Michnovez et al v. Blair, LLC
Filing
71
///ORDER granting 50 Motion to Dismiss. So Ordered by Magistrate Judge Landya B. McCafferty. (gla)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
John Michnovez, individually
and as Executor of the Estate
of Velma Michnovez; and
Susan Michnovez
v.
Civil No. 10-cv-110-LM
Blair, LLC; A-One Textile and
Towel Industries; Bureau Veritas
Consumer Products Services (Pre)
Ltd.; Bureau Veritas Consumer
Products Services, Inc.; and
Bureau Veritas, S.A.
O R D E R
In twelve counts, plaintiffs assert nearly identical claims
for wrongful death, enhanced compensatory damages, conscious
pain and suffering, personal injuries, and negligent infliction
of emotional distress against each of two defendants: Blair, LLC
(“Blair”) (Counts I-V) and A-One Textile and Towel Industries
(“A-One”) (Counts VII-XI).
Plaintiffs assert the same six
claims against Bureau Veritas, S.A. (“BV S.A.”), Bureau Veritas
Consumer Products Services, Inc. (“BV Inc.”), and Bureau Veritas
Consumer Products Services (Pre) Ltd. (“BV Ltd.”) (Counts XIIIXVIII).
Plaintiffs‟ claims arise from the death of Velma
Michnovez, which occurred when a bathrobe she purchased from
Blair caught fire while she was wearing it.
Before the court is
BV Inc.‟s motion to dismiss all six of the claims asserted
against it.
Plaintiffs object.
For the reasons given, BV
Inc.‟s motion to dismiss is granted.
The Legal Standard
A motion to dismiss for “failure to state a claim upon
which relief can be granted,” Fed. R. Civ. P. 12(b)(6), requires
the court to conduct a limited inquiry, focusing not on “whether
a plaintiff will ultimately prevail but whether the claimant is
entitled to offer evidence to support the claims.”
Rhodes, 416 U.S. 232, 236 (1974).
Scheuer v.
That is, the complaint “must
contain „enough facts to raise a reasonable expectation that
discovery will reveal evidence‟ supporting the claims.”
Fantini
v. Salem State Coll., 557 F.3d 22, 26 (1st Cir. 2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).
When considering a motion to dismiss under Rule 12(b)(6), a
trial court “accept[s] as true all well-pled facts in the
complaint and draw[s] all reasonable inferences in favor of
plaintiffs.”
Plumbers‟ Union Local No. 12 Pension Fund v.
Nomura Asset Acceptance Corp., 632 F.3d 762, 771 (1st Cir. 2011)
(quoting SEC v. Tambone, 597 F.3d 436, 441 (1st Cir. 2010)).
But, “naked assertions devoid of further factual enhancement
need not be accepted.”
Plumbers‟ Union, 632 F.3d at 771 (1st
Cir. 2011) (quoting Maldonado v. Fontanes, 568 F.3d 263, 266
2
(1st Cir. 2009)).
Moreover, “[a] pleading that offers „labels
and conclusions‟ or „a formulaic recitation of the elements of a
cause of action will not do.‟”
United Auto., Aero., Agric.
Implement Workers of Am. Int‟l Union v. Fortuño, 633 F.3d 37, 41
(1st Cir. 2011) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937,
1949 (2009)).
“To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.”
633 F.3d at 40 (citation omitted).
United Auto. Workers,
On the other hand, a Rule
12(b)(6) motion should be granted if “the facts, evaluated in
[a] plaintiff-friendly manner, [do not] contain enough meat to
support a reasonable expectation that an actionable claim may
exist.”
Andrew Robinson Int‟l, Inc. v. Hartford Fire Ins. Co.,
547 F.3d 48, 51 (1st Cir. 2008) (citations omitted).
That is,
“[i]f the factual allegations in the complaint are too meager,
vague, or conclusory to remove the possibility of relief from
the realm of mere conjecture, the complaint is open to
dismissal.”
Plumbers‟ Union, 632 F.3d at 771 (citation
omitted).
Background
The relevant factual allegations, drawn from plaintiffs‟
second amended complaint, are as follows.
3
Velma Michnovez died on November 23, 2007, when a cotton
chenille bathrobe she was wearing caught fire while she was
cooking at her stove.
She purchased the bathrobe from Blair.
The bathrobe was manufactured by A-One.
According plaintiffs, BV Inc.‟s actionable conduct consists
of the following:
Prior to January 9, 2006, the defendant Blair
contracted with [BV S.A., BV Inc.] and/or [BV Ltd.] to
test said model 30931 robe to ensure it complied with
federal flammability standards. [BV Ltd.] conducted
flammability testing on the robe. [BV S.A., BV Inc.]
and/or [BV Ltd.], in test reports bearing the “Bureau
Veritas” logo, certified to Blair that said model
30931 robes complied with federal flammability
standards, resulting in said robes being marketed to
consumers in the United States, including Velma
Michnovez.
In April 2009, defendant Blair, in cooperation with
the Consumer Product Safety Commission, recalled its
model 30931 robes on the basis that they did not
comply with federal flammability standards.
Prior to receiving notice of said recall, the
plaintiffs in this action were not aware and had no
reason to be aware that the robe worn by Velma
Michnovez on the date of her death did not meet
federal flammability standards and was otherwise in an
unreasonably dangerous, defective condition.
The test results which [BV S.A., BV Inc.] and/or [BV
Ltd.] provided to Blair were a substantial factor in
Blair‟s decision to sell the model 30931 bathrobe to
consumers.
Second Am. Compl. (doc. no. 55) ¶¶ 17-20.
The test report that plaintiffs refer to was attached as an
exhibit to plaintiffs‟ motion for leave to file a second amended
4
complaint.
Given plaintiffs‟ reference to that report in their
complaint, it is appropriate for the court to consider it when
ruling on BV Inc.‟s motion to dismiss.
See United Auto.
Workers, 633 F.3d at 39 (“when a complaint‟s factual allegations
are expressly linked to – and admittedly dependent upon – a
document (the authenticity of which is not challenged), that
document effectively merges into the pleadings and the trial
court can review it”) (quoting Trans-Spec Truck Serv. Inc. v.
Caterpillar Inc., 524 F.3d 315, 320 (1st Cir. 2008)).
Each page
of the test report has, in the upper left-hand corner, an ovalshaped graphic logo depicting a person, surrounded by the words
“Bureau Veritas 1828.”
