Alberto Licea v. Curacao Drydock Company, I

Case: 14-20619 Document: 00513281568 Page: 1 Date Filed: 11/23/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 14-20619 November 23, 2015
Lyle W. Cayce
ALBERTO JUSTO RODRIGUEZ LICEA; FERNANDO ALONSO Clerk
HERNANDEZ; LUIS ALBERTO CASANOVA TOLEDO,
Plaintiffs - Appellees
v.
CURACAO DRYDOCK COMPANY, INCORPORATED, also known as
Curacaose Dokmaatschappij NV, also known as CDMNV,
Defendant
v.
FORMOSA PLASTICS MARINE CORPORATION; FORMOSA BRICK
MARINE CORPORATION,
Garnishees - Appellants
------------------------------------------------------------------------------------------------------------
consolidated with No. 14-20693
ALBERTO JUSTO RODRIGUEZ LICEA; FERNANDO ALONSO
HERNANDEZ; LUIS ALBERTO CASANOV TOLEDO
Plaintiffs - Appellees
v.
CURACAO DRYDOCK COMPANY, INCORPORATED,
also known as Curacaose Dokmaatschappij NV,
also known as CDMNV
Defendant
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v.
FORMOSA PLASTICS CORPORATION AMERICA,
Garnishee - Appellant
Appeals from the United States District Court
for the Southern District of Texas
Before JONES, SMITH, and SOUTHWICK, Circuit Judges.
EDITH H. JONES, Circuit Judge:
These are appeals from a garnishment action. Appellees – Alberto Justo
Rodriguez Licea, Fernando Alonso Hernandez, and Luis Alberto Casanova
(together “Plaintiffs”) – were successful plaintiffs in an underlying action
against the Curacao Drydock Company (“Curacao”). The garnishees’ appeals
raise numerous questions. We hold that the court lacked personal jurisdiction
over two garnishees, improperly exercised quasi in rem jurisdiction over a debt
owed by one of them, and erroneously failed to follow Texas procedure as to the
third garnishee.
BACKGROUND
The underlying action was filed in 2006 under the Alien Tort Statute and
RICO in the Southern District of Florida. Licea v. Curacao Drydock Co.,
584 F. Supp. 2d 1355 (S.D. Fla. 2008). It alleged that Plaintiff-Appellees
endured human trafficking, false imprisonment, and forced labor in a modern-
day slavery conspiracy between Curacao and the Cuban government. Id. at
1356-63. After initially appearing and filing several motions, Curacao
“repeatedly flouted [the] Court’s authority and refused to defend the matter.”
Id. at 1357. The court entered default judgment against Curacao on the issue
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of liability and held a separate trial to set damages, at which Curacao did not
appear. Id. at 1357-58. The plaintiffs won an $80 million judgment:
$50 million in compensatory damages and $30 million in punitive damages.
Id. at 1366. There was no appeal from that action. The plaintiffs registered
their judgment in the Southern District of Texas pursuant to 28 U.S.C. § 1963
on May 7, 2013.
Three garnishees are Appellants in these cases: Formosa Brick Marine
Corporation (“FBMC”), Formosa Plastics Marine Corporation (“FPMC”), and
Formosa Plastics Corporation, America (“FPCA”) (together “Garnishees”).
Though it is not entirely clear from the record, FPCA may be the parent
company of both FBMC and FPMC, FBMC and FPMC might be brother-sister
corporations, and/or FPMC might own FBMC. In any case, the entities are
related in a corporate family. FBMC and FPMC are Liberian corporations with
their principal place of business in Taiwan but no apparent contacts with
Texas. FPCA, however, is registered to do business in Texas, has a registered
agent, and operates a large processing plant in the state.
Pursuant to FED. R. CIV. P. 64, TEX. R. CIV. P. 657-79, and the TEX. CIV.
