Deardorff v. Cellular Sales of Knoxville, Inc.

MEMORANDUM

MARSTON, J.

On June 18, 2019, Plaintiffs Jessica Deardorff and David Chapman, on behalf of themselves and all others similarly situated, filed this class action lawsuit against Defendants Cellular Sales of Knoxville, Inc. (“CSOKI”), Cellular Sales of Pennsylvania (“CSPA”), and Cellular Sales of North Carolina, LLC (“CSNC”). Plaintiffs allege that Defendants failed to pay them proper overtime compensation in violation of the Fair Labor Standards Act (“FLSA”) and equivalent state statutes. (Doc. No. 33.)

In September 2019, CSPA moved to compel individual arbitration of Deardorff's claims and to dismiss or transfer Chapman's and the opt-in Plaintiffs' claims. (Doc. Nos. 12, 43.) Shortly thereafter, in November 2019, CSOKI and CSNC moved to dismiss all claims for lack of personal jurisdiction. (Doc. No. 65.) On August 25, 2020, the Court dismissed CSNC as a Defendant and found that limited jurisdictional discovery was appropriate to determine whether this Court may exercise personal jurisdiction over CSOKI. (Doc. Nos. 133-34.)^[1] After the

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parties engaged in limited jurisdictional discovery, on January 12, 2021, Plaintiffs filed a supplemental brief opposing Defendants' motion to dismiss CSOKI for lack of personal jurisdiction (Doc. No. 142). In their supplemental brief, Plaintiffs now argue that this Court may exercise personal jurisdiction over CSOKI under the alter ego theory-i.e., CSPA (an entity that is undisputedly subject to this Court's personal jurisdiction) and CSOKI's other subsidiaries act as alter egos of CSOKI within this forum. (Id.) Defendants disagree. (Doc. No. 147.)

About a month later, Plaintiffs filed a motion for leave to file a second amended complaint, in which they seek to add Cellular Sales Management Group, LLC (“CSMG”) and Cellular Sales Services Group, LLC (“CSSG”) as defendants. (Doc. No. 146.) Defendants oppose the motion. (Doc. No. 148.)

For the reasons discussed below, the Court grants CSOKI's motion to dismiss for lack of personal jurisdiction and denies Plaintiffs' motion to amend.

I. Discussion

A. Motion to Dismiss for Lack of Personal Jurisdiction

First, the Court turns to CSOKI's motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). As this Court explained previously, Plaintiffs bear the burden of establishing that personal jurisdiction over CSOKI is proper and must do so with competent evidence.^[2] Deardorff v. Cellular Sales of Knoxville, Inc., Civil

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Action No. 19-2642-KSM, 2020 WL 5017522, at *2 (E.D. Pa. Aug. 25, 2020).^[3] This Court found that Plaintiffs failed to meet their burden of establishing a prima facie case of personal jurisdiction as to CSOKI. See generally Id. However, given the liberal standard in this Circuit for jurisdictional discovery, the Court permitted Plaintiffs to take limited jurisdictional discovery. Id. at *7-9 (explaining that Plaintiffs could seek limited jurisdictional discovery related to: (1) any records showing that CSOKI or its agents are registered in Pennsylvania and conduct business in that state, either under the name CSOKI, or other names, and (2) CSOKI's corporate structure to discern whether individuals or divisions tasked with creation, implementation and oversight of the challenged policies sit and conduct operations in this forum).

Following jurisdictional discovery, Plaintiffs filed a supplemental memorandum opposing CSOKI's motion to dismiss for lack of personal jurisdiction. (Doc. No. 142.) Plaintiffs argue that this Court may exercise personal jurisdiction over CSOKI (the parent holding company) pursuant to the alter ego theory, since it is undisputed that this Court already has personal jurisdiction over CSPA (the subsidiary). (Id.) Plaintiffs assert that CSOKI- through two of its other wholly owned subsidiaries, CSSG and CSMG-exercises control over CSPA's day-to-day operations. (Id.) In response, CSOKI maintains that because it is simply a holding company and does not conduct business operations, does not conduct sales or provide

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any products or other services, and does not have employees, the alter ego doctrine is inapplicable and this Court cannot exercise personal jurisdiction over it. (Doc. No. 147.)

