Case Title: PanAmerican Mineral Services, Inc. v. KLS Enviro Resources, Inc.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1996-05-17T00:00:00Z

Document:
PanAmerican Mineral Services, Inc. v. KLS Enviro Resources, Inc.1996 WY 67916 P.2d 986Case Number: 95-166Decided: 05/17/1996Supreme Court of Wyoming
PANAMERICAN MINERAL SERVICES, INC., a Wyoming corporation,

Appellant 
(Plaintiff),

 

v.

 

KLS ENVIRO 
RESOURCES, INC., a Nevada Corporation; And Dateline Internacional, S.A. de C.V., 
a Mexican National corporation,

 Appellees 
(Defendants).

 

Appeal from 
the District Court, Natrona County, Dan Spangler, J.

 

Richard E. 
Day of Williams, Porter, Day & Neville, P.C., Casper, for Appellant.

 

Patrick 
Dixon of Dixon & Despain, Casper, for Appellants.

 

Before 
GOLDEN, C.J., and THOMAS, MACY, TAYLOR and LEHMAN, JJ.

 

THOMAS, 
Justice.

 

[¶1]      The question 
posed is whether a Wyoming court can exercise personal jurisdiction over a 
parent corporation, KLS Enviro Resources, Inc. (KLS), and its sister 
corporation, Dateline Internacional, S.A. de C.V. (DIMSA), neither of which has 
the requisite minimum contacts with Wyoming, if a subsidiary corporation, 
Dateline Drilling, Inc. (Dateline), which has the requisite minimum contacts, is 
an alter ego of the parent or the sister. The district court had personal 
jurisdiction over Dateline, but ruled it lacked personal jurisdiction over KLS 
and DIMSA and dismissed the complaint against them filed by PanAmerican Mineral 
Services, Inc. (PanAmerican) to enforce arbitration. We hold that piercing the 
corporate veil between KLS and Dateline and Dateline and DIMSA affords personal 
jurisdiction over KLS and DIMSA as alter egos of Dateline. The order of the 
district court dismissing the case against KLS and DIMSA is reversed, and the 
case is remanded for further proceedings in accordance with this 
opinion.

 

[¶2]      In the Brief of 
Appellant PanAmerican Mineral Services, Inc., the issues are stated to 
be:

 

The issues 
before this Court are whether under the facts presented herein the Defendants 
KLS Enviro Resources, Inc., a Nevada Corporation and Dateline Internacional, 
S.A. de C.V., a Mexican National Corporation and subsidiary of KLS Enviro 
Resources, Inc., are, by their actions, subject to In Personam jurisdiction in 
the State of Wyoming by virtue of an "Agreement" between Appellant PanAmerican 
Mineral Services, Inc., a Wyoming Corporation, and Dateline Drilling, Inc., a 
Montana Corporation, wholly-owned subsidiary of KLS Enviro Resources, Inc. and 
sister corporation to Dateline Internacional S.A. de C.V.

 

In the Brief 
of Appellees KLS Enviro Resources, Inc. and Dateline Internacional, S.A. de 
C.V., the issues are stated to be:

 

While 
Appellees do not quarrel with PanAmerican's statement of the issues, a more 
precise statement of the issue would be as follows:

May this 
Court exercise vicarious personal jurisdiction over the non-resident corporate 
Defendants?

 

[¶3]      PanAmerican and 
Dateline contracted with respect to mineral drilling in Mexico. The agreement 
was made on March 20, 1991 and amended on August 16, 1991. It provided, for the 
five-year term of the agreement, that if PanAmerican wished to bid on a drilling 
project in Mexico or Central America, PanAmerican was to give Dateline all 
pertinent information in order for Dateline to bid the project. With respect to 
any drilling project in either country, if Dateline decided to bid, it would 
submit the completed bid to PanAmerican. PanAmerican then would pass the bid 
along to a potential Mexican or Central American client. Upon acceptance by the 
client of the Dateline bid, PanAmerican agreed to provide consulting services to 
Dateline and "assistance with border crossing, customs clearance, and 
transportation of Dateline's rigs and equipment within Mexico or Central America 
to the job site." The purpose of the agreement was to provide that all drilling 
operations performed by Dateline in either Mexico or Central America would be 
accomplished through, and in the name of, PanAmerican or its foreign 
subsidiary.

