Court: Supreme Court of Alabama; May 21, 2010; Alabama; State Supreme Court
Bentley Systems Incorporated (BSI) and the Bentley brothers (Gregory S., Keith A., Barry J., Raymond B., and Richard P. Scott) have petitioned the Court for a writ of mandamus to vacate the Madison Circuit Court's order that denied their motion to dismiss an action filed by Cobalt BSI Holding, L.L.C. and Intergraph Corporation. The plaintiffs allege that the Bentley brothers operated BSI as their corporate alter ego and are seeking their permanent removal from any managerial role at BSI. Concurrently, Cobalt filed a similar complaint in Delaware Chancery Court. The plaintiffs also sought a preliminary injunction in the Alabama action to prevent further profit distributions to the Bentley brothers.
In response, BSI and the Bentley brothers filed a motion to dismiss the Alabama action, arguing Delaware as the more appropriate forum under Ala.Code 1975, § 6-5-430, which allows for dismissal based on the doctrine of forum non conveniens if another jurisdiction is more suitable. The Bentley brothers further claimed dismissal due to a lack of personal jurisdiction in Alabama.
Intergraph acquired a 50% interest in BSI in 1987 through a stock-purchase agreement, where the Bentley brothers transferred half of BSI’s stock to Intergraph in exchange for $3 million in Intergraph stock, with part of the transaction occurring in Alabama. In 2002, Intergraph transferred its BSI stock to Intergraph Properties Company, which merged with Intergraph in 2008, while Cobalt, another Intergraph affiliate, acquired the stock in 2006 and is now BSI's largest shareholder. Additionally, Intergraph and BSI entered into contracts for software sales and licensing, leading to two previous court opinions: Bentley Systems, Inc. v. Intergraph Corp. (Bentley I) and Intergraph Corp. v. Bentley Systems, Inc. (Bentley II).
In Bentley I, a dispute over contractual responsibilities led to Intergraph filing a declaratory judgment against Bentley, resulting in a trial court ruling that Intergraph was owed over $7.5 million. This judgment was appealed, and the appellate court reversed it, citing unresolved factual disputes necessitating further proceedings. In Bentley II, upon remand, a special master was appointed who determined the principal value of a promissory note owed to Intergraph was $22,295,456, with Bentley required to pay an additional $1,539,744, including $500,000 in retroactive interest. Bentley was awarded $2,226,486 for its breach-of-contract counterclaim. The special master also concluded that Intergraph was entitled to $6,636,144.20 in legal expenses indemnification, while Bentley was entitled to $5,731,077.98. Ultimately, Bentley owed Intergraph a net amount of $279,733. The trial court adopted the special master’s findings, but both parties appealed. The court found error in the special master’s damages calculation related to Bentley’s counterclaim, specifically regarding the exclusion of the increased note value in determining lost profits, leading to a reversal on that issue.
The trial court's judgment is reversed regarding the failure to award Bentley lost-profits damages for years two through five, while all other aspects of the judgment are affirmed. The case is remanded for the trial court to hear arguments and issue a judgment in line with this opinion. Litigation continues between Intergraph and BSI over contracts related to Intergraph’s software products. Intergraph claims that after the expiration of software licenses in 1995 and the accompanying Royalty Payment Bonus Plan, the Bentley brothers improperly distributed 20% of BSI’s pre-tax profits to themselves, resulting in a loss of approximately $59.5 million in profits for BSI shareholders. Intergraph and Cobalt allege that the Bentley brothers breached their fiduciary duties and operated BSI as their personal entity, disregarding the rights of other shareholders.
On May 6, 2009, the trial court denied the Bentley brothers' motion to dismiss without providing a rationale, after reviewing significant evidence and conducting hearings on the issues of forum non conveniens and personal jurisdiction. The Bentley brothers and BSI seek a writ of mandamus to dismiss the action based on three grounds: 1) the doctrine of forum non conveniens favors Delaware for the proceedings; 2) an Alabama court should not interfere with the internal affairs of a Delaware corporation; and 3) the court lacks personal jurisdiction over the Bentley brothers. The standards for issuing a writ of mandamus are outlined, emphasizing that it is an extraordinary remedy requiring a clear legal right, an imperative duty from the respondent, the absence of other adequate remedies, and proper jurisdiction. The petitioners argue that the trial court exceeded its discretion in denying their motion based on the forum non conveniens doctrine.
