ORDER
TERRENCE BOYLE, District Judge
Plaintiff Charles Robert Barefoot, Jr. ("Barefoot") filed this civil rights action. Properly before the court is defendants' motion for summary judgment. The matter is ripe for determination.
As stated in the previous court order, defendants' motion to dismiss was denied on the basis that it was not clear on the current record whether defendants' interest in maintaining security, discipline, and order had been done by the least restrictive means. Barefoot argues, or may argue, he practices two religions, Ku Klux Klan and Native American. He asserts he has been precluded or forbidden from practicing either and his prayer necklace has been illegally confiscated. The court in liberally construing the filing found plaintiff to have brought his action as both a First Amendment claim under Bivens and under the Religious Land Use of Institutionalized Persons Act of 2000 ("RLUIPA"), 42 U.S.C. §§ 2000cc- 1 et seq.
Barefoot's filings are very difficult to understand, for example he states "Plaintiff Barefoot as [sic] being alleged to be a Ku Klux Klan leader, which plaintiff Barefoot is no affiliation of the Ku Klux Klan plaintiff is a pastor of the above described church and a Native American Shaman." (D.E. # 32, p. 3) The above described church is described as "the, church, of, the, Nations, Knights, of the Ku, Klux, Klan, Inc." (Id.)
Defendants state that Barefoot does not argue about his medical bag in this complaint. Defendants depiction of the complaint is correct. Because of the voluminous and confused nature of the filings of this case, as well as the litigiousness of Barefoot, the court included the medical bag. While it is included within several of his responses (D.E. # 32, p. 2) and his grievances, this order will focus solely on the prayer necklace.
Factual Determination
Defendants admit plaintiff's sacred prayer necklace was confiscated, not because it was a religious item, but because it was prohibited as an item that could easily be used to harm plaintiff, other inmates, or staff. (Answer, DE # 40; Aff. of Def. Pickett in Support of Summ. J.). Defendants describe the sacred prayer necklace as constructed of a woven rope material. (Id.). In an effort to accommodate plaintiff's religious practices, defendant Pickett, administrator of the detention center, issued a directive on June 2, 2006, allowing plaintiff to carry religious items during a one hour per week prayer time outside his cell. (Mem. in Support of Summ. J., Exhibit C). The directive further provided for the search of plaintiff upon leaving and reentering his cell. (Id.) Defendant Pickett believed plaintiff held a leadership role in the Ku Klux Klan and this caused Pickett to consider plaintiff at heightened risk of physical harm from other inmates who might object to plaintiff's racial views. (Aff. of Def. Pickett in Support of Summ. J.) In support of this belief, in July of 2006, plaintiff complained to staff and medical personnel that he had received racial and political beatings by Sampson County and Central Prison officials. (Mem. in Support of Summ. J, Exhibit A). On March 13, 2006, Judge Paul G. Hardison issued a safekeeping order finding that due to the nature of the charges against plaintiff, the Sampson County Detention Center was not capable of segregating and safeguarding plaintiff with threats having been made to plaintiff and his co-defendants. (Id., Exhibit B). Plaintiff reported directly to defendant Pickett that "big black guys" at Central Prison had used force against him. (Affidavit of Defendant Pickett in Support of Summary Judgment). Each of these circumstances contributed to defendant Pickett's concern for the security risk posed by plaintiff. (Id.)
Discussion
Summary judgment is appropriate when, after reviewing the record taken as a whole, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The party seeking summary judgment bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the moving party has met its burden, the non-moving party may not rest on the allegations or denials in its pleading, Anderson, 477 U.S. at 248, but "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)). A mere scintilla of evidence supporting the case is not enough.Anderson, 477 U.S. at 252. The court construes the evidence in the light most favorable to the non-moving party and draws all reasonable inferences in the non-movant's favor. Matsushita Elec. Indus. Co., 475 U.S. at 586-87.
The Religious Land Use of Institutionalized Persons Act of 2000 ("RLUIPA") provides:
No government shall impose a substantial burden on the religious exercise of a person residing in or confined to an institution, as defined in [
42 U.S.C. § 1997], even if the burden results from a rule of general applicability, unless the government demonstrates that imposition of the burden on that person —
(1) is in furtherance of a compelling governmental interest; and
(2) is the least restrictive means of furthering that compelling government interest.
