Rеgina M. YODER, Lester L. Yoder, Plaintiffs-Appellants, v. HONEYWELL INC., Bull HN Information Systems, Inc., formerly known as Honeywell Information Systems, Inc., Defendants-Appellees.
No. 95-1464
United States Court of Appeals, Tenth Circuit
Jan. 8, 1997
104 F.3d 1215
C. The Basis of Southwestern‘s Liability
Southwestern contends that once Thunder Basin‘s breach of guarantee claim was dismissed, there no longer existed a case or controversy. This contention is untenable. What Southwestern fails to acknowledge is that Thunder Basin alleged and proved Southwestern intentionally interfered with the contract between TUCO and Thunder Basin. This claim, which is independent of Thunder Basin‘s claim against Southwestern for breach of the Guarantee Agreement, сlearly presents a justiciable case for presentation to the jury. Furthermore, although the district court concluded that Southwestern had not “breached” the Guarantee Agreement, it did not absolve Southwestern of liability under that agreement. Instead, the district court held that it would declare and enforce Southwestern‘s obligations under the Guarantee Agreement if the jury decided that TUCO had breached the Agreement. This task became unnecessary, however, after the jury found for Thunder Basin on the intentional interference with contract claim. Southwestern‘s jurisdictional clаim is without merit.
III. CONCLUSION
For the foregoing reasons, the judgment of the district court entering the jury‘s Special Verdict and Interrogatories is AFFIRMED.
Russell S. Ponessa (Robert B. MacDonald, also of Popham, Haik, Schnobrich & Kaufman, Minneapolis, MN; Robert J. Potrykus and Giovanni M. Ruscitti, Denver, CO; and Bert L. Wolff of Skadden, Arps, Slate, Meagher & Flom, New York City, with him on the brief), for Defendant-Appellee Honeywell Inc.
Daniel F. Warden of Bond & Morris, Denver, CO, for Defendant-Appellee Bull HN Information Systems, Inc.
Before HENRY, LOGAN and BRISCOE, Circuit Judges.
LOGAN, Circuit Judge.
Plaintiffs Regina M. and Lester L. Yoder appeal the district court‘s dismissal of their products liability action against defendants Honeywell Inc. (Honeywell) and Bull HN Information Systems, Inc. (Bull). Regina Yoder allegedly suffered repetitive stress injuries as a result of using defective computer keyboards while employed at United Airlines in Denver, Colorado. Plaintiffs assert that summary judgment was improper because material issues of fact remain as to whether (1) Bull was the alter ego or instrumentality of its parent Honeywell, and (2) Honeywell was a manufacturer or apparent manufacturer under Colorado law and
I
Numerous plaintiffs, including the Yoders, originally filed suit in December 1992 in the Eastern District of New York against Honeywell and other computer keyboard manufacturers. In April 1994 that court severed the Yoder plaintiffs’ case, as permitted by
Honeywell‘s first answer filed in January
The district court granted Honeywell‘s motion for summary judgment. The court first found that Honeywell was not liable to plaintiffs as a manufacturer of the keyboards. Yoder v. Honeywell Inc., 900 F.Supp. 240, 242 (D.Colo.1995). The district court noted that
None of the ... keyboards examined bore trademarks identifying the manufacturer on the front of the keyboard enclosures. Each of the seven keyboards had labels bearing a trademark on the bottom of the kеyboard enclosures. Three of the keyboards bore the trademark name Incoterm and four bore the Honeywell trademark. Based on [a former Honeywell employee‘s] examination of the keyboards he determined that the keyboards were not manufactured by Honeywell. Plaintiffs have made no showing that a genuine issue of fact exists that Honeywell manufactured, sold, or distributed any computer keyboard alleged to be defective.
Id. at 242 (citations omitted). The district court then declined to interpret Colorado products liability law to impose liability on a corporation that provides a trademark for a product under an “apparent manufacturer” theory. Id. at 246. The court also found that plaintiffs failed to establish that genuine issues of material fact remained whether to pierce Bull‘s corporate veil to hold the parent, Honeywell, liable. Finally, the district court granted Bull‘s motion to dismiss, finding that plaintiffs’ claim was time-barred.
II
Plaintiffs first assert that summary judgment1 in favor of Honeywell was improper. We review an order granting summary judgment de novo. Farthing v. City of Shawnee, Kan., 39 F.3d 1131, 1134 (10th Cir.1994).
