ATLANTIC PIER ASSOCIATES, LLC v. BOARDAKAN RESTAURANT PARTNERS, L.P. et al

Filing 98

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE LOUIS H. POLLAK ON 8/2/10. 8/3/10 ENTERED AND COPIES E-MAILED.(ti, )

ATLANTIC PIER ASSOCIATES, LLC v. BOARDAKAN RESTAURANT PARTNERS, L.P. et al

Doc. 98

U N IT E D STATES DISTRICT COURT F O R THE EASTERN DISTRICT OF PENNSYLVANIA

ATLANTIC PIER ASSOCIATES, LLC, e t al., P l a i n t if f s , v. B O A R D A K A N RESTAURANT P A R T N E R S L.P., et al., Defendants.

C IV IL ACTION N o . 08-4564

P o lla k , J. O P IN IO N

August 2, 2010

T h is matter includes two consolidated actions between (1) certain tenants at The P ie r Shops ("the Pier") in Atlantic City, New Jersey, and (2) their landlord, Atlantic Pier A s s o c ia te s, LLC ("Atlantic Pier") and related entities. In one action, Atlantic Pier has s u e d Boardakan Restaurant Partners, L.P. and Oceanental Partners, L.P., which own and o p e ra te two restaurants at the Pier, for unpaid rent. In the other, the restaurants (" p la in tif f s" ) have sued Atlantic Pier and a number of other defendants, alleging that the d e f en d a n ts fraudulently induced them into entering their leases at the Pier. Three of the d e f e n d a n ts named in the tenants' complaint are TRG The Pier, LLC ("TRG Pier"), a

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D e la w a re limited liability company which holds a membership interest in Atlantic Pier1 ; T a u b m a n Realty Group Limited Partnership ("TRG"), a Delaware limited partnership w h ich owns 100% of TRG Pier; and Taubman Centers, Inc. ("TCI"), a real estate in v e s tm en t trust incorporated under Michigan law which owns 67% of TRG. TCI, TRG, a n d TRG Pier (collectively, "defendants") now move to dismiss the tenants' claims a g a in s t them for lack of personal jurisdiction, pursuant to Rule 12(b)(2) of the Federal R u le s of Civil Procedure.2 I. This court "exercises personal jurisdiction according to the law of the state where it sits." O'Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 316 (3d Cir. 2007). 42 Pa. C o n s. Stat. § 5301(a) sets out "relationships between a person and this Commonwealth [ th a t] constitute a sufficient basis of jurisdiction to enable the tribunals of this C o m m o n w e a lth to exercise general personal jurisdiction over such person." For c o rp o ra te parties, three relationships are expressly listed in the statute: (1) " [ i]n c o rp o ra tio n under or qualification as a foreign corporation under the laws of this C o m m o n w e a lth ," (2) "[c]onsent," and (3) "[t]he carrying on of a continuous and s ys te m a tic part of its general business within this Commonwealth." Id. § 5301(a)(1)(I)1

TRG Pier owned a 30% stake in Atlantic Pier at the time the latter was f o rm e d and increased its interest Atlantic Pier to 77.5% in April 2007. A n oral argument regarding this motion was held on July 15, 2010. At that a rg u m e n t, I granted defendants' motion to file a supplemental brief in support of their R u le 12(b)(2) motion. 2
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(iii). The statute specifies that "[w]hen jurisdiction over a person is based upon this se c tio n any cause of action may be asserted against him, whether or not arising from acts e n u m e r a te d in this section," and that "[d]iscontinuance of . . . acts [including qualification a s a foreign corporation] shall not affect jurisdiction with respect to any act, transaction or o m is s io n occurring during the period such status existed." Id. § 5301(b). It is undisputed that TCI was qualified to do business as a foreign corporation in P e n n s ylv a n ia from January 1993 until May 22, 2006. See Defs.' Ex. 5, at 1. Pursuant to § 5301(b), this court may therefore exercise jurisdiction over TCI for "any act, transaction o r omission" that occurred during that thirteen-year interval, even though it is no longer q u a lif ie d to do business in Pennsylvania. According to the allegations in plaintiffs' c o m p la in t, which are taken as true for purposes of a Rule 12(b)(2) motion, see, e.g., P in k e r v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002), the fraud perpetrated ag ains t the plaintiffs began on November 1, 2005 and continued into 2007. This court th e re f o re has jurisdiction over TCI with regard to that subset of fraudulent acts that o c c u rre d between November 1, 2005 and May 22, 2006. T h e question then becomes whether or not TCI is also amenable to jurisdiction for a c tio n s allegedly taken after May 22, 2006. The only Pennsylvania-based court to c o n sid e r this question has held that where "the great bulk of the acts and omissions of w h ic h plaintiff complains occurred during a period of time in which" the defendant re m a in e d registered, jurisdiction based on the registration is proper for all of the acts in

