A CEO who becomes entangled in human resources functions by terminating an employee in a distant locale could expose himself to personal jurisdiction (and personal liability) there, the D.C. Circuit Court of Appeals recently held in Urquhart-Bradley v. Mobley, No 19-7716 (D.C. Cir. June 30, 2020).
The message to executives is clear: a termination conversation could count as sufficient contacts for purposes of personal jurisdiction, even if the employee being terminated is in another state and even if the conversation itself was via telephone and not in person. In Urquhart-Bradley, a panel of the D.C. Circuit Court of Appeals (Srinivasan, Chief Judge, Garland, and Millett, Circuit Judges) joined a list of courts that have refused to apply the “fiduciary shield” doctrine, which provides that a nonresident corporate agent generally is not individually subject to a court’s jurisdiction based on acts undertaken on behalf of the corporation. Where the fiduciary shield does not apply, employers are cautioned to leave termination conversations to HR or in-house counsel to keep executives from being haled into court in another jurisdiction.
The Executive’s Contact
In September 2018, Urquhart-Bradley, an African-American woman, filed a lawsuit in the US District Court for the District of Columbia, asserting claims of race and gender discrimination against her prior employer, headquartered in Illinois, and the company’s CEO, who resided in Illinois. Urquhart-Bradley, who lived in Maryland and worked in her employer’s Washington, D.C. office, alleged a litany of occurrences leading to an abrupt termination in January 2018 stemming from the CEO’s allegation that she was negotiating employment with two competitors, though he knew she was in no such negotiations and though she had explicitly expressed her desire to stay with the company. Urquhart-Bradley alleged she was promoted to her white male predecessor’s position after he left for a competitor, but was not given the same title. In addition, after successfully lodging a campaign to retain 2/3 of the 100 company employees her predecessor attempted to lure away to his new employer, Urquhart-Bradley discussed her desire to stay with the company with the CEO, vowing to stay even without the same hefty retention bonus given her white male predecessor before he left and often utilized by the company to retain those considering leaving. Instead of a retention bonus, Urquhart-Bradley asked for certain protections in her employment agreement. Urquhart-Bradley alleged that shortly thereafter, the CEO became hostile, demanded that she choose her employer or another company, and then, despite her stated desire to remain with the company, telephoned her in her Washington, D.C. office and terminated her.
At the District Court Level, the “Fiduciary Shield” Doctrine Prevails
Urquhart-Bradley sued her employer and the CEO individually, alleging race and sex discrimination. She brought claims against the CEO under 42 U.S.C. §1981 and the Washington D.C. human rights ordinance. The CEO moved to dismiss the claims against him in his individual capacity, contending he lacked the minimum contacts with Washington, D.C. necessary to establish jurisdiction, particularly since there was no allegation he had ever set foot in Washington, D.C. He also argued the contacts the company had with the District of Columbia could not be imputed to him in his individual capacity, and that any actions he took solely in a corporate capacity could not give rise to the court’s personal jurisdiction over him under the “fiduciary shield” doctrine. The district court dismissed the complaint against the CEO, agreeing that the fiduciary shield doctrine applied so that any actions he took “squarely within [a corporate officer’s] scope of employment” were irrelevant to the minimum contacts analysis. The district court viewed the only contact alleged between the CEO and the forum was his calling from outside Washington, D.C. to terminate Uruqhardt-Bradley. The court found this insufficient to confer personal jurisdiction over the CEO, and noting that Uruqhardt-Bradley never alleged that the call exceeded the CEO’s corporate responsibilities, the district court held it lacked personal jurisdiction over the CEO. Urquhart-Bradley appealed the district court’s ruling.
On Appeal, the Fiduciary Shield Doctrine Has “No Home” Here
On appeal, the D.C. Circuit Court of Appeals reversed and remanded. The appeals court’s opinion primarily addresses the validity of the fiduciary shield doctrine. The appeals court cited two Supreme Court decisions-Calder v. Jones, 465 U.S. 783 (1984), and Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984)-both of which involved libel claims, but both of which held that the minimum contacts analysis does consider actions taken by individuals in their role as corporate employees or officers. The appeals court held that, when evaluating an individual’s contacts with the forum state under the Due Process Clause, courts cannot ignore contacts made by the individual just because they were made in his or her capacity as an employee or corporate officer. In other words, “[c]ontacts are contacts and must be counted.” Plainly, the appeals court held the Due Process Clause does not incorporate the fiduciary shield doctrine.
Neither, according to the appeals court, does the pertinent “transacting-business” prong of the D.C. long-arm statute give the fiduciary shield doctrine traction. The appeals court found that though the fiduciary shield doctrine is not required by the Due Process Clause, the District of Columbia could have chosen to adopt the doctrine as a limitation as a matter of law-but it had not. The court found repeated affirmation by the District of Columbia’s courts (and the appeals court) that the transacting-business provision of the long arm statute is coextensive with the Due Process Clause. Because the transacting-business prong “reaches as far as the Constitution allows,” it “has no room for the fiduciary shield doctrine, which would shorten the District of Columbia’s jurisdictional hand.” The appeals court found the district court erred in refusing to consider the CEO’s suit-related contacts undertaken in his corporate role, such as his personal firing of Urquhart-Bradley over the phone from her position in the D.C. office that he oversaw. The court held “those contacts count.” The Court remanded the case to the district court to reevaluate the CEO’s contacts with Washington, D.C. and to allow jurisdictional discovery if necessary.
What’s the Takeaway for Employers?
- D.C.’s long-arm is not the long-arm of all jurisdictions. The “transacting-business” provision of the D.C. long-arm statute was found to be co-extensive with the Due Process Clause, and therefore had no place for the fiduciary shield doctrine. However, not all state long-arm statutes are co-extensive with the due process clause. Some do not reach to the outer-bounds of the Constitution, and in those situations, the fiduciary shield doctrine may apply.
- The lone phone call may not have been enough of a “contact.” The Court suggested, but did not decide, that the CEO’s telephone call terminating Urquhart-Bradley was sufficient for personal jurisdiction. The Court noted several other contacts between the CEO and the jurisdiction, including that he “oversaw” the D.C. office, that he had continuing contacts with the office and its employees, that he put Urquhart-Bradley on his Executive Leadership team and then retracted it, and that he had a series of adverse communications with Urquhart-Bradley, culminating in her termination. Some of these contacts seem at odds with the Court’s analysis elsewhere. It remains for the district court, on remand, to sort them out.
- Determine where to terminate. The decision highlights several risk avoidance best practices for companies operating in and with employees located in several jurisdictions. Many states take an expansive view of the extraterritorial reach of their human rights acts. Employers who employ ex-pats are accustomed to calling the employee back to the US before termination to avoid the application of foreign law. Given the wide divergence in state labor and employment laws, US-based employers would be well-served to consider where a termination should occur for the same reason. To the extent possible, employers with wide-spread operations should consider developing protocols that minimize contacts and entanglements with foreign (other state’s) laws.
- Leave the firing to the experts. Corporate executives should allow human resources or in-house counsel to terminate employees rather than doing it themselves. By allowing someone else to perform the termination, an executive removes an important “contact” that can be used by an angry ex-employee to pull the executive into personal jurisdiction in his individual capacity-as well as ensuing tumultuous litigation-in another jurisdiction.
If you would like to discuss a best practice protocol, contact your Baker McKenzie attorney.