Because this is a diversity action, we first determine which state law to apply. The choice of law is determined by thе conflict of laws rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). The district court stated that Colorado law would apply as the law of the forum state, apparently overlooking that this case originated in the Eastern District of New York. “The rule is settled that when a district court grants a venue change pursuant to
New York employs an “interest analysis” test, which requires application of
Under New York choice of law principles, however, “the law of the state of incorporation determines when the corporate form will bе disregarded and liability will be imposed on shareholders.” Fletcher v. Atex Inc., 68 F.3d 1451, 1456 (2d Cir.1995) (citations and quotations omitted). If we were to apply this rule the law of Delaware, the state of defendant Bull‘s incorporation, would apply to the corporate veil issue. Because the substantive tort law of Colorado applies here, however, we question whether New York would apply Delaware law to this related issue. In any event, our review of Delaware law indicates it is similar to Colorado, although Delaware may require somewhat more to pierce a corporate veil. Compare Geyer v. Ingersoll Publications Co., 621 A.2d 784, 793 (Del.Ch.1992) (to pierce corporate veil of subsidiary plaintiff must show fraud or “that the parent and the subsidiary operated as a single economic entity” and “that an overall element of injustice or unfairness” is present) (quotations and citations omitted) with Lowell Staats Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259, 1262 (10th Cir.1989) (listing ten factors Colorado courts consider in determining whether subsidiary is instrumentality of parent; also considering element of injustice). Thus, we analyze the corporate veil issue under Colorado law.
A
Plaintiffs sought to pierce the corporate veil of Bull and hold its parent Honeywell liable in tort beсause, they alleged, Bull was the alter ego or mere instrumentality of Honeywell. “[C]orporate veils exist for a reason and should be pierced only reluctantly and cautiously. The law permits the incorporation of businesses for the very purpose of isolating liabilities among separate entities.” Boughton v. Cotter Corp., 65 F.3d 823, 836 (10th Cir.1995) (quotations omitted) (applying Colorado law).
When, however, the corporate structure is used so improperly that the continued recognition of the corporation as a separate legal entity would be unfair, the corporate entity may be disregarded and corporate principals held liable for the corporations‘s actions. Thus, if it is shown that shareholders used the corporate entity as a mere instrumentality for the transaction of their own affairs without regard to separate and independent corporate existence, or for the purpose of defeating or evading important legislative policy, or in order to perpetrate a fraud or wrong on another, equity will permit the corporate form to be disregarded and will hold the shareholders personally responsible for the corporation‘s improper aсtions. Micciche v. Billings, 727 P.2d 367, 372-73 (Colo.1986) (citations omitted).
- The parent corporation owns all or majority of the capital stock of the subsidiary.
- The parent and subsidiary corporations have common directors or officers.
- The parent corporation finances the subsidiary.
- The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.
- The subsidiary has grossly inadequate capital.
- The parent corporation pays the salaries or expenses or losses of the subsidiary.
- The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to it by the parent corporation.
- In the papers of the parent corporation, and in the statements of its officers, “the subsidiary” is referred to as such or as a department or division.
- The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take direction from the parent corporation.
- The formal legal requirements of the subsidiary as a separate and independent corporation are not obsеrved.
Id. at 1262-63 (quoting Fish v. East, 114 F.2d 177, 191 (10th Cir.1940)). Although the determination is primarily a question of fact, “a verdict as a matter of law may be justified where the facts, viewed most favorably to the party seeking to pierce the veil, do not justify such a result.” Boughton, 65 F.3d at 836 n. 22.
Plaintiffs argue that the district court improperly read our opinion in Lowell Staats as requiring plaintiffs to prove “that the corporate entity was used to defeat public convenience, or to justify or protect wrong, fraud or crime.” Appellants’ Brief at 8. Plaintiffs appear to contend that their alter ego argument is distinguishable from the more generic corporate veil case such as Lowell Staats. Plaintiffs cite Ward v. Cooper, 685 P.2d 1382 (Colo.App.1984), for the proposition that even when a corporation has observed corporate formalities, and has not engaged in fraud, the Colorado courts will impose the alter ego doctrine. See also Friedman & Son, Inc. v. Safeway Stores, Inc., 712 P.2d 1128 (Colo.App.1985); New Sheridan Hotel & Bar, Ltd. v. Commercial Leasing Corp., 645 P.2d 868 (Colo.App.1982).
The brief opinion in Ward follows the analysis in Lowell Staats and Fish: In Ward the defendant and his wife owned most of the stock of the two corporations; they were officers and/or directors; the defendant dominated the corporations and used funds from one to benefit the other; and to escape personal liability defendant caused one of the corporations to repurchase his stock. See Id. at 1383-84. We acknowledge that courts have not always been clear in using the terms “alter ego,” “mere instrumentality,” and “piercing the corporate veil,” see Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, Inc., 456 F.Supp. 831, 839 (D.Del.1978) (citing Berkey v. Third Ave. Ry. Co., 244 N.Y. 84, 155 N.E. 58, 61 (1926) (Cardozo, J.) (relationships between parent and subsidiary corporations enveloped in “mists of metaphor“)). Under Colorado law, however, in order to hold a parent corporation liable for the torts of its subsidiary, a plaintiff must show that the corporate structure was used in such a way that “recognition of the separate corporate entity would result in injustice.” Lowell Staats, 878 F.2d at 1262. This determination requires applying the ten factors in Fish and Lowell Staats. We now apply these factors, viewing the record in the light most favorable to plaintiffs.
