TED STEWART, District Judge.
This matter is before the Court on a Motion to Dismiss filed by Defendant ATI Titanium LLC ("ATI-Ti"), a Motion to Dismiss filed by Defendant Allegheny Technologies, Inc. ("Allegheny"), and a Motion for Discovery filed by Plaintiff. For the reasons discussed below, the Court will grant the Motions to Dismiss and deny Plaintiff's Motion for Discovery.
Plaintiff is a producer and supplier of magnesium, and operates a manufacturing facility in Rowley, Utah. On or about September 1, 2006, Plaintiff and ATI-Ti entered into the Supply and Operating Agreement (the "Agreement"). Under the Agreement, ATI-Ti promised to purchase magnesium from Plaintiff for use in manufacturing titanium sponge.
The Agreement contained an economic force majeure clause which, under certain circumstances, allowed ATI-Ti to suspend its performance under the Agreement. On August 23, 2016, ATI-Ti invoked the economic force majeure clause and informed Plaintiff that it was suspending its performance under the Agreement 180 days following the letter. Soon thereafter, ATI-Ti began ramping down the amount of magnesium it accepted from Plaintiff and the amount of magnesium chloride it provided to Plaintiff. By doing so, Plaintiff alleges that ATI-Ti breached the Agreement and caused permanent damage to the electrolytic cells Plaintiff used to produce magnesium. Plaintiff brings claims for breach of contract and for declaratory judgment. In addition, Plaintiff asserts claims against Allegheny, ATI-Ti's parent company, based on an alter ego theory of liability. Both Defendants seek dismissal.
In considering a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6), all well-pleaded factual allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the light most favorable to Plaintiff as the nonmoving party.
"The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted."
In considering a motion to dismiss, a district court not only considers the complaint, "but also the attached exhibits,"
Federal Rule of Civil Procedure 12(b)(2) is the vehicle by which a party may move for dismissal based on lack of personal jurisdiction. Plaintiff bears the burden of establishing the jurisdiction over Defendant.
ATI-Ti seeks dismissal of Plaintiff's Complaint without prejudice based on Plaintiff's failure to abide by the dispute resolution provision of the Agreement. Article 12 of the Agreement, entitled "Dispute Resolution," states:
Plaintiff filed the instant action on October 12, 2016. That same day, Cameron Tissington, Vice President of Sales for Plaintiff, sent Defendants a letter invoking Section 12.1 of the Agreement. The parties have completed the informal resolution portion of Section 12.1 and, as of the filing of the Motion, were engaging in mediation.
ATI-Ti seeks dismissal, arguing that Plaintiff failed to comply with the dispute resolution provision of the Agreement prior to filing its Complaint. In response, Plaintiff first argues that Article 12 does not apply to its claims because Article 11, concerning the economic force majeure, contains a different resolution process. Second, Plaintiff argues that the dispute resolution process under Article 12 is voluntary and, therefore, not a condition precedent to litigation. Finally, Plaintiff argues that by the time the Court rules on this Motion, the parties will have completed mediation, making this Motion moot. Each argument will be addressed in turn.
Plaintiff first argues that Article 12's dispute resolution provision does not apply because Article 11 contains a more specific dispute resolution process concerning the economic force majeure clause. Article 11's economic force majeure clause allows ATI-Ti the ability to suspend its performance under the Agreement in certain circumstances. Providing notice of an economic force majeure triggers certain procedures. In particular, notice from ATI-Ti that it is invoking the clause begins a negotiation and audit period. Plaintiff argues that this more specific process governs this dispute, as opposed to Article 12's general dispute resolution clause.
Plaintiff's argument is without merit and is contradicted by the plain language of the Agreement. Article 12's dispute resolution process applies to "[a]ny dispute, difference, controversy or claim between the parties arising out of or in connection with this Agreement." The broad language of the Agreement necessarily includes disputes related to the economic force majeure clause. The fact that invocation of the economic force majeure clause triggers certain procedures is irrelevant to whether Article 12 applies. The two provisions are not mutually exclusive. Nothing in Article 11 or 12 would take disputes related to the economic force majeure clause out of the dispute resolution process set out in Article 12.