44-4), at 1.
Id.
Pl.‟s Mot. for Leave, Ex. B (doc. no.
Below the oval is a bar that reads “MTL – ACTS.”
The first page of the report identifies the tests as having
been conducted by “Bureau Veritas Consumer Products Services
(Pte) Ltd.”
Id.
Finally, the bottom of the page lists the
address, telephone number, fax number, e-mail address, and web
address for BV Ltd.
Id.
The stationary provides neither the
name of nor contact information for any other BV entity.
Regarding the relationship among the three BV entities that
are defendants in this case, plaintiffs allege that “[a]t all
times herein relevant, the defendants . . . held themselves out
as a single global entity known as „Bureau Veritas‟.
5
They did
so through communications to customers on „Bureau Veritas‟
stationary and through advertisements and information published
on the Internet and otherwise.”
stationary is described above.
Second Am. Compl. ¶ 9.
The
The portions of the BV web site
appended to plaintiffs‟ motion for leave to file a second
amended complaint identify and provide contact information for a
BV entity in France and for BV Ltd.
While the site mentions
labs in Massachusetts, where BV Inc. is incorporated, and New
York, where BV Inc. has a principal place of business, the site
does not mention BV Inc. in any way.
Plaintiffs also allege that “[t]he defendants, [BV Ltd.]
and [BV Inc.] were and still are wholly owned subsidiaries of
[BV S.A.].”
Second Am. Compl. ¶ 10.
Finally, plaintiffs
allege:
At all times herein relevant, the defendant, [BV Ltd.]
was and still is an agent, department, alter-ego,
and/or instrumentality of the defendants [BV Inc.] and
[BV S.A.] in that these defendants held themselves out
as a single global entity such that failure to treat
them as such would lead to an inequitable result as to
the plaintiffs in this action; in that unity of
interest and ownership exists such that the separate
personality of [BV Ltd.] no longer exists; in that
individuals in [BV Inc.] and [BV S.A.] exercise
substantial control over [BV Ltd.] and in that the
Bureau Veritas entities share human resources.
[BV Ltd., BV Inc. and BV S.A.] and each of them, at
all times relevant herein were the partners, agents,
employers, employees, joint venturers, representatives, independent contractors, and other persons
authorized, actually and/or impliedly, and ostensibly
6
to act within the course and scope of their
relationship and/or with the knowledge, consent,
ratification and authorization of each of the other
defendants.
Id. ¶¶ 11-12.
The heart of plaintiffs‟ complaint, as it relates to the BV
defendants, is Count XIII, which asserts:
Because [BV Ltd., BV Inc. and BV S.A.] acted as a
single global entity in connection with its activities
in testing and certifying Blair Robe Model 30931,
plaintiffs refer to said defendants as Bureau Veritas
(“BV”) in connection with the allegations of the
remaining counts herein.
At all times hereinconcerned, defendant BV knew or
should have known that if it certified that said
chenille bathrobes complied with Federal flammability
Standards that its customer Blair would sell such
robes within the United States, including the State of
New Hampshire.
The death of Velma Michnovez was the direct and
proximate result of the carelessness and negligence of
the defendant as follows:
a.
The defendant negligently tested and inspected
said bathrobe and certified to its customer Blair
that said robe complied with federal flammability
standards, causing Blair to market said robe when
it did not comply with federal flammability
standards.
b.
The defendant negligently failed to warn or
instruct, adequately warn or adequately instruct
its customer Blair that said robe did not comply
with federal flammability standards, causing
Blair to market said robe.
c.
The defendant negligently failed to ensure that
said bathrobe complied with federal flammability
standards causing its customer Blair to market
7
said robe when in fact said robe failed to comply
with federal flammability standards.
d.
The defendant negligently failed to warn and
instruct its customer Blair that even if the robe
did comply with federal flammability standards
when tested, it was nevertheless unreasonably
dangerous due to its construction of flammable
100% cotton chenille, a fabric that burns
quickly, intensely and fiercely.
As a direct and proximate result of the negligence, of
defendant as set forth herein, Velma Michnovez was
caused to die.
Second Am. Compl. ¶¶ 56-59.
By way of further background: (1) Blair, a foreign
corporation with a principal place of business in Pennsylvania,
filed a suggestion of bankruptcy on January 20, 2011, doc. no.
36, but the automatic stay has since been lifted, see doc. no.
53; (2) A-One, a foreign corporation with a principal place of
business in Pakistan, has been served, see doc. no. 48, but has
not appeared; (3) BV S.A., a French corporation with a principal
place of business in France, has not yet been served; and (4) BV
Ltd., a foreign corporation with a principal place of business
in Singapore, has appeared, but has moved to dismiss for lack of
personal jurisdiction, see doc. no. 57.
Discussion
BV Inc. now moves to dismiss.
Its main argument is that
plaintiffs have not alleged sufficient facts to make it liable
8
for any acts or omissions by BV Ltd. during the course of its
testing of the fabric A-One used to make the robe that Blair
sold to Velma Michnovez.
Secondarily, BV Inc. argues that
plaintiffs have not alleged facts sufficient to support the
claim for enhanced compensatory damages they assert in Count
XIV.
In its motion to dismiss plaintiffs‟ amended complaint,
which the court said it would consider to the extent it remains
relevant to the second amended complaint, BV Inc. challenged the
sufficiency of plaintiffs‟ factual allegations under the Iqbal
standard and also advanced the legal argument that it did not
owe a duty of care to plaintiffs.
Plaintiffs counter BV Inc.‟s
first argument for dismissing the second amended complaint by
contending that they have alleged sufficient facts to support
treating the BV defendants as a single global enterprise under
an alter-ego or veil-piercing theory and, on that basis, holding
BV Inc. liable for BV Ltd.‟s negligent testing and/or inspection
of the fabric from which Velma Michnovez‟s robe was made.
The
court does not agree.
Plaintiffs rely primarily on two out-of-state cases
involving some of the BV entities that are defendants in this
case: Bleu Products, Inc. v. Bureau Veritas Consumer Products
Services, Inc., No. CV 08-2591CAS (JCx), 2009 WL 2412413 (C.D.
Cal. Aug. 3, 2009) and Playwell Toy, Inc. v. Bureau Veritas
9
Consumer Products Services, Inc., No. 03-CV-0704C(SC), 2008 WL
4372654 (W.D.N.Y. Sept. 19, 2008).
