Ray et al v. Judicial Corrections Services Inc et al

Filing 682

MEMORANDUM OPINION. Signed by Judge R David Proctor on 5/9/2018. (KAM)

FILED
2018 May-09 AM 11:16
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION

GINA KAY RAY, et al.,
Plaintiffs,
v.
JUDICIAL CORRECTION SERVICES,
INC., et al.,
Defendants.

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Case No.: 2:12-cv-02819-RDP

MEMORANDUM OPINION
This case is before the court on Defendant CHC Companies, Inc.’s (“CHC Companies”)
Motion for Summary Judgment (Doc. # 636), Defendant Correct Care Solutions, LLC’s (“CCS”)
Motion for Summary Judgment (Doc. # 639), and Defendants CHC Companies’ and CCS’s
Motion to Strike Plaintiffs’ Supplemental Exhibits and Supplemental Briefing (Doc. # 648). The
parties have fully briefed the motions (see Docs. # 637, 640, 642-43, 645-46, 648-49, 651, 65354, 661-62), and they are ripe for decision.
In an earlier order, the court addressed whether Defendant Judicial Correction Services,
Inc. (“JCS”) was entitled to summary judgment on Plaintiffs’ claims against it. (Docs. # 626 &
627). The court concluded that JCS was entitled to summary judgement on some, but not all, of
those claims. Now, the court turns from questions of primary liability to whether Defendants
CHC Companies and CCS, both of whom purchased ownership interest in JCS during the
pendency of the probation services contract between JCS and the City of Childersburg, are liable
for any of the § 1983 claims asserted by Plaintiffs against JCS. For the reasons explained below,
the court concludes that they are not.

I.

Factual Background
The facts set out in this opinion are gleaned from the parties’ submissions and the court’s

own examination of the evidentiary record. All reasonable doubts about the facts have been
resolved in favor of the nonmoving party. See Info. Sys. & Networks Corp. v. City of Atlanta,
281 F.3d 1220, 1224 (11th Cir. 2002). These are the “facts” for summary judgment purposes
only. They may not be the actual facts that could be established through live testimony at trial.
See Cox v. Adm’r U.S. Steel & Carnegie Pension Fund, 17 F.3d 1386, 1400 (11th Cir. 1994).
A.

JCS’s Merger with CHC Companies

On September 30, 2011, Defendant CHC Companies purchased all of JCS’s stock
through a reverse subsidiary merger.1 (Doc. # 647-1 at 8-9).

Under this agreement, Judicial

Merger Sub, Inc. merged with JCS, designated as the “Surviving Corporation.”2 (Id.). JCS held

1

A reverse subsidiary merger, or reverse triangular merger, occurs where “a parent corporation [acquires] a
target corporation by setting up a subsidiary to merge with the target.” In re Inergy L.P., No. 5816-VCP, 2010 WL
4273197, at *11 (Del. Ct. Chancery Oct. 29, 2010). “The subsidiary usually has no assets other than the merger
consideration to be paid to the target. The effect of this arrangement is that the parent does not become a constituent
to the merger between the target and the subsidiary.” Id. Reverse triangular mergers are a “recognized, accepted,
and fairly routine” form of purchase agreement.
Baldwin Enters., Inc. v. Retail Ventures, Inc., No.
09-cv-0159-MJR-PMF, 2010 WL 624261, at *5-6 (S.D. Ill. Feb. 18, 2010) (citing and quoting Giovanini v. United
States, 9 F.3d 783, 784 n. 6 (9th Cir. 1993); Saginaw Property, LLC v. Value City Dep’t Stores, LLC, No.
08-13782-BC, 2009 WL 3536616, at *8 (E.D. Mich. Oct. 30, 2009); and Morgan v. Powe Timber Co., 367 F. Supp.
2d 1032, 1037-38 (S.D. Miss. 2005)). Triangular mergers are used in situations where a target corporation has
franchises or licenses that cannot easily be transferred or where certain tax benefits are sought. Id. at *6 (citing 14
Fletcher Cyc. Corp. § 7011.30 (2009)). Notably, though, they also are used sometimes “to avoid direct exposure to
the liabilities of the target corporation.” 14 Fletcher Cyc. Corp. § 7011 (2009).
2

