Opinion
111,537.
03-06-2015
Rhoda Jolene KINDER, Appellant, v. QI ENTERPRISES, L.L.C., and Stover Medical Support Services, f/k/a Stover Medical Supply Services, Appellees.
Kala Spigarelli, of The Spigarelli Law Firm, of Pittsburg, for appellant. Timothy J. Grillot, of Parsons, for appellees.
Kala Spigarelli, of The Spigarelli Law Firm, of Pittsburg, for appellant.
Timothy J. Grillot, of Parsons, for appellees.
Before STANDRIDGE, P.J., GREEN, J., and JOHNSON, S.J.
MEMORANDUM OPINION
PER CURIAM.
Rhoda Jolene Kinder sued QI Enterprises, L.L.C., and Stover Medical Support Services (Stover Medical) for breach of a settlement agreement. Kinder sued QI Enterprises alleging that it was the alter ego of Stover Medical. Kinder raises two issues for our consideration. The first issue is whether the trial court erred in ruling that Kinder failed to meet her burden of proof that QI Enterprises was the alter ego of Stover Medical. The second issue is whether the trial court erred in ruling that it lacked personal jurisdiction over QI Enterprises. Finding no merit in Kinder's contentions, we affirm.
Stover Medical f/k/a Stover Medical Supply Services, was a duly incorporated business in the State of Missouri, with its original incorporation on October 31, 1997. Stover Medical was equally owned by Matthew Stover and his wife, Brenda Stover.
On January 22, 1999, while working for Stover Medical, John William Kinder was killed in a car accident. His wife, Rhoda Jolene Kinder, filed a workers compensation claim against Stover Medical, contending that her husband was employed by Stover Medical when his death occurred and that his death occurred in the scope of his employment. A settlement was later reached, and Stover Medical agreed to pay Kinder $162,240 in installment payments.
In July 2004, Matthew and Brenda Stover sold Stover Medical to KRC Enterprises, LLC, for approximately $3,000,000. After the assets of Stover Medical were sold to KRC, Stover Medical Staffing Services, Inc., began making the settlement payments and continued the monthly payments until June 1, 2005. When Stover Medical Staffing Services stopped making payments, the balance owed under the settlement agreement was $87,060.
In July 2005, Matthew and Brenda Stover filed for divorce. After selling Stover Medical, Matthew began multiple other medical courier businesses with family members, employees, or significant others.
In October 2008, Matthew became 50% owner and chief executive officer of QI Enterprises, L.L.C., d/b/a Stover Medical, which is owned with his current girlfriend SuSu Qi. The business is known as Stover Medical Support Services to its customers.
Kinder filed suit against QI Enterprises and Stover Medical for breach of contract. The trial court entered summary judgment against Stover Medical for the unpaid settlement agreement amount but denied summary judgment against QI Enterprises. Kinder alleged that QI Enterprises was the alter ego of Stover Medical. The trial court ultimately held that Kinder failed to meet her burden of proof to establish that QI Enterprises was the alter ego of Stover Medical. The court further held that it did not have jurisdiction over QI Enterprises because QI does not do business in Kansas and had no minimum contacts in Kansas.
Did the Trial Court Err in Finding That QI Enterprises Is Not the Alter Ego of Stover Medical Support Services?
Kinder sought liability against QI Enterprises on the basis that it was the alter ego of the corporation, Stover Medical. The trial court concluded that Kinder had failed to meet her burden of proof on this issue.
“[T]he doctrine of alter ego fastens liability on the individual who uses a corporation merely as an instrumentality to conduct his own personal business, such liability arising from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation. Under it the court merely disregards corporate entity and holds the individual responsible for his acts knowingly and intentionally done in the name of the corporation. [Citation omitted.]” Kilpatrick Bros., Inc. v. Poynter, 205 Kan. 787, 797, 473 P.2d 33 (1970).