The argument against veil
piercing in Playwell was raised by the corporate parent of the
company that actually tested the product rather than by a
corporate sibling.
Thus, the reasoning of Playwell has no
bearing on the question presented here, which is whether BV Inc.
may be held liable for the conduct of its corporate sister, BV
Ltd.
Accordingly, the court turns to Bleu Products.
In that case, Bleu Products had a contract with a factory
in China to produce jackets and had another contract with Costco
to sell those jackets in its stores.
2009 WL 2412413, at *6.
In addition, Costco arranged with Bleu Products to have the
jackets tested.
To that end, Bleu Products filled out a Costco
test-request form, with the understanding that Costco would
forward the form to four BV entities, including BV Inc. and BVShanghai, the entity that performed the actual testing.
Id.
After the jackets were delivered to hundreds of Costco stores,
and Costco discovered that the jackets had a significant button
defect, see id. at *1, Bleu Products sued a host of BV entities,
asserting multiple causes of action, including negligence.
See
id.
Two of the BV entities, including BV Inc., moved to
dismiss.
Id.
The court denied BV Inc.‟s motion to dismiss the
10
negligence claim, on grounds that the plaintiff had adequately
alleged that BV Inc. was an alter ego of BV-Shanghai, the entity
that performed the testing.
Id. at *11.
Judge Snyder explained
her decision:
The Court finds that plaintiff‟s [sic] have
alleged sufficient facts supporting alter ego
liability. First, plaintiff has alleged with
sufficient facts to support its theory of a unity of
interest and ownership exists such that separate
personalities of the corporation no longer exist. See
Oddenino & Gaule v. United Financial Group, 1999 U.S.
App. LEXIS 29506, 1999 WL 1011910 (9th Cir. 1999).
For example, in support of its “single enterprise
theory,” plaintiff has alleged that a few individuals
exercised a great deal of control over the various BV
entities, that different BV entities share virtually
identical addresses, and that the various entities
share human resources[.] See Las Palmas [Associates
v. Las Palmas Center Associates], 235 Cal. App. 3d
[1220,] 1249, 1 Cal. Rptr. 2d 301, [318 (Cal. Ct. App.
1991)]. Furthermore, plaintiff has sufficiently
alleged intent on the part of defendants to defraud
the public through concealment of the nature of the
single enterprise and misrepresentation of the
corporate structure, and has adequately set forth
allegations that could lead to a finding of
inequitable result. See Oddenino, 1999 U.S. App.
LEXIS 29506 at *5, 1999 WL 1011910 (“the purpose of
the alter ego doctrine is to afford such creditors
protection where some conduct amounting to bad faith
makes it inequitable . . . for the equitable owner of
a corporation to hide behind its corporate veil”).
Therefore, the Court finds dismissal of the alter ego
allegations at this stage of the proceedings to be
inappropriate.
Id. at *15 (emphasis added).
Vis à vis the relationship between BV Inc. and BV-Shanghai,
the operative complaint in Bleu Products alleged that BV Inc.:
11
“(1) was responsible for setting up test protocols that governed
the inspections performed by BV-Shanghai; (2) was directly
involved in monitoring the inspections; and (3) responded by
telephone to plaintiff‟s complaint concerning the inspection.”
Id. at *13.
The complaint further alleged that BV Inc.: “(1)
was responsible for establishing contracts to which BV-Shanghai
is alleged as a party; (2) is named in the Costco „Request‟
form; and (3) caused BV-Shanghai to perform the inspection as an
alter ego of other named defendants.”
Id.
Finally, the Bleu
Products complaint alleged that BV Inc. “knew that an inspection
report was fraudulent prior to shipment of the jackets, and that
[BV Inc.] directly participated in evading responsibility by
calling plaintiff and launching an allegedly phony
investigation.”
Id. at *14.
Based on those factual
allegations, Judge Snyder agreed with the plaintiffs “that,
under the single-enterprise rule, [BV Inc.] can be found liable
as an alter ego of BV-Shanghai in spite of the fact that [BV
Inc.] and BV-Shanghai are sister companies.”
Id. at *13 (citing
Las Palmas, 1 Cal. Rptr. 2d at 318).
In Las Palmas, on which Judge Snyder relied, the California
Court of Appeals explained:
Generally, alter ego liability is reserved for
the parent-subsidiary relationship. However, under
the single-enterprise rule, liability can be found
between sister companies. The theory has been
12
described as follows: “„In effect what happens is that
the court, for sufficient reason, has determined that
though there are two or more personalities, there is
but one enterprise; and that this enterprise has been
so handled that it should respond, as a whole, for the
debts of certain component elements of it. The court
thus has constructed for purposes of imposing
liability an entity unknown to any secretary of state
comprising assets and liabilities of two or more legal
personalities; endowed that entity with the assets of
both, and charged it with the liabilities of one or
both.‟” (2 Marsh‟s Cal. Corp. Law (3d ed. 1990) §
16.23, p. 1416, quoting a law review article by
Professor Berle found at 47 Colum. L. Rev. (1947) 343,
350.)
1 Cal. Rptr. 2d at 318.
The rather complex factual situation in Las Palmas
consisted of the following: (1) two corporations, Devcorp and
Hahn, plus several others, were the sellers of a shopping
center, 1 Cal. Rptr. 2d at 305; (2) Devcorp was a wholly owned
subsidiary of Hahn, id.; (3) Hahn transferred all the shares of
Devcorp to Trizec Centers, which, in turn, conveyed some of
those shares to Goldlist Acquisition Corp. and the remainder to
Trizec Equities, id. at 306.
In a dispute between the sellers
and the buyers of the shopping center, Hahn argued that the
buyers were not entitled to pierce the corporate veil and hold
it liable for Devcorp‟s conduct.
Id. at 316-17.
The California
Court of Appeals held that veil piercing was appropriate, under
the legal principles articulated above:
We find there is substantial evidence to support
the conclusion that Hahn, Inc. and Devcorp formed a
13
single enterprise for the purpose of committing a
continuing fraud against buyers. First, the evidence
that Hahn, Inc. had guarantied $43.2 million in loans
and loan commitments to Devcorp strongly suggests
Devcorp was undercapitalized for a company in the
business of developing shopping centers. Likewise, in
1978 Hahn, Inc. issued two guaranties to buyers to
protect the $2 million cash downpayment they made to
Devcorp. Moreover, besides the loan guaranties, Hahn,
Inc. temporarily guarantied the Phanny‟s Phudge lease,
despite the fact that Hahn, Inc. no longer had a stock
ownership interest in Devcorp. These guaranties
indicate that Devcorp‟s survivability as a developer
was intertwined with its dependence on Hahn, Inc.