 

[¶4]      The agreement 
provided that any disputes between the parties regarding interpretation of its 
provisions were to be resolved by a "mutually agreeable arbitration procedure." 
PanAmerican and Dateline specifically provided for the contract to be binding on 
their respective successors, assigns, subsidiaries, and other entities owned or 
controlled by either of them. The contract invoked the law of Wyoming providing 
that the "agreement shall be construed as to validity, interpretation and effect 
according to the laws and court decisions in Wyoming." It was executed in 
Casper, and the amendment was sent to Dateline's Montana office on letterhead 
from PanAmerican's corporate office in Casper.

 

[¶5]      PanAmerican and 
Dateline conducted business in Mexico through June 1993, utilizing PanAmerican's 
Mexican subsidiary, Servicios Mineros PanAmericanos S.A. de C.V. Both 
PanAmerican and Dateline received remuneration for their services according to 
the contract during this period of time. In August 1992, Dateline's 
representative telephoned PanAmerican's Casper office and informed PanAmerican's 
president that Dateline, in conjunction with KLS, wished to buy out the 
agreement from PanAmerican. PanAmerican presented an offer to KLS/Dateline, but 
it was refused. Subsequently, PanAmerican rejected a counteroffer to buy out the 
contract for $50,000.

 

[¶6]      KLS then sent a 
letter, dated February 17, 1993, from Montana to PanAmerican in Wyoming. The 
letter advised PanAmerican's president that Dateline had been acquired by KLS 
and no longer would perform drilling operations in Mexico or Central America. 
The letter was signed by the vice-president of KLS, who previously had been 
Dateline's representative in the failed buy-out negotiations with PanAmerican. 
On February 19, 1993, PanAmerican replied in a letter from its president, 
expressing concern over PanAmerican's and Dateline's mutual drilling commitment 
in Sonora, Mexico. That letter advised KLS that the original agreement bound the 
successors and affiliated entities of Dateline for five years, until March 20, 
1996. In a response dated February 25, 1993, KLS advised PanAmerican that KLS 
"may very well engage in core drilling in Mexico, Central America and elsewhere, 
and need not account to PanAmerican nor does it need its 
approval."

 

[¶7]      A meeting was 
held in Missoula, Montana, on March 6, 1993, in an attempt by KLS and 
PanAmerican to iron out differences. Neither KLS nor Dateline wanted to continue 
under the terms of the agreement, so proposed amendments were drafted. The 
parties did agree to operate under the existing agreement until the amendments 
were executed. Drilling activity in Mexico proceeded even though the amendments 
never were incorporated into the agreement, and Dateline submitted invoices for 
work completed in June 1993. The business arrangement was interrupted by a 
letter, dated June 7, 1993, from Dateline's attorney in Dallas in which he 
demanded remittance for funds PanAmerican had been withholding to pay its 
Mexican tax liability. Subsequently, on August 6, 1993, Dateline's Wyoming 
attorney sent a letter to PanAmerican in Casper demanding arbitration of their 
differences pursuant to the agreement.

 

[¶8]      So far as this 
record discloses, PanAmerican received no further payment under the terms of the 
agreement after June 1993. The record reflects, however, that DIMSA continued to 
drill in Mexico, but made no accounting to PanAmerican as the "successor and 
assign" of Dateline. Documentation presented by PanAmerican further shows that 
KLS acquired Dateline by trading 48% of KLS stock to Dateline's sole 
shareholder. In return, Dateline's sole shareholder turned over all Dateline 
stock to KLS and became a director, officer, and shareholder of KLS. 
Consequently, PanAmerican alleges in its complaint that KLS utilized its 
wholly-owned subsidiary, DIMSA, to accomplish the business in Mexico and Central 
America that previously had been accomplished through PanAmerican's Mexican 
subsidiary.

 

[¶9]      The 
pre-incorporation agreement of KLS is part of the record. In that agreement, the 
following language appears:

 

Foreign 
Operations. Assuming 
the proposed acquisition of Dateline is consummated, the Company, through Dateline, will be engaged in 
operations in Mexico. (Emphasis added.)

 

A few pages 
further on, the agreement states:

 

Assuming the 
capitalization of Dateline (via the Company [KLS]) occurs as expected * * * 
Dateline expects to move at least four additional rigs to Mexico and to drill 
approximately 275,000 feet by September 30, 1993.

