Opinion
No. C95-3087
April 22, 1999.
ORDER
This matter comes before the court pursuant to third-party defendants' February 3, 1999 motion to dismiss (docket number 85). Defendants filed its resistance to this motion on February 12, 1999 (docket number 88). The parties have consented to the exercise of jurisdiction by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the reasons set forth below, the court grants third-party defendants' motion in part and denies it in part.
The third-party defendants bringing this motion to dismiss are: (1) Braime Pressings, Ltd. (Pressings); (2) Braime (Elevator Buckets/Components) Ltd.; and (3) TF JH Braime (Holdings), PLC. All three of these corporations are organized and exist under the laws of England. Holdings argues that this court lacks personal jurisdiction over it, thereby requiring dismissal. Pressings, Components, and Holdings claim that they are entitled to dismissal because the third-party plaintiff has failed to state a claim upon which relief may be granted. The third-party plaintiff, Synatel Instrumentation, Ltd. (Synatel) contends that the motion to dismiss should be denied as personal jurisdiction does exist over Holdings, and because it has stated a claim upon which relief may be granted against Pressings, Components, and Holdings.
This entity has also been referred to as Braime Elevator Components, and will hereinafter be referred to by the court as "Components."
Procedural Background
The VandeLunes brought suit against Synatel, the original defendant and third-party plaintiff in this action in November of 1995. The VandeLunes contend that an allegedly faulty M-700 Speedswitch, manufactured by Synatel, was the proximate cause of a grain dust explosion occurring at the Consolidated Cooperative Grain Elevator in Gowrie, Iowa, which resulted in serious injury to Mark VandeLune. In January of 1999, Synatel filed a third-party complaint against Braime Pressings, Components, and Holdings, contending that Mark VandeLune's injuries were caused by Braime's negligent manufacture, design, testing, inspection, packaging, handling, warning, and labeling of the M-700 speed monitor. Synatel alternatively contends that the Braime companies are liable for breach of implied warranty, breach of express warranty, and are strictly liable for VandeLune's injuries.
Mark VandeLune was injured in the explosion. Mark VandeLune's wife and two children also brought suit, claiming loss of consortium. They will be collectively referred to here as the VandeLunes.
Statement of Facts
Since the court is relying on pleadings and affidavits in ruling on this motion, the facts must be viewed in a light most favorable Synatel and resolve all factual conflicts in its favor. See Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384 (8th Cir. 1991).
Synatel manufactured the M-700 at the direction of Braime Pressings and Components. Representatives of Pressings and Components, including Mr. Nicholas Braime, provided the conceptual design of the M-700, its feature specifications and requirements, warnings and instructions, and technical information. The M-700 was developed in connection with Mr. Braime's initial plan to target the American grain elevator market with the M-300 monitor, an earlier version of the M-700. The Braime entities arranged for the U.S. Factory Mutual testing of the M-700 and were involved in efforts to market the M-700 to American grain elevators.
CONCLUSIONS OF LAW Personal Jurisdiction Over Holdings
Braime Holdings argues that it cannot be reached under Iowa's long-arm statute and that the exercise of jurisdiction over it would violate due process. Holdings points out that it is merely the holding company for Pressings and Components, which are its wholly owned subsidiaries. Holdings further stresses that it was not involved in the transaction surrounding Synatel's sale of the M-700 to Pressings and Components. Synatel claims that jurisdiction over Holdings is appropriate because it reaped the financial benefits in connection with the sale of the M-700 by its subsidiaries, Components and Pressings, who are not contesting personal jurisdiction. Furthermore, Synatel contends that jurisdiction is proper because Nicholas Braime, who was involved in the development of the M-700 is a representative of all three Braime entities. Finally, Synatel argues that it would be improper to dismiss Holdings from its suit before determining whether Pressings and Components have liability insurance, or are otherwise undercapitalized or judgment proof.
