Tamko Roofing v. Haden Schweitzer ( 2006 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 04-3913
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Tamko Roofing Products, Inc., *
*
Plaintiff - Appellant, *
*
v. *
* Appeal from the United States
Smith Engineering Company; Smith * District Court for the Western
Environmental Corporation; Kenneth * District of Missouri.
C. Dargatz; *
*
Defendants, *
*
Haden Schweitzer Corporation, *
*
Defendant - Appellee. *
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Submitted: March 15, 2006
Filed: June 16, 2006
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Before ARNOLD, JOHN R. GIBSON, and SMITH, Circuit Judges.
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JOHN R. GIBSON, Circuit Judge.
Tamko Roofing Products, Inc. appeals the judgment of the district court in
favor of Haden Schweitzer Corporation on Tamko's claims for tortious
interference and prima facie tort, as well as the district court's refusal to pierce the
corporate veil of Haden's subsidiaries, referred to collectively as "Smith," to hold
Haden liable for the judgment Tamko had obtained against them. We affirm the
judgment of the district court.1
I.
This diversity action stems from a series of contracts executed in 1999
between Tamko and Smith for the sale and service of certain pollution control
devices. According to Tamko, the pollution control devices failed to perform as
Smith had promised, so, in December 2000, Tamko sued Smith for fraudulent
misrepresentation, breach of contract, and breach of warranty. The case was tried
to a jury, which found in favor of Tamko. At issue in this appeal is Tamko's
attempt to hold Smith's parent, Haden, liable for the actions of its subsidiary,
Smith.
Smith was founded in 1925, but became a wholly-owned subsidiary of
Haden in 1991. Although Smith had been profitable in the past, by 1997 it was
running short of its budget and by 1998 it had begun to lose money. In an effort to
lower the cost and increase the efficiency of Smith's pollution control devices,
Smith and Haden jointly developed and patented a single can oxidizer. During the
development process, Smith acquired the oldest patent describing this type of
oxidizer, and, in May 1998, sued a third party for its infringement, ultimately
obtaining a $9.3 million judgment—the "Eisenmann judgment."
In spite of the companies' efforts, Smith continued to lose money, and in
May 2001, Haden sold all of Smith's stock to Anguil Environmental Systems, Inc.
As part of the transaction, Smith assigned the Eisenmann judgment to Haden and
licensed the oxidizer technology to Haden Drysys Environmental, Ltd., another
1
The Honorable Gary A. Fenner, United States District Judge for the Western
District of Missouri.
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subsidiary of Haden. Three months after the stock sale, Smith filed for liquidation
under California insolvency proceedings. In conjunction with this filing, Smith
made an assignment for the benefit of its creditors to Development Specialties,
Inc., the entity appointed as trustee under the California insolvency proceedings,
and ceased doing business shortly thereafter. In March 2002, Development
Specialties and others brought suit against Haden seeking to have the transfer of
the Eisenmann judgment to Haden set aside on the grounds that it was fraudulent.
The parties ultimately reached a settlement, whereby Haden and Development
Specialties each received a portion of the Eisenmann judgment.
In late 2002, Tamko filed an amended complaint in its ongoing litigation
against Smith, which added claims against Haden and its president, Kenneth
Dargatz. The amended complaint asked the district court to pierce Smith's
corporate veil to hold its parent Haden liable as Smith's "alter ego."2 The amended
complaint also asserted claims against Haden and Dargatz directly for tortious
interference and prima facie tort. The district court granted summary judgment in
favor of Haden and Dargatz on Tamko's claim for tortious interference, holding
that Tamko had failed to create a genuine issue of material fact that Haden or
Dargatz caused Smith's breach of its contract with Tamko. The district court
denied summary judgment with respect to Tamko's remaining claims against
Haden and Dargatz,3 and the case proceeded to trial.
2
In their briefing and at argument, the parties refer to Tamko's request to pierce
the corporate veil as an alter ego "claim." However, piercing the corporate veil under
an alter ego theory is best thought of as a remedy to enforce a substantive right, and
not as an independent cause of action. See Grothues v. Internal Revenue Serv. (In
re Grothues), 226 F.3d 334, 337-38 (5th Cir. 2000). This distinction notwithstanding,
we will use the parties' proffered terminology in referring to Tamko's alter ego
"claim."
