Cahaba Disaster Recovery LLC v. DRC Emergency Services LLC et al
MEMORANDUM OF OPINION. Signed by Judge L Scott Coogler on 12/30/2015. (PSM)
2015 Dec-30 AM 10:08
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SERVICES, LLC, et al.,
Memorandum of Opinion
Plaintiff Cahaba Disaster Recovery, LLC (“Cahaba”) filed this action
against DRC Emergency Services, LLC (“DRC”) and Alcentra Capital
Corporation (“Alcentra”) (collectively “Defendants”). Before the Court is
Alcentra’s Fed. R. Civ. P. 12(b)(2) motion to dismiss for lack of personal
jurisdiction, (Doc. 7), and DRC’s motion to transfer venue. (Doc. 4.) For the
reasons stated below, Alcentra’s motion to dismiss for lack of personal jurisdiction
(Doc. 7) is due to be granted, and DRC’s motion to transfer venue (Doc. 4) is
In 2011, an EF5 tornado tore through Joplin, Missouri. As cleanup efforts
began, DRC was awarded two subcontracts. DRC teamed with Cahaba as its
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second-tier subcontractor to perform some of the work for each contract. Cahaba
brought this action against Defendants in the Circuit Court of Jefferson County,
Alabama, contending that DRC has failed to fully pay under the contract. Cahaba
also alleged that Alcentra was liable for DRC’s debts through piercing the
corporate veil because Alcentra owns most of DRC’s capital stock, finances DRC,
and DRC’s executives often take orders from Alcentra. Cahaba’s complaint further
alleges that “[t]his Court has personal jurisdiction over Alcentra because it is the
alter ego of DRC.” (Doc. 1-1 at Page 4.)
Defendants removed this case from state court and filed the two instant
motions. Alcentra coupled its motion to dismiss with supporting affidavits and
papers regarding its relationship with DRC. Alcentra, a Maryland corporation with
its principal place of business in New York, became a 66% indirect owner of DRC
two years after the Joplin tornado. Alcentra has no offices, employees, or property
of its own in Alabama. A partnership agreement between Alcentra and United
Insurance Company of America (“United”) shows that Alcentra cannot undertake
any significant actions regarding DRC without United’s consent. Further, none of
DRC’s officers are Alcentra employees, and DRC’s management team “makes
decisions about what business it wants to pursue” and “the personnel to use in the
field” as well as “other routine operational issues.” (Doc. 7-3 at Page 3.) DRC has
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its own bank account from which it pays taxes, operating expenses, and insurance
Cahaba responded to Alcentra’s motion, contending that Alcentra owns
most of DRC’s capital stock, Alcentra extended loans to DRC, DRC has grossly
inadequate capital, and stating that Cahaba has reason to believe “that DRC often
makes decisions based upon orders from Alcentra.” (Doc. 17 at Page 7.) Cahaba
attached to its response two documents: (1) a page from Alcentra’s June 23, 2015
N-2 registration statement showing that Alcentra made loans to DRC and owned
66.7% of DRC’s capital stock; and (2) a page from a deposition of Scott Gold
testifying that DRC paid out approximately two million dollars in dividends in
2014. Neither the deposition nor Cahaba’s brief indicate who Scott Gold is or how
he is connected to DRC or Alcentra. Cahaba also included in its response a
statement that it is entitled to jurisdictional discovery regarding whether Alcentra
is DRC’s alter ego.
The Court must address Alcentra’s motion to dismiss for lack of personal
jurisdiction before addressing DRC’s motion to transfer, because DRC’s motion to
transfer relies in part on Alcentra’s dismissal from this case.
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Standard of Review
In a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the
plaintiff generally “bears the burden of establishing a prima facie case of
jurisdiction over the movant, non-resident defendant.” Morris v. SSE, Inc., 843
F.2d 489, 492 (11th Cir. 1988). “A prima facie case is established if the plaintiff
presents enough evidence to withstand a motion for directed verdict.” Madara v.
Hall, 916 F.2d 1510, 1514 (11th Cir. 1990). The Court must treat facts alleged in the
complaint as true if they are not controverted by affidavits submitted from the
defendant. Id. However, if the defendant submits affidavits, the plaintiff must
produce additional evidence supporting jurisdiction unless the defendant’s
affidavits are only conclusory. Stubbs v. Wyndham Nassau Resort & Crystal Palace
Casino, 447 F.3d 1357, 1360 (11th Cir. 2006). When the plaintiff’s evidence
conflicts with the defendant’s evidence, the Court must “construe all reasonable
inferences in favor of the plaintiff.” Id.
