Welch Printing v. Eli Research, Inc. et al

Filing 25

MEMORANDUM OPINION AND ORDER: The motion of the defendant, Practice Builders, LLC, to dismiss 17 is DENIED; The motion of the defendants, Eli Research, Inc. and Eli Research, LLC, to dismiss 18 is DENIED; The motion of the defendant, Coding Insti tute, LLC, to dismiss 19 is DENIED; The motion of the defendants, Zweig White Media, LLC, Zweig White, LLC, and ZweigWhite Media, LLC 20 is DENIED; The motion of the defendant, Greg E. Lindberg to dismiss, or alternatively, to transfer 21 is DENIED. Signed by Judge Charles R. Simpson, III on 8/13/12. cc:counsel (JBM)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE

WELCH PRINTING COMPANY

v.

PLAINTIFF

CIVIL ACTION NO. 3:11CV-599-S

ELI RESEARCH, INC. a/k/a
ACADEMY ASSOCIATION, INC., et al.

DEFENDANTS

MEMORANDUM OPINION AND ORDER

This matter is before the court on motions of the defendants to dismiss the complaint for lack
of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1)(DNs 17, 18, 19 20, 21). Defendant
Greg. E. Lindberg also asserts grounds of lack of personal jurisdiction and failure to state a claim
upon which relief may be granted for dismissal of the claims against him. All of these grounds for
dismissal are rejected herein. For the reasons stated, the motions will be denied.
Welch alleges that the defendant business entities obtained printing services on credit
extended by Welch for which they have not paid. However, Welch alleges more than a mere failure
of the defendants to pay their bills. In a nutshell, the complaint claims that Welch was wrongfully
induced to extend credit to these entities in reliance on misrepresentations or omissions of fact as
to the credit worthiness of the defendants. Welch alleges that the defendants acted in concert in
creating a false impression as to their ability to pay for goods and services purchased from Welch.
It alleges that the business entities are owned and/or controlled by Greg E. Lindberg, and are not
actually operated as separate entities, despite their denomination as such. Welch further alleges that
Lindberg has directed the business entities not to pay the debts to Welch.

The so-called “entity defendants,”1 Eli Research, Inc. a/k/a Academy Association, Inc., Eli
Research, LLC, Practice Builders, LLC, Zweig White, LLC, Zweig White Media, LLC, ZweigWhite
Media, LLC, and Coding Institute, LLC, all non-Kentucky entities, are alleged to have regularly
engaged in business with plaintiff Welch Printing Company, a Kentucky Corporation, over a number
of years. Welch contends that the business it conducted with these entities constituted a regular and
persistent course of conduct in the Commonwealth from which the defendants derived substantial
revenue from goods and services provided by Welch. Welch contends that it suffered tortious injury
in Kentucky when it was induced by the defendants, through misrepresentations and omissions of
fact, to extend credit for goods and services purchased by the defendants during the course of their
business dealings.
Each entity defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) on the ground
that the claim against it does not meet the jurisdictional threshold of $75,000.00.
Paragraph 14 of the complaint contains a claim for $81,924.30 purportedly for goods and
services provided to the Zweig White defendants operating under the moniker “Zweig/White
Publications.” Taking the allegations of the complaint at face value, as the defendants have offered
nothing to the contrary, this claim would satisfy the jurisdictional threshold of $75,000.00. With
one claim meeting the jurisdictional threshold to establish diversity jurisdiction, the remaining
claims for lesser sums may be considered by the court under our supplemental jurisdiction. The
court may exercise supplemental jurisdiction over claims so related to a claim under the court’s
original jurisdiction as to form part of the same case or controversy. 28 U.S.C. § 1367.

1

The defendants refer to the business entities as the “entity defendants” to distinguish them from defendant Lindberg.

