Volume 17, Edition 12 cases

United States District Court,

D. New Jersey.

MARK IV TRANSPORTATION & LOGISTICS, INC., Plaintiff,

LIGHTNING LOGISTICS, LLC, et al., Defendants.

Civil Action No. 09–6480 (ES).

Filed Dec. 15, 2014.

MEMORANDUM OPINION & ORDER

SALAS, District Judge.

I. INTRODUCTION

*1 Pending before the Court is a motion to dismiss Plaintiff Mark IV Transportation & Logistics, Inc.’s (“Plaintiff” or “Mark IV”) Second Amended Complaint. (D.E. No. 130). Defendants Crosstown Courier, Inc. (“Crosstown”) and Scott Evatt (“Evatt”) (collectively “Defendants”) filed their motion to dismiss the Second Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) or, in the alternative, for summary judgment pursuant to Rule 56. (Id.).

This Court referred Defendants’ motion to the Honorable Michael A. Hammer, United States Magistrate Judge, pursuant to 28 U.S.C. § 636(b)(1)(B). On August 29, 2014, Magistrate Judge Hammer issued a Report and Recommendation (the “R & R”) that the undersigned grant Defendants’ motion to dismiss for lack of personal jurisdiction, and deny as moot the motions to dismiss under Rule 12(b)(6) and for summary judgment. (D.E. No. 138). Pursuant to 28 U.S.C. § 636(b) and Local Civil Rule 72.1(c)(2), the parties had fourteen days to file and serve any objections to the R & R. Plaintiff requested and received a two-week extension, (D.E.Nos.139, 140), and on September 26, 2014, filed Objections to the R & R, (D.E. No. 142, Plaintiff’s Objections (“Obj.”)).

After reviewing the record de novo, for the reasons set forth in the R & R and for the additional reasons set forth below, the Court adopts Magistrate Judge Hammer’s R & R and GRANTS Defendants’ motion to dismiss.

II. LEGAL STANDARD

“When a litigant files an objection to a Report and Recommendation, the district court must make a de novo determination of those portions to which the litigant objects.” Leonard Parness Trucking Corp. v. Omnipoint Commc’ns, Inc., No. 13–4148, 2013 WL 6002900, at *2 (D.N.J. Nov. 12, 2013) (citing 28 U.S.C. § 636(b)(1)(A), Fed.R.Civ.P. 72(b), and L. Civ. R. 72.1(c)(2)). “ ‘De novo review’ means the district court must consider the matter referred to a magistrate judge anew, as if it had not been heard before and as if no decision previously had been rendered.” 12 Fed. Prac. & Proc. Civ. § 3070.2 (2d ed.). Upon conducting de novo review, the district judge may “accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions.” Fed.R.Civ.P. 72(b)(3).

III. FACTUAL AND PROCEDURAL BACKGROUND

The Court provides the background of this action in summary fashion because the relevant factual and procedural background was set forth in this Court’s September 28, 2012 Opinion, (D.E. No. 76), and in Judge Hammer’s R & R, (D.E. No. 138). Briefly, Plaintiff is a New Jersey corporation with its principal place of business in Kearny, New Jersey. (D.E. No. 121, Second Amended Complaint, (“2d Am. Compl.”) ¶ 2). Lightning Logistics, LLC (“Lightning”) was formed as a Tennessee limited liability company on March 2, 2006, and its principal place of business was in Nashville, Tennessee. (Id. ¶¶ 3, 11). Lightning was owned and operated by Evatt and a colleague, Gregory O’Riordan. (Id. ¶ 12). Evatt is a resident of Tennessee and he also owns and operates Crosstown, a Tennessee corporation with its principal office located in Nashville, Tennessee. (Id. ¶¶ 5, 7, 17).

*2 On December 23, 2009, Plaintiff commenced this action against Lightning alleging claims for (1) collection of the amount due under a book account and (2) breach of contract, seeking approximately $100,758.67 for delivery services rendered. (D.E. No. 1, Complaint). Plaintiff added Crosstown and Evatt as Defendants via an Amended Complaint filed on February 2, 2011. (D.E. No. 10). A little over one year later, Crosstown and Evatt filed a motion to dismiss for lack of personal jurisdiction, (D.E. No. 55), which was ultimately granted by this Court on September 27, 2012, (D.E. No. 77). However, on October 22, 2013, after reviewing Plaintiff’s Motion for Reconsideration, (D.E. No. 80), this Court ordered that the Amended Complaint be reinstated as to Crosstown and Evatt and allowed Plaintiff to depose Evatt in his individual capacity and as a representative of Crosstown, (D.E. No. 120). Plaintiff filed a Second Amended Complaint on October 29, 2013, in which it specifically sought to pierce Lightning’s corporate veil and impose alter ego liability on Crosstown and Evatt. (2d Am.Compl.¶¶ 63–89). On February 20, 2014, Crosstown and Evatt moved to dismiss the Second Amended Complaint. (D.E. No. 130). As noted above, on August 29, 2014, Judge Hammer issued the R & R that the undersigned grant Defendants’ motion to dismiss for lack of personal jurisdiction, (D.E. No. 138), to which Plaintiff filed their Objection on September 26, 2014, (D.E. No. 142).

IV. DISCUSSION

In the R & R, Judge Hammer notes that Plaintiff is attempting to assert personal jurisdiction over Defendants by piercing the corporate veil of Lightning. (R & R at 10). Judge Hammer determines that Tennessee law applies to the corporate veil-piercing analysis, (id. at 11), and concludes that the evidence is not legally sufficient to pierce the corporate veil of Lightning to impose alter ego liability upon Defendants, (id. at 13–18).

Plaintiff objects to the R & R on six different grounds. First, Plaintiff objects to the R & R’s statement that “Plaintiff does not explain how piercing the corporate veil leads to personal jurisdiction in this case.” (Obj. at 2–3). Second, Plaintiff objects to the R & R’s application of Tennessee law to the veil-piercing analysis. (Id. at 3–4). Third, Plaintiff objects to the extent the R & R applied the wrong legal standard to the claim against Evatt. (Id. at 4). Fourth, Plaintiff objects on the grounds that the R & R failed to properly analyze certain key facts supporting their veil-piercing argument. (Id. at 4–8). Fifth, Plaintiff objects to the R & R’s credibility determinations with respect to a $160,000 loan from Lightning to Crosstown that was issued by Evatt in 2008. (Id. at 9–10). Plaintiff’s sixth and final objection asserts that Judge Hammer “misapplied the law and failed to mention or consider multiple facts relevant to the claim against Crosstown.” (Id. at 10).

This Court reviews each Objection individually, see Leonard Parness, 2013 WL 6002900, at *2, and ultimately adopts the R & R in accordance with Fed.R.Civ.P. 72(b)(3).

A. First Objection

*3 Plaintiff first objects to the statement in the R & R that “Plaintiff does not explain how piercing the corporate veil leads to personal jurisdiction in this case.” (R & R at 5, n. 3). The Court agrees that the R & R mischaracterizes Plaintiff’s Opposition Brief (“Pl.Opp.Br.”) and notes that Plaintiff adequately explains their theory of imputing Lightning’s contacts to Crosstown and Evatt.

Nevertheless, the Court finds the R & R’s mischaracterization harmless. The R & R restates Plaintiff’s theory for establishing personal jurisdiction, and then appropriately analyzes the necessary elements.

B. Second Objection

Second, Plaintiff objects to the R & R’s application of Tennessee law to the veil-piercing analysis. (R & R at 10–11). Plaintiff objects to this conclusion and believes that the governmental interest analysis instead leads to application of New Jersey law. (Id.)