In their latest statement of additional undisputed facts, Plaintiffs continue to assert that the Judicial
Merger Sub was the Surviving Corporation described in the merger agreement. (See Doc. # 645 at 5) (describing the
Surviving Corporation as “JCS 2.0”). This factual averment is unsupported by the Rule 56 record and directly
refuted by Section 2.1 of the merger agreement, which specifies that “the Company shall be the surviving
corporation.” (Doc. # 647-1 at 9). The merger agreement’s preamble clearly identifies JCS as the “Company” and
the Judicial Merger Sub as the “Merger Sub.” (Id. at 8). Plaintiffs’ factual averment also is refuted by the proposed
merger certificate appended to the merger agreement. (Doc. # 647-3 at 9-11). The merger certificate states, “The
name of the surviving corporation in the merger herein certified is Judicial Correction Services, Inc. (the “Surviving
Corporation”), which will continue its existence as said surviving corporation under its present name upon the
effective date of said merger . . . .” (Id. at 10). Nothing in the Rule 56 record indicates that a different merger
certificate was filed in Delaware. Plaintiffs offer a citation to support their position that the Judicial Merger Sub was
the Surviving Corporation (Doc. # 645 at 5), but the court has not found a page with Bates number “CHC CCS
002251” in the cited exhibit. (See generally Docs. # 647-1, 647-2, 647-3, & 647-4) (containing pages with Bates
numbers “CHC CCS 002049” through “CHC CCS 002184”).

2

“all the assets, rights, privileges, powers and franchises of” itself and the Judicial Merger Sub,
along with all of their “liabilities, restrictions, disabilities, and duties.” (Id. at 9). JCS’s equity
holders received payouts for their interests in JCS. (See id. at 11, 14). In the merger agreement,
JCS agreed to help fund the “Indemnification Escrow Fund.” (Id. at 12). JCS disclosed all
pending litigation matters against JCS, its officers, its directors, and its affiliates at the time of
the merger. (See id. at 26-27; Doc. # 647-3 at 55). Of course, this action was not listed in the
litigation schedule because this action had not commenced when the merger occurred. (See Doc.
# 647-3 at 55). The merger agreement contained an indemnification agreement. (Doc. # 647-2
at 13-18).
The merger agreement required JCS’s executives to resign from JCS. (See Doc. # 647-1
at 16).

Also, it required those executives to enter into an employment agreement and a

non-compete agreement with CHC Companies.

(See Docs. # 647-2 at 10; 647-3 at 7).

Following the merger, JCS’s executives reported to CHC Companies, rather than a board of
directors. (Doc. # 641-4 at 80). Jarrett Gorlin, one of JCS’s prior owners, served as JCS’s
president and reported to CHC Companies’ chief executive officer (“CEO”), Doug Goetz. (Doc.
# 641-4 at 34-35, 270). Goetz and other CHC executives helped review Gorlin’s letter to JCS
employees about the sale. (See Doc. # 428-3 at 21-22) (email from Goetz to other executives
asking for suggestions for the letter). Dennis Moon, JCS’s chief operating officer (“COO”) at
the time of the merger, continued to work for JCS after the merger for a period of time. (Doc. #
641-4 at 99).
Don Houston, the COO for CHC Companies at the time of the merger, testified that the
entity changed its name from Correctional Healthcare Companies to CHC Companies “for tax

3

purposes and other things.”3 (Id. at 24-26). He asserted that when the transaction occurred CHC
Companies and JCS intended to provide a “one-stop shop for the provision of probation and
healthcare services to the criminal justice system.” (Id. at 79-80).
B.

JCS’s Operations Following the 2011 Merger

In October 2011, JCS identified Goetz as its CEO, Charlie Farrahar as its chief financial
officer (“CFO”), and Larry Wolk as its secretary. (Doc. # 647-6). At the time, Goetz also served
as CHC Companies’ CEO. (See Doc. # 641-4 at 34-35). Goetz acted as JCS’s CEO in 2012 and
2013 as well. (Id. at 269-70). In 2014, Dirk Allison became CEO of JCS. (Id. at 268). At that
time, Allison also served as CEO and president of CHC Companies. (Id. at 163-64, 265).
In December 2011, Houston wrote to Goetz stating that he intended “to make sure JCS
truly becomes part of CHC, especially from an operational and financial perspective.” (Doc. #
428-3 at 106). Houston explained during his deposition that CHC Companies tried to integrate
some of JCS’s functions into CHC Companies, but he described the attempt as “more of . . . an
aspirational integration than an actual integration.” (Doc. # 641-4 at 35-36). Following the
merger, JCS employees were transferred from JCS’s payroll to CHC Companies’ payroll.4 (Id.
at 36). Houston was responsible for ensuring JCS’s financial performance, but he played “no
part in the day-to-day operations.” (Id. at 58-59).
In 2012, Goetz oversaw JCS’s operations. (Id. at 90). In 2013, after Allison replaced
Goetz as CEO of CHC Companies, Houston began overseeing its operations. (Id. at 90-91). At
some point, Houston began signing certain contracts on behalf of JCS. (Id. at 92). And, in 2013,
3

On July 11, 2011, CHC Companies, Ltd. changed its name to Correctional Healthcare Companies, Inc.,
and then changed its name again to CHC Companies, Inc. (Doc. # 641-7 at 57-58).
4

CHC Companies asserts that it transferred JCS’s employees to its payroll in 2013. (Doc. # 649 at 8). An
email in the Rule 56 record states that JCS employees transferred to CHC Companies’ payroll by January 2013, but
it does not reflect the precise date of the transfer. (See Doc. # 650-1 at 2).

