U.S. Court of Appeals for the Sixth Circuit, Product Solutions Int., Inc. v. Aldez Containers, LLC, Docket No. 21-2952

Veil-Piercing “Claim.”

 

Veil Piercing Action

 

Piercing the Corporate Veil

 

Is Piercing the Corporate Veil a Remedy or a Separate Cause of Action?

 

Res Judicata In Diversity Actions (Application of Federal Law or of State Law?)

 

Michigan Law

 

 

 

 

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:21-cv-11129.

 

 

Plaintiff Product Solutions International, Inc. (“PSI”) appeals the dismissal of its complaint against Aldez Containers, LLC (“Aldez”). PSI sued Aldez and associated parties in 2019 alleging various claims arising from a contract dispute. The district court dismissed Aldez from that suit because PSI failed to state a claim against Aldez. In 2021, PSI filed a second complaint solely against Aldez for the same conduct as the 2019 suit. The district court held that the 2021 suit was barred by res judicata. We AFFIRM.

 

 

On September 24, 2019, PSI commenced an action (the “2019 suit”) against P.B. Products, Copek, Byrne, and Aldez. Prod. Sols. Int’l, Inc. v. P.B. Prods., LLC, No. 19-CV-12790, 2020 WL 3129978, at *1 (E.D. Mich. June 12, 2020). That diversity suit alleged breach of contract, promissory estoppel, fraud, silent fraud, negligent misrepresentation, innocent misrepresentation, and non-acceptance of conforming goods under the Uniform Commercial Code. Id. The complaint contained no allegations regarding any duty owed or any breach by Aldez. Id. at *3. The defendants jointly moved to dismiss the complaint. Id. at *1. The district court granted the motion in part, dismissing Copek, Byrne, and Aldez from the suit, but permitted some claims against P.B. Products to continue. Id. at *3. PSI never sought leave to amend its complaint to fix the deficient allegations against Aldez.

 

 

On May 17, 2021, PSI commenced the present action (the “2021 suit”) against Aldez. In the 2021 suit, PSI sued Aldez only for breach of contract, promissory estoppel, and non-acceptance of conforming goods under the Uniform Commercial Code. PSI had alleged these three claims in the 2019 suit and the claims arose from the same facts. Aldez moved to dismiss the complaint arguing that it was barred by res judicata and that it failed to state a claim. PSI responded that in the 2019 suit, its claims were pleaded directly against Aldez, whereas in the 2021 suit, it sought to pierce P.B. Product’s corporate veil and hold Aldez vicariously liable. The district court granted the motion to dismiss solely on the basis of res judicata. It held that PSI’s claims in the 2021 suit “[were], or could have been, resolved in the first” suit. (Op. & Order Granting Def.’s Mot. to Dismiss, R. 9, PageID # 191.) PSI timely appealed.

 

 

The parties’ briefing in this appeal almost exclusively focuses on the merits of the district court’s application of res judicata. Accordingly, the first issue we must address is whether federal or state res judicata law governs this case. PSI seeks to apply federal principles of res judicata, whereas Aldez believes Michigan law should be applied. An intra-circuit split seems to have developed on whether federal or state res judicata law applies in diversity actions. In Rawe v. Liberty Mutual Fire Insurance Co., 462 F.3d 521, 528 (6th Cir. 2006), we held that in “successive diversity actions, federal res judicata principles apply.” See also Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., 805 F.3d 701, 709 (6th Cir. 2015) (citing Rawe favorably); J.Z.G. Res., Inc. v. Shelby Ins. Co., 84 F.3d 211, 214 (6th Cir. 1996) (“We shall apply federal res judicata principles in successive federal diversity actions.”). However, recently, we have cast doubt on Rawe, suggesting that it was inconsistent with then-existing Supreme Court precedent, and was therefore wrongly decided from the start. N.D. Mgmt., Inc. v. Hawkins, 787 F. App’x 891, 896 (6th Cir. 2019). Specifically, five years before Rawe, the Supreme Court held that federal courts sitting in diversity should apply “the law that would be applied by state courts in the State in which the federal diversity court sits” so long as the state rule is not “incompatible with federal interests.” Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508–09 (2001). Rawe made no mention of Semtek. Furthermore, in 2008, two years after Rawe, the Supreme Court reiterated that “for judgments in diversity cases, federal law incorporates the rules of preclusion applied by the State in which the rendering court sits.” Taylor v. Sturgell, 553 U.S. 880, 891 n.4 (2008) (citing Semtek, 531 U.S. at 508). (…) Therefore, as binding Supreme Court precedent, we must follow Semtek over Rawe and apply Michigan law.

