Mark Monje and Beth Monje, husband and wife, individually and on behalf of their minor son; and RM, minor son, ORDER Plaintiffs,
Spin Master Inc., a Delaware corporation; Spin Master Limited, a Canadian company; Toys
G. MURRAY SNOW, District Judge.
Third Party Defendants Eurofins Scientific SE ("ESSE") and Product Safety Labs, Inc. ("PSL") have moved to be dismissed from Defendant/Third-Party Plaintiff Spin Master, Inc.'s Amended Third Party Complaint (the "Complaint") (Doc. 108) for lack of personal jurisdiction, moved to strike Spin Master's designation of ESSE and PSL as nonparties at fault in its Amended Answer, and, in the alternative, moved to stay this litigation. (Doc. 126.) Third-Party Defendant Bureau Veritas S.A. ("BVSA") has likewise moved to dismiss the Complaint for lack of personal jurisdiction. (Doc. 131.) Third-Party Defendant Bureau Veritas Consumer Products Services, Inc. ("BVCPS") has moved to dismiss the Complaint under Rule 12(b)(6) for failure to state a claim. (Doc. 130.) Finally, Spin Master filed a Motion, (Doc. 160), requesting that the Court order certain Parties to meet and confer again regarding the Motion to Strike, (Doc. 126). The Court grants the Motions to Dismiss for lack of personal jurisdiction, grants the Motion to Strike, denies the Motion to Stay as moot, denies the Motion to Dismiss under 12(b)(6), and denies Spin Master's Motion. The claim against BVCPS remains.
The underlying case involves a toy called "Bindeez", which was designed by Defendant Moose Enterprises, Ltd., and which Spin Master marketed and sold in the United States as "Aqua Dots." (Doc. 1-1 (Am. Compl.) ¶ 7.) Aqua Dots are small, colorful beads that children could use to make various crafts. ( Id. ¶ 16.) Aqua Dots arrived on the shelves of United States retailers on April 1, 2007. ( Id. ¶ 20.) Spin Master distributed around four million packages of Aqua Dots in the United States. (Doc. 106-1, Ex. 15.)
In June 2007, Spin Master commissioned BVCPS to conduct acute oral ingestion toxicity testing on a sample of Aqua Dots. (Doc. 108 ¶ 12.) BVCPS is a Massachusetts corporation with its principal place of business in Buffalo, New York. ( Id. ¶ 4.) It is a subsidiary of BVSA, which is a French company headquartered in Neuilly-sur-Seine, France. (Doc. 131-1, Ex. 1 ¶ 3.) The Bureau Veritas group "offers a wide range of services to ensure a safety-assurance process and asset availability performance whatever the industry." (Doc. 142-2, Ex. B.)
BVCPS subcontracted with PSL to perform the oral toxicity testing. (Doc. 108 ¶ 13; Doc. 129-1, Exs. A, B.) PSL is a Delaware company whose offices are located in New Jersey. (Doc. 127 (Wnorowski Decl.) ¶ 2.) It is a member of the Eurofins group of companies, which is owned by ESSE, a Luxembourg holding company. (Doc. 128 (Vaussy Decl.) ¶ 3.) Like the other members of the Eurofins Group, PSL performs laboratory testing of various products. (Doc. 108 ¶ 13.)
BVCPS and its subcontractor, PSL, understood that Spin Master marketed and sold Aqua Dots to children and that the testing was to ensure that the product would not endanger a child who ingested the dots. ( Id. ) Nevertheless, according to the allegations of the Third-Party Complaint, PSL unnecessarily delayed the testing and then did not administer the proper dosage to the test animals. ( Id. ¶ 14-15.)