While the plaintiff bears the ultimate burden of proof on the issue of personal jurisdiction, jurisdiction need not be proved by a preponderance of the evidence until trial or until the court holds an evidentiary hearing. To defeat a motion to dismiss for lack of personal jurisdiction, the nonmoving party need only make a prima facie showing of jurisdiction. If the district court does not hold a hearing and instead relies on pleadings and affidavits, the court must look at the facts in a light most favorable to the nonmoving party and resolve all factual conflicts in favor of that party. Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384 (8th Cir. 1991).
In determining whether a federal court has jurisdiction over a non-resident party, a two-step inquiry is utilized: "(1) whether the facts presented satisfy the forum state's long-arm statute, and (2) whether the nonresident has `minimum contacts' with the forum state, so that the court's exercise of jurisdiction would be fair and in accordance with due process." Soo Line R.R. Co. v. Hawker Siddeley Canada, Inc., 950 F.2d 526, 528 (8th Cir. 1991) (quoting Wines v. Lake Havasu Boat Mfg., 846 F.2d 40, 42 (8th Cir. 1988)). See also Dakota Indus., Inc. v. Best Ever Ltd., 28 F.3d 910, 915 (8th Cir. 1994) ("A federal court may assume jurisdiction over a foreign defendant only to the extent permitted by the forum state's long-arm statute and by the Due Process Clause of the Constitution."); Mountaire Feeds, Inc. v. Agro Impex, S.A., 677 F.2d 651, 653 (8th Cir. 1982) (same).
Iowa's long-arm statute provides, in relevant part:
If a foreign corporation makes a contract with a resident of Iowa to be performed in whole or in party by either party in Iowa, or if such foreign corporation commits a tort in whole or in part in Iowa against a resident of Iowa, such acts shall be deemed to be doing business in Iowa by such foreign corporation. . . .
Synatel's third party complaint alleges that Holdings' negligence was the sole proximate or a concurrent cause of the accident, which occurred in Iowa and resulted in serious injury to Mark VandeLune. Therefore, Synatel has established a prima facie showing of a statutory basis for exercising personal jurisdiction over Holdings. See Barrett v. Bryant, 290 N.W.2d 917, 921 (Iowa 1980) ("A tort is committed in part in Iowa within the meaning of [the long-arm statute] when the injury occurs [in Iowa]."); DeCook v. Envtl. Sec. Corp, Inc., 258 N.W.2d 721, 726-727 (Iowa 1977) (finding that long-arm statute satisfied with allegations that tort initiated outside of Iowa produced injury to plaintiffs residing in Iowa). Therefore, Synatel has made the requisite showing to bring Holdings within the purview of Iowa Code § 617.3. However, under the second prong of the inquiry, Synatel must also show that the exercise of personal jurisdiction over Holdings by this court would cut constitutional muster. This it has not done.
The court may exercise personal jurisdiction over a defendant where the defendant has sufficient minimum contacts with the forum state. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
Due process requires only that in order to subject a defendant to judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."
As a threshold matter, a court must determine whether a nonresident defendant has purposefully availed itself of the rights and privileges of conducting activities in the forum state. Papachristou v. Turbines, Inc., 902 F.2d 685 (8th Cir. 1990). "Sufficient contacts exist when `the defendant's conduct and connection with the forum State are such that [it] should reasonably anticipate being haled into court there.'" Soo Line R.R. Co., 950 F.2d at 528 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S. Ct. 559, 564, 62 L. Ed. 2d 490 (1980)). Factors to consider in evaluating whether or not a nonresident's contacts with the forum state were sufficient to impose jurisdiction include: "(1) the nature and quality of the contacts with the forum state; (2) the quantity of contacts with the forum state; (3) the relation of the cause of action to the contacts; (4) the interest of the forum state in providing a forum for its residents; and (5) the convenience of the parties." Soo Line R.R. Co., 950 F.2d at 529 (quoting Aaron Ferer Sons Co. v. Diversified Metals Corp., 564 F.2d 1211, 1215 (8th Cir. 1977). See also Mountaire Feeds, Inc., 677 F.2d at 654 (same). However, the fourth and fifth factors are only `secondary factors' to be considered and are not determinative. Id.