 

 

(…) In the 2019 suit, the district court dismissed PSI’s claims against Aldez for failing to state a claim. Specifically, the district court found that “the complaint did not allege that Aldez was a party to any contract. The complaint merely alleged that Aldez is a shipping company.” Prod. Sols. Int’l, 2020 WL 3129978, at *3. In the 2021 suit, PSI altered its “claims” and now seeks to pierce P.B. Products’ corporate veil and hold Aldez vicariously liable. Besides changing the theory of recovery, the 2019 and 2021 complaints are virtually identical. We agree with the district court that the pleadings fail to allege sufficient facts to plausibly claim breach of contract, promissory estoppel, and non-acceptance of conforming goods under the Uniform Commercial Code. To get around the obviously deficient pleadings, PSI has added a few paltry allegations that “P.B. Products, LLC is the agent, alter ego, and mere instrumentality of [Aldez].” (Compl., R. 1, PageID  #2.) It argues that in the 2019 suit all its claims were filed as “direct claims” against Aldez, but the 2021 suit’s complaint is different because it brings a veil-piercing “claim.” However, piercing the corporate veil is not a cause of action under Michigan law.1 Gallagher v. Persha, 891 N.W.2d 505, 509 (Mich. Ct. App. 2016) (recognizing that under Michigan law, piercing the corporate veil is “a remedy, and not a separate cause of action”). In fact, PSI admitted at oral argument that the 2021 suit is preemptively seeking relief in the hopes it receives a favorable judgment in its 2019 suit against P.B. Products. We are not aware of any context under Michigan law that permits a party to recover for an alleged injury before obtaining a judgment. We refuse to let PSI do that in this case.

 

 

1PSI relies primarily on Gallagher v. Persha, 891 N.W.2d 505, 515 (Mich. Ct. App. 2016), to argue that it is entitled to bring its second veil piercing action. However, in that case, the Michigan Court of Appeals held that “when a judgment already exists against a corporate entity, an additional cause of action is not needed to impose liability against a shareholder or officer if a court finds the necessary facts to pierce the corporate veil.” Id. at 515 (emphasis added). In the present appeal, no previously obtained judgment exists—the 2019 suit is still pending. Accordingly, Gallagher cannot save PSI’s 2021 suit.

 

 

Because the complaint does not allege any wrongdoing by Aldez and corporate veil piercing is not a cause of action under Michigan law, the 2021 suit’s complaint fails to state a claim.

 

 

The issue of whether the dismissal of the 2021 action will have any preclusive effect on PSI’s ability to bring a Gallagher-type action in the event it obtains a favorable judgment in the 2019 suit is not yet ripe. Accordingly, we decline to address it.

 

 

 

(U.S. Court of Appeals for the Sixth Circuit, Aug. 22, 2022, Product Solutions Int., Inc. v. Aldez Containers, LLC, Docket No. 21-2952, Recommended for Publication)

Americold Realty Trust v. ConAgra Foods, Inc., Docket 14-1382

Jurisdiction: diversity-of­-citizenship jurisdiction: trust: fiduciary relationship: 28 U. S. C. §§1332(a)(1), 1441(b): unanimous: federal law permits federal courts to resolve certain nonfederal controversies between “citizens” of different States. This rule is easy enough to apply to humans, but can become metaphysical when applied to legal entities. This case asks how to determine the citizenship of a “real estate investment trust,” an inanimate creature of Mary­land law. We answer: While humans and corporations can assert their own citizenship, other entities take the citi­zenship of their members.