As explained in Kilpatrick, the doctrine of alter ego may be used to impose liability on an individual who uses a corporation merely as an instrumentality to conduct his or her own personal business. Such liability arises from fraud or injustice perpetrated not on the corporation but on third persons dealing with the corporation. Under the alter ego doctrine, the court may disregard the corporate entity and hold the individual responsible for his or her acts knowingly and intentionally done in the name of the corporation.
Under this theory, Kinder alleges that Stover Medical (not Matthew Stover personally) used QI Enterprises to hide assets in order to avoid paying the settlement agreement.
In determining whether to disregard the corporate entity, the court should consider the following factors:
“ ‘(1) Undercapitalization of a one-man corporation, (2) failure to observe corporate formalities, (3) nonpayment of dividends, (4) siphoning of corporate funds by the dominant stockholder, (5) nonfunctioning of other officers or directors, (6) absence of corporate records, (7) the use of the corporation as a facade for operations of the dominant stockholder or stockholders, and (8) the use of the corporate entity in promoting injustice or fraud.’ “ Sampson v. Hunt, 233 Kan. 572, 579, 665 P.2d 743 (1983).
Not all of the factors must be present, and the presence of any one factor could be enough to justify disregarding the corporate entity. See State ex rel. Graeber v. Marion County Landfill, Inc., 276 Kan. 328, 355, 76 P.3d 1000 (2003).
Each case should be individually analyzed, and it should be noted that a court's power to pierce the corporate veil should be used reluctantly and cautiously. Sampson, 233 Kan. at 579 ; see Mr. Cinnamon of Kansas, Inc. v. Hall, 41 Kan.App.2d 457, Syl. ¶ 4, 202 P.3d 734 (2009).
Whether a corporation's owner is properly considered the alter ego of his or her corporation is a question of fact. Emprise Bank v. Rumisek, 42 Kan.App.2d 498, 520, 215 P.3d 621 (2009), rev. denied 290 Kan. 1093 (2010). The trial court here found that Kinder had failed to meet her burden of proof, which is a negative factual finding. When reviewing a negative factual finding of a case that was tried to the court, “the party challenging the finding must prove arbitrary disregard of undisputed evidence” or “some extrinsic consideration such as bias, passion, or prejudice.” Hall v. Dillon Companies, Inc., 286 Kan. 777, 781, 189 P.3d 508 (2008).
QI Enterprises defended against Kinder's alter-ego theory by presenting testimony from Matthew Stover and his attorney who helped negotiate the sale of Stover Medical. Both Stover and his attorney testified that Stover had invested the money from the sale of Stover Medical into real estate investments. When the real estate market crashed, Stover lost all of the money he had invested. QI Enterprises also presented evidence that SuSu Qi, Stover's girlfriend and coowner of QI Enterprises, was the person who came up with the money to start the business. Thus, there was no evidence that Stover had taken the money he received from selling Stover Medical and put it into QI Enterprises. QI Enterprises also presented evidence that in addition to its medical courier business, QI Enterprises also provides phlebotomists who travel to individuals' homes or medical facilities to draw blood. Moreover, QI Enterprises has its own lab.
Kinder did not try to rebut any of this testimony but instead focused on the relationship between Stover and each of the businesses he had formed since he sold Stover Medical. Kinder stressed that QI Enterprises had the same employees and the same business purpose. Kinder maintained that the only real difference between the companies was the girlfriend that Stover had when he formed QI Enterprises.
Before the trial court and also on appeal, Kinder relies on Boilermaker–Blacksmith Nat. Pension Fund, v. Gendron, 96 F.Supp.2d 1202 (D.Kan.2000). Nevertheless, the trial court properly determined that the Boilermaker case stood in stark contrast to the present case. In Boilermaker, Tank Maintenance was the former company, and it was sued by its employees for nonpayment of union-related benefits. During the litigation, the principals of Tank Maintenance formed another company called Northeast Services and began performing similar work to the work Tank Maintenance had performed. Northeast Services worked out of the same location as Tank Maintenance, had the same bookkeeper, and would perform jobs that Tank Maintenance had bid on. The Boilermaker court listed the following factors to be considered when determining whether a successor company was an alter ego: (1) continuity of ownership; (2) similarity of management; (3) business purpose; (4) operation; (5) equipment; (6) customers; (7) supervision; and (8) anti-union animus. 96 F.Supp.2d at 1219–20. The Boilermaker court noted the timing of the new business created an inference of intent to avoid the union obligation and that there was not enough evidence to determine the amount of overlap between the two companies. Thus, the Boilermaker court ultimately held that summary judgment was inappropriate in that case because there were genuine issues of material fact regarding the alter ego claims. 96 F.Supp.2d at 1220.