The New Jersey Limited Liability Company Act (“NJLLCA”) calls for application of Tennessee law. The NJLLCA states that “[t]he law of the state or other jurisdiction under which a foreign limited liability company is formed governs … the liability of a member as member and a manager as manager for the debts, obligations, or other liabilities of the company.” N.J.S.A. 42:2C–57(a)(2). However, New Jersey courts could also “conduct a flexible ‘governmental interest analysis,’ where the court applies the law of the state ‘that has the most significant connections with the parties and the transaction.” D.R. Horton Inc.-New Jersey v. Dynastar Dev., L.L.C., MER–L–1808–00, 2005 WL 1939778 (N.J.Super. Ct. Law Div. Aug. 10, 2005). Like Judge Hammer, this Court determines that Tennessee law applies under both the New Jersey statute and the governmental interest analysis.

The main issue before the Court is whether it should pierce the corporate veil of Lightning, a Tennessee LLC. N.J.S.A. 42:2C–57(a) (2) calls for the application of Tennessee law, since Lightning was incorporated in Tennessee and had its principal place of business there. (Id. ¶¶ 3, 11). The governmental interest analysis set forth in Horton also leads to application of Tennessee law. “The governmental-interest analysis seeks to determine the interest that each state has in resolving the specific issue in dispute.” Las Vegas Sands Corp. v. Ace Gaming, LLC, 713 F.Supp.2d 427, 443 (D.N.J.2010) (internal citation omitted). Ultimately, “the court applies the law of the state that has the most significant connections with the parties and the transaction.” Id. (quoting D.R. Horton Inc., 2005 WL 1939778, at *21 (internal quotation omitted)) (emphasis added). New Jersey, as the state where Plaintiff is incorporated and has its primary place of business, undoubtedly has an interest “in seeing its residents compensated for wrongdoing done by a foreign company whilst it purposefully availed itself of doing business in New Jersey.” (Obj. at 4); see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 (1985) (“A State generally has a ‘manifest interest’ in providing its residents with a convenient forum for redressing injuries inflicted by out-of-state actors.”) (citing McGee v. International Life Insurance Co., 355 U.S. 220, 223 (1957)). However, Tennessee-as the state where Lightning and Crosstown are incorporated and have their principal place of business, and where Evatt resides-also has an interest in seeing that its residents and corporations are not inappropriately subject to lawsuits in other parts of the country where jurisdiction is lacking. See generally Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 773–74 (1984) (noting that a defendant cannot be “haled” into court for “attenuated … random, isolated, or fortuitous” contacts with the forum state).

*4 Under the governmental interest analysis, Tennessee has the more significant interest since all of the activities which could lead to piercing Lightning’s corporate veil actually took place in Tennessee. Therefore, the Court agrees with the R & R and finds that because Lightning is incorporated in Tennessee, and because Tennessee has the “most significant connection with the parties and the transaction,” that Tennessee law applies to the veil-piercing analysis.

C. Third Objection

Third, Plaintiff objects to the extent the R & R applies the wrong legal standard to the claim against Evatt. (Obj. at 4). Plaintiff notes that the R & R cites Eldon v. Brown, No. 08–5422, 2010 WL 415317 (D.N.J. Jan. 29, 2010) for the proposition that a Court may confer personal jurisdiction over a parent corporation for certain actions taken by a subsidiary. (R & R at 5, n. 3). In the Objection, Plaintiff makes clear that it never alleges that Evatt, an individual, is or was a parent company of Lightning and therefore that Eldon is inapplicable to Evatt. (Obj. at 4).

The Court does not find that the R & R applies Eldon to Evatt. Rather, it appears that Eldon is cited in the R & R merely to explain generally the theory of how piercing the veil of Lightning could lead to personal jurisdiction over Crosstown and Evatt. Significantly, Eldon is cited prior to the choice-of-law and substantive veil-piercing analyses. Moreover, Eldon is not cited in the section of the R & R which analyzes Evatt. Thus, there is no indication that the citation to Eldon in and of itself led to a misapplication of the law in any way.

D. Fourth Objection

Fourth, Plaintiff objects on the grounds that the R & R fails to properly analyze certain key facts supporting their veil-piercing argument. (Obj. at 4–8). Plaintiff highlights twelve specific examples not mentioned in the R & R and contends that the R & R focuses too heavily on certain financial transactions to the detriment of the overall analysis.FN1 (Id.) After reviewing the record de novo, including the specific examples pointed out by Plaintiff in their Objection, this Court finds that the evidence is insufficient to warrant piercing Lightning’s corporate veil. In short, the evidence adduced by Plaintiff does not convince the Court that Lightning was “a sham or a dummy, that the corporate form was abused or used for an improper purpose, or that [Lightning] was unable to pay its obligations due to some misconduct on the part of [Evatt or Crosstown] that justifies piercing the veil.” In re Steffner, 479 B.R. 746, 756 (Bankr.E.D.Tenn.2012).

FN1. Specifically, Plaintiff points to the following evidence: (1) “Evidence that Evatt used his position as President of Lightning to block another officer, O’Riordan, from accessing Lightning’s accounts after O’Riordan complained about the unauthorized loan taken by Evatt;” (2) “The fact that Mr. O’Riordan called the police as [sic] believed Evatt’s unauthorized loan was a theft of corporate funds;” (3) “Crosstown’s ability to apply for and receive extensions on Lightning’s own bank loans;” (4) “Crosstown’s ability to use Lightning’s financial status to request increases in Crosstown’s own line of credit;” (5) “The lack of a written lease for the use of Crosstown’s office space;” (6) “Lightning’s decision to pay officers and loan them corporate funds despite an inability to pay creditors;” (7) “The use of corporate funds to pay an officer’s commuting expenses;” (8) “Evatt taking a salary despite doing little to earn these funds according to his fellow officer;” (9) “Lightning assigning its interest in a personal loan to its officer to its bank to avoid suit by the bank on defaulted loans which were personally guaranteed by Lightning’s officers;” (10) “Evatt’s receipt of a back salary at the time of his separation from Lightning despite Lightning being significantly in debt;” (11) “Lightning’s decision to pay all invoices of Crosstown despite not paying multiple other creditors; and” (12) “Evatt, the joint head of Crosstown and Lightning, forced Lightning’s officers to work for Crosstown.” (Obj. at 5–6).

1. Standard under Tennessee Law

As noted above, this Court finds that Tennessee law applies to the veil-piercing analysis. The general rule under Tennessee law is that members, owners, employees or other agents of a Tennessee limited liability company have no personal liability for the debts or obligations of the company. See Tenn.Code Ann. § 48–217–101(a)(1); Tenn.Code Ann. § 48–249–114(a)(1)(B). However, under Tennessee law, a court may disregard an entity’s form-including an LLC-to hold “the true owners of the entity … liable when the corporation is liable for a debt but is without funds due to some misconduct on the part of the officers and directors.” Starnes Family Office, LLC v. McCullar, 765 F.Supp.2d 1036, 1049 (W.D.Tenn.2011) (internal citations omitted). Under Tennessee law, “[t]o pierce the corporate veil, a court must be convinced that the separate corporate entity ‘is a sham or a dummy’ or that disregarding the separate corporate entity is ‘necessary to accomplish justice.’ “ CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 88 (Tenn.2010) (quoting Oceanics Sch., Inc. v. Barbour, 112 S.W.3d 135, 140 (Tenn.Ct.App.2003)). But, “Tennessee law strongly disfavors piercing the corporate veil,” NVK Spinning Co., LTD. v. Nichols, 12–2904, 2014 WL 28831 (W.D.Tenn. Jan. 2, 2014), and it should be pierced “only in extreme circumstances….” Edmunds v. Delta Partners, L.L.C., et al., 403 S. W.3d 812, 829 (Tenn.Ct.App.2012) (internal citation omitted).