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th e complaint. Fischman v. Fischman, 470 F. Supp. 980, 982 (E.D. Pa. 1979). In the c o n te x t of this case, the Fischman rule is sensible: Plaintiffs have alleged a fraud which b e g a n while TCI was qualified to do business in Pennsylvania and which had the sin g u lar , ongoing purpose of inducing plaintiffs to enter into leases and open restaurants a t the Pier. Given these allegations of a unitary, continuing fraudulent scheme, and a ss u m in g that the bulk of the fraud occurred while TCI remained a qualified foreign c o rp o ra tio n , exercising jurisdiction over TCI only for acts occurring before May 22, 2006 w o u ld be an exercise in artificiality untethered from the concerns of the due process c la u s e . M o re o v e r, as in Fischman, the allegations of the complaint reveal that the bulk of th e alleged fraud did, in fact, occur before TCI's registration as a foreign corporation was te rm in a te d . Plaintiffs allege that, before May 2006, (1) the fraud was initiated, (2) d e f e n d a n ts induced plaintiffs to take the affirmative act of committing to open restaurants a t the Pier, (3) defendants misrepresented the status of other proposed Pier ventures on s e v e r a l occasions, and (4) defendants' actions delayed the opening of plaintiffs' re s ta u ra n ts . See Compl. ¶¶ 74-113. The post-May 22, 2006 actions of which plaintiffs c o m p la in are, by contrast, no more than a perpetuation of the previous misrepresentations u n d e rta k e n by defendants while plaintiffs completed and opened their restaurants. See id. ¶ ¶ 114-24. TCI's act of registering to do business in Pennsylvania therefore subjects it to p e rs o n a l jurisdiction in this case.

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D e f en d a n ts attempt to resist this conclusion by arguing that "Plaintiffs have not p rese n ted evidence of `any act, transaction or omission' by TCI that gave rise to their c la im s ." Defs.' Mem. at 29 (quoting 42 Pa. Cons. Stat. § 5301(b)). This argument may b e read in two ways: either as (1) a claim that the complaint includes no allegations a g a in s t TCI, or (2) an assertion that, for jurisdiction to be proper, TCI must have taken s o m e "act, transaction or omission" in Pennsylvania causally connected to this lawsuit. Read the first way, defendants' argument misreads the complaint, which alleges that TCI p a rticip a ted , with a number of other entities, in fraudulently inducing the plaintiffs to e n te r their leases. Read the second way, meanwhile, defendants' argument m is a p p re h e n d s the relevant law. It is only when a court exercises specific personal ju risd ictio n over a defendant that "[t]he plaintiffs' claims must . . . `arise out of or relate to ' at least one of" the defendant's "purposeful contact[s] with the forum." O'Connor, 4 9 6 F.3d at 318 (quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 4 0 8 , 414 (1984)). But in Bane v. Netlink, Inc., 925 F.2d 637 (3d Cir. 1991), the Third C irc u it held that a corporation which "register[ed] to do business in Pennsylvania" both " p u rp o s e f u lly avail[ed] itself of the privilege of conducting activities within the forum S ta te " and "consent[ed] to be sued in the Pennsylvania courts." Id. at 640 (internal q u o ta tio n marks omitted). Bane then specifically refused to parse "the dichotomy b e tw e e n `general' and `specific' jurisdiction," id.; rather, it "flatly held that when a f o re ig n corporation registers to do business in Pennsylvania, a court may constitutionally