In relying on Boilermaker, Kinder alleged that Matthew Stover formed those other companies to avoid the payment of the settlement agreement. The trial court rejected that argument because there was no evidence to support it. Moreover, this case is clearly distinguishable from the Boilermaker case. For example, in Boilermaker, the separate corporation was formed during litigation, operated at the same location as the original corporation, and performed jobs that the original corporation had bid on. Here, QI Enterprises was not formed until 2008. This was 4 years after Stover Medical was sold to KRC. Also, QI Enterprises does not operate in the same location and provides numerous expanded services than what were provided through Stover Medical.
Under the Boilermaker test, the trial court determined that Kinder had failed to meet her burden of proving that QI Enterprises was the alter ego of Stover Medical because she did not show that “QI Enterprises has the same business purpose as Stover Medical or the same operation, the same equipment, the same customers, or that any of the funds used to establish QI Enterprises came from Stover Medical or the sale of its assets to KRC.”
Moreover, even under an interests-of-justice theory, there must be some showing that it would be inequitable or unjust to uphold the legal fiction of separate entities. A mere showing that some kind of injustice occurred is not sufficient to disregard the corporate entity under this theory; it must be “necessary to achieve equity.” Service Iron Foundry, Inc. v. M.A. Bell Co., 2 Kan.App.2d 662, 673, 588 P.2d 463 (1978) (citing Kilpatrick, 205 Kan. 787 ); see Hill v. Kansas Dept. of Labor, 42 Kan.App.2d 215, 210 P.3d 647 (2010), aff'd in part and rev'd in part 292 Kan. 17, 248 P.3d 1287.
Here, Kinder has not shown that she will be unable to collect against Stover Medical unless the court pierces the corporate veil of QI Enterprises. Without a showing that disregarding the corporate entity is the only way to achieve equity in this case, Kinder has failed to meet her burden of proof.
The trial court concluded that Kinder had failed to meet her burden of proof to hold QI Enterprises liable. Substantial evidence supports this determination with respect to the traditional alter-ego factor test as well. For example, under the Sampson test, Kinder failed to show that QI Enterprises was undercapitalized, that it was being used to promote injustice or fraud, or that Stover was using it as a facade for his personal operations. In fact, QI Enterprises observed corporate formalities, it kept corporate records, and there was no evidence that Stover was siphoning corporate funds.
Under the negative-findings standard of review, we may reverse the trial court's factual finding on whether there was a sufficient factual basis to disregard corporate entities only if the trial court has disregarded undisputed evidence or acted based on passion or bias. There is no evidence of that in this case. Thus, we affirm the trial court's finding that Kinder failed to prove that QI Enterprises was the alter ego of Stover Medical.
Did the Trial Court Err in Finding That It Did Not Have Jurisdiction Over QI Enterprises?
Next, Kinder argues that the trial court erred in finding that it did not have jurisdiction over QI Enterprises. Kinder makes three arguments to support her claim of minimum contacts with Kansas: (1) alter ego is enough to satisfy minimum contacts and due process; (2) Matthew Stover's contacts in Kansas establish personal jurisdiction over QI Enterprises; and (3) QI Enterprises' website establishes minimum contacts because it solicits business in Kansas. Because we have already rejected Kinder's alter-ego argument, it cannot be used to establish personal jurisdiction over QI Enterprises.
