Smith v. Blitz U.S.A., Inc. et al
Filing
133
ORDER granting in part 115 Motion to Dismiss for Lack of Jurisdiction. (Written Opinion). Signed by Judge Richard H. Kyle on 11/6/12. (kll)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Robyn Smith for Devan VanBrunt,
a Minor, by his Mother and Natural
Guardian,
Plaintiff,
Civ. No. 11- 1771 (RHK/LIB)
MEMORANDUM OPINION
AND ORDER
v.
Blitz U.S.A. Inc., Wal-Mart Stores, Inc.,
and Kinderhook Industries, LLC,
Defendants.
Daniel S. Haltiwanger, Brady R. Thomas, Richardson, Patrick, Westbrook & Brickman,
LLC, Barnwell, South Carolina, Anton Cheskis, Michael R. Strom, Sieben Polk P.A.,
Hastings, Minnesota, Shauna M. Verheyen, Hamline University School of Law, Saint
Paul, Minnesota, Hank Anderson, Benton G. Ross, The Anderson Law Firm, Wichita
Falls, Texas, for Plaintiff.
Timothy P. Harkness, Pamila Gudkov, Freshfields Bruckhaus Deringer US LLP, New
York, New York, Seth Leventhal, Leventhal PLLC, Minneapolis, Minnesota, for
Defendant Kinderhook Industries, LLC.
INTRODUCTION
Plaintiff Robyn Smith represents her son, Devan VanBrunt, a twelve-year-old who
was injured by an exploded gas can that Defendant Blitz U.S.A., Inc. (“Blitz”)
manufactured and Defendant Wal-Mart Stores, Inc. (“Wal-Mart”) sold to Smith. Smith
initially brought suit against Blitz and Wal-Mart. After Blitz filed for bankruptcy, Smith
amended her Complaint to join Blitz’s parent company, Defendant Kinderhook
Industries, LLC (“Kinderhook”). Kinderhook now moves to dismiss the claims against it
for lack of personal jurisdiction. For the reasons below, the Court will grant the Motion. 1
BACKGROUND
The Court recounts the following facts as alleged by Smith. Devan used a
portable plastic gas can to pour gasoline on a charcoal grill to ignite it. The gasoline
vapors outside the can ignited and the flame flashed back, following the vapor trail inside
the gas can, causing it to explode. He suffered severe burns from the explosion. Smith
then commenced this action against Blitz and Wal-Mart alleging that (1) the gas can was
defective because its design did not utilize a “flame arrester,” (2) each Defendant knew
the gas can was dangerous because of previous lawsuits and yet failed to warn
consumers, and (3) Wal-Mart continued to sell this gas can despite knowing it was
dangerous and/or defective.
After Smith commenced this action, Blitz filed for bankruptcy and the claims
against it were automatically stayed. Smith then filed a First Amended Complaint (Doc.
No. 61) adding Blitz’s parent companies, Kinderhook and Kinderhook Capital Fund II,
L.P. (“Kinderhook Capital Fund”), as defendants. However, Smith later discovered that
Kinderhook Capital Fund was not a diverse party and filed a Second Amended Complaint
(Doc. No. 109), dropping her claim against Kinderhook Capital Fund but not against
Kinderhook. Kinderhook now moves to dismiss Smith’s claim against it (Count VII,
“Piercing the Corporate Veil”) for lack of personal jurisdiction.
1
The Court need not address Kinderhook’s alternative motions to dismiss for failure to
state a claim, to transfer to bankruptcy court, or to stay the claim against it.
-2-
STANDARD OF DECISION
In order to survive Kinderhook’s Motion, Smith must make a prima facie showing
of personal jurisdiction. Lakin v. Prudential Sec., Inc., 348 F.3d 704, 706 n.3 (8th Cir.
