GKN DRIVELINE NEWTON LLC, Plaintiff, v. STAHL SPECIALTY COMPANY, and LIGON INDUSTRIES LLC, Defendants.
Case No. 15-cv-14427
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION
May 3, 2016
UNITED STATES DISTRICT COURT JUDGE GERSHWIN A. DRAIN; UNITED STATES MAGISTRATE JUDGE STEPHANIE DAWKINS DAVIS
2:15-cv-14427-GAD-MJH; Doc # 25; Pg ID 674
I. INTRODUCTION
On December 22, 2015, GKN Driveline Newton, LLC (“GKN” or “Plaintiff“) commenced this action against Stahl Specialty Company (“Stahl“) and Ligon Industries, LLC (“Ligon“) (collectively, “Stahl” or “Defendants“). See Dkt. No. 1, p. 1 (Pg. ID No. 1.). Plaintiff‘s Complaint contains two counts, alleging that Defendants breached the parties’ contract by failing to pay expedited freight and shipping costs, and requesting the Court pierce the corporate veil between Stahl and Ligon for the purposes of this proceeding. Id. at 12–14 (Pg. ID No. 12–14).
The matter is presently before the Court on Defendants’ Motions to Dismiss [11, 12], pursuant to
On May 2, 2016, the Court conducted a hearing on both motions and heard oral argument from counsel. For the reasons discussed herein, the Court DENIES Defendants’ Motions to Dismiss [11, 12].
II. BACKGROUND
This action arises from Plaintiff‘s allegations that Defendants breached contracts for the sale and delivery of Lambda RDM Torque Tubes (“T-Tubes“), which Plaintiff uses in transmission components sold to Magna Powertrain. See Dkt. No. 1, p. 2 (Pg. ID No. 2).
Plaintiff is a limited liability company with its corporate headquarters located in North Carolina. Id. at 3. Plaintiff‘s members are citizens of Michigan and Illinois. Id. Stahl is a Missouri corporation with its principal place of business located in Missouri. Id. Ligon1 is a limited liability company based in Birmingham, Alabama. Id.
Stahl has supplied T-Tubes to Plaintiff and its predecessor since 2008. Id. at 4. Plaintiff asserts that the contract between the parties is comprised of “purchase
Plaintiff contends that Stahl began having trouble supplying the quantity and quality of T-Tubes needed to maintain the supply chain in early 2015. Id. at 4. On January 28, 2015, Stahl demanded an increase on the price of the T-Tubes they sold to Plaintiff, stating that because “the existing pricing has a negative financial impact on our company for every piece produced,” “we must request [the increased] pricing be accepted on every piece delivered from the [sic] January 9, 2015 going forward.” Dkt. No. 1-2, p. 2 (Pg. ID No. 19). Additionally, Stahl stated in this letter that “[i]f [GKN] find[s] that [its] best business decision is to choose another source, Stahl will respect our relationship and support GKN fully through the transition, given that it is supported by your acceptance of this pricing.” Id.
In February 2015, the parties met to discuss the supply issues. Dkt. No. 1, p. 4 (Pg. ID No. 4); Dkt. No. 1-3, p. 2 (Pg. ID No. 21). Plaintiff granted Stahl a price increase on the T-Tubes, but noted that this situation triggered resourcing activities that were estimated to take about nine months. Id. Stahl agreed to
On July 31, 2015, Stahl gave Plaintiff notice that it would stop shipping parts after a six-week firm release period. Dkt. No. 1-5, p. 2 (Pg. ID No. 25). In order to prevent an interruption in supply to Magna or General Motors, Plaintiff took “extraordinary measures” to produce the quantity of parts required. Dkt. No. 1, p. 5 (Pg. ID No. 5). These measures included air freighting shipments from Stahl to Plaintiff and from Plaintiff to Magna four times per day, at the cost of approximately $80,000 per shipment. Id. at 5–6. Plaintiff estimates that its efforts cost it approximately six million dollars in expedited freight charges and other such charges. Dkt. No. 18, p. 5 (Pg. ID No. 299).