Aside from the fact that Holdings, as a parent company to Pressings and Components, reaps financial benefits from their transactions, Synatel has made no showing Holdings has purposefully availed itself of the rights and privileges of conducting activities in Iowa. Holdings' conduct and connection with Iowa cannot be said to be such that it should reasonably anticipate being haled into court there. While Iowa may have a strong interest in providing a forum for its resident, Mark VandeLune, the nature and quality of Holdings' contacts with Iowa are attenuated at best and the quantity of contacts with Iowa are nil. It would undoubtedly offend traditional notions of fair play and substantial justice to subject Holdings to the personal jurisdiction of this court. As a result, Holdings can only be subject to the personal jurisdiction of this court through the conduct of its wholly owned subsidiaries, Pressings and Components. Thus, the issue of personal jurisdiction depends on whether the corporate veil of Pressings and Components can be pierced to bring Holdings into the case.
The relationship between a parent corporation and its subsidiaries is straight forward: the parent corporation owns the majority of shares of the subsidiary's stock. Schnoor v. Deitchler, 482 N.W.2d 913, 915 (Iowa 1992) (citing Black's Law Dictionary 1280 (5th ed. 1979)). "Ownership by a parent corporation of the stock of another corporation does not create an identity of corporate interest between the two corporations so as to render acts by the one to be the acts of another." Id. (citing Inn Operations, Inc. v. River Hills Motor Inn Co., 152 N.W.2d 808, 815 (Iowa 1967)).
Ordinarily, a subsidiary corporation is treated as a separate entity from its parent corporation. Id. However, under certain circumstances, courts should disregard the fiction of corporate separateness and subject the parent corporation to liability. Courts shall pierce the corporate veil and disregard the separate corporate personalities of parent and subsidiary corporations when necessary to prevent the parent corporation from "perpetuating a fraud, evading just responsibility, or defeating public convenience." Id. at 915-16. See also Briggs Transp. v. Starr Sales Co., Inc., 262 N.W.2d 805, 809 (Iowa 1978) (same).
"[T]he fiction of corporate entity may be disregarded, where one corporation is so organized and controlled and its affairs are so conducted that it is, in fact, a mere instrumentality or adjunct of another corporation." Fisher v. First Nat'l Bank of Omaha, 338 F. Supp. 525, 529 (S.D. Iowa 1972). "Long-arm jurisdiction over a foreign parent corporation has been found where the parent so controlled and dominated the activities of its resident subsidiary that the latter's separate corporate existence was in effect disregarded." Lakota Girl Scout Council, Inc. v. Havey Fund-Raising Management, Inc., 519 F.2d 634, 637 (8th Cir. 1975). Applying Iowa law, the Eighth Circuit Court of Appeals agreed that factors to consider in determining whether or not to pierce the corporate veil include whether:
(1) the corporation is undercapitalized,
(2) the [subsidiary] corporation lacks separate books,
(3) [the subsidiary's] finances are not kept separate from [the parent corporation's] finances, or [subsidiary] obligations are paid by the [parent] corporation,
(4) the [subsidiary] corporation is used to promote fraud or illegality,
(5) corporate formalities are not followed, or
(6) the [subsidiary] corporation is a mere sham.
Id. at 638.
Aside from the fact that Nicholas Braime is a representative of all three Braime entities and the as yet unsubstantiated fear that Pressings and Components may be undercapitalized, Synatel has made no showing of abuse or control sufficient to warrant piercing the corporate veil and subjecting Holdings to the personal jurisdiction of this court. For the aforementioned reasons, Holdings must be dismissed from this suit for lack of personal jurisdiction.
Dismissal Under Fed.R.Civ.P. 12(b)(6)
In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the court must assume that all facts alleged in the plaintiff's complaint are true, and must liberally construe those allegations. "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Nevertheless, such motions "can serve a useful purpose in disposing of legal issues with the minimum of time and expense to the interested parties." Hiland Dairy, Inc. v. Kroger Co., 402 F.2d 968, 973 (8th Cir. 1968), cert denied, 395 U.S. 961 (1969). To this end, "well-pleaded allegations are taken as admitted but conclusions of law and unreasonable inferences or unwarranted deductions of fact are not admitted." Id.