Whether a Kansas court had personal jurisdiction over QI Enterprises is a question of law over which our review is unlimited. See Shipe v. Public Wholesale Water Supply Dist. No. 25, 289 Kan. 160, 165, 210 P.3d 105 (2009). In considering the issue, we resolve all fact disputes in Kinder's favor. Merriman v. Crompton Corp., 282 Kan. 433, 439, 146 P.3d 162 (2006). First, we must decide if the Kansas statutes or caselaw provide a basis for exercising jurisdiction over the defendant. If so, next we must decide whether a Kansas court exercising personal jurisdiction over QI Enterprises complies with the due process requirements of the Fourteenth Amendment to the United States Constitution. See 282 Kan. at 440.
Kinder contends that the Kansas court had personal jurisdiction over the defendant under subsections (b)(1)(A), (1)(B), (b)(1)(G), and (b)(1)(L) of the Kansas long-arm statute, K.S.A.2014 Supp. 60–308(b). The relevant provisions (as amended by L.2010 ch. 135, sec. 153; effective July 1, 2010) are as follows:
“(b) Submitting to jurisdiction. (1) Any person, whether or not a citizen or resident of this state, who in person or through an agent or instrumentality does any of the following acts, thereby submits the person and, if an individual, the individual's representative, to the jurisdiction of the courts of this state for any claim for relief arising from the act:
(A) Transacting any business in this state;
(B) committing a tortious act in this state;
(G) causing to persons or property in this state an injury arising out of an act or omission outside this state by the defendant if, at the time of the injury, either: (i) The defendant was engaged in solicitation or service activities in this state; or (ii) products, materials or things processed, serviced or manufactured by the defendant anywhere were used or consumed in this state in the ordinary course of trade or use;
(L) having contact with this state which would support jurisdiction consistent with the constitutions of the United States and of this state. [This subsection added effective July 1, 2010.]” K.S.A.2014 Supp. 60–308(b).
Cf. K.S.A. 60–308(b)(1), (b)(2), and (b)(7) (technically 2005 bound volume applicable to claims made in this case).
The Kansas long-arm statute is to be broadly construed to reach the full extent permitted by the Due Process Clause. Kluin v. American Suzuki Motor Corp., 274 Kan. 888, 894, 56 P.3d 829 (2002). The Kansas long-arm statute specifically requires that the transaction of business or the commission of the tortious act must be connected to the cause of action in question. 274 Kan. at 897–99. This means there must be a “nexus” between a transaction that occurred in Kansas and the claim asserted for personal jurisdiction to be established in Kansas. 274 Kan. at 896. Without this “nexus,” there is no personal jurisdiction over a nonresident.
Kinder first argues that QI Enterprises is subject to the jurisdiction of the courts of Kansas under K.S.A. 60–308(b)(1)(A) because it transacted business in Kansas. The only support Kinder presents for this argument is that QI Enterprises' website solicits business in Kansas, therefore, it transacts business in Kansas. Although QI Enterprises' website solicits business across the nation, that does not prove that it has transacted business in Kansas. Moreover, even if QI Enterprises did transact business in Kansas, Kinder's claim does not arise from any of those alleged transactions—thus there is no connection or “nexus.”
Kinder next argues that QI Enterprises is subject to the jurisdiction of the courts of Kansas under K.S.A.2014 Supp. 60–308(b)(1)(B) because it committed a tortious act in Kansas by failing to pay the settlement agreement that was made in Kansas. Under Kansas law, “committing a tortious act in this state” is broadly construed under the long-arm statute to include tortious acts performed outside the state which cause injury in Kansas to a Kansas resident. Taylor v. Phelan, 912 F.2d 429, 432 (10th Cir.1990) ; Volt Delta Resources, Inc. v. Devine, 241 Kan. 775, 778, 740 P.2d 1089 (1987) ; Ling v. Jan's Liquors, 237 Kan. 629, 633, 703 P.2d 731 (1985) ; see Wegerer v. First Commodity Corp. of Boston, 744 F.2d 719, 727–28 (10th Cir.1984). The injury can be physical or economic. Merriman, 282 Kan. at 461. Here, there is no doubt that Kinder has suffered an injury as a result of the breach of the settlement agreement, but that does not prove that QI Enterprises was the cause of that injury. Kinder has failed to show specifically how QI Enterprises' actions were the cause of her injuries.