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e x e rc is e jurisdiction over that defendant." RX Returns, Inc. v. PDI Enters., Inc., No. 97c v - 1 8 5 5 , 1997 WL 330360, at *2 (E.D. Pa. June 6, 1997). Accordingly, defendants' arg u m en t is without merit, and this court has personal jurisdiction over TCI. II. In addition to listing specific bases for jurisdiction, Pennsylvania's long-arm s ta tu te provides that "the jurisdiction of the tribunals of this Commonwealth shall extend to all persons . . . to the fullest extent allowed under the Constitution of the United States a n d may be based on the most minimum contact with this Commonwealth allowed under th e Constitution of the United States." 42 Pa. Cons. Stat. § 5322(b). It is well settled that a court may exercise personal jurisdiction, consistent with the Constitution, over a c o rp o ra te entity that is the alter ego of a party over which jurisdiction is proper. See, e.g., S im e o n e ex rel. Estate of Albert Francis Simeone, Jr. v. Bombardier-Rotax GmbH, 360 F. S u p p . 2d 665, 675 (E.D. Pa. 2005). " A subsidiary will be considered the alter ego of its parent only if the parent e x e rc is e s control over the activities of the subsidiary." Oeschle v. Pro-Tech Power, Inc., N o . 03-cv-6875, 2006 WL 680908, at *4 (E.D. Pa. Mar. 15, 2006) (internal quotation m a rk s omitted). This control must be "greater than normally associated with common o w n e rs h ip and directorship," and be over "day-to-day operations of the subsidiary such th a t the subsidiary can be said to be a mere department of the parent." Id. (internal q u o ta tio n marks omitted). Courts in this district consider a range of factors "when

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d e te rm in in g if a subsidiary is an alter[] ego . . . of the parent," including the following: (1 ) ownership of all or most of the stock of the subsidiary; (2) common o f f ic e rs and directors; (3) a common marketing image; (4) common use of a tra d e m a rk or logo; (5) common use of employees; (6) an integrated sales s ys te m ; (7) interchange of managerial and supervisory personnel; (8) s u b s id ia ry performing business functions which the principal corporation w o u ld normally conduct through its own agents or departments; (9) s u b s id ia ry acting as marketing arm of the principal corporation, or as an e x c lu s iv e distributor; and [(]10) receipt by officers of the related c o rp o ra tio n of instruction from the principal corporation. Id .; accord, e.g., Gammino v. Verizon Commc'n, Inc., No. 03-cv-5579, 2005 WL 3 5 6 0 7 9 9 , at *3 (E.D. Pa. Dec. 27, 2005) (Green, J.); In re Latex Gloves Prods. Liab. L itig ., No. MDL 1148, 2001 WL 964105, at *4 (E.D. Pa. Aug. 22, 2001). The purpose of th e inquiry is to determine "whether there is a single functional and organic identity." Oeschle, 2006 WL 680908, at *4 (internal quotation marks omitted). Plaintiffs bear the b u rd e n of demonstrating this identity, see, e.g., Simeone, 360 F. Supp. 2d at 675, and a rg u e that both TRG and TRG Pier are alter egos of TCI. A. In the case of TRG, there is ample evidence to support alter ego status under the f irs t two factors of the multi-factor test. As to the first factor, TRG is a direct, though not w h o lly-o w n e d , subsidiary of TCI, which owns 67% of TRG and is TRG's managing p a rtn e r. Pls.' Ex. 7, at 27; Pls.' Ex. 8, at 31. TCI's status as TRG's managing partner m e a n s, in the words of Chris Heaphy, TCI's Assistant Secretary, that TCI "controls T R G ." Pls.' Ex. 8, at 41. Steven Eder, TCI's Treasurer, agrees with this assessment. See

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P ls .' Ex. 7, at 27. As to the second factor, TRG has no officers or directors ­ but it does h a v e a number of "authorized signatories" who can act on TRG's behalf. Pls.' Ex. 8, at 1 6 9 . These signatories are, without exception, officers or directors of TCI. See id. at 1 2 1 , 170-71. P la in tif f s have also presented evidence that TCI and TRG share a "common m a rk e tin g image" and logo. In particular, Eder testified at his deposition that TRG does n o t have a logo or website separate from TCI's logo and website. Pls.' Ex. 7, at 92-93, 9 8 -9 9 . Moreover, TRG and TCI share the same place of business. Id. at 93. More g e n e ra lly, Heaphy testified that TCI and TRG "have a unified corporate image." Pls.' Ex. 8 , at 121. Thus, it is fair to conclude that the public would have a great deal of trouble d i stin g u i sh i n g between the two entities. T h e re is, by contrast, no evidence in the record concerning (1) the common use of em p loyee s and supervisors, (2) the integration of sales, or (3) the subsidiary's p e r f o r m a n c e of marketing or other functions for the parent. The reason for these a b se n c es is, however, illuminating: TRG is a holding company that engages in no sales a n d lacks officers, directors, and employees; so far as the record reveals, it can act o n ly via its authorized signatories, all of which are, as noted above, officers and directors o f TCI. F in a lly, when the signatories do act for TRG, they are bound by TCI's code of c o rp o ra te conduct, and TRG's accounting is supervised by TCI's Audit Committee.

