Doughty v. CSX Transp., Inc., 72712

• Decision Date: 27 October 1995
• Docket Number: No. 72712,72712
• Citation: 905 P.2d 106,258 Kan. 493
• Parties: Michael E. DOUGHTY, Appellant, v. CSX TRANSPORTATION, INC., Appellee.
• Court: Kansas Supreme Court

Page 106

905 P.2d 106

258 Kan. 493

Michael E. DOUGHTY, Appellant, v. CSX TRANSPORTATION, INC., Appellee.

No. 72712.

Supreme Court of Kansas.

Oct. 27, 1995.

Syllabus by the Court

1. Summary judgment is proper if the pleadings, depositions, answers to interrogatories

and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. K.S.A. 60-256(c). If reasonable minds could differ as to the conclusions drawn from the facts, summary judgment must be denied.

2. The burden of proving the lack of any genuine issue of material fact is on the party seeking summary judgment.

3. To defeat a properly supported motion for summary judgment, the nonmoving party must come forward with specific facts showing a genuine issue for trial. Controverted facts which are immaterial to the case will not preclude summary judgment.

4. Any person, partnership, association, or corporation may incorporate to conduct or promote any lawful business or purpose.

5. A corporation holding stock in another corporation stands in the same relation as a stockholder.

6. In the absence of fraud or other invidious and vitiating circumstances, the fact that one corporation is instrumental in the formation of another corporation and owns all or nearly all of the stock of the latter corporation does not have the legal effect of making the parent corporation liable for the debts of the subsidiary corporation.

7. The mere fact that a subsidiary corporation was organized for the avowed purpose of avoiding liability on the part of the holding company does not in itself constitute fraud justifying disregard of the corporate entity of the subsidiary.

8. The courts will disregard the fiction of a separate legal entity when there is such domination of finances, policy, and practices that the controlled corporation has no separate mind, will, or existence of its own and is but a business conduit for its principal.

9. The ultimate test for imposing alter ego status is whether, from all of the facts and circumstances, it is apparent that the relationship between the parent and subsidiary is so intimate, the parent's control over the subsidiary is so dominating, and the business and assets of the two are so mingled that recognition of the subsidiary as a distinct entity would result in an injustice to third parties. In addition to the factors used to determine a corporate alter ego status, a plaintiff must show that allowing the legal fiction of a separate corporate structure would result in injustice toward the plaintiff.

John E. Rogers, of Shamberg, Johnson & Bergman, Overland Park, argued the cause, and John M. Parisi, of the same firm, was with him on the briefs, for appellant.

Keith T. Borman, Kansas City, Missouri, argued the cause, and Rebecca J. Lubbers, of Shook, Hardy & Bacon, Overland Park, was with him on the brief, for appellee.

LOCKETT, Justice.

This is an action brought by an employee of a wholly owned subsidiary corporation who was injured at work. After claiming and receiving workers compensation benefits as an employee of the subsidiary, the employee brought suit against the parent corporation for benefits pursuant to the Federal Employers' Liability Act (FELA), 45 U.S.C. § 51 et seq. (1988), by alleging that the parent corporation, a railroad, was the alter ego of the subsidiary corporation. The worker claimed the separate identities of the two corporations was a fiction created to allow the parent corporation to evade its FELA obligations. The district court granted summary judgment to the parent corporation, holding that the parent corporation was not the alter ego of the subsidiary corporation and therefore could not be liable under FELA as the worker's employer. The worker appeals. Pursuant to K.S.A. 20-3018(c), this case was transferred from the Court of Appeals.

In 1987, appellant Michael E. Doughty became employed by Fruit Growers Express Company (FGE) in Kansas City, Kansas. Subsequently, FGE became a wholly owned subsidiary of CSX Transportation, Inc. (CSXT). On January 2, 1992, Doughty was injured when an FGE forklift he was repairing unexpectedly engaged in gear and ran over him. Doughty filed a workers compensation claim alleging he was an employee of FGE. Doughty received $50,000 in settlement of his workers compensation claim. Doughty notes that in the course of resolving his workers compensation claim, attorneys for FGE submitted to his attorney a General Release setting forth as a condition of any settlement of his workers compensation claim that he also release any claim he might have against CSXT. Doughty did not execute the General Release but instead signed a limited release that preserved any claim against CSXT.