PRAC. & REM. CODE Ch. 63, the plaintiffs sought writs of garnishment against
FBMC, FPMC, and FPCA in partial satisfaction of their judgment against
Curacao. FPCA was served with process through its statutory agent for
service.
FPMC and FBMC were both “served” by United States Marshals
through the masters of vessels. Putative service upon FPMC was made on the
master of M/V FPMC 30 while it was docked in Corpus Christi, Texas and,
again on the master of M/V FPMC 19 when that vessel was conducting cargo
operations in Texas City, Texas. FBMC was also putatively served through
the master of M/V FPMC 19 when it was conducting cargo operations in Texas
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City. At the time of service, each vessel was owned by other entities, and
FPMC operated the vessels under contract with the owners. Consequently,
neither FBMC nor FPMC was directly served with process. The record
indicates no other connection between Texas and either FBMC or FPMC.
FPMC and FBMC nevertheless answered the writs of garnishment and
moved to dismiss. Both garnishees objected that the court lacked personal
jurisdiction and that service was improper. FPMC denied that it was indebted
to Curacao, while FBMC admitted it owed $2,639,000 to Curacao. The district
court initially denied these motions without prejudice, and both parties later
filed amended motions to dismiss raising the same issues.
FPCA filed a verified answer that denied any indebtedness to Curacao
or that it knew any person who was so indebted. After receiving no
controverting response or affidavit, FPCA moved for discharge from the
proceedings, which was denied.
Responding to plaintiffs’ motion to interplead funds, FBMC deposited
$2,639,000 with the clerk for the Southern District of Texas, subject to its
amended motion to dismiss. FBMC and FPMC again objected to personal
jurisdiction and service of process in their objection to the district court’s
proposed final judgment.
The district court issued a final judgment on September 19, 2014,
awarding the $2,639,000 to Plaintiffs and discharging Garnishees’ liability to
Curacao for that amount.
In its opinion, the district court found that “Plaintiffs provided the court
with uncontroverted evidence showing that FPMC Brick Marine Corporation
[the owner of the M/V FPMC 19] and FBMC are alter egos of FPMC and
thereby each other.” The district court also found that FPCA, FBMC, and
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FPMC were all alter egos of each other. Serving the masters therefore
effectuated service on all Garnishees. 1
The district court noted that because Garnishees were served with writs
while in Texas, the funds they owe Curacao are subject to garnishment under
the court’s quasi in rem jurisdiction. It cited United States Rubber v. Poage,
297 F.2d 670 (5th Cir. 1962)). The court rejected Garnishees’ argument that
Poage was overruled by subsequent Supreme Court decisions.
The district court also found that it would be fair to exercise jurisdiction
over the Garnishees because this proceeding imposes a slight burden on them
compared to normal litigation and because of the alter egos’ extensive activities
in Texas. Further, because FPCA did not object to personal jurisdiction and is
the alter ego of FPMC and FBMC, its amenability can be imputed to the two
other corporations.
Following this judgment, this court granted FPMC’s and FBMC’s motion
to stay enforcement of the judgment pending appeal and to accept the
previously deposited amount as security in lieu of a supersedeas bond.
STANDARDS OF REVIEW
Questions of jurisdiction, service of process, and the denial of the motion
to discharge are issues of law reviewed de novo. Herman v. Cataphora, Inc.,
730 F.3d 460, 465 (5th Cir. 2013); Af-Cap, Inc. v. Republic of Congo, 462 F.3d
417, 423 (5th Cir. 2006); Bullion v. Gillespie, 895 F2d 213, 216 (5th Cir. 1990).
The district court’s finding of alter ego is a fact that is reviewed for clear error.
United States v. Jon-T Chems., Inc., 768 F.2d 686, 694 (5th Cir. 1985).
1The district court cited Witham v. The James E. McAlpine, 96 F. Supp. 723 (E.D.
Mich. 1951) for the proposition that “[s]ervice on a captain of a ship . . . has long been the
equivalent of service on the corporation.”