*5 “Conditions under which the corporate entity will be disregarded vary according to the circumstances present in the case.” Muroll Gesellschaft M.B.H. v. Tenn. Tape, Inc., 908 S.W.2d 211, 213 (Tenn .App.1995). “Whether the veil should be pierced is an equitable determination that must be made after considering the ‘entire spectrum of relevant facts.’ “ Grand Rapids Associates Ltd. P’ship v. Coop Properties, LLC, 495 F. App’x 598, 601 (6th Cir.2012) (internal citation omitted). “There is no single rule delineating when a corporate entity should be disregarded, and the facts are to be assessed in light of a corporation’s economic justification to determine if the corporate form has been abused.” Rymal v. Baergen, 262 Mich.App. 274, 686 N.W.2d 241, 252 (2004).

Factors to be considered in determining whether to disregard the corporate veil include not only whether the entity has been used to work a fraud or injustice in contravention of public policy, but also: (1) whether there was a failure to collect paid in capital; (2) whether the corporation was grossly undercapitalized; (3) the nonissuance of stock certificates; (4) the sole ownership of stock by one individual; (5) the use of the same office or business location; (6) the employment of the same employees or attorneys; (7) the use of the corporation as an instrumentality or business conduit for an individual or another corporation; (8) the diversion of corporate assets by or to a stockholder or other entity to the detriment of creditors, or the manipulation of assets and liabilities in another; (9) the use of the corporation as a subterfuge in illegal transactions; (10) the formation and use of the corporation to transfer to it the existing liability of another person or entity; and (11) the failure to maintain arms length relationships among related entities.

Trost, 333 S.W.3d at 89 n. 13 (quoting Fed. Deposit. Ins. Corp. v. Allen, 584 F.Supp. 386, 397 (E.D.Tenn.1984)). “[I]t is not necessary that all factors weigh in favor of piercing the corporate veil. It is necessary, however, that the equities substantially favor the party requesting the court to disregard the corporate status.” Trost, 333 S.W.3d at 89 (quoting Oceanics Sch., Inc. v. Barbour, 112 S.W.3d at 140–41).

2. Analysis

Plaintiff’s Opposition Brief places the evidence showing why Lightning’s corporate veil should be pierced into three broad categories: (i) failure to adhere to corporate formalities; (ii) misuse or siphoning of corporate funds; and (iii) undercapitalization. (Pl. Opp. Br. at i). The Court finds substantial overlap between these three categories and in particular notes that failure to adhere to corporate formalities appears to be a “but for” cause of the alleged misuse of corporate funds, which in turn is a “but for” cause of the undercapitalization. In other words, Lightning was unable to pay Mark IV because it was allegedly undercapitalized; it was undercapitalized because of the alleged misuse of funds; and the misuse of funds occurred largely because Lightning failed to adhere to corporate formalities.

*6 With respect to failure to adhere to corporate formalities, Plaintiff contends that “the law does not stand for the proposition that corporate formalities are not required [for an LLC] at all.” (Pl. Opp. Br. at 13). While this may be true, Plaintiff cites no specific Tennessee law in support of this stance. On the other hand, Tennessee law seems clear that failure to adhere to formalities is insufficient for piercing an entity’s veil. See Tenn.Code Ann. § 48–217–101(e) (“The failure of an LLC to observe the usual company formalities or requirements relating to the exercise of its LLC powers or management of its business is not a ground for imposing personal liability on the members, governors, managers, employees or other agents of the LLC.”); NVK Spinning Co., LTD. v. Nichols, No. 12–2904, 2014 WL 28831 (W.D.Tenn. Jan. 2, 2014) (“Adherence to corporate formalities is not required for an LLC to maintain its limited-liability status under the statute.”). Additionally, the official comment to Section 304(b) of the Revised Uniform Limited Liability Company Act-upon which the Tennessee statute is based-notes that “[i]n the corporate realm, ‘disregard of corporate formalities’ is a key factor in the piercing analysis. In the realm of LLCs, that factor is inappropriate, because informality of organization and operation is both common and desired.”

In light of this-and in the absence of law to the contrary-the Court finds it highly significant that Lightning was an LLC that chose to operate informally. FN2 To be clear, the Court is not saying that failure to adhere to corporate formalities is never relevant in determining whether or not to pierce the veil of a Tennessee LLC. However, viewing the facts on the record in this particular dispute in light of the law governing Tennessee LLCs, the equities undoubtedly tip away from piercing the veil. Evatt had broad authority as President of Lightning to run the business. (See Reply Decl., Ex. C. at ¶¶ 2, 19 (showing how Evatt had broad discretion over the types of transactions engaged in by Lightning)). Furthermore, Lightning was formed approximately twelve years after Crosstown and the record suggests that both companies had sufficient “economic justification,” Rymal, 262 Mich.App. at 294, in that the companies had independent roles within the shipping services industry. (See infra at 15).

FN2. See, e.g., D.E. No. 130–8, Ex. 20, Deposition of Scott Evatt (“Evatt Dep.”) at 49:1–50:21, 128:10–17. This Court construes Evatt’s inability to recall corporate resolutions or bylaws as evidence of informal operation.

Within this context, certain evidence adduced by Plaintiff speaks just as much to the pitfalls of choosing to organize and operate a co-owned LLC informally as it does to an outright abuse of the corporate form which would warrant piercing the entity’s veil in the interests of justice. For example, the fact that Evatt blocked O’Riordan from accessing Lightning’s accounts and that O’Riordan called the police after learning of the six-figure loan can be construed as evidence of a disagreement between co-owners of an informally run business as much as it can be construed as evidence of Lightning as a “sham or dummy.”

*7 Additionally, the Court is satisfied that Lightning possessed sufficient capital. Plaintiff stresses that the undercapitalization analysis should have focused on the misuse of funds, instead of focusing on capitalization at formation.FN3 Again, however, the Court finds Lightning’s LLC structure significant. Plaintiff’s objections make clear that it believes that Lightning was undercapitalized because of the alleged misuse of funds, which arose out of Lightning’s failure to adhere to corporate formalities. (Obj. at 6–8). The record convinces the Court that Lightning was not a “sham or dummy,” and so the Court declines to find informal, yet perhaps misguided, decisions of the LLC which lead to inability to pay creditors sufficient to pierce the veil. NVK Spinning Co., LTD. v. Nichols, No. 12–2904, 2014 WL 28831 (W.D.Tenn. Jan. 2, 2014) (“Adherence to corporate formalities is not required for an LLC to maintain its limited-liability status ….”); see also Greene v. Hill Home Development Inc., 1993 WL 17115 (Tenn.Ct.App.1993) (“Failure of a business venture and resulting loss of capital does not constitute gross undercapitalization….”).

FN3. E.g., “Lightning’s decision to pay officers and loan them corporate funds despite an inability to pay creditors;” “The use of corporate funds to pay an officer’s commuting expenses;” “Evatt taking a salary despite doing little to earn these funds according to his fellow officer;” “Evatt’s receipt of a back salary at the time of his separation from Lightning despite Lightning being significantly in debt;” “Lightning’s decision to pay all invoices of Crosstown despite not paying multiple other creditors.” (Obj. at 5–6).

Plaintiff also claims that the 2009 Loan Request form filled out by Crosstown was not sufficiently analyzed in the R & R.FN4 Plaintiff in particular emphasizes the following sentence from the loan request: “In January 2010, Lightning Logistics will be merged into Crosstown Couriers, Inc….” (Pl. Opp. Br. at 31). However, in spite of the fact that Evatt was an officer of both Lightning and Crosstown, this Court does not find that contemplation of merger shows that Lightning was a “sham or dummy.”