3
During the course of the trial, Tamko settled with Dargatz on its remaining
claims against him.
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At the close of all the evidence, the court granted judgment as a matter of
law on Tamko's claim against Haden for prima facie tort, finding that there was no
evidence that Tamko was damaged by the transfer of the Eisenmann judgment.
The court submitted Tamko's claims against Smith to the jury, which found in
favor of Tamko. In addition, the district court sought an advisory opinion from the
jury on Tamko's alter ego claim against Haden, with the understanding that the
ultimate question of whether to pierce the corporate veil "would be decided in
equity by the Court." Specifically, the court asked the jury whether Haden should
be treated as Smith's alter ego on account of: (1) the failure to keep their funds
separate, (2) the transfer of the Eisenmann judgment to Haden, or (3) the licensing
of Smith's oxidizer technology to Haden Drysys Environmental. The jury
answered the first and third questions in the negative, but answered the second
question in favor of piercing the corporate veil, finding that "an inequitable result
occurred by assigning the Eisenmann judgment to Haden."
Notwithstanding the jury's finding on the alter ego question, the district
court granted judgment as a matter of law in favor of Haden. The court reasoned
that the jury, "due to certain necessary evidentiary rulings during trial, had
insufficient evidence before it to make an informed decision on that issue." Based
on the evidence before it, the court found that Tamko had failed to overcome the
presumption of the separate existence of Smith and Haden. In due course, the
district court denied Tamko's motion under Federal Rule of Civil Procedure 59(e)
to reconsider its decision on the alter ego claim, and this appeal followed.
II.
Tamko argues that the district court erred by refusing to pierce Smith's
corporate veil and hold Haden liable as its alter ego. We review the district court's
factual findings in support of its alter ego determination for clear error, while
reviewing its legal conclusions de novo. Greater Kansas City Laborers Pension
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Fund v. Superior Gen. Contractors, Inc., 104 F.3d 1050, 1054-55 (8th Cir. 1997).
The parties agree that the question is governed by California law. See United
States v. Scherping, 187 F.3d 796, 802 (8th Cir. 1999).
Under California law, "a corporation is regarded as a legal entity, separate
and distinct from its stockholders, officers and directors, with separate and distinct
liabilities and obligations." Sonora Diamond Corp. v. Superior Court, 83 Cal.
App. 4th 523, 538 (Cal. Ct. App. 2000). Nonetheless, in certain "narrowly defined
circumstances" and "when the ends of justice so require," a court may disregard
the corporate form to hold the shareholders responsible as the "alter ego" of the
corporation. Mesler v. Bragg Mgmt. Co., 702 P.2d 601, 607 (Cal. 1985); Slottow
v. Am. Cas. Co., 10 F.3d 1355, 1360 (9th Cir. 1993). Under California law,
"[a]lter ego is an extreme remedy, sparingly used." Sonora Diamond, 83 Cal.
App. 4th at 539; see also Las Palmas Assoc. v. Las Palmas Ctr Assoc., 235 Cal.
App. 3d 1220, 1249 (Cal. Ct. App. 1991) ("Because society recognizes the
benefits of allowing persons and organizations to limit their business risks through
incorporation, sound public policy dictates that imposition of alter ego liability be
approached with caution.").
Although there is no "litmus test" for judging when to hold a parent liable
for the acts of its subsidiary, "[t]here are, nevertheless, two general requirements."
Mesler, 702 P.2d at 606. First, the court must find a "unity of interest and
ownership" between the parent and subsidiary such that their separate personalities
no longer exist. Id. Second, the court must satisfy itself that if the acts are treated
as those of the subsidiary alone, "an inequitable result will follow." Id. It is the
plaintiff's burden to establish both elements and thereby overcome the
presumption of a separate corporate existence. Mid-Century Ins. Co. v. Gardner, 9
Cal. App. 4th 1205, 1212 (Cal. Ct. App. 1992). "The issue is one for the trier of
fact and is reviewed on appeal according to the usual standards for sufficiency of
the evidence to support the conclusion." Id. at 1213.
