ExxonMobil Global Services Company et al v. Gensym Corporation et al

Filing 80

MEMORANDUM OPINION AND ORDER, GRANTING 61 Motion to Dismiss ExxonMobil's Alter Ego Theory. ExxonMobil is granted leave to amend its complaint no later than 14 days after entry of this Order, or this claim will be dismissed with prejudice. Signed by Judge John D. Rainey. (kkc)

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF TEXAS

AUSTIN DIVISION

EXXONMOBIL GLOBAL
SERVICES CO., EXXONMOBIL
CORP., and EXXONMOBIL
RESEARCH & ENGINEERING CO.,
Plaintiffs/Counter-Defendants,
v.

GENSYM CORP. & VERSATA
ENTERPRISES, INC.,
Defendants,
GENSYM CORP.,
Counter PlaintifflThird-Party Plaintiff,
v.

INTELLIGENT LABORATORY
SOLUTIONS, INC.,
Third-Party Defendant.

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CASE NO. 1:12-CV-442-JDR

MEMORANDUM OPINION & ORDER
Pending before the Court is Defendant/Counter Plaintiff/Third Party Plaintiff Gensym
Corporation ("Gensym") and Defendant Versata Enterprises, Inc.'s ("Versata") Motion to
Dismiss ExxonMobil's Alter Ego Theory (Dkt No. 61), whereby Gensym and Versata move to
dismiss Plaintiffs/Counter Defendants ExxonMobil Global Services Company, Exxon Mobil
Corporation,

and

ExxonMobil

Research

and

Engineering

Company's

(collectively

"ExxonMobil") joint liability alter ego theory as found in ExxonMobil' s Fourth Amended
Complaint.
I. Factual and Procedural Background

This complex case arises in part from a breach of contract dispute, whereby ExxonMobil
seeks to hold Gensym's parent corporation, Versata, jointly liable for alleged violations of a

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License Agreement signed by Gensym through an alter ego theory. Only those facts relevant to
ExxonMobil's alter ego theory are discussed below.
According to the facts set forth in ExxonMobil's Fourth Amended Complaint (Compi.,
Dkt. No. 57), in 2007, ExxonMobil and Gensym entered into negotiations for a single license
agreement for Gensym's G2 Software Platform to replace previous ad hoc, site-specific
agreements between Gensym and various ExxonMobil entities. Effective April 1, 2008,
ExxonMobil and Gensym entered into a License Agreement, the purpose of which was to
"define the terms and conditions for the provision" of products and services by Gensym pursuant
to future purchase orders. (The "License Agreement", Dkt. No. 11, Ex. 1 at 3, art. 1.) On or
about April 11, 2008, ExxonMobil submitted a purchase order for a "corporate wide perpetual
license for G2 XOM development bundle." (The "G2 Purchase Order," Dkt. No. 11, Ex. 2.)
According to ExxonMobil, three years after granting ExxonMobil an irrevocable, fee-paid,
perpetual software license that is by its own terms "unlimited," GensymlVersata attempted to
prevent ExxonMobil from using the G2 Software Platform unless ExxonMobil agreed to a
wholesale revision of the License Agreement. GensymIV ersata tried to accomplish this lockout
by withholding access codes necessary to utilize the G2 Software Platform-keys that the
License Agreement required GensymlVersata to provide ExxonMobii.
On August 29,2011, ExxonMobil filed its Original Petition in the 419th Judicial District
Court of Travis County, Texas alleging breach of contract and seeking declaratory relief in
connection with the License Agreement, as well as injunctive relief requiring Gensym to provide
ExxonMobil with permanent access codes to use the G2 Software Platform. On November 2,
2011, ExxonMobil amended its Petition, adding causes of action for fraudulent inducement and
breach of warranty, both relating to the License Agreement. ExxonMobil again amended its

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Petition on January 31, 2012, making minor changes and adding Defendant Versata under an
alter ego theory. After Gensym filed counterclaims against ExxonMobil under the federal
Copyright Act, Gensym removed the action to this Court on May 17,2012. On October 10,
2012, ExxonMobil filed its Third and Fourth Amended Complaints, whereby ExxonMobil
withdrew its fraudulent inducement claims.
Gensym and Versata now move to dismiss ExxonMobil's joint liability! alter ego theory
pursuant to FED. R. CIV. P. 12(b)(6) for failing to plead fraud or injustice in the use of the
corporate form.

