Case Document 170 Filed 05/18/20 Page 1 of 10

 

USDC SDNY

UNITED STATES DISTRICT COURT DOCUMENT

SOUTHERN DISTRICT OF NEW YORK ELECTRONICALLY FILED
ESSAR STEEL ALGOMA INC, DOC 

 

DATE FILED: 5/18/2020

 

Plaintiff,

-against-
17 Misc. 360 (AT) (RWL)
NEVADA HOLDINGS, Inc., f/k/a SOUTHERN
COAL SALES CORPORATION, et al., ORDER

Defendants.

 

 

ANALISA TORRES, District Judge:

Plaintiff, Essar Steel Algoma Inc., initiated this action against Defendant, Nevada
Holdings, Inc., f/k/a Southern Coal Sales Corporation (?Southern Coal?), for breach of a coal
supply contract. EC No. 1. On December 7, 2018, Plaintiff ?led a second amended
complaint, adding Defendants James C. Justice Companies, Inc., James C. Justice Companies,
LLC, Bluestone Industries, Inc., Bluestone Coal Corporation, Bluestone Mineral, Inc., f/k/a
Mechel Bluestone, Bluestone Energy Sales Corporation, Coal Corporation, Tams
Management Inc., Encore Leasing LLC, Bluestone Resources Inc., Justice Family Farms,
LLC, and Southern Coal Corporation (collectively, the ?Justice Parties?), as alter egos of
Southern Coal. See Second Amended Complaint at 1, ECF No. 106; see id. 1] 3. The
Justice Parties deny that they are alter egos and move to dismiss the SAC for lack of personal
jlu?isdiction and failru?e to state a claim piu?suant to Federal Rules of Civil Pr?ocediu'e 12(b)(2)
and ECF No. 145; Def. Mem. at 1, ECF No. 145-1. For the reasons stated below,
the motion is DENIED.

BACKGROUND
This action arises from coal supply agreements between Plaintiff and Southern Coal.

SAC 1111 4, 32?44. Plaintiff is ?an integrated primary steel producer.? Id. 1] 25. Southern Coal is

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a producer, procurer, and seller of coal, and one of Plaintiff’s coal suppliers. Id. ¶¶ 26–27.
Plaintiff alleges that Southern Coal repeatedly breached its agreements with Plaintiff by failing
to deliver the quantity of coal specified in the contracts and by delivering coal that does not meet
quality specifications. Id. ¶ 5; see also ¶¶ 6–9, 45–81. Exhibit 2 of the original supply
agreement sets forth monetary penalties for nonconforming coal and Plaintiff claims that more
than $1,200,000 is due under that provision. See id. ¶¶ 9, 78, 81; see also Exhibit 2, ECF No.
38-1.
Plaintiff alleges that all the Defendant companies are owned by members of the Justice
family, including Jim Justice, the Governor of West Virginia, and his son Jay Justice.
SAC ¶¶ 83, 88–89; see also Def. Mem. at 2. Plaintiff claims that Southern Coal is an
undercapitalized sister entity to, or a subsidiary of, the Justice Parties, “which exert complete
dominion and control over and therefore operate over Southern Coal as its instrumentalities and
alter egos.” SAC ¶ 82. According to Plaintiff, Southern Coal was undercapitalized in part
because the Justice Parties “siphon[ed] money from Southern Coal,” leaving it “unable to
perform its contractual obligations,” and rendering Southern Coal “judgment-proof.” Id. ¶ 209.
Plaintiff also alleges that the Justice Parties and Southern Coal share an overlap of officers,
directors, office locations, employees, and computer systems. Id. ¶¶ 89, 156, 161–162, 167, 181,
186, 196–197.
The Justice Parties now move to dismiss the SAC for failure to state a claim and lack of
personal jurisdiction. ECF No. 145.

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DISCUSSION
I.