Plaintiff alleges that it notified Stahl that it would hold Stahl responsible for all costs incurred as a result of Stahl‘s failure to continue uninterrupted shipments. Dkt. No. 1, p. 6 (Pg. ID No. 6). The “General Terms and Conditions of Purchase” (hereinafter, “Terms and Conditions“) between the parties provides that “[i]f Products are not ready for delivery in time to meet Buyer‘s shipping schedules, Seller shall be responsible for additional costs of any resulting expedited or other special transportation.” Dkt. No. 1-6, p. 4 (Pg. ID No. 30). Additionally, Plaintiff argues that Stahl violated the provision of the above contract, which required it to
Defendants now move this Court to dismiss Plaintiff‘s claims by asserting that Plaintiff has failed to state a claim against Stahl and Ligon upon which relief can be granted, and that the Court lacks personal jurisdiction over Ligon.
III. LEGAL STANDARD
A. Federal Rule of Civil Procedure 12(b)(6)
When considering a
In ruling on a motion to dismiss, the Court may consider “the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant‘s motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein.” Bassett v. Nat‘l Collegiate Athletic Ass‘n, 528 F.3d 426, 430 (6th Cir. 2008). The Court may also consider “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
B. Federal Rule of Civil Procedure 12(b)(2)
A motion to dismiss under
IV. DISCUSSION
A. Defendant Stahl Specialty Company‘s Motion to Dismiss [11]
1. Whether Plaintiff‘s Breach of Contract Claim Is Sufficiently Pled
Stahl‘s Motion to Dismiss asserts that Plaintiff fails to state a claim for breach of contract because the Complaint insufficiently defines the terms of the contract. See Dkt. No. 11, p. 8 (Pg. ID No. 87).
“To state a breach of contract claim under Michigan law, a plaintiff must first establish the elements of a valid contract.” In re Brown, 342 F.3d 620, 628 (6th Cir. 2003). “A valid contract is formed when there are (1) parties competent to contract, (2) a proper subject matter, (3) a legal consideration, (4) mutuality of agreement, and (5) mutuality of obligation.” Bowlers’ Alley, Inc. v. Cincinnati Ins. Co., 32 F. Supp. 3d 824, 831 (E.D. Mich. 2014) (citing Thomas v. Leja, 187 Mich. App. 418, 468 N.W.2d 58, 60 (1991)). “To recover for breach of contract under Michigan law, a plaintiff must allege: (1) the existence of a contract; (2) the terms of the contract; (3) that the defendant breached the contract; and (4) that the breach
Here, Plaintiff describes the “Contract” as “a requirements contract evidenced by purchase orders, terms and conditions, and other contractual documents.” Dkt. No. 1, p. 2 (Pg. ID No. 2). Stahl argues that it was insufficient for Plaintiff to only attach its standard Terms and Conditions to the Complaint, without attaching the aforementioned “purchase orders” and “other contractual documents” that Plaintiff alleges comprise the “Contract.”
To the extent that Stahl has argued that Plaintiff‘s breach of contract claim should be dismissed for failure to attach the contract documents to the Complaint, such an argument falls flat. Plaintiff is not obligated to attach the documents upon which the action is premised to the Complaint under the permissive standard of
Additionally, while the Complaint does not specify exactly which purchase orders upon which it is based, it does include sufficient detail regarding the time period of violation—beginning in early 2015 and continuing until the present
Plaintiff specifically alleged that “[e]ach of GKN‘s purchase orders to Stahl expressly incorporates GKN‘s Terms and Conditions.” Dkt. No. 1, p. 9 (Pg. ID No. 9). The Complaint explicitly referenced and attached the actual terms of the Terms and Conditions allegedly violated. Taken in the light most favorable to Plaintiff, and read in tandem with this Court‘s “judicial experience and common sense[,]” Iqbal, 556 U.S. at 679, the allegations in the Complaint support a finding that Stahl entered into a valid contractual relationship with Plaintiff that incorporated the Terms and Conditions.
Mindful of the relatively lenient standard for surviving a motion to dismiss, the Court finds that the allegations in Plaintiff‘s Complaint state that the parties had a contract, that Stahl breached certain terms and conditions of that contract, and that the breach resulted in financial losses to Plaintiff. Accordingly, the Court will not dismiss Plaintiff‘s breach of contract claims for failure to state a claim.
