The opinion of the court was delivered by: Honorable Barry Ted MoskowitzUnited States District Judge
ORDER DENYING KERR INVESTMENT HOLDING CORP. F/K/A IOVATE HEALTH SCIENCES GROUP INC.'S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION
Defendant Kerr Investment Holding Corp. f/k/a Iovate Health Sciences Group Inc. ("Kerr"), has filed a consolidated motion to dismiss for lack of personal jurisdiction under Fed. R. Civ. P 12(b)(2). In a number of the individual cases, Kerr has filed separate motions to dismiss for lack or personal jurisdiction that incorporate by reference the briefing on the consolidated motion. For the reasons discussed below, Kerr's motions are DENIED.
On December 22, 2009, twenty named plaintiffs filed a First Consolidated Amended Class Action Complaint ("CCA Complaint") in this case against Kerr, Iovate Health Sciences, Inc. ("Iovate Sciences"), Iovate Health Sciences U.S.A. Inc. (" Iovate USA"), GNC Corporation, Wal-Mart Stores, Inc., Walgreens Company, CVS Caremark Corp., and Vitamin Shoppe Industries, Inc. The CCA asserts claims for violation of various state consumer protection and unfair competition laws, breach of express and implied warranties, and unjust enrichment based on Defendants' manufacture, marketing, and sale of fourteen Hydroxycut-branded products.
Also pending before the Court are numerous individual personal injury actions that have been transferred as tag-along actions to the In re Hydroxycut Marketing and Sales Practices multi-district litigation. Many of the individual personal injury complaints name Kerr as a defendant in addition to other Iovate defendants, including Iovate Health Sciences Research Inc. ("Iovate Research") and Iovate Health Sciences International Inc. ("Iovate International").
Kerr moves to dismiss the CCA Complaint against it for lack of personal jurisdiction. Kerr has also filed motions to dismiss for lack of jurisdiction in a number of the individual actions (the motions rely upon the papers and argument presented in connection with the Consolidated Motion to Dismiss). *fn1
II. LAW GOVERNING PERSONAL JURISDICTION
In an MDL case, the MDL court applies the law of the transferor forum to determine personal jurisdiction. In re WellNX Marketing and Sales Practices Lit., 2010 WL 3652457, at * 1 (D. Mass. Sept. 15, 2010). This Court can exercise personal jurisdiction over Kerr only to the extent that the transferor court could have. In re Dynamic Random Access Memory, 2005 WL 2988715, at * 2 (N.D. Cal. Nov. 7, 2005).
Personal jurisdiction must comport with the applicable state's long-arm statute as well as with the constitutional requirement of due process. Omeluk v. Langsten Slip and Batbyggeri A/S, 52 F.3d 267, 269 (9th Cir. 1995). Under due process principles, a court may exercise jurisdiction over a nonresident defendant where the defendant's minimum contacts with the forum state render the maintenance of the action inoffensive to traditional concepts of fair play.
In this case, Plaintiffs do not allege that Kerr itself has minimum contacts with the forum states. Rather, Plaintiffs seek to impute the contacts of Kerr's subsidiaries to Kerr under the theories of alter ego and agency. "[A] subsidiary's contacts may be imputed to the parent where the subsidiary is the parent's alter ego, or where the subsidiary acts as the general agent of the parent." Harris Rutsky & Co. Ins. Serv., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1134 (9th Cir. 2003). In diversity cases, when determining whether contacts of a subsidiary may be imputed to the parent for purposes of personal jurisdiction, courts look to the choice-of-law rules of the forum state to decide which state's substantive law on alter ego or agency applies. See, e.g., Bilyeu v. Hohanson Berenson LLP, 2010 WL 3896415, at *9 (W.D. La. Sept. 30, 2010); Hitachi Med. Sys. America, Inc. v Branch, 2010 WL 816344, at * 5 (N.D. Ohio March 4, 2010); Time, Inc. v. Simpson, 2003 WL 23018890, at *2-3 (S.D.N.Y. Dec. 22, 2003).
Defendants do not challenge the existence of personal jurisdiction over the subsidiaries Iovate USA, Iovate Sciences, and Iovate Research, under due process principles or the applicable state long-arm statutes. Assuming the subsidiaries' contacts are sufficient to confer personal jurisdiction over the subsidiaries under the laws of the relevant jurisdictions, if the subsidiaries' contacts are imputed to Kerr, Kerr also satisfies the applicable minimum contacts requirements. Therefore, the focus of the Court's inquiry is on whether the contacts of the subsidiaries may be imputed to Kerr, and the Court need not delve into the differences between the various state long-arm statutes.
