Opinion ID: 9457
Heading Depth: 3
Heading Rank: 2

Heading: Jurisdiction as to Mumma and Kimbob Inc.

Text: It is undisputed that Mumma and Kimbob Inc. had no contacts with Texas. However, USF & G offered three arguments as to why the exercise of jurisdiction over them would be proper. First, USF & G argues that by signing the MSA, Mumma and Kimbob Inc. somehow entered into a contract that was performable in Texas. While Mumma's and Kimbob Inc.'s signatures on the MSA might obligate them to indemnify USF & G, the MSA, standing alone, is insufficient to establish the requisite contacts with the forum state. Second, USF & G contends that by signing the MSA, Mumma and Kimbob Inc. put themselves at financial risk so that Adams Inc. could procure the project contract and do business with Gundle in Texas, and that this fact is somehow sufficient to support the exercise of jurisdiction over these two defendants. In support of this argument they cite this court to National Can Corp. v. K. Beverage Co., 674 F.2d 1134 (6th Cir.1982), a case that is readily distinguishable. 12 In National Can the court examined the contacts of nonresident individual guarantors in order to determine if those contacts supported the forum state's exercise of jurisdiction over the nonresidents. At issue, inter alia, were the contacts of two individual guarantors who had never set foot in the forum state. The court ultimately found that the defendants had sufficient contacts to support the exercise of jurisdiction and cited three factors in support of its decision. First, the court found that the defendants knew that the business they were guaranteeing was to be located in Kentucky, the forum state, which made it reasonable for the defendants to anticipate being haled into court in Kentucky. Id. at 1138. Second, the guaranty agreements formed the basis of the action. Id. Third, the court found that the dispute had a substantial enough connection with Kentucky to compel the defendants to defend the suit there. Id. The first two criteria that supported the exercise of jurisdiction over the nonresident defendants in National Can weigh against exercising jurisdiction over Mumma and Kimbob Inc. First, the guarantee agreement in the instant case, the MSA, contained no statement concerning where the obligations that the defendants were guaranteeing were to be performed. In fact, the bonds that Mumma and Kimbob Inc. were purporting to guarantee had not yet been issued. Second, the guarantee agreement was not the basis of the initial lawsuit initiated by Gundle. While the dispute may have a connection with Texas, that fact alone is insufficient to justify 13 the exercise of jurisdiction over Mumma and Kimbob Inc. USF & G's final argument in support of the exercise of jurisdiction over Mumma and Kimbob Inc. is that we should regard them as alter egos of Adams Inc. They contend that, as alter egos, the contacts of Adams Inc. are attributable to both Mumma and Kimbob Inc., thereby justifying the exercise of jurisdiction. Although USF & G cites no binding authority for this argument, we agree that under Texas law, a finding by the district court that Mumma and Kimbob Inc. were alter egos of Adams Inc. would have permitted the lower court to disregard the corporate fiction and pierce the corporate veil, thereby attributing Adams Inc.'s contacts to its codefendants. See S. Villar, Etc., et al. v. Crowley Maritime Corp., 990 F.2d 1489, 1496 (5th Cir.1993). The only evidence offered to the trial court by USF & G in support of its alter ego theory was to provide financial evidence relating to Kimbob Inc. and Adams Inc. Consequently, our review is limited to examining this evidence in order to determine if it is sufficient to support a finding of alter ego status.2 This circuit has developed the following laundry list of factors to be used when determining whether a subsidiary is the alter ego of the parent:3 2 The district court made no findings and issued no opinion on the issue of personal jurisdiction. The trial court's disposition of this issue is limited to a one sentence denial of the defendants' motions to dismiss for lack of personal jurisdiction. 3 We are mindful that we are not dealing with a parent-subsidiary relationship in the instant case. However, the factors used for determining whether a subsidiary is an alter ego 14 (1) the parent and the subsidiary have common stock ownership; (2) the parent and the subsidiary have common directors or officers; (3) the parent and the subsidiary have common business departments; (4) the parent and the subsidiary file consolidated financial statements and tax returns; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operates with grossly inadequate capital; (8) the parent pays the salaries and other expenses of the subsidiary; (9) the subsidiary receives no business except that given to it by the parent; (10) the parent uses the subsidiaries property as its own; (11) the daily operations of the two corporations are not kept separate; and (12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings.4 United States v. Jon-T Chemicals, Inc., 768 F.2d 686, 691-92 (5th of its parent provide guidance in determining whether Kimbob is an alter ego of Adams Inc. This court has also approved of the application of the Jon-T factors to situations where it is asserted that an individual is an alter ego of a corporation. See Century Hotels v. United States, 952 F.2d 107, 110 (5th Cir.1992). 4 In 1989 the Texas legislature amended it Business Corporation Act. The amendments removed failure to observe corporate formalities from the list of factors used in proving alter ego theories. See Tex.Bus.Corp. art. 2.21 A(3); see also Western Horizontal Drilling, Inc. v. Jonnet Energy Corp., 11 F.3d 65, 67 (5th Cir.1994) (interpreting the effect of art. 2.21 A(3)). Consequently, we will not consider this factor in our analysis. 15 Cir.1985) (internal citations omitted), cert. denied, 475 U.S. 1014, 106 S.Ct. 1194, 89 L.Ed.2d 309 (1986). Resolution of alter ego issues must be based on a consideration of the totality of the circumstances. Id. at 694. Concerning its argument that Kimbob Inc. is the alter ego of Adams Inc., USF & G presented no evidence or argument on the following factors listed above: (1) common stock ownership, (2) common officers and directors (with the exception of Mumma), (3) common business departments, (4) the filing of joint tax returns, (5) who caused the incorporation of Kimbob Inc. or Adams Inc., (6) how the corporations receive their business, (7) whether the corporations share property, and (8) the daily operations of the two corporations. In fact, the evidence that USF & G did submit on this issue indicates that the corporations neither operate with grossly inadequate capital nor do they pay one another's salaries and expenses. In short, USF & G failed to present sufficient evidence to demonstrates that Kimbob Inc. is an alter ego of Adams Inc. In addition to examining the Jon-T factors for purposes of determining whether an individual is an alter ego of a corporation, courts will examine the total dealings of the corporation and the individual, the amount of financial interest the individual has in the corporation, the ownership and the control that the individual maintains over the corporation, and whether the corporation has been used for personal purposes. Permian Petroleum Co. v. Petroleos Mexicanos, a/k/a Pemex, 934 F.2d 635, 642 (5th Cir.1991) 16 (citing Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex.1986)). In support of its alter ego theory between Mumma and Adams Inc., USF & G offered evidence of Mumma's signature on the MSA and on checks from Adams Inc. to Gundle. USF & G also asserts that Mumma's personal assets guarantee the bank debt of Adams Inc. However, it offered no evidence to support this assertion. Therefore, the only evidence to support its alter ego theory is Mumma's signature on the MSA and on Adams Inc.'s checks to Gundle. This evidence is wholly insufficient to support an alter ego theory. USF & G had the burden of establishing that the court had personal jurisdiction over Mumma and Kimbob. They failed to meet that burden.