Plaintiff next argues that Article 12 is optional and not a condition precedent to suit. Article 12 is not a model of clarity. As stated, Article 12 applies to "[a]ny dispute, difference, controversy or claim between the parties arising out of or in connection with" the Agreement. Those disputes "may be referred by either Party to their respective executive officers of the parties for resolution to the satisfaction of the parties, if possible." The executive officers then "will make a bona fide attempt to settle any such dispute." If the dispute is not resolved in this manner within sixty days "the parties will submit such dispute, difference, controversy or claim to settlement proceedings pursuant to mediation administered by the American Arbitration Association." If the dispute is not resolved within sixty days of its submission to mediation, "either Party may submit such dispute, controversy, or claim to litigation."
Plaintiff argues that the parties' use of the permissive word "may" with respect to the first level of dispute resolution shows that the parties did not intend to require this process in every circumstance. This argument does not withstand scrutiny.
As stated, Section 12.1 states that disputes "may be referred by either Party to their respective executive officers of the parties for resolution to the satisfaction of the parties, if possible." The use of the word "may" in Section 12.1 relates to who may refer disputes to the parties' executive officers, not whether the parties must engage in such attempts. The word "may" in this instance indicates that either party can begin the dispute resolution process. That is, either party may refer a dispute to the executive officers. Once the dispute has been referred to the executive officers, they "will make a bona fide attempt to settle any such dispute." If a dispute remains, the parties "will submit such dispute, difference, controversy or claim to settlement proceedings pursuant to mediation administered by the American Arbitration Association." Only after the parties have engaged in mediation may the parties resort to litigation.
In any event, the issue of whether the parties must engage in informal dispute resolution through their executive officers is largely academic. After all, Plaintiff began that process when it filed its Complaint. By invoking the executive officer portion of dispute resolution process, Plaintiff must now comply with the remainder of Article 12. That includes engaging in mediation before filing suit.
Plaintiff's third argument is that ATI-Ti's Motion is moot because by the time the Court rules on it, the parties will have completed the dispute resolution process, including mediation. Essentially, the question is what should be done given Plaintiff's failure to comply with the dispute resolution process set out in the Agreement. Courts faced with similar cases have used their discretion to either dismiss the action or to stay it pending mediation.
Here, there is no suggestion that Plaintiff would be harmed if the Court were to dismiss this action. Defendant seeks dismissal without prejudice. Therefore, Plaintiff could re-file this action after mediation is completed and there is no risk that their claims will be lost.
Defendant argues that dismissal is necessary to reflect the parties' agreement and to allow mediation to proceed without the cloud of litigation. The Court agrees. The parties contracted for a certain dispute resolution procedure. By failing to engage in mediation prior to filing suit, Plaintiff has denied Defendant the benefit of their bargain. If the Court simply ignored Plaintiff's conduct "it would be setting a precedent that parties may disregard such conditions and pay no consequences so long as they subsequently engage in fruitless mediation. Such a position would plainly render the mediation requirement a nullity."
Finally, while the dismissal may result in certain inefficiencies, those inefficiencies do not outweigh the harm to Defendant if this case is not dismissed. Further, any inefficiency in dismissing the Complaint is due to Plaintiff failing to abide by the terms of the Agreement. Had Plaintiff complied with the dispute resolution process to which it agreed, dismissal would not be necessary.
Plaintiff further argues that various hurdles make any attempts at mediation futile. Plaintiff specifically points to the lack of compulsory process and the absence of Allegheny. Plaintiff's futility arguments are unavailing. Plaintiff agreed to the dispute resolution procedures in Article 12. It cannot now be heard to complain about any supposed deficiencies in those procedures. Therefore, the Court will dismiss Plaintiff's Complaint against ATI-Ti without prejudice.
Allegheny seeks dismissal for lack of personal jurisdiction and for failure to state a claim. Both arguments are addressed below.
Plaintiff carries the burden of establishing personal jurisdiction over Defendant.
To satisfy the constitutional requirement of due process there must be "minimum contacts" between the defendant and the forum state.