Plaintiffs bear the burden of establishing personal jurisdiction over Kerr. Doe, I v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001) (per curiam). However, at this juncture, Plaintiffs need only make a prima facie showing of jurisdiction to survive the motion. Rutsky, 328 F.3d at 1129. Plaintiffs must demonstrate facts that if true would support jurisdiction over Kerr. Id. Unless directly contravened, Plaintiffs' version of the facts is taken as true, and conflicts between the facts contained in the parties' declarations must be resolved in Plaintiffs' favor for purposes of deciding whether a prima facie case for personal jurisdiction exists. Id.
Plaintiffs contend that the contacts of Kerr's subsidiaries can be imputed to Kerr under the theories of alter ego and agency. The Court agrees that the contacts of at least Iovate USA can be imputed to Kerr. As discussed below, the Court finds that Plaintiffs have made out a prima facie case that Iovate USA, which sold the Iovate products and brought in almost all of the income of the Iovate companies, acted as Kerr's agent and alter ego. The evidence supports the conclusion that Kerr and its subsidiaries were engaged in a single business enterprise of developing, marketing, and distributing diet and nutritional supplements and that Kerr, through Paul Gardner, dominated and controlled the day-to-day operations of Iovate USA.
1. Organization and Functions of the Iovate Entities
Kerr is the parent company of over 50 corporations (collectively referred to as the "Iovate Companies"). (Kerr Exs. 3, 4.) Kerr directly owns all of the stock of its subsidiaries Iovate Sciences, Iovate Research, Iovate USA, Iovate International, and Iovate Health Sciences Canada Inc. ("Iovate Canada"). (Id.) Kerr also directly owns the stock of Iovate Copyright Limited, Iomedix Laboratories Inc., a number of "formulations" companies, a number of "Ontario Limited" companies, and Supplement Trademark Holding Ltd., which in turn directly holds the stock of a number of trademark companies. (Id.) The Iovate Companies are engaged in the marketing, distribution, and formulation of diet, muscle building, and health supplements. (Heikkila Dep. 193:12-194:1.)
Kerr provides "working capital" to its subsidiaries by way of a revolving capital credit facility with the Royal Bank of Canada ("RBC"). (Pica Dep. (Pl. Ex. 2) 123:6-25; Pl. Ex. 27 (Credit Agreement).) The credit limit on the credit facility is $41 million. (Pica Dep. 120:8-12.) Kerr is the sole borrower under the credit agreement. (Pica Dep. 54:1-7; Pl. Ex. 27.) The main operating companies access the funds through disbursement accounts against which they can write checks. (Pica Dep. 126:12-19.) The RBC Credit Agreement also set up a "lock box" arrangement under which all payments made to Iovate USA or Iovate Canada are forwarded to a Lock Box set up with RBC. (Pl. Ex. 27 at 12.) RBC is authorized to sweep the Lock Box on a daily basis to set-off any credit balance in the account. (Id.) Kerr also provides insurance coverage for its subsidiaries. Kerr is the named insured on a product liability insurance policy and a general commercial liability policy. (Pl. Exs. 28, 29.) The policies cover the subsidiaries, and the product liability insurance policy also insures vendors who sell Iovate products. (Id.)
Iovate USA was incorporated in Delaware in 2003. (Pl. Ex. 76, Kerr 3507.) Pursuant to a Distribution Agreement, Iovate USA buys products from Iovate International and then sells them. (Pl. Ex. 64.) All of the Hydroxycut products at issue in this MDL were sold to retailers by Iovate USA. (Heikkila Dep. (Pl. Ex. 1) 153:5-8; Pica Dep. 45:11-19.) Iovate USA's largest customers are GNC, Wal-Mart, CVS Pharmacy, AAFES, Walgreens, Rite-Aid, and Costco.
(Pica Dep. 45:20-46:2.) Iovate USA sells products to most states. (Pica Dep. 230:15-21.) Iovate USA also sells product to internet retailers such as Bodybuilding.com. (Pica Dep. 47:3-8.)
Iovate International is a Canadian corporation which procures the product sold by Iovate USA through contracts with third-party manufacturers. (Heikkila Dep. 59:4-6.) No Iovate entity manufactures product. (Id. at 59:14-19.) The main third-party manufacturers are Century Foods, HVL, Garden State Nutrition, Douglas Laboratories, and Protein Research, all of which are located in the United States. (Pica Dep. 41:5-42:12.) Iovate International obtains rights to the intellectual property relating to the manufactured products by entering into license agreements with the relevant Iovate formulation companies (subsidiaries with names ending in "Formulations Ltd."). (Pica Dep. 172:12-25.)
