United States District Court, District of Columbia
June 29, 1999
MATERIAL SUPPLY INT'L, INC., PLAINTIFF,
SUNMATCH INDUSTRIAL CO., LTD., ET AL., DEFENDANTS. SUNMATCH INDUSTRIAL CO., LTD., COUNTERCLAIMANT, V. MATERIAL SUPPLY INT'L, INC., JEWETT-CAMERON LUMBER CORP. AND MSI-PRO CO., INC., COUNTERCLAIM DEFENDANTS.
The opinion of the court was delivered by: Urbina, District Judge.
Denying Without Prejudice Motion to Dismiss Sunmatch's Amended
Counterclaims Against Jewett-Cameron and MSI-Pro; Granting
Sunmatch Discovery on Alter-Ego Issue; Granting Material Supply
International's Motion for First-Use and Expert Discovery
These matters come before the court upon a motion to dismiss
the counterclaims asserted by defendant Sunmatch Industrial
Company, Limited ("Sunmatch") against MSI-Pro Company,
Incorporated ("MSI-Pro") and Jewett-Cameron Lumber Corporation
("Jewett"). Sunmatch has not alleged that MSI-Pro or Jewett
wronged Sunmatch or had any contacts with the District of
Columbia ("District"). Rather, Sunmatch seeks to impute the
jurisdictional contacts of the plaintiff, Material Supply
International, Inc. ("MSI") to MSI-Pro and Jewett on the ground
that they were MSI's successor and alter-ego, respectively.
Because MSI-Pro and Jewett deny that these entities were the
alter egos of MSI, they contend that MSI's jurisdictional
contacts should not be imputed to them. Accordingly, MSI-Pro and
Jewett ask the court to dismiss the counterclaims for lack of
personal jurisdiction and for failure to state a claim.
After reviewing Sunmatch's amended counterclaims, the
submissions of the parties and the relevant law, the court
concludes that the motion to dismiss will be denied without
prejudice. For the reasons which follow, Sunmatch shall be
afforded discovery bearing on its contention that MSI-Pro and
Jewett are the alter egos of MSI. Following discovery, MSI-Pro
and Jewett shall file dispositive motions in accordance with the
timetable set forth in the attached order.
A. The Contract and Trademark Disputes between MSI and
Defendant Sunmatch is a company based in Taipei, Taiwan, that
manufactures pneumatic tools under the trademark "Suntech."*fn1
The plaintiff, MSI, is an Oregon corporation with its principal
place of business in Portland which entered into an exclusive
licensing agreement with Sunmatch to sell Suntech tools in the
United States. The agreement, effective from December 1985
through November 1990, stated that Sunmatch would supply MSI with
"Suntech" tools for sale in all of North America and Hawaii. Am.
Counterclaim ¶ 93. After marketing and selling Sunmatch's Suntech
tools in the U.S. for several years, MSI filed for and obtained
registration of the Suntech trademark in October 1991, without
Sunmatch's consent or knowledge. Id. ¶ 94. Upon discovering
this, Sunmatch filed a petition with the Trademark Trial and
Appeals Board ("TTAB") to cancel MSI's registration. In March
1994, the TTAB granted summary judgment to Sunmatch and issued
Cancellation No. 20,482.
By amended complaint filed in June 1994, MSI sought review of
the TTAB's decision and asserted additional causes of action
against Sunmatch.*fn2 Sunmatch answered and asserted
counterclaims against MSI in September 1994.
B. First Trial on Contract and Trademark Claims between MSI
The claims between MSI and Sunmatch were tried in February
1996. The court affirmed the TTAB and concluded that Sunmatch was
the owner of the Suntech trademark, primarily because it found
that Sunmatch was the first to use that name. The court therefore
dismissed MSI's claims for trademark infringement, common-law
unfair competition, injunctive relief and fraud on the Patent and
Trademark Office ("PTO"), pursuant to Fed. R.Civ.P. 50(a).
The court presented its conclusion that Sunmatch was the owner
of the trademark to the jury and instructed it to deliberate on
the remainder of the claims. The jury upheld MSI's claim against
Sunmatch for breach of fiduciary duty, for which it awarded MSI
$50,000 in compensatory and $100,000 in punitive damages, but it
rejected MSI's claims for fraud and breach of contract. The jury
upheld Sunmatch's counterclaims for trademark infringement, fraud
on the PTO and breach of contract, for which it awarded Sunmatch
$908,500. The jury rejected Sunmatch's counterclaims for unfair
competition under federal and state law.
