Home-Stake Production Company v. Talon Petroleum, C.A., a Venezuelan Corporation Hidrocarburos Y Derivados, C.A., a Venezuelan Corporation Hideca Oil International, a Cayman Island Corporation Multi-Development Corporation, a Florida Corporation, and Hideca U.S.A., Inc., a Delaware Corporation Romichan Corporation, a Delaware Corporation Raul J. Valdes-Fauli, Trustee, L.W., Inc., a Delaware Corporation Laudmar, Inc., a Delaware Corporation Lunelco, Inc., a Delaware Corporation Venrest Investment Corporation, a Netherlands Antilles Corporation Karenwood International, N v. a Netherlands Antilles Corporation Rafael Tudela

Citation: 907 F.2d 1012Docket: 88-2451

Court: Court of Appeals for the Tenth Circuit; July 9, 1990; Federal Appellate Court

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The case involves Home-Stake Production Company (Plaintiff-Appellee) against multiple defendants, including Talon Petroleum, C.A. and several corporations linked to Rafael Tudela (Defendants-Appellants). The appeal arises from a diversity action aimed at holding Tudela and other corporate entities liable for the debts of three defunct corporations, based on the claim that Tudela was their alter ego. The appellants challenge the district court's preliminary injunction which restrained the transfer of real property owned by certain corporations in the U.S. They seek to dissolve the injunction and dismiss the case due to a lack of personal jurisdiction. The court agrees to dissolve the injunction and dismiss the action against all appellants except Tudela.

The factual background indicates that in the 1970s, Home-Stake engaged in oil development in Venezuela, acquiring a controlling interest in Talon Petroleum. Home-Stake organized two corporations to manage the concessions owned by Talon and sold participation units to investors. In 1973, Home-Stake filed for reorganization under bankruptcy, and in 1974, it sold its Venezuelan assets, including Talon stock, to Hideca, which was guaranteed by Hideca Oil International. Rafael Tudela represented both companies during the bankruptcy proceedings, claiming to be their CEO and major shareholder.

In June 1974, a Supplemental Order was executed, assigning Talon the responsibility to operate the 1970 and 1971 oil programs and to pay the Home-Stake Trustee a portion of oil sale proceeds from after February 16, 1974, as well as any indemnification from the Venezuelan government due to nationalization. The parties agreed that any legal action against Talon or associated entities for non-compliance could be brought in federal court in the Northern District of Oklahoma. Following the nationalization of the Venezuelan petroleum industry in December 1975, Talon received approximately $4.7 million but did not pay the Trustee. In 1977, the Trustee sought the bankruptcy court's intervention for Talon to account for the award and hold its executives in contempt, resulting in a judgment against Talon for $1,690,113.55, later amended to include Hideca and Hideca Oil as jointly liable. This judgment was affirmed by higher courts.

On December 18, 1986, the Trustee initiated an action to collect the judgment, naming several defendants, including the judgment debtor corporations and the Tudela brothers. The Trustee claimed the corporations were defunct or dormant, alleging they were alter egos of the Tudelas, created to defraud creditors like Home-Stake. Some defendants were said to own real property in the U.S., and it was noted that Banque Worms, S.A. was holding $10 million claimed by Karenwood in ongoing litigation. The Trustee requested a temporary restraining order and preliminary injunction to prevent the transfer of these assets without court approval to safeguard the ability to collect any potential judgment. A temporary restraining order was issued, with a preliminary injunction hearing initially set for December 29, 1986, but later rescheduled for January 23, 1987.

At the preliminary injunction hearing, the corporate defendants, including L.W., Laudmar, Lunelco, Hideca U.S.A., Romichan, Karenwood, Venrest, and individual defendant Valdes-Fauli, were represented by counsel, while other defendants were absent. The plaintiff’s main witness, Alvaro Sardi, did not attend but had his prior affidavit and testimony admitted by stipulation. The court granted a preliminary injunction on January 30, 1987, with findings filed on February 19, 1987. Rafael and Alberto Tudela entered the case on February 10, and all defendants subsequently filed motions to dismiss for lack of personal jurisdiction, as well as motions to reconsider the court's findings and vacate the injunction. These motions were supported by a new declaration from Sardi that contradicted his earlier statements, prompting the court to order attempts to depose him. When those attempts failed, the court ruled to credit Sardi's original affidavit and denied most motions to dismiss except for Alberto Tudela’s. 