Congress never expanded this grant of citizenship to include artificial entities other than corporations, such as joint-stock companies or limited partnerships. For these unincorporated entities, we too have “adhered to our oft-repeated rule that diversity jurisdiction in a suit by or against the entity depends on the citizenship of ‘all its members.’” Carden, 494 U. S., at 195–196 (quoting Chapman v. Barney, 129 U. S. 677, 682 (1889)).

Despite our oft-repetition of the rule linking unincorpo­rated entities with their “members,” we have never ex­pressly defined the term. But we have equated an associa­tion’s members with its owners or “‘the several persons composing such association.’” Carden, 494 U. S., at 196 (quoting Great Southern Fire Proof Hotel Co. v. Jones, 177 U. S. 449, 456 (1900)). Applying this principle with refer­ence to specific States’ laws, we have identified the mem­bers of a joint-stock company as its shareholders, the members of a partnership as its partners, the members of a union as the workers affiliated with it, and so on. See Carden, 494 U. S., at 189–190 (citing Chapman, 129 U. S., at 682; Great Southern, 177 U. S., at 457; and Steelworkers v. R. H. Bouligny, Inc., 382 U. S. 145, 146 (1965)).

This case asks us to determine the citizenship of Amer­icold Realty Trust, a “real estate investment trust” orga­nized under Maryland law. App. 93. As Americold is not a corporation, it possesses its members’ citizenship. Noth­ing in the record designates who Americold’s members are. But Maryland law provides an answer. In Maryland, a real estate investment trust is an “unin­corporated business trust or association” in which property is held and managed “for the benefit and profit of any person who may become a shareholder.” Md. Corp. & Assns. Code Ann. §§8–101(c), 8–102 (2014). As with joint-stock companies or partnerships, shareholders have “own­ership interests” and votes in the trust by virtue of their “shares of beneficial interest.” §§8–704(b)(5), 8–101(d). These shareholders appear to be in the same position as the shareholders of a joint-stock company or the partners of a limited partnership—both of whom we viewed as members of their relevant entities. See Carden, 494 U. S., at 192–196; see also §8–705(a) (linking the term “benefi­cial interests” with “membership interests” and “partner­ship interests”). We therefore conclude that for purposes of diversity jurisdiction, Americold’s members include its shareholders.

Traditionally, a trust was not considered a distinct legal entity, but a “fiduciary relationship” between multiple people. Klein v. Bryer, 227 Md. 473, 476–477, 177 A. 2d 412, 413 (1962); Restatement (Second) of Trusts §2 (1957). Such a relationship was not a thing that could be haled into court; legal proceedings involving a trust were brought by or against the trustees in their own name. Glenn v. Allison, 58 Md. 527, 529 (1882); Deveaux, 5 Cranch, at 91. And when a trustee files a lawsuit or is sued in her own name, her citizenship is all that matters for diversity purposes. Navarro, 446 U. S., at 462–466. For a traditional trust, therefore, there is no need to determine its membership, as would be true if the trust, as an entity, were sued. Many States, however, have applied the “trust” label to a variety of unincorporated entities that have little in common with this traditional template. Maryland, for example, treats a real estate investment trust as a “sepa­rate legal entity” that itself can sue or be sued. Md. Corp. & Assns. Code Ann. §§8–102(2), 8–301(2). So long as such an entity is unincorporated, we apply our “oft-repeated rule” that it possesses the citizenship of all its members. Carden, 494 U. S., at 195. But neither this rule nor Na­varro limits an entity’s membership to its trustees just because the entity happens to call itself a trust.

