CSX Transportation, Inc., v. Filco Carting Corp.

Filing 22

MEMORANDUM & ORDER: Defendant's 12 motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is GRANTED. The Clerk of Court is directed to close this case. Ordered by Judge Nicholas G. Garaufis on 7/7/2011. (fwd'd for jgm) (Lee, Tiffeny)

FILEoP/F
IN CLERK'S OFFICE
U S DISTRICT COURT E.O.N.Y.

* JUL 1 1 2011 *

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

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BROOKLYN OFFICE

CSJC TRANSPORTATION, INC.,

MEMORANDUM & ORDER
Plaintiff,
10-CV-1055 (NGG) (JMA)
-againstFILCO CARTING CORP.,
Defendant.

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NICHOLAS G. GARAUFIS, United States District Judge.
Plaintiff CS){ Transportation Inc. ("CSX') brings this action against Defendant Filco
Carting Corp. ("Filco'') to enforce a July 10,2009 judgment obtained against Filco's alleged alter
ego, stemming from the alter ego's breach of its contract with CSJC. (Compl. (Docket Entry
# 1).) Filco moves to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6).
(Def.'s Mot. (Docket Entry# 12).) For the reasons set forth below, the court grants Filco's
motion.
I.

LEGAL STANDARD
In reviewing a motion to dismiss, the court accepts as true all allegations of fact made by

the plaintiff and draws all reasonable inferences in the plaintiff's favor. See ATSI Commc'ns,
Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). To survive a Rule 12(b)(6) motion, a
complaint must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that
is plausible on its face."' Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corn.
v. Twombly, 555 U.S. 544, 570 (2007)). The complaint must set forth factual allegations that are
sufficient "to raise a right to relief above the speculative level." Twombly, 555 U.S. at 555.

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II.

BACKGROUND
In 2005, CSX, an interstate rail carrier, contracted with Meserole Street Recycling

("Meserole"), a New York recycling services company, to ship 194 railcars worth of postconsumer recyclable material, such as recycled office paper, to Manistee, Michigan for
processing. (See Compl.

'If 31.) Meserole receives almost all of its recyclable material from

Filco, a waste collection company. (I d. 'V 9.) In May 2006, the Michigan Department of
Environmental Quality ("MDEQ") inspected some of the railcars in CSX' s possession, loaded
with Meserole's waste, and concluded that the materials in the railcars were not properly
recyclable.

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for processing.

'11'1!44-46.) As such, MDEQ refused to let CSX unload the railcars in Michigan

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'1[47.) To dispose of the material, CSX was required to pay $2 million in

"reverse routing" and disposal charges.

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'11'11

50-51.) CSX subsequently brought suit against

Meserole in the U.S. District Court for the Western District of Michigan. (Id. 'If 55.) On July 10,
2009, CSX obtained a consent judgment against Meserole for $2 million. (ld.) CSX then
registered the judgment in this court under 28 U.S.C. § 1963, and sought enforcement against
Meserole. Judgment, CSX Transp., Inc. v. Meserole Street Recycling. No. 09-mc-494 (E.D.N.Y.
July 27, 2009). Meserole has refused to satisfy the judgment. (Compl. '1[57.) CSX now brings
this action against Filco, alleging that Filco is Meserole's alter ego, and therefore, that the court
should "pierce the corporate veil" against Filco to satisfy the judgment obtained against
Meserole. (Id. '1[61.)
III.

DISCUSSION
A.