Legal Standard
A. Failure to State a Claim
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead sufficient factual

allegations in the complaint that, accepted as true, “state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007) (internal quotation marks omitted)). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.
A plaintiff is not required to provide “detailed factual allegations” in the complaint, but
must assert “more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550 U.S. at 555. Ultimately, the facts pleaded in the
complaint “must be enough to raise a right to relief above the speculative level.” Id. A court
must accept the factual allegations in the complaint as true and draw all reasonable inferences in
the plaintiff’s favor. Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002). “[T]he
purpose of Federal Rule of Civil Procedure 12(b)(6) is to test, in a streamlined fashion, the
formal sufficiency of the plaintiff’s statement of a claim for relief without resolving a contest
regarding its substantive merits.” Halebian v. Berv, 644 F.3d 122, 130 (2d Cir. 2011) (internal
quotation marks and citation omitted).
B. Personal Jurisdiction
Alter ego entities are a single entity for purposes of personal jurisdiction, which means
that a defendant’s alter egos are subject to personal jurisdiction if the court already has personal
jurisdiction over the defendant. See Transfield ER Cape Ltd. v. Indus. Carriers, Inc., 571 F.3d
221, 224 (2d Cir. 2009). Because the substantive claims bear on whether the Court has personal
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jurisdiction over the Justice Parties, the Court first addresses the sufficiency of Plaintiff’s claim
that the Justice Parties are alter egos of Southern Coal.
II.

Analysis
A. Extrinsic Evidence
In deciding a motion to dismiss, a court “may consider any written instrument attached to

the complaint as an exhibit or incorporated in the complaint by reference, as well as documents
upon which the complaint relies and which are integral to the complaint.” Subaru Distributors
Corp. v. Subaru of Am., Inc., 425 F.3d 119, 122 (2d Cir. 2005); see also DoubleLine Capital LP
v. Odebrecht Fin., Ltd., 323 F. Supp.3d 393, 457 (S.D.N.Y. 2018) (refusing to consider
deposition testimony cited in motion to dismiss because the testimony was not integral to the
second amended complaint). “A document is integral to the complaint where the complaint
relies heavily upon its terms and effect.” Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir. 2016)
(internal quotation marks and citation omitted).
Significant portions of the Justice Parties’ motion to dismiss rely on extrinsic evidence
not relevant to the SAC. For example, the motion to dismiss dedicates seven pages to the expert
report of Aaron Heighton, see Def. Mem. at 15–22, a report created five months after the SAC
was filed, see id. at 15. Obviously, the report is neither a document “upon which the complaint
relies,” nor “integral” to the SAC, and, therefore, will not be considered by the Court. Subaru,
425 F.3d at 122. Likewise, the Court will not consider the multiple citations to the deposition of
Stephen Ball, as his deposition took place two months after the SAC was filed. See Def. Mem. at
9; see also Subaru, 425 F.3d at 122; DoubleLine, 323 F. Supp.3d at 457.
B. Choice of Law
Because this Court’s subject matter jurisdiction is grounded on diversity between the
parties, the Court first determines the body of substantive law that applies to Plaintiff’s alter ego
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claims. See Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 419 (2d Cir. 2001). “The state law
to be applied is determined by the choice of law principles of the forum state.” Kalb, Voorhis &
Co. v. Am. Fin. Corp., 8 F.3d 130, 132 (2d Cir. 1993). New York’s choice of law rules provide
that “the law of the state of incorporation determines when the corporate form will be
disregarded and liability will be imposed on shareholders.” Taizhou Zhongneng Imp. & Exp.
Co., Ltd v. Koutsobinas, 509 F. App’x 54, 57 n.2 (2d Cir. 2013) (internal quotation marks and
citation omitted). Because Southern Coal was incorporated in Delaware, SAC ¶ 1, Delaware law
controls in evaluating Plaintiff’s alter ego claims.
C. Alter Ego Allegations
In determining whether to treat separate legal entities as alter egos, two questions must be
considered: “(1) whether the entities in question operated as a single economic entity, and (2)
whether there was an overall element of injustice or unfairness.” NetJets Aviation, Inc. v. LHC
Commc’ns, LLC, 537 F.3d 168, 177 (2d Cir. 2008) (citing Fletcher v. Atex, Inc., 68 F.3d 1451,
1457 (2d Cir. 1995) (applying Delaware law)). Defendant argues that Plaintiff’s complaint fails
to meet both prongs. Def. Mem. at 3. The Court disagrees.
i.