“A federal district court sitting in diversity may exercise personal
jurisdiction to the extent authorized by the law of the state in which it sits and to
the extent allowed under the Constitution.” Meier ex rel. Meier v. Sun Int’l Hotels,
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Ltd., 288 F.3d 1264, 1269 (11th Cir. 2002). Personal jurisdiction is generally a twostep inquiry, as the Court must consider both whether personal jurisdiction is
consistent with the forum state’s long-arm statute and whether the exercise of
personal jurisdiction is consistent with the Due Process Clause of the Fourteenth
Amendment. Mut. Serv. Ins. Co. v. Frit Indus., Inc., 358 F.3d 1312, 1319 (11th Cir.
2004). However, for federal courts in Alabama “the two inquiries merge, because
Alabama’s long-arm statute permits the exercise of personal jurisdiction to the
fullest extent constitutionally permissible.” Sloss Indus. Corp. v. Eurisol, 488 F.3d
922, 925 (11th Cir. 2007) (citing Sieber v. Campbell, 810 So. 2d 641, 644 (Ala.
2001)). Thus, the Court need only consider the limits of the Due Process Clause.
Mut. Serv. Ins. Co., 358 F.3d at 1319.
“[D]ue process requires only that in order to subject a defendant to a
judgment in personam, if he be not present within the territory of the forum, he
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.
Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945). There
are two types of personal jurisdiction—general jurisdiction and specific
jurisdiction—but both are based on the defendant’s contacts with the forum state.
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General jurisdiction exists over defendants “when their affiliations with the
State are so continuous and systematic as to render them essentially at home in the
forum State.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846,
2851 (2011). The general jurisdiction inquiry “is not whether a foreign
corporation’s in-forum contacts can be said to be in some sense ‘continuous and
systematic,’ it is whether that corporations ‘affiliations with the State are so
“continuous and systematic” as to render [it] essentially at home in the forum
State.’” Daimler AG v. Bauman, 134 S. Ct. 746, 761 (2014) (alteration in original)
(quoting Goodyear, 131 S. Ct. at 2851). The contacts must be sufficient that a suit in
the subject state, even on unrelated dealings, is justified. See Int’l Shoe Co., 326
U.S. at 318. For example, a foreign mining corporation whose mining activities
ceased entirely, and whose general manager and president maintained an office in
Ohio to conduct activities on behalf of the company by keeping files, holding
meetings, and distributing paychecks, was subject to general personal jurisdiction
in Ohio because the corporation, through its president was “carrying on in Ohio a
continuous and systematic, but limited, part of its general business.” Perkins v.
Benguet Consol. Min. Co., 342 U.S. 437, 438 (1952). However, a defendant with no
place of business, employees, bank accounts, advertisements, or manufacturing
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facilities in North Carolina, but which had other companies distribute its products
in North Carolina was not subject to general personal jurisdiction there. See
Goodyear Dunlop Tires Operations, S.A., 131 S. Ct. at 2857 (“[The defendant’s]
attenuated connections to the State fall far short of the ‘continuous and systematic
general business contacts’ necessary to empower North Carolina to entertain suit
against [the defendant] on claims unrelated to anything that connects [it] to the
Alcentra is not subject to general jurisdiction in Alabama. Alabama is neither
Alcentra’s state of incorporation nor its principal place of business. Further,
Alcentra does not otherwise engage in such continuous and systematic activities
that would make Alcentra essentially at home in Alabama, as the corporation does
not have offices, employees, or property of its own in Alabama.
Even if Alcentra is not subject to general jurisdiction in Alabama, it might
nonetheless be subject to specific jurisdiction. “Where a forum seeks to assert
specific personal jurisdiction over a nonresident defendant, due process requires
the defendant have ‘fair warning’ that a particular activity may subject him to the
jurisdiction of a foreign sovereign.” Madara, 916 F.2d at 1516. Specific personal
jurisdiction does not require a large volume of contacts with the forum state, as
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even a single purposeful contact may give rise to personal jurisdiction. See McGee v.
Int’l Life Ins. Co., 355 U.S. 220, 223 (1957); see also Licciardello v. Lovelady, 544
F.3d 1280, 1285 (11th Cir. 2008) (“The Court has made clear . . . that ‘[s]o long as
it creates a “substantial connection” with the forum, even a single act can support
jurisdiction.’” (alteration in original) (quoting Burger King Corp. v. Rudzewicz, 471
U.S. 462, 475 (1985))).
Demonstrating specific personal jurisdiction requires
three components. First, the contacts with the forum state must be related to the
cause of action. Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 773–774 (1984)
(noting that the regular circulation of magazines in the forum state is sufficient to
support personal jurisdiction in a libel action based on that magazine’s contents).