FN4. E.g., “Crosstown’s ability to apply for and receive extensions on Lightning’s own bank loans” and “Crosstown’s ability to use Lightning’s financial status to request increases in Crosstown’s own line of credit.” (Obj. at 5).

In short, it appears to this Court that the evidence adduced by Plaintiff to show why piercing the veil is warranted boils down to discretionary acts of an informally run LLC which resulted in inability to pay a creditor. When viewing the entire spectrum of facts, the Court cannot say that Lightning was a “sham or dummy,” or that piercing Lightning’s veil is “necessary to accomplish justice.” See Trost, 333 S.W.3d at 88, 89.

E. Fifth Objection

Plaintiff also objects to the making of credibility determinations in the R & R. Specifically, Plaintiff objects to how the R & R “took Evatt’s word that his unauthorized six figure loan was repaid to Lightning.” (Obj. at 9 (citing R & R at 14)). Plaintiff contends that “the conclusion which should have been reached was that Evatt’s unauthorized six figure loan was never repaid.” (Obj. at 10).

First, this Court notes that Judge Hammer does not simply “take Evatt’s word” that the loan was repaid. Instead, Judge Hammer states that Evatt testified that the loan had been repaid, that there is no evidence on point one way or the other, and that he “will not construe the lack of evidentiary support on either side against Defendants.” (R & R at 14).

“To survive a motion to dismiss for lack of personal jurisdiction, a plaintiff bears the burden of establishing the court’s jurisdiction over the moving defendants. However, when the court does not hold an evidentiary hearing on the motion to dismiss, the plaintiff need only establish a prima facie case of personal jurisdiction and the plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor.” Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir.2004) (internal citations omitted).

*8 Even if under Miller Yacht Sales this Court draws the factual dispute over loan repayment in favor of Plaintiff and concludes that the loan was not repaid, the Court would still not find this sufficient to pierce Lightning’s veil. Although the line of credit from which the loan was drawn was “earmarked” to cover “gaps” in paying vendors such as Plaintiff, Plaintiff has not cited, and this Court is not aware, of any independent requirement under Tennessee law which dictates that the Court characterize such a unilateral withdrawal as “misconduct.” There is nothing in the record which suggests that the line of credit could only be used for paying vendors, or that Plaintiff had a priority for receiving payment over Lightning’s ability to utilize the line of credit for alternate purposes. As President of an informally run LLC, Evatt had broad discretion over which strategies to pursue.

F. Sixth Objection

Plaintiff’s sixth and final objection asserts that Judge Hammer “misapplied the law and failed to mention or consider multiple facts relevant to the claim against Crosstown.” (Obj. at 10). The R & R concludes that “Plaintiff has failed to meet its burden of showing that Lightning’s corporate veil should be pierced, and that Crosstown is Lightning’s alter ego.” (R & R at 18).

When piercing the corporate veil, a court may disregard the corporate entity in order to impose liability against a related entity, such as a parent corporation or a controlling shareholder, where the two entities are in fact identical or indistinguishable and where necessary to accomplish justice. When a subsidiary corporation is used as a mere instrumentality of a parent corporation, our Supreme Court has held that the corporate veil of the subsidiary may be pierced to reach the parent if three elements are present:

(1) The parent corporation, at the time of the transaction complained of, exercises complete dominion over its subsidiary, not only of finances, but of policy and business practice in respect to the transaction under attack, so that the corporate entity, as to that transaction, had no separate mind, will or existence of its own.

(2) Such control must have been used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of third parties’ rights.

(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

Pamperin v. Streamline Mfg., Inc., 276 S.W.3d 428, 437–38 (Tenn.Ct.App.2008) (internal citations omitted).

As set forth in the Declaration of Eli J. Rogers (and accompanying exhibits), (D.E. No. 130–2 (“Reply Decl.”)), Crosstown was formed in or about 1995–twelve years prior to Lightning’s formation-and still continues to operate. (Reply Decl., Ex. 5 ¶ 25). Unlike Lightning, Crosstown does not provide “logistics services” for shipping companies, but rather, is a traditional courier service, which performs so-called “last mile” deliveries in and around Tennessee. (Id. at ¶¶ 23–24). Furthermore, according to the deposition of Evatt, (see Reply Decl., Ex. 20), Lightning executed a lease agreement to sublease office space from Crosstown in 2006 and thus became a subtenant of Crosstown, (id. at 54:8–11); Lightning had its own space and setup and did not share secretarial support, computer support, or supplies, (id. at 55:14–15); and Lightning maintained its own separate customer service and dispatch personnel, (id. at 56:1). Thus, despite the fact that a written memorialization of the lease was not produced, and that certain employees worked for both companies, the Court is satisfied that Crosstown is a separate and preexisting entity in a different sector of the shipping industry and that Lightning is not “identical or indistinguishable” to Crosstown.

*9 Like the R & R, this Court finds In re Steffner, 479 B.R. 746 (Bankr.E.D.Tenn.2012) instructive. There, a bankruptcy court declined to pierce the corporate veil despite the fact that the two companies at issue “operated out of the same building, albeit in different suites, and used the same bank, attorneys, and accounts.” Id. at 757. The court also noted that the two entities were “formed at different times for different purposes” and that it was “not unusual or inappropriate for closely-held businesses to utilize the same professionals for convenience.” Id. This Court declines to impose alter ego liability on Crosstown for similar reasons.

The Court has reviewed this matter de novo, and for the reasons stated above and in the R & R,

IT IS on this 12th day of December 2014,

ORDERED that this Court ADOPTS Magistrate Judge Hammer’s Report and Recommendation, (D.E. No. 138), as the Opinion of this Court; and it is further

ORDERED that Plaintiff’s motion to dismiss for lack of personal jurisdiction, (D.E. No. 130), is GRANTED; and it is further

ORDERED that the Clerk of Court shall mark this case CLOSED.

REPORT AND RECOMMENDATION

MICHAEL A. HAMMER, United States Magistrate Judge.

I. Introduction

This matter comes before the Court on the motion of Defendants, Crosstown Courier, Inc. (“Crosstown”), and Scott Evatt, to dismiss the Second Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) or, in the alternative, for summary judgment pursuant to Rule 56. D.E. 130. The Honorable Esther Salas referred this motion to the Undersigned for a Report and Recommendation. Pursuant to Fed.R.Civ.P. 78(b), the Court decided the motion without oral argument. For the reasons set forth below, the Undersigned respectfully recommends that the District Court grant Defendants’ motion to dismiss for lack of personal jurisdiction, and deny as moot the motions to dismiss under Rule 12(b)(6) and for summary judgment.

II. Background and Procedural History

Much of the relevant factual background is already set forth in the District Court’s September 28, 2012 Opinion. See Opinion, D .E. 76. Plaintiff is a New Jersey corporation with its principal place of business in Kearny, New Jersey. Second Amended Compl. D.E. 121 ¶ 2. Lightning Logistics, LLC (“Lightning”) was a Tennessee limited liability corporation with its principal office located in Nashville, Tennessee.FN1 Id. ¶ 3. Lightning provided logistical services to commercial shippers, including arranging for the delivery of packages by companies that performed “last mile” deliveries such as Mark IV. Id. Evatt resides in Tennessee and is the former Chief Executive Officer and owner of Lightning. Id. ¶¶ 7, 12. Crosstown is a Tennessee corporation with its principal office located in Nashville, Tennessee. Id. ¶ 5. Evatt is also a partial owner of Crosstown and its Chief Executive Officer. Id. ¶ 17.

FN1. The Second Amended Complaint alleges that Lightning dissolved in or around March 2010, shortly after it was served with Mark IV’s Complaint, renamed itself Traveller Logistics (“Traveller”), and has since continued Lightning’s operations. Second Amended Complaint, D.E. 121 ¶¶ 39–41. Plaintiff amended its complaint to add Traveller as a defendant under a theory of successor liability. Id. ¶ 43.