Single Economic Entity

To satisfy the first prong, a plaintiff must allege more than “mere domination and
control” of the subordinate entity—it must allege “exclusive domination and control” such that
the subordinate entity “no longer has legal or independent significance of its own.” Nat’l Gear
& Piston, Inc. v. Cummins Power Sys., LLC, 975 F. Supp. 2d 392, 402 (S.D.N.Y. 2013) (internal
quotation marks, citations, and alterations omitted). In evaluating whether there is “exclusive
domination and control,” courts consider the following factors:
whether the corporation was adequately capitalized for the corporate undertaking;
whether the corporation was solvent; whether dividends were paid, corporate
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records kept, officers and directors functioned properly, and other corporate
formalities were observed; whether the dominant shareholder siphoned corporate
funds; and whether, in general, the corporation simply functioned as a facade for
the dominant shareholder.
Id. at 403 (citation omitted). A plaintiff need not allege all of these factors—only “some
combination.” NetJets, 537 F.3d at 177 (internal quotation marks and citation omitted);
see also Nat’l Gear, 975 F. Supp. 2d at 403 (“[A] [p]laintiff may survive a motion to
dismiss by pleading other relevant allegations regarding the parent’s complete
domination.”).
The SAC sets forth specific allegations supporting the assertion that Southern
Coal was undercapitalized and that its funds were siphoned off, further contributing to
undercapitalization: an inability to fund its contractual obligations; mingling of funds;
and an overlap of officers, directors, office locations, and employees of Southern Coal
and the Justice Parties. See, e.g., SAC ¶¶ 89, 156, 161–162, 167, 181, 186, 196–197. For
example, Plaintiff alleges that Bluestone Resources, Inc. issued Plaintiff invoices in 2016
for coal that was delivered under Plaintiff’s agreement with Southern Coal. Id. ¶ 167.
One invoice directed Plaintiff to remit payment to a bank account in the name of
“Bluestone Energy Sales Corporation,” one of the Justice Parties. Id. The business
address listed on the invoice for Bluestone Energy Sales Corporation is the same as the
principal place of business of Southern Coal. Id. Moreover, Plaintiff alleges that the
information systems used by Southern Coal and the Justice Parties is the same, as
Southern Coal employees had Bluestone and Justice Corporation email addresses and
email signatures. Id. ¶¶ 156, 161–162.
These facts sufficiently allege that the Justice Parties did not treat Southern Coal “as a
distinct economic entity.” NetJets, 537 F.3d at 177 (internal quotation marks and citation
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omitted). The Justice Parties argue that Plaintiff misconstrues “how affiliated entities operate in
the coal industry.” Def. Mem. at 2–3. In other words, the Justice Parties contend that they are
not alter egos of Southern Coal because such arrangements are typical in the coal industry. See
id. The Court is not persuaded. That other entities in the coal industry intertwine corporate
structures does not mean that such entities are not operating as alter egos or that the Justice
Parties are not operating as alter egos here. Moreover, the Justice Parties have not provided legal
authority to justify their “everyone is doing it” defense to alter ego liability. Even if the Justice
Parties are correct in stating that such conduct is typical in the coal industry, the Court must
accept the factual allegations in the complaint as true, and draw all reasonable inferences in favor
of Plaintiff, not Defendants. See Chambers, 282 F.3d at 152. Accepting Plaintiff’s allegations
that Southern Coal (1) was undercapitalized, (2) had its funds siphoned off by the Justice Parties,
and (3) shared a significant number of management personnel with the Justice Parties, as true,
the Court finds that Plaintiff has plausibly alleged, “a combination of factors” that Southern Coal
and the Justice Parties operated as single economic entity. See NetJets, 537 F.3d at 177.
ii.

Injustice or Unfairness

The second question the Court considers in determining whether to treat separate legal
entities as alter egos is whether there is an overall element of injustice or unfairness. NetJets,
537 F.3d at 177 (“[C]ourts look behind the corporate curtain generally where the facts indicate
that the corporate entity has been or is being used by those in control . . . to promote injustice.”
(internal quotation marks, alteration, and citation omitted)). A plaintiff “need not prove that the
corporation was created with fraud or unfairness in mind,” rather, it “is sufficient to prove that it
was so used.” Id. at 177.

