowland engineered the De Valdor/Gulf trans-
action as a means of dumping Zelas’ bad investment in CRL
stock on Gulf. Amend.Comp. 99 129, 134.
4. Settlement with Brierley
Defendant Brierley, who held a minority interest in CRL
through its affiliate Portfolio Management, objected to the
CRL shareholder vote approving the transaction including the
appointment of Rowland and James as directors of CRL.
Amend.Comp. 9 122. Portfolio Management then brought a
suit in New Zealand to overturn the shareholder vote.
Amend.Comp. 9122. The suit was unsuccessful. However,
Brierley threatened to file a second suit for money damages.
Amend.Comp. 4122. On March 30, 1990, Row and caused
Gulf to purchase Portfolio Management’s shares for twice
their market value. Amend.Comp. 4 123.
F. Houston Office Space
At a October 13, 1989, meeting of the Gulf Executive
Board, Rowland proposed that Gulf acquire property located
in Houston, Texas, from Portmore Corporation (“Portmore”),
95a
an indirect subsidiary of INoco. Amend.Comp. 4 137. Port-
more had entered into an agreement to purchase the property
in September of 1989 for $16.5 million from the FDIC.
Amend.Comp. 4 136. At that time the property was only 54%
leased. Amend Comp. 4 136.
The Board approved the purchase of the properiy for $16.5
million. The purchase price was based on Moran’s projections
of 100% occupancy of the office space. Amend.Comp. 4141.
Gulf acquired 85% of Portmore by entering into a stock
purchase agreement, dated October 31. 1989, with INOCO and
Whitford Corporation, a subsidiary of INOco, for the sum of
$850.00. Amend.Comp. 4138. The remaining 15% of Port-
more’s stock was transferred to The Willingham/Drake Com-
pany and two other real estate agents who brokered the
FDIC's sale to Portmore in return for Willingham/Drakes’
waiver of its $175,000.00 sales commission. Amend.Comp.
97139.
Portmore, now controlled by Gulf, closed on the purchase
for $16,325,000.00. Gulf funded Portmore’s cash payment of
$4,700,000.00. Portmore funded the remaining $11,625,000.00
with a loan guaranteed by Gulf. Amend.Comp. 4 140.
The property lost money from the outset and Gulf had to
contribute an additional $4,000,000.00 in cash to Portmore to
fund its operation. Amend.Comp. 9 142.
In addition, the minority shareholders of Portmore com-
menced an action against Gulf, INoco. Portmore, and Row-
land in which they alleged that Rowland had defrauded them.
The litigation was settled by Gulf for the sum of $615,000.00.
Amend.Comp. 4 145.
Gulf sold the property in early 1993 for $10 million.
G. Stock Redemption
At the November 24, 1989, Board Meeting, INOCO, which
held a 34% interest in Gulf through Downshire, requested a
waiver of the Rowland Standstill Agreement to allow INoco
to purchase 467,000 $10-stock-warrants held by institutional
investors and to make such additional purchases of Gulf stock
96a
in order to bring its holding up to 49%. Amend.Comp. 4 149.
The stated purpose of the transaction was to create a level
playing field with a minority shareholder who had expressed
an interest in purchasing a controlling interest in Gulf. INOCO
purchased the warrants and exercised them on December 29,
1989. Amend.Comp. 4 150.
Three months later, Rowland proposed that Gulf repurchase
up to 500,000 (5%) of its shares of common stock for $5 mil-
lion as an investment. Amend.Comp. 4151. By February,
1991, Gulf had repurchased 400,000.00 of its shares for $2.5
million. Amend.Comp. 9 152. At the March, 11, 1991, meet-
ing, the Board authorized the repurchase of an additional
500,000 shares.
The Trustee alleges Gulf was insolvent at the time the
repurchases were made. Amend.Comp. 9.153. The Trustee
also alleges the transaction violated Delaware corporate law.
H. Aviva Petroleum
Also at the October 4, 1990, Board Meeting, Rowland pro-
posed that Gulf acquire a 17% interest in Aviva Petroleum,
Inc. (“Aviva”), a Texas corporation, from Ferris (a company
controlled by defendant Hockey-Sweeney)*. Amend.Comp. ©
19 160-161.
In 1987 and 1988, INoOCO held approximately 20% of the
outstanding shares of Aviva. Hudd served on the board of
Aviva as a representative of INOCO until December of 1988.
In late 1988, INOCO sold its interest in Aviva to Ferris.
Amend.Comp. 4 160-161. Ferris’ acquisition was financed by
a loan from IBZ, facilitated by Rowland and secured by
the Aviva shares. Amend.Comp. 9 162.* Rowland did not
According to his affidavit, Hockey-Sweeney held only a minor-
ity interest in Ferris at the time it acquired Aviva.