First, as the district court noted, until 1987, Honeywell owned all of the stock of Bull‘s predecessor, Honeywell Information Systems Inc. (HIS). This fact alone is not enough to justify disregarding the corporate form. See Industrial Comm‘n v. Lavach, 165 Colo. 433, 439 P.2d 359, 361 (1968). Second, the three-member board of directors of HIS were all members of Honeywell‘s board of directors from 1970 until 1979; two members of Honeywell‘s board continued as HIS directors until 1987. Identity of directors, however, “has been held to be innocuous where, as here, there is no evidence that through the board the рarent controlled the subsidiary.” Yoder, 900 F.Supp. at 244 (citing Quarles v. Fuqua Indus., Inc., 504 F.2d 1358, 1364 (10th Cir.1974)).
The remaining factors, however, favor Honeywell. The record reveals no evidence of gross undercapitalization, see Appellants’ App. 246, 251 (1970 combined assets of Bull‘s predecessor, HIS, were $1.3 billion), or that Honeywell рaid salaries or expenses for Bull. Less than five percent of Bull‘s business was with Honeywell. Plaintiffs did not show that Honeywell referred to Bull or its predecessors as a department or division, or that Bull‘s directors or executives took direction from Honeywell. Finally, defendants evidently observed the formal legal requirements of maintaining separate identities of the two corporations. Thus, there remain no fact questions with respect to the test whether Bull was an instrumentality or alter ego of Honeywell.
Additionally, we must consider that courts generally “are less likely to pierce a corporate veil when a consensual, contract-like transaction is involved than when a nonconsensual, tort-like transaction is involved,” Cascade Energy & Metals Corp. v. Banks, 896 F.2d 1557, 1577 (10th Cir.) (applying Utah law), cert. denied, 498 U.S. 849, 111 S.Ct. 138, 112 L.Ed.2d 105 (1990); “[o]f particular significance in most tort cases is whether the subsidiary is undercapitalized, because tort claimants usually have not voluntarily dealt with the subsidiary, and the question is whether a parent should be able to transfer a risk of loss or injury to members of the general public in the name of a subsidiary that may be marginally financed.” Nelson v. International Paint Co., 734 F.2d 1084, 1092 (5th Cir.1984) (applying Texas law). Even if Colorado courts would be more likely to pierce a corporate veil in a tort case, the facts of this case do not support doing so because Bull was adequately capitalized.
Finally, plaintiffs assert that the license agreement under which Honeywell allowed Bull to use its name is an important fact that proves an alter ego relationship. They point out that the agreement required Bull to comply with Honeywell‘s quality control standards and to make its products available for inspection by Honeywell. Plaintiffs argue the injustice of Honeywell benefiting from having its name on products manufactured by its subsidiary and then using Bull‘s corpоrate veil as a shield from liability.
We do not believe the licensing agreement here constituted the type of control Colorado courts consider in determining whether to hold a parent liable for actions of a subsidiary. The parent here did not allow an under-funded subsidiary to use its name, and then attempt to escape liability. Further, if Honeywell acted to keep plaintiffs from discovering the true manufacturer, that would support a finding that Honeywell was using Bull to avoid liability and should be estopped from doing so. See Nelson, 734 F.2d at 1091 (refusing to apply estoppel based on facts of case). Our review of the record, however, reveals no such evidence. Viewing all the factors in this case as a whole, they “do not demonstrate that the corporate form ‘was used to defeat public convenience, or to justify or protect wrong, fraud or crime.‘” Boughton, 65 F.3d at 838. The possibility that plaintiffs may not be able to obtain a judgment against a subsidiary because they are barred by the statute of limitations is not the type of injustice that warrants piercing the corporate veil. See id. at 836 (“The possibility that the plaintiffs may have difficulty enforcing a judgment against [the subsidiаry] alone is not the type of injustice that warrants piercing the corporate veil.“). We thus uphold the district court‘s determination on this issue.
B
Plaintiffs next assert the district court erred in ruling that under Colorado law Honeywell was not a manufacturer of the keyboards. Plaintiffs primarily argue that Honeywell was liable as an “apparent manufacturer” under
We have found no Colorado cases addressing whether Colorado would apply or reject § 400. In this situation, “we must attempt to construe the law of the State of Colorado in the manner in which the Supreme Court of Colorado would, if faced with the same facts and issue.” City of Aurora v. Bechtel Corp., 599 F.2d 382, 386 (10th Cir. 1979). In addition to considering analogous Colorado law, we look also to other state and federal decisions and to the general trend of authority. Id.