42 U.S.C. § 2000cc-1(a). RLUIPA defines religious exercise as "any exercise of religion, whether or not compelled by, or central to, a system of religious belief."
42 U.S.C. § 2000cc-5(7)(A). Under RLUIPA, a plaintiff bears the burden of demonstrating that defendants imposed a substantial burden on the exercise of his religion.
See 42 U.S.C. 2000cc-2(b);
Gladson v. Iowa Dept. of Corrections,
___ F.3d ___, ___,
2009 WL 36813, *5 (8th Cir. Jan. 8, 2009);
Lovelace v. Lee, 472 F.3d 174, 182 (4th Cir. 2006);
Adkins v. Kaspar, 393 F.3d 559, 567 n. 32 (5th Cir. 2004). The burden then shifts to the defendants to demonstrate that the substantial burden furthers a compelling governmental interest and does so by the least restrictive means.
See Lovelaee,
472 F.3d at 182. Furthermore, a court must give due deference to the experience and expertise of prison officials and may not substitute its judgment in their place, unless the inmate proves by substantial evidence that officials have exaggerated their response to the security considerations.
Van Wyhe v. Reisch, 581 F.3d 639, 650 (8th Cir. 2009);
Hoevenaar v. Lazaroff, 422 F.3d 366, 371 (6th Cir. 2005); and
Murphy v. Mo. Dept. of Corr., 372 F.3d 979, 987 (8th Cir. 2004).
Likewise, plaintiff has the right to practice religion under the protections of the First Amendment while incarcerated. O'Lone v. Estate of Shabazz, 482 U.S. 342, 348 (1987). However, the right again is not without limits. Id.; see also Thornburgh v. Abbott, 490 U.S. 410, 415 (1989); Turner v. Safley, 482 U.S. 78, 85 (1987);
The North Carolina Department of Correction ("DOC") has a compelling governmental interest in maintaining security, discipline, and order.See McRae v. Johnson, 261 Fed. Appx. 554. 558 (4th Cir. 2008) (per curiam) (unpublished); Hines v. South Carolina Dep't of Corr., 148 F.3d 353, 358 (4th Cir. 1998). Other courts have upheld prison regulations suppressing the use of religious symbols which promote racism and violence on the basis that it "serves the compelling state interest of maintaining prison security."Wood v. Me. Dep't of Corr., No. CV-06-156-B-W. 2008 WL 2222037, at *2 (D. Me. May 22, 2008) (unpublished); see Borzych v. Frank, 439 F.3d 388, 391 (7th Cir. 2006).
In the case at hand, without deciding, the court shall assume plaintiff has met the prima facia case in establishing a claim under RLUIPA. However, the government has shown it is using the least restrictive means of furthering several compelling governmental interest: maintenance of health and security of plaintiff. The detailed affidavit of defendant Pickett goes step by step through the reasons for the confiscation of the sacred prayer necklace. Furthermore, accommodations have been made to allow Barefoot to possess the necklace at certain designated times within a week. It is clear that the concern over the necklace was not that it was a religious item, but a security risk in that it could be used as a weapon. The court must allow due deference to the experience and expertise of the administrators of the facility. The court finds that there have been no First Amendment or RLUIPA violations in confiscating Barefoot's sacred prayer necklace.
We may `not judge the significance of the particular belief or practice in question.' Lovelace v. Lee, 472 F.3d 174, 187 (4th Cir. 2006). Indeed, `religious exercise' is defined to include `any exercise of religion, whether or not compelled by, or central to, a system of religious belief.' 42 U.S.C. § 2000cc-5(7)" Smith v. Ozmmint, 578 F.3d 246, 251 (4th Cir. 2009).
For the above stated reasons, defendants' motion for summary judgment is GRANTED and the matter is DISMISSED. Having so determined, all other pending motions are DENIED as MOOT.
SO ORDERED.
cement or continuation of any action against WMI was stayed by WMI's chapter 11 filing pursuant to section 362 of the Bankruptcy Code.
11 U.S.C. § 362(a). The time to file a claim or action is tolled until 60 days after relief from the automatic stay is granted. Id. at § 108(b). Similarly, New York Law provides that "[w]here the commencement of an action has been stayed by a court or by statutory prohibition, the duration of the stay is not a part of the time within which the action must be commenced." N.Y.C.P.L.R. 204(a) (McKinney 2010).