Doughty then brought this FELA action against CSXT for the same injuries for which he had received state workers compensation benefits. FGE is not a railroad and is not covered by FELA. To maintain a claim under FELA, Doughty must prove that he was working for CSXT, a railroad, at the time of his injury. See Bradsher v. Missouri Pacific R.R., 679 F.2d 1253, 1255 n. 5 (8th Cir.1982). In the action, Doughty asserted that CSXT, as the parent corporation of FGE, was the alter ego of FGE and therefore liable under FELA as his true employer. Under state workers compensation, any recovery by Doughty in the FELA action against CSXT is subject to a lien. See K.S.A. 44-504. Interestingly, Doughty also filed a prior claim for workers compensation for injuries sustained as an employee of FGE on June 27, 1989. That claim was settled in June 1992. Nowhere in his 1989 or 1992 workers compensation claims did Doughty assert that he was an employee of any entity other than FGE.

Both parties filed motions for summary judgment. In its memorandum opinion, the district court made 67 separate findings of fact and analyzed the factors set forth in Schmid v. Roehm GmbH, 544 F.Supp. 272, 275 (D.Kan.1982). See Intern. U., United Auto., Etc. v. Cardwell Mfg. Co., 416 F.Supp. 1267, 1286 (D.Kan.1976); Hoffman v. United Telecommunications, Inc., 575 F.Supp. 1463, 1478 (D.Kan.1983). The district court concluded there was no evidence that an alter ego relationship that created an injustice existed between FGE and CSXT and granted summary judgment to CSXT.

Doughty appeals, asserting that summary judgment was not appropriate because genuine issues remain, the court made findings of fact that were controverted, and the court disregarded 133 material facts which support his claim that CSXT is the alter ego of FGE. CSXT responds that the district court correctly granted summary judgment.

Standard of Review

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." K.S.A. 60-256(c). If reasonable minds could differ as to the conclusions drawn from the facts, summary judgment must be denied. Finstad v. Washburn University, 252 Kan. 465, 468, 845 P.2d 685 (1992); Bank of Alton v. Tanaka, 247 Kan. 443, 446, 799 P.2d 1029 (1990).

When a summary judgment is challenged on appeal, this court must read the record in the light most favorable to the party defending against the motion. Patterson v. Brouhard, 246 Kan. 700, 702, 792 P.2d 983 (1990). The burden of proving the lack of any genuine issue of material fact is on the moving party. Early Detection Center, Inc. v. Wilson, 248 Kan. 869, 871, 811 P.2d 860 (1991). To defeat a properly supported motion for summary judgment, the nonmoving party must come forward with specific facts showing a genuine issue for trial. Mark Twain Kansas City Bank v. Kroh Bros. Dev. Co., 250 Kan. 754, 762, 863 P.2d 355 (1992). Controverted facts which are immaterial to the case will not preclude summary judgment. Early Detection Center, 248 Kan. at 871, 811 P.2d 860.

Parent/Subsidiary Alter Ego Law

For Doughty to obtain FELA benefits, he must prove that CSXT, a railroad, is the alter ego of FGE and that an injustice or inequity exists. If CSXT is the alter ego of FGE, Doughty was working for a railroad and entitled to FELA benefits.

This court recently addressed the application of the alter ego concept in a parent-subsidiary context in Dean Operations, Inc. v. One Seventy Assocs., 257 Kan. 676, 896 P.2d 1012 (1995). The Dean court observed that in the absence of fraud or other invidious and vitiating circumstances, the fact that one corporation is instrumental in the formation of another corporation and owns nearly all of the stock of the latter corporation does not have the legal effect of making the parent corporation liable for the debts of the subsidiary corporation. 257 Kan. at 680, 896 P.2d 1012.

The Dean court noted that the fiction of separate corporate identities of two corporations will not be extended to permit one of the corporations to evade its just obligations; to promote fraud, illegality, or injustice; or to defend crime. Under circumstances where the separate corporate entity is disregarded, the parent corporation may be held liable for the acts of the subsidiary. The mere fact, however, that a subsidiary corporation was organized for the avowed purpose of avoiding liability on the part of the holding company does not in itself constitute fraud justifying disregard of the corporate entity of the subsidiary. The courts will disregard the fiction of a separate legal entity when there is such domination of finances, policy, and practices that the controlled corporation has no separate mind, will, or existence of its own and is but a business conduit for its principal. 257 Kan. at 681, 896 P.2d 1012.

The Dean court observed that one case which illustrated the application of alter ego analysis in a parent-subsidiary corporation context was ...