ATI Titanium v. US Magnesium
Filing
177
MEMORANDUM DECISION AND ORDER granting 108 Motion to Dismiss Party Renco Group, The (a New York corporation); denying 133 Motion to Dismiss Allegheny; finding as moot 151 Motion for Jurisdictional Discovery. The evidentiary objections 160 and 168 are OVERRULED at this time. Signed by Judge Dee Benson on 4/19/2019. (mas)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
US MAGNESIUM, LLC, a Delaware
limited liability company,
Plaintiff and Counterclaim-Defendant,
MEMORANDUM DECISION AND
ORDER
v.
ATI TITANIUM LLC, a Delaware limited
liability company; ALLEGHENY
TECHNOLOGIES INCORPORATED, a
Delaware corporation, and DOES 1-20,
Case No. 2:17-cv-923-DB
District Judge Dee Benson
Defendants and Counter-claimant.
Before the Court are two Motions to Dismiss—one filed by Plaintiff and CounterclaimDefendant US Magnesium, LLC (“US Mag”) (Dkt. No. 108) and one filed by Defendant and
Counter-Claimant ATI Titanium LLC (“ATI”) (Dkt. No. 133)—as well as associated evidentiary
objections and a motion for discovery. (Dkt. Nos. 151, 160, 168.) The Motions have been fully
briefed by the parties, and the court has considered the facts and arguments set forth in those
filings. Pursuant to civil rule 7-1(f) of the United States District Court for the District of Utah
Rules of Practice, the Court elects to determine the motion on the basis of the written
memoranda and finds that oral argument would not be helpful or necessary. DUCivR 7-1(f).
Facts
This action arises out of a Supply and Operating Agreement (the “Agreement”) entered
into by US Mag and ATI in September of 2006. The Agreement provided for a symbiotic
relationship in which US Mag would produce raw magnesium, which it sold to ATI at a set price
for the manufacture of titanium sponge. US Mag’s magnesium production process required
magnesium chloride as input, which ATI’s titanium sponge manufacturing process produced as a
by-product. ATI provided magnesium chloride from its manufacturing process to US Mag for the
manufacture of magnesium.
The companies operated neighboring plants pursuant to the Agreement for several years
until mid-2016. The agreement contemplated a twenty-year term, subject to ATI’s right to
terminate its performance pursuant to an “Economic Force Majeure” provision. The Economic
Force Majeure provision provided that ATI could “suspend its performance” under the
Agreement if it obtained “a bona fide, good faith and arms’ length written contract offer” to
purchase titanium sponge for five years at a price 85% or below that of ATI’s “variable costs to
produce titanium sponge….” §11.2(a). The provision further provided that ATI could “suspend
its performance under th[e] Agreement, including, without limitation, its purchase of Magnesium
under th[e] Agreement, upon at least one hundred eighty (180) days’ prior written notice to [US
Mag].” Id. During the 180-day period, the parties were to “enter into good faith negotiations…to
attempt to negotiate revised pricing for Magnesium” pursuant to the schedule set forth in the
Agreement.
In a letter dated August 23, 2016, ATI wrote to US Mag “declaring an Economic Force
Majeure pursuant to Section 11.2 of the Agreement….” (Dkt. No. 17 at ¶ 13.) ATI notified US
Mag that it would suspend its performance 180 days following the letter. Shortly thereafter,
during the 180-day period, ATI idled its plant. The parties engaged in some discussions during
the 180-day period, but they disagreed on several points, including which auditor to use for the
audit contemplated by the Agreement. Ultimately, their discussions were unsuccessful at
resolving their dispute.
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US Mag initially filed suit on October 12, 2016, which was removed to this court on
November 11, 2016. That action was dismissed without prejudice to allow the parties to engage
in mediation, as set forth in the Agreement. Following an unsuccessful mediation, ATI brought
this action on August 15, 2017. (Dkt. No. 2.) On January 11, 2018, on motion of the parties, this
action was consolidated with an action which was filed by US Mag in state court and removed to
this court on August 29, 2017—2:17-cv-976. (Dkt. No. 39.) Subsequently, both parties amended
their Complaint/ Counterclaim to include claims against the other’s parent company. (Dkt. Nos.
100 and 117.)
ATI brought claims for intentional interference with contract and economic relations
against the Renco Group (“Renco”), US Mag’s parent company. (Dkt. No. 100.) ATI alleged
that, on information and belief, Renco prevented US Mag from negotiating in good faith with
ATI in order to force ATI into economic duress and purchase ATI at a steeply discounted price.
(Id.)