Kinder also argues that QI Enterprises is subject to the jurisdiction of the courts of Kansas under K.S.A.2014 Supp. 60–308(b)(1)(G) because it was soliciting business in Kansas when it breached the settlement agreement. The problem with this argument is that payments under the settlement agreement ceased in 2005 and QI Enterprises was not formed until 2008. Thus, QI Enterprises clearly was not soliciting business in Kansas “at the time of the injury” as required by the statute.
And finally, Kinder argues that QI Enterprises is subject to the jurisdiction of the courts of Kansas under K.S.A.2014 Supp. 60–308(b)(1)(L) because it has contacts with Kansas. Kinder bases this argument on the contacts that Matthew Stover has to Kansas specifically regarding this lawsuit and the settlement agreement. Nevertheless, those contacts are Stover's contacts and do not show that QI Enterprises has contacts with Kansas. As the trial court correctly stated: “[T]he evidence establishes that QI Enterprises does not do business within the State of Kansas and has no minimum contact with Kansas for long-arm jurisdictional purposes.”
Even if we accept Kinder's allegations as true and liberally construe the Kansas long-arm statute as we are required to do, Kinder has failed to make a prima facie case of personal jurisdiction under K.S.A.2014 Supp. 60–308(b)(1). Therefore, we do not need to reach the second step in the analysis, which involves the due process requirements of the Fourteenth Amendment.
The only support for personal jurisdiction that Kinder presented was based on QI Enterprises' website and Stover's contacts with Kansas. None of the evidence presented establishes that QI Enterprises does business in Kansas or that QI Enterprises has minimum contacts with Kansas. Although there may be acts in this case that fall within the descriptions of K.S.A.2014 Supp. 60–308(b), Kinder's claim against QI Enterprises did not arise from any of those acts as required by statute. As a result, the trial court did not have personal jurisdiction in this case.
For the sake of argument, even if QI Enterprises' contacts with Kansas satisfied one of the subsections of the Kansas long-arm statute, Kinder would still have to make a prima facie showing that QI Enterprises' contacts satisfied the International Shoe Co. due process test. See International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Our Supreme Court summarized the International Shoe Co. test in Merriman, as follows:
“When specific jurisdiction is asserted under the Kansas long arm statute, K.S.A. 60–308(b), due process requires that the nonresident defendant have certain minimum contacts with the forum in order for the exercise of jurisdiction to be constitutional. In considering whether the corporation's minimum contacts meet this standard, courts should consider the quality and nature of the defendant's activity in determining whether it is reasonable and fair to require defense in the forum, rendering jurisdiction consistent with traditional notions of fair play and substantial justice. Due process requires a demonstration that the nonresident defendant purposely established minimum contacts with the forum state, thereby invoking the benefits and protections of its laws.”282 Kan. 433 , Syl. 15.
A plaintiff's unilateral activities in the forum state cannot be used to create jurisdiction over the defendant. Instead, there must be some act to show that the defendant purposely availed itself of the privilege of conducting activities within the forum state thus invoking the benefits and protections of its laws. The purposeful availment requirement guarantees that a defendant will not be hauled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts. 282 Kan. 433, Syl. ¶ 1 8.
As stated earlier, the cause of action sued on did not arise from the activity of QI Enterprises within the state of Kansas. Moreover, the evidence did not show that QI Enterprises purposefully availed itself of the benefits and protections of Kansas laws sufficient to subject itself to personal jurisdiction under the minimum contacts test set forth in International Shoe Co . Finally, QI Enterprises' contacts, if any, were insufficient to satisfy the due process requirements.
As a result, we conclude that the trial court did not err in determining that QI Enterprises had insufficient personal contacts with the state of Kansas to expose itself to the jurisdiction of the Kansas courts. Accordingly, the trial court did not err in finding that it lacked personal jurisdiction.
Affirmed.