The Colorado Products Liability Act, and in particular
[A] person or entity who designs, assembles, fabricates, produces, constructs, or otherwise prepares a product or a component part of a product prior to the sale of the product to a user or consumer. The term includes any seller who has actual knowledge of a defect in a product or a seller of a product who creates and furnishes a manufacturer with specifications relevant to the alleged defect for producing thе product or who otherwise exercises some significant control over all or a portion of the manufacturing process or who alters or modifies a product in any significant manner after the product comes into his possession and before it is sold to the ultimate user or consumer. The term also includes any seller of a product who is owned in whole or significant part by the manufacturer or who owns, in whole or significant part, the manufacturer. A seller not otherwise a manufacturer shall not be deemed to be a manufacturer merely because he places or has placed a private label on a product if he did not otherwise specify how the product shall be produced or controlled, in some significant manner, the manufacturing process of the product and the seller discloses who the actual manufacturer is.
Assuming Colorado has adopted the essence of
Plaintiffs point out that some courts have extended strict liability under the § 400 apparent manufacturer doctrine to an owner of a trademark not otherwise involved in the chain of distribution. See, e.g., Brandimarti v. Caterpillar Tractor Co., 364 Pa.Super. 26, 527 A.2d 134 (1987) (although Caterpillar did not participate in distribution, it could be strictly liable for defective prоduct because it
Plaintiffs also assert that Honeywell is liable as a manufacturer because under
After considering the overwhelming majority of the opinions rejecting application of apparent manufacturer liability to a trademark owner not in the chain of distribution, the Illinois Supreme Court decision in Hebel distinguishing its earlier Connelly decision, and the wording of the Colorado statute, we agree with the district court that the Colorado Supreme Court likely would not impose liability on Honeywell under an apparent manufacturer theory. The district court did not err in concluding that no genuine issue of material fact remained whether Honeywell could be liable as a manufacturer or apparent manufacturer under Colorado law.
III
Finally, plaintiffs assert that the district court erred in granting Bull‘s motion to dismiss for failure to state a claim because the action was time-barred under Colorado law. We review de novo a district court‘s grant of a motion to dismiss for failure to state a claim. Kidd v. Taos Ski Valley, Inc., 88 F.3d 848, 854 (10th Cir.1996). We uphold a dismissal under
The district court applied the Colorado statute of limitations. Although the parties did not dispute this issue at the district court or on appeal, a choice of law question exists.
We recently addressed the question in Benne v. International Business Machines Corp., 87 F.3d 419 (10th Cir.1996). That was a repetitive stress injury action against keyboard manufacturers filed in the United States District Court for the Eastern District of New York apparently at about the same time as was the instant case. That court transferred the case to the District of Kansas, which granted the manufacturer‘s motion for summary judgment. We held that the law of New York, the state in which the transferor court sat, governed the statute of limitations. We thus applied the New York borrowing statute which provides:
An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the stаte where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.
Benne, 87 F.3d at 425. See
The face of plaintiffs’ first amended complaint states that she began to suffer symptoms of numbness, tingling and other impairments about May 1990, and by December 1990 she had been diagnosed with several conditions including bilateral radial tunnel syndrome and had undergone corrective surgery. Therefore, under New York law, plaintiffs’ cause of action accrued in May 1990 (and certainly no later than her December 1990 surgery for the repetitive stress injury). Plaintiffs’ addition of Bull as a defendant in March 1995, more than three years after the cause of action accrued, was untimely.
Because the district court and the parties did not address the New York statute of limitations, we have reviewed New York law to determine whether plaintiffs might have a basis to argue the date of accrual should be later than indicated by normal accrual rules, or that defendant Bull might be estopped from pleading the statute of limitations. We see no justification for applying alternative accrual rules. See Holdridge v. Heyer-Schulte Corp., 440 F.Supp. 1088, 1095-98 (N.D.N.Y.1977) (discussing theories of continuous torts, foreign object discovery rule, and continuous treatment doctrine). Further, there is no basis on which the defendants could be held еstopped from raising the statute of limitations. See id. at 1104-05. We hold that the district court correctly dismissed the suit against Bull as untimely.
We are mindful that plaintiffs now have no remedy. But if plaintiffs had examined the keyboards before bringing suit they would have noted that although the name “Honeywell” appeared on some, “Incoterm” or “Honeywell Systems Inc.” also appeared on all but two of the keyboards, and those two referred to the same Puerto Rican place of manufacture as was on the keyboards containing Honeywell Systems Inc.‘s name. Prudence would dictate that plaintiffs promptly investigate each of these entities as possible defendants.
AFFIRMED.
LOGAN
CIRCUIT JUDGE