" According to Hockey-Sweeney’s affidavit, the purchase of
Aviva shares by Ferris was financed through County NatWest, an English
bank, not IBZ.
ones a es ne
eS Sees oy «Li lease hen
97a
disclose INOCO’s interest in the Aviva stock to the board.
Amend.Comp. 4 163.
The Trustee alleges Hockey-Sweeney made a presentation
to the Board regarding the transaction. However. Hockey-
Sweeney denies that he ever attended a Gulf Board Meeting.
He did, however, attend a Gulf Annual Shareholders Meeting
several months after the transaction was completed.
Under the terms of the acquisition, Gulf purchased 44.5
million shares of Aviva stock for 19.75 pence per share at a
time when the stock was trading for 17 pence per share. The
total came to approximately $17.4 million. Gulf paid $9.9
million in cash and 935,107 in newly issued Gulf common
stock (approximately 8% of Gulf’s common stock).
Aviva had suffered operating losses in each of the five
years prior to the acquisition. It continued to suffer operating
losses after Gulf’s purchase. Amend.Comp. 99 165 and 167-
168.
I. Kidderminster
On November 22, 1990, Greenhill Enterprises, Inc.
(“Greenhill”), a Panamanian company affiliated with or con-
trolled by Rowland, contracted to purchase property located
in the Midlands of the United Kingdom and known as the
Kidderminster property from the Administrative Receivers of
Colorall Carpets Limited for approximately $11.8 million.
Amend.Comp. 9170.
Before the sale was consummated, the Rowland Directors
arranged to have Neldran Limited (“Neldran”), an indirect
subsidiary of Gulf, purchase the land and fixed assets of the
Kidderminster property for $17.3 million. On January 4,
1991, Gulf transferred about $9.7 million to Whitefriars, the
broker acting on behalf of Greenhill and an affiliate of IBZ.
Greenhill used these funds to make the final payment to Col-
orall Receiver.
Six weeks later, after removing the movable assets (valued
at approximately $3.3 million), Greenhill sold the Kidder-
minster Property to Neldran for $17.3 million. Gulf trans-
98a
ferred the balance of $7.6 million to Greenhill through a
series of transfers which included IBZ bank.
The Board was not made aware of the sale until after the
transaction was completed.
J. Sunken Treasure
On May 10, 1991, the Rowland Directors caused Gulf’s
subsidiary Lawgra (No.76) Limited, a United Kingdom cor-
poration, to purchase Bidenbaum’s (a Panamanian company)
interest in the cargo of the S.S. Berry, a ship sunk of the Gulf
of Oman, for $1.1 million. James and Hudd were affiliated
with or had an interest in Bidenbaum. James received a 50%
interest in the venture without investing any capital. The
Rowland Directors did not disclose this transaction to the
Board of Directors.
III. The Sale to Lacey
Lacey’s involvement with Gulf began in the spring of 1991,
when Lacey began negotiations with Rowland for the sale of
INOCO’s and Downshire’s shares in Gulf to Nycal, Corpora-
tion (“Nycal”), a Delaware corporation with its principal
place of business in the District of Columbia. Amend.Comp.
9179. At that time, Lacey was the Chief Operating Officer,
President, a director and a significant shareholder of Nycal.
Amend.Comp. 4 182.
Several of the fraudulent transactions alleged by the
Trustee arise out of the sale to Nycal.
A. Meeting the Cash Requirements of Lacey
As part of the purchase agreement, Lacey required that Gulf
have cash reserves of at least $50 million. To satisfy Lacey’s
cash reserve requirement, the Rowland Directors caused Gulf-
pac to borrow $6.9 million from IBZ. The loan was secured
by a pledge of all Gulfpac’s shares in Aviva and CRL.
The Trustee alleges that there was no business justification
for the loan and that the sole purpose of the loan was to enable
99a
ANS (0a ce a Re
Rowland to consummate the sale to Nycal. Amend.Comp.
19 179-181.
B. Excessive Severance.
The Trustee alleges that both the Rowland Directors and the
Lacey Directors caused Gulf to pay exorbitant severance and
termination payments to the Rowland Directors. The Trustee
also alleges that the directors authorized bonuses to the offi-
cers of Gulf in connection with the sale of shares to Lacey
and that these payments were fraudulent because Gulf did not
receive fair value for them and Gulf was insolvent at the time
they were made. Amend.Comp. 4185.
IV. The Lacey Era
Like Rowland, Lacey made the Board’s approval a condi-
tion of the Nycal stock purchase. Accordingly, on April 26,
1991, Lacey, Horn and Allen (the “Lacey Directors”) met
with the non-Rowland directors to discuss Nycal’s proposed
purchase of Rowland’s interest in Gulf. The full Board
approved the transaction on July 12, 1991. Amend.Comp.
1183 As condition of its approval of the sale, the Board
required Lacey to enter into a Governance Agreement which
required the consent of a majority of the outside directors
before Gulf could enter into a transaction with (a) INOCo.
