Interkal, LLC v. Giga Solutions, Inc. et al

Filing 44

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
INTERKAL, LLC,
Plaintiff,
File No. 1:14-CV-337
v.
HON. ROBERT HOLMES BELL
GIGA SOLUTIONS, INC., 2F, INC., and
MYUNG S. KIM,
Defendants.
/
OPINION
I. Introduction
This is a diversity action for breach of warranties and breach of contract. Plaintiff
Interkal, LLC, a company that manufactures stadium and bleacher seating in Michigan,
alleges that Defendant Giga Solutions, Inc., a Texas company, sold defective and
malfunctioning electric motors to Interkal for use in their automated bleacher systems.
Plaintiff has also brought claims against Defendants 2F, Inc., and Mr. Myung Kim, both
Texas residents, alleging that 2F is liable as a continuation of Giga Solutions, and that Kim
is liable as the alter ego of Giga under a veil-piercing theory. Pending before the Court is
Defendants’ motion to dismiss Kim and 2F for lack of personal jurisdiction, or for judgment
on the pleadings. (ECF No. 25). Plaintiff has filed a response (ECF No. 37), to which
Defendants have replied (ECF No. 39). For the reasons that follow, Defendants’ motion will
be granted.

II. Factual Background
In 2010, Interkal ordered 4000 electric gear motors from Giga to be delivered at
specified intervals for use in Interkal’s automatically-collapsing bleachers. Within the
two-year warranty period, several motors stopped working properly. Even after repair, some
motors still malfunctioned. Interkal asserts that it provided Giga a reasonable time to cure
before initiating the present lawsuit on April 2, 2014. Interkal seeks to pierce the corporate
veil of Giga in order to hold its shareholder Myung Kim personally liable and to hold 2F
liable as the successor to Giga.
A. Defendant Kim
Defendant Myung Kim (“Kim”) was born in South Korea and currently resides in
Lewisville, Texas. (Kim Dep. 5-6, ECF No. 37, Ex. A.) Kim moved to the United States in
2000 at the age of 25, enrolled in an English as a Second Language course, and began a
Masters of Business Administration (MBA) program at Middle Tennessee State. (Id. at 5-7.)
While in school, Kim was involved in a small Korean community in Nashville, where he met
CS Kim (“CS”) at his church. (Id. at 51-52, 14-15.) CS told Kim that Kim would be eligible
to stay in the United States legally after graduation under an E-1 Visa, provided that Kim
created a company that did international trading brokerage. (Id. at 15-16.) At the time, Kim
had no connections to companies in China, Taiwan, or Korea, but CS did. (Id.) Giga
Solutions was formed in 2005 under Kim’s name. (Id. at 20.) Although Kim was 100 percent

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owner, he considered CS to be his boss. (Id. at 17-20.) Kim stated that he is “[j]ust paper
owner to keep my status.” (Id. at 20.)
CS managed most aspects of Giga, and Kim considered it to be CS’s company. (Id.
at 25.) CS directed Kim to stay in Nashville and then to move to Dallas to develop a client
base. (Id. at 51-52.) CS had authority to enter into contracts on behalf of Giga. (Id. at 25.)
Kim did not have authority to write any checks or make payments. (Id. at 37.) Kim had no
involvement in the financial aspect of the business until CS left the company in 2011. (Id.
at 28.) Kim does not know what a registered agent is, what an election of directors is, nor
does he know whether Giga ever held formal meetings or maintained minutes. (Id. at 25-26.)
He may have seen by-laws at some point after he moved to Dallas in 2005. (Id.)
Sometime around 2011, CS left Giga and moved to Atlanta, Georgia. In 2013, Kim
sold 51% of Giga to Mr. Jeong Hee O to help Mr. O obtain an E-1 visa to stay in the United
States legally. (Id. at 75, 79.) Giga has records of a September 16, 2013, “meeting,” the
minutes of which state that the Chairman called for further nominations, the minutes of the
previous meeting were read, and the President gave a general report of the business and
finances. (Defs.’ Br. Ex. D, ECF No. 24.) Kim admits, however, that none of this is true.
(Kim Dep. 81-87.) An immigration attorney prepared the minutes for the purpose of making
Mr. O a shareholder in Giga. (Id. at 81.)

