Nat'l Steel Car Ltd. v. Greenbrier Cos.

NATIONAL STEEL CAR LIMITED,A CANADIAN CORPORATION, Plaintiff, v. THE GREENBRIER COMPANIES, INC., Defendant.

CIVIL ACTION 6:19-cv-00721-ADA

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS WACO DIVISION

July 27, 2020

ORDER GRANTING DEFENDANT'S MOTION TO TRANSFER

Came on for consideration this date the Motion of Defendant The Greenbrier Companies, Inc. ("GCI"), to dismiss or, in the interest of justice, transfer the case. ECF No. 18. Plaintiff National Steel Car Limited ("NSC") filed responsive and supplemental briefings. ECF No. 22; ECF No. 45. Similarly, GCI filed responsive and supplemental briefings. ECF No. 23; ECF No. 48; ECF No. 51. The Court held a hearing on the motion on July 23, 2020.

The Court is once again asked to examine if a heavy burden has been carried in order to transfer a case out of this judicial district. In order to not dismiss this case, the Court must find that the line between GCI and its subsidiaries have so blurred that the two become one. The apple of the Court's eye has always been the faithful and consistent execution of the law. As such, the Court once again finds that the heavy burden has not been carried by clear support; therefore, after careful consideration, the Court GRANTS Defendant's motion to transfer.

I. Factual Background and Procedural History

NSC brings this claim alleging patent infringement by GCI of U.S. Patent Nos. 7,434,519, ("the '519 Patent") and 7,878,125 ("the '125 Patent") (collectively, "the patents-in-suit"). Compl. ¶ 8, ECF No. 1. Both patents-in-suit are entitled "railroad freight car" and relate "to the field of railroad freight cars." Id. ¶¶ 9-10; '519 Patent Ex. A, col. 1:5, ECF No. 1-1; '125 Patent Ex. B, col. 1:13, ECF No. 1-2. NSC claims GCI infringed the patents-in-suit by having "manufactured, used, offered for sale, sold and/or imported into the United States railroad gondola cars covered by one or more claims of the Patents-In-Suit." Compl. ¶ 11, ECF No. 1.

NSC "is a corporation organized and existing under the laws of Canada." Id. ¶ 2. GCI "is a corporation organized and existing under the laws of the State of Oregon." Id. ¶ 3. GCI "is a publicly-traded holding company that designs, manufactures, leases, sells, and repairs railcars through no fewer than 25 wholly-owned subsidiaries." Def.'s Suppl. Br. in Supp. of Mot. at 2, ECF No. 48. NSC argues that two of these subsidiaries are alter egos of GCI. Pl.'s Resp. in Opp'n to Def.'s Mot. at 4, ECF No. 22. Specifically, NSC alleges that both Greenbrier Rail Services Holdings, LLC ("GRSH") and Gunderson Rail Services, LLC ("GRS") (collectively, "the GCI subsidiaries") are alter egos of GCI. Id. at 5, 9.

GCI files this motion to dismiss or transfer, arguing that venue is improper under 28 U.S.C. 1400(b). Def.'s Mot. at 1, ECF No. 18. NSC alleges that GCI "has a regular and established place of business in [the Western District of Texas] at 497 South Tayman St., San Antonio, Texas 78226," (hereinafter, "the San Antonio Property"). Compl. ¶ 3, ECF No. 1. At the time of filing, the San Antonio Property was leased by GRSH and used by GRS to perform its business operations. Pl.'s Resp. at 5, ECF No. 22; Turner Suppl. Decl. ¶¶ 3, 10 ECF No. 50. In February 2020, after the filing of the complaint, the GCI subsidiaries were combined into one corporate entity. Turner Suppl. Decl. ¶ 4, ECF No. 50. NSC alleges that at the time of filing, the Court may find venue proper by considering the San Antonio property and imputing the property to GCI under an alter-ego theory. Pl.'s Resp. at 5, 9, ECF No. 22.

II. Legal Standard

28 U.S.C. § 1400(b) constitutes "the exclusive provision controlling venue in patent infringement proceedings." TC Heartland LLC v. Kraft Foods Group Brands LLC, 137 S. Ct. 1514, 1517 (2017) (quoting Stonite Products Co. v. Melvin Lloyd Co., 315 U.S. 561, 563 (1942)). Whether venue is proper under § 1400(b) and which party bears the "burden of persuasion on the propriety of venue" are issues "unique to patent law and [are thus] governed by Federal Circuit law." In re ZTE (USA) Inc., 890 F.3d 1008, 1012-13 (Fed. Cir. 2018). The Federal Circuit has held that the "[p]laintiff bears the burden of establishing proper venue" under 28 U.S.C. §1400(b). Id. at 1013. Section 1400(b) provides that "[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." In re Cray Inc., 871 F.3d 1355, 1360 (Fed. Cir. 2017) (quoting 28 U.S.C. § 1400(b)).