(b) a director or officer of Gulf or.(c) any security holder
owning more than 5% of Gulf’s voting securities.
Amend.Comp. 4 186.
The sale was closed in the United Kingdom on July 12,
1991. At the July 12, 1991, Board Meeting, the Rowland
Directors resigned and were replaced by the Lacey Directors.
Amend.Comp. 184. Lacey was elecied President and Chief
Executive officer, and Horn was elected Executive Vice Pres-
ident of Gulf. Amend.Comp. 4 184.
The Trustee’s allegations against Lacey and the other Lacey
Directors are summarized below:
a Ss ee ee
(Mote jen ert
aa
a
100a
A. The Settlement with the Rowland Group
In July of 1991, the Lacey Directors discovered the Gulfpac
loan which had generated the cash needed to meet Lacey’s
liquidity requirements. Amend.Comp. 4188. Thereafter, the
Board authorized Lacey to carry out a full audit of Gulf’s
books and records which had been kept by INOCO employees.
Amend.Comp. 4189. The investigation revealed improprieties
with regard to the Kidderminster transaction, the Sexton secu-
rities investments, the Gulfpac loan, and the payment of inap-
propriate expenses. Amend.Comp. 4 189-191. However, the
Lacey Directors did not take any action against the Rowland
Directors or the outside directors who served during the Row-
land years with regard to the improprieties discovered.
Amend.Comp. 9 192.
On September 27, 1991, Lacey proposed that Gulf enter
into a settlement with the Rowland Directors, INoCO, Down-
shire and Monaco. Amend.Comp. 4193. Pursuant to the terms
of the settlement, Gulf would transfer its interest in Lawgra
to INOCO in exchange for INOCO’s payment of $700,000.00 of
the $1.1 million debt owed by Lawgra to Gulf in connection
with the Bidenbaum investment. Amend.Comp. 4193. As a
condition of the settkement, Rowland insisted on a general
release from any potential future claims based on the Row-
land Directors’ management actions during their service for
Gulf. Amend.Comp. 4194. Although they realized such a
settlement would be unfair to Gulf and could result in share-
holder litigation, the Board approved the settlement agree-
ment. Amend.Comp. 4194. The settlement agreement also
released INOCO from all claims and liabilities owned to Gulf
and its subsidiaries as of September 30, 1991. Amend.Comp.
9195.
B. Expenses and Salaries
The Trustee alleges the Board authorized excessive salaries,
bonuses, consulting fees and other perks for the Lacey Direc-
tors. Amend.Comp. 4 196-199. Lacey also used Gulf funds
ee oe er eS
fs an een
10la
to pay Nycal’s expenses and to compensate its officers.
Amend.Comp. 1201, 202. Gulf leased space from Nycal in
the United States and in the United Kingdom. Amend.Comp.
9 200.
C. Continued Stock Redemption
As occurred during the later part of the Rowland Era. Gulf
continued to repurchase its own stock during the Lacey era.
Amend.Comp. § 203. The Trustee alleges Gulf was insolvent
at the time these purchases were made and that the purchases
were contrary to applicable law. Amend.Comp. § 203.
D. Continued Investment in Aviva
At the Board’s direction, Gulf continued to invest in Aviva
Petroleum. Amend.Comp. 9204. Aviva Petroleum had lost
money during the Rowland Era, and continued to lose money
during the Lacey Era. Amend.Comp. 9 205-210.
E. The Mohamad Towfic Amad Loan
Mohamad Towfic Amad (““Amad’’) was a business associate
of Lacey and director of Nycal. Amend.Comp. 4211. In
August of 1991, Amad filed for relief under Chapter 11.
Amend.Comp. 4212. Thereafter, Amad reached an agreement
with one of his creditors, Resolution Trust Company (“RTC”),
to whom he owed about $2 million, pursuant to which Amad
would pay $950,000.00 in cash to satisfy the entire claim.
Amend.Comp. 4212
Lacey arranged to have Gulf loan Amad $950,000.00 even
though Amad needed only to borrow only $649,000.00 to
meet his obligation to RTC. However, Lacey insisted that as
a condition of the loan that Amad use the additional
$301,000.00 to purchase 86,000 shares of Nycal stock in
Amad’s wife’s name. Amend.Comp. 9 213.
Later, Lacey orally agreed with Amad that he need not
repay the $301,000.00 used to purchase Nycal stock.
Amend.Comp. 9213. When Amad failed to repay the
102a
$301,000.00, Gulf entered into a setthement with Amad that
essentially ratified Lacey’s oral agreement to waive repay-
ment of the $301,000.00. Amend.Comp. 4214-215.
F. UDG Shares
On March 23, 1992, Lacey borrowed $265,167.00 from
Chester Court N.V. (“Chester Court”). Amend.Comp. 9 220.
In lieu of repaying the loan in cash, Lacey caused GRE UK to
purchase 185,20
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