1. Alter Ego Legal Standard

“A court exercises personal jurisdiction over a parent corporation through its personal jurisdiction over a subsidiary by way of the alter ego theory.” Lutz v. Rakuten, Inc., 376 F.Supp.3d 455, 470 (E.D. Pa. 2019); see also Atl. Pier Assocs., LLC v. Boardakan Rest. Partners L.P., Civil Action No. 08-4564, 2010 WL 3069607, at *3 (E.D. Pa. Aug. 2, 2010) (“It is well settled that a court may exercise personal jurisdiction . . . over a corporate entity that is the alter ego of a party over which jurisdiction is proper.”). Under the alter ego theory, “if a subsidiary is merely the agent of a parent corporation, or if the parent corporation otherwise ‘controls' the subsidiary, then personal jurisdiction exists over the parent whenever personal jurisdiction (whether general or specific) exists over the subsidiary.” Shuker v. Smith & Nephew, PLC, 885 F.3d 760, 781 (3d Cir. 2018). “[T]he alter ego test looks to whether the degree of control exercised by the parent is greater than normally associated with common ownership and directorship and whether the parent controls the day-to-day operations of the subsidiary such that the subsidiary can be said to be a mere department of the parent.” In re Enterprise Rent-A-Car Wage & Hour Emp't Pracs. Litig., 735 F.Supp.2d 277, 319 (W.D. Pa. 2010), aff'd, 683 F.3d 462 (3d Cir. 2012) (“In re Enterprise”); see also Reynolds v. Turning Point Holding Co., Case No. 2:19-cv-01935-JDW, 2020 WL 953279, at *3 (E.D. Pa. Feb. 26, 2020) (cleaned up). There is “a ‘strong presumption' against . . . deeming companies alter-egos of each other.” Reynolds, 2020 WL 953279, at *3 (citations omitted).

Courts in this Circuit consider ten factors to determine whether a subsidiary is the alter ego of its parent:

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(1) the parent owns all or a significant majority of the subsidiary's stock; (2) common officers and directors (3) a common marketing image; (4) common use of a trademark or logo; (5) common use of employees; (6) integrated sales system; (7) interchange of managerial and supervisory personnel; (8) the subsidiary performs business functions that would ordinarily be handled by a parent corporation; (9) the subsidiary acts as the marketing arm of the parent corporation or as an exclusive distributor; and (10) the parent exercises control or provides instruction to the subsidiary's officers and directors

See In re Chocolate Confectionary Antitrust Litig., 674 F.Supp.2d 580, 598 (M.D. Pa. 2009) (“In re Chocolate”); Lutz, 376 F.Supp.3d at 471; Atl. Pier Assocs., 2010 WL 3069607, at *3. “No one aspect of the relationship between two corporations unilaterally disposes of the analysis, and the court may consider any evidence bearing on the corporations' functional interrelationship.” In re Chocolate, 674 F.Supp.3d at 598.

2. Analysis

The Court finds that the first four factors point towards a finding that CSPA is an alter ego of CSOKI. However, the remaining six factors cut the other way. Therefore, the Court concludes that Plaintiffs have failed to show that CSPA is an alter ego of CSOKI. We address each factor in turn.

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Factor 1.

Because CSPA is a wholly owned subsidiary of CSOKI (Doc. No. 65-3 at ¶ 6; Doc. No. 142-5 at 124:20-22, 132:18-20), the first factor weighs in favor of a finding of alter ego.

Factor 2.

The second factor looks to whether the parent and subsidiary share common officers. Pamela White is an officer of both CSOKI and CSPA. (Doc. No. 65-3 at ¶¶ 2-3.) Specifically, she is the Chief Financial Officer, Vice President, and Secretary of CSOKI and the President, Treasurer, and Secretary of CSPA. (Id.) As other courts in this Circuit have noted, however, this kind of overlap is to be expected in a subsidiary-parent relationship. See, e.g., In

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re Latex Gloves Prods. Liab. Litig., No. MDL 1148, 2001 WL 964105, at *4 (E.D. Pa. Aug. 22, 2001) (“Where a parent company constitutes one hundred percent of the stockholders of the subsidiary, it is to be expected that there will be directors which are common to the boards of both. Moreover, it is a well established principle of corporate law that directors and officers holding positions with a parent and its subsidiary can and do ‘change hats' to represent the two corporations separately, despite their common ownership.” (cleaned up)); In re Enterprise, 735 F.Supp.2d at 322-23 (“[T]he sharing by the corporations of directors and the ownership by defendant parent of one-hundred percent of ERAC-Pittsburgh's stock do not implicate [sic] that defendant parent controlled the subsidiary to the extent necessary to find that ERAC-Pittsburgh is an alter ego of the parent. A degree of control naturally flows from these aspects of the parent-subsidiary relationship, but this incidental control does not rise to the level required to permit the exercise of jurisdiction over the parent.”).

Moreover, Plaintiffs do not present any evidence that CSOKI and CSPA have any other officers or directors in common, so the Court concludes that while this factor weighs in favor of finding alter ego, it should be given minimal weight. As illustrated in Tables 1 and 2 below, CSOKI only has two board members, Dane Scism and Margaret Scism, neither of whom serve on the board of CSPA or serve in any officer capacity for CSPA. (Doc. No. 147-2 at ¶¶ 27, 30.) CSPA has a separate Board of Managers, which consists of James Thome and White. (Id. at ¶ 29.) And CSPA's only officers are White, Reese Thomas, Joel...