"A domestic corporation 'resides' only in its State of incorporation for purposes of the patent venue statute." TC Heartland LLC, 137 S. Ct. at 1517. The patent venue statute has three general requirements to establish that the defendant has a regular and established place within the judicial district. In re Cray Inc., 871 F.3d at 1360. Those requirements are that "(1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant." Id. For a "regular and established place of business" to be a "place of the defendant," several considerations apply, such as "whether the defendant owns or leases the place, or exercises other attributes of possession or control over the place." Id. at 1363.

To impute the property of a subsidiary to the defendant under an alter ego theory, the lines between the defendant and the subsidiary must become so blurred that the two become one. See Wapp Tech Ltd. P'shi v. Micro Focus Int'l, PLC, 406 F. Supp. 3d 585, 595 (E.D. Tex. 2019)."Because the alter ego issue is not unique to patent law, . . . court[s] appl[y] the law of the regional circuit." Insituform Techs., Inc. v. CAT Contracting, Inc., 385 F.3d 1360, 1380 (Fed. Cir. 2004). "Where a parent and subsidiary observe corporate formalities, the plaintiff has a heavy burden to establish a degree of control sufficient to impute the subsidiary's jurisdictional contacts to the parent." Adm'rs of Tulane Educ. Fund v. Ipsen, S.A., 450 Fed. App'x 326, 331 (5th Cir. 2011). Additionally, activities consistent with the parent's and subsidiary's relationship should not give rise to a finding of an alter ego. See United States v. Bestfoods, 524 U.S. 51, 72 (1998). However, "[t]he presumption of institutional independence of related corporate entities may be rebutted by 'clear evidence.'" Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327, 346 (5th Cir. 2004). A non-exhaustive list of factors courts may consider include: whether

(1) the parent and subsidiary have common stock ownership; (2) the parent and subsidiary have common directors or officers; (3) the parent and subsidiary have common business departments; (4) the parent and subsidiary file consolidated financial statements; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operated with grossly inadequate capital; (8) the parent pays salaries and other expenses of subsidiary; (9) the subsidiary receives no business except that given by the parent; (10) the parent uses the subsidiary's property as its own; (11) the daily operations of the two corporations are not kept separate; (12) the subsidiary does not observe corporate formalities.

Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 447 F.3d 411, 418 (5th Cir. 2006).

Ultimately, "there is no litmus test for determining whether a subsidiary is the alter ego of its parent." United States v. Jon-T Chems., Inc., 768 F.2d 686, 694 (5th Cir. 1985). Moreover, "[r]esolution of the alter ego issue is heavily fact-specific and, as such, is peculiarly within the province of the trial court. Id. If, after examining the relationship between the parent and subsidiary, a court finds venue is improper, then the court must dismiss, "or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a).

III. Analysis

NSC must meet its heavy burden of showing a sufficient degree of control by GCI to impute the GCI subsidiaries' property to GCI. See Adm'rs of Tulane Educ. Fund, 450 Fed. App'x at 331. NSC alleges they have "provided sufficient facts for at least a prima facie case" of alter ego status, relying heavily on the "substantial overlap of officers and executives." Pl.'s Suppl. Br. in Opp'n to Def.'s Mot. at 1, ECF No. 45. The Court has two initial matters to take up. First, the Court notes that NSC must do more than provide a prima facie showing, but rather NSC must rebut the presumption of institutional independence with clear evidence. Freudensprung, 379 F.3d at 346. Second, "the alter ego doctrine is an equitable remedy which prevents a company from avoiding liability by abusing the corporate form." Gardemal v. Westin Hotel Co., 186 F.3d 588, 594 (5th Cir. 1999). The Court is hesitant to allow plaintiffs to manufacture proper venue through the use of an equitable remedy. However, the Court acknowledges NSC's thorough analysis and understands that courts have used this doctrine to impute contacts in order to exercise personal jurisdiction. Nevertheless, the Court does not find "clear evidence" to rebut the "institutional independence of related corporate entities." See Freudensprung, 379 F.3d at 346.

A. Corporate Formalities

When the parent and subsidiary observe corporate formalities, a heavy presumption exists that the subsidiary is not an alter ego of the parent entity. Cf. Adm'rs of Tulane Educ., 450 Fed. App'x at 333 (not imputing the contacts of the subsidiary to the parent based on the heavy burden which exists when the corporate formalities are observed). Here the Court finds that GCI maintains its corporate formalities between itself and the GCI subsidiaries.

Both parties reference several agreements between GCI and GRS that show GCI's compliance with corporate formalities. The record...