United States District Court, Western District of Kentucky, Louisville Division
MEMORANDUM OPINION AND ORDER
Joseph H. McKinley, Jr., Chief Judge United States District Court
This matter is before the Court on a motion by Defendants, Golden Ignot, LLP, Peter Weitz, and Inderjit Pangli, to dismiss Plaintiff’s complaint pursuant to Fed.R.Civ.P. 12(b)(6) [DN 29]. Fully briefed, this matter is ripe for decision.
I. STANDARD OF REVIEW
Upon a motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6), a court “must construe the complaint in the light most favorable to plaintiff, ” League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007) (citation omitted), “accept all well-pled factual allegations as true[, ]” id., and determine whether the “complaint  states a plausible claim for relief[, ]” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Under this standard, the plaintiff must provide the grounds for his or her entitlement to relief which “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff satisfies this standard only when he or she “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. A complaint falls short if it pleads facts “merely consistent with a defendant’s liability” or if the alleged facts do not “permit the court to infer more than the mere possibility of misconduct.” Id. at 678, 679. Instead, the allegations must “‘show[ ] that the pleader is entitled to relief.’” Id. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). It is against this standard the Court reviews the following facts.
Plaintiff, JPMorgan Chase (“Chase”), is a party to a 1981 Lease Agreement (“Ground Lease”) by which it leases property at 321 South Fifth Street and 426 West Jefferson Street in Louisville, Kentucky. Chase owned two adjacent office-building properties at 312 South Fourth Street and 416 West Jefferson Street (“Office Properties”). In August 2007, Chase sold the Office Properties to BREOF BNK2 Midwest LLC (“BREOF Midwest”) and transferred its leasehold interest in the Ground Lease Property to BREOF BNK2 Louisville LLC (“BREOF Louisville”). Chase then leased space in the Office Properties from BREOF Midwest (“Office Properties Lease”). Under the Ground Sublease, BREOF Louisville paid Chase the amounts due under the Ground Lease on a pass-through basis. Chase remained liable to the Ground Lease landlord and other third-parties for the amounts due under the Ground Lease.
On February 19, 2013, BREOF Louisville assigned its rights pursuant to the Ground Sublease to Defendant, 321-426 Louisville Leasehold, LLC (“Louisville Leasehold”). Defendant, Peter Weitz, signed the Assignment and Assumption of Sublease for Defendant GI Louisville which is Louisville Leasehold’s sole member. Pursuant to the Ground Sublease and the Assignment and Assumption of Sublease, Louisville Leasehold is liable for all the rent, taxes, utilities, and insurance accruing under the Ground Lease. Louisville Leasehold has failed to make any of the payments required as the assignee of the Ground Sublease and is, thus, currently in default.
Contemporaneous with the Ground Sublease assignment, BREOF Midwest sold its interest in the Office Properties to Defendant, Golden Ignot, for approximately 22 million dollars. Pursuant to the sale, Golden Ignot now is Chase’s landlord under the Office Properties Lease. Plaintiff maintains that media reports indicate that Defendants, Inderjit Pangli and Greenstone Asset Management, LLC (“Greenstone”), are Golden Ignot’s investors, and Defendant, Peter Weitz, is Greenstone’s managing director. Further, documents tendered with the complaint reflect that Pangli executed the purchase agreements for both the Office Properties and the Ground Lease Property and later assigned his interest to Golden Ignot and Louisville Leasehold. Weitz signed the transfer documents on behalf of Golden Ignot, Louisville Leasehold, and GI Louisville. Plaintiff alleges that Golden Ignot, Louisville Leasehold, and GI Louisville are controlled by an ownership group involving Pangli, Weitz, and/or Greenstone.
