United States District Court, D. Kansas
MEMORANDUM AND ORDER
KATHRYN H. VRATIL United States District Judge.
Destination Developers, Inc. brings suit against Focus
Hospitality Services, LLC to collect a judgment which 5G
Studio Collaborative, LLC (“5G Studio”) obtained
against GoodSports Enterprises Global, LLC, GoodSports
Village Huber Heights, LLC and GoodSports Village Wichita,
LLC (collectively, the “GoodSports
Entities”). Specifically, Wichita Destination asserts
that 5G Studio assigned its right to collect the judgment and
that under an alter ego theory, Focus Hospitality is liable
for the debt. This matter is before the Court on Focus
Hospitality's Motion To Dismiss (Doc. #7) filed
July 5, 2018. For the following reasons, the Court overrules
ruling on a motion to dismiss under Rule 12(b)(6), Fed. R.
Civ. P., the Court assumes as true all well-pleaded factual
allegations and determines whether they plausibly give rise
to an entitlement of relief. Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009). To survive a motion to dismiss, a
complaint must contain sufficient factual matter to state a
claim which is plausible - and not merely conceivable - on
its face. Id. at 679-80; Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). To determine whether
a complaint states a plausible claim for relief, the Court
draws on its judicial experience and common sense.
Iqbal, 556 U.S. at 679.
Court need not accept as true those allegations which state
only legal conclusions. See id.; Hall v.
Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). Plaintiff
bears the burden of framing its complaint with enough factual
matter to suggest that it is entitled to relief; it is not
enough to make threadbare recitals of a cause of action
accompanied by conclusory statements. Twombly, 550
U.S. at 556. Plaintiff makes a facially plausible claim when
it pleads factual content from which the Court can reasonably
infer that defendant is liable for the misconduct alleged.
Iqbal, 556 U.S. at 678. Plaintiff must show more
than a sheer possibility that defendant has acted unlawfully
- it is not enough to plead facts that are “merely
consistent with” defendant's liability.
Id. (quoting Twombly, 550 U.S. at 557). A
pleading that offers labels and conclusions, a formulaic
recitation of the elements of a cause of action or naked
assertions devoid of further factual enhancement will not
stand. Iqbal, 556 U.S. at 678. Similarly, where the
well-pleaded facts do not permit the Court to infer more than
the mere possibility of misconduct, the complaint has alleged
- but has not “shown” - that the pleader is
entitled to relief. Id. at 679. The degree of
specificity necessary to establish plausibility and fair
notice depends on context; what constitutes fair notice under
Fed.R.Civ.P. 8(a)(2) depends on the type of case. Robbins
v. Oklahoma, 519 F.3d 1242, 1248 (10th Cir. 2008)
(citing Phillips v. Cty. of Allegheny, 515 F.3d 225,
232-33 (3d Cir. 2008)).
alleges the following facts.
Destination is a Kansas corporation with its principal place
of business in Wichita, Kansas. Petition (Doc. #1-1)
Hospitality is an Indiana limited liability company.
Id. ¶ 2.
30, 2016, in the District Court of Dallas County, Texas, 5G
Studio obtained a judgment against the GoodSports Entities in
the amount of $213, 296.84 plus post-judgment interest (the
“Texas judgment”). Id. ¶¶ 5-6.
March 21, 2017, GoodSports Village Wichita, LLC filed suit
against Wichita Destination in the District Court of Sedgwick
County, Kansas (the “Wichita case”). Id.
¶ 11(k). The Wichita case remains pending. In the
Wichita case, Focus Hospitality pays the legal fees which
GoodSports Village Wichita incurs. Id. ¶
November 27, 2017, 5G Studio assigned Wichita Destination all
of its “right, title, and interest” in the Texas
judgment. Notice Of Assignment Of Judgment, Exhibit
B to Motion To Dismiss (Doc. #7); see also
Petition (Doc. #1-1) ¶ 7.
January 29, 2018, Wichita Destination registered the Texas
judgment with the District Court of Johnson County, Kansas.
Petition (Doc. #1-1) ¶ 8.
February 22, 2018, the Johnson County court held a hearing in
aid of execution of the Texas judgment. Id. ¶
9. At the hearing, Anthony Homer testified as the authorized
corporate representative of the GoodSports Entities.