Plaintiff does not assert that the Court may exercise general jurisdiction over Allegheny. Thus, the question becomes whether there are sufficient contacts to support specific jurisdiction. Plaintiff points to a number of contacts Allegheny had with the state of Utah dating back to 2005 and 2006. Those contacts all relate to the opening of ATI-Ti's Rowley facility. However, none of Plaintiff's claims arise out of or relate to these contacts. Rather, Plaintiff's sole claim is that ATI-Ti breached the Agreement in the summer of 2016. ATI-Ti, not Allegheny, was the signatory to that Agreement. ATI-Ti was the entity created to own and operate the Rowley facility and the facts show that it was this entity that Plaintiff had been working with over the previous ten years. Therefore, Allegheny's contacts with Utah a decade earlier are irrelevant to Plaintiff's claims and are insufficient to establish specific jurisdiction.
Plaintiff also argues that personal jurisdiction over Allegheny is proper based on ATI-Ti's contacts with Utah. A court may not automatically exercise jurisdiction over a parent corporation merely because jurisdiction may be exercised over the parent's subsidiary.
"Companies conducting business through their subsidiaries can qualify as transacting business in a state, provided the parent exercises sufficient control over the subsidiary."
The first prong is called the formalities requirement, while the second prong is called the fairness requirement. Courts consider a variety of factors in determining whether one entity is the alter ego of another.
In its Complaint, Plaintiff alleges that "at all relevant times, there was such a unity of interest and ownership that the separate personalities of the ATI-Ti and [Allegheny] did not exist and instead an alter ego relationship existed."
In response to these allegations, Defendant has presented the Declarations of G. Scott Rantovich and Karl D. Schwartz. Mr. Rantovich states that that Allegheny and ATI-Ti are separate entities. Allegheny is the parent company and ATI-Ti is an indirect subsidiary, removed by approximately five degrees of ownership. Mr. Rantovich states that Allegheny does not oversee the day-to-day operations of ATI-Ti. Instead, those activities are managed by ATI-Ti's employees and management team. Further, Mr. Rantovich states that Allegheny and ATI-Ti maintain separate and independent by-laws, minutes, corporate records, financial records, and bank accounts. Mr. Rantovich goes on to state that Allegheny and ATI-Ti are financially independent of each other and that ATI-Ti is responsible for its own profits and losses. Further, ATI-Ti was fully capitalized and operates under its own budget. Mr. Rantovich states that Allegheny does prepare consolidated financial statements for it and its subsidiaries and does file certain government-mandated reports for these entities. However, Allegheny and its subsidiaries maintain separate financial records.
Mr. Schwartz's Declaration adds to that of Mr. Rantovich. Like Mr. Rantovich, Mr. Schwartz states that Allegheny does not control or direct ATI-Ti's daily operations. Those activities are overseen by ATI-Ti's management team, which is responsible for that entity's profits, losses, and operations of the company. Mr. Schwartz further states that ATI-Ti is responsible for managing its contractual obligations, including obligations under the Agreement. Importantly, Mr. Schwartz states that ATI-Ti's management team independently determined that the Rowley facility was not profitable and decided to invoke the economic force majeure clause, which led to the ramp down and eventual closing of the Rowley facility. Mr. Schwartz states that ATI-Ti determined what information was to be provided to Plaintiff in conjunction with that decision and that ATI-Ti sent all notices and communications to Plaintiff related to that decision.
As stated, Plaintiff bases its agency/alter ego theories on assertions that Allegheny and ATI-Ti had common management, shared common headquarters, and issued joint financial reports. Plaintiff also alleges that Allegheny controlled the actions of ATI-Ti and asserted ownership over the Rowley facility in various statements. These will be addressed in turn.
The fact that Defendants may have common management "has been held insufficient to allow corporate veil piercing."
Plaintiff next points to joint financial statements and SEC filings to suggest that they show Allegheny's dominance and control over ATI-Ti. Various courts have held that these filings, by themselves, cannot satisfy the alter ego test.