Although Youkelsone makes allegations relating to December 2008 and June 2009 (Am. Compl. ¶ 53) and states that the WMI maintains an action that "is still pending as of now in the State Court" (Am Compl. ¶ 92), these allegations relate to the Mortgage Action, which Youkelsone is barred by issue preclusion from alleging against WMI, as discussed below.
As discussed above, however, Youkelsone's claims for breach of contract, unjust enrichment, fraud, and violations of NYRPAPL do fall under the general six-year statute of limitations. Therefore, the critical date after which these causes of action must have accrued is September 26, 2002. The Amended Complaint alleges conduct by WMI from 2003 to 2004 that relates to all of these causes of action. (Am. Compl. ¶¶ 55-85.) Therefore, the Court will not grant WMI's motion to dismiss those claims based on the statute of limitations.
2. Issue Preclusion
WMI argues that Youkelsone is barred by issue preclusion from pursuing her remaining claims because a New York court has found that Youkelsone's mortgage was validly assigned by Washington Mutual Home Loans, Inc. ("WMHL") to FNMA. WMI argues that the effect of the previous litigation is to bar Youkelsone from stating any cause of action against WMI to the extent it depends on WMI's ownership of Youkelsone's mortgage note.
On October 2, 2001, FNMA initiated an action in the New York State Court to foreclose upon Youkelsone's residence (the "Foreclosure Action"). Federal Nat'l Mortgage Ass'n v. Youkelsone, 36834/01 (N.Y. Sup. Ct. 2001). In response, Youkelsone filed a motion to dismiss, alleging that the assignment of her mortgage by WMHL to FNMA was invalid and that FNMA lacked standing to sue. Id. The court denied the motion to dismiss, finding that the assignment to FNMA was valid. Id. On appeal, the order denying Youkelsone's motion to dismiss was affirmed. FNMA v. Youkelsone, 303 A.D.2d 546 (N.Y. App. Div. 2003).
While the Foreclosure Action was pending, Youkelsone initiated a separate lawsuit on December 24, 2001, in New York State Court (the "State Court Action") against WMHL, Fleet Mortgage Corporation, and Fleet Financial Group, Inc. Youkelsone again alleged wrongful conduct related to the foreclosure on her home. The defendants filed a motion to dismiss, which was granted and affirmed, because to the extent Youkelsone's claims were dependant upon issues asserted and decided in the Foreclosure Action, she was collaterally estopped from raising them again. Youkelsone v. FNMA, 309 A.D.2d 655 (N.Y. App. Div. 2003).
Youkelsone argues that collateral estoppel is inapplicable because the Amended Complaint alleges different issues and facts from the previous Foreclosure and State Court Actions. She contends that the current claims relate to WMI's wrongdoing from June 2003 to present, while the previous litigation reflected the period of 1999 to 2001. Youkelsone also argues that because WMI's actions prevented her from litigating and pursuing her remedies under the law, the previous state court decisions were not made on the merits.
Under the principle of issue preclusion, a party may not re-litigate an issue that was fully litigated in a previous action. Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc., v. Centra, 983 F.2d 495, 505 (3d Cir. 1992). The full faith and credit statute directs federal courts to refer to the law of the state in which judgment was rendered in determining whether issue preclusion applies. 28 U.S.C. § 1738.See also Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985). As both the Foreclosure Action and the State Court Action occurred in New York, the Court applies the preclusion law of New York, which bars claims "if (1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in that proceeding; (3) the party against whom issue preclusion is asserted had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits." Congregation Adas Yereim v. City of New York, 673 F. Supp. 2d 94, 108 (E.D.N.Y. 2009) (citing Uzdavines v. Weeks Marine, Inc., 418 F.3d 138, 146 (2d Cir. 2005)). The "tribunals or causes of action" need not be the same, but the issue that was raised previously "must be decisive of the present action." LaFleur v. Whitman, 300 F.3d 256, 271 (2d Cir. 2002).
Youkelsone argues that collateral estoppel does not apply because the instant action alleges different issues and facts from the prior actions. Although the parties, facts, or causes of action may be different, a plaintiff is still barred from pursuing a claim where an essential element of the claim has already been determined. See, e.g., Quality Measurement Co. v. IPSOS S.A., 56 F. App'x 639, 645-46 (6th Cir. 2003); Singleton Management, Inc. v. Compere, 673 N.Y.S.2d 381, 383 (App. Div. 1998) (stating that where requirements of collateral estoppel are met, "there is no need, as there is with res judicata, that the cause of action sought to be barred be substantially identical to one decided in the prior action or that the party seeking to invoke the doctrine have had any connection to the prior action.").
