Jurimex Kommerz Transit v. Case Corp.

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
4-23-2003
Jurimex Kommerz v. Case Corp
Precedential or Non-Precedential: Non-Precedential
Docket 02-1916
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Recommended Citation
"Jurimex Kommerz v. Case Corp" (2003). 2003 Decisions. Paper 632.
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NOT PRECEDENTIAL
THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 02-1916
___________
JURIMEX KOMMERZ TRANSIT G.M.B.H.; JURIMEX KOMMERZ
TRANSIT AGRAR CONSULTING PROJEKT KAS G.M.B.H.;
ARGE IPC-JURIMEX
Appellants
v.
CASE CORPORATION
___________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
(D.C. Civil No. 00-cv-00083)
District Judge: The Honorable Joseph J. Farnan, Jr.
___________
ARGUED MARCH 12, 2003
BEFORE: SLOVITER, NYGAARD, and ALARCON,* Circuit Judges.
(Filed: April 23, 2003)
*Honorable Arthur L. Alarcon, Senior Circuit Judge for the United States Court of Appeals
for the Ninth Circuit, sitting by designation.
Daniel J. Kornstein, Esq. (Argued)
Kornstein Veisz Wexler & Pollard
757 Third Avenue
New York, NY 10017
Counsel for Appellants
David C. McBride, Esq.
John W. Shaw, Esq.
Young Conaway Stargatt & Taylor
P. O. Box 391, 1000 West Street
Brandywine Building, 17th Floor
Wilmington, DE 19899
William E. Deitrick, Esq.
William B. Berndt, Esq.
James C. Schroeder, Esq. (Argued)
Mayer Brown Rowe & Maw
190 South LaSalle Street
Chicago, IL 60603
Counsel for Appellee
___________
OPINION OF THE COURT
___________
NYGAARD, Circuit Judge.
This appeal involves a series of transactions arranging for the sale of
agricultural equipment in Kazakhstan. Jurimex, a foreign plaintiff, filed suit in the District
Court against Case Corporation—the parent company to Case France, Case Europe, and
Case Neustadt—alleging that Case breached an oral contract providing a commission to
Jurimex for acting as the local liaison between Case, potential financiers, and Golden
Grain, a Kazakh buyer. Case filed a motion to dismiss pursuant to 12(b)(1) and 12(b)(7),
arguing that its foreign subsidiaries were necessary and indispensable parties under Rule 19
2
and addition of these parties would destroy diversity jurisdiction. The District Court
agreed and granted the motion. Jurimex argued that it was trying to hold Case liable, not as
merely the parent of the subsidiaries, but rather because the subsidiaries were acting as
agents of Case. However, this theory could not be found anywhere in the original
complaint (indeed, there was no mention of a subsidiary). The District Court properly
applied a Rule 19 analysis and dismissed the complaint. The District Court also properly
denied discovery on the agency theory at that time because there was nothing in the
complaint to which the theory could relate. Faced with the dismissal, Jurimex moved to
amend their complaint to more specifically plead an agency relationship between Case and
its European subsidiaries. The District Court denied this motion, finding that the
amendment would be futile.
We will affirm the decision of the District Court to dismiss the original
complaint because agency was never pleaded. However, we will reverse the decision to
deny the amended complaint because in it Jurimex has sufficiently pleaded agency.
I. Jurisdiction and Standard of Review
The District Court had subject matter jurisdiction under 28 U.S.C. §
1332(a)(2) because the matter in controversy exceeds $75,000 and the parties to the
dispute are a citizen of a State and citizens of a foreign state. We have jurisdiction over a
final order of the District Court pursuant to 28 U.S.C. §1291.
There are two decisions on appeal and each has its own standard of review.
As to the decision to dismiss the complaint for failure to join an indispensable party, we
3
have a bifurcated process of review. “To the extent that a district court's Rule 19(a)
determination is premised on a conclusion of law, ...our scope of review is plenary. We,
however, review any subsidiary findings of fact only for clear error.” Janney Montgomery
Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 404 (3d Cir. 1993). Under Rule 19(b), we
review the district court’s determination that the Case subsidiaries were indispensable and
the resulting dismissal of the complaint for abuse of discretion. Id. at 403. The decision to
deny discovery is also reviewed under an abuse of discretion standard. Brumfield v.