4

Houston selected a new COO for JCS. (Id. at 124). Colleen Ray, JCS’s Alabama manager,
testified that officers in Colorado had to approve marketing and political contribution decisions.
(Doc. # 392-11 at 191-92).
C.

CHC Companies’ Merger with CCS

The parties strongly dispute the nature of the business relationship between CCS and
CHC Companies. Plaintiffs characterize the transaction as a merger. (See Doc. # 642 at 21-22).
In June 2014, JCS’s CEO wrote, “On June 12, 2014, Correctional HealthCare Companies (CHC)
announced that their owners have entered into a merger with Correct Care Solutions (CCS),
which is currently the 2nd largest company in the industry, based out of Nashville, Tn.” (Doc. #
641-6 at 2). The CEO stated that “[f]or JCS, business will remain primarily unaffected.” (Id.).
And, he asserted that “JCS [would] remain an industry leader in the southeast, by continuing to
provide quality services to our courts.” (Id.).
In contrast, David Perry, CCS’s chief legal officer, has explained that CCS Group
Holdings, LLC and Jessamine Healthcare Holdings5 “were placed under common ownership.”
(Doc. # 641-7 at 60-61). According to Perry, the owners of CCS Group Holdings and Jessamine
exchanged their ownership interests in the respective companies “for ownership interest in the
new entity on a proportional basis.” (Id. at 61). Houston recalled that employees of CHC
Companies were paid by CCS following the merger, but “still referred to themselves as CHC
employees.”

(Doc. # 641-4 at 165).

The Securities Exchange Agreement submitted by

Defendant CCS reflects that CCS Group Holdings and Jessamine transferred their individual
stock for stock shares in CCS-CHC Holdings, LLC. (Doc. # 641-8 at 8, 77).
As of January 2015, CCS handled all of the in-house payroll, accounting, and legal
services for CHC Companies and JCS. (Doc. # 641-4 at 49-50). CCS also handled most of the
5

Jessamine purchased CHC Companies in December 2012. (See Doc. # 641-7 at 63).

5

compliance and human resources issues. (Id. at 50, 53). In late 2015, when JCS closed its
offices in the state of Alabama, Houston participated in that decision, along with Ray and Karen
Lloyd. (Id. at 122-23, 171-72). By that time, Houston served as CCS’s president of state and
federal affairs. (Id. at 48). CCS’s legal department handled the transactions necessary to cease
JCS’s operations in Alabama. (Id. at 123).
II.

Procedural Background
During an October 2016 discovery conference, Plaintiffs’ counsel notified the court of

discovery disputes regarding redactions made to purchase agreements between JCS, CHC
Companies, and CCS and exclusions of certain schedules from those agreements. (Doc. # 492 at
25-27). Plaintiffs’ counsel also discussed redactions made to certain emails. (Id. at 36-37). The
court ordered Plaintiffs and Defendant City of Childersburg to prepare a joint request for
production of documents related to the purchase agreements. (Doc. # 490 at 1). It also ordered
Plaintiffs, CHC Companies, and CCS to prepare a joint report about which redacted emails were
still in dispute. (Id. at 2). Because the redacted and withheld documents at issue contained
sensitive information, the court referred this discovery dispute to a Magistrate Judge.

In

November 2016, the Magistrate Judge ordered Defendants to produce the disputed documents
for an in camera review. (Doc. # 509).
In January 2017, Defendants CHC Companies and CCS filed their initial motions for
summary judgment. (Docs. # 543, 549). In May 2017, the court set those motions, along with
other motions, for oral argument on July 24, 2017. (Docs. # 609 & 610). On July 17, 2017, the
Magistrate Judge concluded that Plaintiffs were entitled to an unredacted version of the merger
agreement between JCS and CHC Companies and that Defendants needed to remove some
redactions from emails pertaining to operations in Alabama.

6

(See Doc. # 612).

At oral

argument, Plaintiffs’ counsel disclosed to the court that they had received additional relevant
documents following the Magistrate Judge’s order. (Doc. # 620 at 101). The court concluded
that the Rule 56 record should be supplemented before ruling on Defendants’ summary judgment
motions.

(Id. at 107-08).

Defendants’ counsel did not oppose supplementing the record,

although he believed that it would make no difference. (Id. at 108). Accordingly, the court
administratively terminated the initial summary judgment motions. (Doc. # 616).
In September 2017, the parties resolved the remaining discovery disputes. (See Doc. #
635). The court directed Defendants to re-submit their summary judgment motions. (Id.). And,
the court granted the parties leave to “file supplemental briefs of up to fifteen (15) pages with
their response and reply submissions.” (Id.).
III.