*10 On December 23, 2009, Plaintiff commenced this action against Lightning alleging claims for (1) collection of the amount due under a book account and (2) breach of contract. Compl. D.E. 1. Plaintiff alleges that MailExpress, a Georgia company, engaged Lightning to arrange for delivery services around the country. Plaintiff further alleges that from July 6, 2008 to August 25, 2009, Lightning in turn contracted with Plaintiff to perform those deliveries in New Jersey. Second Amended Compl., D.E. 121 ¶¶ 33–35. Plaintiff asserts that, although MailExpress paid Lightning in full for the work done in connection with this contract, Lightning failed to fully pay Plaintiff. Id. ¶¶ 36–37. Plaintiff claims that Lightning owes Plaintiff approximately $100,758.67 for the delivery services rendered. Id. Plaintiff contends that Lighting was grossly undercapitalized, and therefore could not cover all of its operating expenses. Id. ¶ 67.

On December 1, 2010, the Court granted Plaintiff leave to file an amended complaint to add Traveller, John Gregory O’Riordan, Crosstown and Evatt as defendants. D.E. 9. The causes of action remained the same. Id. Plaintiff filed the Amended Complaint on February 2, 2011. D.E. 10. On February 15, 2012, Defendants moved to dismiss the Amended Complaint pursuant to Fed.R.Civ.P. 12(b) (2) for lack of personal jurisdiction and Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. D.E. 55. On November 28, 2012, the Honorable Esther Salas, U.S.D.J, granted Defendants’ motion to dismiss for lack of personal jurisdiction. Opinion and Order, D.E. 77, 78.

On October 9, 2012, Plaintiff moved for reconsideration of Judge Salas’s November 28, 2012 Opinion and Order. Motion for Reconsideration, D.E. 80. On October 22, 2013, Judge Salas vacated her November 28, 2012 Opinion and Order and ordered the Amended Complaint reinstated as to Defendants Crosstown Courier, Inc. and Scott Evatt and order jurisdictional discovery. Order, October 22, 2013, D.E. 120. Judge Salas permitted Plaintiff to depose Scott Evatt in his individual capacity and as a representative of Crosstown. Id.

On October 29, 2014, Plaintiff filed the Second Amended Complaint alleging alter ego liability and seeking to pierce the corporate veil against Evatt and Crosstown. Second Amended Complaint, D.E. 221 ¶¶ 63–89. On February 20, 2014, Defendants moved to dismiss the Second Amended Complaint. D.E. 130.

Defendants’ Arguments

Defendants Crosstown and Evatt argue this Court has neither general personal jurisdiction nor specific personal jurisdiction over them. Defendants argue that there is no general jurisdiction because neither Crosstown Courier nor Evatt maintained continuous and systematic contacts with New Jersey. Specifically, Defendants Crosstown Courier and Evatt argue: (1) Crosstown Courier has never conducted business or operations in New Jersey; (2) Crosstown Courier has never marketed or advertised in New Jersey, nor had a New Jersey customer; and (3) Evatt does not own “any entity that maintains a place of business in New Jersey,” nor employs New Jersey citizens. Def. Brief, D.E. 130–1, at 13–14. Additionally, they argue that Evatt has travelled to New Jersey only a handful of times, all of which were personal trips to visit family and all of which occurred before 1990. Id. at 14. In particular, Defendants Crosstown Courier and Evatt argue that Evatt has never travelled to New Jersey in a business capacity and he did not travel to the state to negotiate or sign the contract between Lightning and Mark IV. Id.

*11 Crosstown and Evatt also argue that the Court lacks specific jurisdiction over them because Plaintiff cannot establish that Defendants ever “purposefully directed [their] activities at the forum,” (quoting O’Connor v. Sandy Lane Hotel Co., Ltd., 496 F.3d 312, 317 (3d Cir.2007)) neither of them performed any relevant activity in New Jersey, and none of Plaintiff’s claims arise from any activities undertaken by them in New Jersey. Id. at 14–15. Therefore, Defendants argue that Plaintiff cannot establish that any contract between them and Plaintiff was either formed, performed, or breached in New Jersey. FN2 Id.

FN2. As to Plaintiff’s allegations that Evatt signed the pertinent contact on Lightning’s behalf, Crosstown and Evatt argue “this fact cannot amount to personal jurisdiction as the contract was signed in a corporate, and not individual, capacity.” Def. Brief, D.E. 130–1, at 15.

Furthermore, Defendants argue that personal jurisdiction cannot be obtained by piercing Lightning’s corporate veil. Defendants contend that even if Lightning failed to observe corporate formalities or inappropriately made loans or disbursements to members of the LLC, New Jersey law does not hold the constituent members of the LLC liable. Id. at 16–17 (citing N.J.S.A. 42:2C–30(b), 42:2C–30(a)). Specifically, Defendants argue New Jersey law recognizes a qualitative distinction between LLCs and corporations, and the protections afforded to each structure and these distinctions are fatal to Plaintiff’s attempt to pierce Lightning’s corporate veil. Id. at 18.

Plaintiff’s Opposition

Plaintiff argues in opposition that this Court can exercise jurisdiction over Crossstown and Evatt by piercing the corporate veil of Lightning because Crosstown was essentially an alter ego of Lightning. Pl.’s Br., D.E. 136, at 16.FN3 Plaintiff argues that limited liability corporations must have a certain level of “respect for and adherence to corporate formalities” and there is enough evidence in this instance to indicate a lack of corporate formalities. Id. at 8. In furtherance of Plaintiff’s claim that it is appropriate to pierce Lightning’s corporate veil, Plaintiff relies on a series of financial transactions from Lightning’s corporate funds to Lightning’s individual partners, including Evatt, all effectuated without the passing of formal resolutions. Specifically, Plaintiff relies on the following transactions: (1) at the time of formation, Lightning obtained a $100,000 line of credit with Tennessee Commerce Bank for operating capital; (2) Lightning later obtained a second line of credit with Tennessee Commerce Bank for $500,000; (3) in 2007, Evatt received a transfer of $55,000; (4) in 2008, Lightning, through Evatt, issued a loan of $160,000 of Lightning’s corporate funds to Crosstown; and (5) Evatt approved a loan of $35,000 to. O’Riordan for purpose of moving his personal residence. See id. at 8–13.

FN3. Plaintiff does not explain how piercing the corporate veil leads to personal jurisdiction in this case. It appears that Plaintiff is attempting to impute Lightning’s contacts with New Jersey, specifically through its negotiation and performance of the contract with Plaintiff to Evatt and Crosstown. Specifically Plaintiff relies on the theory that once the corporate veil of Lightning is pierced, all of Lightning’s contacts are imputed to Evatt and Crosstown. See Eldon v. Brown, CV No. 08–5422, 2010 WL 415317 (D.N.J. Jan. 29, 2010) (finding that the Court may confer personal jurisdiction over a parent corporation when the subsidiary had “either directed the parent to take an action or cause an effect in the forum state or the businesses must have disregarded their existence as separate corporate entities.”).

Additionally, Plaintiff argues that no minutes were ever taken for any corporate meetings throughout Evatt’s three-year presidency at Lightning, and Lightning did not have company bylaws. Id. Plaintiff relies on these arguments to demonstrate that there was a complete lack of corporate formalities, and because of that, the Court should pierce the corporate veil. Id. at 8.

