Opinion
Civil Action No. 03-2650 Section "A"(1).
August 31, 2004
Before the Court is a Re-Urged Motion for Summary Judgment (Rec. Doc. 56) filed by defendant Pride International, Inc. ("Pride Int'l" or "Defendant"). Plaintiff, Fredrick J. Lavallie, Jr. ("Lavallie" or "Plaintiff") opposes the motion. The motion, set for hearing on July 14, 2004, is before the Court on the briefs without oral argument. For the reasons that follow, the motion is DENIED.
I. BACKGROUND
Lavallie was allegedly injured aboard the M/V PRIDE VENEZUELA on May 20, 2002. Lavallie claims serious injuries to his lower back. He asserts that his medical expenses have not been paid and that he has not received maintenance payments. On April 1, 2003, his employment was terminated because he had been on medical leave in excess of six months.
Lavallie filed this suit against Pride Offshore, Inc. ("Pride Offshore") and Pride Int'l under the Jones Act and general maritime law. On January 14, 2004, Defendants noticed for hearing their motion for summary judgment — they asserted that Plaintiff had no cause of action against either of them because neither defendant employed Plaintiff (Jones Act claim) nor owned the vessel (unseaworthiness claim) aboard which he was injured. No opposition was filed and the motion was granted as unopposed. Plaintiff then filed a motion for reconsideration which the Court granted. Plaintiff was also allowed to file an amended complaint. In that complaint, Plaintiff alleges that Pride International Personnel, Ltd. ("Pride Personnel"), his nominal employer, and Pride Int'l constitute a single business enterprise and that Pride Personnel is merely an instrumentality or adjunct under the control of Pride Int'l. Rec. Doc. 40, Second Amended Complaint ¶¶ IV-V. The Court ordered discovery pertinent to the single business enterprise issue. Discovery ensued and Pride Int'l now re-urges its motion for summary judgment.
On June 14, 2004, Plaintiff voluntarily dismissed all claims against Pride Personnel. Plaintiff also agreed to a dismissal of all claims against Pride Offshore. Thus, Pride Int'l is the only remaining defendant.
According to Defendant, Pride Personnel is a labor company that supplies personnel to drilling rigs in international waters. Defendant also asserts that Pride Personnel is a wholly owned subsidiary of Pride International Ltd. which is in turn a wholly owned subsidiary of Pride Int'l. Thus, according to Defendant, Pride Personnel is an indirect subsidiary of Pride Int'l.
Pride Personnel is organized under the laws of the British Virgin Islands and has its principal place of business in France. Pride Personnel locates employees for distribution to its subsidiaries through the efforts of another Pride Int'l subsidiary, Pride International Management Company ("PIMC"). PIMC acts on behalf of PIPL pursuant to an Administrative Services Outsourcing Agreement between the two companies. Def. Exh. E. PIMC charges Pride Personnel for its services. Pride Personnel pays PIMC from the revenue it receives on the invoices sent to the various subsidiaries to whom PIPL provides labor. Defendant asserts that PIPL also provides labor for non-Pride related entities so that PIPL is not totally dependent on Pride subsidiaries for its income.
Pride Int'l characterizes the overlap of corporate officers between Pride Personnel and itself as "minimal" and points out that as of today no overlap exists. On November 12, 2002, after Plaintiff's accident, Pride Personnel eliminated the overlap by selecting new officers. Def. Exh. D.
Paul Bragg, Robert Randall, and Earl McNiel were all officers of Pride Int'l at the time of Plaintiff's injury. McNiel and Randall were also officers of Pride Peronnel, and Bragg was a director of Pride Personnel.
II. DISCUSSION
1. The Parties' Contentions
Pride Int'l argues that it lacks the control or dominance necessary to pierce the corporate veil. Pride Int'l asserts that there has been no intermingling of funds or failure to observe corporate formalities. The facts of this case, according to Defendant, simply do not justify the drastic step of ignoring the distinctiveness of the legal entities involved.
Plaintiff contends that he was recruited to work aboard the PRIDE VENEZUELA by Steve Souza, an employee of PIMC located in Houston. Lavallie asserts that he never dealt with anyone purporting to represent Pride Personnel. Lavallie asserts that it was only after he arrived in Scotland and worked aboard the PRIDE VENEZUELA for three weeks that he was given a Pride Personnel employment agreement. He also asserts that he was required to sign the agreement if he wished to continue working.
Souza was also an officer of Pride Personnel at the time of Lavallie's injury.
Lavallie contends that Pride Personnel has no corporate offices in the BVI and that it was struck from the registry of corporate affairs in July 2002. Lavallie also contends that PIPL has no paid employees of its own and needs none because PIMC does all of its administrative work. Lavallie points out that PIPL did not observe basic corporate formalities and has an authorized capital of only $1000.00. In short, according to Plaintiff, PIPL serves no purpose other than to function as a business conduit for Pride Int'l.