II. Legal Standard
Federal Rule of Civil Procedure 12(b)(6) provides that a party may move to dismiss an
action for "failure to state a claim upon which relief may be granted ." FED. R. CIV. P. 12(b )(6).
When considering a Rule 12(b)(6) motion, a court must accept the plaintiffs allegations as true
and draw all reasonable inferences in her favor. See Leatherman v. Tarrant County Narcotics

Intelligence & Coordination Unit, 507 U.S. 163, 164 (1993); United States v. Gaubert, 499 U.S.
315, 327 (1991). A court may not look beyond the face of the pleadings to determine whether
relief should be granted based on the alleged facts. Spivey v. Robertson, 197 F.3d 772, 774 (5th
Cir. 1999) (citing St. Paul Ins. Co. oJBellaire, Texas v. AFIA Worldwide Ins. Co., 937 F.2d 274,
279 (5th Cir. 1991)).
Dismissal can be based on either a lack of a cognizable legal theory or the absence of
sufficient facts alleged under a cognizable legal theory. See Frith v. Guardian Life Ins. Co. oj

Am., 9F. Supp. 2d 734, 737-38 (S .D. Tex. 1998). While a complaint need not contain detailed
factual allegations to survive a 12(b)(6) motion, the Supreme Court has held that a plaintiffs
"obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and

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conclusions, and a fonnulaic recitation of the elements of a cause of action will not do." Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (abrogating the Conley v. Gibson, 355 U.S.
41 (1957) 'no set of facts' standard as "an incomplete, negative gloss on an accepted pleading
standard") (citations omitted). Plaintiff must allege "enough facts to state a claim to relief that is
plausible on its face" and "raise a right to relief above the speculative level." Id.; Nationwide Bi­

Weekly Admin., Inc. v. Bela Corp., 512 F.3d 137, 140 (5th Cir. 2007).
III. Analysis
Under Texas choice-of-law rules, shareholder liability for corporate debts, pursuant to a
veil-piercing or alter ego theory, is detennined by the law of the state in which the corporation
was incorporated. Weaver v. Kellogg, 216 B.R. 563, 585 (S.D. Tex. 1997) (citing Alberto v.

Diversified Group, Inc., 55 F.3d 201, 203 (5th Cir. 1995)). Gensym and Versata are both
Delaware corporations. (Compl. ,-r,-r 8, 9.) Accordingly, Delaware substantive law controls the
alter ego issue.
Under Delaware law, "'[Disregard of the corporate entity] may be done only in the
interest of justice, where such matters as fraud, contravention of law or contract, public wrong,
or where equitable consideration among members of the corporation ... are involved. '" Sprint

Nextel Corp. v. iPCS, Inc., 2008 WL 2737409, at *11 (Del. Ch. luI. 14,2008) (citing Pauley
Petroleum, Inc. v. Cant 'I Oil Co., 239 A.2d 629, 633 (Del. 1968)) (alteration in Sprint).
In order to sufficiently allege alter ego liability, a plaintiff must set forth specific facts
showing that, "in all aspects of the business, the [ ] corporations actually functioned as a single
entity and should be treated as such." Blair v. Infineon Tech. AG, 720 F. Supp. 2d 462, 470 (D.
Del. 2010) (quoting Pearson v. Component Tech. Corp., 247 F.3d 471, 485 (3d Cir. 2001))
(alteration in Blain). "Some factors a court may consider when being asked to disregard the

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corporate form include: '(1) whether the company was adequately capitalized for the
undertaking; (2) whether the company was solvent; (3) whether corporate formalities were
observed; (4) whether the dominant shareholder siphoned company funds; and (5) whether, in
general, the company simply functioned as a fayade for the dominant shareholder.'" Sprint

Nextel, 2008 WL 2737409 at *11 (quoting

us.

Bank Nat 'I Ass 'n v.

Us.

Timberlands Klamath

Falls, LLC, 2005 WL 2093694, * 1 (Del. Ch. Mar. 30, 2005)). "While the list of factors is not
exhaustive and no single factor is dispositive, some combination is required, and an overall
element of fraud, injustice, or unfairness must always be present." Blair, 720 F. Supp. 2d at 471
(citations omitted). Finally, the plaintiff must set forth specific facts showing how the corporate
form was used to perpetrate the fraud. Mobil Oil v. Linear Films, 718 F. Supp. 260, 269 (Dist.
Del Jun. 27, 1989) ("The law requires that fraud or injustice be found in the defendants' use of
the corporate form."); (Wallace ex reI. Cencorn Cable Income Partners II. Inc., L.P. v. Wood,
752 A.2d 1175, 1184 (Del. Ch. 1999) ("Piercing the corporate veil under the alter ego theory
requires that the corporate structure cause fraud or similar injustice.").
In support of its alter ego theory, ExxonMobil alleges as follows:
63 . Gensym has been operated as a mere tool or business conduit of Versata.
Versata is the sole or part-owner of Gensym. Gensym has no employees and
its Board of Directors consists of a single Versata employee, with the
possibility that Cushman, a contractor ofVersata (not Gensym), may also be a
member of the Board of Directors. Versata employees and contractors conduct
all business for Gensym. On information and belief, Versata controls Gensym
so that holding Gensym solely liable would result in an injustice.
64. Versata has used the corporate form to evade the legal obligations of Gensym
pursuant to the terms of the License Agreement. There is such unity between
Versata and Gensym that the corporation has ceased to be a separate entity.
65. Versata has committed an actual fraud against ExxonMobil.
66. Versata is liable to ExxonMobil for Gensym's conduct and Gensym's
obligations pursuant to the terms of the License Agreement.