Second, the contacts with the forum state must be purposeful. Burger King Corp.,
471 U.S. at 473–474. Third, related to purposefulness, the Court must determine
whether the defendant has a sufficient connection to the forum “that he should
reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp.
v. Woodson, 444 U.S. 286, 297 (1980).
If the Court finds that sufficient contacts exist to subject an out-of-state
defendant to the forum state’s courts, the Court must also consider whether the
exercise of jurisdiction would “offend traditional notions of fair play and
substantial justice.” Asahi Metal Indus. Co. v. Superior Court of California, Solano
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Cty., 480 U.S. 102, 113 (1987). This analysis requires weighing various factors: the
burden placed upon the defendant, the interests of the forum state in deciding the
dispute, the plaintiff’s interest in litigating in that forum, the interests of the
interstate judicial system in an efficient resolution of disputes, and the interests of
fundamental social policies. See World-Wide Volkswagen Corp., 444 U.S. at 292;
Future Tech. Today, Inc. v. OSF Healthcare Sys., 218 F.3d 1247, 1251 (11th Cir.
Here, Alabama does not have specific personal jurisdiction over Alcentra.
“Where the ‘subsidiary’s presence in the state is primarily for the purpose of
carrying on its own business and the subsidiary has preserved some semblance of
independence from the parent, jurisdiction over the parent may not be acquired on
the basis of the local activities of the subsidiary.’” Consol. Dev. Corp. v. Sherritt,
Inc., 216 F.3d 1286, 1293 (11th Cir. 2000) (quoting Portera v. Winn Dixie of
Montgomery, Inc., 996 F. Supp. 1418, 1423 (M.D. Ala. 1998)). However, “federal
courts have consistently acknowledged that it is compatible with due process for a
court to exercise personal jurisdiction over [a corporation] that would not
ordinarily be subject to personal jurisdiction in that court when the . . . corporation
is an alter ego . . . of a corporation that would be subject to personal jurisdiction in
that court.” Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 654 (5th Cir.
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2002) (citing Howard v. Everex Sys., Inc., 228 F.3d 1057, 1069 n.17 (9th Cir. 2000);
Minnesota Mining & Mfg. Co. v. Eco Chem Inc., 757 F.2d 1256, 1265 (Fed. Cir. 1985);
Marine Midland Bank, N.A. v. Miller, 664 F.2d 889, 903 (2d Cir. 1981); Lakota Girl
Scout Council, Inc. v. Havey Fund-Raising Mgmt., Inc., 519 F.2d 634, 637–38 (8th
The parties agree that this alter ego analysis is governed by Alabama
corporate veil-piercing law, and the Court proceeds under that assumption. Under
Alabama law, there are three elements a plaintiff must meet to justify piercing the
corporate veil under an alter ego theory:
“1) The dominant party must have complete control and domination
of the subservient corporation’s finances, policy and business
practices so that at the time of the attacked transaction the subservient
corporation had no separate mind, will or existence of its own;
2) The control must have been misused by the dominant party.
Although fraud or the violation of a statutory or other positive legal
duty is misuse of control, when it is necessary to prevent injustice or
inequitable circumstances, misuse of control will be presumed;
3) The misuse of this control proximately cause[d] the harm or unjust
loss complained of.”
First Health, Inc. v. Blanton, 585 So. 2d 1331, 1334–35 (Ala. 1991). Under the first
element, courts look to certain factors, including whether the parent corporation
owns “all or most” of the subsidiary’s capital stock, whether the two entities share
directors or officers, whether the parent finances the subsidiary or causes the
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subsidiary’s incorporation, whether the subsidiary has grossly inadequate capital,
whether the parent pays the subsidiary’s expenses or losses, whether the
subsidiaries directors or executives take orders from the parent corporation in the
parent’s interests, and whether the formal legal requirements of the subsidiary are
adhered to. See Duff v. S. Railway Co., 496 So. 2d 760, 763 (Ala. 1986).
Although a majority owner, Alcentra own less than 70% of DRC’s capital
stock, and it cannot make significant decisions regarding DRC without the consent
of another unrelated corporation. Alcentra has submitted affidavits and evidence
showing that DRC operates independently from Alcentra, with independent
officers, bank accounts, and financial statements. Further, DRC employees make
business and operational decisions. Cahaba’s evidence shows that Alcentra makes
loans to DRC, and, assuming Scott Gold can speak knowledgeably about DRC’s
dividends, Cahaba’s evidence shows that DRC paid around two million dollars in
dividends in 2014.
Even if these payments left DRC inadequately capitalized, Cahaba fails to
show or allege that Alcentra made the decision regarding dividend payments in
such a manner that would indicate “complete control and domination” over DRC.
