Court Opinion

ID: 3125721
Source: CourtListenerOpinion
Date Created: 2015-10-16 15:13:46.778408+00
Date Added: 2024-06-11T11:53:22.472539
License: Public Domain

STATE OF WEST VIRGINIA

                          SUPREME COURT OF APPEALS

A2C2 Partnership, LLC,
Plaintiff Below, Petitioner                                                         FILED
                                                                                October 16, 2015
vs) No. 14-0960 (Kanawha County 12-C-2572)                                     RORY L. PERRY II, CLERK
                                                                             SUPREME COURT OF APPEALS
                                                                                 OF WEST VIRGINIA
Constellation Software Inc.,
Defendant Below, Respondent

                              MEMORANDUM DECISION
        Petitioner A2C2 Partnership, LLC, by counsel Michael D. Weikle, appeals the order of
the Circuit Court of Kanawha County, entered on August 19, 2014, granting respondent’s motion
to dismiss petitioner’s complaint for lack of jurisdiction, improper venue, and failure to state a
claim upon which relief can be granted. Respondent Constellation Software Inc., by counsel
Carol P. Smith, filed a response. Petitioner filed a reply, to which respondent, with permission of
this Court, filed a sur-reply.

        This Court has considered the parties’ briefs and the record on appeal. The facts and legal
arguments are adequately presented, and the decisional process would not be significantly aided
by oral argument. Upon consideration of the standard of review, the briefs, and the record
presented, the Court finds no substantial question of law and no prejudicial error. For these
reasons, a memorandum decision affirming the circuit court’s order is appropriate under Rule 21
of the Rules of Appellate Procedure.

       Petitioner is a West Virginia limited liability company that is authorized to hold and lease
property in the State of Michigan. Respondent is a Canadian corporation, with its principal place
of business in Ontario, Canada. Respondent is a holding company, which owns the stock of its
corporate subsidiaries, one of which is Gary Jonas Computing, Ltd. (“Jonas”), located in
Richmond Hills, Ontario, Canada.1

       This litigation arises from software and web hosting contracts between Jonas and the Ann
Arbor Country Club, located in Ann Arbor, Michigan, executed in 2001 and 2005, respectively.
Ann Arbor Country Club was placed in receivership in 2010, and petitioner acquired its assets in
February of 2011. Petitioner stopped paying Jonas for its services, causing Jonas to terminate all

       1
         Respondent argues, and the circuit court found, that respondent has no business
presence in West Virginia. Petitioner admits that respondent does not have sufficient minimum
contacts with West Virginia to permit the circuit court to exercise jurisdiction over it; rather,
according to its amended complaint, petitioner contends that the court should invoke the “alter­
ego” doctrine in order to hold respondent liable for Jonas’s actions.

                                                1

services to the golf club in November of 2011. Thereafter, petitioner paid Jonas $1,397 for what
it alleged was an “unconditional promise” by Jonas to restore website hosting and maintenance
services until March of 2012. After restoring services for a short period, Jonas terminated
services for good in January 2012. As a result, petitioner filed the present lawsuit against
respondent.

        Petitioner filed its initial complaint on or around December 28, 2012, alleging eight
causes of action solely against respondent. Specifically, petitioner alleged breach of contract,
fraud in the inducement, fraud, intentional interference with business relations, intentional
interference with prospective business relations, loss of use, and sought both compensatory and
punitive damages. The complaint does not allege that there was any direct dealing and/or
contract between petitioner and respondent. Respondent filed a motion to dismiss the complaint
on February 1, 2013.

        In response to the motion to dismiss, petitioner filed an amended complaint on May 1,
2013, making the same allegations as in its original complaint, but adding Jonas as a defendant
and invoking an “alter-ego” theory of liability against respondent. Petitioner’s allegations
supporting its alter-ego theory included the following: (1) respondent manages its subsidiaries,
including Jonas, as a single venture controlled by a single board of directors; (2) respondent
states on its website that it is a leading provider of software and that acquires, manages, and
builds industry-specific software businesses; (3) Jonas has been managed by respondent since
2003 and states on its website that it is a “division” of respondent; and (4) in addition to the
pledge of their assets to respondent, respondent’s subsidiaries guaranteed payment of
respondent’s $300 million line of credit.2

        In its motion to dismiss, respondent argued lack of personal jurisdiction; improper venue
because respondent does not reside in West Virginia and no part of the conduct about which
petitioner complains occurred in West Virginia; and failure to state a claim upon which relief can
be granted because petitioner had no contract with respondent, and respondent owed no duty to
petitioner. Following briefing and a hearing, the circuit court granted respondent’s motion to
dismiss on all three grounds by order entered on August 19, 2014. Petitioner now appeals to this
Court.