This court entered judgment pursuant to these verdicts in March
1996. After considering post-judgment motions, the court issued
an opinion and order in May 1997.
C. Appeal from First MSI-Sunmatch Trial
Both MSI and Sunmatch appealed. In July 1998, the Court of
Appeals affirmed in part, reversed in part and remanded. MSI v.
Sunmatch, 146 F.3d 983 (D.C.Cir. 1998). Specifically, the Court
affirmed the jury's award of $150,000 to MSI on its
claim that Sunmatch breached its fiduciary duty. The Court also
affirmed the jury's verdict in favor of Sunmatch on MSI's claims
for breach of contract, fraud on the TTAB and fraud on MSI. See
MSI, 146 F.3d at 994. Conversely, the Court held that this court
violated MSI's Seventh Amendment right to a jury trial by
deciding who owned the trademark before submitting the other
claims to the jury. See id. Accordingly, the Court remanded for
a new jury trial "of all causes of action that entail the
question which party owned the Suntech trademark", namely (1)
MSI's challenge to the TTAB decision awarding the trademark to
Sunmatch; (2) Sunmatch's claims for breach of contract and fraud
on the PTO; and (3) MSI and Sunmatch's claims for trademark
infringement and unfair competition under federal and state law.
Id. at 989. As a result, Sunmatch lost the $908,500 verdict it
had won on its claims that MSI committed trademark infringement,
fraud on the PTO and breach of contract. Sunmatch gained,
however, the opportunity to re-try its unfair-competition claims.
Only MSI's $150,000 judgment for breach of fiduciary duty remains
D. The Joinder of Counterclaim Defendants MSI-Pro and
On April 1, 1996, approximately one month after the conclusion
of the first trial, plaintiff MSI's parent company, Jewett,
incorporated MSI-Pro, Inc., an Oregon corporation importing,
distributing and retailing industrial tools. Mot. to Dis., Ex. 1;
Mot. to Join MSI-Pro and Jewett filed Sept. 8, 1997 ("Mot. to
Join"). On August 9, 1996, MSI merged its operations into MSI-Pro
and became an inactive corporation. Mot. to Join, Ex. 2. Sunmatch
alleges that MSI transferred all its assets to MSI-Pro, but none
of its submissions say so in so many words.
In September 1997, Sunmatch filed a motion to join MSI-Pro and
Jewett as counterclaim defendants pursuant to Fed. R.Civ.P.
25(c). This court granted the motion in December 1998.
E. Sunmatch's Counterclaims against MSI-Pro and Jewett
On January 4, 1999, Sunmatch filed an amended counterclaim
against MSI-Pro and Jewett. Sunmatch alleged that MSI-Pro and
Jewett are jointly and severally liable for MSI's wrongful acts.
On February 19, 1999, MSI-Pro and Jewett filed a joint motion to
dismiss Sunmatch's counterclaims. They contend that because they
are not MSI's alter-egos, the court lacks personal jurisdiction
and must dismiss the counterclaims against them.
Although "[f]indings of fact and conclusions of law are
unnecessary on decisions of motions under Rule 12," Fed.R.Civ.P.
52(a); Summers v. DOJ, 140 F.3d 1077, 1079-80 (D.C.Cir. 1998),
the court nonetheless sets forth its reasoning.
A. Motion to Dismiss for Lack of Personal Jurisdiction and
Motion to Dismiss for Failure to State a Claim
1. The Standard for Personal Jurisdiction over Nonresident
MSI-Pro and Jewett move to dismiss Sunmatch's counterclaims on
two grounds: lack of personal jurisdiction under Fed.R.Civ.P.
12(b)(2) and failure to state a claim under Fed.R.Civ.P.
12(b)(6). MSI-Pro and Jewett contend that the court does not have
personal jurisdiction over them because neither has sufficient
contacts with this jurisdiction. Both MSI-Pro and Jewett are
Oregon corporations with their principal places of business in
Oregon. District of Columbia law controls the extent to which the
court may exercise personal jurisdiction over a nonresident
defendant. See Crane v. Carr, 814 F.2d 758, 762 (D.C.Cir.