Sanders, 232 F.3d 376, 380 (3d Cir. 2000).
The District Court’s second order denied Jurimex’s motion for leave to
amend its complaint as futile. We review such decisions for abuse of discretion. Krantz v.
Prudential Investments Fund Management, 305 F.3d 140, 144 (3d Cir. 2002). “A district
court abuses its discretion when its decision rests upon a clearly erroneous finding of fact,
an errant conclusion of law, or an improper application of law to fact.” Hofkin v.
Provident Life & Acc. Ins. Co., 81 F.3d 365, 369 (3rd Cir. 1996) (quoting International
Union, United Auto., Aerospace and Agric. and Implement Workers of Am., UAW v. Mack
Trucks, Inc., 820 F.2d 91, 95 (1987) appeal on remand, 917 F.2d 107 (3rd Cir. 1990)).
II. Background
As this appeal comes on a motion to dismiss, “we accept all factual
allegations in the complaints and all reasonable inferences to be drawn therefrom in the
light most favorable to the plaintiffs.” Lorenz v. CSX Corp., 1 F.3d 1406, 1411 (3d
4
Cir.1993). According to the amended complaint,1 in April 1999, Case Neustadt, on behalf
of Case, sought to obtain Jurimex's assistance in brokering a sale between Case and Agro
Industrial Corporation Golden Grain (Golden Grain), a corporation in Kazakhstan.
Although another company, I.P. Consult (IPC), was acting as Case's representative in
Kazakhstan, it had no experience in the grain trade or with such large transactions. In May
1999, representatives of Case, Jurimex, and IPC met in Vienna, Austria, and reached a
business agreement. This agreement divided the work required to effectuate the transaction
in Kazakhstan. IPC would handle the ‘technical' aspects of the transaction relating to the
equipment and Jurimex agreed to handle the ‘agricultural' aspect. Jurimex would be
responsible for lining up "offtakers," which are companies that agree to purchase the wheat
produced by Golden Grain once they are using the new Case equipment. These guarantees
by the offtakers are essential for securing credit from a bank for the purchase of the Case
equipment, as they evince future income and assuage the bank that the money lent to
Golden Grain will be repaid.
After the meeting, Patrice Loiseleur, Business Manager of International
Sales at Case France, on behalf of Case, requested that Jurimex conduct a project study for
the machinery and a feasibility study on the exportation of Golden Grain's wheat in
Kazakhstan. Loiseleur also promised Jurimex that it would act as Case's future
1. We draw the factual scenario alleged by Jurimex from the amended complaint
where Jurimex identified the specific subsidiaries involved in the meeting, transactions,
etc. The original complaint was identical in factual nature but referred to "Case"
generically, rather than acknowledging the subsidiaries, and failed to allege agency.
5
representative in Kazakhstan and would be responsible for financing the transaction. To
accommodate this request, Jurimex formed Jurimex Kommerz Transit Agrar Consulting
Projekt KAS (Jurimex Projekt) and created an Austrian partnership with IPC, called Arge
IPC-Jurimex (IPC-Jurimex) to negotiate with Golden Grain.
The parties met again at the end of May 1999 in Paris and agreed to the
financial aspects of the transaction. Specifically, of the estimated $40 million in revenues,
$23.2 million would go to Case and the remaining $16.8 million would be used for freight
costs and compensation to IPC-Jurimex. During the meeting, Girard Chiffert, an executive
of Case Europe, confirmed to Jurimex that the financing guidelines were dictated by Case
and that any changes would have to go through Case. Jurimex was also instructed by
Loiseleur to continue negotiating with Golden Grain and Golden Grain's bank and continue
to seek more offtakers.
Several exchanges occurred in June of 1999, where top management of Case,
Case Europe, Case France and IPC-Jurimex reached an understanding of the financial
structure and decided to affirmatively proceed with the transaction. However, Case and IPC
held a secret meeting with a different bank that had expressed interest in financing the
transaction and Glencore Grain, an offtaker already obtained by Jurimex, at which time the
parties agreed to proceed with Case directly and cut Jurimex out of the deal with respect to
both the bank's financing and the future sale of Golden Grain's wheat to Glencore.