 

[¶10]   Another document in the record is a 
report that KLS filed with the Securities and Exchange Commission on February 
18, 1994. This document summarizes KLS's accounting policies and significantly 
states:

 

2.         Principles of 
Consolidation

The 
accompanying unaudited consolidated financial statements contain the accounts of 
K.L.S. Enviro Resources, Inc., Dateline Drilling, Inc., K.L.S. Co., Inc., K.L.S. 
Environmental, Inc. and Dateline Internacional, S.A. de C.V. All significant 
intercompany transactions and balances have been eliminated in consolidation. The consolidated group is referred to as 
the "Company". (Emphasis added.)

 

Other 
documents in the record show drilling logs printed on a Dateline Drilling, Inc. 
form, reflecting operations performed after July 1993, and some of these logs 
indicate DIMSA was using Dateline rigs to drill in Mexico.

 

[¶11]   The arbitration board issued a 
decision letter on July 12, 1994, in which it found "all reasonable factual 
inferences must be made in favor of PanAmerican" and went on to hold both KLS 
and DIMSA were bound by the terms of the agreement relating to Mexico and 
Central America under Wyoming law. This determination was based upon the "legal 
relationship, stock ownership, officers and business plans of Dateline and KLS, 
and the use of Dateline's equipment to accomplish DIMSA's work." The board 
agreed that KLS and DIMSA should be joined in the arbitration, but neither 
corporation responded to attempts to compel arbitration in 
Wyoming.

 

[¶12]   On November 18, 1994, PanAmerican 
filed a complaint against KLS and DIMSA in the district court. PanAmerican 
asserted that KLS is the alter ego of DIMSA; KLS and DIMSA are the successors or 
assigns of Dateline; the agreement is binding on KLS and DIMSA; KLS and DIMSA 
have unlawfully refused to arbitrate; and KLS, through DISMA, is attempting to 
circumvent the terms of the agreement. When KLS and DIMSA filed an answer on 
January 18, 1995, the affirmative defenses of lack of personal jurisdiction, 
failure to state a claim, and estoppel were presented. On February 28, 1995, KLS 
and DIMSA filed their motion to dismiss based upon PanAmerican's failure to 
state a claim under WYO.R.CIV.P. 12(b)(6). After a response brief was filed by 
PanAmerican on April 3, 1995, the district court authored its decision letter on 
April 18, 1995, and the order of dismissal was filed on May 22, 
1995.

 

[¶13]   Previously, we have ruled that 
federal authority interpreting FED.R.CIV.P. 12 is highly persuasive because of 
the virtual identity of the two rules. Kimbley v. City of Green River, 642 P.2d 443 (Wyo. 1982). In the federal courts, the practice is to consider affidavits 
and any other relevant matter that may assist the court in determining 
jurisdictional facts when confronted with a motion to dismiss under Rule 
12(b)(2). E.g., Mylan Labs, Inc. v. Akzo, N.V., 2 F.3d 56 (4th Cir. 1993); A.I. 
Trade Finance, Inc. v. Petra Bank, 989 F.2d 76 (2d Cir. 1993); Goldman, 
Antonetti, Ferraiuoli, Axtmayer & Hertell, Partnership v. Medfit Int'l, 
Inc., 982 F.2d 686 (1st Cir. 1993); Theunissen v. Matthews, 935 F.2d 1454 (6th 
Cir. 1991); Patterson by Patterson v. F.B.I., 893 F.2d 595 (3d Cir. 1990); 
Nelson by Carson v. Park Indus., Inc., 717 F.2d 1120 (7th Cir. 1983), cert. 
denied sub nom., Bunnan Tong & Co., Ltd. v. F.W. Woolworth Co., 465 U.S. 1024, 104 S. Ct. 1277, 79 L. Ed. 2d 682 (1984) and cert. denied sub nom., United 
Garment Mfg. Co., Ltd. v. Nelson by Carson, 465 U.S. 1024, 104 S. Ct. 1278, 79 L. Ed. 2d 682 (1984); Simon v. United States, 644 F.2d 490 (5th Cir. 1981); Data 
Disc, Inc. v. Sys. Technology Associates, Inc., 557 F.2d 1280 (9th Cir. 1977). 
This practice is summarized in CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL 
PRACTICE AND PROCEDURE CIVIL 2D § 1351, at 253 (1990):

 

When a court 
is considering a challenge to its jurisdiction over defendant or over a res, it 
may receive and weigh affidavits and any other relevant matter to assist it in 
determining the jurisdictional facts; * * *.