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(Compl.

~~

63-66.)

Gensym and Versata move to dismiss ExxonMobil's alter ego theory on the grounds that
ExxonMobil's Fourth Amended Complaint: (1) fails to plead sufficient facts to support the basic
lack of corporate separateness required to pierce the corporate veil, (2) fails to describe what
"fraud and injustice" has been done to it, and (3) fails to properly plead that Gensym's corporate
form was used to perpetrate the fraud or other injustice.
With respect to ExxonMobil's allegations regarding the lack of corporate separateness,
ExxonMobil claims that Versata is the sole or part-owner of Gensym and that Versata controls
Gensym. ExxonMobil further alleges that Gensym has no employees; instead, Gensym's board
of directors is made up of people who are employees or contractors of Versata, and all of
Gensym's business is done by people who are employees or contractors of Versata. ExxonMobil
does not allege that Gensym was inadequately capitalized for the undertaking or insolvent, that
corporate formalities were not observed, or that Versata siphoned company funds.
"Mere dominion and control of the parent over the subsidiary will not support alter ego
liability." Outokumpu Eng'g Enters., Inc. v. Kvaerner Enviropower, 685 A.2d 724, 729 (Del.
Super. Ct. 1996) (citing Mobil Oil, 718 F. Supp. at 262). Likewise, allegations that the
corporation and its parent share employees, without more, are insufficient to justify piercing the
corporate veil. EBG Holdings LLC v. Vredezicht's Gravenhage 109 B. V, 2008 WL 4057745, *1
(Del. Ch. Sept. 2, 2008) (refusing to pierce corporate veil despite allegations that wholly-owned
subsidiary had no employees or officers of its own and that the parent company served as the
subsidiary's managing director, where plaintiff had not shown that the parent company's ''use of
the corporate form for its [] subsidiary constituted 'a sham and exist[ ed] for no other purpose
than as a vehicle for fraud'''). Finally, even if ExxonMobil's conclusory allegation that "Gensym

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has been operated as a mere tool or business conduit ofVersata" (Compl. ~ 63) were sufficient to
constitute disregard of the corporate form, ExxonMobil must set forth facts sufficient to identify
fraud in the use of the corporate form. See Mobil Oil Corp., 718 F. Supp. at 262; EBG Holdings,
2008 WL 4057745 at *1.
Although ExxonMobil alleges that "Versata has committed an actual fraud against
ExxonMobil" (Compl. ~ 65), its Complaint sets forth no facts explaining what conduct on
Gensym and/or Versata's part was fraudulent. Likewise, while ExxonMobil alleges that Versata
"used the corporate form to evade the legal obligations of Gensym pursuant to the terms of the
License Agreement" (ld.

~

64), ExxonMobil does not identify what Gensym and/or Versata did,

beyond allegedly breaching the License Agreement, that constitutes fraud. In order to support
alter ego liability, "[t]he 'injustice' must be more than the breach of contract alleged in the
complaint." Outokumpu Eng 'g, 685 A .2d at 729 (citing Mobil, 718 F. Supp. at 268).
Because ExxonMobil's Fourth Amended Complaint fails to identify the "actual fraud"
committed by GensymlVersata, fails to specify how this is different from the underlying breach­
of-contract allegation in the lawsuit, fails to state how GensymlVersata's bad acts involve the
corporate form, and fails to state how ExxonMobil was defrauded or otherwise harmed by
GensymlVersata's misuse of the corporate form, the Court finds that ExxonMobil's allegations
against Versata are insufficient to support an alter ego theory ofliability.

IV. Conclusion
For the aforementioned reasons, Genysm and Versata's Motion to Dismiss ExxonMobil's
Alter Ego Theory (Dkt No . 61) is GRANTED. However, because the Court is of the opinion that
ExxonMobil could state a claim for relief against Versata under a joint liability alter ego theory,

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ExxonMobil is granted leave to amend its complaint no later than 14 days after entry of this
Order, or this claim will be dismissed with prejudice.
It is so ORDERED.

SIGNED this 28th day of March, 2013.

)).

,

JOHN D. RAIN Y
SENIOR U.S. DISTRICT JUDGE

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