GCIU-Employer Retirement Fund v. Coleridge Fine Arts

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS August 16, 2017
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
GCIU-EMPLOYER RETIREMENT
FUND AND BOARD OF TRUSTEES
OF THE GCIU-EMPLOYER
RETIREMENT FUND,
Plaintiffs - Appellants,
No. 16-3007
v. (D.C. No. 2:14-CV-02303-EFM-GLR)
D. Kansas
COLERIDGE FINE ARTS; JELNIKI
LIMITED,
Defendants - Appellees.
ORDER AND JUDGMENT *
Before KELLY, LUCERO, and MURPHY, Circuit Judges.
I. Introduction
Plaintiffs GCIU-Employer Retirement Fund and the Board of Trustees of
the GCIU-Employer Retirement Fund (collectively the “Fund”) appeal from the
dismissal of their action against Defendants, Coleridge Fine Arts (“Coleridge”)
*
This order and judgment is not binding precedent except under the
doctrines of law of the case, res judicata, and collateral estoppel. It may be cited,
however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th
Cir. R. 32.1.
and Jelniki Limited (“Jelniki”). The suit was filed pursuant to the Multiemployer
Pension Plan Amendments Act (the “MPPAA”), 29 U.S.C. §§ 1381-1461, and
involved the Fund’s attempt to collect withdrawal liability from Coleridge and
Jelniki. The dismissal was based on the district court’s conclusion it lacked
personal jurisdiction over Coleridge and Jelniki, both of which are corporations
domiciled in the Republic of Ireland.
Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court reverses
the dismissal of the Fund’s suit and remands the matter for further proceedings.
II. Background
The Fund is a multiemployer pension plan within the meaning of the
MPPAA. Greystone Graphics, Inc. (“Greystone”) , a Kansas corporation wholly
owned by Coleridge, made contributions to the Fund pursuant to the terms of a
collective bargaining agreement. In February 2011, Greystone ceased doing
business, effectuating a complete withdrawal from the Fund. The Fund obtained
a default judgment against, inter alia, Greystone and Coleridge based on
allegations Greystone’s cessation of business gave rise to withdrawal liability
under the MPPAA. See 29 U.S.C. §§ 1381, 1383, 1391 (providing that an
employer who completely withdraws from a multiemployer plan is liable for an
amount sufficient to cover the employer’s share of unfunded vested benefits).
The Fund initiated the instant action against Coleridge and Jelniki, arguing they
-2-
are jointly and severally liable for the withdrawal liability because they are
members of Greystone’s control group. 1 See 29 U.S.C. § 1301(b)(1).
Coleridge and Jelniki moved to dismiss the Fund’s suit on the basis the
federal district court lacked personal jurisdiction over them. The district court
granted the motion, rejecting the Fund’s argument that specific jurisdiction
existed because Defendants purposefully directed their activities at the United
States. The court also denied the Fund’s request for jurisdictional discovery.
This appeal followed.
III. Discussion
A. Legal Standards
Where, as here, the district court grants a pre-trial motion to dismiss
without conducting an evidentiary hearing, this court reviews the district court’s
ruling de novo and accepts as true the uncontroverted factual allegations in the
complaint. Shrader v. Biddinger, 633 F.3d 1235, 1239 (10th Cir. 2011). A
plaintiff can satisfy his burden to establish personal jurisdiction over the
defendant by making a prima facie showing that jurisdiction is proper. Id.When a plaintiff’s claims arise under federal law and the defendant is not
subject to the jurisdiction of any state’s court of general jurisdiction, Rule 4(k)(2)
of the Federal Rules of Civil Procedure provides for federal long-arm jurisdiction
1
Coleridge is a subsidiary of Jelniki.