The formulation companies each hold the patents and formulations for specific products. (Heikkila Dep. 74:13-19.) The formulation companies do not have any operations other than holding these assets. (Id. at 74:20-22.) HDM Formulations Ltd. holds the Hydroxycut formulas. (Id. at 74:8-9.) There are also numbered "Ontario Limited" companies, such as "1795536 Ontario Limited," which can be "shelf companies" without an assigned role, or can hold formulas/patents for future products. (Id. at 73:17-74:2.) The formulation companies hold the patents and formulations for current and past products. (Id. at 74:3-5.) The "trademark" companies (subsidiaries with names ending in "Trademark Ltd.") hold the trademarks for the products created by the Iovate Companies. (Pica Dep. 37:11-18.) HDM Trademark Ltd. holds various Hydroxycut trademarks on the U.S. Register and provides a license to Iovate International for the use of the trademarks. (Heikkila Dep. 58:4-9.)
Iovate Research, a Canadian corporation, provides research and development services to all of the Iovate formulations companies. (Heikkila Dep. 63:12-20.) Iovate Research is involved in the reviewing and approval of product labels. (Pica Dep. 246:7-17.)
Iovate Sciences, a Canadian corporation, provides administrative services to Kerr and the other Iovate Companies. (Heikkila Dep. 65:20-23.) Iovate Sciences does not provide services to anyone outside the Iovate group of companies. (Id. at 194:21-195:4.) Under a Services Agreement dated January 1, 2004, between Kerr (then "1328075 Ontario Limited") and Iovate Sciences (then "1599810 Ontario Limited"), Sciences agreed to provide services including general accounting, audits, tax filing and reporting, financial reporting and budgeting, bank reconciliations and cash management, credit checking, pricing, intercompany invoicing, general purchasing, accounts payable, legal, insurance, risk management, and strategic planning and executive management. (Kerr Ex. 9.) It appears that at some point, the Services Agreement was amended to include the provision of services to subsidiaries including Iovate Research, Iovate International, and Iovate USA. (Pl. Ex. 253.) With respect to the products sold by Iovate USA, Iovate Sciences performs the marketing and advertising and employs a sales force that interacts with the third-party vendors. (Heikkila Dep:115:3-6, 171:22-172:9; Pica Dep. 70:12-22.)
Iovate USA's sales make up almost all of the Iovate Companies' income. In 2007, Iovate USA's net sales in the amount of [REDACTED] Iovate Sciences and Iovate Research appear to be the only two Iovate Companies that employ non-officer employees. (Heikkila Dep. 119:9-20, 122:6-8; Pica Dep. 34:4-16.) Iovate Sciences employs approximately 300 individuals and Iovate Research employs approximately 20-30 individuals. (Heikkila Dep. 119:9-11.) The Iovate Companies that own tangible assets are Iovate Sciences and Iovate International. (Pica Dep. 36:15-37:8.) Iovate Sciences and Iovate USA are the only Iovate Companies that have held inventory. (Pica Dep. 50:12-19.) With the exception of Iovate USA, the registered corporate offices of each of the Iovate Companies, including Kerr, are located at 381 North Service Road, Oakville, Ontario, Canada. (Heikkila Dep. 120:23-121:2.) The Iovate Sciences and Iovate Research employees all work at the 381 North Service Road address. (Heikkila Dep. 122:2-7.)
Paul A. Gardiner is, and always has been, the sole director and officer of Kerr. (Heikkila Dep. 103:12-16.) Gardiner is also the President, Secretary, and Treasurer of Kerr. (Id. at 144:25-145:3.) For each of the other Iovate Companies, the sole director is either Gardiner or Terry Begley. Begley has been the sole director of Iovate International, Iovate Research, and Iovate USA since at least January 2005. (Pl. Ex. 76.) Gardiner and Begley serve together as officers in one company, Iovate Sciences; Gardiner is the CEO (as well as Director), and Begley is the COO. (Id.) Other officer positions within Iovate Sciences, such as CFO and Chief Science Officer, have been filled by different individuals. Iovate Sciences is the only Iovate Company that remunerates its officers of directors. (Pica Dep. 209:4-9.)
