United States District Court, Southern District of Illinois
December 29, 1986
THEODORE J. KOCOT, PLAINTIFF,
THE ALLIANCE MACHINE COMPANY, A CORPORATION, G.A.T.X., INC., AND KOPPERS COMPANY, INC., DEFENDANTS.
The opinion of the court was delivered by: Stiehl, District Judge:
MEMORANDUM AND ORDER
This matter is before the Court on plaintiff's Motion to
The plaintiff, an Illinois resident, filed, on September 19,
1985, a three-count complaint in state court seeking damages for
injuries incurred at Granite City Steel when a crane holding a
ladle containing molten iron failed, causing hot iron to spill.
The plaintiff alleged that the Alliance Machine Company
(Alliance) manufactured the crane, that G.A.T.X., Inc. (G.A.T.X.)
manufactured the ladle in question, and that Koppers Company,
Inc. (Koppers) designed, constructed and erected the oxygen
furnace at Granite City Steel. Defendants removed to this Court
on grounds of diversity. The plaintiff now seeks to remand the
case because defendant, G.A.T.X., is an Illinois corporation
whose presence destroys
this Court's removal jurisdiction. The defendants contend that
the plaintiff fraudulently joined G.A.T.X. to defeat this Court's
On March 27, 1986, Chief Judge Foreman (from whom this cause
has been transferred) entered an Order denying the plaintiff's
Motion to Remand, and ordering the parties to pursue discovery on
the issue of the relationship between G.A.T.X. and its
wholly-owned subsidiary, William B. Pollock Corporation
(Pollock). Defendants contend that Pollock manufactured the ladle
in question. The parties were given forty-five (45) days to
present evidence to the Court in support of their respective
positions. Alliance has filed a Memorandum in Opposition to
Motion to Remand which Koppers adopted. G.A.T.X. has not filed
any supporting memoranda. The plaintiff also has not filed any
supporting evidence, and therefore must stand solely on his
original Motion to Remand and its supporting memorandum.
The standard for fraudulent joinder is:
In order to establish that an in-state defendant has
been fraudulently joined, the removing party must
show either that there is no possibility that the
plaintiff would be able to establish a cause of
action against the in-state defendant in state court;
or that there has been outright fraud in the
plaintiff's pleadings of jurisdictional facts.
Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983);
B. Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981).
In support of a removal petition the defendants may
submit affidavits and deposition transcripts; and in
support of their motion to remand, the plaintiffs may
submit affidavits and deposition transcripts along
with the factual allegations contained in the
B. Inc., 663 F.2d at 549.
The district court, to reach a determination of the issue of
fraudulent joinder, must "evaluate all of the factual allegations
in the light most favorable to the plaintiff, resolving all
contested issues of fact in favor of the plaintiff." Id. Any
uncertainties as to the current state of controlling substantive
law must be resolved in favor of the plaintiff. Id. Further,
[i]f, having assumed all of the facts set forth by
the plaintiff to be true and having resolved all
uncertainties as to state substantive law against the
defendants, the district court should find that there
is no possibility of a valid cause of action being
set forth against the in-state defendant(s), only
then can it be said that there has been a `fraudulent
joinder.' . . . However, if there is even a
possibility that a state court would find a cause of
action stated against any one of the named in-state
defendant(s) on the facts alleged by the plaintiff,
then the federal court must find that the in-state
defendant(s) have been properly joined, that there is
incomplete diversity, and that the case must be
remanded to the state court.
Id. at 550. The burden of persuasion placed on those who allege
fraudulent joinder is a "heavy one." Green, 707 F.2d at 205. The
motive of the plaintiff in joining the in-state defendant is
irrelevant. McAllister v. C. & O. Ry. Co., 243 U.S. 302
, 37 S.Ct.
274, 61 L.Ed. 735 (1917).
In the instant case, the plaintiff alleged that G.A.T.X.
manufactured the ladle in question. The defendants contend that
Pollock Corporation, a wholly-owned subsidiary of G.A.T.X., and
an Ohio corporation, was the actual manufacturer of the ladle. In
support thereof, they have filed, as an exhibit to their
memorandum, Answers to Interrogatories filed by G.A.T.X. in which
G.A.T.X. replies that the manufacturer of the ladle is "unknown."
