Malone et al v. Air & Liquid Systems Corporation et al

Filing 387

REPORT AND RECOMMENDATIONS- Recommending that the court convert #160 MOTION to Dismiss for Failure to State a Claim into a Motion for Summary Judgment. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 5/1/2015. Signed by Judge Sherry R. Fallon on 4/14/2015. (lih)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
CHARLES D. MALONE and
ELIZABETH MALONE,
Plaintiffs,
v.
AIR & LIQUID SYSTEMS
CORPORATION, et al.
Defendants.

)
)
)
)
)
)
)
)
)
)
)

Civil Action No. 14-406-SLR-SRF

REPORT AND RECOMMENDATION

I.

INTRODUCTION
Presently before the court in this asbestos-related personal injury action is a motion to

dismiss Plaintiffs Complaint, filed by Huntington Ingalls Industries, Inc. ("Defendant" or "HI
Industries"), pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon
which relief can be granted. (D.I. 160) HI Industries requests dismissal of all claims and crossclaims with prejudice. (Id.) Plaintiffs, Charles and Elizabeth Malone ("Plaintiffs"), do not oppose
HI Industries' motion. (D.I. 272) However, Plaintiffs request that the court dismiss HI Industries'
motion without prejudice, with each party to bear their own costs. (Id.) For the reasons that follow,
I recommend that the court convert this Rule 12(b)(6) motion to dismiss to a motion for summary
judgment under Rule 56 and allow the Plaintiffs thirty (30) days to submit any opposition to HI
Industries' motion. 1

1

The parties have also filed a joint stipulation and order to indefinitely stay all deadlines for HI
Industries to file and serve a pleading or discovery in this action until the resolution of HI
Industries' motion to dismiss. (D.I. 304) Given the recommendation, the court will defer entry of
an order until the pending motion has been resolved.

II.

BACKGROUND
Plaintiffs filed this personal injury action against HI Industries and other defendants on

April 1, 2014. (DJ. 1) Plaintiffs assert claims including negligence, strict liability, and breach of
warranty against HI Industries, as well as a derivative claim for loss of consortium. (D.I. 8, iii! 5087)
The Complaint alleges Charles D. Malone ("Mr. Malone") experienced exposure to
asbestos-containing products and/or equipment from approximately 1964 to 1982, while working
at Ingalls Shipyard in Pascagoula, MS. Id. at

if 45(a). In 1964, for approximately four months,

Ingalls Shipyard employed Mr. Malone as a ship fitter. Id. Furthermore, from approximately 1964
until 1982, Mr. Malone continued working at the Ingalls Shipyard work site for various
independent contractors. Id. at

if 45 (a)-(b). Plaintiffs allege that Mr. Malone was exposed to

asbestos at Ingalls Shipyard, which led to his diagnosis of mesothelioma. Id.
HI Industries asserts that Plaintiffs fail to state a claim upon which relief can be granted
because they have sued the wrong entity and because they have not and cannot allege any means
by which HI Industries could be liable for another entity's alleged activities. (D.I. 161) Namely,
HI Industries asserts that it has never done business under the name of "Ingalls Ship Building,"
which is an unincorporated division of the HI Industries' subsidiary, Huntington Ingalls
Incorporated. (D.1. 161 at 4-5; Ex. A, at

iii! 5, 7; D.I 8 at if 22) HI Industries maintains it has no

legal liability to the Plaintiffs for its subsidiary's conduct solely because of a parent-subsidiary
relationship. (D.I. 273 at 3)
Plaintiffs do not oppose HI Industries' motion based upon the representations of HI
Industries, as well as their own independent research, that HI Industries is not the proper party.
(D.I 272) However, Plaintiffs request the court grant HI Industries' motion to dismiss without

2

prejudice with each party to bear their own costs. Id. Plaintiffs request dismissal without prejudice
so that if needed, they may bring "proper suit" against HI Industries and/or one of its subsidiaries
"in a court with proper jurisdiction" if facts later support an action. Id.
HI Industries contends that Plaintiffs are requesting a dismissal without prejudice merely
to avoid a final dismissal of meritless claims because Plaintiffs would not be able to state a
plausible claim against HI Industries in any jurisdiction. (D.1273 at 3). Furthermore, HI Industries
argues that a dismissal with prejudice as to HI Industries has no impact on whether Plaintiffs can
pursue a claim against an HI Industries subsidiary. Id.