Ultimately, the transaction was completed without Jurimex's involvement. Jurimex claims
that Case’s unlawful exclusion of Jurimex from the transaction deprived them of $7.5
6
million in proceeds from the direct transaction, as well as an additional $28 million from
the fees associated with the wheat sales previously arranged and finalized by Jurimex. Case
also reneged on its promise to make Jurimex its representative in Kazakhstan, depriving
Jurimex of substantial future business.
The amended complaint asserts claims against Case, as joint tortfeasor by
virtue of its agency relationship with its subsidiaries, Case France, Case Europe, Case
Neustadt, for (1) breach of contract and implied covenant of good faith and fair dealing, (2)
breach of implied contract, (3) promissory estoppel, (4) quasi-contract/unjust
enrichment/restitution, (5) tortious interference, (6) unfair competition and
misappropriation, and (7) prima facie tort.
In response to Jurimex's original complaint, Case filed a motion to dismiss
under Rule 12 (b)(1), 12 (b)(7), 19, and the doctrine of forum non conveniens. The heart
of Case's argument was that the allegedly improper conduct took place entirely in Europe
and through the sole initiative of Case's subsidiaries. As the subsidiaries are separate
corporate entities, to hold the parent corporation liable for their actions, they must be
joined to the lawsuit as necessary parties. The District Court agreed and engaged in Rule
19 analysis of whether the subsidiaries were necessary and indispensable parties. Because
the conduct took place through the subsidiaries and joinder would destroy diversity, the
District Court found 19(a) satisfied. Turning to 19(b), the District Court explained its
concern for prejudice to the unjoined subsidiaries if a judgment was entered against the
parent corporation and the likelihood that there was a better forum in Europe. The District
7
Court specifically excluded consideration of the principal-agency theory put forth by
Jurimex because it was not alleged in the complaint and denied discovery as to the theory
for the same reason.
In light of the adverse decision, Jurimex moved to amend its complaint to
include specific language alleging the principal-agency theory, as well as a joint tortfeasor
theory. The District Court denied this motion as futile in its March 27, 2002 opinion. The
District Court held that Jurimex had not alleged a factual predicate for agency because it
did not point to consent by the subsidiaries to act as Case's agent, nor Case's request that
the subsidiaries so act. The District Court also found the allegations of Case's control to
be too conclusory. The joint tortfeasor theory was also denied, on the grounds that Jurimex
had not alleged any tortious conduct by Case, but rather by its subsidiaries. Ultimately, the
District Court denied the motion to amend for failure to state a claim.
III. Discussion
After the initial complaint was dismissed, Jurimex moved to amend its
complaint to include specific language detailing the agency relationship.2 The District
Court denied the motion after finding that the facts alleged were not sufficient to state a
claim. The District Court committed legal error by failing to consider the effects of
certain factual pleadings, and applied an incorrect pleading standard for agency in the
2. We will center our discussion on the District Court’s decision to deny the
amended complaint and affirm the decision to dismiss the original complaint without
comment.
8
context of a Rule 12(b)(6) motion. The decision reached by the District Court
demonstrates that it was not satisfied with the evidence of agency. However, if a complaint
is properly pleaded, the concern for lack of evidence is only germane after an opportunity
for discovery.
In Shane v. Fauver, we discussed the appropriate standard for a District
Court to evaluate a motion to amend in light of its potential futility. 213 F.3d 113 (3d Cir.
2000). We explained that:
Among the grounds that could justify a denial of leave to
amend are undue delay, bad faith, dilatory motive,
prejudice, and futility. "Futility" means that the
complaint, as amended, would fail to state a claim upon
which relief could be granted. In assessing "futility," the
District Court applies the same standard of legal
sufficiency as applies under Rule 12(b)(6).
Accordingly, if a claim is vulnerable to dismissal under
Rule 12(b)(6), but the plaintiff moves to amend, leave to
amend generally must be granted unless the amendment
would not cure the deficiency.