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DISCUSSION
As a preliminary matter, FED. R. CIV. P. 64 and 69 provide that the law,
both substantive and procedural, of the state where the federal court sits
governs writs of garnishment unless a federal statute provides otherwise. The
parties have briefed Texas law and have not called attention to any applicable
federal statute. Texas law also governs the alter ego determinations, which
bear on the exercise of jurisdiction over and proper service on FPMC and
FBMC. See Jackson v. Tanfoglio Giuseppe, S.R.L., 615 F.3d 579, 586-88 (5th
Cir. 2010) (applying state alter ego law to find lack of personal jurisdiction over
a non-resident); Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir.
1983) (noting that state law of the forum controls whether a defendant is
amendable to service through its alter egos under a long-arm statute). The
principal error by the district court in addressing the issues was its failure to
apply Texas law.
Separate appeals were filed by FPCA, on one hand, and FBMC and
FPMC on the other. The common issue raised by the Garnishees is whether
the district court erred in finding that they are all alter egos of each other.
Jurisdiction and service of process on FPMC and FBMC depend on the alter
ego findings. Other issues concern the district court’s failure to apply
substantive Texas law to the garnishment and its failure to dismiss FPCA as
required by Texas law when a garnishee files an uncontroverted affidavit
denying possession of any account subject to garnishment. We address these
points in turn.
I. Corporate Alter Ego
The district court found that “FPMC Brick Marine Corporation [the
owner of the M/V FPMC 19] and FBMC are alter egos of FPMC and thereby
of each other.” It also found that FPMC, FBMC, and FPCA are all alter egos
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of each other. As a result, the court held that service on the vessel masters
was sufficient to serve all of the entities, and that FPCA’s failure to challenge
personal jurisdiction could be imputed to FPMC and FBMC. These findings of
alter ego, which did not cite a single supporting case, were erroneous.
Texas law recognizes that the corporate form can be disregarded in
certain circumstances. See Castleberry v. Branscum, 721 S.W.2d 270, 272-73
(Tex. 1986). One of the bases for doing so is the alter ego doctrine, whereby “a
corporation is organized and operated as a mere tool or business conduit of
another corporation.” Id. at 272. Proof of imputed contacts or an alter ego
relationship may be the basis for exercising jurisdiction over a non-resident
defendant. See BMC Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 798
(Tex. 2002); see also Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1160 (5th
Cir. 1983).
The Texas Supreme Court has “acknowledged that jurisdictional veil-
piercing and substantive veil-piercing involve different elements of proof”
given that jurisdiction implicates due process considerations that cannot be
overridden by statutes or common law. PHC-Minden, L.P. v. Kimberly-Clark
Corp., 235 S.W.3d 163, 174-75 (Tex. 2007). 2 The court outlined the following
factors relevant for jurisdictional veil-piercing: 3
2 For this reason, some alter ego cases cited by the parties are inapposite because they
recite factors to consider in substantive veil piercing rather than jurisdictional veil piercing.
E.g. United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir. 1985) (the “laundry
list” factors).
3 The law in this area addresses parent-subsidiary corporations, but it is applicable to
other intracorporate relationships as well. The parties discuss the relationships among the
entities in this case as if FPCA is the parent of both FBMC and FPMC, and the district court
found that FPMC is the parent of FBMC and FPMC Brick Marine Corporation. It is unclear
from the record what the actual relationships are.
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To “fuse” the parent company and its subsidiary for jurisdictional
purposes, the plaintiffs must prove the parent controls the internal
business operations and affairs of the subsidiary. But the degree
of control the parent exercises must be greater than that normally
associated with common ownership and directorship; the evidence
must show that the two entities cease to be separate so that the
corporate fiction should be disregarded to prevent fraud or
injustice.
PHC-Minden, 235 S.W.3d at 175 (quoting BMC Software, 83 S.W.3d at 799).