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The parties focus much of their briefing on the "unity of interest and
ownership" element, arguing that the factors typically considered by California
courts cut either for or against the district court's finding that no such unity existed
between Smith and Haden. See Associated Vendors, Inc. v. Oakland Meat Co.,
210 Cal. App. 2d 825, 838-40 (Cal. Ct. App. 1962) (cataloguing factors). We
need not decide whether, as Tamko argues, the district court's findings with
respect to these factors were clearly erroneous, since Tamko fails to present
evidence from which the court could have found that "an inequitable result will
follow" from the refusal to pierce Smith's corporate veil. Mesler, 702 P.2d at 607.
In seeking to establish the requisite inequitable result, Tamko claims that
due to Haden's actions, Smith will be prevented from "meeting its obligations"
with respect to the fraud judgment Tamko had obtained against it. However,
"California courts have rejected the view that the potential difficulty a plaintiff
faces collecting a judgment is an inequitable result that warrants application of the
alter ego doctrine." Neilson v. Union Bank of California, N.A., 290 F. Supp. 2d
1101, 1117 (C.D. Cal. 2003) (collecting cases). Instead, they "require some
evidence of bad faith conduct on the part of defendants before concluding that an
inequitable result justifies an alter ego finding." Cambridge Elec. Corp. v. MGA
Elec., Inc., 227 F.R.D. 313, 331 (C.D. Cal. 2004) (collecting cases) (emphasis
added).
Although Tamko argues on appeal that "Haden was intimately involved
with Smith's fraud," the evidence it cites in support of this assertion involves
Haden and Smith's joint development of the oxidizer technology in 1998, and not
Smith's representations to Tamko about that technology during the 1999 contract
negotiations, which form the basis of Tamko's allegations of fraud against Smith.
Tamko presented no evidence at trial from which the court could conclude that
Haden knew what representations Smith was making to Tamko during the parties'
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negotiations, or that Haden was even aware that Smith was engaged in contract
negotiations with Tamko; indeed, the evidence presented by Haden at trial
suggests to the contrary. In the absence of evidence of wrongdoing or misconduct
"amounting to bad faith" on the part of Haden, "the alter ego doctrine cannot be
invoked." Sonora Diamond, 83 Cal. App. 4th at 539.
Nor does the advisory jury's finding that "an inequitable result occurred by
assigning the Eisenmann judgment to Haden" compel a contrary result. Under
California law, "[i]t is well-settled that the alter ego doctrine is essentially an
equitable one and for that reason is particularly within the province of the trial
court." Dow Jones Co., Inc. v. Avenel, 151 Cal. App. 3d 144, 148-49 (Cal. Ct.
App. 1984); see also Las Palmas, 235 Cal. App. 3d at 1248 (alter ego doctrine
"founded on equitable principles."). Thus, as the district court properly
recognized, the jury sat in an advisory capacity only, and thus the court was free
to accept or reject its findings, and we review the findings of the district court for
clear error as if there had been no advisory jury. Harris v. Sec'y, United States
Dept. of the Army, 119 F.3d 1313, 1320 (8th Cir. 1997) (quoting Gragg v. City of
Omaha, 20 F.3d 357, 358-59 (8th Cir. 1994)); see also Taylor Corp. v. Four
Seasons Greetings, LLC, 403 F.3d 958, 965 (8th Cir. 2005) (stating that presence
of advisory jury does not change rule of deference to district court's findings under
Fed. R. Civ. P. 52(a)).
The district court chose to reject the advisory jury's finding that an
inequitable result occurred with respect to the transfer of the Eisenmann judgment
because the court concluded that there was insufficient evidence to support this
finding. Indeed, only the court was privy to evidence that Haden had agreed to
defend and indemnify Smith in four separate lawsuits, including its ongoing
litigation with Tamko, as part of Haden's sale of its Smith stock to Anguil. The
district court acknowledged that this obligation could constitute valuable
consideration for the transfer of the Eisenmann judgment to Haden, thereby
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supporting the court's finding that the transfer was not intended to wrongfully
shield Smith's assets from Tamko. In light of the evidence before the court as the
fact-finder in this equity action, we cannot conclude that the court's finding that
Tamko failed to overcome the presumption in favor of the separate corporate
existence of the parent and its subsidiary was clearly erroneous.