 

[¶14]   In making its decision on the 
issue, the trial court has considerable leeway. It may determine the matter on 
the basis of pleadings and other materials called to its attention; it may 
require discovery; and it may even conduct an evidentiary hearing. In an 
instance such as this, in which no evidentiary hearing was conducted, the only 
burden on PanAmerican was to make a prima facie showing of jurisdiction. These 
features of the disposition of the issue of personal jurisdiction are summarized 
in Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 
1981):

 

In deciding 
a pretrial motion to dismiss for lack of personal jurisdiction a district court 
has considerable leeway. It may determine the motion on the basis of affidavits 
alone; or it may permit discovery in aid of the motion; or it may conduct an 
evidentiary hearing on the merits of the motion. If the court chooses not to 
conduct a fullblown evidentiary hearing on the motion, the plaintiff need make 
only a prima facie showing of jurisdiction through its own affidavits and 
supporting materials. Eventually, of course, the plaintiff must establish 
jurisdiction by a preponderance of the evidence, either at a pretrial 
evidentiary hearing or at trial. But until such a hearing is held, a prima facie 
showing suffices, notwithstanding any controverting presentation by the moving 
party, to defeat the motion. (Citations omitted.)

 

See also 
Mylan Labs, Inc.; Gould v. P.T. Krakatau Steel, 957 F.2d 573 (8th Cir. 1992), 
cert. denied, 506 U.S. 908, 113 S. Ct. 304, 121 L. Ed. 2d 227 (1992); Market/Media 
Research, Inc. v. Union Tribune Publishing Co., 951 F.2d 102 (6th Cir. 1991), 
cert. denied, 506 U.S. 824, 113 S. Ct. 79, 121 L. Ed. 2d 43 (1992); Ball v. 
Metallurgie Hoboken-Overpelt S.A., 902 F.2d 194 (2d Cir. 1990), cert. denied, 
498 U.S. 854, 111 S. Ct. 150, 112 L. Ed. 2d 116 (1990); CutCo Indus., Inc. v. 
Naughton, 806 F.2d 361 (2d Cir. 1986); Fields v. Sedgwick Associated Risks, 
Ltd., 796 F.2d 299 (9th Cir. 1986); Volkswagenwerk Aktiengesellschaft v. Beech 
Aircraft Corp., 751 F.2d 117 (2d Cir. 1984); Forsythe v. Overmyer, 576 F.2d 779 
(9th Cir. 1978) cert. denied, 439 U.S. 864, 99 S. Ct. 188, 58 L. Ed. 2d 174 
(1978).

 

[¶15]   In the decision letter included in 
the court file, the district court stated:

 

Plaintiff 
[PanAmerican] apparently argues that the maker of the contract, Dateline, could 
be held personally responsible in Wyoming, that the Defendants have taken 
control of Dateline, and that the Defendants, therefore, can be held liable in 
Wyoming. The problem is that there is no legal authority cited to support this 
theory. Plaintiff cites many cases to the effect that the successor corporation 
is liable for contracts of the original company. However, liability is not the 
issue here. The question is whether Defendants [KLS and DIMSA] can be held to 
answer in this State for their liability, if any.

 

We agree 
that liability is not the issue. The question is whether, under the doctrine of 
piercing the corporate veil, the parent and sister corporations can be brought 
into Wyoming as alter egos of Dateline, over which the district court clearly 
had jurisdiction.

 

[¶16]   We have structured some definitive 
criteria with respect to the doctrine of piercing the corporate veil. In Amfac 
Mechanical Supply Co. v. Federer, 645 P.2d 73, 79 (Wyo. 1982), we 
said:

 

For a 
corporation to be accorded treatment as a separate entity, it must exist and 
function as such and not be the alter ego of the person [or corporation] owning 
and controlling it and cannot be used or ignored just to fit the convenience of 
the individual [or corporation].

 

In Federer, 
we identified, by quoting with approval from Arnold v. Browne, 27 Cal. App. 3d 386, 103 Cal. Rptr. 775, 781-82 (1972), certain factors that justify disregarding 
the corporate entity or piercing the corporate veil:

 

