Chis, LLC v. Liberty Mut. Holding Co.

CHIS, LLC, Individually and on Behalf of All Others Similarly Situated, Plaintiff, v. LIBERTY MUTUAL HOLDING COMPANY INC., et al., Defendants.

CIVIL ACTION NO. 5:14-CV-277 (MTT)

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA MACON DIVISION

July 13, 2015

ORDER

Defendants Liberty Mutual Group, Inc. ("LMGI") and Liberty Mutual Insurance Co. ("LMIC") have moved to dismiss the claims against them for failure to state a claim (Doc. 15) and Defendant Liberty Mutual Holding Company Inc. ("LMHC") has moved to dismiss the claims against it for lack of personal jurisdiction or, alternatively, for failure to state a claim (Doc. 16). For the following reasons, the motions are GRANTED.

I. BACKGROUND

Plaintiff CHIS, LLC seeks relief on behalf of itself and others similarly situated for the Defendants' alleged refusal to assess and pay damages for diminution in value when claims are made under their business or commercial property insurance policies. CHIS alleges it "timely reported a claim for direct physical loss to its building resulting from water damage" but that, in violation of Georgia law and in breach of their insurance policy with CHIS, the Defendants failed to assess and pay damages for diminution inthe value of CHIS's property. (Doc. 36, ¶ 2).¹ CHIS has asserted a claim for breach of contract and a claim for declaratory relief.

CHIS's insurance policy was issued by Defendant Peerless Indemnity Insurance Company,² but CHIS seeks to hold Defendants LMGI, LMIC, and LMHC liable based on an alter ego, agency, and/or joint venture theory. LMGI and LMIC have moved to dismiss for failure to state a claim upon which relief can be granted, contending the complaint does not sufficiently allege a basis for holding them liable, and LMHC has moved to dismiss for lack of personal jurisdiction. CHIS asserts this Court has personal jurisdiction over LMHC for the same reasons it contends liability is proper: based on an alter ego, agency, and/or joint venture theory.

The allegations pertaining to alter ego, agency, and joint venture are as follows:

11. LMHC operates primarily through four business units: (1) Commercial Insurance; (2) Personal Insurance; (3) Global Specialty; and (4) Liberty International. These business units utilize various trade names and trademarks, such as "Liberty Mutual Insurance" and "Peerless Insurance." Each of these business units market and underwrite insurance policies issued by the numerous insurance entities owned or controlled by LMHC. LMHC, its various business units, and the various insurance entities it owns and/or operates are hereinafter sometimes referred to collectively as "Liberty Mutual."

12. LMGI is a subsidiary of LMHC.

13. LMIC is a member company and subsidiary of LMHC.

14. LMHC is the ultimate parent company of Peerless.

15. Peerless is controlled by LMHC.

16. Peerless is a subsidiary or affiliated insurer of LMGI.

17. Peerless is controlled by LMGI.

18. Peerless markets and underwrites insurance policies issued by certain LMGI stock insurance companies and affiliated insurers, including LMIC.

19. Peerless is controlled by LMIC.³

20. Upon information and belief, at all relevant times herein, each Defendant acted in all aspects as agent, apparent agent, and alter ego for each other Defendant and as agent, apparent agent, and alter ego of their ultimate parent company, LMHC.

21. Upon information and belief, at all relevant times herein, each Defendant was engaged in a joint venture with each other Defendant.

22. Defendants share and have in common several officers and directors.

23. Defendants have a common administrative or principal place of business located at 175 Berkeley Street, Boston, Massachusetts 02166.

24. Defendants coordinate and commingle financial and other resources by making financial transactions between each other, by filing consolidated federal income tax returns, by issuing consolidated financial statements, and by other means. The consolidated financial statements issued by DefendantLiberty Mutual Holding Company, Inc. include affiliated entities over which it exercises control, including LMIC and LMGI.

25. Defendants all operate and trade under the common name of Liberty Mutual and use the same logo to identify and promote their business. The cover page of the Policy and the Premium Notice issued to Plaintiff displays the Liberty Mutual logo and name.

26. Through the Premium Notice, Plaintiff was instructed to make payments due under the Policy to "Liberty Mutual Insurance." Plaintiff therefore made payments due under the Policy payable to "Liberty Mutual Insurance."

27. Defendants' actions are sufficient to find that there is an amalgamation of each of the Defendants.

(Doc. 36, ¶¶ 11-27).