Furthermore, Ernest Hahn and Robert Lees sat as
directors on the boards of Hahn, Inc. and Devcorp.
When Devcorp‟s board of directors fired the
corporation‟s executives and staff, Hahn, Inc. used
its employees, including its corporate counsel, to
continue to manage what remained of the business. In
short, the trial court reasonably could have concluded
that Hahn, Inc. and Devcorp were combined into a
single enterprise to defraud buyers.
Id. at 318.
Just as the judge in Bleu Products relied on Las Palmas,
the Las Palmas court relied on Pan Pacific Sash & Door Co. v.
Greendale Park, Inc., 333 P.2d 802 (Cal. Dist. Ct. App. 1958).
In Pan Pacific, a supplier of building materials sued multiple
defendants, including two corporations, Ralmor and Greendale, to
recover the cost of various materials delivered to Ralmor, which
was constructing houses on land owned by Greendale.
805.
Id. at 803,
The trial court determined that Greendale was an alter ego
of Ralmor for the purpose of assuming liability for Ralmor‟s
14
debts to Pan Pacific, and the court of appeals affirmed.
Id. at
806.
In affirming, the appellate court relied on the following
evidence: (1) the corporations had nearly identical
shareholders, officers, and directors, id. at 805; (2) “[b]oth
corporations‟ offices were located in the same premises and they
had at least some employees in common,” id.; (3) “the only
business of the [two] corporations . . . was the construction of
the houses upon the tract in question and the sale thereof,” id.
at 806; (4) each corporation had made numerous loans to the
other, id.; and (5) both corporations operated largely on money
borrowed from two individuals who were officers, directors, and
shareholders of both corporations, id.
Based on those facts,
the court concluded:
[T]he trial court was warranted in concluding, as it
did, that each corporation was but an instrumentality
or conduit of the other in the prosecution of a single
venture, namely, the construction and sale of houses
upon the tract in question. Both corporations had the
same stockholders, directors and officers, occupied
the same premises as their offices and had common
employees. Each was without substantial capital.
When Greendale was without funds required for its
operation and Ralmor had funds available a loan was
made from the latter to the former and vice versa.
Each corporation received the benefit of the materials
supplied by the plaintiff and incorporated in the
houses which were under construction upon the tract.
There was such unity of interest and ownership that
the separateness of the two corporations had in effect
ceased and an adherence to the fiction of a separate
existence of the two corporations would, under the
15
circumstances here present, promote injustice and make
it inequitable for Greendale to escape liability for
an obligation incurred as much for its benefit as for
Ralmor.
Id. (citation omitted).
There are at least three problems with plaintiffs‟ reliance
on Bleu Products: (1) Bleu Products was decided under a rule of
California law that does not appear ever to have been adopted in
New Hampshire; (2) the facts alleged in Bleu Products are
substantially different from the facts plaintiffs allege in this
case; and (3) plaintiffs fail to make allegations sufficient to
establish injustice or fraud, which is necessary for veil
piercing in New Hampshire.
The court considers each issue in
turn.
A. New Hampshire Veil-Piercing Law
Because both parties operate as if New Hampshire veilpiercing law applies, the court, too, proceeds on the
presumption that it does.
As the court of appeals for this
circuit has explained, “[w]here „there is at least a reasonable
relation between the dispute and the forum whose law has been
selected by the parties, we will forego an independent analysis
of the choice-of-law issue and apply‟ the state substantive law
selected by the parties.”
Platten v. HG Berm. Exempted Ltd.,
16
437 F.3d 118, 127 n.5 (1st Cir. 2006) (quoting Fed. Ins. Co. v.
Raytheon Co., 426 F.3d 491, 496 n.2 (1st Cir. 2005)).
To be sure, it would be legitimate to question the
reasonable relation between New Hampshire and a dispute over
piercing the veil between a Singapore corporation and a
Massachusetts corporation to hold the latter liable for the
conduct of the former.
And, one might reasonably argue that the
appropriate veil-piercing law to apply here is the law of
Singapore.
See Patin v. Thoroughbred Power Boats Inc., 294 F.3d
640, 647 (5th Cir. 2002) (holding that in diversity case brought
in the Middle District of Louisiana, district court correctly
determined “that the Louisiana State Supreme Court would most
likely conclude that the law of the state of incorporation
governs the determination when to pierce a corporate veil”).
But, the court is reluctant to resolve a legal issue the parties
have not raised and, so, applies New Hampshire veil-piercing
law.
That said, the most obvious problem with plaintiffs‟
reliance on Bleu Products is that there is no support in the
decisions of the New Hampshire Supreme Court for applying the
“single-enterprise rule” on which Judge Snyder relied in Bleu
Products.
In New Hampshire, “[t]he doctrine of piercing the
corporate veil is an equitable remedy.”
17
LaMontagne Bldrs., Inc.
v. Bowman Brook Purchase Grp., 150 N.H. 270, 274 (2003) (quoting
Terren v. Butler, 134 N.H. 635, 640 (1991)).
When courts pierce the corporate veil, they “assess
individual liability where the owners have used the
corporate identity to promote injustice or fraud.”
Norwood Group v. Phillips, 149 N.H. 722, 724 (2003).
They “disregard the fiction that the corporation is
independent of its stockholders and treat the
stockholders as the corporation‟s „alter egos.‟” Id.
N.E. Homes, Inc. v. R.J. Guarnaccia Irrevocable Trust, 150 N.H.
732, 737-38 (2004) (parallel citation omitted).
In addition,
the New Hampshire Supreme Court “will pierce the corporate veil
and assess individual liability . . . where a [shareholder] has
suppressed the fact of incorporation . . . and where an
individual expressly agrees to personal liability for a
corporation‟s debts.”
Gautschi v. Auto Body Discount Ctr.,
Inc., 139 N.H. 457, 462 (1995) (citing Peter R. Previte, Inc. v.