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B. Defendant 2F
Defendant 2F is a business, incorporated in Texas, that operates a Japanese restaurant
called “Fast & Furious” in Irving, Texas. (2F Certificate of Formation, Defs.’ Br. Ex. B.)
Kim is the sole shareholder of 2F. (Kim Aff. ¶ 4.) Fast & Furious has no locations, offices,
employees, or business connections in Michigan. (Id. at ¶ 6-8.) 2F maintains separate books,
records, and bank accounts from Giga. (Id. at ¶ 8.) 2F has not assumed Giga’s liabilities. (Id.
at ¶ 10.)
III. Personal Jurisdiction
Where, as here, the Court decides a Rule 12(b)(2) motion to dismiss for lack of
personal jurisdiction without conducting an evidentiary hearing, the plaintiff bears the burden
of making a prima facie showing that the court has personal jurisdiction over the defendant.
Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir. 2002); see also Am.
Greetings Corp. v. Cohn, 839 F.2d 1164, 1169 (6th Cir. 1988) (describing the burden on the
plaintiff in such a case as “relatively slight”). To meet this burden, the plaintiff must
establish “with reasonable particularity” sufficient contacts between the defendant and the
forum state to support jurisdiction. Neogen, 282 F.3d at 887; see also See, Inc. v. Imago
Eyewear Pty, Ltd., 167 F. App’x 518, 520-21 (6th Cir. 2006) (“[I]n the face of a properly
supported motion for dismissal, the plaintiff may not stand on his pleadings but must, by
affidavit or otherwise, set forth specific facts showing that the court has jurisdiction.”). In
evaluating the plaintiff’s response to the motion to dismiss, the Court construes the facts in

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the light most favorable to the plaintiff and disregards contradictory evidence proffered by
the defendant. Neogen, 282 F.3d at 887.
“In analyzing personal jurisdiction in diversity actions [], federal courts must look to
the law of the forum state to determine the reach of the district court’s personal jurisdiction
over parties, subject to constitutional due process requirements.” Air Prods. and Controls,
Inc. v. Safetech Int’l, Inc., 503 F.3d 544,550 (6th Cir. 2007). In Michigan, this requires a
two-step process: “(1) first, the court must determine whether any of Michigan’s relevant
long-arm statutes authorize the exercise of jurisdiction over Defendants; and, if so, (2) the
court must determine whether exercise of that jurisdiction comports with constitutional due
process.” Id.
Michigan’s long-arm statute governing specific personal jurisdiction of an individual
provides that
The existence of any of the following relationships between an individual or
his agent and the state shall constitute a sufficient basis of jurisdiction to
enable a court of record of this state to exercise limited personal jurisdiction
over the individual and to enable the court to render personal judgments
against the individual or his representative arising out of an act which creates
any of the following relationships:
(1) The transaction of any business within the state.
* * *

(4) Contracting to insure a person, property, or risk located within this state at
the time of contracting.
(5) Entering into a contract for services to be rendered or for materials to be
furnished in the state by the defendant.
Mich. Comp. Laws § 600.705.

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Due process concerns are governed by the standard articulated in International Shoe
and expounded by its progeny: ensuring a defendant has “certain minimum contacts with [the
forum state] such that maintenance of the suit does not offend ‘traditional notions of fair play
and substantial justice.’” Int’l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945) (quoting Milliken
v. Meyer, 311 U.S. 457, 463 (1940)).
In addition to the “minimum contacts” analysis required by International Shoe, the
question of due process in the context of establishing specific personal jurisdiction turns on
whether “the defendant’s conduct and connection with the forum State are such that [the
defendant] should reasonably anticipate being haled into court there.” World–Wide
Volkswagen v. Woodson, 444 U.S. 286, 297 (1980). The Sixth Circuit has formulated a threeprong test to evaluate whether exercising specific personal jurisdiction satisfies due process:
First, the defendant must purposefully avail himself of the privilege of acting
in the forum state or causing a consequence in the forum state. Second, the
cause of action must arise from the defendant’s activities there. Finally, the
acts of the defendant or consequences caused by the defendant must have a
substantial enough connection with the forum state to make the exercise of
jurisdiction over the defendant reasonable.
Southern Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir.1968).
IV. Piercing the Corporate Veil as to Kim
Plaintiff argues that this Court has personal jurisdiction over Kim because this Court
is entitled to pierce Giga’s corporate veil and find that Kim is the alter ego of Giga. “Federal
courts have consistently acknowledged that it is compatible with due process for a court to
exercise personal jurisdiction over an individual or a corporation that would not ordinarily
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be subject to personal jurisdiction in that court when the individual or corporation is an alter
ego or successor of a corporation that would be subject to personal jurisdiction in that court.”
Estate of Thomson ex re. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d
357, 362 (6th Cir. 2008) (quoting Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640,
653 (5th Cir. 2002)). Thus, the alter ego theory of personal jurisdiction permits the Court to
impute personal jurisdiction from the corporation to its shareholders or successors. Id.
The Court first addresses whether to employ Michigan or Texas law when piercing
the corporate veil and applying the alter ego theory. The Court next addresses whether
Plaintiff has presented a prima facie case justifying piercing Giga’s corporate veil and
declaring that Kim is the alter ego of Giga.
A. Choice of Law
The first issue ripe for decision is the appropriate application of state law in this
diversity suit. Plaintiffs argue that Michigan law applies, because Michigan is the forum
state. Defendants argue that Texas law applies because that is the state where Giga Solutions
is incorporated. Neither party has sufficiently supported their position with case law, but this
Court determines that no actual conflict exists between the substantive law of the interested
jurisdictions in this case.
In general, Michigan law “treats a corporation as an entirely separate entity from its
stockholders, even where one person owns all the corporation’s stock.” Foodland Distrib.
v. Al-Naimi, 559 N.W.2d 379, 381 (Mich. Ct. App. 1996). See also RDM Holdings, LTD v.