In reply, Pride Int'l stresses that Lavallie bears the ultimate burden of proving that Pride Int'l was the alter ego of Pride Personnel. Thus, Pride Int'l contends that it has no obligation to produce positive evidence to disprove Plaintiff's alter ego theory. Pride Int'l also asserts that there is no evidence that it is not in good standing in the BVI.
In surreply, Lavallie contends that Pride Personnel has apparently cured its problems with the BVI corporate registry but at all pertinent times the corporation was not in good standing. Lavallie urges that the only business purpose for Pride Personnel's existence was to act as a "payment-of-wages" conduit for Pride Int'l so that Pride Int'l could avoid paying employment taxes. 2. Applicable Law and Legal Analysis
Ordinarily, an injured party has recourse only against the corporate entity incurring the liability — not against parent corporations. Baker v. Raymond Int'l, Inc., 656 F.2d 173, 179 (5th Cir. 1981). Under exceptional circumstances, however, the courts will exercise their equitable power to hold the controlling parties liable for the obligations of their instrumentality. Id. (citing FMC Fin. Corp. v. Murphree, 632 F.2d 413 (5th Cir. 1980); Krivo Indus. Supply Co. v. Nat'l Distillers Chem. Corp., 483 F.2d 1098 (5th Cir. 1973),modified per curiam, 490 F.2d 916 (1974); Berkey v. Third Ave. Ry., 155 N.E. 58 (1926) (Cardozo, J.)). A parent corporation may be held liable for the obligations of a subsidiary in "exceptional" situations where the parent uses the subsidiary as its "personal business conduit" or "alter ego," where the parent fails to observe the formalities of separate incorporation, including adequate capitalization of the subsidiary, and where the subsidiary's activities are so dominated by the parent corporation that it is necessary to treat the subsidiary as an agent of the parent. Baker, 656 F.2d at 179-80.
The issue of corporate separateness is a fact-intensive determination not subject to brightline rules. In Baker, supra, the Fifth Circuit expounded upon the degree of control required to establish that an ostensibly separate corporation is a mere instrumentality. The court explained that a parent does not forfeit the limited liability inherent in corporate separateness by mere ownership of a controlling interest in the subsidiary.Baker, 656 F.2d at 180. Moreover, the parent is entitled to exercise the normal incidents of stock ownership, such as choosing directors and setting general policies, without forfeiting its separate identity. Id. To justify the "extraordinary step" of holding the parent liable for the debts of its subsidiary, the factfinder must find that the level of control amounts to total domination of the subsidiary, to the extent that the subsidiary manifests no separate corporate interests of its own and functions solely to achieve the purposes of the dominant corporation. Id. at 181 (quoting Krivo Indus. Supply Co. v. Nat'l Distillers Chem. Corp., 483 F.2d 1098 (5th Cir. 1973), modified per curiam, 490 F.2d 916 (1974).
In deciding whether the parent has exercised total domination over the subsidiary, nine factors come into play: 1) common stock ownership, 2) common directors or officers, whether 3) the parent finances the subsidiary, 4) the parent caused the incorporation of the subsidiary, 5) the subsidiary operates with grossly inadequate capital, 6) the parent pays the salaries and other expenses or losses of the subsidiary, 7) the subsidiary receives any business except that given to it by the parent, 8) the parent uses the subsidiary's property as its own, and 9) the directors and officers of the subsidiary act independently in the interest of that company or whether they take their orders from the parent and act in the parent's interest. Baker, 656 F.2d at 180 n. 7 (citing Bay Sound Transp. Co. v. United States, 474 F.2d 1397 (5th Cir. 1973); Taylor v. Standard Gas Elec. Co., 96 F.2d 693 (10th Cir. 1983)). No one factor is dispositive and the list does not exhaust the relevant factors.Id. at 181. The burden of establishing a basis for disregarding "the corporate fiction" rests on the party asserting such a claim. Billiot v. Fox Seafood, Inc., No. 87-4801, 1988 WL 66954, at *5 (June 23, 1988) (Sear, J.) (citing DeWitt Truck Brokers, Inc. v. Flemming Fruit Co., 540 F.2d 681 (4th Cir. 1976)).
In determining whether a party is entitled to summary judgment, the court views the evidence in the light most favorable to the non-moving party. Littlefield v. Forney Indep. School Dist., 268 F.3d 275, 282 (5th Cir. 2001) (citing Smith v. Brenoettsy, 158 F.3d 908, 911 (5th Cir. 1998); Tolson v. Avondale Indus., Inc., 141 F.3d 604, 608 (5th Cir. 1998)). Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). The moving party bears the burden, as an initial matter, of showing the district court that there is an absence of evidence to support the nonmoving party's case. Id. (citingCelotex, 477 U.S. at 325, 106 S. Ct. at 2548). If the moving party fails to meet this initial burden, the motion must be denied regardless of the nonmoving party's response. Id.