Other factors to consider are “the amount of the subsidiary's stock owned by
the parent corporation, the existence of separate headquarters, the observance
of corporate formalities, and the degree of the parent's control over the general
policy and administration of the subsidiary.” Id. (citing 4A WRIGHT & MILLER,
FEDERAL PRACTICE & PROCEDURE § 1069.4). However, “[a] subsidiary
corporation will not be regarded as the alter ego of its parent merely because
of stock ownership, a duplication of some or all of the directors or officers, or
an exercise of the control that stock ownership gives to stockholders.” Id.
(quoting Gentry v. Credit Plan Corp. of Houston, 528 S.W.2d 571, 573 (Tex.
1975)). There must be a “plus factor, something beyond the subsidiary’s mere
presence within the bosom of the corporate family.” Id. at 176 (quoting Dickson
Marine, Inc. v. Panalpina, Inc., 179 F.3d 331, 338 (5th Cir. 1999)). Not
pertinent to jurisdictional veil piercing analysis, however, are allegations of
fraud 4 and a common name among the entities. Id. at 175.
4 Garnishees are thus incorrect to stress that fraud is necessary in order to find alter
ego for jurisdictional purposes.
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In this case, the district court found an alter ego 5 relationship among
FPMC Brick Marine Corporation (the owner of the M/V FPMC 19), FBMC,
and FPMC because: (1) FPMC operated the MV FPMC 19; (2) FPMC Brick
Marine Corporation and FBMC are both owned by FPMC; 6 (3) ship operations
are performed out of FPMC’s office; (4) FPMC lists the vessels on its website
even though “nominally owned” by other entities; and (5) FPMC’s
organizational chart indicates that the master of each vessel reports to FPMC.
It also found that FPCA, FBMC, and FPMC (all of the Garnishees) are alter
egos of each other because: (1) all of the entities report to and are run by the
same founder; (2) they share a group administrative office that combines
several functions together; and (3) management of the entities is controlled at
the “Formosa Plastics Group level.” 7 Plaintiffs repeat these conclusions on
appeal and cite portions of the record that consist of their own statements as
to these “facts.”
The court relied almost exclusively on two “organizational charts”
submitted by Plaintiffs (taken from Garnishees’ website) in finding alter ego.
5 The district court actually seemed to apply the single business entity theory for
piercing the jurisdictional veil, not the alter ego theory. See Castleberry, 721 S.W.2d at 272
(“Many Texas cases have blurred the distinction between alter ego and the other bases for
disregarding the corporate fiction and treated alter ego as a synonym for the entire doctrine
of disregarding the corporate fiction.”); see also Goodyear Dunlop Tires Ops., S.A. v. Brown,
131 S. Ct. 2846, 2857 (2011) (declining to address single business entity argument). The
single business entity theory would pierce the veil “when two or more corporations associate
together and, rather than operate as separate entities, integrate their resources to achieve a
common business purpose.” S. Union Co. v. City of Edinburg, 129 S.W.3d 74, 86 (Tex. 2003)
(internal quotation and citation omitted). The Texas Supreme Court has never endorsed this
theory in any context. PHC-Minden, 235 S.W.3d at 173.
6 It is unclear how the district court found this, as the page in the record it cites to for
this proposition does not so indicate.
7 It is unclear what this level is as there is no entity called “Formosa Plastics Group.”
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The first chart apparently shows the internal reporting structure of FPMC and
the second purports to show the various levels of ownership of the entities. The
charts are not probative.
First, the charts do not actually depict corporate structure. There is no
indication of ownership; they do not indicate which entity owns what, which
entities are parents, or subsidiaries, or brother/sister. Nor is it even clear that
the “entities” on the chart are formal entities, because they have no corporate
form designations. Normal organizational charts make distinctions for, e.g.,
corporations, LLC’s, disregarded entities, or foreign entities. Further,
Garnishees FPCA and FBMC are not even represented on the charts.