Standard of Review for Summary Judgment Motions
Under Federal Rule of Civil Procedure 56, summary judgment is proper “if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The party asking for summary judgment always bears the initial responsibility of informing the
court of the basis for its motion and identifying those portions of the pleadings or filings which it
believes demonstrate the absence of a genuine issue of material fact. Id. at 323. Once the
moving party has met its burden, Rule 56 requires the non-moving party to go beyond the
pleadings and -- by pointing to affidavits, or depositions, answers to interrogatories, and/or
admissions on file -- designate specific facts showing that there is a genuine issue for trial. Id. at
324.

7

The substantive law will identify which facts are material and which are irrelevant. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (“Anderson”). All reasonable doubts
about the facts and all justifiable inferences are resolved in favor of the non-movant. See Allen v.
Bd. of Pub. Educ. for Bibb Cty., 495 F.3d 1306, 1314 (11th Cir. 2007); Fitzpatrick v. City of
Atlanta, 2 F.3d 1112, 1115 (11th Cir. 1993). A dispute is genuine “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson, 477 U.S. at 248. If
the evidence is merely colorable, or is not significantly probative, summary judgment may be
granted. See id. at 249.
When faced with a “properly supported motion for summary judgment, [the nonmoving
party] must come forward with specific factual evidence, presenting more than mere
allegations.” Gargiulo v. G.M. Sales, Inc., 131 F.3d 995, 999 (11th Cir. 1997). As Anderson
teaches, under Rule 56(c) a plaintiff may not simply rest on her allegations made in the
complaint; instead, as the party bearing the burden of proof at trial, she must come forward with
at least some evidence to support each element essential to her case at trial. See Anderson, 477
U.S. at 252. “[A] party opposing a properly supported motion for summary judgment ‘may not
rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts
showing that there is a genuine issue for trial.’” Id. at 248 (citations omitted).
Summary judgment is mandated “against a party who fails to make a showing sufficient
to establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex Corp., 477 U.S. at 322. “Summary judgment may be
granted if the non-moving party’s evidence is merely colorable or is not significantly probative.”
Sawyer v. Sw. Airlines Co., 243 F. Supp. 2d 1257, 1262 (D. Kan. 2003) (citing Anderson, 477
U.S. at 250-51).

8

“[A]t the summary judgment stage the judge’s function is not himself to weigh the
evidence and determine the truth of the matter but to determine whether there is a genuine issue
for trial.” Anderson, 477 U.S. at 249. “Essentially, the inquiry is ‘whether the evidence presents
a sufficient disagreement to require submission to the jury or whether it is so one-sided that one
party must prevail as a matter of law.” Sawyer, 243 F. Supp. 2d at 1262 (quoting Anderson, 477
U.S. at 251-52); see also LaRoche v. Denny’s, Inc., 62 F. Supp. 2d 1366, 1371 (S.D. Fla. 1999)
(“The law is clear . . . that suspicion, perception, opinion, and belief cannot be used to defeat a
motion for summary judgment.”).
IV.

Analysis
The court has carefully considered Plaintiffs’ arguments for imposing liability on CHC

Companies and CCS, but concludes that those arguments miss the mark.
A.

Successor Liability

Under Alabama law, “[a]s a general rule, a purchasing corporation is not liable for the
debts and liabilities of the selling corporation.” Asher v. KCS Int’l, Inc., 659 So. 2d 598, 599
(Ala. 1995). See also Bud Antle, Inc. v. E. Foods, Inc., 758 F.2d 1451, 1456 (11th Cir. 1985).
Four exceptions to this general rule permit a plaintiff to hold the purchasing corporation
accountable for the liabilities of the selling corporation: “(1) there is an express agreement to
assume the obligations of the transferor[;] (2) the transaction amounts to a de facto merger or
consolidation of the two companies[;] (3) the transaction is a fraudulent attempt to escape
liability[;] or (4) the transferee corporation is a mere continuation of the transferor.” 6 Asher, 659
6

The parties do not raise a choice-of-law issue when discussing successor liability, and all parties have
applied Alabama law in their briefs. (See Docs. # 642 at 31-32; 643 at 34; 649 at 18; 651 at 15-16). Because the
parties have applied Alabama law to the successor liability issues, the court will do the same.
The Alabama Supreme Court has recognized a separate body of successor liability law in products liability
suits. See Rivers v. Stihl, Inc., 434 So. 2d 766, 771-72 (Ala. 1983). The parties have not asked the court to apply
this body of successor liability law, and the court finds it inapplicable to the claims before it in any event.

9

So. 2d at 599 (quoting Andrews v. John E. Smith’s Sons Co., 369 So. 2d 781, 785 (Ala. 1979)).
See also Bud Antle, 758 F.2d at 1456 (describing the same four exceptions, while stating that a
buyer also can impliedly agree to assume obligations).