-3-
if the plaintiff can show that the exercise of jurisdiction comports with due
process. 2 Holland Am. Line Inc. v. Wärtsilä N. Am., Inc., 485 F.3d 450, 461 (9th
Cir. 2007). Here, Defendants concede the Fund’s claims arise under federal law
and no state court in the United States has jurisdiction over them. See id. (joining
three other circuit courts of appeals in holding “a defendant who wants to
preclude use of Rule 4(k)(2) has only to name some other state in which the suit
could proceed” (quotation and alteration omitted)). Thus, the only question at
issue is whether the exercise of federal jurisdiction satisfies Fifth Amendment
due process standards. Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206,
1211-12 (10th Cir. 2000). To resolve this issue, we must determine whether
Defendants have had minimum contacts with the United States. See Dudnikov v.
Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008); Cent.
States, Se. & Sw. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d
934, 942-43 (7th Cir. 2000). Consistent with the minimum contacts standard, a
federal court may exercise specific jurisdiction 3 over a foreign defendant if the
2
The Fund’s suit was brought pursuant to ERISA which provides for
nationwide service of process, but not worldwide service of process. 29 U.S.C.
§ 1132(e)(2); see also Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206,
1210 (10th Cir. 2000) (interpreting § 1132(e)(2) to authorize nationwide service
of process). Defendants were served in Ireland. Thus, § 1132(e)(2) does not
provide a basis for jurisdiction.
3
“[S]pecific jurisdiction is confined to adjudication of issues deriving from,
or connected with, the very controversy that establishes jurisdiction.” Goodyear
Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011) (quotation
(continued...)
-4-
defendant purposefully directed its activities at the forum and the plaintiff’s
injuries arose from the defendant’s forum-related activities. Dudnikov, 514 F.3d
at 1071 (quotations omitted).
B. Analysis
Relying on a case from the United States District Court for the District of
Columbia, the Fund argues Defendants purposefully directed their activities
toward the United States by acquiring Greystone with knowledge of the
possibility of withdrawal liability. See Pension Ben. Guar. Corp. v. Asahi Tec
Corp., 839 F. Supp. 2d 118, 124 (D. D.C. 2012). In Asahi Tec, the D.C. district
court concluded it could exercise personal jurisdiction over the defendant, a
Japanese corporation, because the defendant acquired a United States subsidiary
“with its eyes wide open” to the “possibility of control[] group liability” under
ERISA. Id. Documentation showed the defendant hired a consultant to evaluate
the scope of the subsidiary’s employee benefit plan and develop strategies to
mitigate any obligations arising from the subsidiary’s participation in the plan.
Id. It took these actions after learning the plan “had unfunded benefit and other
3
(...continued)
omitted). If the controversy does not arise directly from a defendant’s forum-
related activities, a federal court may nevertheless exercise general jurisdiction
over a foreign defendant if the plaintiff can show its ties to the forum are
“continuous and systematic.” Id. (quotation omitted). In its amended complaint,
the Fund asserted only that the federal court has specific jurisdiction over the
claims it has asserted.
