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Michael W. Dickinson, Inc. v. Keeneland Association, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

March 28, 2017

MICHAEL W. DICKINSON, INC., Plaintiff,
v.
KEENELAND ASSOCIATION, INC., Defendant.

          OPINION AND ORDER

          KAREN K. CALDWELL, CHIEF JUDGE

         This matter is before the Court on defendant Keeneland Association, Inc.'s motion to dismiss plaintiff Michael W. Dickinson, Inc.'s complaint. (DE 11). For the following reasons, Keeneland's motion is DENIED.

         I. Background

         This case is an attempt by Dickinson[1] to collect on the judgment it obtained in an earlier action against Martin Collins Surfaces & Footings, LLC. See Michael W. Dickinson, Inc. v. Martin Collins Surfaces & Footings, LLC, No. 5:11-cv-281-JMH, 2012 WL 5868903, at *1 (E.D. Ky. Nov. 20, 2012).

         Dickinson, a Maryland corporation, holds a patent entitled “Sport and Recreational Surface, ” which is intended for use in the design of synthetic equestrian surfaces. (DE 1, Compl. ¶ 2). Martin Collins was a Kentucky limited liability company, wholly owned by Martin Collins International, Ltd., and Keeneland Ventures PT, LLC, by and through Keeneland. (DE 1, Compl. ¶ 2-4). Keeneland, the defendant in this action, operates a thoroughbred horse racing business and owns a sales complex and racing facility in Lexington, Kentucky. (DE 1, Compl. ¶ 3).

         The previous action between Dickinson and Martin Collins arose out of a non-exclusive patent license agreement between the parties, which settled a dispute regarding the terms by which Martin Collins and its customers, including Keeneland, could use Dickinson's patented product. (DE 1, Compl. ¶ 8-15). Dickinson filed suit against Martin Collins for breach of that agreement. (DE 1, Compl. ¶ 11).

         Shortly after Dickinson filed the previous action, Martin Collins dissolved. Upon the dissolution of Martin Collins, Central Bank & Trust Company acquired a first-priority lien on all of the dissolved company's assets based on a loan Central Bank had made to Martin Collins. (DE 1, Compl. ¶ 12-13, 27, 32). That loan was guaranteed by Keeneland. (DE 1, Compl. ¶ 27).

         As a result of the earlier action, Dickinson obtained a judgment against Martin Collins for breach of contract in the amount of $395, 874.18, plus interest. (See DE 1, Compl. ¶ 1). Because Dickinson could not collect from Martin Collins, it sought post-judgment discovery from several third parties, including Keeneland Ventures and Keeneland. See Dickinson, 2012 WL 5868903, at *1.

         In denying Dickinson's request for discovery from third parties, U.S. District Judge Joseph M. Hood stated that Dickinson was attempting “to engage in a fishing expedition under the guise of post-judgment discovery to determine if a basis exist[ed] to pierce the corporate veil, even though no facts currently suggest[ed] that piercing [was] appropriate.” Dickinson, 2012 WL 5868903, at *4.

         This case is Dickinson's attempt to do what it could not do before-collect on its judgment. Through its current complaint, Dickinson seeks to pierce Martin Collins' corporate veil, claiming Martin Collins is the alter-ego and sham corporation of Keeneland. (DE 1, Compl. ¶ 1). In support of its claim, Dickinson offers the declaration of Anthony Paul James, a former employee of Martin Collins International.

         Keeneland responded to Dickinson's complaint with a motion to dismiss, arguing: first, that Dickinson failed to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), and second, that Dickinson failed to join required parties under Rule 12(b)(7).

         II. Analysis

         a. Failure to state a claim under Rule 12(b)(6)

         In this new action, Dickinson attempts to collect on its judgment from Keeneland by asserting that Martin Collins is the sham corporation and alter ego of Keeneland. Keeneland argues that Dickinson has failed to state a claim upon which relief can be granted.

         Keeneland's argument is governed by Rule 12(b)(6). That rule provides courts with a mechanism to enforce Rule 8, which governs the sufficiency of a complaint. In determining whether a plaintiff's complaint can withstand a motion to dismiss, the Court will assume the veracity of well-pleaded factual allegations and then determine whether they plausibly give rise to an entitlement to relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

         Dickinson has filed its complaint along with the declaration of James, [2] a former employee of Martin Collins International, one of Martin Collins' parent entities. The Court can consider James' declaration without converting Keeneland's motion to dismiss into one for summary judgment. See Gavitt v. Born, 835 F.3d 623, 640 (6th Cir. 2016) (“[A] court may consider exhibits attached to the complaint, public records, items appearing in the record of the case, and exhibits attached to defendant's motion to dismiss, so long as they are referred to in the complaint and are central to the claims contained therein, without converting the motion to one for summary judgment.”).

         Dickinson argues that its complaint and James' declaration present sufficient evidence to state a plausible claim to pierce Martin Collins' corporate veil to reach Keeneland. In its reply to its motion to dismiss, Keeneland aptly described the issue for the Court to resolve:

Plaintiff's current effort to pierce [Martin Collins'] corporate veil, therefore, rises or falls with whether the Declaration provided by James provides new factual evidence or allegations that would raise Plaintiff's right to relief against Keeneland above the speculative level.

(DE 15, Reply at 4).

         The Court recognizes that piercing the corporate veil is an equitable doctrine that may be invoked to allow a creditor recourse against the shareholders of a corporation. Inter-Tel Techs., Inc. v. Linn Station Props., LLC, 360 S.W.3d 152, 155 (Ky. 2012). “In short, the limited liability which is the hallmark of a corporation is disregarded and the debt of the pierced entity becomes enforceable against those who have exercised dominion over the corporation to the point that it has no real separate existence.” Id. Courts will treat “limited liability companies the same as corporations for purposes of liability analysis.” Pro Tanks Leasing v. Midwest Propane & Refined Fuels, LLC, 988 F.Supp.2d 772, 788 (W.D. Ky. 2013).

         Under Kentucky law, [3] the test for whether a Court should pierce an entity's corporate veil is two-fold, and “[t]he burden of proof to demonstrate grounds for piercing the corporate veil is on the party seeking to impose liability on the parent corporation.” Id. at 783 (citing Corrigan v. U.S. Steel Corp., 478 F.3d 718, 724 (6th Cir. 2007)).

         First, the Court must find “domination of the corporation resulting in a loss of corporate separateness.” Inter-Tel, 360 S.W.3d at 165. Second, the Court must find “circumstances under which continued recognition of the corporation would sanction fraud or promote injustice.” Id. The test is conjunctive, and both prongs must be met. See id.

         At the pleading stage, the plaintiff must put forth sufficient facts to state a plausible claim on both elements. See Arapahoe Res., LLC v. Prof l Land Res., LLC, No. 15-10-ART, 2015 WL 4887321, at *3, *5 (E.D. Ky. Aug. 17, 2015).

         1. Domination of the corporation resulting in a loss of corporate separateness

         Under the first prong of the veil-piercing analysis, the Court considers a host of equitable factors in determining whether domination of the corporation has resulted in a loss of corporate separateness. These factors include:

(1) Inadequate capitalization;
(2) Failure to issue ...

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