“If the original entity still exists,

however, there is no successor, and therefore, no successor liability.” Norfolk S. Ry. Co. v.
Pittsburgh & W.V. R.R., 153 F. Supp. 3d 778, 807 (W.D. Pa. 2015), aff’d, 870 F.3d 244 (3d Cir.
2017).

Moreover, a reverse triangular merger, such as the one between JCS and CHC

Companies, is “specifically designed to preclude the imposition of successor liability” because
its result is a stock purchase, not a purchase of assets. Id. at 808.
Plaintiffs seek to apply successor liability against CHC Companies and CCS under the de
facto merger and mere continuation exceptions. (Docs. # 642 at 32; 643 at 34). To show that a
successor corporation is liable as a mere continuation of the prior corporation, a plaintiff must
present substantial evidence that: (1) “[t]here was a basic continuity of the enterprise of the seller
corporation, including, apparently, a retention of key personnel, assets, general business
operations and even the seller’s name”; (2) “[t]he seller corporation ceased ordinary business
operations, liquidated, and dissolved soon after distribution of consideration received from the
buying corporation”; (3) “[t]he purchasing corporation assumed those liabilities and obligations
of the seller ordinarily necessary for the continuation of the normal business operations of the
seller corporation”; and (4) “the purchasing corporation held itself out to the world as the
effective continuation of the seller corporation.” Asher, 659 So. 2d at 599-600. To show that a
successor corporation conducted a de facto merger with a prior corporation, among other
elements, a plaintiff generally must show “a continuity of shareholders which results from the
purchasing corporation paying for the acquired assets with shares of its own stock, this stock
ultimately coming to be held by the shareholders of the seller corporation so that they become a

10

constituent part of the purchasing corporation.” Bud Antle, 758 F.2d at 1457-58 (quoting Keller
v. Clark Equip. Co., 715 F.2d 1280, 1291 (8th Cir. 1983)).
i.

Successor Liability of CHC Companies

Plaintiffs have not shown that CHC Companies is subject to successor liability for JCS’s
tortious conduct under a de facto merger or mere continuation theory.

First, the merger

agreement indicates that CHC Companies did not pay for JCS with CHC Companies’ stock, such
that the stockholders of JCS became stockholders and constituents of CHC Companies. Cf. Bud
Antle, 758 F.2d at 1457-58. Rather, JCS stockholders received money for their equity interests
in the corporation. (Doc. # 647-1 at 11). Thus, the de facto merger doctrine is inapplicable.
Second, the Rule 56 record demonstrates that JCS remained a separate business entity
from CHC Companies after the merger. It did not cease operations and liquidate after the
merger. Cf. Asher, 659 So. 2d at 599; Bud Antle, 758 F.2d at 1458. Nor did CHC Companies
hold itself out as an effective continuation of JCS.

Indeed, JCS maintained its separate

operations after September 2011. When CHC Companies and CCS merged in June 2014, JCS’s
CEO asserted that its probation operations would continue. (Doc. # 641-6 at 2). The reverse
subsidiary merger model used by CHC Companies is designed to avoid successor liability. See
Norfolk S. Ry. Co., 153 F. Supp. 3d at 808.7 Although CHC Companies purchased JCS’s stock
through the reverse subsidiary merger, the Rule 56 evidence shows that CHC Companies did not
operate as a mere continuation of JCS because JCS continued to operate as a separate subsidiary
after the September 2011 transaction. For this same reason, the court cannot conclude that CHC

7

As several district courts have explained, reverse triangular mergers are designed to not change the
subsidiary’s corporate status, and, thus, foreclose a transfer or assumption of the subsidiary’s rights and obligations.
See, e.g., Morgan v. Powe Timber Co., 367 F. Supp. 2d 1032, 1037-40 (S.D. Miss. 2005); Binder v. Bristol-Myers
Squibb, Co., 184 F. Supp. 2d 762, 772 (N.D. Ill. 2001). See also In re McKesson HBOC, Inc. Sec. Litig., 126 F.
Supp. 2d 1248, 1277 (N.D. Ca. 2000) (“However, a ‘reverse triangular merger’ of the sort performed here . . . does
not effect a ‘de facto’ merger unless the transaction has been structured to disadvantage creditors or shareholders.”).

11

Companies entered into a de facto merger with JCS. Cf. Bud Antle, 758 F.2d at 1458; MatrixChurchill v. Springsteen, 461 So. 2d 782, 787 (Ala. 1984) (holding that a corporation that
purchased 99.7 percent of the prior corporation’s stock had not effectuated a de facto merger, in
part, because the prior corporation continued its separate operations after the purchase).
Therefore, Plaintiffs cannot maintain successor liability against Defendant CHC Companies
under these circumstances.
ii.