US Mag brought claims against Allegheny Technologies Incorporated (“Allegheny”),
ATI’s parent company, under an alter ego or principal/agent theory, arguing that Allegheny was
responsible for the actions of ATI. (Dkt. No. 117.) In support of its alter ego and principal/agent
theory, US Mag alleged “commingling of business operations; common management and legal
representation; sharing of headquarters and employees in Pittsburgh, Pennsylvania; non-arm’s
length transactions; consolidated summaries of operations and financial statements; absence of
corporate records for ATI; a failure to follow corporate formalities on the part of ATI; and
Allegheny’s siphoning of funds from ATI, causing ATI to be (and remain) undercapitalized,
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despite Allegheny’s substantial earnings from the products produced at the Titanium Sponge
Plant.” (Id. at ¶ 4.)
Discussion
“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.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
Plausibility, in the context of a motion to dismiss, constitutes facts which allow “the court to
draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
Under Rule 12(b)(6), the court must accept all well-pleaded allegations in the Amended
Complaint as true and view those allegations in the light most favorable to the nonmoving party.
Stidham v. Peace Officer Standards Training, 265 F.3d 1144, 1149 (10th Cir. 2001) (quoting
Sutton v. Utah Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). The Court must
limit its consideration to the four corners of the Complaint, and any documents attached thereto,
and any external documents that are referenced in the Complaint and whose accuracy is not in
dispute. Oxendine v. Kaplan, 241 F.3d 1272, 1275 (10th Cir. 2001); Jacobsen v. Deseret Book
Co., 287 F.3d 936, 941 (10th Cir. 2002).
US Mag and Renco’s Motion to Dismiss (Dkt. No. 108)
In its Second Amended Counterclaim and Third-Party Complaint, ATI speculated that its
pricing negotiations with US Mag broke down after US Mag communicated with its parent,
Renco. (Dkt. No. 100 at ¶¶ 30-34.) ATI then alleged that the inference can be drawn that Renco
interfered with the negotiations self-interestedly, and initiated suit in order to purchase ATI at a
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reduced price. (Id. at ¶ 12. ) Even assuming that ATI’s speculative allegations are true, they are
insufficient to state a claim for intentional interference with contract or economic relations.
In response to a certified question from this court, the Utah Supreme Court recently
clarified that, like the tort of intentional interference with economic relations, the tort of
intentional interference with contract requires a showing of “improper means.” C.R. England v.
Swift Transportation Company, 2019 UT 8. To establish “improper means”, a Plaintiff must
show conduct of the Defendant that is “contrary to law, such as violations of statutes,
regulations, . . . recognized common-law rules or the violation of an established standard of a
trade or profession.” Id.
ATI argues that it pleaded improper means by alleging (1) a breach of fiduciary duties
and (2) the pursuit of unfounded litigation. First, ATI’s argument that Renco breached fiduciary
duties owed to US Mag, and that the breach constituted improper means with respect to ATI, is
unsupported by law. None of the cases discussed in the parties’ briefing support the theory that
the breach of a fiduciary duty owed to a third party constitutes improper means under Utah law,
or that ATI would have standing to assert such a claim. The court declines to expand the
definition of improper means to include such conduct, as the Utah Supreme Court has
consistently “defined improper means narrowly.” Id. at ¶ 42.
Second, ATI’s assertion that the pursuit of unfounded litigation constituted improper
means is belied by the procedural history of this case. Although the original action brought by
US Mag was dismissed, it was not with prejudice, but instead to allow the parties to participate
in mediation as required by the Agreement. Furthermore, this court has already denied a motion
for partial summary judgment brought by ATI. This action does not have any of the hallmarks of
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“sham litigation,” as alleged by ATI. Accordingly, participating in this action, which Renco is
legally entitled to do, cannot constitute improper means. ATI has failed to allege improper means
to support its claims against Renco. Accordingly, US Mag’s Motion to Dismiss Renco is
GRANTED.
Allegheny’s Motion to Dismiss (Dkt. No. 133)
Allegheny moves to dismiss US Mag’s claims against it pursuant to Federal Rule of Civil
Procedure 12(b)(2), arguing that Judge Stewart already ruled that the court did not have personal
jurisdiction over Allegheny, and pursuant to Rule 12(b)(6), arguing that they are deficiently
pled.
First, Judge Stewart’s opinion dismissing the previous action to allow the parties to
engage in mediation pursuant to the Agreement (Dkt. No. 133-1) does not have a preclusive
effect here. Judge Stewart was primarily presented with whether the timing of the lawsuit was
proper under the parties’ agreement and repeatedly stated that his Memorandum Decision and
Order was entered without prejudice. (Dkt. No. 133-1 at 9, 18, 19.) Furthermore, even in an
instance where claims are dismissed for lack of personal jurisdiction and the court does not
specify that its ruling is without prejudice, “suit may be brought again where a jurisdictional
defect has been cured or loses its controlling force.” Eaton v. Weaver Mfg. Co., 582 F.2d 1250,
1256 (10th Cir. 1978).The court here has been presented with a different pleading and procedural
posture and is not precluded from considering its jurisdiction and the action before it because of
Judge Stewart’s dismissal of similar claims without prejudice.