2003). Because the Court has not held an evidentiary hearing, it must view the evidence
in the light most favorable to Smith. Pangea, Inc. v. Flying Burrito LLC, 647 F.3d 741,
745 (8th Cir. 2011). 2 To determine whether Smith has discharged her burden, the Court
must ask two questions. First, has Minnesota’s long-arm statute been satisfied? Second,
would exercising jurisdiction comport with the Due Process Clause of the Fourteenth
Amendment? See Guinness Import Co. v. Mark VII Distribs., Inc., 153 F.3d 607, 613
(8th Cir. 1998). These two inquiries collapse into one, however, because Minnesota’s
long-arm statute extends jurisdiction to the outer limits of the Due Process Clause. Id. at
614. Due process requires that a defendant have sufficient “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. Washington, 326 U.S. 310, 316 (1945)
(internal citation omitted); accord, e.g., World-Wide Volkswagen Corp. v. Woodson, 444
U.S. 286, 291–92 (1980). The Court examines five factors to determine whether
exercising jurisdiction comports with due process: (1) the nature and quality of the
contacts with the state, (2) the quantity of contacts with the state, (3) the relation of the
cause of action to these contacts, (4) the state’s interest in providing a forum for its
2
No party has requested an evidentiary hearing.
-3-
residents, and (5) the convenience of the parties. E.g., Stanton v. St. Jude Med., Inc., 340
F.3d 690, 694 (8th Cir. 2003).
ANALYSIS
The parties agree that Kinderhook, on its own, does not have the minimum
contacts with Minnesota necessary for personal jurisdiction. Instead, Smith contends that
Blitz is Kinderhook’s instrumentality or alter ego, and that Kinderhook is subject to
personal jurisdiction through Blitz’s contacts with Minnesota. 3 (Second Am. Compl.
¶ 15.)
Minnesota has recognized that “a non-resident corporation may subject itself to
jurisdiction in a state by virtue of its subsidiary company in that state, [but] the
companies must be organized and operated so that one corporation is an instrumentality
or alter-ego of the other.” Zimmerman v. Am. Inter-Ins. Exch., 386 N.W.2d 825, 828
(Minn. Ct. App. 1986) (internal citation omitted). A finding of vicarious personal
jurisdiction is uncommon, 4 however, because “[t]here is a ‘presumption of separateness’
between a parent and subsidiary corporation.” Select Comfort Corp. v. Innovation Ads,
Inc., Civ. No. 10-925, 2011 WL 31715, at *4 (D. Minn. Jan. 5, 2011) (Davis, C.J.).
3
The parties do not dispute that Blitz is subject to personal jurisdiction in Minnesota.
4
In fact, Smith cites only two Minnesota cases in which a court found that the subsidiary
functioned as its parent’s instrumentality or alter ego for personal jurisdiction purposes:
Scott v. Mego Int’l, Inc., 519 F. Supp. 1118, 1126 (D. Minn. 1981) (Murphy, J.) and JL
Schwieters Constr., Inc. v. Goldridge Constr., Inc., 788 N.W.2d 529, 536–37 (Minn. Ct.
App. 2010).
-4-
To determine whether a subsidiary should be treated as an instrumentality or alter
ego of its parent, courts consider the extent to which the entities’ management,
operations, and finances overlap. Relevant facts include: common officers or directors,
consolidated financial statements, joint tax returns, a common address, a subsidiary’s
general lack of corporate formalities, a parent’s funding of the subsidiary, and a parent’s
control of the subsidiary’s operations. See, e.g., Scott v. Mego Int’l, Inc., 519 F. Supp.
1118, 1126 (D. Minn. 1981) (Murphy, J.); Stratasys, Inc. v. ProtoPulsion, Inc., No. A102257, 2011 Minn. App. Unpub. LEXIS 682, at *24–25 (Minn. Ct. App. July 18, 2011);
Curtis v. Altria Grp., Inc., 792 N.W.2d 836, 846–47 (Minn. Ct. App. 2010), rev’d on
other grounds, 813 N.W.2d 891 (Minn. 2012); JL Schwieters Constr., Inc. v. Goldridge
Constr., Inc., 788 N.W.2d 529, 535–37 (Minn. Ct. App. 2010); Zimmerman, 386 N.W.2d
at 828. Overall, the Court must determine whether the foreign parent “so controlled and
dominated the activities of its resident subsidiary that the latter’s separate corporate
existence was in effect disregarded.” Lakota Girl Scout Council, Inc. v. Havey FundRaising Mgmt., Inc., 519 F.2d 634, 637 (8th Cir. 1975). The Court concludes that Smith
has not made such a showing.