        “Appellate review of a circuit court's order granting a motion to dismiss a complaint is de
novo.” Syl. Pt. 2, State ex rel. McGraw v. Scott Runyan Pontiac-Buick, Inc., 194 W.Va. 770, 461
S.E.2d 516 (1995). “A complaint should not be dismissed unless ‘it appears beyond doubt that
the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief.’
Syl. pt. 3, in part, Chapman v. Kane Transfer Co., Inc., 160 W.Va. 530, 236 S.E.2d 207 (1977),
citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80, 84 (1957).” Conrad
v. ARA Szabo, 198 W.Va. 362, 370, 480 S.E.2d 801, 809 (1996).

       2
         Petitioner failed to serve Jonas with the amended complaint, resulting in dismissal of
the amended complaint as to the allegations against Jonas pursuant to Rule 4 of the West
Virginia Rules of Civil Procedure. Petitioner has not appealed that ruling.

                                                  2

        With respect to a nonresident defendant’s motion to dismiss for lack of personal
jurisdiction, we have held that

       “[w]hen a defendant files a motion to dismiss for lack of personal jurisdiction
       under W.Va.R.Civ.P. 12(b)(2), the circuit court may rule on the motion upon the
       pleadings, affidavits and other documentary evidence or the court may permit
       discovery to aid in its decision. At this stage, the party asserting jurisdiction need
       only make a prima facie showing of personal jurisdiction in order to survive the
       motion to dismiss. In determining whether a party has made a prima facie
       showing of personal jurisdiction, the court must view the allegations in the light
       most favorable to such party, drawing all inferences in favor of jurisdiction. If,
       however, the court conducts a pretrial evidentiary hearing on the motion, or if the
       personal jurisdiction issue is litigated at trial, the party asserting jurisdiction must
       prove jurisdiction by a preponderance of the evidence.” Syllabus point 4, State ex
       rel. Bell Atlantic–West Virginia, Inc. v. Ranson, 201 W.Va. 402, 497 S.E.2d 755
       (1997).

Syl. Pt. 2, Bowers v. Wurzburg, 202 W.Va. 43, 501 S.E.2d 479 (1998). Additionally, “a trial
court is free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and
sweeping legal conclusions cast in the form of factual allegations.” Franklin D. Cleckley, Robin
J. Davis, & Louis J. Palmer, Jr., Litigation Handbook on West Virginia Rules of Civil Procedure
§ 12(b)(6)[2], at 386 (4th ed. 2014) (footnote omitted).

        On appeal, petitioner raises a single assignment of error: that the circuit court erred in
finding that petitioner failed to allege sufficient facts to warrant piercing the corporate veil of
Jonas, respondent’s wholly-owned subsidiary, and granting respondent’s Rule 12(b)(6) motion to
dismiss. Petitioner challenges the circuit court’s application of the nineteen factors set forth in
Laya v. Erin Homes, Inc., 177 W.Va. 343, 352 S.E.2d 93 (1986), that this Court has long held are
to be considered in determining whether the corporate veil should be pierced.3 Petitioner

       3
           These nineteen factors are as follows:

       (1) commingling of funds and other assets of the corporation with those of the
       individual shareholders; (2) diversion of the corporation's funds or assets to
       noncorporate uses (to the personal uses of the corporation's shareholders); (3)
       failure to maintain the corporate formalities necessary for the issuance of or
       subscription to the corporation's stock, such as formal approval of the stock issue
       by the board of directors; (4) an individual shareholder representing to persons
       outside the corporation that he or she is personally liable for the debts or other
       obligations of the corporation; (5) failure to maintain corporate minutes or
       adequate corporate records; (6) identical equitable ownership in two entities; (7)
       identity of the directors and officers of two entities who are responsible for
       supervision and management (a partnership or sole proprietorship and a
       corporation owned and managed by the same parties); (8) failure to adequately
       capitalize a corporation for the reasonable risks of the corporate undertaking; (9)
       absence of separately held corporate assets; (10) use of a corporation as a mere
(continued . . .)
                                                    3

contends that the circuit court should have focused more heavily on the “totality of
circumstances” test set forth in Bowers, supra, and concluded that petitioner alleged sufficient
facts to invoke the alter-ego doctrine to hold respondent subject to jurisdiction in West Virginia
as an alter-ego of Jonas.4 Importantly, however, the threshold premise behind the Bowers factors

       shell or conduit to operate a single venture or some particular aspect of the
       business of an individual or another corporation; (11) sole ownership of all the
       stock by one individual or members of a single family; (12) use of the same office
       or business location by the corporation and its individual shareholder(s); (13)
       employment of the same employees or attorney by the corporation and its
       shareholder(s); (14) concealment or misrepresentation of the identity of the
       ownership, management or financial interests in the corporation, and concealment
       of personal business activities of the shareholders (sole shareholders do not reveal
       the association with a corporation, which makes loans to them without adequate
       security); (15) disregard of legal formalities and failure to maintain proper arm's
       length relationships among related entities; (16) use of a corporate entity as a
       conduit to procure labor, services or merchandise for another person or entity;
       (17) diversion of corporate assets from the 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 to concentrate the assets in one and the liabilities in
       another; (18) contracting by the corporation with another person with the intent to
       avoid the risk of nonperformance by use of the corporate entity; or the use of a
       corporation as a subterfuge for illegal transactions; (19) the formation and use of
       the corporation to assume the existing liabilities of another person or entity.