-5-
pension-related liabilities” but before the acquisition. Id. The district court
noted the negotiated purchase price was based, in part, on the potential control
group liability for the underfunded plan. Id.The Fund asserts the facts it has alleged in its complaint are nearly
identical to those alleged by the plaintiff in Asahi Tec. Specifically, it claims
Coleridge knew of the future potential risk of withdrawal liability stemming from
Greystone’s participation in the Pension Fund when it acquired Greystone and,
thus, it purposefully directed its activities at the forum. Even if this court was
inclined to give any weight to the district court decision in Asahi Tec, the facts
alleged by the Fund are not comparable. In Asahi Tec, it was alleged the
defendant knew the subsidiary actually had pension-related liabilities at the time
of the acquisition. There is no similar claim made by the Fund in its amended
complaint. True, the complaint alleges Coleridge knew Greystone was a long-
time contributor to the Fund and had knowledge of the risk of future control
group liability in 2002 at the time it acquired the remaining 50% interest in
Greystone. The Fund, however, did not allege that any withdrawal liability
actually or even potentially existed at that time. There was no allegation that
Greystone employees were entitled to receive unfunded vested benefits or any
assertion regarding the inapplicability of the MPPAA’s safe harbor provisions. In
contrast, the plaintiff in Asahi Tec alleged the defendant learned the pension plan
in which the subsidiary participated “had unfunded benefit and other pension-
-6-
related liabilities” at the time of the acquisition. Id. Here, the Fund admits
Greystone continued to contribute to the Fund until February 2011, when it
ceased doing business. Consequently, the withdrawal liability that forms the
basis of the Fund’s claims against Defendants did not arise until thirteen years
after Coleridge acquired a fifty percent ownership in Greystone and nine years
after it acquired the remaining fifty percent interest. Because any potential future
risk of withdrawal liability was wholly speculative at the time Coleridge acquired
Greystone, Defendants did not assume a known risk of control group liability at
that time. The Fund’s argument, thus, becomes nothing more than an assertion of
personal jurisdiction based solely on corporate affiliation or stock ownership.
That assertion is not sufficient to show minimum contacts even under the ruling
in Asahi Tec.
This leaves the Fund with no legal authority for the proposition that the
acquisition of a company that participates in a multiemployer pension plan is, by
itself, sufficient to establish personal jurisdiction over the acquiring company and
no reasoned argument to support the notion that such a rule would comport with
due process. See Shaffer v. Heitner, 433 U.S. 186, 213-16 (1977) (holding due
process requires that jurisdiction be based on more than a mere ownership interest
in an entity located in the forum). To the contrary, the Seventh Circuit and
several other circuit courts of appeals have held “that stock ownership in or
affiliation with a corporation, without more, is not a sufficient minimum contact.”
-7-
Reimer Express World Corp., 230 F.3d at 943 (collecting cases). The Seventh
Circuit’s analysis in this regard is convincing, particularly its reliance on
Supreme Court precedent to support the proposition that “[t]he unilateral activity
of an entity cannot subject a nonresident defendant to personal jurisdiction in the
entity’s forum” because “‘[e]ach defendant’s contacts with the forum State must
be assessed individually.’” Id. at 944 (quoting Keeton v. Hustler Magazine, Inc.,
465 U.S. 770, 781 n.13 (1984)). Equally convincing is the Seventh Circuit’s
analysis of why the “MPPAA’s control group provision regarding withdrawal
liability does not alter the rule that corporate affiliation or ownership is not a
sufficient minimum contact for the exercise of personal jurisdiction.” Id. at 944-
45. We agree that the fact “a defendant would be liable under a statute if
personal jurisdiction over it could be obtained is irrelevant to the question of
whether such jurisdiction can be exercised.” Id. at 944.
Although jurisdiction cannot be premised on corporate affiliation alone
even when the claims arise under the MPPAA, the Fund also argues personal
jurisdiction arises from Defendants’ active participation in the management of
Greystone. For example, it alleges Eugene Reynolds, an owner and member of
the Board of Directors of Coleridge and Jelniki, was also the president of
Greystone, served as its Chief Executive Officer, 4 and sat on its Board of
4
In his affidavit, Mr. Reynolds states he never acted as Chief Executive
(continued...)
-8-
Directors. According to the Fund, Mr. Reynolds actively participated in the
day-to-day management of Greystone and made “decisions related to its
operations and eventual closure in 2011.”
Even accepting the Fund’s assertion that Mr. Reynolds actively managed
Greystone, an assertion he denies, 5 the Fund cannot show the necessary minimum
contacts. The Fund argues that any actions Mr. Reynolds took in his official
capacity as an owner and operator of Coleridge and Jelniki are attributable to
Coleridge and Jelniki. The record, however, contains no credible allegations Mr.