III.

DISCUSSION
a. Legal Standard
The court may dismiss a claim for "failure to state a claim upon which relief can be

granted." Fed. R. Civ. P. 12(b)(6). A complaint must contain "a short and plain statement of the
claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what
the ... claim is and the grounds upon which it rests." Bell At!. Corp. v. Twombly, 550 U.S. 544,
545 (2007) (interpreting Fed. R. Civ. P. 8(a)) (internal quotations marks omitted). A complaint
does not need detailed factual allegations; however, "a plaintiffs obligation to provide the
'grounds' of his entitle[ment] to reliefrequires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do." Id. at 545 (alteration in original)
(citation omitted). In other words, "a complaint must contain sufficient factual matter, accepted as
true, to 'state a claim to relief that is plausible on its face."' Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Twombly, 550 U.S. at 570).
When presented with a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court
conducts a two-part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First,

3

the court separates the factual and legal elements of a claim, accepting "all of the complaint's wellpleaded facts as true, but [disregarding] any legal conclusions." Id at 210-11. Second, the court
determines "whether the facts alleged in the complaint are sufficient to show that the plaintiff has
a 'plausible claim for relief."' Id at 211 (quoting Iqbal, 556 U.S. at 679). In assessing the
plausibility of a claim, the court must '"construe the complaint in the light most favorable to the
plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may
be entitled to relief."' Fowler, 578 F.3d at 210 (quoting Phillips v. Cnty. of Allegheny, 515 F.3d
224, 233 (3d Cir. 2008)). At a minimum, "[t]he complaint must state enough facts to raise a
reasonable expectation that discovery will reveal evidence of [each] necessary element" of a
plaintiffs claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F .3d 315, 321 (3d Cir.
2008) (internal quotation marks omitted).

b. Analysis
In reviewing a motion to dismiss, courts generally limit their consideration solely to "the
allegations contained in the complaint, exhibits attached to the complaint and matters of public
record." Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.1993).

If the parties present matters outside the pleadings on a Rule 12(b)( 6) motion to dismiss and the
court does not exclude them, "the motion must be treated as one for summary judgment under Rule
56 [and][a]ll parties must be given a reasonable opportunity to present all the material that is
pertinent to the motion." Fed. R. Civ. P. 12(d). Thus, a court may not consider matters extraneous
to the pleadings without converting the motion to dismiss into a Rule 56 motion for summary
judgment. See Pension Benefit Guar., 998 F.2d at 1197; Switlik v. Hardwicke Co., 651 F.2d 852,
857 (3d Cir. 1981); Camp v. Brennan, 219 F.3d 279, 280 (3d Cir. 2000).

4

Under a Rule 12(b)(6) motion, the court must accept all factual allegations made by
Plaintiffs in the complaint as true. See Erickson v. Pardus, 551 U.S. 89, 94 (2007). In Plaintiffs'
first amended complaint, Plaintiffs aver that HI Industries does business as Ingalls Shipbuilding.
(D.I. 8

at~

22) In HI Industries' motion to dismiss, they rely on the affidavit of Mr. Fontaine to

directly contradict the averment in Plaintiffs' first amended complaint. (D.I. 161, Ex. A) The sole
purpose of the affidavit is to avoid liability as a parent company for the actions of its subsidiary.

Id. Holding a parent company liable for a subsidiary's conduct "requires piercing the corporate
veil, which may be permissible under either of two distinct tests: 1) the alter ego test, or 2) the
agency test. 2 StrikeForce Technologies, Inc. v. PhoneFactor, Inc., 2013 WL 6002850, at *4 (D.