However, the defendant must surmount a major obstacle in order to persuade this court to dismiss the plaintiff's claim at so early a stage in the litigation. "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. at 45-46. Thus, it is only in the "unusual case" where the complaint on its face reveals some insuperable bar to relief that a dismissal under Fed.R.Civ.P. 12(b)(6) is warranted. Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir. 1982).
The Rule does not countenance dismissals based on a judge's disbelief of a complaint's factual allegations. Neitzke, et al. v. Williams, 490 U.S. 319, 327 (1989).
The issue is not whether plaintiffs will ultimately prevail, but rather whether they are entitled to offer evidence in support of their claims. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); United States v. Aceto Agricultural Chemical Corp., 872 F.2d 1373, 1376 (8th Cir. 1989). Under Rule 12(b)(6), a plaintiff with an arguable claim is ordinarily accorded notice of a pending motion to dismiss for failure to state a claim and an opportunity to amend the complaint before the motion is ruled upon. These procedures alert him to the legal theory underlying the defendant's challenge, and enable him meaningfully to respond by opposing the motion to dismiss on legal grounds or by clarifying his factual allegations so as to conform with the requirements of a valid legal cause of action. Williams v. White, 897 F.2d 942, 944 (8th Cir. 1990).
Synatel asserts a contribution/indemnity theory in its third-party complaint against Pressings, Components, and Holdings. With regard to the contribution theory, Pressings and Components claim they are entitled to dismissal for the following reasons:
Because Holdings has been dismissed from this suit based on lack of personal jurisdiction, the court will decide the Rule 12(b)(6) motion only as it applies to Pressings and Components.
1. Pressings and Components do not share a common liability to the VandeLunes.
2. Pressings and Components have legal defenses against a cause of action brought by the VandeLunes as they are similarly situated to former defendant 4B Elevator Components, Ltd.
With regard to the indemnity theory, Pressings and Components claim they are entitled to dismissal because:
1. Pressings and Components do not have an express contract of indemnity with third-party plaintiff, Synatel.
2. Even if the "Terms and Conditions of Sale" document is construed as a contract of indemnity, the English choice of law provision leads to dismissal in favor of the more convenient forum of the United Kingdom.
3. Pressings and Components cannot be subject to a manufacturer's indemnity claim as successive sellers on any vicarious liability or negligence theory as the manufacturer's liability is strict and primary, not comparative.
4. Pressings and Components have no independent duty outside of the alleged transaction of the product which was breached.
Because Braime has indicated that a motion to dismiss pursuant to the doctrine of Forum Non Conveniens will be forthcoming, the court opts to decide the choice of law issue at that time.
Contribution
Under Iowa common law, the right to contribution rests on common liability. McDonald v. Dehli Sav. Bank, 440 N.W.2d 839, 841 (Iowa 1989); Chicago Cent. Pacific R.R. Co. v. Union Pacific R.R. Co., 558 N.W.2d 711, 715 (Iowa 1997). "Common liability exists when two or more actors are liable to an injured party for the same damages, even though their liability may rest on different grounds." Id. This rule is preserved in the Iowa statute on contribution which provides, in relevant part:
A right of contribution exists between or among two or more persons who are liable upon the same indivisible claim for the same injury, death, or harm, whether or not judgment has been recovered against all or any of them. It may be enforced either in the original action or by a separate action for that purpose.
Iowa Code § 668.5. However, contribution is "not available when the party from whom it is sought has a special defense against an action by the injured party." McDonald, 839 N.W.2d at 841. Therefore, if Pressings and Components has a special defense against the VandeLunes, then Synatel cannot seek contribution from Pressings and Components. Pressings and Components claim the existence of two such special defenses: statutory immunity and a lapsed statute of limitations.