Reynolds routinely acted on behalf of Coleridge and Jelniki when he discharged
any of his duties as an officer and director of Greystone. See id. at 943 (holding
“constitutional due process requires that personal jurisdiction cannot be premised
on corporate affiliation or stock ownership alone where corporate formalities are
substantially observed and the parent does not exercise an usually high degree of
control over the subsidiary”). For example, the Fund asserts in its appellate brief
that “Greystone, with Mr. Reynolds acting as President, actively sought
information concerning Greystone’s potential withdrawal liability as part of
planning.” The amended complaint, however, alleges it was James Lloyd, the
4
(...continued)
Officer of Greystone.
5
According to Mr. Reynolds, he was not involved in the day-to-day affairs
of Greystone and “those affairs were run by a local management team headed by
Jim Lloyd.”
-9-
General Manager of Greystone, who requested an estimate of Greystone’s
withdrawal liability for 2006 from the Fund. The complaint further alleged an
actuary hired by Greystone requested information concerning Greystone’s
withdrawal liability in 2007 but it fails to allege any involvement by Mr.
Reynolds in the decision to solicit this information from the Fund. Further, even
if Mr. Reynolds was involved in seeking information on Greystone’s potential
withdrawal liability in 2006 or 2007 (possibly indicating Greystone intended to
withdraw from the Fund without qualifying under an MPPAA safe harbor
provision), there is no support for the proposition he did so in his capacity as an
owner or director of Coleridge or Jelniki.
Mr. Reynolds’s involvement in the negotiation of the 2007 collective
bargaining agreement presents a slightly closer question. The Fund has alleged
Mr. Reynolds—and, by extension, Coleridge and Jelniki— was involved in
negotiating the terms of the collective bargaining agreement that obligated
Greystone to make contributions to the Fund. Although the record shows Mr.
Reynolds used Greystone letterhead to correspond with the union president on
June 15, 2007, that correspondence provides no support for the proposition he
was acting on behalf of either Coleridge or Jelniki during the negotiations. A
second document from the same time frame, however, is ambiguous. Dated
March 15, 2007, and titled simply “Agreement,” it states as follows: “Greystone
and Local 16-C have agreed to a meeting between the Union’s committee and
-10-
Eugene Reynolds to give the Union the opportunity to communicate their
concerns directly to the owner.” (emphasis added). It could reasonably be
concluded that the reference to “the owner” was a reference to Coleridge, the
owner of a 100% interest in Greystone. If so, it is possible Reynolds was acting
on behalf of Coleridge when he met with union officials in 2007. One meeting,
however, is not a sufficient minimum contact to support the exercise of specific
jurisdiction, particularly when the Fund has not alleged how its injuries arose
from that meeting.
Having reviewed the entire record and fully considered the arguments of
the parties, we conclude the record fails to show that either Coleridge or Jelniki
had sufficient minimum contacts with the forum to permit the federal courts to
exercise specific personal jurisdiction. Because the Fund’s argument fails due to
sparse record support, we next consider whether the district court abused its
discretion when it denied the Fund’s motion for further discovery.
“When a defendant moves to dismiss for lack of jurisdiction, either party
should be allowed discovery on the factual issues raised by that motion.” Budde
v. Ling-Temco-Vought, Inc., 511 F.2d 1033, 1035 (10th Cir. 1975). We review a
district court’s refusal to permit jurisdictional discovery for abuse of discretion.
Sizova v. Nat’l Inst. of Standards & Tech., 282 F.3d 1320, 1326 (10th Cir. 2002).
A district court abuses that discretion if the denial results in prejudice to the
movant. Id. “Prejudice is present where pertinent facts bearing on the question
-11-
of jurisdiction are controverted or where a more satisfactory showing of the facts
is necessary.” Id. (quotation and alteration omitted).
Here the district court denied discovery “because the evidence
demonstrates that Defendants were not engaged in Greystone’s daily affairs.” As
we have noted, however, the March 15, 2007, one-page agreement between Mr.
