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Nassau Construction Co., Inc. v. Pulte Homes

May 29, 2008

NASSAU CONSTRUCTION CO., INC., PLAINTIFF,
v.
PULTE HOMES, INC., PULTE HOMES HONORABLE JOSEPH E. IRENAS OF NEW JERSEY, LP, PULTE HOME CORPORATION, PULTE HOME CORPORATION OF THE DELAWARE VALLEY, AND PULTE HOMES OF PA, OPINION LIMITED PARTNERSHIP, DEFENDANTS.



The opinion of the court was delivered by: Irenas, Senior District Judge

Presently before the Court is Defendant Pulte Homes, Inc.'s ("Pulte Homes") Motion to Dismiss Count III of Plaintiff's Complaint.*fn1 (Docket No. 5.) The remaining named Defendants are alleged subsidiaries of Pulte Homes (the "Subsidiary Defendants"). In connection with Plaintiff Nassau Construction Co, Inc.'s ("Nassau") two breach of contract claims against the Subsidiary Defendants in Counts I and II of its Complaint, it seeks to pierce the corporate veil and hold Pulte Homes liable as the parent corporation in Count III. For the reasons set forth below, Pulte Homes' motion will be granted, though Nassau will have three weeks to move to vacate the dismissal and file an amended complaint.

I.

Nassau is a company that provides construction services to real estate developers such as Defendants. (Compl. ¶ 9.) Nassau and the Subsidiary Defendants allegedly entered into several contracts between February 18, 2002 and June 5, 2006. (Id. ¶ 10.) Nassau claims that it fully performed under each contract, but that the Subsidiary Defendants have failed to pay approximately $230,000 for construction services it performed. (Id. ¶¶ 11-12.) It further alleges that the Subsidiary Defendants have engaged in unilateral "charge backs," which it describes as "reduc[ing] the amount due to [Nassau] for the purported cost of remedying alleged defects in the construction work related to or provided by [Nassau]." (Id. ¶¶ 13-14.)

Nassau's Complaint contains three counts: (1) breach of contract by the Subsidiary Defendants for monies due; (2) breach of contract by the Subsidiary Defendants for unlawful charge backs; and (3) liability of the parent corporation, Pulte Homes. In support of Count III, Nassau asserts that Pulte Homes "apparently dominates each of the Subsidiary Defendants" and that they are "merely a conduit of [Pulte Homes] as the parent corporation." (Id. ¶¶ 33-34.) Nassau further alleges that Pulte Homes "has abused the privilege of incorporation by using each of the Subsidiary Defendants . . . to perpetrate a fraud or injustice or otherwise to circumvent the law." (Id. ¶ 35.) It claims that the Subsidiary Defendants are not engaged in independent businesses of their own, but rather that each is "exclusively engaged in the performance of services for [Pulte Homes] as the parent." (Id. ¶¶ 36-37.) Specifically, Nassau alleges that Pulte Homes "has undercapitalized each of the Subsidiary Defendants" and that the collective failure of the Subsidiary Defendants to pay the $230,000 allegedly owed under the contracts provides evidence of this undercapitalization. (Id. ¶¶ 38-39.)

Based on these allegations, Nassau requests that this Court pierce the corporate veil and hold Pulte Homes liable for any damages resulting from breaches of contracts by the Subsidiary Defendants. On February 5, 2008, Pulte Homes filed a motion to dismiss Count III of Nassau's Complaint.

II.

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that a court may dismiss any part of a complaint for "failure to state a claim upon which relief can be granted." In considering a Rule 12(b)(6) motion, the Court accepts as true all well pleaded factual allegations contained in the complaint and draws all reasonable inferences from such allegations in the light most favorable to the plaintiff. See Worldcom, Inc. v. Graphnet, Inc., 343 F.3d 651, 653 (3d Cir. 2003).

"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (alteration in original) (internal citations omitted). To survive a Rule 12(b)(6) motion, "a civil plaintiff must allege facts that 'raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact).'" Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Twombly, 127 S.Ct. at 1965 (internal citations omitted)).

III.

Ordinarily a federal district court sitting in diversity must apply the choice-of-law rules of the forum state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941). In this case, neither party argues that the substantive law of the forum, New Jersey, differs from the substantive law of other jurisdictions that might apply to the issues raised by the Complaint.*fn2 Both parties rely exclusively on New Jersey law in addressing the circumstances that permit a court to pierce the corporate veil and hold a parent corporation liable for the acts of its subsidiaries. Therefore, the Court will apply New Jersey substantive law. See Simon v. United States, 341 F.3d 193, 198 n.4 (3d Cir. 2003) (citing Nat'l Ass'n of Sporting Goods Wholesalers, Inc. v. F.T.L. Mktg. Corp., 779 F.2d 1281, 1284-85 (7th Cir. 1985), which stated that "[w]here parties fail to raise a possible conflict of substantive laws . . . the substantive law of the forum controls" (internal quotation marks omitted)).

Under New Jersey law, it is a fundamental proposition that shareholders are generally insulated from the liabilities of a corporation, and "[e]ven in the case of a parent corporation and its wholly-owned subsidiary, limited liability normally will not be abrogated." State Dep't of Envtl. Prot. v. Ventron Corp., 468 A.2d 150, 164 (N.J. 1983). However, [u]nder certain circumstances, courts may pierce the corporate veil by finding that a subsidiary was a mere instrumentality of the parent corporation. Application of this principle depends on a finding that the parent so dominated the subsidiary that it had no separate existence but was merely a conduit for the parent. Even in the presence of corporate dominance, liability generally is imposed only when the parent has abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice, or otherwise to circumvent the law.

Id. at 164-65 (internal quotation marks and citations omitted). New Jersey courts have noted that the "hallmarks" of a parent's abuse of the privilege of incorporation are "typically the engagement of the subsidiary in no independent business of its own but exclusively the performance of a service for the parent and, even more importantly, the undercapitalization of the subsidiary rendering it judgment-proof." OTR Assocs. v. IBC Servs., Inc., 801 A.2d 407, 409-10 (N.J. Super. Ct. App. Div. 2002) (citing Ventron, 468 A.2d 150).

In Allied Corp. v. Frola, 701 F. Supp. 1084 (D.N.J. 1988), this Court dismissed several counts of a third-party complaint that sought to pierce the corporate veil and hold three parent corporations liable for the acts of a subsidiary, Quanta Resources Corporation, in relation to the environmental contamination of a parcel of land. The complaint alleged:

11. Quanta [Resources] was a wholly owned subsidiary of Quanta Holding, a wholly owned subsidiary of Waste Recovery, a ...


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