Id. at 115 (citations omitted). During its analysis of the original complaint, the District
Court found that the failure to allege agency was fatal to Jurimex's argument that
subsidiaries do not have to be joined. Specifically, the District Court noted that the
deficiency in the complaint was the reason the jurisdictional analysis was facial rather than
factual. See Mem. Op. at J.A. 11 (citing Gould Elecs. Inc. v. U.S., 220 F.3d 169, 176 (3d
Cir. 2000)). Thus, the District Court regarded the complaint as having failed to state a
claim under the agency theory and review of Jurimex's amended complaint should fall under
the procedural protections of Rule 12 (b)(6).
9
Under Delaware law, 3 proof of agency within the context of a
parent-subsidiary relationship requires that the plaintiff “demonstrate that the agent was
acting on behalf of the principal and that the cause of action arises out of that relationship.”
E.I. DuPont De Nemours and Co. v. Rhone Roulenc Fiber and Resin Intermediates, 269
F.3d 187, 198 (3d Cir. 2001). We have said that “[o]ne corporation whose shares are
owned by a second corporation does not, by that fact alone, become the agent of the second
company.” Id. (quoting Phoenix Canada Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1477 (3d
Cir.1988)). Specifically, a “restricted agency relationship may develop whether the two
separate corporations are parent and subsidiary or are completely unrelated outside the
limited agency setting.” Id. Jurimex must allege facts sufficient to allow such a
relationship to be proven at trial, but it is not required to have extensive proof at the
complaint stage. See Craftmatic Sec. Litigation v. Kraftsow, 890 F.2d 628, 645 (3d Cir.
1989)(“[P]laintiffs cannot be expected to have personal knowledge of the details of
corporate internal affairs [at the pleading stage].”).4
Further, we have held that discovery is necessary when an agency relationship
is alleged, thereby implicitly allowing allegations of agency to survive a facial attack.
Canavan v. Beneficial Finance Corp., 553 F.2d 860, 865 (3d Cir. 1977)(“Because the
3. Both parties analyze the potential agency relationship under Delaware law and we
will proceed on that assumption.
4. Although Craftmatic Sec. Litigation dealt with agency in the context of corporate
fraud, it seems illogical to require a more developed factual background in a complaint
alleging contract violations that is evaluated under a Rule 8 standard than the factual
background we have required under the higher Rule 9 pleading standard for fraud.
10
existence of an agency relationship hinges largely on the particular facts of each case,
discovery was essential to the preparation of an agency theory argument in this case.”).
Here, Jurimex has alleged that its past dealings with Case have involved its subsidiaries as
agents in the same manner as the present and has alleged or produced affidavits evincing
financial control of the transaction by Case, not its subsidiaries.
Under a Rule 12(b)(6) motion, a complaint may be dismissed “only if it is
certain that no relief could be granted under any set of facts which could be proven.”
Rossman v. Fleet Bank(RI) National Assoc., 280 F.3d 384, 387 (3d Cir. 2002). Based on
the allegations, Jurimex may bring a claim against Case as the parent corporation without
joining the subsidiaries if Jurimex proves there is an agency relationship between Case and
its subsidiaries. See Publicker Indus., Inc. v. Roman Ceramics Corp., 603 F.2d 1065,
1070 (3d Cir. 1979). Even if the District Court thought the evidence provided by Jurimex
during the original jurisdictional hearing fell short from clearly establishing agency, we can
presume that the factual nature of the relationship alleged in the amended complaint would
be better understood after discovery. For example, during its earlier request for discovery,
Jurimex asked for all documents concerning the communications between Case and its
subsidiaries specifically limited to the Golden Grain transaction. Evidence of control by
Case over the actions of Case France, Paris, and Neustadt would likely be found in such
documents and demonstrate agency. By including in its amended complaint the necessary
occurrences and reasons that Case controlled its subsidiaries' actions, Jurimex has alleged
sufficient facts to survive a Rule 12(b)(6) motion.
11
We will reverse the District Court and remand with instructions to allow the
amended complaint.
_________________________
TO THE CLERK:
Please file the foregoing opinion.
/s/ Richard L. Nygaard
12
Circuit Judge