Canadian Nat'l Ry. Co. v. Waltman

• Decision Date: 09 August 2012
• Docket Number: No. 2011–IA–00951–SCT.,2011–IA–00951–SCT.
• Citation: 94 So.3d 1111
• Parties: CANADIAN NATIONAL RAILWAY COMPANY v. Kathleen K. WALTMAN, Administratrix of the Estates of Robert Lee Kitchens, Jr. and Mary L. Kitchens, deceased, and individually; and Robert Lee Kitchens, III.
• Court: Mississippi Supreme Court

94 So.3d 1111

CANADIAN NATIONAL RAILWAY COMPANY

v.Kathleen K. WALTMAN, Administratrix of the Estates of Robert Lee Kitchens, Jr. and Mary L. Kitchens, deceased, and individually; and Robert Lee Kitchens, III.

No. 2011–IA–00951–SCT.

Supreme Court of Mississippi.

Aug. 9, 2012.

James Earl Graves, III, George H. Ritter, Jackson, attorneys for appellant.

Alexander Frederick Guidry, Jackson, Pat M. Barrett, Jr., Lexington, John W. Kitchens, attorneys for appellees.

Before CARLSON, P.J., RANDOLPH and CHANDLER, JJ.

CARLSON, Presiding Justice, for the Court:

¶ 1. Robert Lee Kitchens, Jr., and his wife, Mary L. Kitchens, died as a result of injuries received in a collision between their automobile and a train owned and operated by Illinois Central Railroad Company (“Illinois Central”). The Administratrix and wrongful-death beneficiaries of the Kitchenses' estate filed a wrongful-death action against several parties, including the parent company of Illinois Central, Canadian National Railway Company (“Canadian National”), a foreign corporation.¹ Canadian National moved to dismiss for lack of jurisdiction and failure to state a claim. The circuit court granted the plaintiffs ninety days to conduct discovery “to justify piercing the corporate veil” and reserved ruling on the motion to dismiss pending completion of the discovery. Aggrieved, Canadian National filed a petition for an interlocutory appeal, and we granted the petition.

¶ 2. We find that the plaintiffs have not alleged with particularity the applicability of piercing the corporate veil to the facts of this case. Accordingly, we vacate the circuit court's order permitting further discovery, reverse the circuit court's failure to grant Canadian National's motion to dismiss for lack of jurisdiction, and remand the case to the circuit court for the entry of a final order of dismissal without prejudice.

FACTS AND PROCEEDINGS IN THE TRIAL COURT

¶ 3. On May 9, 2008, Robert Lee Kitchens, Jr., and his wife, Mary L. Kitchens, were involved in a tragic accident at a public railroad crossing on Monticello Road in Hazlehurst. The automobile in which the deceased were traveling was struck by a freight train owned and operated by Illinois Central. Mary was killed instantly, while Robert died of his injuries on August 4, 2008. On May 8, 2009, the Administratrix and wrongful-death beneficiaries of the Kitchenses' estate filed a wrongful-death action against the above-named defendants in the Circuit Court of Copiah County. The plaintiffs alleged the accident was caused by the fact that previous false activations of the automatic flashing-light signals at the crossing had lulled the deceased into a false sense of security.

¶ 4. Canadian National is a Canadian corporation with its principal place of business in Montreal, Quebec. The plaintiffs do not allege any independent tort committed by Canadian National. However, the plaintiffs, in seeking to “pierce the corporate veil,” allege that Canadian National is the “alter ego” of Illinois Central, thus causing Illinois Central to be a “mere instrumentality” of Canadian National. It is undisputed that Canadian National does not directly own or operate any trains, tracks, crossing or warning devices, or other property in the State of Mississippi, nor does it have any employees located in Mississippi. However, the plaintiffs contend that Illinois Central is undercapitalized, based on Illinois Central's 2008 balance sheet and Mississippi Rule of Civil Procedure 30(b)(6) testimony showing that Illinois Central had a net worth of negative $145 million in 2008. Canadian National contends that this balance shows nothing more than hard economic times.

¶ 5. On December 17, 2010, Canadian National filed a motion to dismiss for lack of jurisdiction and failure to state a claim pursuant to Mississippi Rules of Civil Procedure 12(b)(2) and 12(b)(6), respectively. After conducting a hearing, the trial court, on June 17, 2011, entered an order granting the plaintiffs ninety days to conduct discovery “to justify piercing the corporate veil” and reserved ruling on the motion to dismiss pending completion of the discovery. The trial court's order found that the plaintiffs had not presented sufficient evidence to pierce the corporate veil, but that the plaintiffs had “presented sufficient allegations to justify limited further discovery into the ‘alter ego’ or ‘mere instrumentality’ issue.” On July 7, 2011, Canadian National filed a petition for interlocutory appeal, which this Court granted on September 8, 2011. All proceedings in the trial court involving Canadian National have been stayed, pending our disposition of today's case.