*12 Furthermore, Plaintiff asserts that the various withdrawals of funds from Lightning’s corporate account to Crosstown or to Evatt are an indication of siphoning of funds. Id. at 15–17. While Defendants argue that the transfer of funds into Evatt’s account was payment for his services and the loan has been repaid, Plaintiff argues that there is no evidence of this repayment. Id. at 17 n. 4. Plaintiff claims that this unauthorized withdrawal of funds forced the company into financial disrepair, to “live paycheck to paycheck,” and accelerated Lightning’s dissolution. Id. at 18.

Defendants’ Reply

In their reply, Defendants argue that while Plaintiff relies heavily on evidence that purportedly shows a failure to observe corporate formalities and alleged self-dealing with Lightning’s corporate assets, these allegations are legally insufficient under both New Jersey and Tennessee law to pierce an LLC’s corporate veil. Def.’s Reply, D.E. 137, at 3. Defendants assert that under New Jersey law, LLC officers have the express ability to “engage in financial transactions with the company, including lending and borrowing money, and assuming obligations of the company.” Id. at 6. Defendants further assert Plaintiff’s attempt to characterize Lightning as “grossly undercapitalized” during its operation is not one which is accepted by the law of this Court, instead the law requires that “the adequacy of capital is to be measured as of the time of formation of the corporation.” Id. at 8.

Finally, Defendants argue that this Court cannot exercise personal jurisdiction over Crosstown because there is no evidence that Crosstown was Lightning’s alter ego. Id. at 10. Here, Defendants contend that Lightning and Crosstown maintained separate existences and performed completely different services with different clients. Id.

III. Discussion

1) Personal Jurisdiction

Pursuant to Rule 4(e) of the Federal Rules of Civil Procedure, a federal court may exercise jurisdiction over a non-resident defendant to the extent authorized by state law within that forum. Remick v. Manfredy, 238 F.3d 248, 255 (3d Cir.2000); Pennzoil Prod. Co. v. Colelli & Assocs., Inc., 149 F.3d 197, 200 (3d Cir.1998). New Jersey’s long-arm rule extends jurisdiction over non-resident defendants to the full extent permitted by the United States Constitution. Carteret Sav. Bank, F.A. v. Shushan, 954 F.2d 141, 145 (3d Cir.1992). Personal jurisdiction under the Due Process Clause of the Constitution requires proof of a “relationship among the defendant, the forum, and the litigation.” Shaffer v. Heitner, 433 U.S. 186, 204 (1977); IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir.1998).

Once a defendant moves to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2), the plaintiff has the burden of setting forth competent evidence demonstrating that the moving defendant had sufficient contacts with the forum to justify the Court’s assertion of either general or specific personal jurisdiction. See BP Chemicals Ltd. v. Formosa Chemical & Fibre Corp., 229 F.3d 254, 259 (3d Cir.2000) (citing Stranahan Gear Co. v. NL Indus., Inc., 800 F.2d 53, 58 (3d Cir.1986)). The plaintiff bears the burden of demonstrating facts that establish personal jurisdiction and the Court, in considering a Rule 12(b)(2) motion, “must accept all of the plaintiff’s allegations as true and construe disputed facts in favor of the plaintiff.” Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir.2002) (citing Mellon Bank (East) PSFS Nat’l Ass’n v. Farino, 960 F.2d 1217, 1223 (3d Cir.1992) and Carteret Savings, 954 F.2d at 142 n. 1).

*13 The plaintiff’s standard of proof varies depending upon the nature of the evidence presented to the Court for its consideration. Wright & Miller, Federal Practice and Procedure: Civil 2d § 1351 at 248, n. 27 (3d Ed.2002). The Court may proceed either based upon affidavits and sworn documents or conduct an evidentiary hearing. The type of proof is left to the Court’s discretion. See Gibbs v.. Buck, 307 U.S. 66, 71–72 (1939). Where no evidentiary hearing has taken place, the plaintiff must make out a prima facie case. See LaRose v. Sponco Mfg. Inc., 712 F.Supp. 455, 458 n. 2. (D.N.J.1989). If the Court conducts an evidentiary hearing, plaintiff is put to the higher burden of proving that personal jurisdiction is proper by a preponderance of the evidence. See Id . (citing Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 (9th Cir.1977)).

General personal jurisdiction exists when the evidence shows the defendant’s contacts with the forum, whether or not related to the litigation, are “continuous and systematic.” Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984). Put differently, the plaintiff must show that “the defendant has purposefully directed its activities toward residents of the forum state or otherwise purposefully availed itself of the privilege of conducting activities within the forum [s]tate, thus invoking the benefits and protections of its laws.” FN4 IMO Indus., 155 F .3d at 259 (internal quotations and citations omitted). If continuous and systematic contacts with the forum state are shown, personal jurisdiction is proper even if the cause of action arises from nonforum contacts. Dollar Sav. Bank v. First Sec. Bank of Utah, N.A., 746 F.2d 208, 211 (3d Cir.1984); see also Remick, 238 F.3d at 255.

FN4. General jurisdiction, for example, requires that a foreign defendant must be engaged in longstanding business in the forum state, such as marketing or shipping products, or performing services or maintaining one or more offices there; activities that are less extensive than that will qualify for general jurisdiction. See Wright & Miller, Federal Practice and Procedure: Civil 3d § 1067.5 (3d Ed.2002).

Specific personal jurisdiction exists when the relationship among the defendant, cause of action, and forum are such that a defendant should reasonably anticipate being haled into court there. Machulsky v. Hall, 210 F.Supp.2d 531, 539 (D.N.J.2002) (citations omitted). As the Honorable Michael Chagares, speaking for the Court of Appeals for the Third Circuit, stated:

[d]etermining whether specific jurisdiction exists involves a three-part inquiry. First, the defendant must have purposefully directed his activities at the forum.FN5 Second, the plaintiff’s claim must arise out of or relate to at least one of those specific activities. Third, courts may consider additional factors to ensure that the assertion of jurisdiction otherwise comports with fair play and substantial justice. Because this analysis depends on the relationship between the claims and contacts, we generally evaluate specific jurisdiction on a claim-by-claim basis.

FN5. There is sufficient due process contact for specific personal jurisdiction if the defendant, for example, has purposefully directed its activities at residents of the forum. Henry Heide, Inc. v. WRH Products. Co., 766 F.2d 105, 108 (3d Cir.1985).

Marten v. Godwin, 499 F.3d 290, 297 (3d Cir.2007) (internal quotations marks and citations omitted). To determine whether specific personal jurisdiction exists, the Court must examine the “quality and nature of the defendant’s activity,” Hanson v. Denckla, 357 U.S. 235, 253 (1958), which includes consideration of whether the actions that were directed at the forum and whether the particular claim arose from that activity.

*14 Here, Plaintiff does not assert that Evatt and Crosstown independently have sufficient minimum contacts such that this Court may exercise personal jurisdiction over them. Indeed in her September 28, 2012, Opinion, Judge Salas ruled that Evatt and Crosstown has insufficient contacts with the State of New Jersey to confer personal jurisdiction. Opinion, D.E. 76, at 6–9,11. Instead, Plaintiff asserts that the law allows it to pierce Lightning’s corporate veil, such that Lightning’s contacts with New Jersey can be imputed to Evatt and Crosstown. A court may confer personal jurisdiction over a parent by piercing the corporate veil of the subsidiary. See Eldon v. Brown, CV No. 08–5422, 2010 WL 415317 (D.N.J. Jan. 29, 2010). However, to “confer jurisdiction a subsidiary must have either directed the parent to take an action or cause an effect in the forum state or the businesses must have disregarded their existence as separate corporate entities.” Id. * 2. Therefore, the Court must first analyze whether Plaintiff can pierce the corporate veil.

i. Piercing the Corporate Veil

a. Choice of Law

The New Jersey Limited Liability Company Act mandates an application of a foreign state’s veil-piercing law to a claim against a foreign L.L.C. See N.J.S.A 42:2C–57 (“The laws of the state or other jurisdiction under which a foreign limited liability company is formed governs … the liability of its members as members and managers as managers”); D.R. Horton Inc.—New Jersey v. Dynastar Development, No. MER–L–1808–00, 2005 WL 1939778, *31 (N.J.Super. Ct., Law Div.2005) (holding that the “weight of authority agrees that veil-piercing analysis is governed by the law of the state of formation”).