1987). The District's "long-arm statute" provides that the court
"may exercise personal jurisdiction over a person, who acts
directly or by an agent, as to a claim for relief arising from
the person's: (1) transacting any business in
the District. . . ." D.C.Code § 13-423(a)(1). A single act in the
District may be enough to constitute "transacting business." See
Mitchell Energy Corp. v. Mary Helen Coal Co., 524 F. Supp. 558,
563 (D.D.C. 1981) (citation omitted). Moreover, a defendant need
not ever be physically present in the District to "transact
business" within the meaning of the statute. FDIC v. O'Donnell,
136 B.R. 585, 591 (D.D.C. 1991).
The long-arm statute provides for jurisdiction to the fullest
extent permissible under the Due Process Clause. See Fisher v.
Bander, 519 A.2d 162, 163 (D.C. 1986). Accordingly, the
appropriate inquiry is whether MSI-Pro and Jewett have the
requisite "minimum contacts" with the District so that the
exercise of personal jurisdiction would not offend "traditional
notions of fair play and substantial justice." Hughes v. A.H.
Robins Co., Inc., 490 A.2d 1140, 1145 (D.C. 1985) (citation
omitted). A defendant establishes minimum contacts by
purposefully availing himself of the privilege of conducting
activities within the forum jurisdiction, thus invoking the
benefits and protections of its laws. See Hanson v. Denckla,
357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). The
contacts must be such that the non-resident "should reasonably
anticipate being haled into court" in the forum jurisdiction.
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100
S.Ct. 559, 62 L.Ed.2d 490 (1980).
MSI-Pro and Jewett are affiliated with MSI. Ordinarily, a
corporation's contacts with a forum may not be attributed to
affiliated corporations. See Shapiro, 24 F. Supp.2d at 70. An
exception exists, however, when the party which contests
jurisdiction is an "alter ego" of an affiliated party over which
the court has uncontested jurisdiction; in that case the
affiliated corporation's jurisdictional contacts may be imputed
to the party. See Chase v. Pan-Pacific Broadcasting,
617 F. Supp. 1414, 1425 (D.D.C. 1985). Accordingly, Sunmatch may
demonstrate jurisdiction over MSI-Pro and Jewett by proving that
they are alter egos of MSI.
If Sunmatch does not prove that MSI-Pro and Jewett are
alter-egos of MSI, it could establish jurisdiction only by
presenting evidence of MSI-Pro and Jewett's own individual
contacts with the District. See Shapiro, 24 F. Supp.2d at 70.
But Sunmatch has not alleged that MSI-Pro and Jewett have any
contacts with the District. Consequently, if Sunmatch does not
prove that MSI-Pro and Jewett are MSI's alter egos, its
counterclaims may be dismissed as to MSI-Pro and Jewett for lack
of personal jurisdiction and for failure to state a claim.
2. Deciding Personal Jurisdiction on a Motion to Dismiss
To survive a motion to dismiss for lack of personal
jurisdiction, the nonmovant need only make out a prima facie case
that such jurisdiction exists. See Crane v. New York Zoological
Society, 894 F.2d 454, 458 (D.C.Cir. 1990). For purposes of this
motion to dismiss, Sunmatch's well-pleaded allegations are
regarded as true, see Gray v. Bell, 712 F.2d 490, 493 n. 2
(D.C.Cir. 1983) and it is afforded the benefit of all inferences
reasonably derived from the facts alleged. See United States v.
BCCI Holdings, 980 F. Supp. 21, 26 (D.D.C. 1997) (citation
omitted). Dismissal is proper only if "it appears beyond doubt
that the [counter-claimant] can prove no set of facts in support
of his claim which would entitle him to relief." Kenneda v.
United States, 880 F.2d 1439, 1442 (D.C.Cir. 1989). "Conclusory
allegations or legal conclusions masquerading as factual
conclusions," however, "will not suffice to prevent a motion to
dismiss." 2 Moore's Federal Practice, s. 12.34[b] at 12-61 to
3. Determining Whether Jewett is MSI's Alter-Ego
i. Standard for Determining Whether Subsidiary is Alter-Ego of
Whether one corporation is the alter ego of another is a
question of law to
be decided by the court. See Joyce v. Silveri Tile Co.,
27 F. Supp.2d 251, 256 (D.D.C. 1998) (citation omitted). The courts
have applied four tests to determine whether a parent corporation
is liable for the acts of its subsidiary:
(1) the "agency" test, which asks whether the
parent exercises a significant degree of control
over the subsidiary's decisionmaking;
(2) the "alter ego" test, which permits the court
to pierce the corporate veil when necessary to
prevent fraud, illegality or injustice;
(3) the "instrumentality" test, which asks whether
the parent exercised extensive control over the
wrongful acts of the subsidiary; and
(4) the "integrated enterprise" test, which
considers interrelation of operations,
centralized control of labor relations, common
management and ownership or financial control.