Since December 31, 1998, The Toronto Oak Trust, formerly known as the Paul Gardiner Family Trust, has owned 100% of the shares of Kerr. (Pl. Exs 4, 6, 9.) Gardiner has acted as the trustee of the Trust and appears to be the primary, if not the only, beneficiary of the Trust. (Pl. Exs. 10, 15, 17, 20, 24; Gardiner Dep. 40:19-41:6.) [REDACTED]
3. Profits and the Bonus Plan
Profits from sales of the Iovate products are concentrated in the formulation companies. Under the license agreements between Iovate International and the formulation companies, International agrees to pay the formulation companies royalties consisting of all revenues from the sales, less certain expenses and services. (Pica Dep. 173:5-16; Ex. 85 (license agreement where Iovate International agrees to pay the formulation company a royalty consisting of all revenues from sales, less certain expenses and 2% of net sales).) Under its Supply Agreement with Iovate International, Iovate USA's profits are limited to 1.3% of its net sales. (Pl. Ex. 64.) Iovate Sciences' profits are limited to costs plus 4%. (Pl. Ex. 26.)
Utilizing a "bonusing down" tax strategy, in certain years, Iovate Sciences and the formulation companies pay profits into an Employee Profit Sharing Plan ("Plan"). (Pica Dep. 212:7-213:17.) [REDACTED]
In or about April 2007, Kerr entered into a loan facility agreement with Iovate Sciences, which allowed Kerr to borrow money from the Plan. (Pl. Exs. 37-38.) Kerr delivered a general security agreement in favor of Iovate Sciences as security for the loan. (Id.) The funds obtained under this loan facility agreement were "reinvested" into the subsidiary companies. (Pica Dep. 222:10-12.)
4. Gardiner's Involvement in Daily Operations
Gardiner was actively involved in the Iovate Companies' dealings with major retailers such as GNC, Walmart, and Rite-Aid, and other retailers such as Sportika, Vitamin Shoppe and Bodybuilding.com. Gardiner personally met with representatives from these retailers and also attended meetings regarding these accounts. See, e.g., Pl. Exs. 123 (Gardiner listed as "required attendee" for 9/5/07 meeting for "Hydroxycut strategy and solution for GNC");164 (Gardiner emails Joe Fortunato of GNC on 11/28/07 about meeting with him and asks if the meeting should be just between the two of them or should include others); 185 (Gardiner is a "required attendee" for 12/21/07 meeting with GNC in Pittsburgh); 136 (GNC emails Gardiner topics of discussion for 1/14/08 conference call); 138 (Gardiner thanks Fortunato for meeting him in New York (in January 2008), and Fortunato responds, "I think it is important that we continue to have these get togethers every 3 or 4 months to ensure we are in sync, capitalizing on every opportunity, and driving the business form the top.");186 (Begley inquires whether Gardiner can meet with Rite-Aid buyers and VP on 1/25/08); 176 (Begley indicates that he and Gardiner would attend all meetings on Saturday at the 2008 Arnolds Classic with GNC, BB.com, Boss, any international customer of any significance, and any major direct customer); 178 (email listing meetings set up for Begley with customers and showing Gardiner as an attendee for the 2/7/08 BB.com meeting, 2/11/08 meeting with Sportika, and 2/29/08 Arnolds Classic); 184 (Sportika thanks Gardiner for flying down to meet with them); 227 (Gardiner is a "required attendee" for a 3/25/08 meeting to review Six Star and Hydroxcycut line extension products for Walmart meeting on 4/3/08); 145 (Gardiner confirms his availability for a meeting with Fortunato on March 26, 2008); 148 (Gardiner is a "required attendee" for 4/3/08 Walmart sports nutrition and diet presentations); 191 (Gardiner is a "required attendee" for a 4/10/8 meeting with GNC); 149 (Gardiner is a "required attendee" for a 5/6/08 meeting re: Bally's Health and Fitness); 150 (Gardiner is a "required attendee" for a 7/24/08 meeting to "discuss Prosource agreement"); 151 (Gardiner is a "required attendee" for an 8/6/08 meeting re: GNC Diet meeting); 152 (Gardiner is a "required attendee" for a 10/15/08 conference call with Fortunato); 206 (Gardiner is a "required attendee" for an 11/6/08 meeting with BB.com); 210 (Mike Canzoneri (VP of Sales at Iovate Sciences) asks whether Gardiner can meet regarding AAFES meeting in November of 2008); 213 (Gardiner listed as "required attendee" ...