Nobers v. Crucible, Inc.

• Decision Date: 08 February 1985
• Docket Number: Civ. A. 84-1822.
• Parties: David A. NOBERS, Robert R. Campbell, Jr., Gasper P. Porto, and Gary T. Weekly, individually and on behalf of themselves and all others similarly situated, Plaintiffs, v. CRUCIBLE, INC., a corporation and Colt Industries, Inc., a corporation, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

602 F. Supp. 703

David A. NOBERS, Robert R. Campbell, Jr., Gasper P. Porto, and Gary T. Weekly, individually and on behalf of themselves and all others similarly situated, Plaintiffs, v. CRUCIBLE, INC., a corporation and Colt Industries, Inc., a corporation, Defendants.

Civ. A. 84-1822.

United States District Court, W.D. Pennsylvania.

February 8, 1985.

COPYRIGHT MATERIAL OMITTED

Thomas H.M. Hough, Pittsburgh, Pa., for plaintiffs.

William H. Powderly, III, Pittsburgh, Pa., for defendants.

MEMORANDUM OPINION

ZIEGLER, District Judge.

(1) Plaintiffs, former supervisors and managers at the Midland, Pennsylvania steel mill of defendant, Crucible, Inc., now known as Colt Industries Operating Corporation (CIOC), seek damages for alleged breach of express and implied contracts. Defendants are CIOC, a Delaware corporation with its principal place of business in New York, and Colt Industries, Inc. (Colt), a Pennsylvania corporation also headquartered in New York. CIOC is a wholly owned subsidiary of Colt. Named plaintiffs, two Pennsylvania citizens and two citizens of Ohio, brought this action individually and as class representatives of similarly situated former supervisors and managers at the Midland plant. According to the complaint, when plaintiffs left their bargaining unit in order to accept promotions as supervisors, they were promised permission to return to the union if they were laid off. However, when layoffs actually took place, defendants refused to allow their return to the bargaining unit.

(2) The instant civil action is related to previous litigation in this court in which plaintiffs filed suit against defendants, and others, based on Section 301 of The Labor Management Relations Act. Nobers, et al. v. Crucible, Inc., et al., No. 82-1846 (W.D. Pa.1982), aff'd mem. 722 F.2d 733 (3d Cir. 1983). The operative events are identical but the claims in the earlier suit arose under the collective bargaining agreement and certain federal statutes. We granted defendants' motion for summary judgment and the Court of Appeals affirmed by judgment order dated October 13, 1983.

(3) This action was originally filed in the Court of Common Pleas of Beaver County, Pennsylvania, on June 28, 1984. Defendants removed to this court by a petition filed on July 26, 1984. See 28 U.S.C. § 1441. Plaintiffs now move for remand to state court and Colt moves for dismissal for failure to state a claim upon which relief can be granted.

(4) Because the motions for remand and dismissal are interdependent, we will discuss each in concert. Plaintiffs allege lack of subject-matter jurisdiction under 28 U.S.C. § 1332 because Pennsylvania citizens, specifically Nobers, Porto and Colt, are present on both sides of the action. Complete diversity is therefore lacking, according to plaintiffs. Colt counters that it has been fraudulently joined for the purpose of destroying diversity and to maintain the action in state court.

(5) In removal cases, the defendant bears the burden of establishing the existence of federal jurisdiction. B., Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir.1981). Where, as here, defendants assert "fraudulent joinder," they also have the burden of demonstrating the alleged "fraud." Id. Fraudulent joinder must be established by clear and convincing evidence. Parks v. New York Times, Co., 308 F.2d 474, 478 (5th Cir.1962), cert. denied, 376 U.S. 949, 84 S.Ct. 964, 11 L.Ed.2d 969 (1964). See also Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921). Thus, defendants' burden to preserve removal is a heavy one. Miller v. Firestone Tire & Rubber Co., 581 F.Supp. 36 (W.D.Pa.1984).

(6) The "fraudulent joinder" of a non-diverse defendant cannot defeat the right of removal. Wilson, supra, 257 U.S. at 97, 42 S.Ct. at 37. "Fraudulent joinder" is established when the claim alleged against the non-diverse defendant could not possibly impose liability under the applicable state law and the facts alleged. B., Inc., supra, 663 F.2d at 550; Miller, supra, 581 F.Supp. at 37; Buchanan v. Delaware Valley News, 571 F.Supp. 868, 870 (E.D.Pa.1983); Newman v. Forward Lands, Inc., 418 F.Supp. 134, 136 (E.D.Pa. 1976). Stated differently, the cause of action cannot be "colorable," 14 Wright & Miller § 3723; assert an "arguably reasonable basis" for imposing liability, Tedder v. F.M.C. Corp., 590 F.2d 115, 117 (5th Cir. 1979); or "conceivably" allow recovery, Dailey v. Elicker, 447 F.Supp. 436, 438 (D.Colo.1978). In this context, "fraudulent" is a term of art and not intended to impugn the integrity of a plaintiff or counsel. Newman, supra, 418 F.Supp. at 136; 14 Wright & Miller § 3723. Therefore the intent or motive of a plaintiff in joining a non-diverse defendant is immaterial. Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 189, 52 S.Ct. 84, 87, 76 L.Ed. 233 (1931). Our determination of whether Colt has been fraudulently joined must be made on the basis of the record at the time the petition for removal was presented. Westmoreland Hospital Association v. Blue Cross of Western Pennsylvania, 605 F.2d 119, 124 (3d Cir.1979), cert. denied, 444 U.S. 1077, 100 S.Ct. 1025, 62 L.Ed. 759 (1980).