We also decline an amicus’ invitation to apply the same rule to an unincorporated entity that applies to a corpora­tion—namely, to consider it a citizen only of its State of establishment and its principal place of business. See Brief for National Association of Real Estate Investment Trusts 11–21. When we last examined the “doctrinal wall” between corporate and unincorporated entities in 1990, we saw no reason to tear it down. Carden, 494 U. S., at 190. Then as now we reaffirm that it is up to Congress if it wishes to incorporate other entities into 28 U. S. C. §1332(c)’s special jurisdictional rule.

(U.S.S.C., Mar. 7, 2016, Americold Realty Trust v. ConAgra Foods, Inc., Docket 14-1382, J. Sotomayor, unanimous).

Notion de personne physique ou morale capable d’ester en justice devant une cour fédérale : le droit fédéral permet aux cours fédérales de connaître de litiges fondés sur des moyens autres que fédéraux, si les parties résident dans des états différents. Cette règle est d’application aisée à des personnes physiques, mais d’application plus délicate aux personnes morales et aux entités non personnalisées. Où se trouve ainsi par exemple domicilié un trust voué à l’investissement immobilier, dépourvu de personnalité, crée par le droit de l’état du Maryland ? Une telle entité emprunte le domicile de ses membres.

Le Congrès fédéral n’a jamais attribué la personnalité à d’autres entités artificielles que les sociétés au sens de la loi. Ainsi, ces autres entités artificielles, par exemple les « joint-stock companies » ou les « limited partnerships », sont domiciliées au même lieu que leurs membres pour ce qui est de la question de la capacité d’ester en justice basée sur les domiciles dans différents états. La qualité de membre dépend de la nature de l’entité : les membres d’une association sont les personnes qui la compose, les membres d’une « joint-stock company » sont ses actionnaires, les membres d’un « partnership » sont ses associés, les membres d’un syndicat sont les employés affiliés.

Qu’en est-il donc de la notion de membre du trust immobilier créé par le droit de l’état du Maryland ? Selon la loi de cet état, les biens de ce trust sont détenus et gérés pour le profit de ses actionnaires, qui sont dans une situation semblable aux actionnaires d’une « joint-stock company » ou aux associée d’un LP. S’agissant de la notion de domicile au sens de l’action basée sur la diversité des états de domicile, les membres de ce type de trusts sont ses actionnaires.

La présente décision rappelle que traditionnellement, un trust n’était pas considéré comme une entité légale distincte, mais s’analysait comme une relation de confiance entre diverses personnes physiques. Le trust traditionnel n’avait pas de capacité d’ester en justice. Les « trustees », en leur propre nom,  agissaient ou étaient actionnés à sa place. Seul comptait le domicile du « trustee » dans le cadre d’une action fondée sur des domiciles dans des états différents. Cependant, à côté de la notion traditionnelle du trust, de nombreux états ont nommé  « trust » toute une variété d’entités dont la nature peut être fort éloignée de la notion traditionnelle de trust. Le droit de l’état du Maryland, par exemple, considère un trust dédié à l’investissement immobilier comme une entité juridique distincte (dépourvue toutefois de la personnalité morale complète), pouvant agir ou être actionnée en justice. Dans la mesure où cette entité est dépourvue de tous les attributs d’une personne morale, s’applique la règle de la domiciliation de l’ensemble de ses membres (et non de la seule domiciliation du trustee).

La Cour n’entend pas ici attribuer à de telles entités leur état de création comme domicile, ni leur principal lieu d’activité. C’est au Congrès fédéral que revient la compétence de décider s’il entend attribuer un tel domicile à ces entités pour leur permettre d’agir ainsi  « en diversité ».

Shapiro v. McManus, Docket 14-990

Jurisdiction of federal courts: federal question: failure to state a proper cause of action:

“In the absence of diversity of citizenship, it is es­sential to jurisdiction that a substantial federal question should be presented.” Ex parte Poresky, 290 U. S. 30, 31 (1933) (per curiam). Absent a substan­tial federal question, even a single-judge district court lacks jurisdiction.