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Cont'l Plastics Co., 762 N.W.2d 529, 550 (Mich. Ct. App. 2008) (quoting Rymal v. Baergen,
686 N.W.2d 241 (Mich. Ct. App. 2004)). Michigan courts have applied the following
standard for piercing the corporate veil:
First, the corporate entity must be a mere instrumentality of another entity or
individual. Second, the corporate entity must be used to commit a fraud or
wrong. Third, there must have been an unjust loss or injury to the plaintiff.
Id. (quoting SCD Chem. Distrib., Inc. v. Medley, 512 N.W.2d 86, 90 (Mich. 1994)). The
Sixth Circuit has considered factors including “undercapitalization of the corporation, the
maintenance of separate books, the separation of corporate and individual finances, the use
of the corporation to support fraud or illegality, the honoring of corporate formalities, and
whether the corporation is merely a sham.” Laborers’ Pension Trust Fund v. Sidney
Weinberger Homes, Inc., 872 F.2d 702, 704-05 (6th Cir. 1988) (citing Lakota Girl Scout
Council, Inc. v. Harvey Fund-Raising Mgmt., Inc., 519 F.2d 634, 638 (8th Cir. 1975)).
Texas law likewise generally insulates corporate officers and shareholders from
personal liability for corporate obligations. Endsley Elec., Inc. v. Altech, Inc., 378 S.W.3d 15,
22 (Tex. App. 2012). Texas courts may pierce the corporate veil when “the corporate form
has been used as an alter ego of another person or corporation . . .” Id. at 23 (citing SSP
Partners v. Gladstrong Inc. (USA) Corp., 275 S.W.3d 444, 451 (Tex. 2008)). Under Texas
law, the alter ego doctrine is one theory used to pierce the veil; other theories include when
the corporate form “has been used to perpetrate a fraud, evade an existing obligation, create
a monopoly, circumvent a statute, protect a crime, or justify a wrong.” Endsley Elec., 378

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S.W.3d at 22 (citing SSP Partners, 275 S.W.3d at 451.) An alter ego relationship may be
shown by evidence of “the degree to which corporate formalities have been followed and
corporate and individual property have been kept separately, the amount of financial interest,
ownership and control the individual maintains over the corporation, and whether the
corporation has been used for personal purposes.” Mancorp, Inc., v. Culpepper, 802 S.W.2d
226, 228 (Tex. 1990) (quoting Casteberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986)).
See also Endsley Elec., 378 S.W.3d at 23-24.
B. Analysis
Here, the Court finds that Giga Solutions has failed to honor corporate formalities.
The lack of formal meetings, minutes, by-laws, updated contact information for a registered
agent, and regular elections are evidence that Giga has not adhered to the obligations of its
corporate form.
The record presently before the Court demonstrates that Giga suffered inadequate
capitalization at the time it entered into its contract with Interkal. Mr. Kim testified in his
deposition that Giga could not pay its debts to manufacturers in the ordinary course of
business. (Kim Dep. 29-30, 33-34.) Moreover, CS helped formed Giga as a new corporation
precisely because he had incurred significant debt to manufacturers under his previous
company and could no longer secure or maintain financial relationships with the
manufacturers. (Id. at 30.) When Giga faced credit stress with its vendors, it attempted to