McAllister Florist, Inc., 113 N.H. 579, 582 (1973); Ashland
Lumber Co. v. Hayes, 119 N.H. 440, 441 (1979)).
Similarly, veil
piercing is appropriate where a shareholder “creates a false
appearance which causes a reasonable creditor to misapprehend
the worth of the corporate obligor.”
Previte, 113 N.H. at 583
(quoting Comment, Ohio St. L.J. 441, 468 (1967)).
“New Hampshire courts do not „hesitate[ ] to disregard the
fiction of the corporation‟ when circumstances would lead to an
inequitable result.”
Terren, 134 N.H. at 639-40 (quoting
18
Druding v. Allen, 122 N.H. 823, 827 (1982)).
But, at the same
time, the New Hampshire Supreme Court recognizes that “one of
the desirable and legitimate attributes of the corporate form of
doing business is the limitation of the liability of the owners
to the extent of their investment.”
LaMontagne, 150 N.H. at 275
(quoting Previte, 113 N.H. at 582).
Based on the foregoing, in New Hampshire, corporate veil
piercing and the alter-ego doctrine have been used to do one
thing only: hold the owners of corporations liable for the debts
of the corporations they own.
Plaintiffs have identified no
authority, and the court‟s research has identified none, for the
proposition that New Hampshire would, if presented with the
question, adopt a single-enterprise theory such as California‟s,
under which an entity other than a the owner of a corporation
could be held liable for that corporation‟s conduct by means of
veil piercing.
Moreover, in an opinion in which it rejected a
plaintiff‟s claim that it was entitled to hold an individual
liable for the debts of two corporations he controlled, the New
Hampshire Supreme Court stated that “the fact that one person
controls two corporations is not sufficient to make the two
corporations and the controlling stockholder the same person
under the law.”
Vill. Press, Inc. v. Stephen Edward Co., 120
19
N.H. 469, 471 (1980) (citing Waff Bros., Inc. v. Bank of N.C.,
N.A., 221 S.E.2d 273 (N.C. 1976)).
Plaintiffs‟ argument that New Hampshire does, in fact,
recognize the single-enterprise theory, as applied in Bleu
Products, is not persuasive.
Norwood.
Plaintiffs base their argument on
However, the only veil-piercing issue the court
decided in Norwood was that “the plaintiffs‟ equitable petition
to pierce the corporate veil [was] governed by the twenty-year
statute of limitations for actions to enforce a judgment.”
N.H. at 725.
149
The court “remand[ed] [the veil-piercing petition]
to the trial court to address its merits.”
Id. at 727.
Moreover, while the Norwood court found persuasive the reasoning
of Wm. Passalacqua Builders, Inc. v. Resnick Developers South,
Inc., 608 F. Supp. 1261 (S.D.N.Y. 1985), aff‟d in part, rev‟d in
part, 933 F.2d 131 (2d Cir. 1991), the only reasoning from
Passalacqua that the Norwood court applied was what Judge
Edelstein had to say about the proper statute of limitations,
see 149 N.H. at 725.
Beyond that, the decision in Passalacqua
did not resolve any veil-piercing or alter-ego issues on the
merits.
See 608 F. Supp. at 1265.
Finally, the veil piercing
at issue in Norwood was a garden-variety attempt to hold
corporate shareholders liable for the debts of the corporation,
see 149 N.H. at 723, not an attempt to hold a corporate entity
20
liable for the conduct of its corporate sibling.
Thus, Norwood
simply did not involve the question presented in this case.
In sum, Norwood provides no support for the proposition
that New Hampshire subscribes to the single-enterprise theory
that Judge Snyder applied in Bleu Products.
Given that
plaintiffs‟ claims against BV Inc. are based upon a principle of
law not yet adopted in New Hampshire, this court is perhaps not
the best forum for pursuing a claim that depends on piercing the
corporate veil between BV Inc. and BV Ltd.
“This court is and
should be hesitant to blaze new, previously uncharted state-law
trails.”
Pimental v. Dartmouth-Hitchcock Clinic, 236 F. Supp.
2d 177, 188 (D.N.H. 2002) (quoting Dennis v. Husqvarna Forest &
Garden Co., Civ. No. 94-309-M, 1994 WL 759187, at *7 (D.N.H.
Dec. 27, 1994)).
Accordingly, “„[l]itigants who reject a state
forum in order to bring suit in federal court under diversity
jurisdiction cannot expect that new trails will be blazed‟
through the field of state common law.”
Minion Inc. v. Burdin,
929 F. Supp. 521, 526 (D.N.H. 1996) (quoting Ryan v. Royal Ins.
Co., 916 F.2d 731, 744 (1st Cir. 1990)); see also Gill v.
Gulfstream Park Racing Ass‟n, Inc., 399 F.3d 391, 402 (1st Cir.
2005) (“A federal court sitting in diversity cannot be expected
to create new doctrines expanding state law.”) (citing A.
Johnson & Co. v. Aetna Cas. & Sur. Co., 933 F.2d 66, 73 n.10
21
(1st Cir. 1991)).
Because plaintiffs‟ single-enterprise theory
does not appear to be the law of New Hampshire, BV Inc. is
entitled to dismissal of the claims plaintiffs assert in Counts
XIII through XVIII.
B. The Factual Allegations Concerning BV Inc.
Even if New Hampshire law did permit plaintiffs to assert a
claim against BV Inc. to recover for BV Ltd.‟s alleged
negligence under a veil-piercing or alter-ego theory such as the
one employed in Bleu Products and Pan Pacific, the facts alleged
by plaintiffs in this case are so unlike the facts supporting
veil piercing under California law that BV Inc. would still be
entitled to dismissal of plaintiffs‟ claims against it.
Before turning to an analysis of plaintiffs‟ factual
allegations, however, it is important to clarify things just a
bit.
While plaintiffs‟ second amended complaint attempts to
make one big defendant out of BV S.A., BV Inc. and BV Ltd., what
is really at issue is plaintiffs‟ attempt to pierce the
corporate veil between BV Inc. and BV Ltd. so as to hold BV Inc.
liable for BV Ltd.‟s conduct.
To the extent that plaintiffs
attempt to create one unitary BV entity out of a parent company
and two of its subsidiaries, in which each component entity is
responsible for the conduct of every other component entity,
plaintiffs not only rely on a theory the New Hampshire Supreme
22
court appears to have rejected, see Village Press, 120 N.H. at
471, but they also seem to extend the “single-enterprise theory”
beyond even its application in California.