Having so determined, the court must decide whether it has personal jurisdiction over
Allegheny. When, as in this case, a court considers a motion to dismiss “on the basis of the
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complaint and affidavits,” a plaintiff must “only make a prima facie showing of personal
jurisdiction.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir.
2008). The plaintiff may make this prima facie showing by demonstrating by affidavit or other
written materials, facts that if true would support jurisdiction over the defendant. OMI Holdings,
Inc. v. Royal Ins. Co., 149 F.3d 1086, 1091 (10th Cir. 1998). “[A]ny factual disputes in the
parties’ affidavits must be resolved in plaintiffs’ favor.” Dudnikov, 514 F.3d at 1070. In order to
defeat the plaintiff’s prima facie showing of personal jurisdiction, the moving defendant must
present a compelling case demonstrating “that the presence of some other considerations would
render jurisdiction unreasonable.” OMI Holdings, 149 F.3d at 1091 (quoting Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 477 (1985)).
Here, the court finds that US Mag has made a prima facie showing of personal
jurisdiction, and ATI has failed to show other considerations that would render jurisdiction
unreasonable. US Mag has alleged that Allegheny is an alter ego of ATI, so as to subject
Allegheny to jurisdiction. Under Utah law, in order to establish that one corporate entity is the
alter ego of another, a plaintiff must show: (1) “such unity of interest and ownership that the
separate personalities of the corporation[s] . . . no longer exist” and (2) that to observe the
corporate form would “sanction a fraud, promote injustice, or [cause] an inequitable result [to]
follow.” Mun. Bldg. Auth. of Iron Cty. v. Lowder, 711 P.2d 273, 278 (Utah 1985). US Mag has
sufficiently pleaded both elements.
First, US Mag has sufficiently alleged a unity of interest and ownership between ATI and
Allegheny. In its Amended Complaint, US Mag alleged that ATI did not maintain its own,
separate financial records (Amended Complaint (Dkt. No. 117) at ¶¶ 93-98), ATI was a cost
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center for which cash generation was realized through other entities owned by Allegheny (id. at ¶
116), ATI was entirely dependent on Allegheny for any funding it obtained (id. at ¶¶ 116, 133),
profits generated by ATI went to Allegheny (id. at ¶ 133), ATI did not maintain its own, separate
corporate records or meeting minutes (id. at ¶ 125), many of ATI’s corporate witnesses are
actually officers or employees of Allegheny (id. at ¶ 119), Allegheny—not ATI—was the entity
that voted to declare an Economic Force Majeure under the Agreement (id. at 72), and
Allegheny—not ATI—was party to the offers or contracts that allegedly triggered the Economic
Force Majeure. (Id. at 71, 120.) Accepted as true, those allegations demonstrate a unity of
interest and ownership such that separate corporations no longer exist.
Second, US Mag has alleged that ATI and Allegheny have not maintained separate
financial records and that ATI is undercapitalized. (Id. at ¶ 133.) Accepting those allegations as
true, it would cause an inequitable result to dismiss Allegheny, leaving only the alleged “cost
center”—ATI—to respond to this action. Accordingly, US Mag has sufficiently pleaded an alter
ego theory to survive a motion to dismiss under Rule 12(b)(6) and to support personal
jurisdiction under Rule 12(b)(2).
In their Objection, (Dkt. No. 160,) ATI and Allegheny dispute the assertions in the
affidavit submitted by US Mag. Specifically, they dispute US Mag’s characterization of the
evidence produced by ATI and Allegheny to this point. On a Motion to Dismiss where the court
relies on the Complaint and affidavits, the court must resolve all “factual disputes in the parties’
affidavits … in plaintiffs’ favor.” Dudnikov, 514 F.3d at 1070. Accordingly, ATI and
Allegheny’s evidentiary objection is overruled at this time. And, in fairness, US Mag’s
evidentiary objection to ATI and Allegheny’s affidavit (Dkt. No. 168) is overruled as well.
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Conclusion
For the foregoing reasons, US Mag’s Motion to Dismiss Renco (Dkt. No. 108) is hereby
GRANTED and ATI’s Motion to Dismiss Allegheny (Dkt. No. 133) is DENIED. The
evidentiary objections (Dkt. Nos. 160 and 168) are OVERRULED at this time. US Mag’s
Motion for jurisdictional discovery (Dkt. No. 151) is hereby MOOT.
DATED this 19th day of April, 2019.
BY THE COURT:
Dee Benson
United States District Judge
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