Martin v. SITC, Inc.

LARRY R. MARTIN, SR., as Administrator of the Estate of KODI ALLAN MARTIN, et al., PLAINTIFF v. SOUTHERN INDIANA TREATMENT CENTER, INC. and NATIONAL SPECIALTY CLINICS, INC., DEFENDANTS

CIVIL ACTION NO. 3:03CV-428-H

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY

2004 U.S. Dist. LEXIS 15293

May 27, 2004, Decided

DISPOSITION: Defendant National Specialty Clinics, Inc.’s motion to dismiss for lack of personal jurisdiction sustained.

COUNSEL: [*1] For Southern Indiana Treatment Center, Inc., Defendant: Harold R. Bickham, Barnes & Thornburg, Indianapolis, IN. Andrew Nicholas Clooney, O’Bryan, Brown & Toner, Louisville, KY. Michael J. Hulka, Barnes & Thornburg, Indianapolis, IN.

For Larry R. Martin, Sr., Plaintiff: Sean Ragland, Bolus & Ragland, LOUISVILLE, KY.

JUDGES: JOHN G. HEYBURN II, CHIEF JUDGE.

OPINIONBY: JOHN G. HEYBURN II

OPINION: MEMORANDUM OPINION

Defendant National Specialty Clinics, Inc., (“National”), moves to dismiss for lack of personal jurisdiction. National is the parent company of Defendant Southern Indiana Treatment Center, Inc., (“SITC”), which operates a methadone clinic. Plaintiff is the Administrator of the Estate of Kodi Allan Martin (“Kodi”). Kodi is the deceased child of Plaintiff and Shawna Martin (“Shawna”). Plaintiff alleges that both Defendants were negligent in providing Shawna access to methadone for use outside the clinic and that Kodi died from an overdose which Shawna administered to the child. National argues that its mere ownership of SITC does not establish personal jurisdiction and that it is not otherwise subject to Kentucky’s long arm statute.

I.

Plaintiff alleges two grounds for [*2] asserting jurisdiction on National in this Court: (1) that it is a corporation which owns or otherwise operates SITC and (2) it regularly does and solicits business, or engages in a persistent course of conduct and derives substantial revenue from goods used within Kentucky.

National is a separate legal entity from SITC. It is incorporated in Delaware and its principal place of business is in Nashville, Tennessee. SITC is incorporated in Indiana and its principal place of business is in Jeffersonville, Indiana. SITC is a separate employer and a separate customer to its vendors. National does not call SITC a branch, agent, or division of National but holds SITC as a separate corporate subsidiary. Despite all this, Plaintiff argues that National is more than a mere passive owner.

Plaintiff also argues that despite National’s arguments to the contrary, a number of factors prove National is subject to Kentucky’s long arm statute, KRS 454.210. n1 These factors include: that the Chief Executive Officer of National, David Gnass, is also the President of SITC; National’s regulatory affairs director, Denny Ailes, submits statistics on SITC to Indiana regulators and corresponds with [*3] such regulators about SITC; National has a public relations employee to respond to problems with subsidiary clinics, and National “speaks” for its subsidiaries; National referred to an employee at the Charleston, West Virginia subsidiary as a “National” staff member; National “operates” SITC; SITC’s Operations and Human Resource Administration Handbooks were National’s proprietary information and both were identified as “National” documents; National’s website identifies SITC as a national treatment center that it owns/operates; and a SITC press release about Kodi’s death directed further inquiries about the incident to Ms. Holly Gritton, the Regional Manager for National.

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n1 Because this is a diversity case, this Court determines whether personal jurisdiction exists over a nonresident by applying Kentucky’s long arm statute. See Aristech Chemical Intern. Ltd. v. Acrylic Fabricators Ltd., 138 F.3d 624 (6th Cir. 1998); see also American Greetings Corp. v. Cohn, 839 F.2d 1164, 1167 (6th Cir. 1988). The Kentucky long arm statute states that:

A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a claim arising from the person’s: 1. Transacting any business in this Commonwealth; 2. Contracting to supply services or goods in this Commonwealth; 3. Causing tortious injury by an act or omission in this Commonwealth; 4. Causing tortious injury by an act or omission outside this Commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this Commonwealth, provided that the tortious injury occurring in this Commonwealth arises out of the doing or soliciting of business or a persistent course of conduct or derivation of substantial revenue within the Commonwealth.