Second, the charts do not show the functional relationship among the
entities. “In determining whether an alter ego relationship exists, the court
should focus on the relationship between the corporation and the entity or
individual that allegedly abused corporate formalities.” Zahra Spiritual Trust
v. United States, 910 F.2d 240, 245 (5th Cir. 1990) (citing Castleberry,
721 S.W.2d at 272). As Garnishees correctly put it, the organizational charts
are “irrelevant because they are not probative of the issue of alter ego. They
show only the structure, but not the relationships between the Formosa
entities.” They do not indicate any “plus factor” that entails “something beyond
the subsidiary’s mere presence within the bosom of the corporate family.”
PHC-Minden, 235 S.W.3d at 176. At best, they demonstrate mere affiliation,
which is insufficient to pierce the veil, or common names, which are irrelevant
to jurisdictional veil piercing. They do not even appear to show that the
entities share common functions; the “Group Administration” boxes report to
the Execupive [sic] Board, but there is no indication that these functions are
performed for the entities listed on the chart. In no way do these descriptions
suggest control “greater than that normally associated with common
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ownership and directorship” or that the “entities cease to be separate so that
the corporate fiction should be disregarded to prevent fraud or injustice.” PHC-
Minden, 235 S.W.3d at 175.
In sum, the charts are not evidence that satisfies the tests endorsed by
the Texas Supreme Court for jurisdictional veil piercing. The district court’s
findings of alter ego were clearly erroneous. Because this means that neither
FBMC nor FPMC was effectually served with process, nor can personal
jurisdiction be asserted over these entities based on an alter ego relationship
with FPCA, we must remand with instructions to dismiss the garnishment
proceeding against FBMC and FPMC.
II. District Court’s Exercise of Quasi in Rem Jurisdiction
"Quasi in rem actions are based on a claim for money begun by
attachment or other seizure of property when the district court has no
jurisdiction over the person of the [judgment] defendant, but has jurisdiction
over either property that the court can apply to the satisfaction of the
defendant's debt or persons who themselves owe an obligation to the defendant
that the court can apply to the satisfaction of the debt." Stena Rederei AB v.
Comision de Contratos del Comite Ejecutivo General del Sindicato
Revolucionario de Trabajadores Petroleros de la Republica Mexicana, S.C.,
923 F.2d 380, 391 (5th Cir. 1991) (citation omitted). The district court here
relied several times on its finding that "[t]he Formosa Entities were served
with writs of garnishment while in the state" to support its exercise of quasi in
rem jurisdiction over the debt owed to Curacao. It is unclear on which basis
the court predicated quasi in rem jurisdiction: whether it emanated from
service of process or personal jurisdiction based on alleged alter ego status of
FBMC or FPMC, or on the debt itself being "found" in Texas. For good reason,
the Garnishees challenge any quasi in rem jurisdiction.
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To the extent that the court believed it could exercise jurisdiction over
the debt via the persons of the Garnishees, it was misguided. Our previous
discussion eliminates quasi in rem jurisdiction on this basis.
Alternatively, the "presence" of the debt in Texas might provide a basis
for the exercise of jurisdiction over it for the Plaintiffs' benefit. See Shaffer v.
Heitner, 433 U.S. 186, 207, 97 S. Ct. 2569, 2581 (1977) ("[P]resence of property
in a State may bear on the existence of jurisdiction by providing contacts
among the forum State, the defendant, and the litigation."). Setting aside due
process minimum contacts concerns, the prerequisite to this theory is a
determination under state law that the debt (or other property) is actually
found in the state. Rush v. Savchuk, 444 U.S. 320, 328 n.14, 100 S. Ct. 571,
577 n.14 (1980); see also United States Rubber v. Poage, 297 F.2d 670, 674 (5th
Cir. 1962). Texas allows attachment or garnishment only of a debt whose situs
is within the jurisdiction of the court. T.&H. Smith & Co. v. Taber, 40 S.W.