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Allegations of undercapitalization and siphoning of funds are sufficient to satisfy the
“injustice or unfairness” element. See, e.g., id. at 183 (holding that factfinder could infer
payments to corporation were mischaracterized as loans in order to mask illegal withdrawals,
“and could thereby properly find fraud or an unfair siphoning” of assets); McBeth v. Porges, 171
F. Supp. 3d 216, 234 (S.D.N.Y. 2016) (holding that allegation that defendant was grossly undercapitalized, meaning that it lacked sufficient capital to cover its own reasonably anticipated
expenses, among other allegations, was sufficient to allege that defendant and related business
entities operated as a single entity); De Sole v. Knoedler Gallery, LLC, 139 F. Supp. 3d 618, 669
(S.D.N.Y. 2015) (reasonable jury could find an overall element of injustice or unfairness based
on evidence that one corporation siphoned millions of dollars from another); TradeWinds
Airlines, Inc. v. Soros, No. 08 Civ. 5901, 2012 WL 983575 (S.D.N.Y. Mar. 22, 2012) (holding
that allegation that defendants “siphoned funds from” corporation “and thus improperly left it
undercapitalized” was sufficient to show fundamental injustice); Soroof Trading Dev. Co. v. GE
Microgen, Inc., 283 F.R.D. 142, 151–52 (S.D.N.Y. 2012) (holding that allegation that defendants
siphoned funds indicated that they operated as an economic entity and also “provide the requisite
element of . . . inequity”).
Plaintiff has sufficiently alleged that Southern Coal was undercapitalized because funds
were drained off by and to the Justice Parties. SAC ¶¶ 100–147. For example, Plaintiff alleges
that millions of dollars that Plaintiff paid Southern Coal were immediately transferred to the
Justice Parties upon receipt. Id. ¶ 94. The Justice Parties argue that there is no element of
injustice or unfairness because Southern Coal actually delivered coal pursuant to the purchasing
agreements. Def. Mem. at 13. They contend that notwithstanding impediments faced by
Southern Coal in effectuating full performance, Southern Coal attempts to “make it work” serve

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as “a testament to [Southern Coal’s] good faith.” Id. The fact remains, however, that Plaintiff
has alleged that Southern Coal did not deliver the quantity or quality of coal it was obligated to
provide, and that it transferred its available funds to the Justice Parties, leaving it “unable to
perform its contractual obligations,” and rendering it “judgment-proof,” SAC ¶ 209; an
allegation that the Court must accept as true for the purposes of resolving this motion to dismiss.
See Chambers, 282 F.3d at 152. These facts plausibly allege an overall element of unfairness
and injustice. See NetJets, 537 F.3d at 183.
Accordingly, the Justice Parties’ motion to dismiss for failing to plausibly plead alter ego
claims is DENIED.
D. Personal Jurisdiction
“In general, alter-egos are treated as one entity for jurisdictional purposes.” Transfield,
571 F.3d at 224 (internal quotation marks and citation omitted). Where a plaintiff can establish
its alter ego claims, the alter ego entities are subject to the Court’s personal jurisdiction by way
of the defendant being subject to personal jurisdiction. See Essar Steel Algoma Inc. v. S. Coal
Sales Corp., No. 17 Misc. 360, 2018 WL 6332900, at *5 (S.D.N.Y. Oct. 29, 2018); see also
Cardell Fin. Corp. v. Suchodolski Assocs., Inc., No. 09 Civ. 6148, 2012 WL 12932049, at *14
(S.D.N.Y. July 17, 2012), report and recommendation adopted, 896 F. Supp. 2d 320 (S.D.N.Y.
2012) (exercising personal jurisdiction over a defendant because it was the alter ego of party that
consented to personal jurisdiction in New York). Moreover, the “standard for piercing the
corporate veil for purposes of personal jurisdiction . . . is a less stringent one” than the standard
for imposing liability. Cardell Fin. Corp., 2012 WL 12932049, at *14 (internal quotation marks
and citation omitted); see also Bank of Am. v. Apollo Enter. Sols., LLC, No. 10 Civ. 5707, 2010
WL 4323273, at *12 (S.D.N.Y. Nov. 1, 2010) (noting that courts apply a “less onerous standard”

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when evaluating personal jurisdiction under an alter ego theory than the standard required for
piercing the corporate veil for liability purposes (internal quotation marks omitted)).
Defendant contends that the SAC does not “contain any factual basis for the Court’s
exercise of personal jurisdiction over” the Justice Parties. Def. Mem. at 22. The Court
disagrees. Because Southern Coal consented to personal jurisdiction in New York by executing
the coal supply agreement, see, e.g., id.; ECF No. 38-1 §11.6; Pl. Opp. at 10, ECF No. 153, the
Justice Parties, as alter egos, are also subject to the Court’s personal jurisdiction. See Transfield,
571 F.3d at 224.
CONCLUSION
For the foregoing reasons, the Justice Parties’ motion to dismiss the SAC is DENIED.
The parties shall appear for a case management conference on June 8, 2020, at 11:00 a.m. By
June 1, 2020, the parties shall submit their joint status report. See ECF No. 29 ¶ 16.
The Clerk of Court is directed to terminate the motion at ECF No. 145.
SO ORDERED.

Dated: May 18, 2020
New York, New York

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