The doctrine of forum non conveniens aims to conserve resources and safeguard the interests of witnesses and litigants from unnecessary burdens. Under Ala. Code § 6-5-430, a trial court is obligated to dismiss a case without prejudice if a defendant demonstrates that a more suitable forum exists outside Alabama, considering the location of the events, convenience for parties and witnesses, and the interests of justice. In Ex parte DaimlerChrysler Corp., the court dismissed a wrongful-death claim linked only to Alabama through the vehicle's purchase, emphasizing the relevance of witness availability and the overall circumstances. The court confirmed that all claims in a lawsuit must satisfy the criteria for forum non conveniens. Additionally, factual determinations, such as the claim's situs, are typically at the trial court's discretion, as seen in various cases. Intergraph and Cobalt provided evidence of BSI's significant operations in Alabama, including its large workforce, shareholder presence, board meetings, and alleged misrepresentations related to the incentive-bonus plan and shareholder oppression, as well as violations of the Alabama Securities Act. They also highlighted the historical context of litigation involving BSI in Alabama, relevant to the statutory factors under § 6-5-430.
Intergraph is headquartered in Alabama, and its vice president and general counsel resides in Madison County, Alabama. Petitioners claim Delaware is the appropriate forum since all corporate parties are incorporated under Delaware law; however, there is no evidence that the events leading to the dispute occurred in Delaware or that any party or witness is a Delaware resident. Evidence indicates that the Bentley brothers control BSI and distribute its profits solely among themselves, without sharing with minority shareholders. The trial court could reasonably conclude that some claims by Intergraph and Cobalt arose in Alabama, suggesting that Alabama law applies and that § 6-5-430 is not relevant to this case. The petitioners did not demonstrate a clear legal right for dismissing the action based on forum non conveniens, nor did they prove the trial court exceeded its discretion in denying their motion.
The internal-affairs doctrine holds that courts in one state lack authority over corporations from another state regarding internal matters. Past cases, such as Ellis v. Mutual Life Ins. Co. of New York, established that Alabama courts should not adjudicate the internal affairs of out-of-state corporations. The doctrine implies that corporate governance issues in Alabama must adhere to the law of the state of incorporation. Although Alabama courts can address fiduciary duties, they must apply the law of the state where the corporation is incorporated. In the case of Massey v. Disc Manufacturing, Inc., the court reversed a judgment due to minority shareholders failing to meet contractual prerequisites for claims of breach of fiduciary duty. Additionally, the bankruptcy case In re Chalk Line Manufacturing, Inc. reaffirmed that Alabama law follows the internal-affairs doctrine, with the state of incorporation's law governing internal corporate relationships.
Alabama law prohibits the regulation of foreign corporations' internal affairs, as stated in Ala.Code, § 10-2A-226. Consequently, disputes involving Chalk Line, Inc., a Delaware corporation, are governed by Delaware corporate law. The internal affairs doctrine, recognized by Alabama courts, mandates that the laws of the state of incorporation regulate stockholder relations. In the case of Boyette v. Preston Motors Corporation, the Alabama court affirmed that stockholders are subject to the laws of the state where the corporation is incorporated.
The term 'internal affairs' is defined by the Alabama court in Ellis v. Mutual Life Ins. Co. as actions affecting individuals solely in their corporate capacities, and it encompasses actions taken during stockholder meetings or by the board of directors. While Alabama courts have consistently applied the internal affairs doctrine, they have not specifically addressed its applicability to breaches of duty by majority shareholders towards minority shareholders.
