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Babcock Power, Inc. v. The Sterling Group, LP

United States District Court, W.D. Kentucky, Louisville

July 25, 2017

BABCOCK POWER, INC., PLAINTIFFS
v.
THE STERLING GROUP, LP DEFENDANT

          MEMORANDUM OPINION

          CHARLES R. SIMPSON III, SENIOR JUDGE

         This matter is before the court on motion of the defendant, The Sterling Group, LP (“Sterling”), to dismiss the complaint for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2). Additionally, Sterling urges that certain of the plaintiffs' causes of action fail to state a claim upon which relief can be granted. As we conclude that personal jurisdiction over Sterling is lacking, we will not delve into the sufficiency of the other particular claims.

         Babcock Power, Inc. and Vogt Power International, Inc. (collectively, “Babcock”) filed suit against Stephen T. Kapsalis (the “Kapsalis suit”) in July of 2013. Babcock amended its complaint to add Express Group Holdings, LLC as a defendant in November, 2014. Express Group Holdings, LLC (“Express”) filed a petition in bankruptcy under Chapter 7 in the Northern District of Oklahoma on November 9, 2016. Babcock filed the above-captioned lawsuit (the “Sterling suit”) against Sterling on December 9, 2016.

         The Sterling suit seeks to impose liability on Sterling by alleging various affiliations between Sterling and Kapsalis/Express. Particularly, the complaint states:

Personal jurisdiction over Sterling is proper based on this Court's inherent power to enforce orders it has issued even over non-parties…This Court also has personal jurisdiction over Sterling because various acts or omissions of Sterling giving rise to this Complaint occurred within Kentucky and/or were directed at persons and/or property within Kentucky that resulted in harm.

DN 1, Complaint, ¶ 7.

         Sterling has filed a properly-supported motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(2). It has attached the sworn affidavits of Charles Kevin Garland, a Partner in Sterling, and Bradley Alan Staller, a Director with Sterling, who both aver that they reside in Houston Texas, as do all of the Sterling Partners. Sterling has no offices, employees or partners in Kentucky, owns no real property in Kentucky, conducts no business in Kentucky, and pays no taxes in Kentucky. Additionally, they aver that Sterling does not regularly do business or derive substantial revenue from goods used or consumed or services rendered in Kentucky.

         Particularly, with regard to each affiant's affiliation with Express and Kapsalis, the affidavits establish the following:

(1) In 2010, Sterling's affiliate, Sterling Group Partners II, LP, and an Oklahoma limited liability company, CCCG, LLC, formed Sterling-Express Holdco Corp. (“Holdco”), a Delaware corporation which acquired a controlling 55.1% equity interest in Express.
(2) After Holdco acquired its interest in Express, both Garland and Staller became members of the board of directors of Express. They were both tasked with working with the Express management team to enhance Express' performance. Both had frequent contact from their respective offices in Houston and at Express' home office in Oklahoma. Garland has never acted or had any business dealings on behalf of Express while in Kentucky. Staller has been to Kentucky on behalf of Express only one time, attending a settlement conference in the Kapsalis case as Express' representative.
(3) The hiring of Kapsalis came about through the work of a Pennsylvania search firm, JM Search & Company, Inc., who was retained to provide candidates for the CEO position at Express. JM Search identified Kapsalis as a candidate. Kapsalis was interviewed by Garland and Staller on January 21, 2013 and February 24, 2013 in Houston. All meetings were conducted outside of business hours. Between January 21, 2013 and April 19, 2013 when the employment agreement was executed, emails between Kapsalis and Garland and Staller were sent to and received from Kapsalis personal email address. The employment agreement hiring Kapsalis as CEO of Express was signed by Garland in Houston on behalf of CCCG, LLC, the hiring entity.
(4) After April 19, 2013, email communications were sent to his address at Express.

(DNs 17-2; 23-3).

         Under Kentucky law, “in the face of a properly supported motion for dismissal, the plaintiff may not stand on his pleadings but must, by affidavit or otherwise, set forth specific facts showing that the court has jurisdiction. [citation omitted].” Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991); V-Soft Consulting Group, Inc. v. Logic Corporation, No. 3:16-cv-425-DJH. The plaintiff bears the burden of establishing that jurisdiction exists. Theunissen, ...


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