At some point in 2007, Plaintiffs Mark and Beth Monje purchased Aqua Dots from a Toys "R" Us store in Maricopa County, Arizona. (Doc. 1-1 (Am. Compl.) ¶ 11.) In July of 2007, Plaintiff RM, the Monjes' 18-month-old son, ate some Aqua Dots. ( Id. ) Unbeknownst to the Monjes, Aqua Dots contained 1, 4-butanediol, a harmful toxin that, when metabolized, converts into GHB, also known as the "date rape" drug. ( Id. ¶ 22.) RM experienced "significant seizures, continued vomiting, went into respiratory failure, required intubation, and slipped into a coma." ( Id. ¶ 13.) He was air-evacuated to Phoenix Children's Hospital. ( Id. ) RM suffered severe and permanent injuries to his brain and central nervous system. ( Id. ¶ 15.) Nurses found Aqua Dots in RM's vomit. ( Id. ¶ 13.)
PSL eventually provided its analysis to BVCPS, which sent it to Spin Master. (Doc. 108 ¶ 16.) The report stated that the Aqua Dots sample was "not... toxic as defined in and tested per 16 CFR 1500.3(c)(2)(i)(A), Acute oral toxicity' (FHSA regulations)." (Doc. 130-1, Ex. A.) That report arrived on August 10, 2007, some time after RM had ingested the Aqua Dots and suffered his injuries. ( Id.; Doc. 1-1 (Am. Compl.) ¶ 11.)
On November 7, 2007, the United States Consumer Product Safety Commission ordered the recall of all Aqua Dots after several reports of injuries similar to those suffered by RM surfaced in the media. (Doc. 1-1 (Am. Compl.) ¶ 21.) The Monjes bring a variety of product liability claims against Moose, Spin Master, and Toys "R" Us. Spin Master seeks common law and implied indemnification from ESSE, PSL, BVSA, and BVCPS.
Three of the four Third-Party Defendants challenge the exercise of the Court's jurisdiction over them. Because a jurisdictional challenge has been raised, the Court will consider those arguments before moving to question of whether Spin Master has stated a claim for common law immunity.
I. PERSONAL JURISDICTION
A. Legal Standard
Spin Master, as the Third-Party Plaintiff, bears the burden of establishing personal jurisdiction. See, e.g., Ziegler v. Indian River Cnty., 64 F.3d 470, 473 (9th Cir. 1995). Once a defendant has moved to dismiss, "the plaintiff is obligated to come forward with facts, by affidavit or otherwise, supporting personal jurisdiction" over the defendant. Cummings v. W. Trial Lawyers Assoc., 133 F.Supp.2d 1144, 1151 (D. Ariz. 2001) (internal quotations omitted). "[M]ere allegations of a complaint, when contradicted by affidavits, are not enough to confer personal jurisdiction over a non-resident defendant." Chem Lab Prods., Inc. v. Stepanek, 554 F.2d 371, 372 (9th Cir. 1977); Data Disc, Inc. v. Sys. Tech. Assocs., 557 F.2d 1280, 1285 (9th Cir. 1977) ("[W]e may not assume the truth of allegations in a pleading which are contradicted by affidavit.") A court may look to affidavits submitted by the parties in its determination. Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir. 2001). However, "conflicts between the facts contained in the parties' affidavits must be resolved in [plaintiffs'] favor for purposes of deciding whether a prima facie case for personal jurisdiction exists." AT&T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996).
Because no statutory method for resolving the personal jurisdiction issue exists, the district court determines the method of its resolution. See Data Disc, 557 F.2d at 1285 (citing Gibbs v. Buck, 307 U.S. 66, 71-72 (1939)). A district court may, but is not required to, allow discovery to help determine whether it has personal jurisdiction over a defendant. See id. at 1285 n. 1. In addition, a district court may, but is not required to, hear evidence at a preliminary hearing to determine its jurisdiction. See id. at 1285 n.2. If the district court does not hear testimony or make findings of fact and permits the parties to submit only written materials, then the plaintiff must only make a prima facie showing of jurisdictional facts to defeat the defendant's motion to dismiss. See Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 268 (9th Cir. 1995). Under this prima facie burden of proof, the plaintiff need only establish facts, through admissible evidence, that if true would support personal jurisdiction over the defendant. See Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). The Court has determined to proceed on the written materials submitted by the Parties and apply the lower prima facie standard.