Plaintiff next asserts that Allegheny makes business decisions for ATI-Ti and made the decision to idle the Rowley facility. Plaintiff relies on two sources for these assertions. First, Plaintiff relies on the allegation in its Complaint that Allegheny made business decisions for ATI-Ti, including the decision to idle the Rowley facility. Plaintiff's allegations are specifically refuted by the Declarations of Mr. Rantovich and Mr. Schwartz, as set forth above. Mr. Rantovich has stated that Allegheny and ATI-Ti are separate and independent legal entities. Mr. Rantovich further states that Allegheny does not oversee the day-to-day operations of ATI-Ti. Instead, these activities are managed by ATI-Ti's employees and management team. Mr. Schwartz confirms that Allegheny does not control or direct ATI-Ti's daily operations. Mr. Schwartz further states that ATI-Ti's management team independently determined that the Rowley facility was not profitable and made the decision to invoke the economic force majeure clause. Based upon this evidence, the Court cannot accept Plaintiff's allegations.
Plaintiff also relies on the Declaration of Cameron Tissington to support its assertion that Allegheny exercised control over ATI-Ti. Mr. Tissington states that Plaintiff worked with Lynn Davis, whom Mr. Tissington asserts is an Allegheny employee, as opposed to working directly with ATI-Ti.
Mr. Davis' role within Allegheny and ATI-Ti is unclear. However, there is evidence that Mr. Davis was responsible for overseeing the Rowley facility.
Finally, Plaintiff relies on statements whereby Allegheny asserted ownership over the Rowley plant and stated that it was Allegheny's decision to idle the plant. In these circumstances, employees of Allegheny would use words like "we" or "our" in describing actions related to the Rowley facility. These words, however, do not provide a basis for disregarding the corporate form. As stated, Mr. Schwartz states that it was ATI-Ti's management team that independently determined that the Rowley plant was not profitable and decided to invoke the force majeure clause, which ultimately led to the closure of the plant. There is no evidence to the contrary. At most, these statements show a parent company discussing the activities of its subsidiary. Mr. Schwartz makes clear that "it is common and, in fact, expected for a parent entity to report upon events that materially impact a consolidated subsidiary."
Because there are insufficient contacts to support personal jurisdiction over Allegheny, the Court will grant Allegheny's Motion to Dismiss for lack of personal jurisdiction.
Allegheny argues that, even if the Court could exercise personal jurisdiction, Plaintiff's claim should be dismissed for failure to state a claim. As set forth above, to state a claim for alter ego, two requirements must be met. "First, there must be such unity of interest and ownership that the separate personalities of the corporation[s] . . . no longer exist. Second, the observance of the corporate form [must] sanction a fraud, promote injustice, or [cause] an inequitable result [to] follow."
Even assuming the Court had jurisdiction over Allegheny, dismissal without prejudice would still be required because Plaintiff has failed to sufficiently plead facts supporting the fairness element. Plaintiff alleges that an injustice would result unless the separate legal existences of ATI-Ti and Allegheny are disregarded. However, this is a conclusory allegation that is not supported by factual allegations. Therefore, dismissal without prejudice is required.
Plaintiff requests jurisdictional discovery. "When a defendant moves to dismiss for lack of jurisdiction, either party should be allowed discovery on the factual issues raised by that motion."
Here, Plaintiff has failed to demonstrate the need for jurisdictional discovery. As discussed above, the pertinent facts bearing on the question of jurisdiction are not controverted and there is not a need for a more satisfactory showing. Plaintiff's claim for personal jurisdiction rests largely on the allegations contained in their Complaint. Those allegations have been directly contradicted by evidence from Defendants and Plaintiff has failed to provide any conflicting evidence. Further, while the parties have presented competing affidavits, those affidavits do not create a dispute that would require further discovery. Because of this, discovery is not necessary and Plaintiff's Motion will be denied.
It is therefore
ORDERED that Defendants' Motions to Dismiss (Docket Nos. 16 and 17) are GRANTED. Plaintiff's claims are dismissed without prejudice. It is further
ORDERED that Plaintiff's Motion for Jurisdictional Discovery (Docket No. 32) is DENIED.
The Clerk of the Court is directed to close this case forthwith.