United States District Court, E.D. Kentucky, Southern Division
OPINION AND ORDER
K. CALDWELL, CHIEF JUDGE UNITED STATES DISTRICT COURT EASTERN
DISTRICT OF KENTUCKY
matter is before the Court on the defendants' motion to
dismiss (DE 14). With their motion, the defendants argue that
this matter must be dismissed because the Court does not have
personal jurisdiction over them and because the plaintiff,
Martin County Economic Development Authority, Inc.
(“Martin County”), has failed to state a claim.
least for purposes of this motion, the defendants do not
dispute the facts asserted in Martin County's complaint.
They agree that, in early 2011, one of the defendants - Cone
Drive Operations, Inc. - approached Martin County about
constructing a customized facility on property owned by
Martin County for the purpose of manufacturing gear boxes for
underground mining and conveyer systems. Cone Drive was a
well-known company in the mining industry and, for that
reason, Martin County agreed to construct the facility.
County's board members met with representatives of Cone
Drive and of another defendant, David Brown Gear Systems,
Ltd. (“David Brown UK”), which is an English
corporation. According to the complaint, David Brown UK and
Cone Drive are both owned by the fourth defendant, Clyde
Blowers Capitol, PLC (“Clyde Blowers”).
of Cone Drive and David Brown UK made numerous trips to
Martin County and conducted extensive negotiations with
Martin County about the facility. Eventually, representatives
of Cone Drive came to Martin County to participate in the
construction and to scout housing within driving distance of
the facility. Cone Drive representatives also applied to and
met with the Kentucky Cabinet for Economic Development on
behalf of Martin County to obtain incentives and support for
February 14, 2011, David Brown UK sent a signed letter of
intent to Martin County. Cone Drive and Martin County then
circulated draft leases. At some point Martin County
customized the facility to accommodate the defendants'
requirements, spending approximately $3 million. On February
17, 2012, a Cone Drive employee e-mailed Martin County to say
that the name of the tenant on the final lease should be
changed from Cone Drive to David Brown Systems Service and
Repair Center, Inc. (“David Brown Kentucky”). On
March 21, 2012, David Brown Kentucky and Martin County signed
a 15-year lease, requiring David Brown Kentucky to pay $18,
996.44 per month. David Brown Kentucky took possession of the
facility on that same day.
Brown Kentucky never experienced the business it anticipated
at the Martin County facility. Accordingly, in July 2014, it
ceased operations and left the premises. It never paid rent
October 2014, Martin County filed suit against David Brown
Kentucky in Kentucky state court asserting that it owes over
$3 million under the lease. In June 2015, however, David
Brown Kentucky filed a voluntary Chapter 7 petition in
Delaware. Martin County has asserted a claim in that action,
which remains pending.
County then brought this action against Cone Drive, David
Brown UK, and Clyde Blowers and a fourth company, Unigear
David Brown Systems [Canada], Inc. Martin County asserts
these four companies are all related and that David Brown
Kentucky was simply their “alter ego.” (DE 1,
Complaint, ¶ 24.) The defendants then removed the action
to this Court asserting that this Court has subject-matter
jurisdiction over the action pursuant to federal diversity
jurisdiction. 28 U.S.C. § 1332(a)(3). The defendants now
move to dismiss the action against them, arguing that this
Court does not have personal jurisdiction over them and that
the plaintiffs have failed to state a claim.
must, the Court will first address the issue of personal
jurisdiction. None of the defendants is a resident of
Kentucky. In determining whether personal jurisdiction exists
over these defendants in this diversity case, this Court
“must apply the law of the state in which it sits,
subject to constitutional limitations.” Reynolds v.
Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1115
(6th Cir.1994). This means that “[t]he defendant must
be amenable to suit under the forum state's long-arm
statute and the due process requirements of the Constitution
must be met.” CompuServe, Inc. v. Patterson,
89 F.3d 1257, 1262 (6th Cir. 1996) (citation omitted).
analyzing personal jurisdiction under the due-process clause
or Kentucky's long-arm statute, however, the Court must
first determine what claims the plaintiff is asserting. This
is because, under both provisions, when the plaintiff asserts
that the Court has specific jurisdiction over a defendant as
the plaintiff does here, the Court must ascertain whether the
claims asserted in the complaint “arise from” the
actions that the defendant allegedly directed at the state.
See KRS§ 454.210(2)(a); Southern Mach. Co.
v. Mohasco Industries, Inc., 401 F.2d 374, 381
(6th Cir. 1968).
prayer for relief, Martin County asks for judgment against
the defendants for “breach of the terms of the Lease
Agreement.” In its complaint, Martin County also
alleges that David Brown Kentucky was the “alter
ego” of all four named defendants. An alter ego claim,
however, is not by itself a cause of action.” In re
RCS Engineered Prod. Co., Inc., 102 F.3d 223, 226 (6th
Cir. 1996). “Rather, it is a doctrine which
‘fastens liability on the individual who uses a
corporation merely as an instrumentality to conduct his or
her own personal business, and such liability arises from
fraud or injustice perpetuated not on the corporation but on
third persons dealing with the corporation.'”
Id. (quoting 1 Fletcher Cyclopedia on the Law of
Private Corporations § 41.10 at 615 (1990)).
A claim based on the alter ego theory is not in itself a
claim for substantive relief, but rather is procedural. A
finding of fact of alter ego, standing alone, creates no
cause of action. It merely furnishes a means for a
complainant to reach a second corporation or individual upon
a cause of action that otherwise would have existed only
against the first corporation. An attempt to pierce the
corporate veil is a means of imposing liability on an
underlying cause of action such as ...