Subject Matter Jurisdiction

Although neither party contests the issue, the court feels obligated to raise the issue of
subject matter jurisdiction in light of the technical complexities involved in enforcing a judgment
in a subsequent proceeding. A party who possesses a prior judgment obtained in a federal

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district court may attempt to enforce that judgment in another federal district court by registering
the judgment with that court. 28 U.S.C. § 1963. Where the party possessing the judgment seeks
to enforce it against a third party on a corporate identity theory, such as "piercing the corporate
veil," such enforcement "is not itself an independent [] cause of action, but rather is a means of
imposing liability on an underlying cause of action." Peacock v. Thomas, 516 U.S. 349 (1996)
(dismissing attempt to enforce a judgment against a third party for lack of subject matter
jurisdiction in the ERISA context). Because the enforcement action against the third party is not
an independent cause of action, the party seeking to enforce the judgment against the third party
must separately establish federal subject matter jurisdiction. See id. It may do so by either (a)
demonstrating that the court has independent grounds for federal subject matter jurisdiction over
the action, such as a federal question, see id. at 353-54, or diversity of citizenship, see C.F. Trust.
Inc. v. First Flight Ltd., 306 F.3d 126, 133-34 (4th Cir. 2002); or (b) proving that the
enforcement action is pursuant to the court's ancillary jurisdiction, see Peacoc~ 516 U.S. at 35455. CSX does so here by sufficiently alleging that the court has diversity jurisdiction over its
cause of action. CSX' s Complaint asserts that its action is diverse, in that CSX is a citizen of
Virginia and Florida, and that Filco is a citizen of New York, and the amount in controversyhere, $2 million-is more than $75,000. See 28 U.S.C. § 1332(a)(l). Therefore, although
CSX' s attempt to enforce its prior judgment against Filco is not itself an independent cause of
action, the court otherwise has subject matter jurisdiction to decide this case.
B.

Enforcement of Registered Judgments
I.

Procedure

If the party seeking to enforce a registered judgment against a third party can establish
federal jurisdiction, 28 U.S.C. § 1963 provides that the ''judgment so registered shall have the
same effect as a judgment of the district court of the district where registered and may be
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enforced in like manner." This means that an out-of-district, registered judgment "ha[s] the same
effect, and [is] entitled to the same protection, as if it had been entered in [the registered district]
in the first instance." Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi
Negara, 500 F.3d Ill, 121 (2d Cir. 2007). Federal Rule of Civil Procedure 69(a)(l) governs the
enforcement of judgments and provides that "[a] money judgment is enforced by a writ of
execution .... The procedure on execution ... must accord with the procedure of the state
where the court is located, but a federal statute governs to the extent it applies." To that end, the
procedure for enforcing a registered judgment follows the state law of the district in which the
judgment is registered. Karaha Bodas, 500 F.3d at 121.
Accordingly, a party's attempt to enforce a judgment registered in a federal district court
in New York must comply with New York Civil Practice Law and Rules ("CPLR") § 5225.
Cordius Trust v. Kummerfeld, 153 Fed. App'x 761,762-63 (2d Cir. 2005) ("In New York, veilpiercing actions may be initiated as supplementary special proceedings under [CPLR] § 5225(b),
rather than as plenary actions." (citing Morris v. N.Y. State Dep't of Taxation & Fin., 82 N.Y.2d
135 (1993))). CPLR § 5225(b) generally allows a party to enforce a judgment against a third
party on a veil-piercing theory, "[u]pon a special proceeding commenced by the judgment
creditor." N.Y. C.P.L.R. § 5225(b); WBP Cent. Assocs .. LLC v. DeCola, 855 N.Y.S.2d 210,
211 (2d Dep't 2008) (citing Julien J. Studley. Inc. v. Lefrak, 48 N.Y.2d 954,956 (1979)).
Despite the statute's ''upon a special proceeding" language, CPLR § 5225(b) is satisfied for
purposes of enforcing a registered, federal district court judgment when the plaintiff proceeds by
complaint in federal court. See Cordius, 153 F. App'x at 763 (concluding that where plaintiff
filed complaint in federal court, plaintiffs "veil-piercing action was properly brought as a special
proceeding under CPLR § 5225"); Mitchell v. Lyons Prof'! Servs .. Inc., 727 F. Supp. 2d 120,

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122-23 (E.D.N.Y. 2010) ("If a party mistakenly seeks relief by motion in an action when it
should be by special proceeding, the Court may simply deem the motion a special proceeding, if
it has jurisdiction over the parties." (citing Vincent C. Alexander, N.Y. C.P .L.R. § 103, Official
Commentarv, Cl 03:3)). Consequently, although CSX seeks to enforce its prior federal judgment
by way of complaint, rather than a "special proceeding," CSX has satisfied CPLR § 5225(b) for
purposes of the instant action.
2.