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Additionally, the complaint alleges that despite the denomination of the defendants as
separate business entities, no business formalities were observed, and entities were operated as one
business, wholly owned and/or controlled by Lindberg. The complaint alleges that the entity
defendants participated with Lindberg in making the misrepresentations to Welch. Thus Welch
contends that the action involves an aggregate sum in excess of $200,000.00 for which all
defendants are jointly liable. The parties agree that claims for which defendants may be jointly
liable may be aggregated for purposes of ascertaining the amount in controversy. Charvat v. NMP,
LLC, 656 F.3d 440, 446 (6th Cir. 2011)(“Charvat alleges that Defendants are jointly and severally
liable for each of the multiple claims brought pursuant to the TCPA and Ohio law...We thus can
aggregate Charvat’s claims to determine whether the total alleged exceeds $75,,000.”). The
defendants contend, however, that each entity defendant is a separately-run business, and therefore
there should be no aggregation of damages.
In challenging Welch’s aggregation of the unpaid sums, the defendants take issue with
allegations in the complaint that there was a disregard for business formalities. They also challenge
Welch’s contentions concerning the nature and degree of control by Lindberg. These challenges
constitute a factual attack on the subject matter jurisdiction alleged in the complaint. This challenge
goes to the very heart of Welch’s claims.
As explained in Gentek Building Products, Inc. v. Sherwin-Williams Company, 491 F.3d 320,
330-31 (6th Cir. 2007), cited recently in Carrier Corp. v. Outokumpu OYJ, 673 F.3d 430, 443-44 (6th
Cir. 2012),
[W]hat really is at issue here is a jurisdictional challenge to the allegations of the
complaint. Rule 12(b)(1) motions to dismiss for lack of subject-matter jurisdiction
generally come in two varieties: a facial attack or a factual attack. Ohio Nat’l Life
Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990). A facial attack on the
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subject-matter jurisdiction alleged in the complaint questions merely the sufficiency
of the pleading. Id. When reviewing a facial attack, a district court takes the
allegations in the complaint as true, which is a similar safeguard employed under
12(b)(6) to dismiss. Id. If those allegations establish federal claims, jurisdiction
exists.
Where, on the other hand, there is a factual attack on the subject-matter jurisdiction
alleged in the complaint, no presumptive truthfulness applies to the allegations. Id.
When a factual attack, also known as a “speaking motion,” raises a factual
controversy, the district court must weigh the conflicting evidence to arrive at the
factual predicate that subject-matter does or does not exist. Id.
...But a district court engages in a factual inquiry regarding the complaint’s
allegations only when the facts necessary to sustain jurisdiction do not implicate the
merits of the plaintiff’s claim. Garcia v. Copenhaver, Bell & Assocs., 104 F.3d
1256, 1261 (11th Cir. 1997). If, on the other hand, an attack on subject-matter
jurisdiction also implicates an element of the cause of action, then the district court
should “find that jurisdiction exists and deal with the objection as a direct attack on
the merits of the plaintiff’s claim.” Id. (quoting Williamson, 645 F.2d at 41516)(emphasis added)). This provides a “greater level of protection to the plaintiff
who in truth is facing a challenge to the validity of his claim: the defendant is forced
to proceed under Rule 12(b)(6)...or Rule 56...both of which place greater restrictions
on the district court’s discretion...” Id. (quoting Williamson, 645 F.2d at 415-16).
As a general rule a claim cannot be dismissed for lack of subject-matter jurisdiction
because of the absence of a federal cause of action.” Id. (quoting Williamson, 645
F.2d at 415-16)...We follow these principles. See Moore v. LaFayette Life Ins. Co.,
458 F.3d 416, 444 (6th Cir. 2006)(quoting Williamson and explaining that when the
basis of federal jurisdiction is intertwined with the plaintiff’s cause of action, the
court should assume jurisdiction over the case and decide the case on the merits).
Based upon the rationale in Gentek, we find the defendants’ challenge to the amount in
controversy constitutes a factual challenge Welch’s contentions. Welch’s allegations therefore
support a finding of diversity jurisdiction, at least at this juncture.
The defendants’ challenges are insufficient under Fed.R.Civ.P. 12(b)(6).

The entity

defendants offer the conclusory statement that they are distinct business entities. The motions
contain nothing more than this bald assertion.

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The complaint alleges that Lindberg, the principal, president, or manager of the various
entity defendants, has actual control of the business affairs of those entities. Compl. ¶ 6. Paragraph
7 states that the entity defendants engage in business with Welch as if they are one entity without
the delineation of separate corporate or limited liability entity status. Compl. ¶ 7. An affidavit of
Harold S. Hauck, Jr., CPA, accompanied Welch’s response to the motions to dismiss. As noted in
Gentek, supra, in addressing a factual attack on the subject matter jurisdiction alleged in the
complaint, the court has wide discretion to allow affidavits and other documents to resolve
jurisdictional facts. 491 F.3d at 330. The Hauck affidavit, the only evidence offered on the
jurisdiction question, states:
1. Hauck is the Controller for Welch. He is a certified public accountant, and has
held the position of Controller with Welch for five years.
2. He has dealt with the entity defendants and Greg Lindberg for the past five years.
3. During each of the past five years, the entity defendants ordered hundreds of
thousands of dollars of printing and related services from Welch’s Louisville office
on a regular and repeated basis, and Lindberg has been intimately involved in these
transactions for that five-year period.
While brief, the statements do tend to support the allegations that Lindberg controlled the various
entity defendants.
Lindberg, too, offers only argument of counsel, stating in conclusory fashion that he denies
the allegations of the complaint and has never been to Kentucky to conduct business. He also states
that the businesses are separate legal entities and should be treated as such. Lindberg urges that the
plaintiff’s claims are based solely upon the alleged failure of the defendants to pay invoices “net
within 60 days.” However, he does not address the claims that Lindberg made misrepresentations
and/or omissions to Welch in Kentucky in order to induce Welch to extend credit to the various

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entity defendants. Welch has claimed that Lindberg conducted the business affairs of the entity
defendants, and that he caused tortious injury to Welch in connection with the entity defendants’
systematic and ongoing business dealings with Welch in Kentucky.
Based upon the allegations of the complaint, we find Lindberg’s challenge to the exercise
of personal jurisdiction over him in Kentucky to be without merit. The complaint alleges that
Lindberg personally availed himself of the privilege of doing business in Kentucky and that he
caused tortious injury here. Tobin v. Astra Pharmaceutical Prods., Inc., 993 F.2d 528, 542-43 (6th
Cir. 1993). The motion to dismiss evidences nothing to the contrary, nor has Lindberg shown any
basis for a change of venue to North Carolina.
For the reasons set forth herein and the court being otherwise sufficiently advised, IT IS
HEREBY ORDERED AND ADJUDGED that
1. The motion of the defendant, Practice Builders, LLC, to dismiss (DN 17) is DENIED.
2. The motion of the defendants, Eli Research, Inc. and Eli Research, LLC, to dismiss (DN
18) is DENIED.
3. The motion of the defendant, Coding Institute, LLC, to dismiss (DN 19) is DENIED.
4. The motion of the defendants, Zweig White Media, LLC, Zweig White, LLC, and
ZweigWhite Media, LLC (DN 20) is DENIED.
5. The motion of the defendant, Greg E. Lindberg to dismiss, or alternatively, to transfer
(DN 21) is DENIED.

IT IS SO ORDERED.
August 13, 2012

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