Iowa statutory law provides immunity in products liability cases for non-manufacturers. Iowa Code § 613.18 provides, in relevant part:
1. A person who is not the assembler, designer, or manufacturer, and who wholesales, retails, distributes, or otherwise sells a product is:
a. Immune from any suit based upon strict liability in tort or breach of implied warranty of merchantability which arises solely from an alleged defect in the original design or manufacture of the product.
b. Not liable for damages based upon strict liability in tort or breach of implied warranty of merchantability for the product upon proof that the manufacturer is subject to the jurisdiction of the courts of this state and has not been judicially declared insolvent.
2. A person who is a retailer of a product and who assembles a product, such assembly having no causal relationship to the injury from which the claim arises, is not liable for damages based upon strict liability in tort or breach of implied warranty of merchantability which arises from an alleged defect in the original design or manufacture of the product upon proof that the manufacturer is subject to the jurisdiction of the courts of this state and has not been judicially declared insolvent.
Pressings and Components claim that they were merely resellers in this transaction, thereby entitling them to immunity under Iowa Code § 613.18(2). As a result, Pressings and Components claim they cannot share a common liability to the VandeLunes and should be dismissed pursuant to Fed.R.Civ.P. 12(b)(6).
Assuming all facts alleged in Synatel's complaint to be true and liberally construing those allegations, it cannot be said that Pressings and Components were mere resellers of the M-700. Synatel manufactured the M-700 at the request of Pressings and Components. Moreover, Pressings and Components participated in the M-700's conceptual design, feature specifications, writing of the warranty and other technical information, packaging, marketing, and U.S. Factory Mutual approval. U.S. Factory Mutual approval was obtained by Pressings and Components, and a second alarm was added to the M-700 at the request of Pressings and Components, so that the M-700 would comply with American regulations. Therefore, Pressings and Components was much more involved in the manufacture of the M-700 than its American distributor, 4B, who was previously dismissed from this case. Finally, nothing in the Iowa immunity statute provides immunity from a negligence-based cause of action.
Pressings and Components also claim to have a special defense against the VandeLunes in that the applicable statute of limitations has lapsed, thereby requiring dismissal of Synatel's contribution claim. In support of this argument, Pressings and Components rely on Iowa Code § 614.1(2), which requires that personal injury actions be commenced within two years after the cause of action accrues. However, pursuant to Iowa Code § 668.8, "[t]he filing of a petition under this chapter tolls the statute of limitations for the commencement of an action against all parties who may be assessed any percentage of fault under this chapter." A third-party defendant is considered a "party" for purposes of § 668.8. Iowa Code § 668.2(4). Therefore, the filing of the original petition by Vandelunes tolls the applicable statute of limitations. See Betsworth v. Morey's and Raymond's, 423 N.W.2d 196, 198 (Iowa 1988) (noting that if city was brought into lawsuit as a third-party defendant, statute of limitations would not be a barrier pursuant to § 668.8). See also Reese v. Werts Corp., 379 N.W.2d 1, 5 (Iowa 1986) (noting that § 668.8 preserved the right of plaintiff to bring a separate action against third-party defendant despite fact that two-year statute of limitations set forth in § 614.1(2) has expired). As a result, Pressings and Components do not have this special defense as against the VandeLunes, and therefore are not entitled to be dismissed from Synatel's contribution claim.
Indemnity
Indemnity, a form of restitution founded on equitable principles, is allowed where one party has discharged an obligation that another party should bear. Hunt v. Ernzen, 252 N.W.2d 445, 447 (Iowa 1977). Under Iowa law, indemnity may be permitted under several theories: (1) express contract; (2) vicarious liability; and (3) breach of an independent duty between the indemnitor and indemnitee. Hysell, 534 F.2d at 782. These three grounds for indemnification are based upon a relationship existing between the indemnitor and the indemnitee. Hysell, 534 F.2d at 782.