DISCUSSION

¶ 6. Finding the jurisdictional issue to be dispositive, we will discuss only the trial court's failure to dismiss this case under Mississippi Rule of Civil Procedure 12(b)(2). “We review jurisdictional issues de novo. When considering jurisdictional issues, the Court sits in the same position as the trial court, ‘with all facts as set out in the pleadings or exhibits, and may reverse regardless of whether the error is manifest.’ ” Knight v. Woodfield, 50 So.3d 995, 998 (Miss.2011) (citations omitted). “On a [12(b)(2) ] motion to dismiss for lack of personal jurisdiction, all allegations of the complaint, together with reasonable inferences flowing therefrom, are accepted as true.” R.C. Constr. Co. v. Nat'l Office Sys., 622 So.2d 1253, 1255 (Miss.1993) (citation omitted).

¶ 7. In both tort and contract claims,

[T]he corporate entity will not be disregarded ... unless the complaining party can demonstrate: (1) some frustration of expectations regarding the party to whom he looked for performance; (2) the flagrant disregard of corporate formalities by the defendant corporation and its principals; and (3) a demonstration of fraud or other equivalent misfeasance on the part of the corporate shareholder.

Penn Nat'l Gaming, Inc. v. Ratliff, 954 So.2d 427, 431 (Miss.2007) (citation omitted).

¶ 8. “Mississippi case law generally favors maintaining corporate entities and avoiding attempts to pierce the corporate veil.” Buchanan v. Ameristar Casino Vicksburg, Inc., 957 So.2d 969, 977 (Miss.2007). “ ‘[T]he cardinal rule of corporate law is that a corporation possesses a legal existence separate and apart from that of its officers and shareholders' .... [t]his rule applies ‘whether such shareholders are individuals or corporations.’ ” Buchanan, 957 So.2d at 977 (citations omitted).

Piercing the corporate veil of a subsidiary to reach the parent corporation is not ‘lightly undertaken’ by Mississippi courts. Johnson & Higgins of Miss., Inc. v. Comm'r of Ins., 321 So.2d 281, 284–85 (Miss.1975). ‘Courts do not take piercing of the corporate veil lightly because of the chilling effect it has on corporate risk-taking.’ Nash Plumbing, Inc. v. Shasco Wholesale Supply, Inc., 875 So.2d 1077, 1082 (Miss.2004).Id. at 978 (citations omitted). This Court “decline[s] to pierce the corporate veil except in those extraordinary factual circumstances where to do otherwise would subvert the ends of justice.” Ratliff, 954 So.2d at 431(citations omitted). This Court “recognize[s] that the corporate veil will not be pierced, in either contract or tort claims, except where there is some abuse of the corporate form itself.” Id. at 432.

¶ 9. It is apparent that, as the federal court for the Northern District of Mississippi has held, applying Mississippi law, there is a “quandry [ sic ] [between] a liberal construction of the plaintiff's pleadings in a motion to dismiss, and the strict requirement of unusual circumstances to pierce the corporate veil.” N. Am. Plastics, Inc. v. Inland Shoe Mfg. Co., Inc., 592 F.Supp. 875, 879 (N.D.Miss.1984). To resolve this dilemma, the federal court held that, “absent a sufficient allegation of particularized facts, judicial economy requires that the corporate veil should not be preliminarily pierced for long-arm jurisdiction on the mere unsubstantiated allegations in the pleadings.” Inland Shoe, 592 F.Supp. at 879. Furthermore, “[i]n order to make a prima facie case of jurisdiction, the plaintiff must make sufficiently particularized allegations demonstrating the applicability of the piercing doctrine to the facts of the case.” Id.

¶ 10. This Court now adopts the Inland Shoe standard of review, requiring the plaintiffs to support their particularized allegations by demonstrating facts to satisfy the requirements as set forth in Ratliff before allowing the corporate veil to be pierced. That is, a plaintiff's complaint alleging a piercing of the corporate veil will survive a Rule 12(b)(2) motion to dismiss only when the complaint sets forth factual allegations indicating: (1) some frustration of expectations regarding the party to whom he looked for performance; (2) the flagrant disregard of corporate formalities by the defendant corporation and its principals; and (3) a demonstration of fraud or other equivalent misfeasance on the part of the corporate shareholder. See Ratliff, 954 So.2d at 431.

¶ 11. Before the trial court, at the time of the hearing, the following documents, inter alia, were filed: (1) Canadian National's motion to dismiss amended complaint, with attachments; (2) Canadian National's brief in support of its motion to dismiss; (3) the plaintiffs' response in opposition to Canadian National's motion to dismiss, with attachments; and (4) Canadian National's reply in support of its motion to dismiss, as well as supplemented documentation.

¶ 12. Some of the attachments to Canadian National's motion to dismiss included: (a) the sworn affidavit of Michael T. Novak, general counsel “for the United States railroad companies that are indirect subsidiaries of Canadian National Railway Company, including Illinois Central Railroad Company”; (b) the sworn affidavit of L. Wayne King, a Rankin County resident serving as General Manager of Operations of Illinois Central; (c) the sworn affidavit of ...