Laya, 177 W.Va. at 347-48, 352 S.E.2d at 98-99.
       4
           In syllabus point six of Bowers, this Court held as follows:

                 The following factors must be considered by a circuit court, in addition to
       any other factors relevant to a particular case, in determining whether to assert
       personal jurisdiction over the parent company of a subsidiary doing business in
       West Virginia: (1) Whether the parent corporation owns all or most of the capital
       stock of the subsidiary; (2) Whether the parent and subsidiary corporations have
       common directors and officers; (3) Whether the parent corporation finances the
       subsidiary; (4) Whether the parent corporation subscribes to all the capital stock
       of the subsidiary or otherwise causes its incorporation; (5) Whether the subsidiary
       has grossly inadequate capital; (6) Whether the parent corporation pays the
       salaries and other expenses or losses of the subsidiary; (7) Whether the subsidiary
       has substantially no business except with the parent corporation or no assets
       except those conveyed to it by the parent corporation; (8) Whether in the papers
       of the parent corporation or in the statement of its officers, the subsidiary is
       described as a department or division of the parent corporation, or its business or
       financial responsibility is referred to as the parent corporation's own; (9) Whether
       the parent corporation uses the property of the subsidiary as its own; (10) Whether
(continued . . .)
                                                   4

is that the subsidiary in question was doing business in West Virginia. Such is not the case here.
As respondent correctly argues, all of petitioner’s dealings with Jonas with respect to the
contracts giving rise to this litigation occurred in Michigan.

        Upon our review, based on the facts and circumstances of this case, we decline to disturb
the circuit court’s ruling that petitioner failed to establish personal jurisdiction over respondent.
Petitioner’s argument provides an insufficient basis upon which this Court can disregard the
well-established presumption that distinct corporate entities are separate as a matter of law. See
Southern Electrical Supply Co. v. Raleigh County Nat’l Bank, 173 W.Va. 780, 788, 320 S.E.2d
515, 523 (1984). “[C]ommon ownership or common management without evidence of fraudulent
contact, total control, or a ‘dummy’ corporation [does not] justify piercing a corporate veil.” Id.,
173 W.Va. at 789, 320 S.E.2d at 524. Additionally, “[n]othing in [West Virginia’s] law prohibits
one man or group from . . . owning two separate corporations with common purposes.” Id., 173
W.Va. at 788-90, 320 S.E.2d at 524.

        Petitioner’s evidence at the June 9, 2014, hearing in support of its argument that West
Virginia has personal jurisdiction over respondent consisted of one-hundred and one pages of
respondent’s required, readily available public filings downloaded from the internet. In order to
establish personal jurisdiction over respondent, petitioner relied almost exclusively on the
allegation that respondent pledged one-hundred percent of Jonas’ assets and the assets of its
other wholly-owned subsidiaries to secure a three million dollar line of credit. Petitioner called
no witnesses at the hearing, and did not seek, nor does it now seek, to engage in discovery on the
issue of jurisdiction.

        As the circuit court ruled in the present case, the fact that Jonas is a division of, and
wholly owned by, respondent does not, in and of itself, make Jonas the alter ego of respondent.
Likewise, the fact that respondent makes acquisition financing available to its subsidiaries does
not establish total control rising to the level of alter ego status with respect to Jonas. Finally, the
existence of uniform corporate policies established and approved by a parent corporation’s board
of directors and applicable to its subsidiaries, like those put forth in respondent’s public filings,
“are hallmarks of an ordinary parent-subsidiary relationship and, without more, can not justify
piercing the corporate veil or establishing personal jurisdiction over a parent corporation.” Byard
v. Verizon West Virginia, Inc., 2012 WL 1085775, at *12 (N.D.W.Va. Mar. 30, 2012). In this
case, petitioner bore the burden of proving establishing facts sufficient to disregard the corporate
form by invoking the alter ego doctrine. Petitioner failed to meet that burden.5

       the directors or executives of the subsidiary do not act independently in the
       interest of the subsidiary but take their orders from the parent corporation in the
       latter's interest; and (11) Whether the formal legal requirements of the subsidiary
       are not observed.

202 W.Va. at 45-46, 501 S.E.2d at 481-82.
       5
         The circuit court also granted respondent’s motion to dismiss on the bases that venue
was improper and that petitioner failed to state a claim upon which relief can be granted.
(continued . . .)
                                                  5

     For the foregoing reasons, we affirm the August 19, 2014, order of the Circuit Court of
Kanawha County dismissing petitioner’s civil action.

                                                                                        Affirmed.

ISSUED: October 16, 2015

CONCURRED IN BY:

Chief Justice Margaret L. Workman
Justice Brent D. Benjamin
Justice Menis E. Ketchum
Justice Allen H. Loughry II

DISSENTING:

Justice Robin Jean Davis

Because we affirm the circuit court’s order with respect to the lack of personal jurisdiction over
respondent, we need not address these other two bases for the circuit court’s ruling.

                                                6