Richard v. Bell Atlantic Corp., 946 F. Supp. 54, 61 (D.D.C.
1996) (citation omitted). All four tests are ultimately concerned
with resolving the same question: whether the parent corporation
"so dominated the [subsidiary] corporation as to negate its
separate personality." Hart v. Department of Agriculture,
112 F.3d 1228, 1231 (D.C.Cir. 1997) (citation omitted). The court
must undertake a two-pronged analysis to determine whether MSI
retained a corporate personality distinct from Jewett's: (1)
whether there is "such unity of interest and ownership that the
separate personalities of [MSI] and [Jewett] no longer exist";
and (2) whether an inequitable result will follow if the court
treats MSI's allegedly wrongful acts as those of MSI alone.
Smith v. Washington Sheraton Corp., 135 F.3d 779
, 786 (D.C.Cir.
1998); Camacho v. 1440 Rhode Island Ave. Corp., 620 A.2d 242
249 (D.C. 1993).
To show the requisite unity of interest and ownership, Sunmatch
must show that Jewett's control over MSI is "active and
substantial", but the control "need not be exclusive in a
hypertechnical or day-to-day sense." Valley Finance, 629 F.2d
at 172. The test is a practical one, based on a reading of the
circumstances. Id. To assess whether there is a unity of
interest and ownership, the court may consider the nature of the
corporate ownership and control; failure to maintain corporate
minutes or records; failure to maintain corporate formalities;
commingling of funds and assets; diversion of one corporation's
funds to the other's uses; and use of the same office or business
location. Labadie Coal Co. v. Black, 672 F.2d 92, 97-99
Subsidiary as Mere Instrumentality of Parent. The fact that
MSI is owned solely by Jewett "is not by itself sufficient" to
show the two are alter egos, "although it is certainly not
irrelevant." Valley Finance, 629 F.2d at 172. Rather, to assess
whether Jewett so controlled MSI as to render it a mere
instrumentality, the court will consider a host of factors, none
of which is dispositive: whether parent and subsidiary have
common business departments; whether the parent finances the
subsidiary; whether the parent incorporated the subsidiary;
whether the subsidiary is inadequately capitalized; whether
parent and subsidiary file consolidated financial statements and
tax returns; whether they have a joint accounting and payroll
system; whether the subsidiary is operated as a mere division of
the parent; whether the subsidiary depends on the parent for
substantially all of its business; whether the subsidiary's
obligations are assumed to be those of the parent; whether the
subsidiary's property is used by the parent as its own; and
whether the subsidiary is operated exclusively in the interest of
the parent. Bulletin Broadfaxing Network, Inc. v. Times Mirror
Co., 1992 WL 121477, *5 (D.D.C. 1992).
By contrast, it is not relevant that the parent ultimately
benefitted from the activities of the subsidiary or that the
subsidiary's supervisors reported to the parent's
officers. Richard v. Bell Atlantic Corp., 946 F. Supp. 54, 62-63
Subsidiary as Agent. Sunmatch may also show that MSI is
Jewett's alter-ego if it can show that MSI was simply Jewett's
agent. See First Chicago Int'l. v. United Exchange Co.,
836 F.2d 1375, 1378-79 (D.C.Cir. 1988). Bare allegations of agency,
of course, are insufficient. See Sunlite, Inc. v. BfG Bank AG,
849 F. Supp. 74, 76 (D.D.C. 1994). Nor is agency established by
showing merely that parent and subsidiary are in the same
business and have worked together in the past. See El-Fadl v.
Central Bank of Jordan, 75 F.3d 668 (D.C.Cir. 1996).
Sunmatch may establish agency by demonstrating first that
Jewett's ownership of MSI was not "a mere investment", but rather
"an alternative means of transacting business by the parent
corporation." Caribe Trailer Systems, Inc. v. Puerto Rico
Maritime Shipping Authority, 475 F. Supp. 711, 718 (D.D.C. 1979).