Id. ¶ 11. Homer testified as follows: Homer
currently works for Focus Hospitality; he formerly worked for
the GoodSports Entities. Id. ¶ 10. Jerald Good
is an owner of both Focus Hospitality and the GoodSports
Entities. Id. ¶ 11(a). The owner(s) created the
GoodSports Entities as “single purpose entities”
to develop multiple sports fieldhouse projects across the
nation. For instance, the owner(s) formed GoodSports Village
Wichita to develop a fieldhouse project in Wichita, Kansas.
Id. The GoodSports Entities “never had real
assets.” Id. ¶ 11(c). None of the
GoodSports Entities utilized bank accounts. Id.
¶ 11(d). The GoodSports Entities had no assets or
capital. Id. ¶ 11(g). The owner(s) did not
prepare financial statements for the GoodSports Entities.
Id. ¶ 11(i). The GoodSports Entities did not
maintain corporate minute books and did not execute corporate
resolutions. Id. ¶ 11(j). The GoodSports
Entities incurred more than $2 million in expenses including
architectural, engineering, construction and legal fees.
Id. ¶ 11(e). The GoodSports Entities did not
pay any of their liabilities. Id. ¶ 11(f).
Focus Hospitality paid selected liabilities on behalf of the
GoodSports Entities. Id. ¶ 11(f). Other
creditors did not institute lawsuits against the GoodSports
Entities because “there was nothing there to
pursue.” Id. ¶ 11(g).
GoodSports Entities were and are woefully undercapitalized.
Id. ¶ 17. Despite making representations and
marketing to the contrary, the GoodSports Entities entered
into obligations that they could not satisfy, including
obligations underlying the Texas judgment. Id.
GoodSports Entities falsely represented that they maintained
separate corporate structures and would receive separate
“equity contributions” in fieldhouse
projects. Id. ¶ 14. In fact, they did
not have separate corporate structures or equity
contributions. Id. Instead, Focus Hospitality merely
paid selected invoices on behalf of the GoodSports Entities
and left unsatisfied the remaining obligations of the
GoodSports Entities. Id.
GoodSports Entities and Focus Hospitality have common, if not
identical, ownership. Id. ¶ 16. The GoodSports
Entities existed as a conduit or instrumentality of Focus
Hospitality. Id. ¶ 21. Focus Hospitality did
not make loans to the GoodSports Entities. Id.
¶ 13. As part of its own bookkeeping, Focus Hospitality
kept track of the endeavors of the GoodSports Entities; the
GoodSports Entities did not keep their own records and do not
have records. Id. ¶ 19. The GoodSports Entities
did not observe corporate formalities. Id. Rather,
the GoodSports Entities functioned only as a facade for Focus
Hospitality. Id. Focus Hospitality dominated the
finances, policies and practices of the GoodSports Entities
such that they had no separate mind, will or existence of
their own. Id. ¶ 20.
noted, as assignee of the rights of 5G Studio, based on an
alter ego theory, Wichita Destination seeks to recover from
Focus Hospitality amounts which the GoodSports Entities owe
under the Texas judgment. Focus Hospitality asserts that
Wichita Destination cannot prevail because it (1) cannot show
that it will suffer injustice if the Court allows the
corporate structures to remain intact and (2) has failed to
plead fraud with particularity.
concept that one corporation can be held liable as the alter
ego of another corporation is well settled under Kansas
See W&W Steel, LLC v. BSC Steel, Inc., 944
F.Supp.2d 1066, 1072 (D. Kan. 2013) (citing Dean
Operations, Inc. v. One Seventy Assocs., 257 Kan. 676,
680, 896 P.2d 1012, 1016 (1995)). Courts will not extend the
fiction of separate corporate identities to permit one of the
corporations to evade its just operations, to promote fraud,
illegality or injustice, or to defend crime. See Dean
Operations, 257 Kan. at 681, 896 P.2d at 1016.
“The courts will disregard the fiction of a separate
legal entity when there is such domination of finances,
policy, and practices that the controlled corporation has no
separate mind, will, or existence of its own and is but a
business conduit for its principal.” Id.
Courts should reluctantly and cautiously exercise power to
pierce the corporate veil. Sampson v. Hunt, 233 Kan.
572, 579, 665 P.2d 743, 751 (1983).
Hospitality asserts that Wichita Destination cannot prevail
because it has not sufficiently alleged that it will suffer
injustice if the Court allows the corporate structures to
remain intact. See Motion To Dismiss (Doc. #7) at
7-9. Determining whether one corporation operates as an
instrumentality of another is a question of fact which
involves the consideration of many factors. For example, in