We also find no abuse of the district court's "broad discretion" to deny
Tamko's Rule 59(e) motion for reconsideration. Capitol Indem. Corp. v.
Russellville Steel Co., Inc., 367 F.3d 831, 834 (8th Cir. 2004) (standard of
review). Although Tamko argues that the denial resulted from the application of
an erroneous legal standard, a review of California law convinces us that the
district court applied the correct two-part alter ego standard, as articulated by the
California Supreme Court, Mesler, 702 P.2d at 606, and as applied by California's
lower courts, see, e.g., Sonora Diamond, 83 Cal. App. 4th at 538-40; Mid-Century,
9 Cal. App. 4th at 1212-16.
Finally, we decline Tamko's invitation to remand this case for more specific
findings because the district court's "cursory rationale" was insufficient to afford
meaningful appellate review. It is well-established that a district court need not
"make specific findings on all facts but only must formulate findings on the
ultimate facts necessary to reach a decision." Allied Van Lines, Inc. v. Small Bus.
Admin., 667 F.2d 751, 753 (8th Cir. 1982). Here, the district court specifically
found that Tamko had failed to satisfy the "unity of interest and ownership"
requirement of California alter ego law, and accordingly, had failed to overcome
the presumption in favor of preserving the separate corporate identities. Because
this was sufficient to afford us a clear understanding of the basis of the court's
decision, there is no need for remand. The district court's judgment rejecting
Tamko's alter ego claim is affirmed.
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III.
Tamko argues that the district court erred by granting summary judgment in
favor of Haden on Tamko's claim for tortious interference with a contract or
business expectancy. We review the grant of summary judgment de novo, viewing
the facts in the light most favorable to the non-moving party. Simpson v. Des
Moines Water Works, 425 F.3d 538, 541 (8th Cir. 2005). In doing so, we apply
the same standard as the district court and may affirm on any grounds supported
by the record. Id. (citing Bass v. SBC Communications, Inc., 418 F.3d 870, 872
(8th Cir. 2005)). Summary judgment shall be rendered if the “pleadings,
depositions, answers to interrogatories, and admissions on file, 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.” Fed. R. Civ. P.
56(c).
Tamko's tortious interference claim is governed by Missouri law, which
requires a plaintiff to prove: "(1) the existence of a contract or valid business
expectancy; (2) defendant's knowledge of the contract or relationship; (3) a breach
induced or caused by defendant's intentional interference; (4) the absence of
justification; and (5) damages." McGuire v. Tarmac Envtl. Co., Inc., 293 F.3d
437, 441 (8th Cir. 2002); Rice v. Hodapp, 919 S.W.2d 240, 245 (Mo. banc 1996)
(citing Nazeri v. Missouri Valley Coll., 860 S.W.2d 303, 316 (Mo. banc 1993)).
Liability for tortious interference "cannot be predicated upon speculation,
conjecture or guesswork, and no fact essential to submissibility can be inferred
absent a substantial evidentiary basis." Cmty Title Co. v. Roosevelt Fed. Sav. &
Loan Ass'n, 670 S.W.2d 895, 905 (Mo. Ct. App. 1984).
In granting Haden's motion for summary judgment, the district court held
that Tamko had failed to generate a genuine issue of material fact as to whether
Haden had caused Smith to breach its contracts with Tamko. In fixing causation,
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Missouri courts apply a "but-for" test. McGuire, 293 F.3d at 441; Fabricor, Inc. v.
E.I. DuPont de Nemours & Co., 24 S.W.3d 82, 93-94 (Mo. Ct. App. 2000). Under
this test, Missouri courts ask: "(1) did [the defendant] actively and affirmatively
take steps to induce the breach; and if so, (2) would the contracts have been
performed absent [defedant's] interference?" Mueller v. Abdnor, 972 F.2d 931,
938 (8th Cir. 1992); Fabricor, 24 S.W.3d at 94 (quoting Cmty Title, 670 S.W.2d at
905).