See, e.g., Ramamurti v. Rolls-Royce, Ltd., 454 F. Supp. 407,
408-411 (D.D.C. 1978), aff'd, 612 F.2d 587 (D.C.Cir. 1980)
(although Rolls-Royce had no contacts with the District, the
court exercised jurisdiction over it by virtue of its subsidiary
RRI's undisputed contacts with the District, since RRI's business
consisted solely of providing marketing information and service
support for engines manufactured and sold by Rolls-Royce).
The plaintiffs in Ramamurti showed not only that RRI was
Rolls-Royce's agent, but specifically that it was Rolls-Royce's
agent with respect to the matter for which Rolls-Royce was haled
into court: its manufacture and sale of an allegedly defective
airplane engine. Ramamurti, 454 F. Supp. 407. Likewise, it is
not enough for Sunmatch to show that MSI was Jewett's agent in
some general sense. Sunmatch must show that MSI was Jewett's
agent with respect to MSI's allegedly wrongful acts against
Sunmatch. See Caribe Trailer Systems, 475 F. Supp. at 718.
Equitable Considerations in Piercing the Corporate Veil.
Proof that MSI was Jewett's agent or instrumentality demonstrates
"unity of interest and ownership", the first of the two criteria
for "domination" which "negates [MSI's] separate personality."
Hart, 112 F.3d at 1231. Sunmatch must next show that it would
be inequitable to treat MSI's allegedly wrongful acts as those of
MSI alone. Labadie Coal Co., 672 F.2d at 96.
A corporate entity may be disregarded in the interest of public
convenience, fairness and equity. See, e.g., Capital Telephone
Co. v. FCC, 498 F.2d 734, 738 (D.C.Cir. 1974) (where both
corporation and owner applied for radio paging channels, FCC
properly pierced veil and granted only one application on behalf
of both). In short, once unity of interest and ownership is
shown, equity counsels piercing the veil whenever "adherence to
the fiction of the separate existence of the corporation would
sanction a fraud or promote injustice." Shapiro, Lifschitz v.
Hazard, 24 F. Supp.2d 66, 70 n. 3 (D.D.C. 1998) (citation
omitted). See also Bingham v. Goldberg, Marchesano,
637 A.2d 81, 93 (D.C. 1994).
ii. Evidence Presented that Jewett is MSI's Alter Ego
Thus far, Sunmatch has offered little detailed evidence in
support of its contention that Jewett is MSI's alter ego.
Sunmatch relies on the fact that MSI is a wholly-owned subsidiary
of Jewett and has the same President, Secretary-Treasurer,
address and registered agent as Jewett. Opp. to Mot. to Dis. at
10; Am. Counterclaim ¶¶ 77-8. The existence of common officers is
relevant to the alter ego analysis, but Sunmatch must also show
that those officers actually helped Jewett control MSI. Under the
[C]ontrol of one corporation by another is a
necessary element and . . . the control must be a
proximate cause of the alleged injustice at issue.
Moreover, the control must not be merely theoretical.
For instance, majority ownership is not enough, nor
is it enough that the directors and officers of the
principal are also directors and officers of the
alleged "instrumentality." Rather, the theoretical
control must be so exercised that the prime function
of one corporation is but to serve the other.
In re Washington Medical Center, Inc., 10 B.R. 616, 622
(Bankr.D.C. 1981) (citation omitted). Sunmatch does assert that
Jewett President Boone "has always made the ultimate business and
financial decisions for MSI and did so even before he assumed the
presidency of MSI." Am. Counterclaim ¶ 81. The only support
offered for this assertion, however, is Sunmatch's claim that
"counsel for MSI stated on several occasions that he was
primarily serving as an agent for Jewett-Cameron, and its
president, Donald Boone." Id. Sunmatch has not yet identified
the "counsel for MSI" who allegedly made this statement or when
he did so. Lastly, Sunmatch argues that Jewett's domination of
MSI is evidenced by the fact that Jewett dissolved MSI and
ordered the transfer of its assets to a new corporation, MSI-Pro.
Opp. to Mot. to Dis. at 10-11.