Second, Stahl asserts that “[t]o the extent these Terms and Conditions define the rights and obligations of Stahl under the Contract, Plaintiff has failed to allege a ‘right to relief above the speculative level.’ ” Dkt. No. 11, p. 20 (Pg. ID No. 91). Under Stahl‘s reading of the Terms and Conditions, all provisions of the contract were terminated, other than the Transition of Supply provision, upon Plaintiff‘s decision to resource2 the T-Tubes in February 2015. Id. at 20–21. Thus, unless Plaintiff alleged that Stahl breached the Transition of Supply provision, Stahl argues that Plaintiff has not stated a right to relief. Id.
The Terms and Conditions’ Duration provision states that “the duration of each Contract shall be the life of the program(s) into which the Products or Services ultimately are incorporated,” and reserves Plaintiff‘s right to terminate the contract. Dkt. No. 1-6, p. 3 (Pg. ID No. 29). Since the facts indicate that the programs into which the T-Tubes are incorporated are still alive, and the Terms have not otherwise expired, the question turns on whether Plaintiff terminated the contract in February 2015, and if so, whether a termination would void all provisions of the Terms and Conditions, except the Transition of Supply provision.
Plaintiff makes an additional argument that it would lead to absurd results to read the Terms and Conditions as terminated—except for the Transition of Supply provision—beginning in February 2015. Under Michigan law, “contracts must be construed consistent with common sense and in a manner that avoids absurd results.” Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 545 (6th Cir. 2007) (quoting Kellogg Co. v. Sabhlok, 471 F.3d 629, 636 (6th Cir. 2006)). The Court notes that the Terms and Conditions do not explicitly state that all other provisions are voided upon application of the Transition of Supply provision. Were the remaining Terms and Conditions to be void since February 2015, Stahl‘s “transition” shipments to Plaintiff after February would not
3. Whether Plaintiff‘s Claim to Pierce the Corporate Veil Fails as a Matter of Law
Third, Stahl asserts that Count II of Plaintiff‘s Complaint should be dismissed because “there is no independent cause of action to pierce the corporate veil,” citing to Aioi Seiki, Inc. v. JIT Automation, Inc., 11 F. Supp. 2d 950, 953-54 (E.D. Mich. 1998). Dkt. No. 11, p. 25 (Pg. ID No. 96).
“It is well established that piercing the corporate veil is not itself a cause of action.” Brennan v. Nat‘l Action Fin. Servs., Inc., No. 12-CV-10551, 2012 WL 3888218, at *3 (E.D. Mich. Sept. 7, 2012); see also In re RCS Engineered Prods. Co., 102 F.3d 223, 226 (6th Cir. 1996) (“[A]n alter ego claim is not by itself a cause of action.“) (applying Michigan law). This is because piercing the corporate veil is an equitable theory or remedy, rather than a cause of action upon which relief can be granted. See Keystone Mfg., LLC v. Accuro Med. Products, LLC, No. 1:12-CV-1186, 2013 WL 2318885, at *4 (W.D. Mich. May 28, 2013). Although
“It is a well-recognized principle that separate corporate entities will be respected.” Seasword v. Hilti, Inc., 449 Mich. 542, 547, 537 N.W.2d 221, 224 (1995). Absent some abuse of the corporate form, Michigan law presumes that parent and subsidiary corporations are separate and distinct. Id. A court ignores a parent corporation‘s separate existence “unless doing so would subvert justice or cause a result that would be contrary to some other clearly overriding public policy.” Wells v. Firestone Tire & Rubber Co., 421 Mich. 641, 650, 364 N.W.2d 670, 674 (1984).
“The doctrine of piercing the corporate veil . . . is the rare exception, applied in the case of fraud or certain other exceptional circumstances, and usually determined on a case-by-case basis.” Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (2003) (citation omitted). “A court‘s decision whether to pierce the corporate veil ‘is highly dependent on the equities of the situation, and the inquiry tends to be intensively fact-driven.’ ” Tredit Tire & Wheel Co. v. Regency Conversions, LLC, 636 F. Supp. 2d 598, 601 (E.D. Mich. 2009) (quoting Servo Kinetics, Inc. v. Tokyo Precision Instruments Co., 475 F.3d 783, 798 (6th Cir. 2007)).