Substantive Law

CSX seeks to enforce its prior judgment against Meserole against Filco, on the theory
that Filco is the alter ego of Meserole, and therefore, the court should "pierce the corporate
veil." 1 (Compl. '1[61.) In New York, "[t]he concept of piercing the corporate veil is a limitation
on the accepted principle that a corporation exists independently of its owners, as a separate legal
entity." Morris, 82 N.Y.2d at 140. The court may pierce the corporate veil only where the
plaintiff can prove "that: (I) the [defendant] owners exercised complete domination of the
corporation in respect to the transaction attacked; and (2) that such domination was used to
commit a fraud or wrong against the plaintiff which resulted in plaintiffs injury." Id. at 141. To
prevail on a claim veil-piercing claim, the plaintiff must prove both prongs of this test. See id.
Therefore, even if a plaintiff can prove that the third party indeed exercised complete domination
over the debtor corporation, "[t]he party seeking to pierce the corporate veil must [also] establish
that the owners, through their domination, abused the privilege of doing business in the corporate
form to perpetrate a wrong or injustice against that party such that a court in equity will
intervene." Id. at 142; see also Cordius, 153 F. App'x at 763-64 (vacating and remanding district

1
Under New York law, "alter ego" and "veil piercing" claims are synonymous. See TNS Holdings. Inc. v. MKI
Sees. Corn., 92 N.Y.2d 335,339-40 (1998).

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court's grant of writ of execution where factual record "ha[d] not yet demonstrated [how the
third party] used his domination of [the judgment debtor] to cause [the alleged] wrongs").
This is a "heavy burden." TNS Holdings. Inc. v. MKI Sees. Com., 92 N.Y.2d 335,339
(1998). Where the defendant has a "legitimate business purpose" itself, the court should not
disregard the corporate structure. See id. at 339-40 ("An inference of abuse does not arise from
this record where a corporation was formed for legal purposes or is engaged in legitimate
business."); Morris, 82 N.Y.2d at 144-45 (concluding that it would not pierce the defendant's
corporate veil on tax fraud allegations where defendant had a legitimate business purpose and
was not a "sham" corporation). Rather, the defendant must have "perverted the privilege of
doing business in a corporate form," such as "misus[ing] the corporate form for its personal ends
so as to commit a fraud or wrongdoing or avoid any of its obligations." TNS Holdings, 92
N.Y.S.2d at 340 (internal punctuation and citations omitted). Further, the alleged wrongdoing
must have "resulted in the plaintiffs injury," Morris, 82 N.Y.2d at 141, such as the siphoning of
assets from the defendant to another corporation for the purpose of avoiding liability to the
plaintiff. See Peery v. United Capital Com., 924 N.Y.S.2d 470,473 (2d Dep't 2011). Where
the challenged complaint lacks "this causative element-i.e., the use of domination to cause the
injury ... [it should] result[] in the dismissal of the corporate veil-piercing allegation." EED
Holdings v. Palmer Johnson Acquisition Com., 228 F.R.D. 508, 513 (S.D.N.Y. May 19, 2005);
see also White v. Nat'! Home Prot.. Inc., No. 09 Civ. 4070 (SHS), 2010 WL 1706195, at *5
(S.D.N.Y. Apr. 21, 2010) (dismissing complaint where the "plaintiff makes no such allegation
[of causation], contending solely that the corporation--as a corporation-perpetrated a fraud.
Such allegations do not warrant veil piercing.").