However, the defendants claim that Pollock's identity as the
manufacturer of the ladle was determined in the discovery
proceedings in the companion case of Key v. Alliance, Madison
County, 84-L-405, in which Kocot's attorney's law firm
represented the plaintiff, Key. It was revealed at oral argument
that on January 16, 1985, G.A.T.X. filed its answers to
interrogatories in the Key case indicating the nature of the
relationship between G.A.T.X. and Pollock, and on August 21,
1985, identified by exhibit that Pollock was the manufacturer of
the ladle. Therefore, attorney for plaintiff here knew about this
relationship at the time this plaintiff's complaint was filed.
Plaintiff is attempting to claim a unity of ownership between
G.A.T.X. and Pollock such that the corporate veil can be pierced
under the alter-ego theory of liability. In order to accomplish
this, two elements must be present which plaintiff has failed to
demonstrate in the case at bar: "control by the parent to such a
degree that the subsidiary has become its mere instrumentality
[and] fraud or wrong by the parent through its subsidiary. . . ."
CM Corporation v. Oberer Development Company, 631 F.2d 586, 538
(7th Cir. 1980), quoting Steven v. Roscoe Turner Aeronautical
Corp., 324 F.2d 157, 160 (7th Cir. 1963).
Plaintiff has failed to rebut defendants' interrogatories
stating that following G.A.T.X.'s purchase of the assets, Pollock
was operated as a separate and distinct corporation. Plaintiff
simply has not shown that any alleged control by G.A.T.X. over
Pollock occurred at the time the acts complained of took place.
Cf., Pepsi-Cola Metro Bottling Co. v. Checkers, Inc.,
754 F.2d 10, 16-17 (1st Cir. 1985). There has been no showing that a
formal merger occurred. The answers to interrogatories indicate
that the William B. Pollock Company is still in existence as a
separate corporate entity, and that G.A.T.X. did not assume the
liabilities of Pollock. Thus, plaintiff is apparently contending
that a de facto merger of the companies took place. However,
there is no indication that the elements of a de facto merger are
present. A de facto merger may occur where:
(1) there is a continuity of the business enterprise
between seller and buyer, including continuity of
management, employees, location and assets; (2) there
is a continuity of shareholders, in that the
shareholders of the seller become the shareholders of
the buyer; (3) the seller ceases operations and
dissolves as soon as possible after the transaction;
and (4) the buyer assumes those liabilities and
obligations necessary for the uninterrupted
continuation of the seller's business.
Manh Hung Nguyen v. Johnson Machine & Press, 104 Ill. App.3d 1141,
60 Ill.Dec. 866, 868-69, 433 N.E.2d 1104, 1106-07 (1st Dist.
1982). See also Ladjevardian v. Laidlaw-Coggeshall, Inc.,
431 F. Supp. 834, 838 (S.D.N.Y. 1977).
Other exceptions to the general rule that a successor
corporation which purchases the assets of another corporation is
not responsible for its predecessor's liabilities are: (1) an
express or implied agreement of assumption; (2) the buyer is a
"mere continuation of the seller such as when the buyer comes
into existence pursuant to the reorganization of the seller"; or
(3) the transaction was fraudulently entered into to allow the
seller to escape liability for its misdeeds. Manh Hung Nguyen, 60
Ill. Dec. at 868, 433 N.E.2d at 1106. See also Travis v. Harris
Corp., 565 F.2d 443, 446 (7th Cir. 1977). The plaintiff has
failed to make any showing bringing G.A.T.X. under any of these
It was on this issue of "alter ego" that the order of March 28,
1986 ordered the parties to complete discovery. Judge Foreman
indicated that if there were no evidence that the entities in any
way disregarded their separate structure then the joinder would
be fraudulent as there would be no possibility of a valid claim
against the parent corporation. The plaintiff has not presented
any evidence to indicate that the two entities are not separate,
nor that they in any way disregard their separate structures.
Absent such evidence, the defendants' assertion of fraudulent
joinder must stand.
Therefore, the Court concludes that the plaintiff's joinder of
G.A.T.X. was fraudulent, and DENIES the plaintiff's Motion to
IT IS SO ORDERED.
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