“Michigan courts will not pierce the corporate veil unless (1) the corporate entity was a mere instrumentality of another entity or individual; (2) the corporate entity was used to commit a fraud or wrong; and (3) the plaintiff suffered an unjust loss.” Servo Kinetics, 475 F.3d at 798. The Sixth Circuit has stated that courts should consider additional specific factors, such as “undercapitalization of the corporation, the maintenance of separate books, the separation of corporate and individual finances, the use of the corporation to support fraud or illegality, the honoring of corporate formalities, and whether the corporation is merely a sham.” Int‘l Union, United Auto., Aerospace & Agr. Implement Workers of Am. v. Aguirre, 410 F.3d 297, 302–03 (6th Cir. 2005) (quoting Laborers’ Pension Trust Fund v. Sidney Weinberger Homes, 872 F.2d 702, 704–05 (6th Cir. 1988)).
In Tredit Tire, the Court found that a supplier has properly stated a claim against a secured lender of the defendant company, under theory of piercing the corporate veil, and declined to dismiss the claim. 636 F. Supp. 2d at 602. The Court found that the plaintiff‘s allegations permitted the conclusion that the defendant was a mere instrumentality of the lender. Id. The Tredit Tire plaintiff alleged that the secured lender was the only member of the defendant company; the lender replaced the defendant‘s president with its own employee, who ran the company and made tactical and strategic decisions about the defendant company‘s business affairs; the lender made decisions about liquidation and vendor payment;
In the present Complaint, Plaintiff alleged facts which, if proven, permit the conclusion that Stahl is a mere instrumentality of Ligon. Plaintiff alleges that Ligon and Stahl are one and the same because “Ligon owns and directly controls Stahl,” “Ligon is Stahl‘s sole shareholder,” “Ligon has been controlling Stahl‘s supply of T-Tubes to GKN,” Stahl represented that it “cannot make a supply decision without Ligon,” and “Ligon executives have controlled meetings between Stahl and GKN.” Id. at 2, 4. Specifically, Plaintiff alleges that while the President of Ligon travelled to attend the meetings regarding the continued supply of T-Tubes, “no representatives from Stahl were present at any of these meetings.” Id. at 8. Furthermore, Plaintiff asserts that “decisions regarding the continued production of T-Tubes were entirely up to Ligon,” and Ligon‘s name, rather than Stahl‘s, appeared in the title of Ligon‘s proposed supply agreement in 2015. Id.
Ligon‘s argument on the matter relies heavily on United States v. Cordova Chem. Co. of Michigan, 113 F.3d 572, 581 (6th Cir. 1997), vacated sub nom. United States v. Bestfoods, 524 U.S. 51 (1998), and cert. granted, judgment vacated sub nom. Michigan Dep‘t of Envtl. Quality v. Bestfoods, 524 U.S. 924 (1998), and cert. granted, judgment vacated sub nom. Bestfoods v. Aerojet-Gen. Corp., 524 U.S. 924 (1998) (finding that a parent taking an active interest in the affairs of its subsidiary did not pierce the corporate veil). However, the facts in Cordova Chemical were established following a fifteen-day bench trial, after proper discovery. See id. at 575. Here, such factual discovery has yet to take place.
Although Plaintiff‘s allegations do not touch upon whether or not Stahl was undercapitalized or maintained separate books and finances, its allegations do assert that Ligon used Stahl to breach its contract with Plaintiff, that corporate formalities were not honored, and that Stahl was used as an instrumentality for the benefit of Ligon. See Aguirre, 410 F.3d at 302–03. As the Court must construe the Complaint in a light most favorable to Plaintiff and accept all of its factual allegations as true, Lambert, 517 F.3d at 439, such allegations provide a sufficient basis upon which Plaintiff could satisfy the first prong of the veil-piercing test under Michigan law.