Two relevant cases, Stroud v. John M. Cockerham, Assoc. and Galbreath v. Scott, suggest conflicting outcomes regarding this issue. In Stroud, minority shareholders alleged a breach of fiduciary duty by majority shareholders in a Virginia corporation, but the court ultimately applied Virginia law without directly addressing the internal affairs doctrine's relevance to fiduciary breaches. This implies that the court might have considered Virginia law if the plaintiffs had provided sufficient evidence. Conversely, Galbreath v. Scott hints at a different interpretation but lacks definitive guidance on the matter.
In Galbreath, a minority shareholder sued the majority shareholder of a Florida corporation, but the court denied the individual recovery, stating that the claims were only suitable for derivative action. The court highlighted a trend in Alabama of distinguishing between closely held and widely held corporations regarding minority shareholders' claims of fiduciary breach. While the court did not explicitly address choice-of-law, it suggested that Alabama law may apply to assess the majority shareholder's liabilities to the minority. The court believes Alabama would likely adopt the Restatement (Second) of Conflict of Laws, which has been referenced in prior cases. According to the Restatement, the obligations of majority shareholders to minority shareholders and the corporation are generally governed by the law of the state of incorporation, unless another state has a more significant relationship to the issue at hand. The court referenced that it would be impractical for corporate acts like share issuance or dividend declarations to be valid in one state but not in another. Furthermore, the local law of a state other than the state of incorporation may only apply if that state has a superior interest in the issue or if its laws align with those of the state of incorporation.
Liability of directors and officers can vary significantly between states, potentially leading to differing outcomes for similar actions depending on jurisdiction. Typically, the law of the state of incorporation governs the liability of these individuals to the corporation, creditors, and shareholders, even if another state might have a stronger interest in the matter. A local law from a different state may apply if it represents a significant policy of that state and the corporation has minimal ties to its state of incorporation. The plaintiffs failed to present convincing reasons to deviate from established Alabama law, the U.S. Constitution, and public policy. The court agrees with some aspects of the Bankruptcy Court's reasoning in Chalk Line but does not fully adopt it, affirming that the internal-affairs doctrine does not limit the trial court's jurisdiction over the case nor require dismissal in favor of Delaware proceedings. Instead, the court will adhere to Delaware corporate law regarding claims related to corporate governance, while acknowledging that Chalk Line's discussion may inform Alabama law in non-governance claims.
Regarding personal jurisdiction, the Bentley brothers argue they are entitled to a writ of mandamus for dismissal due to a lack of personal jurisdiction. The appellate courts review such denials de novo. Personal jurisdiction over nonresidents does not necessitate physical presence in Alabama; instead, the defendant must have sufficient contacts with the state to reasonably anticipate being sued there. Jurisdiction can be general or specific depending on the nature of those contacts. General jurisdiction applies to defendants with substantial or systematic activities in Alabama, while specific jurisdiction requires a direct link between the defendant's actions and the state. The "purposeful availment" standard ensures defendants are not subjected to jurisdiction based solely on unrelated third-party activities.
The Bentley brothers argue they lack personal jurisdiction in Alabama, citing their non-residency and past business dealings over ten years old as insufficient for jurisdiction. They characterize their contacts with Alabama as infrequent and not indicative of systematic engagement. In contrast, Intergraph and Cobalt present evidence showing the Bentley brothers engaged in extensive written and electronic communication with Alabama, numerous phone interactions, and multiple visits to the state. Their involvement in litigation related to a $3 million software purchase agreement and their ownership of BSI stock links them to ongoing claims of wrongful activity. Notably, BSI's significant operations in Alabama, including a major office in Madison County employing over 120 individuals with a payroll exceeding $11 million, suggest the Bentley brothers exercised substantial control over those operations. The court concludes that the Bentley brothers had sufficient contacts with Alabama to reasonably expect being subject to jurisdiction there, denying their petition for a writ of mandamus on jurisdictional grounds. The document also notes the substantial volume of evidence produced during discovery related to jurisdictional issues, with BSI generating approximately $400 million in annual revenue.