Braime claims that it is not vicariously liable for VandeLune's injuries because Synatel, as the manufacturer of the M-700 is subject to strict, not comparative liability. Synatel argues that Braime is vicariously liable because Braime was involved in the design, specification, etc. of the M-700, thereby making it more than a "mere reseller." The focus of both of these arguments is misplaced. The vicarious liability theory of indemnity, if applicable, would be premised on the relationship between Braime and Synatel, not between Braime or Synatel and the injured party. Hysell v. Iowa Pub. Serv. Co., 534 F.2d 775, 782 (8th Cir. 1976).
A fourth theory on which indemnity may be permitted, the "primary or `active' tortious conduct of the indemnitor as compared to the secondary or `passive' tortious conduct of the indemnitee," was abandoned by the Iowa Supreme Court because it did not fit within the Iowa statutory network of comparative fault. American Trust Sav. Bank v. United States Fidelity Guar. Co., 439 N.W.2d 188, 190 (Iowa 1989).
Pressings and Components claim they are entitled to dismissal on Synatel's indemnity theory because there was no express contract of indemnity between the parties, because they, as mere resellers, cannot be vicariously liable for VandeLune's injuries, and because no independent duty existed between the parties. Synatel argues that its "Terms and Conditions of Sale" document contains a binding indemnification agreement. Synatel also argues that Pressings and Components are vicariously liable because, as outlined above, they were intimately involved in the manufacturing of the M-700 and were not "mere resellers."
Synatel does not argue the existence of an independent duty, so the court will not consider such an argument.
"Under Iowa law, a party may contract for indemnity from the consequences of its own negligence." Hysell, 534 F.2d at 785. If a contract between the parties provides for indemnity, such a provision controls liability. Id. However, the indemnity provision must be clear and unequivocal to be enforced. See Hysell, 534 F.2d at 785 (holding that lower court did not err in finding party was contractually entitled to indemnification as indemnity clause expressed right to indemnity in a clear and unequivocal manner). "An employer's agreement to forego its statutory right to limited worker's compensation liability must be evidenced by something more than boilerplate terms buried on the back of a third party's purchase order form. . . ." Merryman, II v. Iowa Beef Processors, Inc., 978 F.2d 443, 445 (8th Cir. 1992).
The alleged indemnity contract at issue here is found in Synatel's "Terms and Conditions of Sale" document. Paragraph 12(c) provides:
In view of the possibility of a wide disparity between our potential liability and the charge we make for our goods, we limit our liability for any loss, damage or injury (or any consequential or indirect loss) arising from the performance of or the failure by us to perform any of our duties hereunder (whether or not such loss, damage or injury or consequential or indirect loss be due to our negligence or the negligence of our servants or agents or to any other cause whatsoever) to the amount of the Contract price unless the Customer requests us specifically to Insure our risks under the Contract for a higher sum in which case the Customer will pay to us the additional premium required and in this event our liability will then be limited to the higher sum to which the Customer's request relates. Further the Customer will save harmless and indemnify and keep us indemnified in respect of any liability over and above the said sum relating to any claim made against us in respect of or arising out of goods sold under this contract. Further and as a separate obligation the Customer hereby agrees with us that the Customer will not issue any third party proceedings or seek indemnity from us in the event of any person taking action against the Customer for breach of the Customer's obligations whether statutory or at common law.
Pressings and Components claim that this provision cannot, as a matter of law, be enforced as an indemnity contract because it contains "boilerplate" terms, it was drafted unilaterally, and there was no indication of acceptance of these terms. Synatel counters that Pressings and Components were aware of this agreement, understood it, and intended to be bound by it, based upon the fact that this agreement accompanied previous transactions and the parties had been doing business together since the 1980s.
Given the fact that Synatel and Braime had done business together several times in the past, whether or not Braime understood and intended to be bound by the "Terms and Conditions of Sale" document is a fact-laden inquiry not properly disposed of in a motion to dismiss.
Upon the foregoing,
IT IS ORDERED
1. Third-party defendant Braime Holding Company, P.L.C.'s motion to dismiss based on lack of personal jurisdiction (docket number 85) is granted.
2. Third-party defendant Braime Pressings, Ltd.'s motion to dismiss is denied.
3. Third-party defendant Braime Elevator Components, Ltd.'s motion to dismiss is denied.