Considering the foregoing legal principles, the Court is persuaded that Lavallie has at the very least created an issue of fact as to his "single business entity" or "alter ego" theory. While no one fact is dispositive on the issue of corporate distinctness, the cumulative weight of several facts in this case militate in favor of denying Pride Intl's motion. First of all, the overlap of corporate officers, directors, and key employees between Pride Int'l and Pride Personnel is not minimal as Defendant contends but rather is pervasive. Bragg, Randall, and McNiel, who were Pride Int'l's highest ranked officers, were likewise officers of Pride Personnel. Moreover, Steve Souza, an employee of PMIC on November 29, 2001, which purports to be an entity with which Pride Personnel shares an arm's length business relationship, was an officer of Pride Personnel from October 2001 thru November 2002. Defendant points out that as of today the overlap has been eliminated but the pertinent timeframe is May 2002 when Plaintiff sustained his injuries. See Holborn Oil Trading Ltd. v. Interpetrol Bermuda Ltd., 774 F. Supp. 840, 845 (S.D.N.Y. 1991) (citing William Passalacqua Builders, Inc. v. Resnick Dev. So., Inc., 933 F.2d 131 (2d Cir. 1991) (recognizing that the alter ego analysis should focus on conduct occurring near in time to the transaction at issue)). As of that time, the overlap was substantial.
Def. Exh. A, Plaintiff's employment agreement.
The Agreement evidencing the relationship between Pride Personnel and PMIC is located at Defendant's Exhibit E.
Regarding observance of corporate formalities, the summary judgment record contains annual corporate resolutions indicative of the appointment of officers for Pride Personnel. Def. Exh. D, in globo. On May 23, 2000, Paul Bragg signed in his capacity as President of Pride Int'l a resolution purporting to elect directors for Pride Personnel. Id. The resolution refers to Pride Int'l as the sole stockholder of Pride Personnel which Defendant contends is a mere "typo." Apparently the mistake went uncorrected and unnoticed until the present litigation. The summary judgment record contains no meeting minutes or resolutions pertaining to any other business on the part of Pride Personnel. Finally, Plaintiff has submitted evidence suggesting that at the pertinent time Pride Personnel was not a corporation in good standing in the BVI. Pla. Surreply Exh. A.
As for stock ownership, Defendant contends that it owns none of Pride Personnel's stock. Instead, Pride Personnel is a wholly owned subsidiary of another BVI entity, Pride International Ltd., which is in turn wholly owned by Pride Int'l. However, Defendant was unable to produce any documentation evidencing Pride International Ltd.'s ownership of Pride Personnel. Therefore, on July 13, 2004, in reply to Plaintiff's opposition to the motion for summary judgment, Gregory Looser executed a lost security affidavit, in his capacity as Vice President and Secretary of Pride International Ltd., attesting that the original stock certificate evidencing ownership of Pride Personnel was either lost, stolen, or destroyed. Def. Reply Exh. B. On that same date, a new stock certificate issued in favor of Pride International Ltd. Def. Reply Exh. A. That certificate shows that Pride Personnel has an authorized capital of $1000.00 and 1000 shares of stock outstanding ($1 each). Looser, who executed the lost security affidavit, was an officer of Pride Personnel from October 22, 2001 thru November 12, 2002.
Finally, the location of Pride Personnel is somewhat of a mystery. The entity has no presence in the BVI and its principal place of business purports to be Monaco. However, the Pride Personnel employees located in Monaco are actually employed by another corporate entity — either Comasor or Pride Forasol. Def. Exh. F, Souza depo. at 20. Defendant asserts that Pride Personnel obtains revenue from non-Pride sources but the sole piece of evidence on that issue contained in the record appears in the deposition of Alex Cestero and he merely stated that he believed that in the past Pride Personnel had sourced labor for non-Pride companies. Def. Exh. B, Cestero depo. at 51. Pride Personnel appears to own no property.
In short, the evidence supports Lavallie's contention that Pride Personnel, at least at the time of Lavallie's injury, was a mere business conduit for Pride Int'l with no real corporate distinctness. The Court continues to recognize that the limited liability implicit in corporate distinctness is not easily ignored and that doing so only occurs under exceptional circumstances. The Court therefore makes no ruling that ignoring the distinctness between Pride Int'l and Pride Personnel is appropriate in this case. Rather, the Court is simply persuaded that Plaintiff has created an issue of fact on the claim and that Defendant is therefore not entitled to summary judgment.
Accordingly;
IT IS ORDERED that the Re-Urged Motion for Summary Judgment (Rec. Doc. 56) filed by defendant Pride International, Inc. should be and is hereby DENIED;
IT IS FURTHER ORDERED that a preliminary conference before the Section A Courtroom Deputy is scheduled for Thursday, September 30, 2004, at 9:45 a.m. for the purpose of setting a trial date and confecting a scheduling order.