Successor Liability of CCS

Plaintiffs also have not shown that Defendant CCS is subject to successor liability for
JCS’s tortious conduct. Even if Plaintiffs could show a de facto merger between CCS and CHC
Companies (and, to be clear, they have not), they have not established a de facto merger between
CCS and JCS. Indeed, to the court’s knowledge, JCS continued to conduct ordinary business
functions under its own name, rather than that of CCS or CHC Companies, after June 2014.
Since JCS remains a separately operating entity separate and distinct from CCS and CHC
Companies (see Doc. # 641-6 at 2) and never ceased its own ordinary business operations,
Plaintiffs cannot establish that CCS is subject to successor liability under a de facto merger or
mere continuation theory. Cf. Asher, 659 So. 2d at 599; Bud Antle, 758 F.2d at 1458. Therefore,
the court concludes that Defendant CCS cannot be held liable under a successor liability theory.
C.

Plaintiff Has Failed to Show that Defendant CHC Companies is Liable for
JCS’s Conduct Under the Single Employer Doctrine

The single employer doctrine is a creation of the National Labor Relations Board that,
when applicable, treats related enterprises as a single entity under the National Labor Relations
Act. Int’l Bhd. of Elec. Workers, Local 613 v. Fowler Indus., Inc., 884 F.2d 551, 553 n. 3 (11th
Cir. 1989). It has also been used to determine whether two or more employers are a single
employer under Title VII of the Civil Rights Act. See Phillips v. Bd. of Trs. of Univ. of Ala., 218
12

F. Supp. 3d 1297, 1304-05 (N.D. Ala. 2016). Here, however, Plaintiffs have not cited (and the
court has not found) any authority to support the argument that the single employer doctrine
extends liability under § 1983 to a subsidiary corporation’s parent corporation in an action that is
not brought by an employee of the subsidiary.8 Nor can the court envision any policy reason for
such an extension of the doctrine.

Accordingly, Plaintiffs cannot hold Defendant CHC

Companies liable for any § 1983 violation through an application of the single employer
doctrine.
Moreover, and in any event, Plaintiffs have failed to present a triable case that the single
employer doctrine applies here. A plaintiff must show a high level of integration with respect to
ownership and control between entities 645 to conclude that they are a single employer. See
Long v. Aronov Realty Mgmt., Inc., 645 F. Supp. 2d 1008, 1030 (M.D. Ala. 2009). The relevant
factors courts are to consider are: “(1) interrelation of operations; (2) centralized control of labor
relations; (3) common management; and (4) common ownership or financial control.” McKenzie
v. Davenport-Harris Funeral Home, 834 F.2d 930, 933 (11th Cir. 1987). A review of the Rule
56 evidence related to these factors reveals that JCS and CHC Companies did not act as a single
employer.

8

In one persuasive opinion, the Second Circuit affirmed a judgment against a parent corporation for a 42
U.S.C. § 1981 claim based upon the single employer doctrine. See Turley v. ISG Lackawanna, Inc., 774 F.3d 140,
155-57 & n. 13 (2d Cir. 2014). Importantly, though, the plaintiff in that § 1981 case was an employee of the parent
corporation’s subsidiary who suffered harassment on a worksite. See id. at 148-49. And, the Second Circuit noted
in Turley that the parent corporation failed to raise the issue in its briefing. Id. at 155 n. 13. In any event, the
Second Circuit’s application of the single employer doctrine in Turley is consistent with its use in Title VII and other
labor and employment contexts. See also Johnson v. Crown Enters., Inc., 398 F.3d 339, 343-44 (5th Cir. 2003)
(assuming, without deciding, that the single employer doctrine applied to a § 1981 claim arising from a subsidiary’s
termination of the plaintiff, an independent contractor). At best, the Turley court’s analysis would apply to the
question of whether the single employer doctrine would apply to a § 1983 claim brought by an employee against
entities whom he or she claims constitute a single employer. That is not the question before the court here so the
court need not answer it.

13

i.

Interrelation of Operations

“Courts are to consider several indicia of interrelatedness: ‘(1) combined accounting
records; (2) combined bank accounts; (3) combined lines of credits; (4) combined payroll
preparation; (5) combined switchboards; (6) combined telephone numbers; and (7) combined
offices.’” Klein v. L-3 Commc’ns Corp., No. 1:12-cv-956-MEF, 2013 WL 5913776, at *7 (M.D.
Ala. Nov. 1, 2013) (quoting Walker v. Boys & Girls Club of Am., 38 F. Supp. 2d 1326, 1331
(M.D. Ala. 1999)).
Plaintiffs have presented no evidence to suggest that JCS and CHC Companies combined
accounting records, lines of credit, bank accounts, switchboards, telephone records, or offices.
To be sure, CHC Companies performed payroll functions for JCS employees after the merger
occurred. (See Doc. # 428-3 at 36). Nevertheless, despite the combined payroll functions, the
Rule 56 record shows that JCS and CHC Companies remained separate and distinct entities in
other respects. Therefore, this factor does not support a finding that JCS and CHC Companies
were a single employer.
ii.