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Here, even assuming that CSX has sufficiently alleged that Filco exercised complete
domination of Meserole, CSX's Complaint falls far short of alleging that Filco has so abused the
corporate form with respect to its relationship with Meserole that the court should pierce the veil
between the two to hold Filco liable for Meserole's judgment. See TNS Holdings, 92 N.Y.S.2d
at 340. First, the Complaint itself identifies several oflegitimate business purposes of Filco. See
id. (concluding that courts should not pierce the corporate veil where the defendant corporation
has a legitimate business purpose). For example, "Filco is a carting company which owns and
operates a fleet of approximately forty trucks and which collects approximately one-thousand
tons of waste materials from all five New York Boroughs," (Compl., 6), and that "Filco
generates revenue by charging the business from which it collects waste," Ull, 8). These
allegations run contrary to notion that Filco was established for the purpose of avoiding
Meserole's liabilities or that Filco was a "sham" business. See Morris, 82 N.Y.2d at 144-45.
Second, the Complaint wholly fails to allege that Filco has somehow perverted the
corporate privilege by, for example, using its corporate body for its directors' personal ends or
for the purpose of wrongfully avoiding liability. See TNS Holdings, 92 N.Y.S.2d at 340.
Indeed, the Complaint alleges no facts to link Meserole's refusal to pay the judgment against it to
Filco's conduct. Rather, the Complaint's only allegation regarding Filco's responsibility for
Meserole's judgments-as opposed to the underlying breach of contract already litigated in the
Western District of Michigan-is that "Meserole was Filco's alter ego and, consequently, Filco
is liable for and must satisfy the Final Judgment." (Compl. ~ 61.) This one conclusory statement
begs the question of why Filco should be liable for Meserole's judgment, and cannot serve to
replace factual allegations. The Complaint, as a whole, simply does not include factual
allegations sufficient "to raise a right to relief above the speculative level." Twombly, 555 U.S.

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at 555; see also Cordius Trust, 153 F. App'x at 763 (remanding case to district court where
plaintiff did not establish facts, on summary judgment, as to how the alleged abuses of corporate
form harmed the plaintiff); cf. De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996)
(concluding that plaintiff's assertion, in a RICO action, that the subsidiary "caused" the
corporate parent to ratify its bad acts was "devoid of any specific facts or circumstances
supporting this assertion").
And third, the Complaint fails to allege any facts that suggest that the alleged corporate
misconduct harmed CSX. Regarding the alleged misconduct, the Complaint only suggests that
"Filco knew or should have known that the waste which Meserole loaded into the 194 Railcars
was waste which had no resale value, and that it would have to incur significant costs in
disposing of this waste," and that "Filco knew or should have known that the waste which
Meserole loaded into the 194 Railcars had to be land filled or otherwise disposed of, and that it
could not be recycled." (Compl.11j34-35.) But these allegations do not relate to, nor does any
other part of the Complaint describe, how this alleged misconduct resulted in Meserole's refusal
to pay the judgment entered against it. These allegations may, perhaps, be used to establish that
Filco should be responsible for the underlying action-the breach of contract arising out of the
improper loading of the 194 railcars-but lacks the "causative element" describing how Filco' s
alleged ties to Meserole caused Meserole to refuse to honor the judgment against it. See EED
Holdings, 228 F.R.D. at 513.
The court is troubled by the allegations in the Complaint that Meserole has refused to pay
a federal judgment entered against it in another federal district court. Nonetheless, even if all of
CSX's allegations are taken as true, see ATSI Commc'ns, 493 F.3d at 98, the Complaint does not
contain sufficient factual allegations to state a claim that Filco should be held liable for

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Meserole'sjudgrnent under a veil-piercing theory. See Iqbal, 129 S. Ct. at 1949. Accordingly,
the court must grant Filco's motion and dismiss CSX's complaint pursuant to Federal Rule of
Civil Procedure I 2(b)(6).

IV.

CONCLUSION
Defendant's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is

GRANTED. The Clerk of Court is directed to close this case.
SO ORDERED.

s/Nicholas G. Garaufis
Dated: Brooklyn, New York
Julyq,_, 2011

ICHOLAS G. GARAUFIS
nited States District Judge

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