156, 157 (Tex. Civ. App. 1897); see also Wirt Franklin Petrol. Co. v. Gruen,
139 F.2d 659, 660 (5th Cir. 1944) ("Garnishment is in the nature of a
proceeding in rem, as to which the situs of the res is generally determinative
for purposes of jurisdiction."). The situs of the debt under Texas law is either
the domicile of the creditor, Gerlach Merc. Co. v. Hughes-Bozarth-Anderson
Co., 189 S.W. 784, 788 (Tex. Civ. App. Amarillo 1916), or wherever the debtor
may be found. T&H.Smith, 40 S.W. at 157. The first condition is inapplicable
here, and the second is a reprise of the failed attempts to serve or find personal
jurisdiction over FBMC or FPMC in Texas. Consequently, the debt to Curacao
was not "found" in Texas.
III. Discharge of FPCA as Garnishee
At the outset, we noted that federal courts must follow state procedural
and substantive law relating to garnishments. In Texas, a putative garnishee
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may file an answer to the writ of garnishment served on him. See TEX. R. CIV.
P. 665. The garnishee’s answer “shall be under oath, in writing and signed by
him, and shall make true answers to the several matters inquired of in the writ
of garnishment.” Id. If either the plaintiff or the defendant is not satisfied
with the garnishee’s answer, “he may controvert the same by his affidavit
stating that he has good reason to believe, and does believe, that the answer of
the garnishee is incorrect.” TEX R. CIV. P. 673. In the absence of a
controverting affidavit, it is presumed that the garnishee’s answer is true.
Snyder Nat. Bank v. Pinkston, 219 S.W.2d 606, 607 (Tex. Civ. App. Dallas
1949).
If the garnishee’s answer goes uncontroverted, the court must enter
judgment discharging the garnishee when it appears from the answer that:
(1) the garnishee is not indebted to the defendant and was not so indebted
when served with the writ of garnishment; (2) the garnishee does not possess
any effects of the defendant and had not possessed any when the writ was
served; and (3) the garnishee has either denied knowledge of any other persons
indebted to the defendant or possessing effects belonging to the defendant or
else has named such persons. TEX R. CIV. P. 666. This rule is jurisdictional;
the trial court has no authority to proceed against the garnishee other than to
discharge him on his answer. Goodson v. Carr, 428 S.W.2d 875, 879 (Tex. Civ.
App. Houston 1968). Thus, if the garnishee’s answer denies indebtedness and
is uncontroverted, the garnishee must be dismissed from the action. Gray v.
Armour & Co., 104 S.W.2d 486, 487 (Tex. Comm’n App. 1937, opinion adopted);
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J.C. Hadsell & Co., Inc. v. Allstate Ins. Co., 516 S.W.2d 211, 213-14 (Tex. Civ.
App. Texarkana 1974); Snyder, 219 S.W.2d at 607. 8
In this case, FPCA filed a verified answer to the writ of garnishment that
was under oath, in writing, and (1) denied indebtedness to Curacao, (2) denied
possession of Curacao’s effects, and (3) denied knowledge of other persons so
indebted. FPCA subsequently moved for discharge after its answer went
uncontroverted. Plaintiffs’ unsworn response to this motion cannot be
construed as controverting the answer as required by Texas law; the response
merely restated plaintiffs’ contentions that the Garnishees are alter egos of
each other without controverting that FPCA was not indebted to Curacao.
FPCA should have been discharged.
CONCLUSION
For the foregoing reasons, the final judgment of garnishment against
FBMC, FPMC, and FPCA is REVERSED and the case is REMANDED with
instructions to DISMISS. The funds in the registry of court, together with
interest thereon, must be DISBURSED to FBMC.
8 Further, “[w]here the garnishee is discharged upon his answer, the costs of the
proceeding, including a reasonable compensation to the garnishee, shall be taxed against the
plaintiff.” TEX. R. CIV. P. 677. Costs include attorney fees, J.C. Hadsell, 104 S.W.2d at 213-
14, but FPCA waived any such claim by failing to assert it.
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