Among the 
possible factors pertinent to the trial court's determination are: commingling 
of funds and other assets, failure to segregate funds of the separate entities, 
and the unauthorized diversion of corporate funds or assets to other than 
corporate uses; the treatment by an individual of the assets of the corporation 
as his own; the failure to obtain authority to issue or subscribe to stock; the 
holding out by an individual that he is personally liable for the debts of the 
corporation; the failure to maintain minutes or adequate corporate records and 
the confusion of the records of the separate entities; the identical equitable 
ownership in the two entities; the identification of the equitable owners 
thereof with the domination and control of the two entities; identification of 
the directors and officers of the two entities in the responsible supervision 
and management; the failure to adequately capitalize a corporation; the absence 
of corporate assets, and under capitalization; the use of a corporation as a 
mere shell, instrumentality or conduit for a single venture or the business of 
an individual or another corporation; the concealment and misrepresentation of 
the identity of the responsible ownership, management and financial interest or 
concealment of personal business activities; the disregard of legal formalities 
and the failure to maintain arm's length relationships among related entities; 
the use of the corporate entity to procure labor, services or merchandise for 
another person or entity; the diversion of assets from a corporation by or to a 
stockholder or other person or entity, to the detriment of creditors, or the 
manipulation of assets and liabilities between entities so as to concentrate the 
assets in one and the liabilities in another; the contracting with another with 
intent to avoid performance by use of a corporation as a subterfuge of illegal 
transactions; and the formation and use of a corporation to transfer to it the 
existing liability of another person or entity [citation].

Federer, 645 P.2d  at 77-78.

 

See also 
Kloefkorn-Ballard Constr. and Dev., Inc. v. North Big Horn Hosp. Dist., 683 P.2d 656, 661 (Wyo. 1984); Miles v. CEC Homes, Inc., 753 P.2d 1021, 1024 (Wyo. 1988). 
We also noted that a showing of actual fraud, by itself, may be sufficient for 
piercing the corporate veil. Federer, 645 P.2d  at 79.

 

[¶17]   In our judgment, the Supreme Court 
of California has appropriately addressed the proposition of personal 
jurisdiction where the subsidiary is an alter ego of the parent or when the 
corporate veil appropriately may be pierced. It has held that, if the alter ego 
situation is present, then the jurisdictional presence of the subsidiary can 
result in personal jurisdiction over a parent, and we are clear, a sister 
corporation. Westinghouse Elec. Corp. v. Superior Court of Alameda County, 17 Cal. 3d 259, 131 Cal. Rptr. 231, 551 P.2d 847 (1976); Empire Steel Corp. of Texas, 
Inc. v. Superior Court of Los Angeles County, 56 Cal. 2d 823, 17 Cal. Rptr. 150, 
366 P.2d 502 (1961). While such authority may not have been cited to the trial 
court, it does exist.

 

[¶18]   PanAmerican alleges in its 
complaint that KLS is the alter ego of DIMSA. The supporting documentation filed 
with the complaint shows DIMSA continued drilling activities in Mexico using 
Dateline equipment, but without paying PanAmerican under the terms of the 
contract. All Dateline stock was transferred to KLS, and Dateline's sole 
shareholder became an officer of KLS; in its pre-incorporation agreement, KLS 
stated it would be engaging in drilling operations in Mexico "through Dateline," 
and that Dateline now was a prong of KLS Consolidated Group referred to as the 
"Company." The information gleaned from PanAmerican's supporting documentation 
establishes at least as a prima facie 
matter that KLS used DIMSA as a "mere shell, instrumentality or conduit" to 
avoid Dateline's obligations under the contract with PanAmerican. The record is 
sufficient to establish a prima facie case that KLS and DIMSA are "alter egos" 
of Dateline. Federer.

 

[¶19]   There can be no question that 
Dateline is subject to personal jurisdiction in Wyoming. It clearly had 
sufficient minimum contacts such that it would have reasonably anticipated being 
sued in this jurisdiction. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490, 501 (1980), and those cases that 
have followed this precedent. By acting as surrogates of Dateline in continuing 
the drilling operation, KLS and DIMSA also became subject to suit in Wyoming. 
The corporate actions of Dateline became the actions of the parent and the 
sister corporation, and the converse also is true. The district court had 
jurisdiction over Dateline, and it had jurisdiction over KLS and DIMSA. A prima facie case was established to 
invoke the personal jurisdiction of the Wyoming court. Under the circumstances, 
the motion to dismiss should not have been granted. It may be, at an evidentiary 
hearing, PanAmerican will be unable to establish proof of personal jurisdiction 
by a preponderance of the evidence. However, we are satisfied as a matter of 
law, this record shows a prima facie 
case that both KLS and DIMSA are the alter egos of Dateline and subject to the 
same jurisdiction in a Wyoming court as Dateline.

 

[¶20]   The order of dismissal is reversed, 
and the case is remanded to the trial court for further proceedings consistent 
with this opinion.