Because Tamko failed to present evidence from which a reasonable juror
could conclude that Haden "actively and affirmatively took steps to induce" Smith
to defraud Tamko and breach the parties' contracts, the district court properly
granted summary judgment to Haden. Missouri law defines "induce" as "to move
and lead (as by persuasion or influence), to inspire, call forth or bring about by
influence or stimulation." Fabricor, 24 S.W.3d at 94 (quoting Merriam Webster's
Collegiate Dictionary 594 (10th ed. 1994)). At the heart of Tamko's lawsuit
against Smith was Smith's 1999 fraudulent misrepresentation and breach of its
contracts with Tamko. However, in seeking to establish that Haden "induced" the
breach, Tamko places primary reliance on the assignment of the Eisenmann
judgment and the execution of the technology licensing agreement, both of which
occurred in the context of Haden's 2001 sale of Smith's stock to Anguil. In effect,
Tamko argues that Haden's 2001 actions were the driving force behind Smith's
1999 conduct, an illogical contention that the district court rejected, as do we.
Accordingly, we affirm the grant of summary judgment denying Tamko's claim for
tortious interference.
IV.
Tamko argues that the district court erred by granting judgment as a matter
of law in favor of Haden on Tamko's prima facie tort claim. We review the grant
of judgment as a matter of law de novo, applying the same standard as that used by
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the district court and drawing all reasonable inferences in favor of the non-moving
party. First Union Nat. Bank v. Benham, 423 F.3d 855, 863 (8th Cir. 2005).
"Judgment as a matter of law is appropriate when 'there is no legally sufficient
evidentiary basis for a reasonable jury to find for that party.'" Wash Solutions, Inc.
v. PDQ Mfg., Inc., 395 F.3d 888, 892 (8th Cir. 2005) (quoting Fed. R. Civ. P.
50(a)(1)).
As with its tortious interference claim, Missouri law governs Tamko's prima
facie tort claim. Kelly v. Golden, 352 F.3d 344, 350 (8th Cir. 2003). A claim
alleging a prima facie tort "is disfavored under Missouri law, particularly when a
party has another remedy or other potentially submissible tort claims available."
Id. (citing Rice v. Hodapp, 919 S.W.2d 240, 246 (Mo. banc 1996)); see also
Overcast v. Billings Mut. Ins. Co., 11 S.W.3d 62, 67 n. 4 (Mo. banc 2000) ("It is
difficult to find reported cases where a plaintiff actually has recovered on a prima
facie tort theory."). Prima facie tort is not a "catchall remedy of last resort for
claims that are not otherwise salvageable under traditional causes of action."
Nazeri v. Missouri Valley Coll., 860 S.W.2d 303, 315 (Mo. banc 1993). Rather,
"it is a particular and limited theory of recovery" whose elements include: (1) an
intentional lawful act by defendant; (2) defendant's intent to injure the plaintiff; (3)
injury to the plaintiff; and (4) absence of or insufficient justification for
defendant's act. Id.
In seeking to establish these elements, Tamko again relies on the transfer of
the Eisenmann judgment and the execution of the technology licensing agreement
in conjunction with Haden's 2001 sale of Smith's stock to Anguil. As Tamko
argues, a jury could conclude from the evidence at trial that Haden was aware that
one or both of these actions would negatively impact Tamko's ability to collect on
its judgment against Smith. However, under Missouri law, a defendant's mere
awareness that its conduct would cause harm is insufficient to prove an actual
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intent to injure, as required to recover on a theory of prima facie tort. Thomas v.
Special Olympics of Missouri, Inc., 31 S.W.3d 442, 450 (Mo. Ct. App. 2000).
Instead, the plaintiff must present evidence that the defendant undertook the acts
with "specific, clear-cut, express malicious intent to injure; mere intent to do the
act which results in injury is not sufficient." Woolsey v. Bank of Versailles, 951
S.W.2d 662, 669 (Mo. Ct. App. 1997); see also J.S. DeWeese Co. v. Hughes-
Treitler Mfg. Corp., 881 S.W.2d 638, 646 (Mo. Ct. App. 1994) ("Spite or ill-will is
necessary to satisfy the requisite intent."). Tamko points to nothing in the record
from which a jury could conclude that Haden specifically intended to injure
Tamko with the transfer of the Eisenmann judgment or the execution technology
licensing agreement. Tamko's "burden to submit evidence on this element is a
heavy one," Woolsey, 951 S.W.2d at 669, and its failure to do so warranted
judgment as a matter of law.
V.
We affirm the judgment of the district court.
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