In July of 2014, Plaintiff filed suit against Defendants. Count 1 alleges a breach of contract claim against Louisville Leasehold for failure to pay the amounts due and owing to Chase under the Ground Lease and Ground Sublease. Count 2 seeks to pierce the corporate veil of Louisville Leasehold to hold Golden Ignot, Weitz, Pangli, Greenstone, and GI Louisville liable for the debts of Louisville Leasehold under a theory of alter ego/instrumentality. Defendants, Golden Ignot, Weitz, and Pangli, now move to dismiss the complaint alleging that (1) Plaintiff fails to plead facts sufficient to state an alter ego claim and (2) Plaintiff fails to plead the requirement that Louisville Leasehold has committed fraud or injustice.
A. Choice of Law
Defendants argue that when considering whether corporate veil-piercing is appropriate, Kentucky courts apply the law of the state of incorporation of the corporation to be pierced, not the law of Kentucky. Defendants assert that the Court should thus apply the law of Delaware, Louisville Leasehold and GI Louisville’s state of incorporation. Chase disagrees noting that Kentucky courts have not uniformly applied this rule. Chase points out that that Kentucky courts have applied Kentucky law to such an inquiry. See Pro Tanks Leasing v. Midwest Propane and Refined Fuels, LLC, 988 F.Supp.2d 772, 782 (W.D. Ky. 2013); First Const. LLC v. Gravelroad Entertainment, LLC, 2008 WL 2038878 (E.D. Ky. May 12, 2008). Chase maintains that the question makes little practical difference in this case because Delaware and Kentucky law are not markedly different. In re ClassicStar Mare Lease Litig., 823 F.Supp.2d 599, 642 (E.D. Ky. 2011). The Court agrees.
Under Kentucky law, courts will disregard the corporate entity and hold another entity or individual liable where the corporate form is abused. In re ClassicStar, 823 F.Supp.2d at 641-642 (citing White v. Winchester Land Development Corp., 584 S.W.2d 56, 61–62 (Ky. Ct. App. 1979)). The alter ego theory of piercing the corporate veil formulation requires a demonstration “’(1) that the corporation is not only influenced by the owners, but also that there is such unity of ownership and interest that their separateness has ceased; and (2) that the facts are such that an adherence to the normal attributes . . . of a separate corporate existence would sanction a fraud or promote injustice.’” In re ClassicStar, 823 F.Supp.2d at 641-642 (citation omitted). “’[T]he decision as to whether to pierce the corporate veil is an equitable one to be decided by the trial court and not the jury.’” Id. (citing Daniels v. CDB Bell, LLC, 300 S.W.3d 204, 213 (Ky. Ct. App. 2009)). “The corporate veil should be pierced only ‘reluctantly and cautiously’ and then only where some combination of the following factors is present: undercapitalization, failure to observe formalities of corporate existence, nonpayment or overpayment of dividends, siphoning off of funds by the dominant shareholders, where the majority shareholders have guaranteed corporate liabilities in their individual capacities, and where commingling of personal and corporate funds has occurred.” In re ClassicStar, 823 F.Supp.2d at 642.
Similarly, under Delaware law, the alter ego doctrine for piercing the corporate veil requires “(1) that the corporation and its shareholders operated as a single economic entity, and (2) that an overall element of [fraud, ] injustice or unfairness is present.” Trevino v. Merscorp, Inc., 583 F.Supp.2d 521, 528 (D. Del. 2008). See also StrikeForce Technologies, Inc. v. PhoneFactor, Inc., 2013 WL 6002850, *4 (D. Del. Nov. 13, 2013)(“fraud or similar injustice”); Applied Biosysterns, Inc. v. Cruachem, Ltd., 772 F.Supp. 1458, 1463 (D. Del. 1991) (“Under the alter ego or piercing the corporate veil doctrine, courts will ignore the corporate boundaries between parent and subsidiary if fraud or inequity is shown.”); In re ClassicStar, 823 F.Supp.2d at 641. When determining whether to pierce the corporate veil, Delaware courts examine: “whether the corporation was adequately capitalized for the corporate undertaking; whether the corporation was solvent; whether dividends were paid, corporate records kept, officers and directors functioned properly, and other corporate formalities were ...