KRS § 454.210(2)(a).

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II.

Plaintiff has the burden of establishing personal jurisdiction over National. See Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir. 1980). Where the trial court decides that the motion can be ruled on before trial, the court may determine that motion on the basis of affidavits alone. It may permit discovery in aid of the motion or conduct an evidentiary hearing on the merits of the motion. See Serras v. First Tenn. Bank Nat’l Ass’n, 875 F.2d 1212 (6th Cir. 1989). The Court is ruling on jurisdiction before trial on the basis of affidavits and discovery submitted.

A plaintiff ordinarily proves personal jurisdiction by a preponderance of the evidence. See Dean v. Motel 6 Operating L.P., 134 F.3d 1269 (6th Cir. 1998). However, that standard does not apply here because no evidentiary hearing was held before the personal jurisdiction determination. See id. at 1272. n2 Therefore, the Court must consider the pleadings and affidavits in a light most favorable to Plaintiff, and Plaintiff need only make a prima facie showing of jurisdiction to defeat National’s motion. See CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996); [*5] see also Welsh, 631 F.2d at 439. In addition, the Court does not weigh the controverting assertions of the party seeking dismissal. See CompuServe, 89 F.3d at 1262 (stating the light standard for plaintiffs is appropriate because otherwise allow a defendant to defeat personal jurisdiction merely by filing a written affidavit contradicting jurisdictional facts alleged by a plaintiff); see also Millennium Petrochemicals, Inc. v. Jago, 50 F. Supp. 2d 654, 656 (W.D. Ky. 1999).

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N2 If the court rules on written submissions alone, the plaintiff may not rest on his pleadings to answer the movant’s affidavits, but must set forth by affidavit or otherwise specific facts showing that the court has jurisdiction. See Serras, 875 F.2d at 1214. When the trial court has determined that the motion to dismiss for lack of personal jurisdiction can be decided upon these written submissions, it the burden is merely that of making a prima facie showing that personal jurisdiction exists. Welsh, 631 F.2d at 438.

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The Sixth Circuit held that when determining a parent company’s amenability to jurisdiction based on the local activities of a subsidiary, the question is whether the parent itself has the minimum contacts with the state. See Velandra v. Regie Nationale des Usines Renault, 336 F.2d 292, 297 (6th Cir. 1964) (emphasis added). n3 Ownership of the subsidiary is considered one contact in the analysis, but this relationship does not alone decide the personal jurisdiction question. See id.; see also Schwartz v. Elec. Data Sys., Inc., 913 F.2d 279 (6th Cir. 1990); see also Monkelis v. Trans World Airlines, Inc., 303 F. Supp. 651, 652 (E.D.Ky. 1969). A plaintiff must provide evidence that the parent did something itself. Bradley v. Mayo Found., 1999 U.S. Dist. LEXIS 17505, 1999 WL 1032806, *15 (E.D.Ky. 1999).

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n3 Velandra points out that Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 69 L. Ed. 634, 45 S. Ct. 250 (1925), the original case that held the activities of a subsidiary did not subject a parent corporation to the personal jurisdiction of local courts, was later qualified by cases following International Shoe and the minimum contacts analysis. 336 F.2d at 296. These qualifying cases held that foreign corporations are amenable to personal jurisdiction of local courts solely because of the activities of subsidiary corporations under the theory that the corporate separation was fictitious, Intermountain Ford Tractor Sales Co. v. Massey- Ferguson Ltd, 210 F. Supp. 930 (C.D.Utah 1962), or that the parent held the subsidiary out as its agent, Curtis Publishing Co. v. Cassel, 302 F.2d 132 (10 Cir. 1962), or that the parent exercised an undue degree of control over the subsidiary, Focht v. Southwestern Skyways, Inc., 220 F. Supp. 441 (Colo. 1963). Velandra points out that the law relating to the fictions of agency and of separate corporate entity was developed for purposes other than determining the amenability to personal jurisdiction, and therefore the law of amenability is confused by reference to these inapposite matters. 336 F.2d at 297. Therefore, the Velandra court came to the common sense solution that the question goes back to whether the parent has the minimum contacts, and that a subsidiary carries on local activities is merely one factor to be considered in assessing whether or not the parent has the requisite contacts with a state. Id.