Next, the second “fraud or wrong” element of the test requires that Plaintiff‘s Complaint must have stated allegations that the corporate entity was used to commit a fraud or wrong. Servo Kinetics, 475 F.3d at 798. In Servo Kinetics, the Sixth Circuit held that a breach of contract could constitute a “fraud or wrong” for the purpose of veil-piercing liability. 475 F.3d at 799–800. Nevertheless, “[t]he mere fact that a corporation commits an unfair labor practice,
Finally, the third “unjust loss” element of the veil-piercing test demands that Plaintiff allege that it suffered an unjust loss. Servo Kinetics, 475 F.3d at 798. Stahl‘s Motion to Dismiss did not address the issue of loss, instead relying on the argument that since Stahl had not breached the contract, it had not committed a wrong under the second prong. See Dkt. No. 11, pp. 25–26 (Pg. ID No. 96–97). Accordingly, as Plaintiff has claimed losses at approximately $80,000 per expedited shipment resulting from the breach of the parties’ contract, there are sufficient allegations of loss under the third prong of the veil-piercing test.
Viewing Plaintiff‘s allegations in the most favorable light, the Court finds that Plaintiff has set forth a viable basis for seeking to hold Ligon liable for Stahl‘s contractual breach.
B. Defendant Ligon Industries LLC‘s Motion to Dismiss [12]
1. Whether the Court Has Personal Jurisdiction Over Ligon
“A federal court may only exercise personal jurisdiction in a diversity case if such jurisdiction is (1) authorized by the law of the state in which the court sits; and (2) is otherwise consistent with the Due Process Clause of the Fourteenth Amendment.” Youn v. Track, Inc., 324 F.3d 409, 417 (6th Cir. 2003). When a defendant is not physically present in the forum, due process requires that he or she have “certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Int‘l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted).
The plaintiff bears the burden of establishing that jurisdiction exists. Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). Nevertheless, when the court rules on a
a. Alter Ego Theory
Plaintiff contends that “personal jurisdiction hinges on [the] plaintiff successfully piercing the corporate veil,” and is therefore ” ‘inextricably intertwined’ with a determination on the merits.” Dkt. No. 19, p. 16 (Pg. ID No. 388). Since factual determinations on claims are reserved for post-discovery proceedings, Plaintiff argues that it should not be required to establish the validity of its alter ego theory at the pleading stage. Id.
The Sixth Circuit has previously reviewed the use of the alter-ego theory to exercise personal jurisdiction, stating:
[F]ederal courts have consistently acknowledged that it is compatible with due process for a court to exercise personal jurisdiction over an individual or a corporation that would not ordinarily be subject to personal jurisdiction in that court when the individual or corporation is an alter ego or successor of a corporation that would be subject to personal jurisdiction in that court.
Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (quoting Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th Cir. 2002)).
The Court must look to the law of Michigan in applying the principles of the alter ego theory of personal jurisdiction. See Estate of Thomson, 545 F.3d at 362 (noting that the court must look to the law of the forum state). This inquiry
The Sixth Circuit has stated that “where the disputed jurisdictional facts are intimately intertwined with the parties’ dispute on the merits, a trial court should not require plaintiffs to mount ‘proof which would, in effect, establish the validity of their claims and their right to the relief sought.’ ” Serras v. First Tennessee Bank Nat. Ass‘n, 875 F.2d 1212, 1215 (6th Cir. 1989) (quoting Milligan v. Anderson, 522 F.2d 1202, 1207 (10th Cir. 1975)). As the Court has not held an evidentiary hearing, the facts and allegations will be viewed in the light most favorable to Plaintiff. See Estate of Thomson, 545 F.3d at 360. Under this lenient standard, the Court finds that Plaintiff has alleged sufficient facts to support the exercise of personal jurisdiction over Ligon based on its alter ego theory.
Accordingly, for the reasons discussed in detail above, the Court DENIES Defendants’ Motions to Dismiss [11, 12].
IT IS SO ORDERED.
Dated: May 3, 2016
/s/Gershwin A Drain
HON. GERSHWIN A. DRAIN
United States District Court Judge