(7) At the outset we are confronted with the question whether Colt is possibly liable on the claims for breach of express and implied employment contracts. We find that the claims are not colorable. Plaintiffs have failed to allege that they were ever employed by Colt. Paragraph 55 of the complaint pleads, rather, that Crucible, Inc., now represented by its successor in interest, CIOC, was plaintiffs' sole employer:

The named Plaintiffs and all other members of the class similarly situated are former supervisors and managerial employees of Defendant, Crucible, Inc., who prior to promotion to a supervisory or managerial position had been employed in classifications included in a collective bargaining unit with Defendant, Crucible, Inc., and who have been continuously employed by Defendant, Crucible, Inc., for a minimum of twenty years.

Therefore, since Colt never employed plaintiffs it is clear that no contract of employment existed between them. Plaintiffs' assertion that Crucible acted "in concert" with and "at the direction of" Colt is insufficient to support contractual liability against Colt. See paragraphs 34 and 39 of complaint.

(8) Colt could possibly incur liability on the alleged employment contracts if the corporate separateness was disregarded. A parent company, like any stockholder, is not normally liable for contractual obligations of a subsidiary, even if that corporation is its wholly-owned subsidiary. George A. Davis, Inc. v. Camp Trails Co., 447 F.Supp. 1304, 1307 (E.D.Pa.1978). Such liability occurs only by application of the "alter ego" theory to pierce the corporate veil. Publicker Industries, Inc. v. Roman Ceramics Corp., 603 F.2d 1065, 1069 (3d Cir.1979). The veil should be pierced "when the court must prevent fraud, illegality, or injustice, or when recognition of the corporate entity would defeat public policy or shield someone from liability for a crime." Zubik v. Zubik, 384 F.2d 267, 272 (3d Cir.1967), cert. denied, 390 U.S. 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968). The Court of Appeals has enunciated relevant factors to consider in applying this test:

Failure to observe corporate formalities, non-payment of dividends, the insolvency of the debtor corporation at the time, siphoning of funds of the corporation by the dominant stockholder, nonfunctioning of other officers or directors, absence of corporate records, and the fact that the corporation is merely a facade for the operations of the dominant stockholder or stockholders.

United States v. Pisani, 646 F.2d 83, 88 (3d Cir.1981). Gross undercapitalization is also a factor. Id. These requirements are "demanding" and require "specific, unusual circumstances." American Bell, Inc. v. Federation of Telephone Workers of Pennsylvania, 736 F.2d 879, 886 (3d Cir.1984).

(9) Plaintiffs have failed to allege any of the factors which might support the treatment of Colt and CIOC as alter egos. This is not surprising because Crucible, Inc. was an independent, fully-functioning corporation before being acquired by Colt. Furthermore, the allegations of joint action are not sufficient to justify piercing the corporate veil. Consequently, Colt and CIOC must be regarded as separate and independent corporations as a matter of law.

(10) Case law is in accord. In DuSesoi v. United Refining Co., 540 F.Supp. 1260 (W.D.Pa.1982), the parent company approached the plaintiff and conducted discussions leading to an offer of employment. Since the agreed salary went beyond the pay scale of the parent company, an employment contract was signed between the plaintiff and the wholly-owned subsidiary. The plaintiff thus became an employee of the subsidiary. Id. at 1264. The district court dismissed the breach of employment contract claims against the parent, refusing to pierce the corporate veil or find the parent company liable for the contractual obligations of its subsidiary. Id. at 1266. See also George A. Davis, Inc., supra (parent company not liable for contractual obligations of wholly-owned subsidiary). Given the lack of allegations to support piercing the corporate veil, and the precept that a parent corporation is not liable for the contracts of a subsidiary, we hold that plaintiffs have no colorable claim against Colt for breach of the alleged employment contacts. We turn now to the question whether plaintiffs have stated a colorable claim sounding in tort.

(11) As noted earlier, plaintiffs allege that Crucible acted "in concert" with and "at the direction of" Colt. See complaint at paragraphs 34, 39 and 48. Although the claims are labeled "Assumpsit — express contract" and "Assumpsit — implied contract," a generous reading of the complaint arguably suggests a tort action against Colt, possibly for inducing breach of contract or interference...