In the Foreclosure Action, Youkelsone attempted to contest the validity of the assignment of the mortgage, and the court held that the assignment was valid because it was in writing and signed by the agent of the assignor. FNMA v. Youkelsone, 755 N.Y.S.2d at 730. In the subsequent State Court Action, the court held that Youkelsone's claims were barred by collateral estoppel to the extent that they were dependent upon an alleged invalidity of the assignment of the mortgage. Youkelsone v. FNMA, 765 N.Y.S.2d 792. Therefore, although Youkelsone may allege a different set of facts against a different party, her claims may still be barred to the extent ownership of the mortgage is an essential element of the claims.
Youkelsone also alleges that the acts of WMI prevented her from fully litigating her claims and notes that her cause of action for abuse of process is evidence of this. In her abuse of process cause of action in this Court, Youkelsone alleges that WMI "improperly influenced the courts by using deceptive means, false documents and false claims." (Am. Compl. ¶ 99.) She does not identify any of these documents or claims, however, nor does she explain how they prevented her from raising any factual or legal issues she may have asserted to contest the assignment of the mortgage. The Court finds that Youkelsone had a full and fair opportunity to litigate the validity of the assignment of the mortgage note in the previous action.
Youkelsone argues that neither of the previous decisions were issued on the merits but again presents no facts to support that assertion. A judgment is rendered on the merits if based on an independent analysis of the claims. See, e.g., Tang v. State of R.I., Dept. of Elderly Affairs, 904 F. Supp. 69, 74 (D.R.I. 1995). The finding of the court in the Foreclosure Action was clearly on the merits. Youkelsone previously argued in state court that the fact that only token consideration for the assignment was given indicates that the assignment was fraudulent. FNMA v. Youkelsone, 755 N.Y.S.2d at 730. The court determined after independent review that the assignment was valid and that FNMA therefore had standing to sue on the mortgage note. The "full and fair opportunity" prong of the collateral estoppel doctrine is met if the party in the previous state court proceeding was fully able to raise the same factual or legal issues that are now asserted. LaFleur v. Whitman, 300 F.3d at 274.
In this case, the principles of collateral estoppel are met. Youkelsone has not identified any reason why the previous actions should not be given preclusive effect. See In re City of New York, No. 14010/00, 2007 WL 509797, at *15 (N.Y. Sup. Ct. Feb. 15, 2007) (stating that collateral estoppel is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it and considering whether relitigation should be permitted requires analysis of "competing policy considerations, including fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results"). Allowing Youkelsone to relitigate the validity of the assignment of the mortgage would allow her to contest an issue that has already been fully litigated, decided, and affirmed on appeal. Therefore, the Court concludes that Youkelsone's claims are barred to the extent ownership of the mortgage is an essential element of those claims.
The Amended Complaint includes a number of allegations relating to the commencement and pursuit of the Foreclosure Action and alleges that WMI "was [the] ultimate party in interest in the Foreclosure action." (Am. Compl. ¶ 51.) Under New York law a plaintiff seeking to foreclose "must establish that it was the owner or holder of the note and mortgage at the time that it commenced the foreclosure action." Financial Freedom SFC v. Slinkosky, No. 11879/2009, 2010 WL 2802170, at *1 (N.Y. Sup. Ct. June 24, 2010) (citing FNMA v. Youkelsone, 393 A.D.2d at 546). Because Youkelsone is barred from contesting the ownership of the mortgage note, the Court concludes that claims relating to the Foreclosure Action are barred by issue preclusion because ownership of the note is an essential element of those claims.
3. Plausibility of Remaining Claims for Relief
Youkelsone's remaining claims for violation of NYRPAPL, unjust enrichment, and fraud must be evaluated under Rule 12(b)(6) to determine if they "contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face."Iqbal, 129 S. Ct. at 1940.
Youkelsone alleges two alternative bases for WMI's liability: (1) direct liability for various wrongs related to the servicing of her mortgage and (2) indirect liability for the actions of its banking subsidiary, WMB, in its servicing of her mortgage.