On appeal, Rafael Tudela contends that there is insufficient evidence to pierce the corporate veil to hold him personally liable, argues inadequate service of process, and claims that his corporate representation does not justify personal jurisdiction. The corporate defendants and Valdes-Fauli assert that jurisdiction violates the Due Process Clause of the Fourteenth Amendment due to lack of contacts with Oklahoma. They also argue the Trustee failed to demonstrate the prerequisites for a preliminary injunction, including irreparable harm and likelihood of success. 

Regarding Rafael Tudela's service of process, he was not present at the preliminary hearing, and although an unsuccessful attempt was made to serve him on December 24, 1986, he was ultimately served on January 21, 1987, while he was staying in Venezuela. The documents were left with his cook, Dorotea Brito, and Tudela returned home four days after the hearing. He questions the adequacy of this service but does not seek to overturn the court’s finding on this issue, instead arguing that the service did not comply with Fed. R. Civ. P. 4(d)(1), which requires that service at a person's abode must be made on an individual residing there, and contends that Brito does not reside at his home.

Tudela's assertion that the service of process was improper hinges on whether Brito resided at his house on January 21, 1987. The evidence presented includes a standard form affidavit and return of service indicating that a person over fifteen years old was served at Tudela's residence. However, the process server's declaration only confirms that Brito identified herself as Tudela's long-term cook, creating ambiguity regarding her residency. Tudela's own declaration does not explicitly deny Brito's residence at his home, stating instead that he lives in Caracas with his family and that Brito was not authorized to receive documents. Brito's declaration indicates she lives with her niece but does not clarify her living situation with Tudela, particularly on the specified date. The absence of definitive statements regarding Brito's residency may lead the district court to favor the affidavit's prima facie evidence of proper service. The court ultimately found that Brito resided at Tudela's home as of January 21, 1987, and this factual finding was not deemed clearly erroneous based on the record.

Regarding personal jurisdiction, Tudela contends the district court wrongly asserted jurisdiction over him, arguing his 1974 court appearance was solely on behalf of his companies, invoking the fiduciary shield doctrine. He does not contest the sufficiency of his activities for jurisdiction if attributed personally. Although he cites no Oklahoma cases on this doctrine, it is suggested that even if recognized, it would not apply to his case. The Second Circuit's perspective indicates that applying the fiduciary shield doctrine requires a case-specific fairness analysis rather than a mechanical application.

Evaluating the fairness of personal jurisdiction over an individual acting as a corporate employee requires consideration of both the individual's relationship to the corporation and the corporation's legitimacy. If a corporation functions merely as a shell for its owner, the owner's actions may reflect personal interests rather than corporate duties, making it unfair to grant them jurisdictional protections under the fiduciary shield doctrine. The determination of whether a corporation is a genuine entity or a shell does not necessitate the stringent fraud-related standards typically required for piercing the corporate veil. Instead, it suffices to ascertain the corporation's nature, and if it is a shell, fairness may warrant subjecting the owner to personal jurisdiction, irrespective of fraud.

In the context of the Trustee's claims against Tudela, the Trustee must demonstrate that the corporations were instrumentalities of Tudela and that he used them in a scheme to commit fraud to succeed on alter ego claims. However, for attributing Tudela’s corporate contacts to him personally, the Trustee only needs to show that the corporations were mere instrumentalities. Under Oklahoma law, a corporation may be deemed an instrumentality if it exhibits specific characteristics, such as being undercapitalized, lacking separate financial records, or failing to adhere to corporate formalities.

The Trustee's burden at the preliminary injunction stage was to show a reasonable probability of success on jurisdictional issues when the case is tried on its merits. This burden was met regarding Tudela if it is shown that he used the judgment debtors as his instrumentalities. The district court's determination on this matter is reviewed de novo, while subsidiary findings of fact and credibility assessments are reviewed under the clearly erroneous standard.

Sardi's affidavit presents evidence of an instrumentality relationship among the 'Tudela Group' of over one hundred corporations, all owned by the Tudela family, where corporate formalities were largely disregarded. Sardi, who served as president of Hideca Oil, indicated that decision-making rested solely with Rafael and Alberto Tudela, with many corporations lacking official directors and not holding meetings. He affirmed that all corporations listed in a draft complaint prepared by the Trustee were part of this group and included all judgment debtors. 