“Constitutional claims will not lightly be found insubstantial for purposes of ” the three-judge-court statute. Washington v. Confederated Tribes of Colville Reservation, 447 U. S. 134, 147–148 (1980). We have long distinguished between failing to raise a substantial federal question for jurisdictional purposes and failing to state a claim for relief on the merits; only “wholly insub­stantial and frivolous” claims implicate the former. Bell v. Hood, 327 U. S. 678, 682–683 (1946); see also Hannis Distilling Co. v. Mayor and City Council of Baltimore, 216 U. S. 285, 288 (1910) (“obviously frivolous or plainly in­substantial”); Bailey v. Patterson, 369 U. S. 31, 33 (1962) (per curiam) (“wholly insubstantial,” “legally speaking non-existent,” “essentially fictitious”); Steel Co. v. Citizens for Better Environment, 523 U. S. 83, 89 (1998) (“frivolous or immaterial”). Absent such frivolity, “the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction.” Bell, clarified that “‘constitutional insubstantiality’ for this purpose has been equated with such concepts as ‘essen­tially fictitious,’ ‘wholly insubstantial,’ ‘obviously frivolous,’ and ‘obviously without merit.’” 409 U. S., at 518. And the adverbs were no mere throwaways; “the limiting words ‘wholly’ and ‘obviously’ have cogent legal significance.”

(“The mandatory ‘shall’ . . . normally creates an obligation impervious to judicial discretion.” Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U. S. 26, 35 (1998); see also National Assn. of Home Builders v. Defenders of Wildlife, 551 U. S. 644, 661–662 (2007)).

(U.S.S.C., Dec. 8, 2015, Shapiro v. McManus, Docket 14-990, J. Scalia, unanimous).

Compétence juridictionnelle des cours fédérales : notion de question de droit fédéral : en l’absence de parties domiciliées sur le territoire d’états différents, une cour fédérale n’est matériellement compétente que si une question substantielle de droit fédéral est litigieuse.

La présente Cour a de longue date distingué la notion d’absence de question substantielle de droit fédéral, indispensable pour attribuer la compétence juridictionnelle, de la notion d’absence d’état de fait permettant une solution judiciaire au fond. Seules les requêtes dénuées de toute substance et les requêtes frivoles ne présentent pas de question substantielle. Ainsi, en l’absence d’une telle frivolité, manquer à présenter un litige susceptible d’être redressé par une décision de justice appelle tout de même un jugement sur le fond, et ne permet pas une décision d’irrecevabilité pour défaut de juridiction.  

(Interprétation du terme « shall » : il créé une obligation, insusceptible d’être relativisée).