In Pan Pacific, the court pierced the corporate veil
between Ralmor and Greendale in order to hold Greendale liable
for Ralmor‟s debts.
See 333 P.2d at 806.
In Las Palmas, the
court described the single-enterprise rule as allowing liability
to flow between “sister companies,” and created a singleenterprise composed of only two corporations.1
2d at 318.
See 1 Cal. Rptr.
In Bleu Products, which involved BV S.A., BV Inc.,
and BV-Shanghai, both the plaintiff and the court treated the
relationships between BV S.A. and each of its two subsidiaries
separately.
See 2009 WL 2412413, at *13-*15.
Thus, the court
appears to have regarded BV S.A. and BV-Shanghai as a single
enterprise and BV Inc. and BV-Shanghai as a single enterprise,
rather than treating BV S.A., BV Inc., and BV-Shanghai as one
three-component single enterprise.
In other words, plaintiffs
have identified no case in which a court has created anything
other than a two-entity single enterprise, which means that they
have identified no authority for the creation of the three1
The Las Palmas court also quoted a California treatise‟s
quotation of a 1947 law-review article that mentioned the
possibility of a single enterprise composed of “two or more
legal personalities,” 1 Cal. Rptr. 2d at 318, but, again, the
single enterprise the Las Palmas court actually created was
composed of only two legal personalities.
23
entity single enterprise they ask the court to create here.
Thus, under the California single-enterprise veil-piercing
theory, as applied by the courts that decided Bleu Products, Las
Palmas, and Pan Pacific, plaintiffs can state claims against BV
Inc. only to the extent they allege facts which, if true, would
support a determination that BV Inc. was BV Ltd.‟s alter ego.
They have not done so.
Plaintiffs‟ clearest factual allegations are that: (1) BV
Ltd. conducted flammability testing on the fabric A-One used to
make the robe Blair sold to Velma Michnovez; and (2) BV Inc. and
BV Ltd. are wholly owned subsidiaries of BV S.A.
Rather more
fuzzy are plaintiffs‟ allegations that: (1) Blair contracted
with BV S.A., BV Inc., and/or BV Ltd. to perform fabric testing;
(2) BV S.A., BV Inc. and/or BV Ltd. certified to Blair that the
fabric met certain flammability standards.
Plaintiffs also
allege that BV S.A., BV Inc., and BV Ltd. held themselves out as
a single global entity through the stationary used for BV Ltd.‟s
report to Blair, described above, and through a web site,
portions of which are attached as an exhibit to plaintiffs‟
motion for leave to file a second amended complaint.
The
testing report plaintiffs attached to their motion for leave to
file a second amended complaint bears a generic “Bureau Veritas”
logo but includes the name of only one of the three BV entities
24
named as defendants in this case, BV Ltd.
Finally, plaintiffs
allege, again without much precision, that: BV Ltd. was “an
agent, department, alter-ego, and/or instrumentality” of BV S.A.
and BV Inc.; (2) individuals in BV S.A. and BV Inc. exercised
substantial control over BV Ltd.; (3) all three entities shared
human resources; and (4) all three entities “were the partners,
agents, employers, employees, joint venturers, representatives,
independent contractors” of each other.
Nowhere does the second amended complaint make a specific
factual allegation linking BV Inc. and BV Ltd.
Rather,
plaintiffs make allegations, generally conclusory, linking all
three entities with the conjunction “and/or,” or they make
allegations that link BV Ltd. to BV S.A. and BV Inc., without
differentiating between BV S.A. and BV Inc., and without further
identifying specific links between BV Ltd. and BV Inc.
By contrast, in Bleu Products, the operative complaint
contained numerous specific factual allegations concerning the
relationship between BV Inc. and BV-Shanghai.
Specifically, the
plaintiffs in Bleu Products alleged that BV Inc.: (1) set up the
testing protocols used by BV-Shanghai, 2009 WL 2412413, at *13;
(2) monitored the inspections conducted by BV-Shanghai, id.; (3)
responded to the plaintiff‟s complaint about the inspection
conducted by BV-Shanghai, id.; (4) established the contract
25
between the plaintiff and BV-Shanghai, id.; (5) was named in the
Costco request form, id.; (6) caused BV-Shanghai to conduct the
testing at issue, id.; (7) knew that the testing report prepared
by BV-Shanghai was fraudulent before the jackets were shipped to
Costco, id. at *14; and (8) telephoned the plaintiffs and
initiated an allegedly phony investigation into BV Ltd.‟s
inspection, id.
The differences between the factual allegations
in Bleu Products and this case are dramatic, so much so that the
court concludes that, in this case, the allegations purporting
to establish alter-ego liability fail to meet the pleading
standards established by Iqbal.
Plaintiffs have simply failed
to make factual allegations concerning BV Inc.‟s conduct
sufficient to make BV Inc. liable for the acts or omissions of
BV Ltd. under California‟s single-enterprise theory.
In like manner, the facts alleged in the second amended
complaint are, with one exception, substantially different from
the facts of Pan Pacific.
In Pan Pacific, the plaintiff proved
that the shareholders of Ralmor were R.L. Blink, M.S. Hoffberg,
and their wives, while the shareholders of Greendale were Blink
and Hoffberg.
333 P.2d at 805.
Here, plaintiffs allege that BV
Inc. and BV Ltd. are both wholly owned subsidiaries of BV S.A.
But there the similarity ends.
26
In Pan Pacific, the plaintiff proved that the directors of
Ralmor were Blink, Hoffberg, and their wives, while the
directors of Greendale were Blink, Hoffberg, and their attorney,
who stopped attending board meetings approximately one month
after Greendale was incorporated.
333 P.2d at 805.
Here,
plaintiffs allege no facts concerning the directors of BV Inc.
and BV Ltd.
In Pan Pacific, the plaintiff proved that the
officers of both Ralmor and Greendale were Blink and Hoffberg.
Id.
Here, plaintiffs allege no facts concerning the officers of
BV Inc. and BV Ltd.
In Pan Pacific, the plaintiff demonstrated
co-mingling of assets by proving a pattern of loans between
Ralmor and Greendale.
Id. at 806.
Here, plaintiffs allege no
facts that would support a finding that BV Inc. and BV Ltd. comingled their assets.