Plaintiff alleges a fictitious corporate separation between National and SITC, but the record contains no evidence whatsoever that would justify a finding of an alter ego, and therefore the piercing of corporate veils, or the disregarding of corporate entities. However, the Velandra holding proves that the alter ego, or undue degree of control analysis, is actually irrelevant to whether National has minimum contacts with Kentucky.

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Plaintiff has not submitted a single affidavit in support of its claim that personal jurisdiction exists over National. Plaintiff states that “National plainly has sufficient contacts with this forum because … National not only owns but effectively operates SITC.” However, the only support Plaintiff gives for this far reaching statement is that SITC’s Operational Manual is National’s property and because SITC’s discovery requests were prepared by National employees. This does not show National’s control of SITC. The existence of a parent-subsidiary relationship alone is not enough to confer jurisdiction. See Monkelis, 303 F. Supp. at 652. n4 The evidence does not show National taking actions in Kentucky under its own name.

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n4 When a defendant does not regularly do or solicit business in Kentucky, does not derive substantial revenue from goods used or consumed in Kentucky, and when any injury in Kentucky did not arise out of doing or soliciting business in Kentucky, Kentucky courts simply do not have jurisdiction over the defendant. See Jackson v. Wileman, 468 F. Supp. 822 (W.D.Ky. 1979).

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Plaintiff also fails to identify any aspects of SITC’s daily operations that National controls in a manner that makes SITC National’s alter ago. n5 Plaintiff does not show how the president of the subsidiary also being the CEO of the parent creates contacts with Kentucky. Nor does the fact that National has an interest in its subsidiary’s compliance with legal regulations prove that National has minimum contacts with Kentucky. The fact that National personnel spoke with the media after Kodi’s death is also irrelevant to whether National “regularly … solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in [Kentucky].” See KRS 454.210(4). It seems only natural that a parent company would directly deal with the media on newsworthy issues occurring at its subsidiary, especially after such a tragic event. Also, that National provides company materials to its Indiana subsidiary, which then does business is Kentucky, is far too tangential to be considered a contact to Kentucky. See Velandra, 336 F.2d at 296-298.

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n5 If it becomes apparent throughout the course of litigation that SITC is in fact the alter ego of National, judgment may be enforced against it as well as its subsidiary.

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Plaintiff cites Third National Bank in Nashville v. Wedge Group Inc., 882 F.2d 1087 (6th Cir. 1989), for the proposition that when a parent corporation involves itself in the subsidiary’s daily activities, it is subject to personal jurisdiction for the subsidiary’s acts. In that case, however, the parent did acts at the subsidiary and had the contacts specifically with the state of Tennessee. Id. at 1088. The court cited specific contacts of the parent corporation with Tennessee, including: the parent itself conducted business in Tennessee; the parent officers served as the subsidiary’s directors and met monthly in Tennessee to review and direct the subsidiary’s operations; the parent was a party to the subsidiary contract in dispute, which dealt with Tennessee state taxes and other Tennessee companies other than the subsidiary; and the parent entered into a number of contracts with other Tennessee corporations that were executed in Tennessee. Id. at 1090. The parent’s contacts occurred periodically for a four year time period, i.e., none were isolated events. Id.

Plaintiff has shown no similar contacts by National [*10] directly with the state of Kentucky. Plaintiff points to not one direct action of National in Kentucky or any manner of availing itself to Kentucky’s laws. Plaintiff fails to provide any evidence that National either controls SITC or has any direct contacts with the state in order to allow a Kentucky court to exercise jurisdiction over it.

Consequently, for all those reasons, the Court finds that Plaintiff has not shown prima facie evidence upon which this Court may exercise personal jurisdiction over National.

The Court will enter a motion consistent with this Memorandum Opinion.

ORDER

Defendant National Specialty Clinics, Inc., (“National”), has moved to dismiss this case for lack of personal jurisdiction. For the reasons set forth in the accompanying Memorandum Opinion, the Court agrees that it lacks jurisdiction.

Being otherwise sufficiently advised,

IT IS HEREBY ORDERED that Defendant, National Specialty Clinics’ motion to dismiss for lack of personal jurisdiction is SUSTAINED and Plaintiff’s complaint against it is DISMISSED WITHOUT PREJUDICE.

This 27th day of May, 2004.