Centralized Control of Labor Relations

“To satisfy the control prong, a parent must control the day-to-day employment decisions
of the subsidiary.” Frank v. U.S. West, Inc., 3 F.3d 1357, 1363 (10th Cir. 1993). The court may
consider several “indicia of control” in analyzing the parent corporation’s control of labor
relations, including “the authority to hire, transfer, promote, discipline or discharge; the authority
to establish work schedules or direct work assignments, and the obligation to pay or the duty to
train the charging party.” Lyes v. City of Riviera Beach, Fla., 166 F.3d 1332, 1345 (11th Cir.
1999) (en banc) (alteration adopted and internal quotation marks omitted) (quoting Oaks v. City
of Fairhope, Ala., 515 F. Supp. 1004, 1035 (S.D. Ala. 1981)). Generally, a subsidiary’s use of a

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parent’s human resources services, standing alone, is not sufficient to satisfy this factor. See
Cruz-Lovo v. Ryder Sys., Inc., 298 F. Supp. 2d 1248, 1254 (S.D. Fla.) (finding that a subsidiary’s
use of a parent’s human resources department did not demonstrate control where the subsidiary
retained authority to hire, fire, and supervise employees), aff’d, 88 F. App’x 381 (11th Cir.
2003).
Plaintiffs have not shown that CHC Companies exercised control over JCS’s day-to-day
employment decisions.

Plaintiffs have not argued that CHC Companies controlled JCS’s

day-to-day hiring, firing, transfer, and work assignment decisions. See Lyes, 166 F.3d at 1345.
Plaintiffs argue that CHC Companies defined JCS’s employment policies and controlled its
employee reviews, but no Rule 56 evidence supports that argument. (See Doc. # 642 at 34-35).
While Plaintiffs contend that Ray testified to CHC Companies’ control over “all operating
decisions” (Doc. # 642 at 35), Ray actually testified that she needed approval from CHC
employees in the context of discussing marketing and political contributions. (See Doc. # 392-11
at 191-92).

At most, CHC Companies handled JCS’s payroll, provided human resources and

legal assistance, and controlled executive-level employment decisions. This evidence simply
does not support the conclusion that CHC Companies and JCS had centralized control over labor
relations. Therefore, this factor does not support a finding that they were a single employer.
iii.

Common Management

“Cases treating two separate corporate entities as a single employer have placed heavy
emphasis on the existence of common directors and officers.” Fike v. Gold Kist, Inc., 514 F.
Supp. 722, 727 (N.D. Ala.), aff’d, 664 F.2d 295 (11th Cir. 1981) (citing Baker v. Stuart Broad.
Co., 505 F.2d 181 (8th Cir. 1974)). Here, Plaintiffs have shown some degree of commonality
between JCS’s officers and CHC Companies’ officers. For example, Goetz served as both JCS’s

15

CEO and CHC Companies’ CEO. (Docs. # 641-4 at 34-35, 269-70; 647-6). Houston oversaw
JCS and hired JCS’s COO while acting as CHC Companies’ COO. (Doc. # 641-4 at 124). This
factor supports a finding of single employer status.
iv.

Common Ownership or Financial Control

Under this factor, courts look to who owns the companies. See Cruz-Lovo, 298 F. Supp.
2d at 1254. It cannot be disputed that CHC Companies owned JCS during the relevant time
periods. This factor weighs in Plaintiffs’ favor.
v.

Conclusion

In conclusion, the interrelatedness and control factors weigh in Defendant CHC
Companies’ favor, and the common management and common ownership factors weigh in favor
of Plaintiffs. But, it is not surprising that JCS and CHC Companies had common management
and common ownership because JCS clearly operated as a subsidiary of CHC Companies.
“Common management and ownership are ordinary aspects of a parent-subsidiary relationship.”
Lusk v. Foxmeyer Health Corp., 129 F.3d 773, 778 (5th Cir. 1997). Common management and
ownership is not enough to treat a parent corporation and a subsidiary corporation as a single
employer. Id. “Some nexus to the subsidiary’s daily employment decisions must be shown.” Id.
Plaintiffs fail to present evidence of any such nexus here, beyond CHC Companies’ control of
payroll functions.
On balance, the court concludes that Plaintiffs cannot rely on the single employer
doctrine to establish liability against Defendant CHC Companies for two reasons. First, the
single employer doctrine is inapplicable to the § 1983 claims in this case. Second, Plaintiffs
have failed to show a basis for finding CHC Companies and JCS to be a single employer.

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C.

