Thompson v. National Union Fire Insurance Company of Pittsburg

Filing 24

MEMORANDUM OPINION AND ORDER denying 21 Motion to Amend/Correct. Signed by U.S. District Judge Lawrence L. Piersol on 8/24/18. (SLW)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION

****************************************************
*

KRISTIH. THOMPSON,

*

CIV 18-4011

*

*

Plaintiff,

*

MEMORANDUM OPINION AND ORDER

DENYING MOTION TO AMEND

*
*

vs.
*

NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH,

*
*

Defendant.
*

*H:**************************************************

Plaintiff, ICristi Thompson("Thompson"),has moved the Court pursuant to Federal Rule of
Civil Proeedure 15(a)(2) for an Order granting leave to amend her Complaint to add additional
parties. (Doc. 21.) For the reasons set forth below, the motion is denied.
DISCUSSION

This is abreach ofcontract and bad faith action stemming from Thompson's coverage under

a worker's compensation insurance policy issued by Defendant, National Union Fire Insurance

Company of Pittsburgh ("NUF"), to Thompson's employer. In both her initial Complaint and her
proposed Amended Complaint, Thompson alleges that NUF breached the insurance contract by
failing to timely pay worker's compensation benefits, and committed bad faith by: 1)terminating
benefits with no reasonable basis to do so; 2)delaying the processing and handling ofThompson's

claim; and 3)requiring an adverse medical examination by a physician who was biased in favor of
insurance companies.(Doe. 1; Doe. 21-1.) In her proposed Amended Complaint, Thompson adds
four parent companies as defendants under the theory ofalter ego liability.{See Doe.23 at 6.) NUF
contendsthatThompson's motion to amend and add the four parentcompanies is futile because there
is no factual or legal basis for claims against the companies.

Although generally a eourt should freely give leave to a party to amend its pleadings when
justiee so requires, Fed.R.Civ.P. 15(a)(2), it may properly deny a party's motion to amend a
complaint when such amendment would unduly prejudice the non-moving party or would be futile.
Popoalii V. Correctional Med. Servs., 512 F.3d 488,497(8th Cir. 2008). Denial of a motion for
leave to amend on the basis offutility"means the district eourt has reached the legal conclusion that

the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6)ofthe Federal
Rules of Civil Procedure." Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778, 782
(8th Cir. 2008).

When ruling on a motion to dismiss under Rule 12(b)(6), a district court generally may not
consider materials outside the pleadings, other than some public records, materials that do not

contradict the complaint, or materials that are "necessarily embraced by the pleadings." Noble

Systems Corp. v. Alorica Cent.,LLC,543 F.3d 978,982(8th Cir.2008);
Media Corp. v. Pall
Corp., 186 F.3d 1077,1079(8th Cir. 1999). This Court will therefore consider only the sufficiency
ofthe allegations contained in Thompson's proposed Amended Complaintin determining the futility
issue.See Peoples v. Sehring Capital Corp.,209 F.R.D.428,430(N.D.Ill. 2002)(The test for futility
in a motion to amend complaint does not depend on whether the proposed amendment could

potentially be dismissed on a motion for summaryjudgment,but whether the proposed pleading can
withstand a motion to dismiss for failure to state a claim.); Journal Pub. Co. v. American Home

Assur. Co., 771 F.Supp. 632,635 (S.D.N.Y. 1991)(distriet eourt considers only sufficiency of the

allegations in a proposed amended complaint in determining whether proposed amendments are
futile).

"To survive a motion to dismiss,a complaint must contain sufficientfactual matter,accepted

as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662,678

(2009)(quoting

Corp. v. Twombly, 550 U.S. 544, 570(2007)). "[Ajlthough a complaint

need not include detailed factual allegations,'a plaintiffs obligation to provide the grounds of his

entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.'" C.N. v. Willmar Pub. Schs., Indep. Sch. Dist. No. 347,

591 F.3d 624,629-30(8th Cir. 2010)(quoting Twombly,550 U.S. at 555). The factual content in the

complaint must"allo[w] the court to draw the reasonable inference that the defendant is liable for

the misconduct alleged." Braden v. Wal-Mart Stores, 588 F.3d 585, 594 (8th Cir. 2009)(quoting
Ashcroft, 556 U.S. at 678).