II. DISCUSSION

A. LMGI and LMIC's Motion

1. Legal Standard

To avoid dismissal pursuant to Fed. R. Civ. P. 12(b)(6), a complaint must contain sufficient factual matter to "'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "At the motion to dismiss stage, all well-pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff." Garfield v. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir. 2006) (internal quotation marks and citation omitted). However, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, thecomplaint has alleged—but it has not 'show[n]'—'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)(2)). "[C]onclusory allegations, unwarranted deductions of facts or legal conclusions masquerading as facts will not prevent dismissal." Oxford Asset Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188 (11th Cir. 2002). The complaint must "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Twombly, 550 U.S. at 555 (internal quotation marks and citation omitted). Where there are dispositive issues of law, a court may dismiss a claim regardless of the alleged facts. Marshall Cnty. Bd. of Educ. v. Marshall Cnty. Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).

2. Alter Ego

CHIS contends LMGI and LMIC are liable for Peerless's alleged breach of contract on an alter ego theory. "Under the alter ego doctrine, equitable principles are used to disregard the separate and distinct legal existence possessed by a corporation where it is established that the corporation served as a mere alter ego or business conduit of another." Kissun v. Humana, Inc., 267 Ga. 419, 419-20, 479 S.E.2d 751, 752 (1997). "[G]reat caution should be exercised by the court," however. Amason v. Whitehead, 186 Ga. App. 320, 321, 367 S.E.2d 107, 108 (1988).

In order to disregard the corporate entity because a corporation is a mere alter ego or business conduit of a person, it should have been used as a subterfuge so that to observe it would work an injustice. To prevail based upon this theory it is necessary to show that the shareholders disregarded the corporate entity and made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist. The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has over extended his privilege in the use of a corporate entity in order to defeat justice, perpetuate fraud or to evade contractual or tort responsibility.

Baillie Lumber Co. v. Thompson, 279 Ga. 288, 289-90, 612 S.E.2d 296, 299 (2005) (citation omitted). Thus, Georgia courts disregard the corporate form if: (1) the corporation is a "mere instrumentality" of the parent company or the shareholders, and (2) to observe the corporate form would "work an injustice." See Ralls Corp. v. Huerfano River Wind, LLC, 27 F. Supp. 3d 1303, 1328 (N.D. Ga. 2014); Fla. Shade Tobacco Growers, Inc. v. Duncan, 150 Ga. App. 34, 34, 256 S.E.2d 644, 644 (1979).

Because it is an equitable doctrine, piercing the corporate veil to hold a parent company or shareholder liable "is appropriate[ ] ... only in the absence of adequate remedies at law." Baillie Lumber Co., 279 Ga. at 290, 612 S.E.2d at 299. Thus, the Georgia Supreme Court has held it is required, "as a precondition to a plaintiff's piercing the corporate veil and holding individual shareholders liable on a corporate claim, that there be insolvency on the part of the corporation in the sense that there are insufficient corporate assets to satisfy the plaintiff's claim." Johnson v. Lipton, 254 Ga. 326, 327, 328 S.E.2d 533, 535 (1985). Following that holding, federal courts applying Georgia law have concluded a corporate defendant must be insolvent or have insufficient assets to satisfy the plaintiff's claim before the plaintiff can pierce the corporate veil to hold a parent company or shareholder liable. See B & F Sys., Inc. v. LeBlanc, 2011 WL 4103576, at *34 (M.D. Ga.); Friedman's, Inc. v. Morgan Schiff & Co. (In re Friedman's), 385 B.R. 381, 414-15 (S.D. Ga.), vacated in part by 396 B.R. 623 (S.D. Ga. 2008); Adams v. Unum Life Ins. Co. of Am., 508 F. Supp. 2d 1302, 1315 (N.D. Ga. 2007); Perry v. Unum Life Ins. Co. of Am., 353 F. Supp. 2d 1237, 1240 (N.D. Ga. 2005).

LMGI and LMIC contend the allegations of their control over Peerless are conclusory, and thus, CHIS cannot meet the first prong of the alter ego test. ThoughCHIS does allege in conclusory fashion that LMGI and LMIC exert control over Peerless, it has alleged additional supporting facts. For example, it has alleged that the Defendants issue consolidated financial statements; file consolidated federal income tax returns; have in common several officers and directors; share a common office; operate and trade under the common name of "Liberty Mutual" and use the same logo to identify and promote their business; and that Peerless...