Though it would appear that N.J.S.A 42:2C–57 instructs the Court to apply Tennessee law, New Jersey courts, have also articulated a second standard. In D.R. Horton Inc.—New Jersey v. Dynastar Development, LLC, the court discussed two possible methods of determining, under New Jersey law, which state’s law should govern veil-piercing. No. MER–L–1808–00, 2005 WL 1939778, at *20–21. Specifically, a court applying New Jersey law could either: (1) look to the target entity’s state of incorporation; or (2) conduct a flexible “governmental interest analysis,” where the court applies the law of the state “that has the most significant connections with the parties and the transaction.” Id. at *21 (quoting Boyson, Inc. v. Archer & Greiner, P.C., 308 N.J.Super. 287, 297 (App.Div.1998)). In Dynastar, the Court concluded that it need not choose between the two methods of analysis, because the result was the same either way: New Jersey law applied. Id.

Similarly, here the Court need not determine which analysis to utilize as, under either analysis, Tennessee law applies. Both Crosstown and Lightning are incorporated under the laws of Tennessee. Further, Tennessee clearly has the most significant connections with the parties and transactions as the gravamen of the activity at issue in this case occurred in Tennessee. All of the alleged activities relating to whether the Court should pierce Lightning’s corporate veil took place in Tennessee. Therefore, the Court’s veil-piercing analysis is governed by the law of Tennessee.

ii. Legal Standard

*15 In general, it is a fundamental principle that corporations are entities distinct from their corporate officers and shareholders. State Dept. of Envtl. Prot. v. Ventron Corp., 468 A.2d 150, 164 (1983). As a general rule, members, owners, employees of other agents of a Tennessee limited liability company have no personal liability for the debts of obligations of the company. See Tenn.Code Ann. 48–217–101(a)(1). Under an equitable remedy known as “piercing the corporate veil,” however, “the separate legal entity of a corporation may be disregarded upon a showing that it is a sham or a dummy or where necessary to accomplish justice.” Schlater v. Haynie, 833 S.W.2d 919, 925 (Tenn.App.1991). Despite the inapplicability of the remedy’s name, the “corporate veil” of a Tennessee limited liability company may also be pierced, utilizing the same standards. See Starnes Family Office, LLC v. McCullar, 765 F.Supp.2d 1036, 1049 (W.D.Tenn.2011).

Tennessee courts have instructed that “[c]onditions under which the corporate entity will be disregarded vary according to the circumstances present in the case.” Muroll Gesellschaft M.B.H. v.. Tenn. Tape, Inc., 908 S.W.2d 211, 213 (Tenn.App.1995). For example, “[d]iscarding the fiction of the corporate entity, or piercing the corporate veil, is appropriate when the corporation is liable for a debt but is without funds to pay the debt, and the lack of funds is due to some misconduct on the part of the officers and directors.” VP Bldgs., Inc. v. Polygon Grp., No. M2001–00613–COA–R3–CV, 2002 WL 15634, *4 (Tenn.App.2002). Similarly, the corporate veil will be pierced “where the corporation is created or used for an improper purpose, or where the corporate form has been abused, as when used to an end subversive of the corporation’s policy.” Schlater, 833 S.W.2d at 925. The remedy should “be applied with great caution and not precipitately, since there is a presumption of corporate regularity.” Id. “The party wishing to pierce the corporate veil has the burden of presenting facts demonstrating that it is entitled to this equitable relief.” Oceanics Sch., Inc. v. Barbour, 112 S.W.3d 135, 140 (Tenn.App.2003). Factors to be considered in determining whether to disregard the corporate veil include:

Not only whether the entity has been used to work a fraud or injustice in contravention of public policy, but also: (1) whether there was a failure to collect paid in capital; (2) whether the corporation was grossly undercapitalized; (3) the nonissuance of stock certificates; (4) the sole ownership of stock by one individual; (5) the use of the same office or business location; (6) the employment of the same employees or attorneys; (7) the use of the corporation as an instrumentality or business conduit for an individual or another corporation; (8) the diversion of corporate assets by or to a stockholder or other entity to the detriment of creditors, or the manipulation of assets and liabilities in another; (9) the use of the corporation as a subterfuge in illegal transactions; (10) the formation and use of the corporation to transfer to it the existing liability of another person or entity; and (11) the failure to maintain arms length relationships among related entities.

*16 CAO Holdings, Inc. v. Trost, 333 S.W.3d 73, 89 n. 13 (Tenn.2010). The piercing of a corporate veil is applied in extreme circumstances, and no single factor may form a basis for piercing the corporate veil. Canter v. Ebersole, No. E200502388COAR3CV, 2006 WL 1627288 (Tenn.Ct.App. May 13, 2006). No one factor is conclusive, Schlater, 833 S.W.2d at 925, and “it is not necessary that all factors weigh in favor of piercing the corporate veil. It is necessary, however, that the equities substantially favor the party requesting the court to disregard the corporate status.” CAO Holdings, 333 S.W.3d at 89.

2) Analysis

a. Piercing the Corporate Veil as to Evatt

Plaintiff alleges that there is sufficient evidence to pierce the corporate veil as to Evatt, because while he was Lightning’s president he did not observe corporate formalities. Pl.’s Br., D.E. 136, at 9. Specifically, Plaintiff relies on a series of financial transactions from Lightning’s corporate funds to Lightning’s individual partners, including Evatt.FN6

FN6. The transactions relied upon by Plaintiff are as follows:

(1) At the time of its formation, Lightning obtained a $100,000 line of credit with Tennessee Commerce Bank for operating capital. This was done without a formal resolution.

(2) Lightning obtained a second line of credit with Tennessee Commerce Bank for $500,000 without a formal resolution.

(3) In 2007, Evatt received a transfer of $55,000 with no formal corporate resolution.

(4) In 2008, Lightning, through Evatt, issued a loan of $160,000 of Lightning’s corporate funds to Crosstown.

(5) Evatt approved a loan of $35,000 to Mr. O’Riordan for purpose of moving his personal residence.

Pl.’s Br., D.E. 136, at 8–10, 21.

However, under Tennessee law, corporate formalities are less stringent for limited liability companies, such as Lightning. See Tenn.Code Ann. § 48–217–101(e); see also NVK Spinning Co ., LTD v. Nichols, No. 12–2904, 2014 WL 28831, *4–6 (W.D.Tenn.2014) (“Adherence to corporate formalities is not required for an LLC to maintain its limited-liability status under the [Tennessee] statute”). Therefore, because Lightning is a limited liability company, actions taken on behalf of the company without formal resolutions is not sufficient to pierce the corporate veil.

