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Thruline Marketing, Inc. v. Delta Career Education Corp.

United States District Court, D. Kansas

June 27, 2018

THRULINE MARKETING, INC., Plaintiff,
v.
DELTA CAREER EDUCATION CORP. and GRYPHON INVESTORS, INC., Defendants.

          MEMORANDUM AND ORDER

          John W. Lungstrum United States District Judge

         In this case, plaintiff Thruline Marketing, Inc. (“Thruline”) asserts claims for breach of contract and unjust enrichment against defendant Delta Career Education Corp. (“Delta”), and Thruline also asserts the same claims against defendant Gryphon Investors, Inc. (“Gryphon”), alleged to be Delta's parent company, on an alter ego basis. The case presently comes before the Court on Gryphon's motion to dismiss for lack of personal jurisdiction and for failure to state a claim (Doc. # 14) and Thruline's motion for a default judgment against Delta (Doc. # 18). As more fully set forth, the Court concludes that it lacks personal jurisdiction over Gryphon, and it therefore grants Gryphon's motion to dismiss. Moreover, because Thruline has not established the Court's personal jurisdiction over Delta, the Court denies the motion for default judgment.

         I. Background

         By its complaint, Thruline alleges as follows: Thruline, a Kansas corporation located in Kansas, provides advertising and marketing services to higher education institutions. In March 2012, Thruline entered into a contract with Edufficient, Inc. (“Edufficient”), under which Thruline provided (and Edufficient paid for) advertising and marketing leads to Edufficient for the benefit of Edufficient's clients. Beginning in March 2017, Thruline began providing leads for the benefit of Delta, who had entered into a contract for services with Edufficient. Delta, a Delaware corporation, provides postsecondary education certificates and diplomas through several colleges, and it maintains multiple campus locations outside of Kansas. Delta failed to pay for some of the services provided by Thruline, and Thruline asserts that Edufficient assigned to it the claims against Delta for payment. By the present action, Thruline asserts claims against Delta for breach of contract and unjust enrichment, seeking at least $256, 870 for the unpaid outstanding balance. Thruline also asserts those claims against Gryphon, a California corporation located in California, on the basis of its allegation that Gryphon owns and is the alter ego of Delta.

         II. Personal Jurisdiction Over Gryphon

         A. No Alter Ego Basis for Jurisdiction

         Gryphon moves to dismiss Thruline's claims against it on the basis of a lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2). Gryphon is not located in Kansas, Thruline has not alleged that Gryphon had any contact with Kansas related to this action, and Thruline has confirmed that it asserts personal jurisdiction over Gryphon based solely on its alter ego allegation. See Mid-Continent Casualty Co. v. Greater Midwest Builders, LTD, __ F.Supp.3d __, 2018 WL 839931, at *2 (D. Kan. Feb. 12, 2018) (Lungstrum, J.) (“This Court has consistently ruled that if personal jurisdiction exists with respect to the primary defendant, alter ego allegations may support the exercise of jurisdiction over another defendant.”). Gryphon argues that because it is not the alter ego of Delta, the Court cannot exercise personal jurisdiction over it based on Delta's contacts with the forum state.

         In its complaint, Thruline alleges that Gryphon recently acquired Delta, which is now a Gryphon subsidiary; that Gryphon used Delta as its alter ego; that Grypon exercised control over Delta, including appropriating Delta's assets without adequate consideration; and that Gryphon operated Delta as an instrument of its own business. In support of its motion, Gryphon has submitted a sworn declaration by an officer stating the following: Gryphon does no business in Kansas and has no assets here; although in May 2006 investment partnerships affiliated with Gryphon purchased an interest in Delta, Gryphon itself does not have an ownership interest in Delta, which has no parent company; that Gryphon and Delta are separate entities, with their own separate boards and officers and employees, and each holds regular meetings and maintains its own corporate formalities; Gryphon and Delta have separate offices, do not share space or equipment, have separate accounts and books and records, and do not commingle assets; and Gryphon does not engage in any commercial transactions with Delta. In response to Gryphon's motion, Thruline has not submitted any evidence to support its alter ego claim; instead it argues that its allegations are sufficient and that the Court should decline to consider Gryphon's evidence on a summary judgment basis until Thruline has had the opportunity to conduct discovery on the issue. See Fed. R. Civ. P. 12(d).

         In the face of contrary evidence, however, Thruline may not simply rely on the allegations in its complaint, as “even well-pleaded jurisdictional allegations are not accepted as true once they are controverted by affidavit.” See Shrader v. Biddinger, 633 F.3d 1235, 1248 (10th Cir. 2011). Gryphon has controverted Thruline's alter ego allegations by submitting evidence to show that it is not the alter ego of Delta (and in fact has no ownership interest in Delta). Thruline could have offered its own evidence to support its alter ego allegations, in an attempt to create an issue of fact to be resolved through the litigation, but it has not done so. See Id. (absent an opposing evidentiary showing by the plaintiff sufficient to create a genuine issue of fact, the defendant's affidavits carry the issue). Thus Thruline may not rely on its alter ego claim to support jurisdiction over Gryphon. Thruline has not identified any other possible basis for such jurisdiction. The Court therefore concludes that it lacks jurisdiction over Gryphon.

         In its response to Gryphon's motion, Thruline does request the opportunity to conduct jurisdictional discovery. It does so in the context of Rule 12(d), however, and as noted above, the Court need not invoke that rule to consider Gryphon's evidence on the question of its jurisdiction. Moreover, Thruline has not properly supported its request for discovery. In an affidavit, with respect to Thruline's alter ego basis for personal jurisdiction over Gryphon, Thruline's counsel states that discovery is likely to show “additional details about [Gryphon's] ownership interest in Delta and the level of control it exerted over Delta.” Thruline, however, has not provided any basis for a belief that discovery would indeed yield evidence sufficient to controvert Gryphon's evidence and to support jurisdiction over Gryphon. Indeed, in response to Gryphon's motion, Thruline has not even identified the facts that led it to assert the alter ego claim against Gryphon, including any facts relating to Gryphon's ownership of Delta (which Gryphon has disputed by its declaration).[1] Therefore, Thruline essentially requests the opportunity to conduct a fishing expedition in the hope of finding facts to support jurisdiction over Gryphon on an alter ego basis. Because Thruline has not shown a reasonable basis to expect that jurisdictional discovery would yield the necessary facts, the Court exercises its discretion to deny Thruline's request for jurisdictional discovery. See Custom Cupboards, Inc. v. Cemp SRL, 2010 WL 1854054, at *5-6 (D. Kan. May 7, 2010) (Lungstrum, J.). Accordingly, the Court dismisses the claims against Gryphon.[2]

         B. No Underlying Jurisdiction Over Delta

         In addition, and as an alternative basis for dismissal of the claims against Gryphon, the Court concludes that it cannot exercise jurisdiction over Gryphon on an alter ego basis because Thruline has not shown that the Court has jurisdiction over Delta with respect to the underlying claims.

         The plaintiff bears the burden of demonstrating that the court has personal jurisdiction over the defendant. See OMI Holdings, Inc. v. Royal Ins. Co., 149 F.3d 1086, 1091 (10th Cir. 1998). The allegations in the complaint are taken as true to the extent that they are undisputed by the defendant's affidavits. See Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d 1244, 1247 (10th Cir. 2000) (citations omitted).

         In Marcus Food Co. v. DiPanfilo, 671 F.3d 1159 (10th Cir. 2011), the Tenth Circuit reaffirmed the following standards governing this Court's analysis of the ...


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