In Pan Pacific, the plaintiff
demonstrated undercapitalization by proving that both Ralmor and
Greendale operated largely on borrowed money, were heavily
indebted, and unable to pay their obligations.
Id.
Here,
plaintiffs allege no facts that would support a finding that
either BV Inc. or BV Ltd. was undercapitalized.
Aside from
common ownership, plaintiffs in this case allege none of the
factors that inspired the court in Pan Pacific to pierce the
corporate veil between Ralmor and Greendale.
27
To conclude, even if the California single-enterprise rule
were the law of New Hampshire, plaintiffs have not alleged facts
sufficient to justify piercing the corporate veil between BV
Inc. and BV Ltd.
C. Insufficient Allegations of Injustice or Fraud
Finally, even if New Hampshire recognized California‟s
single-enterprise rule, and even if plaintiffs had adequately
alleged conduct by BV Inc. of the sort that would subject it to
liability for BV Ltd.‟s conduct, plaintiffs‟ claims against BV
Inc. would still be subject to dismissal for a failure to
adequately allege injustice or fraud.
As the court has already noted, in New Hampshire, “[w]hen
courts pierce the corporate veil, they „assess individual
liability where the owners have used the corporate identity to
promote injustice or fraud.‟”
N.E. England Homes, 150 N.H. at
737 (quoting Norwood, 149 N.H. at 724)).
As for what
constitutes injustice or fraud, the New Hampshire Supreme Court
has explained:
In determining whether it is appropriate to apply the
alter ego doctrine, other courts have inquired whether
the corporation is undercapitalized, IZE Nantan
Bagowa, Ltd. v. Scalia, [577 P.2d 725 (Ariz. Ct. App.
1978)]; Harris v. Curtis, 87 Cal. Rptr. ([Cal. Ct.
App.] 1970), and whether the stockholder is using the
corporation to further his own private business rather
than that of the corporation. House of Koscot Dev.
Corp. v. American Line Cosmetics, Inc., 468 F.2d 64
28
(5th Cir. 1972); Holahan v. Henderson, 277 F. Supp.
890 (W.D. La. 1967); Kirk v. H.G.P. Corp., 494 P.2d
1087 ([Kan.] 1972).
Village Press, 120 N.H. at 471 (parallel citations and
subsequent history omitted).
In LaMontagne, the New Hampshire Supreme Court affirmed the
trial court‟s decision to pierce the corporate veil and find a
corporation‟s owner, R. Scott Brooks, liable for the
corporation‟s debts to the plaintiff based on the following
findings:
(1) Brooks breached an express promise to LaMontagne
and LBI to pay LBI out of the April 30, 1997 loan
proceeds; (2) Brooks made the promise to pay LBI in
order to stop LaMontagne from filing a mechanic‟s lien
or interfering with the loan; (3) Brooks knew that the
promise to pay LBI when confirmed and documented by
Attorney Cleary would cause LaMontagne to not file a
mechanic‟s lien or interfere with the bank loan; (4)
Brooks had no intention of honoring the promise to pay
LBI; (5) Brooks breached his promise to pay LBI
without good cause; (6) Brooks‟ claimed reasons for
breaching the promise to pay LBI were disingenuous and
raised in bad faith; and (7) Brooks, his family, or
his family-controlled business received most or all of
the loan proceeds.
150 N.H. at 275.
In Terren, the New Hampshire Supreme Court affirmed the
trial court‟s decision to pierce the corporate veil and hold a
corporation‟s shareholders liable when the trial court “found
that the substantial depletion of corporate assets by defendants
Butler [the shareholders] after being advised that defects
29
existed in the project provides a sufficient basis to find that
defendants Butler used the corporate entity to promote an
injustice and/or fraud on the plaintiffs.”
134 N.H. at 640.
The evidence on which the trial court relied included the
following: (1) the defendants were the sole shareholders and
directors of the corporation whose veil was pierced; (2) the
defendants never paid the stated consideration for their shares
in the corporation; (3) the defendants paid themselves
compensation of over $150,000 in each of two successive years;
(4) the defendants received nearly $250,000 in repayment of
shareholder loans; (5) the defendants received more than $90,000
in stock distributions; and (6) the corporation‟s sole asset was
a condominium project valued at $100,000.
Id.
LaMontagne and Terren are the only two opinions since 1945
in which the New Hampshire Supreme Court has ruled veil piercing
to be appropriate.
In this case, plaintiffs‟ second amended
complaint makes no allegations of injustice or fraud that come
close to the injustice or fraud at issue in LaMontagne and
Terren.
In both of those cases, the owners of the corporations
in question enriched themselves out of corporate coffers,
leaving the corporations themselves with insufficient resources
to pay their debts, and in LaMontagne, Brooks upped the ante by
making repeated misrepresentations to the corporation‟s
30
creditors.
Here, by contrast, plaintiffs make no specific
allegations concerning the relationship between BV Ltd. and the
target of the veil piercing, BV Inc.
Thus, plaintiffs do not
allege any abuse or misuse of BV Ltd.‟s corporate form by BV
Inc., much less that BV Inc. benefitted from any such abuse.
In their objection to BV Inc.‟s motion to dismiss,
plaintiffs argue:
It is known and alleged that failure to apply the
single enterprise theory here will result in injustice to
the plaintiffs. While [BV Inc.] claims that plaintiffs
have pointed to no injustice, that argument is undercut
by the recent filing by [BV Ltd.] of a motion to dismiss,
arguing lack of personal jurisdiction in New Hampshire.
That of course is the point of this entire master plan
concocted by [BV S.A.] – to create small, undercapitalized testing entities in the far corners of the
world, exert pervasive control over those entities, and
then to argue that consumers in states such as New
Hampshire cannot recover for negligently conducted
testing due to lack of personal jurisdiction. Such a
system must not be sanctioned; in fact, avoidance of such
injustice is the precise justification for the doctrine
of disregarding “the fiction of the corporation when
circumstances would lead to inequitable results[.]” One
of these inequitable results is to allow a defendant to
ignore the corporate form in order to evade personal
jurisdiction.
Pl.‟s Obj. (doc. no. 59), at 7-8 (quoting N. Laminate Sales,
Inc. v. Matthews, 249 F. Supp. 2d 130, 141 (D.N.H. 2003); citing
Newport News Holdings Corp. v. Virtual City Vision, Inc., ___
F.3d ___, ___, 2011 WL 1467183, at *4-*5 (4th Cir. Apr. 18,
2011); Patin, 294 F.3d at 653 n.18).