To establish that personal jurisdiction over ESSE, PSL, and BVSA exists, Spin Master must demonstrate that (1) Arizona's long arm statute confers jurisdiction over those Parties, and (2) that "the exercise of jurisdiction comports with the constitutional principles of Due Process." See Rio Props. v. Rio Intl Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002) (citation omitted); Fed.R.Civ.P. 4(k)(1)(A). Because Arizona's longarm statute extends jurisdiction "to the maximum extent permitted by the... Constitution of the United States, " the personal jurisdiction inquiry collapses into a Due Process analysis. See Ariz. R. Civ. P. 4.2(a); Davis v. Metro Prod., Inc., 885 F.2d 515, 520 (9th Cir. 1989); Williams v. Lakeview Co., 199 Ariz. 1, 5, 13 P.3d 280, 282 (2000). Absent traditional bases for personal jurisdiction (e.g., physical presence, domicile, and consent) the Due Process Clause requires that nonresident defendants have certain "minimum contacts" with the forum state such that the exercise of personal jurisdiction does not offend traditional notions of fair play and substantial justice. See Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
"In determining whether a defendant had minimum contacts with the forum state such that the exercise of jurisdiction over the defendant would not offend the Due Process Clause, courts focus on the relationship among the defendant, the forum, and the litigation.'" Brink v. First Credit Resources, 57 F.Supp.2d 848, 860 (D. Ariz. 1999) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). If a defendant's contacts with the forum state are sufficient to satisfy the Due Process Clause, then the Court must exercise either "general" or "specific" jurisdiction over the defendant. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414-15 nn.8-9 (1984); Ziegler, 64 F.3d at 473. The nature of a defendant's contacts with the forum state will determine whether the Court exercises general or specific jurisdiction over him. Helicopteros Nacionales, 466 U.S. at 414-15 nn.8-9. Spin Master rests its jurisdictional case on the presence of general jurisdiction for each of the three Third-Party Defendants who have moved to dismiss.
The Court may assert general jurisdiction over ESSE, PSL, and BVSA only if the activities of each entity in Arizona are substantial or continuous and systematic. See Haisten v. Grass Valley Med. Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986)); Data Disc, 557 F.2d at 1287 (citing Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 446-47 (1952)). If those contacts are present, then the reasonableness of exercising jurisdiction is considered. Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 919-20 (9th Cir. 2011), cert. granted, S.Ct., 11-965, 2013 WL 1704716 (Apr. 22, 2013).
In each case, Spin Master makes no argument that ESSE, PSL, or BVSA themselves have substantial or continuous and systematic contacts with Arizona. Instead, Spin Master seeks to take the Arizona contacts of other non-party subsidiaries and funnel them back up to the parent companies (ESSE and BVSA) and out to a sister company (PSL). The Ninth Circuit has provided two theories to enable a plaintiff to take a subsidiary's forum contacts and attribute them to the parent company.
1. Alter Ego
First is the alter ego theory. To allow a court to impute a subsidiary corporation's contacts with a forum to the parent, the plaintiff must make a prima facie showing that the "parent and subsidiary are not really separate entities...." Unocal, 248 F.3d at 926. Since this is a diversity case, state law determines whether a parent company should be treated as the alter-ego of a subsidiary for jurisdictional purposes. See Hambleton Bros. Lumber Co. v. Balkin Enters., 397 F.3d 1217, 1227 (9th Cir. 2005) (noting that in diversity actions, federal courts must apply state law when evaluating alter-ego status); see also Davis v. Metro Prods., 885 F.2d 515, 520-21 (9th Cir. 1989) (sitting in diversity and applying Arizona's test for piercing the corporate veil to determine whether a subsidiary's contacts should be imputed to the parent). Under Arizona law, "corporate status will not be lightly disregarded." Chapman v. Field, 124 Ariz. 100, 102, 602 P.2d 481, 483 (1979).