Del. Nov. 13, 2013), as amended (Nov. 14, 2013) (citing Ethypharm SA. France v. Bentley
Pharmaceuticals, Inc., 388 F.Supp.2d 426, 432 (D. Del. 2005); United States v. Bestfoods, 524
U.S. 51, 61 (1998)). The affidavit of Mr. Fontaine refutes both the alter ego and agency tests. (DJ.
161, Ex. A) In summary, HI Industries denies any commingling of assets or liabilities and denies
any control over the activities of its subsidiary. (Id.; D.I. 161 at 2-3)
The court does not consider the affidavit of Mr. Fontaine as integral to, or explicitly relied
upon in the complaint. It is extraneous to the pleadings. See Pension Benefit Guar., 998 F.2d at
1197. Reliance upon the affidavit "as background information" as requested by HI Industries shifts

2

Under the alter ego test, a subsidiary may be considered the alter ego of its parent corporation
and render the parent liable if two requirements are met: ( 1) a lack of attention to corporate
formalities; and (2) the use of the corporate form would cause fraud or a similar injustice."
StrikeForce Technologies, Inc. v. PhoneFactor, Inc., 2013 WL 6002850, at *4 (D. Del. Nov. 13,
2013), as amended (Nov. 14, 2013); see also Mobil Oil Corp. v. Linear Films, Inc., 718 F Supp.
260, 268 (D. Del. 1989); Outokumpu Engineering Enters., Inc. v. Kvaerner EnviroPower, Inc.,
685 A.2d 724, 729 (D. Del. 1996); Applied Biosystems, Inc. v. Cruachem, Ltd., 772 F.Supp.
1458, 1463 (D.Del.1991). Under the agency test, a parent corporation may be held liable for
specific actions it directed or authorized the subsidiary to perform. "Under this theory, only the
conduct shown to be instigated by the parent may be attributed to the parent."
StrikeForce, 2013 WL 6002850, at *5; see also Mobil Oil Corp., 718 F. Supp. at 271.
5

the analysis from the pleadings to the merits. See StrikeForce, 2013 WL 6002850, at *2. The
consideration of the affidavit requires the court to convert the motion to dismiss into a motion for
summary judgment. See Fed. R. Civ. P. 12(d); see also In re Burlington, 114 F.3d at 1426. 3 When
a motion to dismiss is converted into a summary judgment motion, the court must give all parties
a reasonable opportunity to present all the material that is pertinent to the pending motion. L. T.
Associates, LLC v. Sussex Cnty. Council, 2013 WL 3998462, at *6 (D. Del. Aug. 5, 2013) (citing
Rose v. Bartle, 871F.2d331, 341 (3rd Cir.1989)).

CONCLUSION

IV.

I recommend that the court convert HI Industries' Rule 12(b)(6) motion to a motion for
summary judgment under Rule 56. Kulwicki v. Dawson, 969 F.2d 1454, 1462 (3d Cir. 1992). When
a conversion takes place, all parties must be given an opportunity to obtain affidavits, declarations,
or to take discovery and present materials to the court in support of their positions. See Fed. R.
Civ. P. 12(d); see also Rose, 871 F.2d at 340. Therefore, I recommend that Plaintiffs be given a
period of thirty (30) days from the date of this report and recommendation to submit opposition to
HI Industries' motion for summary judgment. (D.I, 161 at 2; D.I. 8 at 22) If there are no further
submissions pursuant to Rule 56( c), the court will recommend that summary judgment be granted
in favor of HI Industries, dismissing them from this action with prejudice. See Fed. R. Civ. P.
56(e)(3).
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(l), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy of this Report and Recommendation. Fed.

3

When a party presents materials extraneous to the pleadings in support of a Rule 12(b)( 6)
motion or in opposition thereto, the court has discretion to accept the extraneous materials and
convert the motion to one for summary judgment. Kulwicki v. Dawson, 969 F.2d 1454, 1462 (3d
Cir. 1992).
6

R. Civ. P. 72(b)(2). The objections and responses to the objections are limited to ten (10) pages
each. The failure of a party to object to legal conclusions may result in the loss of the right to de
novo review in the District Court. See Sincavage v. Barnhart, 171 F. App'x 924, 925 n.l (3d Cir.
2006); Henderson v. Carlson, 812 F.2d 874, 878-79 (3d Cir. 1987).
The parties are directed to the court's Standing Order For Objections Filed Under Fed. R.
Civ. P. 72, dated October 9, 2013, a copy of which is available on the court's website,
http://www.ded.uscourts.gov.
Dated: April _l-+4_, 2015

7