Reynolds and the union raises a possibility Defendants were involved in the day-
to-day management of Greystone, or at least in the negotiation of its collective
bargaining agreement. If true, this controverts the statements made in Mr.
Reynolds’s affidavit that Defendants had no involvement in the day-to-day
operations of Greystone and that any actions he took on behalf of Greystone were
not done at the direction or in the interest of Defendants. Accordingly, the Fund
has demonstrated prejudice and the district court abused its discretion by denying
its motion for jurisdictional discovery.
IV. Conclusion
The district court’s order dismissing the Fund’s complaint for lack of
personal jurisdiction and denying jurisdictional discovery is reversed and the
matter remanded for further proceedings not inconsistent with this opinion. On
remand, the district court shall permit jurisdictional discovery of material relating
to the question of whether Coleridge and Jelniki, either directly or through their
owners, directors, or agents, were involved in the day-to-day management of
Greystone. If necessary, the district court shall also reevaluate whether
-12-
exercising specific jurisdiction over Defendants comports with traditional notions
of fair play and substantial justice. See Peay, 205 F.3d at 1212 (“[E]ven if a
defendant has minimum contacts with the forum, due process is not satisfied
unless the assertion of personal jurisdiction would comport with fair play and
substantial justice.” (quotations omitted)).
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
-13-
No. 16-3007, GCIU-Employer Retirement Fund v. Coleridge Fine Arts
KELLY, Circuit Judge, concurring in part and dissenting in part.
I join the court’s order and judgment holding that there are insufficient minimum
contacts with the forum for specific personal jurisdiction. However, I dissent from the
decision to remand to allow for jurisdictional discovery. I am at a loss as to why we
would remand for additional discovery given Plaintiff’s position that the facts it does
have support specific personal jurisdiction and its statement “[i]t is irrelevant that
Coleridge and Jelniki did not operate Greystone on a day-to-day basis.” Aplt. Reply Br.
at 14.
A district court’s refusal to allow jurisdictional discovery is reviewed for an abuse
of discretion. Budde v. Ling-Temco-Vought, Inc., 511 F.2d 1033, 1035 (10th Cir. 1975).
The refusal to grant discovery constitutes an abuse of discretion if the denial results in
prejudice to the litigant or a better showing of the facts is necessary. Sizova v. Nat’l Inst.
of Standards & Tech., 282 F.3d 1320, 1326 (10th Cir. 2002). Where a foreign defendant
is involved, however, courts have cautioned that extensive discovery should not be
compelled to determine whether personal jurisdiction exists. Cent. States, Se. & Sw.
Areas Pension Fund v. Reimer Express World Corp. (Reimer), 230 F.3d 934, 946 (7th
Cir. 2000) (citing Jazini v. Nissan Motor Co., 148 F.3d 181, 185–86 (2d Cir. 1998)). A
plaintiff must make a colorable or prima facie showing of personal jurisdiction to obtain
jurisdictional discovery. See id.The Seventh Circuit’s reasoning in Reimer is persuasive. There, a multiemployer
pension fund brought suit against two Canadian companies under the Employer
Retirement Income Security Act. See id. at 937. The Seventh Circuit held that the
district court did not abuse its discretion in denying jurisdictional discovery for three
notable reasons. See id. at 947. First, the plaintiff’s evidence only showed that the
foreign defendants were affiliated with a U.S. subsidiary. Id. Second, the plaintiff made
no showing that corporate formalities were not maintained. Id. And third, the plaintiff
could not demonstrate that the defendants exerted an unusually high degree of control
over the subsidiary. Id.
The same can be said here. Plaintiff-Appellant GCIU-Retirement Fund has
produced evidence suggestive of no more than corporate affiliation, which is, of course,
insufficient to support a prima facie showing of personal jurisdiction. Having lost on that
front, it wants to probe further. The district court acted well within its discretion in
denying discovery. We should not substitute our discretion for that of the district court.
-2-