WMI argues that Youkelsone has failed to state a claim upon which relief can be granted. WMI contends that Youkelsone has sued the wrong party because WMI never owned or serviced Youkelsone's mortgage. Further, WMI argues that the Amended Complaint does not allege sufficient facts to justify disregarding the corporate form and finding WMI liable for WMB's alleged acts.
a. Direct Liability
In order to assert a direct liability claim against WMI, Youkelsone alleges that WMI "formally acquired the Mortgage" and "was the actual owner of the subject mortgage and note." (Am. Comp. ¶ 37 39.) Because as noted above Youkelsone is barred from contesting the ownership of the mortgage, the direct liability claim against WMI based on ownership of the mortgage is not plausible.
Youkelsone also asserts causes of action relating to the servicing of her mortgage. Youkelsone alleges that "[a]t all times [WMI] serviced the mortgage." (Id. at ¶ 34.) Mortgage servicing is often assigned to third parties by the note holder, making the third party responsible for collecting the borrower's payments, maintaining all of the necessary accounts, and making the necessary disbursements to the mortgage note holder. Deerman v. Federal Home Loan Mortg. Corp., 955 F. Supp. 1393, 1396 (N.D. Ala. 1997). The Amended Complaint alleges that WMI serviced her mortgage, and "assessed various fees, excessive interest rate, PMI charges on the loan account and inflated the amount due to egregious extent." (Am. Compl. ¶ 34.) Youkelsone's allegations relating to the servicing of her mortgage are included in her causes for unjust enrichment, fraud, breach of contract, and violation of NYRPAPL.
Whether Youkelsone can pursue any of these causes of action depends on whether a mortgage servicer can be held liable to the mortgagor. Youkelsone has failed to allege any contractual relationship existed between her and WMI as mortgage servicer. Under New York law, unless the mortgage servicer is a party to the mortgage contract, only the mortgagee can be held liable to the mortgagor. See, e.g., Fellows v. CitiMortgage, Inc., No. 07 Civ. 2261 (DLC), 2010 WL 1857243, at *15 (S.D.N.Y. May 11, 2010). As the mortgage holder, only FNMA had a contractual relationship with the servicer and it is the only party with a right to enforce the servicer's obligations pursuant to the servicing contract. Id. Youkelsone was not a party to the servicing contract and has no standing to enforce it, even as a third party beneficiary. Id. at 16. Therefore, the Court concludes that Youkelsone does not have a plausible claim for breach of contract based on the improper servicing claims.
The Court concludes that the Amended Complaint does not state a plausible claim for relief that WMI is directly liable to Youkelsone for the misconduct related to the ownership or servicing of her mortgage.
b. Indirect Liability
The Amended Complaint also alleges that WMI can be held indirectly liable for the acts of its subsidiary bank, WMB. WMI argues that it cannot be held liable for any of the acts allegedly perpetrated by WMB because Youkelsone has failed to plead facts sufficient to disregard the separate corporate forms of WMI and WMB. WMI argues that Youkelsone's allegations are "mere conclusory statements parroting the elements required for piercing the corporate veil without providing any substance" and asserts that Youkelsone's claims "are either meaningless, contrary to undisputed facts in the public record of which the Court can take judicial notice, contrary to the record of the case, or are simply bald and unsupported legal assertions."
Youkelsone responds that piercing the corporate veil is not necessary to hold WMI liable, that it is not a proper subject for resolution on a motion to dismiss, and that the Amended Complaint has pled facts sufficient to pierce the corporate veil and hold WMI liable under both alter ego and agency theories.
First, Youkelsone is incorrect in her assertion that piercing the corporate veil is unnecessary. It is a basic tenet of American corporate law that "the corporation and its shareholders are distinct entities." Dole Food Co. v. Patrickson, 538 U.S. 468, 474 (2003). Therefore, a parent corporation will not be held liable for the actions "of its wholly owned subsidiaries absent evidence that would justify piercing the corporate veil." Minton v. Ralston Purina Co., 47 P.3d 556, 557 (Wash. 2002).
Youkelsone is also mistaken in her contention that whether sufficient facts are pled to pierce the corporate veil is not a proper subject for resolution on a motion to dismiss, as courts routinely consider, and grant, motions to dismiss for failure to allege facts sufficient to support the imputation of liability on an alleged alter ego. See, e.g., Spagnola v. Chubb Corp., 264 F.R.D. 76, 86 (S.D.N.Y. 2010) (citing cases from various jurisdictions).