Plaintiff also alleges that Defendants siphoned Lightning’s corporate funds for their own personal use. Pl.’s Br., D.E. 136, at 14. Plaintiff relies heavily on the fact that, in 2008, Evatt issued a loan of approximately $160,000 of Lightning’s corporate funds to Crosstown. Id. at 9. In this regard, Plaintiff alleges because Evatt entered into this activity without first passing a corporate resolution to approve this loan, Evatt and Lightning did not maintain the corporate formalities. Id. However, while Evatt acknowledges that such a loan was taken without first informing his partner, Mr. Smith, Evatt further testified that the full loan was paid back, with interest. Deposition of Scott Evatt (“Evatt Dep”), attached as Ex. 2 to the Declaration of Paul Piantino, D.E. 136–3, 125:19–21.FN7

FN7. Plaintiff asserts that Defendants have not been able to produce any documents demonstrating their repayment of the $160,000 loan, “despite multiple requests for same.” Pl.’s Br., D.E. 136, at 17 n. 4. However, the only evidence of any such discovery request offered by Plaintiff is one informal Request for Production. See Request for Production, attached as Ex. 13 to Certification of Geoffrey F. Sasso (“Sasso Cert.”), D.E. 80–15. Plaintiff never moved to compel such discovery, despite being specifically granted the ability to conduct jurisdictional discovery. It is the Plaintiff’s burden to prove that there is sufficient evidence to pierce Lightning’s corporate veil. The Court notes that while it would have been incumbent on Evatt to produce such evidence if compelled or ordered, however, it is not Defendants’ burden to show that the Court lacks jurisdiction. Instead it is Plaintiff’s burden to show the Court can exercise jurisdiction over the Defendants. Therefore, the Court will not construe the lack of evidentiary support on either side against Defendants.

Therefore, the Court finds that Plaintiff’s allegations that Lightning failed to observe corporate formalities, and alleged loans and/or disbursements of corporate funds to the members of Lightning, are not legally sufficient to pierce Lightning’s corporate veil or impose alter ego liability upon Evatt or Crosstown.

Plaintiff further asserts that the Lightning was not sufficiently capitalized, which therefore, further justifies piercing the corporate veil. Pl.’s Br., D.E. 136, at 22. As evidence of undercapitalization, Plaintiff cites the fact that none of the officers of Lightning invested any capital and the company’s main source of capital was two loans taken out by the business. Id. However, Plaintiff fails to cite any caselaw that supports the proposition that sufficient capitalization requires investment by officers of the corporation. Lightning was, at the time of its formation, capitalized with a $100,000 line of credit with Tennessee Commerce Bank. Lightning later obtained a $500,000 line of credit with Tennessee Commerce Bank. The fact that Lightning was ultimately unable to fulfill its obligations to Plaintiff is not, of itself, sufficient evidence that Lightning was not sufficiently capitalized. See N.L.R.B. v. Fullerton Transfer & Storage Ltd., Inc., 910 F.2d 331, 339 (6th Cir.1990) (holding that a corporation was not undercapitalized even though currently unable to meet its obligations because the records showed that, prior to the dispute at hand, the corporation was able to meet its bills and pay its salaries).

b. Alter Ego as to Crosstown

*17 For the Court to have personal jurisdiction over Crosstown, the Court first must find that Crosstown is the alter ego of Lightning. When piercing the corporate veil, “a court may disregard the corporate entity in order to impose liability against a related entity, such as a parent corporation or a controlling shareholder, where the two entities are in fact identical or indistinguishable and where necessary to accomplish justice.” Pamperin v. Streamline Mfg., Inc., 276 S.W.3d 428, 437 (Tenn.Ct.App.2008). When a subsidiary corporation is used as a mere instrumentality of a parent corporation, the Supreme Court of Tennessee has held that the corporate veil of the subsidiary may be pierced to reach the parent if three elements are present:

(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

Continental Bankers Life Ins. Co. of the South v. Bank of Alamo, 578 S.W.2d 625, 632 (Tenn.1979).

Plaintiff relies heavily on Stochastic Decisions, Inc. v. DiDomenico, 236 N.J.Super. 388 (App.Div.1989), for the proposition that when there is serious ambiguity about the distinction between two companies and there is evidence of control by common representatives, alter ego liability should be imposed. See Pl.’s Br., D.E. 136, at 27. Plaintiff’s reliance on Stochastic, however, is flawed for two reasons. First, as the Court has previously discussed, Tennessee law applies. Further, even if New Jersey law were to apply, Stochastic is easily distinguishable as the entities at issue were not limited liability companies. As the Court has previously stated, under Tennessee law, corporate formalities are less stringent for limited liability companies. See Tenn.Code Ann. § 48217–101(e); see also NVK Spinning Co., LTD v. Nichols, 2014 WL 28831, *4–6 (W.D.Tenn.2014).

Here, Plaintiff asserts that discovery has shown that Crosstown and Lightning operated out of the same office, shared staff, computer servers, furniture, and accounting software. Pl.’s Br., D.E. 136, at 29. Plaintiff relies primarily on the testimony of O’Riordan who certified that:

Despite Mr. Evatt’s testimony, during the period of 2006 through 2010, Lightning and Crosstown Courier, Inc. shared accounting servers, overnight customer service representatives, office furniture, warehouse space, and essentially everything except certain employees and computers.

*18 Declaration of John Gregory O’Riordan (“O’Riordan Dec.”), attached as Ex. 5 to Pianto Dec., D.E. 136–6, ¶ 3.FN8 Such evidence, however, is insufficient to demonstrate that Lightning was a sham or dummy corporation. See In re Steffner, 479 B.R. 746 (Bankr.E.D.Tenn.2012). As “[i]t is not unusual or inappropriate for closely-held businesses to utilize the same professionals for convenience.” Id. at 757.

FN8. It should be noted that O’Riordan previously stated that Plaintiff’s case against Evatt “has no meritorious claim.” See Answer to Plaintiff’s request for Default, attached as Ex. A to the Declaration of Eli J. Rogers (“Rogers Dec.”), D.E. 137–2.

In In re Steffner, Hulsing, the judgment creditor of Sleep Quest, moved for summary judgment against Sleep Quest’s related entity, SRS, arguing that the entities shared the same office building, bank, attorneys, and accountant. Id. at 756. Hulsing also cited a transfer of funds from Sleep Quest to SRS at the time of Hulsing’s garnishment and the alleged interference with Hulsing’s garnishment of BCBS funds as evidence of a “diversion of corporate assets … to the detriment of creditors.” Id. The Court found that as a matter of law, these facts were insufficient to meet the legal standard for disregarding Sleep Quest’s corporate veil. Id. Similarly, here, the Court finds that the shared facilities and staff between Lightning and Crosstown is insufficient to pierce the corporate veil of Lightning.FN9

FN9. The Court notes that Evatt denies the allegations that Crosstown and Lightning shared staff. In his deposition testimony, Evatt was questioned as to whether several employees worked for both Lightning and Crosstown. See Deposition of Scott Evatt, attached as Ex. 2 to Piantino Dec., D.E. 136–3. Evatt testified that, of all the employees of Lightning, only two were also employees of Crosstown. Id. at 162:16–165:20. Further, he testified that one of said employees left her employ at Crosstown before starting with Lightning. Id. at 165:14–20.

In finding insufficient grounds to impose alter ego liability, the Court in In re Steffner also relied on the fact that the two entities were formed at different times and for different purposes. Id. at 757. Here, too Lightning and Crosstown were formed at separate times, and for separate purposes. Lightning provided logistical support to commercial shippers by arranging for last mile delivery services, while Crosstown is a traditional courier service. See Affidavit of Thomas Scott Evatt, attached as Ex. 5 to Rogers Dec., D.E. 130–4, ¶ 4, 23. The two companies clearly performed independent and distinct businesses, and, while there may have been some overlap in use of corporate resources, this is insufficient to pierce the corporate veil. Therefore, Plaintiff has failed to meet its burden of showing that Lightning’s corporate veil should be pierced, and that Crosstown is Lightning’s alter ego.

IV. Conclusion

For the reasons set forth above, the Court hereby recommends that the Court grant Defendants Evatt and Crosstown’s motion to Dismiss for lack of personal jurisdiction.

Category: Volume 17, Edition 12 cases

Mark IV Transp. & Logistics, Inc. v. Lightning Logistics, LLC