Smith alleges the following facts in support of vicarious jurisdiction in this case:
(1) some of Kinderhook’s members are limited partners in Kinderhook Capital Fund,
which owns 75.2% of LAM Holdings 2011 LLC (“LAM”), which indirectly owns Blitz
(Second Am. Compl. ¶ 107); (2) Kinderhook created a complex corporate structure in
order to shield itself from liability (id. ¶ 102.J); (3) two of Blitz’s four directors are
Kinderhook officers (id. ¶¶ 97–98); (4) Blitz and Kinderhook share an address (Pl.’s
-5-
Mem. Opp’n 6; id. Ex. 16); (5) Kinderhook guaranteed Blitz’s credit (Second Am.
Compl. ¶ 110.B); (6) Kinderhook depleted Blitz’s assets “by means of a bargain sale to
defraud Blitz’s creditors” (id. ¶ 100.E); and (7) Kinderhook used Blitz’s assets as
collateral on loans used to acquire three other plastic manufacturers (id. ¶ 104). Smith
makes further allegations that involve Blitz but not Kinderhook, including a failure to
observe corporate formalities between LAM and its subsidiaries and among LAM’s
subsidiaries. (See, e.g., id. ¶¶ 102, 107, 109–10; id. ¶ 100.G (alleging Blitz was
undercapitalized and underinsured).) However, because Smith does not connect these
allegations to Kinderhook, they are not relevant to the Court’s analysis.
The Court concludes, based on the totality of the evidence, that Smith has not
made a prima facie showing of personal jurisdiction over Kinderhook. While direct
ownership is not necessary to find that a subsidiary is the alter ego or instrumentality of a
parent, the attenuated relationship between Kinderhook and Blitz vitiates Smith’s claim.
Although Smith alleges that the two companies share an address because Blitz used
Kinderhook’s address on its lease, Blitz prefaced the address with “C/O Kinderhook
Industries LLC” (id. Ex. 16), indicating that the address was Kinderhook’s, not Blitz’s.
Smith also implies that Kinderhook’s creation of various subsidiaries in order to avoid
liability is suspect, but that is a proper purpose for limited liability companies. See, e.g.,
Kreuger v. Zeman Constr. Co., 758 N.W.2d 881, 890 (Minn. Ct. App. 2008). Finally,
although Smith alleges that Kinderhook depleted Blitz’s assets through “bargain sale
financing” by selling Blitz’s subsidiary, F3 Brands LLC, the sale was approved by the
bankruptcy court and it benefited Blitz’s creditors, not Kinderhook. (See Second Am.
-6-
Compl. ¶ 102.E; Pl.’s Mem. Opp’n Ex. 2.)
The only facts supporting Smith’s claim that Blitz operates as an instrumentality
or alter ego are that two of Blitz’s directors are Kinderhook officers and that Kinderhook
guaranteed Blitz’s credit and used its assets as collateral. Smith presents “no evidence
that [the parent] is or ever has been involved in day-to-day control over production or
distribution of [its subsidiary’s] products.” Curtis, 792 N.W.2d at 847. “[The subsidiary]
maintains separate offices, books and accounts [from its parent]. Its employees are not
hired or paid by [its parent].” Zimmerman, 386 N.W.2d at 828; see Aurelio Decl. ¶¶ 15–
19. And, unlike Scott or JL Schwieters, all of Blitz’s officers and half of its directors are
unrelated to Kinderhook. 519 F. Supp. at 1126; 788 N.W.2d at 536.
On balance, Smith has not shown that Kinderhook has “exercised the type of
control or dominance . . . necessary to subject it to the personal jurisdiction of a
Minnesota court.” Zimmerman, 386 N.W.2d at 828. Accordingly, Smith’s claim against
Kinderhook will be dismissed.
CONCLUSION
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
ORDERED that Kinderhook’s Motion to Dismiss or, in the Alternative, Transfer or, in
the Alternative, Stay (Doc. No. 115) is GRANTED IN PART. Kinderhook’s Motion to
Dismiss for Lack of Personal Jurisdiction is GRANTED and Count VII of
-7-
Smith’s Second Amended Complaint (Doc. No. 109) is DISMISSED WITHOUT
PREJUDICE.
Dated: November 6, 2012
s/Richard H. Kyle
RICHARD H. KYLE
United States District Judge
-8-
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?