Plaintiffs Have Abandoned Any Claim that CHC Companies and JCS Were
Joint Employers

Plaintiffs previously indicated to the court that they would seek to establish liability
against Defendants CHC Companies and CCS under a joint employer theory. But, Plaintiffs
have not presented argument on a joint employer theory in their opposition briefs or their
supplemental briefs. (See generally Docs. # 642 at 27-51; 643 at 33-40; 645 at 6-11; 646 at 5-6).
Therefore, Plaintiffs have abandoned any argument for joint employer liability. See Coalition
for the Abolition of Marijuana Prohibition v. City of Atlanta, 219 F.3d 1301, 1325-26 (11th Cir.
2000) (holding that a state-law claim was effectively abandoned when a party failed to brief and
argue the issue before the district court).
D.

Plaintiffs Have Not Presented a Monell Policy or Custom Instituted by CHC
Companies or CCS that Caused the Constitutional Violations They Arguably
Suffered

Plaintiffs argue that CHC Companies is responsible for violating their constitutional
rights because it directed and controlled JCS from September 2011 to June 2014. (Doc. # 642 at
37).

They insist that CHC Companies had a policy or custom of violating probationers’

constitutional rights because they continued to operate the probation system initiated by JCS
with “substantially similar forms and processes.” (Id. at 49). They note that JCS employees
informed Houston, a CHC Companies’ executive, about certain probation practices, and he
allowed them to continue. (Id. at 49-50). With regard to Defendant CCS, Plaintiffs argue that it
was responsible for § 1983 violations that continued until JCS ceased operations in Alabama.
(Doc. # 643 at 36). Despite Plaintiffs’ arguments to the contrary, the court finds no basis for
extending § 1983 liability to CHC Companies or CCS.
When a private entity contracts to perform a traditional function exclusively within the
state’s prerogative, “it becomes the functional equivalent of the municipality.” Buckner, 116
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F.3d at 452.

A municipality is liable under § 1983 when a municipal employee or agent

undertakes an action in “execution of a government’s policy or custom, whether made by its
lawmakers or by those whose edicts or acts may fairly be said to represent official policy.”
Monell, 436 U.S. at 694. “[A] municipality cannot be held liable under § 1983 on a respondeat
superior theory.” Id. at 691. A plaintiff may establish the existence of a municipal “policy” by
identifying “(1) an officially promulgated [municipal] policy or (2) an unofficial custom or
practice of the [municipality] shown through the repeated acts of a final policymaker.” Grech v.
Clayton Cty., Ga., 335 F.3d 1326, 1329 (11th Cir. 2003) (en banc).

Plaintiffs argue that the

present cases are distinguishable from § 1983 actions applying the Monell standard to private
entities providing health care services because CHC Companies (and JCS) implemented an
extortion scheme. (Doc. # 642 at 39). Plaintiffs offer no authority for the suggested distinction,
and the court is unaware of any “extortion” exception to the Monell standard that the Eleventh
Circuit applies to § 1983 claims against corporations.
Plaintiffs assert that CHC Companies should be held liable under § 1983 for continuing
the operation of JCS’s probation scheme. This argument cuts no ice, though, because it is
tantamount to a respondeat superior argument.

That is, Plaintiffs seek to hold the parent

corporation (CHC Companies) liable because the subsidiary corporation (JCS) continued to act
within the scope of its prior practice after the acquisition date. Plaintiffs offer no Rule 56
evidence that CHC’s decisionmakers reviewed JCS’s practices in Childersburg or modified them
in any fashion after the September 2011 acquisition. Moreover, while Plaintiffs suggest that
CHC Companies should be considered a member of a conspiracy to violate their constitutional
rights (Doc. # 642 at 51), they fail to point to evidence showing that employees of CHC
Companies participated in a conspiracy with municipal court or Childersburg officials. (See id.).

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Indeed, there is no Rule 56 evidence that any CHC employee ever contacted an employee of
Childersburg or its municipal court.9 Thus, Plaintiffs have failed to present a triable claim
against CHC Companies under Monell or a conspiracy theory.
Similarly, Plaintiffs fail to show any policy or practice implemented by CCS
decisionmakers that caused a violation of their constitutional rights.

Plaintiffs present a

respondeat superior argument to attribute JCS’s policies to CCS, based solely upon the
continuing probation practices that occurred in Childersburg. (Doc. # 643 at 36-40). Their
argument that CCS can be held liable for allowing JCS to continue its probation practices is even
less convincing than their argument regarding CHC Companies.
V.

Conclusion
For the reasons explained above, Plaintiffs have failed to present any basis for holding

CHC Companies or CCS liable for the remaining § 1983 claims against JCS; accordingly, their
Motions for Summary Judgment (Docs. # 636, 639) are due to be granted. Defendants’ Motion
to Strike (Doc. # 648) is due to be denied as moot because Defendants are entitled to summary
judgment even after consideration of the additional arguments and evidence.

An Order

consistent with this Memorandum Opinion will be entered.
DONE and ORDERED this May 9, 2018.

_________________________________
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE

9

Again, Plaintiffs have failed to demonstrate that CHC Companies acted as a single employer with JCS,
and they have abandoned any joint employer argument.

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