The second amended
complaint, however, contains no allegations about BV Ltd.‟s
31
capitalization, no allegations that BV Inc. created BV Ltd., and
no allegations that BV Inc., on its own, exerted any control
over BV Ltd.
That is, while plaintiffs‟ objection posits some
sort of unified global BV entity, the second amended complaint
does not even include the kind of conclusory allegations found
adequate by the Bleu Products court, see 2009 WL 2412413, at
*13, to establish the injustice/fraud element of a veil-piercing
claim.
Finally, notwithstanding plaintiffs‟ reliance on Newport
News and Patin, the opinions in those cases provide no support
for plaintiffs‟ argument for veil piercing.
Plaintiffs‟ primary
claim of injustice is that this court may lack personal
jurisdiction over BV Ltd., the entity plaintiffs charge with
negligently testing the material from which Velma Michnovez‟s
robe was made.
Without more, however, the mere fact that
plaintiffs may not be able to sue BV Ltd. in this forum is
insufficient to establish injustice.
See Luckett v. Bethlehem
Steel Corp., 618 F.2d 1373, 1379 (10th Cir. 1980) (holding that,
under Oklahoma law, “the possible inconvenience to plaintiff
. . . in suing Bethlehem Singapore in another forum is [not] the
type of injustice which warrants piercing the corporate veil”).
Claims fail for lack of personal jurisdiction all the time
32
without any cognizable injustice being done to the unsuccessful
plaintiff.
In Newport News, which involved a traditional veil piercing
to reach the owner of a corporation, the court noted:
[F]ederal courts have consistently acknowledged that
it is compatible with due process for a court to
exercise personal jurisdiction over an individual
. . . that would not ordinarily be subject to personal
jurisdiction in that court when the individual . . .
is an alter ego . . . of a corporation that would be
subject to personal jurisdiction in that court.
___ F.3d at ___, 2011 WL 1467183, at *4 (quoting Patin, 294 F.3d
at 653 n.18).
In Newport News, the injustice was that the forum
the plaintiff selected had personal jurisdiction over a
corporation that allegedly harmed the plaintiff, but lacked
personal jurisdiction over an out-of-forum individual who was
the corporation‟s alter ego.
Based on the identity between the
out-of-forum owner and the corporation over which the court had
personal jurisdiction, the court pierced the veil between the
corporation and its owner to hold the owner personally liable
for the corporation‟s actions.
Id. at *5.
This case is the inverse of Newport News.
The court has
personal jurisdiction over the entity plaintiffs seek to hold
liable, i.e., BV Inc.; what is potentially missing is personal
jurisdiction over the entity that allegedly committed tortious
acts against plaintiffs.
So, rather than seeking to pierce a
33
corporate veil to pull in out-of-forum assets to provide
compensation for unlawful in-forum conduct, plaintiffs here seek
to pierce a corporate veil to pull in out-of-forum conduct in
the hope of holding an in-forum party liable for it.
The bottom
line is this: the rule from Patin restated in Newport News seems
inapplicable to the facts of this case.
Shielding assets by
keeping them out of a forum in which the asset holder is doing
business through an alter ego, which is what the corporate owner
in Newport News did, is very different from being the corporate
sibling of an out-of-forum entity alleged to have engaged in
unlawful conduct, which is the claim in this case.
Based on the foregoing, it could be that the better legal
theory is not veil piercing, but vicarious liability.
In
Luckett, a case in which the plaintiffs attempted to hold an
American corporation liable for the acts of its Singapore
subsidiary, the court of appeals affirmed the trial court‟s
grant of summary judgment to the defendants on the plaintiffs‟
veil-piercing theory, see 618 F.2d at 1378-79, but reversed and
remanded the trial court‟s grant of summary judgment to the
defendants on the plaintiffs‟ vicarious liability theory, see
id. at 1379-83.
Unfortunately for plaintiffs in this case, even
if they had invoked the theory of vicarious liability, their
complaint does not allege sufficient facts that, if proven,
34
would establish an agency relationship between BV Inc. and BV
Ltd. sufficient to make BV Inc. liable for the acts and
omissions of BV Ltd.
See Dent v. Exeter Hosp., Inc., 155 N.H.
787, 792 (2007) (describing the elements of the relationship
that must be proven to make a principal vicariously liable for
the conduct of its agent); Porter v. City of Manchester, 151
N.H. 30, 39-40 (2004); Boissonnault v. Bristol Fed‟d Church, 138
N.H. 476, 477-78 (1994).
Because plaintiffs have not adequately
alleged an agency relationship between BV Inc. and BV Ltd., they
have failed to establish an adequate basis for holding BV Inc.
vicariously liable for BV Inc.‟s conduct.
In sum, plaintiffs have failed to allege sufficient facts
to establish the injustice/fraud element of a veil-piercing
claim, and have also failed to allege facts sufficient to
support a claim that BV Inc. is vicariously liable for the acts
and omissions of BV Ltd.
Conclusion
As the court has explained: (1) the single-enterprise
theory of corporate veil piercing is not the law of New
Hampshire; (2) plaintiffs have failed to allege conduct by BV
Inc. that would subject BV Inc. to liability under California‟s
single-enterprise veil-piercing theory; (3) plaintiffs have
failed to adequately allege the injustice/fraud element of a New
35
Hampshire veil-piercing claim; and (4) plaintiffs have not
alleged sufficient facts to state a claim that BV Inc. is
vicariously liable for BV Ltd.‟s conduct.
Accordingly, BV
Inc.‟s motion to dismiss (doc. no. 50) is granted.
SO ORDERED.
__________________________
Landya McCafferty
United States Magistrate Judge
Date:
cc:
June 13, 2011
David P. Angueira, Esq.
Eric K. Blumenfeld, Esq.
Alan L. Cantor, Esq.
Joel Thomas Emlen, Esq.
Dona Feeney, Esq.
Bruce W. Felmly, Esq.
James C. Fitzpatrick, Esq.
D. Patterson Gloor, Esq.
Theodore V.H. Mayer, esq.
Steven M. Shear, Esq.
Edward M. Swartz, Esq.
Jori L. Young, Esq.
36
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