For its part, Jewett generally assails the paucity of
Sunmatch's evidence and points out that it is in a different line
of business from MSI: Jewett supplies lumber and "value-added
building materials", while MSI imported and sold power tools and
equipment. Nasser Affidavit re: Jewett ¶¶ 3-4; Am. Counterclaim ¶
87. Jewett notes that Sunmatch has not tried to rebut its
affidavit stating that it "has never been `involved in any way in
the importation, distribution or sale of products bearing the
Suntech trademark nor ever claimed ownership or rights relating
to the Suntech trademark.'" Reply in Support of Mot. to Dis. at
This relatively meager record does not enable the court to make
a well-informed assessment of the true relationship between MSI
and Jewett. First, under District of Columbia law, the fact that
Jewett owns MSI is relevant, but not dispositive. "Courts have
uniformly held that stock ownership and shared corporate officers
and directors is insufficient as a matter of law to meet the mere
instrumentality test." Bulletin Broadfaxing v. Times Mirror
Co., 1992 WL 121477, *7 (D.D.C. 1992) (citation omitted). To
demonstrate that MSI is the alter ego of Jewett, Sunmatch will
need to address other factors under the instrumentality or agency
tests. Neither party has proffered evidence, for instance,
showing whether MSI and Jewett had common business departments;
whether Jewett financed MSI; whether MSI was inadequately
capitalized; whether MSI and Jewett filed joint financial
statements and tax returns or had a joint accounting and payroll
system; whether MSI was operated as a mere division of Jewett;
whether MSI depended on Jewett for substantially all of its
business; whether MSI's obligations were assumed to be Jewett's;
whether MSI's property was used by Jewett as its own; and whether
MSI was operated exclusively in Jewett's interests. See Bulletin
Broadfaxing, 1992 WL 121477 at *5.
iii. Limited Discovery is Needed to Determine Whether MSI
was Jewett's Alter Ego
The court is wary of dismissing Jewett, however, since Sunmatch
has not had an opportunity to obtain information from Jewett and
MSI about their relationship. Without affording Sunmatch that
opportunity, the court cannot ascertain whether Sunmatch's
failure to produce more persuasive evidence on that relationship
is due to a lack of discovery or a lack of evidence. Cf. El-Fadl
v. Central Bank of Jordan, 75 F.3d 668, 676 (D.C.Cir. 1996)
("[e]ven though El-Fadl's present jurisdictional allegations are
insufficient, he has sufficiently demonstrated that it is
possible that he could supplement them through discovery");
Sargent v. McGrath, 685 F. Supp. 1087
, 1090 (E.D.Wis. 1988)
("even the rather weak showing of a connection in
labor relations between the two corporations raises a genuine
issue of material fact for trial with respect to the nature and
extent" of the relationship between parent and subsidiary).
Accordingly, the court denies the motion to dismiss, but
without prejudice. Sunmatch shall be entitled to conduct
discovery on the alter-ego issue as specified in the order
accompanying this opinion. Following discovery, MSI-Pro and
Jewett will be entitled to file motions seeking summary judgment
for lack of personal jurisdiction.
This procedure is consistent with the practice of courts in
this Circuit. Our courts have ordered discovery to illuminate
alter ego disputes before deciding dispositive motions which
asserted lack of jurisdiction over the alleged alter ego. United
Mine Workers v. Arch Mineral Corp., 145 F.R.D. 3 (D.D.C. 1992);
Richard v. Bell Atlantic, 946 F. Supp. 54 (D.D.C. 1996). Cf.
Labadie Coal Co. v. Black, 672 F.2d 92, 98 (D.C.Cir. 1982)
(vacating decision not to pierce veil and ordering discovery
which might show commingling of funds of corporation and
4. Determining Whether MSI-Pro is MSI's Alter Ego
i. Standard for Determining Whether One Corporation is
Another Corporation's Successor
Sunmatch contends that MSI-Pro is the successor to MSI. See
Opp. to Mot. to Dis. at 11-13. Under District of Columbia law, a
successor corporation is not liable for the wrongs of its
predecessor, with four well-recognized traditional exceptions:
[A] corporation which acquires all or part of the
assets of another corporation does not acquire the
liabilities and debts of the predecessor, unless: (1)
there is an express or implied agreement to assume
the liabilities; (2) the transaction amounts to a
consolidation or merger; (3) the successor entity is
a mere continuation or reincarnation of the
predecessor entity; or (4) the transaction was
fraudulent, not made in good faith, or made without
Bingham v. Goldberg, Marchesano, 637 A.2d 81
, 89-90 (D.C. 1994)
First Exception — Agreement to Assume Liabilities. Sunmatch
has not alleged that MSI-Pro agreed to assume MSI's liabilities.
To invoke the first exception on an implied-agreement theory,
Sunmatch must do more than show that MSI-Pro serves MSI's former
customers. See LeSane, 791 F. Supp. at 875.