However, Sardi later filed a declaration claiming his initial affidavit statements were not based on personal knowledge, asserting that he did not consider the corporate defendants to be 'shams' and lacked information regarding their internal structures. Tudela contended that this declaration nullified the affidavit's evidentiary value. 

The district court disagreed, finding the affidavit more credible due to Sardi's prior testimony under oath and its consistency with earlier depositions. The court determined that the decision to favor the affidavit over the declaration was within its discretion and not clearly erroneous. Additionally, testimony from David Melendy, a former officer and CPA, supported the notion that Rafael Tudela had ultimate control over Hideca and its transactions, further establishing Tudela's dominance in the corporate structure.

Nicholas Becks, president of Talon during its sale to Hideca and after nationalization, testified at the preliminary injunction hearing about his role in day-to-day decisions and the maintenance of corporate records. His testimony indicated a reasonable probability that Tudela treated the debtor corporations as his instrumentalities, justifying the district court's refusal to allow Tudela to claim the fiduciary shield to evade jurisdiction. However, the Trustee must prove personal jurisdiction over Tudela by a preponderance of evidence at trial. The Sardi affidavit was admitted for the hearing but may be challenged by Tudela on remand.

The district court also claimed jurisdiction over Valdes-Fauli, asserting he was Tudela's agent, but there was no supporting evidence for this claim, leading to Valdes-Fauli's dismissal from the case. Regarding the corporate defendants, the Trustee acknowledged they had no contacts with Oklahoma, relying solely on their alleged alter ego relationship with Tudela for jurisdiction. The court found a reasonable probability of an instrumentality relationship, allowing jurisdiction over the corporations based on Tudela's control. Personal jurisdiction over a nonresident in diversity actions requires compliance with the state long-arm statute and the Due Process Clause. Oklahoma's long-arm statute allows jurisdiction to the extent permitted by due process, necessitating an examination of the constitutional permissibility of asserting jurisdiction over the corporate defendants.

The Due Process Clause safeguards an individual's liberty interest against being judged by a forum lacking meaningful connections to them. Jurisdiction is valid when a nonresident defendant purposefully engages in activities within a state, thereby benefiting from its laws. A defendant must reasonably foresee being brought into court in that state, necessitating minimum contacts specific to each defendant. Unilateral actions by third parties do not establish these necessary contacts. The argument presented by the Trustee posits that since the court has jurisdiction over Tudela, it should also extend to the corporate defendants he controls, treating them as extensions of Tudela himself. This distinction is pivotal, as jurisdiction must derive from the entity’s own contacts with the forum. When one defendant entirely controls another, the latter's contacts may be attributed to the former. The court's initial finding of personal jurisdiction over Tudela involved attributing his contacts to him personally, even if they were typically associated with his corporate roles. Courts have sometimes assigned a corporation's contacts to an individual for jurisdictional purposes, reflecting the reality that the individual was the true actor, similar to cases where a corporate parent is held liable for an alter ego subsidiary's actions within the forum.

Jurisdiction over a parent corporation or controlling individual does not automatically extend to an alter ego corporation, as the dominated corporation is not directed by its alter ego. Therefore, it is unjust to attribute the contacts of the alter ego to the dominated corporation. The corporate defendants may defend their distinct legal status from Tudela in a forum where they have sufficient contacts for service of process. The Trustee's attempt to include the corporate defendants in a suit to prevent the disposition of assets is seen as an indirect effort to attach assets belonging to Tudela individually, which is not permissible under federal equity rules. A court cannot freeze a defendant's unrelated assets to secure a potential judgment. If the Trustee believes the corporations are Tudela's alter egos and that their assets are at risk, he must pursue action where the corporations have assets, akin to an in rem action. Consequently, the preliminary injunction is vacated, and the corporate defendants and Valdes-Fauli are dismissed. However, the district court's jurisdiction over Rafael Tudela is affirmed, and the case is remanded for further proceedings. Oklahoma law governs the case, and federal rules take precedence over state service statutes in diversity actions. The court deems the service of process on Tudela proper and does not address his arguments regarding the preliminary injunction due to its reversal. Additionally, the court criticizes previous rulings that allowed jurisdiction based solely on the contacts of a parent or alter ego.