Courts generally do not presume that a parent corporation is liable for the actions of its

wholly owned subsidiary. United States v. Bestfoods, 524 U.S. 51,61 (1998). There is an exception
to this presumption, however'"where one corporation is so organized and controlled and its affairs
are so conducted that it is, in fact, a mere instrumentality or adjunct of[the parent] corporation.'"

Epps V. StewartInformation Services Corp.,327 F.3d 642,649(8th Cir. 2003)(quoting

to Girl

Scout Council, Inc. v. Havey Fund—Raising Mgmt., Inc., 519 F.2d 634,637(8th Cir. 1975)).
"State law is viewed to determine whether and how to pierce the corporate veil." Epps,327

F.3d at 649. South Dakota law' provides that "[a] parent corporation is liable for the acts of its
subsidiary under the instrumentality exception when(1)the parent controls the subsidiary to such
a degree as to render the latter the mere instrumentality ofthe former; and(2)adherence to the rule
of corporate separateness would produce injustices and inequities." Glanzer v. St. Joseph Indian
Sch., 438 N.W.2d 204, 207 (S.D. 1989)(citations omitted). A parent is also responsible for the
conduct of its subsidiaries "when an agency relationship exists between them." Id. (citations
omitted).

The South Dakota Supreme Court has identified and adopted additional factors to consider
under the first factor in the instrumentality exception. These factors indicate the "control" necessary
to hold the parent liable for the actions of the subsidiary:

(a) The parent corporation owns all or most ofthe capital stock ofthe subsidiary.
(b)The parent and subsidiary corporations have common directors or officers.
(c)The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

' parties did not address what law applies to the issue ofpiercing the corporate veil, and
The
the Court will assume without deciding that South Dakota law applies here.

(Q The parent corporation pays the salaries and other expenses or losses of the
subsidiary.

(g)The subsidiary has substantially no business except with the parent corporation
or no assets except those conveyed to it by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property ofthe subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders fi-om the parent corporation in the
latter's interest.

(k)The formal legal requirements ofthe subsidiary are not observed.
Glanzer, 438 N.W.2d at 207(citations omitted).

These factors are not exhaustive and all need not be present to conclude a subsidiary is the

instrumentality of the parent, id., but none of the factors are alleged in Thompson's proposed
Amended Complaint. In addition, Thompson has failed to set forth any allegations that adherence
to the rule ofcorporate separateness would produce injustices and inequities in this case,the second
factor in the instrumentality exception.^ The allegations pleaded in the proposed Amended

Complaint do not allow the Court to draw a reasonable inference that any of the four parent

companies are liable as alter egos ofNUF for the misconduct alleged.^ Thus,Thompson's proposed
amendment to add the parent companies is futile. Accordingly,

^ For example, there is no allegation that NUF is unable to pay any damages that might be
awarded to Thompson.

^ To the extent Thompson claims that NUF was acting as an agent of the four parent

companies and, thus, NUF's actions can be attributed to the parent companies, Thompson has
pleaded no facts through which the Court could infer that an actual or implied agency exists. See,
e.g.,Bemie v. Catholic Diocese ofSioux Falls,821 N.W.2d 232,240(S.D.2012)("To establish an
agency relationship there must be a(1)manifestation by the principal that the agent shall actfor him,
(2) the agent's acceptance of the undertaking, and (3) the understanding of the parties that the
principal is to be in control ofthe undertaking.")(intemal quotation omitted).

IT IS ORDERED that Plaintiffs Motion to Amend Complaint(Doc. 21)is denied.

Dated this"2^"Bay of August,2018.
BY THE COURT:

vrence L. Piersol

United States District Judge
ATTEST:

MATTHEW W.THELEN,CLERK

DEPUTY