Snyder v. Phelps

First Amendment: free speech clause: Snyder filed a diversity action against Phelps; the First Amendment shields Westboro from tort liability for its picketing in this case; the Free Speech Clause of the First Amendment can serve as a defense in state tort suits, including suits for intentional infliction of emotional distress. Hustler Magazine, Inc. v. Falwell, 485 U. S. 46, 50-51. Whether the First Amendment prohibits holding Westboro liable for its speech in this case turns largely on whether that speech is of public or private concern, as determined by all the circumstances of the case. “Speech on public issues occupies the ‘ “highest rung of the hierarchy of First Amendment values” ’ and is entitled to special protection.” Connick v. Myers, 461 U. S. 138, 145; a statement’s arguably “inappropriate or controversial character . . . is irrelevant to the question whether it deals with a matter of public concern.” Rankin v. McPherson, 483 U. S. 378, 387; to determine whether speech is of public or private concern, this Court must independently examine the “ ‘content, form, and context,’ ” of the speech “ ‘as revealed by the whole record.’ ” Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U. S. 749, 761; the “content” of Westboro’s signs plainly relates to public, rather than private, matters. The placards highlighted issues of public import—the political and moral conduct of the United States and its citizens, the fate of the Nation, homosexuality in the military, and scandals involving the Catholic clergy—and Westboro conveyed its views on those issues in a manner designed to reach as broad a public audience as possible. Even if a few of the signs were viewed as containing messages related to a particular individual, that would not change the fact that the dominant theme of Westboro’s demonstration spoke to broader public issues; speech may have been particularly hurtful to Snyder. That does not mean that its speech should be afforded less than full First Amendment protection under the circumstances of this case; that said, “ ‘even protected speech is not equally permissible in all places and at all times.’ ” Frisby v. Schultz, 487 U. S. 474, 479. Westboro’s choice of where and when to conduct its picketing is not beyond the Government’s regulatory reach—it is “subject to reasonable time, place, or manner restrictions.” Clark v. Community for Creative Non-Violence, 468 U. S. 288, 293; Westboro addressed matters of public import on public property, in a peaceful manner, in full compliance with the guidance of local officials. It did not disrupt Mathew Snyder’s funeral, and its choice to picket at that time and place did not alter the nature of its speech. Because this Nation has chosen to protect even hurtful speech on public issues to ensure that public debate is not stifled, Westboro must be shielded from tort liability for its picketing in this case (U.S.S.Ct., 02.03.11, Snyder v. Phelps, C.J. Roberts).

Premier Amendement : liberté d’expression : S. dépose une « diversity action » contre sa partie adverse. W. est mis en cause pour avoir utilisé l’espace public dans le but d’afficher ses opinions politiques relatives à certains sujets politiquement sensibles. Le Premier Amendement protège W. contre une action en responsabilité civile contre lui (basée sur le fait que ses affiches auraient perturbé un convoi funéraire). La Clause de liberté d’expression contenue dans le Premier Amendement peut être utilisée comme défense dans des actions fondées sur le droit des « Torts » d’un état, y compris dans des actions en dommages-intérêts pour avoir infligé intentionnellement un tort moral (emotional distress). Il est rappelé que la liberté d’expression concernant des questions d’intérêt public est tout particulièrement protégée par le Premier Amendement et mérite une protection toute spéciale. Pour déterminer si une expression est d’intérêt public, il est irrelevant que dite expression soit ou non inappropriée ou controversée. Pour déterminer si une expression est ou non d’intérêt public, la Cour doit de manière indépendante examiner le contenu, la forme et le contexte de l’expression, en considérant l’ensemble du dossier. Le contenu des panneaux disposés par W. se rapporte complètement au domaine de l’intérêt public. Ces panneaux expriment des opinions sur la conduite politique et morale des Etats-Unis et de ses citoyens, le destin du pays, l’homosexualité dans l’armée, et les scandales impliquant le clergé catholique. W. exprime ses opinions sur ces questions de manière à atteindre un public aussi large que possible. Même si quelques-uns de ces messages étaient considérés comme relatifs à une personne en particulier, il n’en reste pas moins que les thèmes dominants exprimés par W. traitent de questions publiques s’adressant à un public plus large. Il se peut que le discours de W. soit particulièrement choquant pour S., ce qui n’implique nullement que la liberté d’expression de W. soit restreinte. Cela étant, même une expression protégée par le Premier Amendement n’est pas également admise en tous lieux et en tout temps. Le choix de W. s’agissant du temps et du lieu de la manifestation de sa liberté d’expression est sujet à des restrictions administratives imposant un lieu d’expression, un temps et une manière pour s’exprimer qui tous soient raisonnables. En l’espèce, W. a exprimé des idées d’intérêt public sur la place publique, d’une manière pacifique, en se conformant intégralement aux instructions données par les autorités locales. W. n’a pas perturbé les funérailles de S. Les Etats-Unis ont choisi de protéger même une expression qui peut être ressentie comme blessante pour autant qu’elle porte sur une matière relevant du débat public. De la sorte, en l’espèce, une action en responsabilité civile (Torts) dirigée contre W. est irrecevable.