Second and Third Exceptions — Consolidation, Merger or
Continuation. To decide whether a consolidation or merger has
rendered a corporation a "mere continuation" of its predecessor,
the court considers whether the two have common officers and
stockholders; whether the two are in the same line of business;
and whether sufficient consideration was paid for the
predecessor's assets. Bingham, 637 A.2d at 91-92; see also
LeSane, 791 F. Supp. at 875.
The transferee corporation will also be found to be a
continuation of the predecessor if the predecessor ceases to
exist after the transaction. See Minnesota Mining & Manu. v. Eco
Chem, 757 F.2d 1256, 1262 (Fed.Cir. 1985). Even if the
predecessor retains a nominal existence, continuation will be
found where it effectively ceased to exist as an active
corporation. Colonial Ice Cream Co. v. Southland
Ice, 53 F.2d 932, 933-34 (C.A.D.C. 1931) (where one company
sold all its assets, "sale" was no more than a continuation of
the seller's business under a new name and the seller's creditor
could follow its assets to the buyer).
ii. Evidence Presented that MSI-Pro is MSI's Successor
In support of its contention that MSI-Pro is MSI's successor,
Sunmatch points to the fact that the two corporations have the
same President and the same address. Am. Counterclaim ¶ 86.
Sunmatch also alludes to "common directors and officers", but
does not specify who they are. Sunmatch relies more heavily,
however, on the nature and timing of MSI's "dissolution" in April
1996. Id. ¶ 83. Whether or not "dissolution" is the appropriate
term, Sunmatch has presented evidence that MSI merged its
operations into those of MSI-Pro and became an inactive
corporation on August 9, 1996. Mot. to Join, Ex. 2. Moreover,
MSI-Pro was incorporated in April 1996, shortly before its merger
with MSI. Accordingly, Sunmatch alleges that the merger was
carried out to ensure that MSI had no assets to satisfy this
court's March 1996 judgment against it. Am. Counterclaim ¶ 83.
The timing of MSI-Pro's incorporation and MSI's inactivation is
inconclusive proof that MSI-Pro was created to defeat the
judgment, but it is consistent with Sunmatch's suspicion on that
A persuasive indication that MSI merged with MSI-Pro to defeat
enforcement of judgment would show much to support the contention
that MSI-Pro is MSI's successor. See Valley Finance v. United
States, 629 F.2d 162, 172 (D.C.Cir. 1980) (evidence of
fraudulent intent is probative in determining whether one
corporation is alter ego of another) (citation omitted).
iii. Limited Discovery is Needed to Determine Whether
MSI-Pro is MSI's Successor
As with the MSI-Jewett relationship, additional information
will enable the court to make a more educated determination of
whether MSI-Pro is MSI's successor. Significantly, MSI-Pro has
not disputed Sunmatch's contention that it received substantially
all of MSI's assets. Cf. Richard v. Bell Atlantic, 946 F. Supp. 54,
65 (D.D.C. 1996) ("Although the plaintiffs have offered no
admissible evidence in support of this assertion [that every new
hire and applicant for promotion at the subsidiary was subject to
a uniform test developed by the parent], the defendants have not
contested it, suggesting to the Court" that the assertion might
be true). If the asset transfer took place, there is a real
possibility that it rendered MSI incapable of satisfying any
judgment. The need to avoid such an inequitable outcome
reinforces the need for discovery as to MSI's relationship with
For the foregoing reasons, Sunmatch shall be permitted to
conduct limited discovery on the nature and extent of the
MSI/MSI-Pro relationship as set forth in the attached order.
B. Plaintiff MSI's Unrelated Motion for Additional Limited
On October 26, 1998, plaintiff MSI filed a motion seeking
discovery regarding documents on which Sunmatch may rely for its
claim that it was the first to use the Suntech trademark in the
United States. MSI also seeks discovery of any expert witness on
whom Sunmatch may rely at retrial. The motion is granted, subject
to the conditions set forth in the attached order. See Edmond v.
United States Postal Service Gen. Counsel, 949 F.2d 415, 425
(D.C.Cir. 1991) ("As a general matter, discovery under the
Federal Rules of Civil Procedure should be freely permitted. . .
."); Fed.R.Civ.P. 26(b)(1) ("Parties may obtain discovery
regarding any matter, not privileged, which is relevant to the
subject matter involved in the pending action, . . . .").