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renegotiate its contractual obligations and secure upfront payment from Interkal to
compensate for its financial instability, leading to the present legal action. (Pl. Mot. Ex. M.)
The lack of corporate formalities and undercapitalization do not support a prima facie
case that Kim is the alter ego of Giga, however. Giga was not a “mere instrumentality” of
Kim, nor did Kim maintain “ownership and control” over the corporation. At most relevant
times, Kim considered CS to be the “boss,” the owner of Giga. (Kim. Dep. 23, 25.) It was
CS who entered into contracts and had sole authority to control Giga’s finances. (Id. at 2729.) It was CS who used Giga for his personal purposes to re-establish his own business
relationships with vendors in Taiwan, Korea, and China. (Id. at 30-32.) It was CS who
coordinated facility rentals and manufacturing warehouses with Giga Manufacturing, a
separate company from Giga Solutions. (Id. at 21-24.) Perhaps CS was the alter ego of Giga
as the de facto owner, but Kim was not. See Foodland Distrib., 559 N.W.2d at 457 (piercing
corporate veil to find de facto owner and operator of grocery store liable for purchases).
Moreover, Kim has not used Giga as a means to commit any fraud, wrong, or misuse
related to Plaintiff requiring the equitable remedy of piercing the corporate veil. See Solomon
v. Western Hills Dev. Co., 312 N.W.2d 428, 263-64 (Mich. Ct. App. 1981). Although Kim
admits that he was motivated to form Giga in order to reside legally in the United States,
Plaintiff has failed to show Kim subsequently used the corporate form for illegitimate ends.
Foodland Distrib., 559 N.W.2d at 382. Giga is not merely a sham corporation. Kim himself

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played an integral role in establishing contact with Interkal and providing service under their
contract, and Kim has now asserted control over the corporation.
Nor has Plaintiff shown that Kim diverted company funds for personal use, made
representations that he would personally provide financial backing, or commingled company
and personal assets. See Endsley Elec., 378 S.W.3d (declining to pierce the corporate veil
where defendant’s corporate charter was forfeited by the Secretary of State; the company
lacked adequate capital to meet financial obligations; and the company did not keep separate
books and records). Plaintiff has shown that Giga is a poorly managed company that may
have bit off more business than it could chew. This is not sufficient, however, to make a
prima facie showing that Giga is the alter ego of Kim. Therefore, this Court may not exercise
personal jurisdiction over Kim under an alter ego theory.
V. Successor Liability as to 2F
Jurisdiction over 2F is appropriate, says Plaintiff, because 2F is the successor of Giga.
In its response to Defendant’s motion to dismiss, Plaintiff has failed to demonstrate that 2F
is a successor to or continuation of Giga under either Michigan or Texas law.
“Texas ‘strongly embraces’ a ‘nonliability’ rule for corporate successors.” E-Quest
Mgmt., LLC v. Shaw, 433 S.W.3d 18, 23 (Tex. App. 2013) (citing Lockheed Martin Corp.
v. Gordon, 16 S.W.3d 127, 139 (Tex. App. 2000)). By Texas statute, a successor may acquire
the assets of the corporation without incurring any of the predecessor’s liabilities unless the

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successor expressly assumes those liabilities. Id. Because Plaintiff has not demonstrated that
2F expressly assumed Giga’s liabilities, 2F is not liable in this suit under Texas law.
Under Michigan law, a successor in a merger assumes its predecessor’s liabilities, but
a purchaser of assets for cash does not assume liability unless one of five narrow exceptions
applies. Lakeview Commons v. Empower Yourself, 802 N.W.2d 712, 715-16 (Mich. Ct. App.
2010) (citing Foster v. Cone-Blanchard Mach. Co., 597 N.W.2d 506, 510-11 (Mich. 1999)).
See also C.T. Charlton & Assoc., Inc. V. Thule, Inc., 541 F. App’x 549, 552-53 (6th Cir.
2013). Because Giga Solutions continues to exist and operate, and 2F has not assumed its
assets or general business operations, Plaintiff has failed to demonstrate even a prima facie
case that 2F is the successor of Giga in a merger or that 2F purchased Giga’s assets for cash.
Therefore, a theory of successor liability cannot support personal jurisdiction over 2F.
VI. Conclusion
The Court is not satisfied that Plaintiff has demonstrated a prima facie case that Kim
is the alter ego of Giga, nor that 2F is a mere continuation of Giga. Without such a showing,
Court may not exercise personal jurisdiction over either Myung Kim or 2F, Inc. under
Plaintiff’s theories.
An order consistent with this opinion will be entered.

Dated: January 14, 2015

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

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