On the evidence presented, Alcentra has shown that Cahaba cannot meet the first
element required to pierce its corporate veil, as its affidavits show that DRC has a
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separate existence of its own. Personal jurisdiction over Alcentra under an alter ego
theory is thus not present in this case. See, e.g., Consol. Dev. Corp. v. Sherritt, Inc.,
216 F.3d 1286, 1293–94 (11th Cir. 2000) (holding that United States personal
jurisdiction over a foreign corporation was not present because its subsidiary “has
its own officers and boards of directors, determines its own pricing and marketing
practices, has its own bank accounts[,] offices, and employees” and thus its
subsidiary’s existence was not “simply a formality”); Dudley v. Smith, 504 F.2d
979, 982 (5th Cir. 1974)1 (holding that personal jurisdiction over an out-of-state
defendant was appropriate because he was an in-state corporation’s “president,
chairman of the board, and de facto sole stockholder,” he was the only one
authorized to sign company checks, which “were signed by him in Alabama,” and
he visited the corporation’s Alabama real property “three or four times weekly and
generally dominated its affairs”).
Further, Cahaba has failed to allege that Alcentra’s misuse of control
proximately caused DRC’s failure to pay Cahaba under the contract, as it does not
contend that Alcentra’s purported domination and undercapitalization of DRC
extended back to the time DRC breached the contracts. Instead, Cahaba’s response
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit
adopted as binding precedent all decisions of the former Fifth Circuit handed down prior close of
business on September 30, 1981.
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to Alcentra’s motion clarifies its position “that Alcentra misused, or is misusing,
its control over DRC to drain DRC of assets such that it can avoid paying any
judgment entered against it in this action.” (Doc. 17 at Page 8.) Cahaba’s
argument, though framed as one for piercing the corporate veil, seems instead to be
one alleging fraudulent transfer. Cahaba’s contention that DRC is undercapitalized
speaks to DRC’s current financial state, not DRC’s financial position at the time it
entered into or was due to execute the contracts—the time-frame to which
Alabama courts look when piercing the corporate veil. See, e.g., Co-Ex Plastics, Inc.
v. AlaPak, Inc., 536 So. 2d 37, 39 (Ala. 1988) (“Voluntary creditors of corporations
are held to a higher standard [for piercing the corporate veil] because they ‘are
generally able to inspect the financial structure of a corporation and discover
potential risks of loss before any transaction takes place. Consequently, courts are
less sympathetic with voluntary creditors who, having had the opportunity of
Considering this evidence illustrating DRC’s independence, Cahaba’s
request for discovery on the issue of jurisdiction, averring that it believes that DRC
takes orders from Alcentra, is unlikely to yield the evidence necessary to support
personal jurisdiction. Also, Cahaba failed to formally move the Court for
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jurisdictional discovery and instead included its request in its brief. See United
Techs. Corp. v. Mazer, 556 F.3d 1260, 1280–81 (11th Cir. 2009) (holding that the
district court did not err in allowing jurisdictional discovery when the plaintiff
“never formally moved the district court for jurisdictional discovery but, instead,
buried such request in its briefs as a proposed alternative for dismissing [the
defendant]” and failed to “take every step possible to signal to the district court
its immediate need for such discovery”). Because Cahaba has failed to formally
move for jurisdictional discovery and has not shown why discovery would be
fruitful in establishing jurisdiction, the Court finds that discovery is not warranted.
The Court has before it sufficient facts to show that Alabama does not have
personal jurisdiction over Alcentra.
DRC contends that, under 28 U.S.C. § 1391, venue is improper and that this
action should be transferred to the Southern District of Alabama, where venue is
proper. However, 28 U.S.C. § 1441(a), not § 1391, governs venue of removed
actions. See Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665–666 (1953) (“The
venue of removed actions is governed by [§ 1441(a)] . . . . Section 1391(a) limits the
district in which an action may be ‘brought.’ . . . This action was not ‘brought in
the District Court, nor was Respondent ‘sued’ there; the action was brought in a
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state court and removed to the District Court.”). Section 1441(a) states that venue
is proper in “the district court of the United States for the district and division
embracing the place where such action is pending” in state court. 28 U.S.C. §
1441(a). DRC acknowledges in its own notice of removal that the Northern District
of Alabama is the proper district embracing the Circuit Court of Jefferson County.
(Doc. 1 at Page 5.) Because venue is proper, DRC’s motion to transfer is denied.
For the reasons stated above, Alcentra’s motion to dismiss for lack of
personal jurisdiction (Doc. 7) is due to be GRANTED, and DRC’s motion to
transfer venue (Doc. 4) is DENIED. A separate order consistent with this opinion
will be entered.
DONE and ORDERED on December 30, 2015.
L. Scott Coogler
United States District Judge
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