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T h ere is, in other words, some degree of direct control by TCI even when individuals are n o m in a lly acting in their capacity as signatories for TRG. C o lle c tiv e ly, this evidence suffices to conclude that TRG is an alter ego of TCI. No one independent of TCI can act for TRG, actions taken for TRG are cabined in some w a ys by TCI policies, the unrebutted evidence in the record is that TCI in fact controls T R G , and the public has little ground for distinguishing between the two entities. Accordingly, because this court has personal jurisdiction over TCI, it also possesses ju ris d ic tio n over TRG as TCI's alter ego. B. T R G Pier's relationship with TCI is very similar. As a wholly-owned subsidiary o f TRG Pier is a second-level subsidiary of TCI. Pls.' Ex. 7, at 42. TRG Pier was created " s p e c if ic a lly for the purpose of" owning part of the Pier, id., and its creation was intended to benefit TCI, as "a portion of the income" from the Pier "would have accrued to [ T R G ]," id. at 47; see also id. at 61-62 (noting that TRG Pier's initial investment in A tlan tic Pier came from TRG). Further, at his deposition, Eder testified that TCI's Board o f Directors has the unchecked ability to control TRG Pier. Id. at 52. The individuals w h o can act for TRG Pier are also uniformly officers and directors of TCI, Pls.' Ex. 8, at 1 2 0 -2 1 , 164; see also Pls.' Ex. 7, at 29-30 (stating that Steven Eder is an authorized agent o f TRG Pier), though there is some evidence in the record that TRG Pier may act in other, a lb e it unspecified, ways, see Pls.' Ex. 8, at 165-66. In fact, only Robert Taubman, TCI's

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C h ie f Executive Officer ("CEO"), and William Taubman, TCI's Chief Operating Officer (" C O O " ), have ever been able to vote TRG Pier's interests in Atlantic Pier. Id. at 80-81. L ik e TRG, TRG Pier also shares a corporate address with TCI and lacks its own in d e p e n d e n t logo. Pls.' Ex. 7, at 93-94. In fact, TCI and TRG Pier are so closely tied in te rm s of public image that the press release announcing TRG Pier's investment in the Pier d id not, in fact, mention TRG Pier at all, but only TCI. The evidence as to whether TRG P ie r shares a website with TCI and TRG is, however, ambiguous: Eder testified that he d id not "think that [TRG] would be mentioned." Id. at 98. A g a i n like TRG, TRG Pier has no employees of its own, and engages in no sales. T C I's code of corporate conduct also binds individuals acting for TRG Pier to the s a m e extent as individuals acting on behalf of TRG. Id. at 139. Further, although TRG P ie r nominally owns part of Atlantic Pier, TCI, not TRG Pier, examined various leases in v o lv in g entities at the Pier. See Pls.' Ex. 7, at 74-75. In short, as with TRG, the public has little reason to distinguish between TRG Pier a n d TCI ­ or, indeed, to know that TRG Pier exists as a separate entity. And even if TRG P ier may, as a theoretical matter, have avenues of action that do not run through TCI's o f f ice rs and directors, TCI's CEO and COO are the only individuals authorized to vote T R G Pier's interests in Atlantic Pier, and the existence of those interests is TRG Pier's r a is o n d'ętre. The record therefore contains adequate evidence from which to conclude

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that TRG Pier is controlled by, and is an alter ego of, TCI.3 F o r these reasons, defendants' motion to dismiss for lack of personal jurisdiction w ill be denied.4 An appropriate order accompanies this opinion.

Having concluded that this court has jurisdiction over all three defendants f o r the reasons enumerated above, I do not consider plaintiffs' numerous other theories of p e rs o n a l jurisdiction. D e f en d a n ts argue that exercising jurisdiction over TCI, TRG, and TRG Pier w o u ld be inconsistent "with fair play and substantial justice." O'Connor, 496 F.3d at 317 (in te rn a l quotation marks omitted). But it is only in a "rare and compelling case[]" that n o tio n s of fair play standing alone will present a basis for declining to exercise ju ris d ic tio n , id. at 325, and defendants have not met their burden of showing that this is s u c h a case. 11
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