To pierce the corporate veil or demonstrate alter-ego status, a "plaintiff] ] must prove both (1) unity of control and (2) that observance of the corporate form would sanction a fraud or promote injustice." Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 37, 821 P.2d 725, 728 (1991). In determining whether a parent and subsidiary share "unity of control, " Arizona courts often consider the following factors: stock ownership by the parent; common officers or directors; financing of subsidiary by the parent; payment of salaries and other expenses of subsidiary by the parent; failure of subsidiary to maintain formalities of separate corporate existence; similarity of logo; and plaintiff's lack of knowledge of subsidiary's separate corporate existence. Id. Isolated occurrences of a few of these factors are not enough to justify an alter ego theory. See Patterson v. Home Depot, USA, Inc., 684 F.Supp.2d 1170, 1177-79 (D. Ariz. 2010). In addition, the parent corporation must exert "substantially total control" over the subsidiary so that the subsidiary becomes "a mere instrumentality" of the parent. Gatecliff, 170 Ariz. at 37; Taeger v. Catholic Family & Cmty. Serv., 196 Ariz. 285, 297-98, 995 P.2d 721, 733-34 (Ct. App. 2000). In sum, lain alter ego or agency relationship is typified by parental control of the subsidiary's internal affairs or daily operations." Unocal, 248 F.3d at 926 (citing Kramer Motors, Inc. v. British Leyland, Ltd., 628 F.2d 1175, 1177 (9th Cir. 1980)).
ESSE is a Luxemborg holding company. (Doc. 128 (Vaussy Decl.) ¶ 3.) It does not do any business in Arizona or any of the fifty states. ( Id. ¶¶ 4-5.) ESSE has never engaged in any activities in Arizona. ( Id. ) As a holding company, ESSE has an ownership interest in many other companies that operate product safety testing labs. (Doc. 141-2, Ex. A.) According to its shareholder letter, these subsidiaries form the Eurofins Group. (Doc. 141-2, Ex. B at 4.) The Eurofins Group encompasses a network whose companies employ "over 10, 000 staff in more than 150 laboratories across 30 countries." ( Id. at 3.)
ESSE, however, does not perform any laboratory testing itself It functions only as the "holding company" and "magage[s] its investments and the financing of the activities of its subsidiaries, provide[s] support, facilitate[s] communication and develop[s] resources that are available Group-wide." ( Id. at 18.) "The decentralized organization of the Group in autonomous clusters and business unites enables the subsidiaries to make decisions at the ground level and to maintain some independence." ( Id. ) Nevertheless, "[s]trategic choices are determined and approved at a central level." ( Id. )
Spin Master seeks to impute the Arizona contacts of one of ESSE's subsidiaries, Eurofin Eaton Analytical ("EEA"), back to ESSE. EEA, which is not party to this case, is a Delaware company situated in Scottsdale, Arizona. (Doc. 141-2, Exs. D, K.) EEA appears to perform a range of product tests at its Arizona labs, but it did not test the Aqua Dots product and is not involved in the underlying case. ESSE does not assert that general jurisdiction does not exist over EEA.
None of the facts that Spin Master cites demonstrate that EEA functions as the alter ego of ESSE. Spin Master focuses on ESSE's description of its subsidiaries as members of the "Eurofins North American Environmental family, " (Doc. 141-3, Ex. J), and the fact that ESSE aggregates its subsidiaries' financial performance in ESSE's financial reports (Doc. 141-2, Ex. B). That type of financial reporting is standard practice for a holding company like ESSE and will not result in a court breaking down the corporate walls between ESSE and EEA. See Unocal., 248 F.3d at 928 ("Likewise, references in the parent's annual report to subsidiaries or chains of subsidiaries as divisions of the parent company do not establish the existence of an alter ego relationship."). Nor does the fact that ESSE provided EEA "in excess of $1M in capital for increased equipment capacity", (Doc. 141-3, Ex. J), establish unity of control. The provision of loans, so long as the companies observe corporate formalities, does not fuse a subsidiary and parent together for purposes of the law. See Unocal, 248 F.3d at 928; Kramer Motors, 628 F.2d at 1177. The Ninth Circuit has "found no alter ego relationship was ...