Delaware's choice-of-law rules require a court sitting in Delaware to look to a company's state of incorporation to determine the relationship between the corporate entity and its shareholders. Rosenmiller v. Bordes, 607 A.2d 465, 468 (Del. Ch. 1991). Because both WMI and WMB are incorporated in the state of Washington, the Court applies Washington law in deciding whether WMI can be held liable for WMB's actions, based on the allegations in the Amended Complaint.
Washington law generally recognizes parent corporations and their subsidiaries as distinct legal entities; under either the doctrine of corporate disregard or the alter ego theory, however, a parent corporation may be held liable for the acts of its subsidiary. See, e.g., In re Wade Cook Fin. Corp., 375 B.R. 580, 598 (B.A.P. 9th Cir. 2007).
i. Corporate Disregard
The doctrine of corporate disregard holds shareholders liable for the corporation's acts when the corporation has been intentionally used to violate or evade a duty owed to another.See, e.g., Stockton v. Nenadic Invs., Ltd., No. 56282-7-I, 2006 Wash. App. LEXIS 2834 at *17-18 (Wash. Ct. App. Dec. 26, 2006). Under Washington law, a plaintiff seeking to invoke the doctrine of corporate disregard must show: (1) the corporate form was intentionally used to violate or evade a duty and (2) disregard of the corporate form is necessary to prevent unjustified loss to the injured party. Campagnolo S.r.l. v. Full Speed Ahead, Inc., No. C08-1372 RSM, 2010 WL 2079694, at *6 (W.D. Wash. May 20, 2010) (citing Meisel v. M N Modern Hydraulic Press Co., 645 P.2d 689, 692 (Wash. 1982)). The first element "requires an abuse of the corporate form, which typically involves fraud, misrepresentation, or some form of manipulation of the corporation to the stockholder's benefit and creditor's detriment." Id. The second element "requires that the wrongful corporate activities cause the harm suffered by the party seeking relief." Id. (citing Meisel, 645 P.2d at 692-93).
In order to satisfy the first element, Youkelsone must allege fraud related to the corporate form itself. Meisel, 645 P.2d at 692. Alleging that the corporate form is fraudulent requires more than a close relationship. It is presumed that corporations are structured in certain ways because they are advantageous. Absent a showing of fraud, the business judgment of the parties will not be questioned. See, e.g., Rena-Ware Distributors, Inc. v. State, 463 P.2d 622, 625 (Wash. 1970) (holding that the fact that the parent and subsidiary are joined through ownership of stock, the same officers, employees, etc., does not justify disregarding the separate corporate identities unless they are structured for the purpose of working a fraud upon a third person); J.I. Case Credit Corp. v. Stark, 392 P.2d 215, 218 (Wash. 1964) (holding that piercing the corporate veil was inappropriate even where parent and wholly owned subsidiary shared officers who were paid by the parent, had common employees, the same address, the same lawyers, the same nonresident agent, and the same auditors, and where the subsidiary's sole business was performing services for the parent).
In the Amended Complaint, Youkelsone makes a number of allegations related to the corporate structure and the close relationship between WMI and WMB. This includes allegations that the two filed consolidated tax returns (Am. Compl. ¶ 20), operated a centralized cash management system (id. at ¶ 21), conducted business from the same offices (id. at ¶ 13), shared identical directors and officers (id. at ¶ 14), shared the same president (id. at ¶ 15), and shared common employees (id. at ¶ 16). Youkelsone does not allege, however, that any of these arrangements served a fraudulent purpose. These allegations indicate nothing more than a close relationship between a parent and a subsidiary and are not sufficient to sustain a claim under the doctrine of corporate disregard. Minton, 47 P.3d at 563; J.I. Case, 392 P.2d at 218.
Youkelsone does allege various fraudulent acts relating to WMB's servicing of her mortgage. The Amended Complaint alleges that WMB engaged in a "vast scheme of fraud and extortion by [assessing] . . . outrageous fees and penalties on the account; misapply[ing] and reject[ing]" payments, and failing "to provide closing documents within [a] reasonable period of time." (Am. Compl. ¶ 35.) Youkelsone also alleges that WMB "engaged in [a] continuous scheme with intent to deprive the plaintiff of her property by unjustifiably rejecting and/or misapplying the plaintiff's payments towards the mortgage." (Id. at ¶ 58.) Despite the allegations of fraudulent conduct on behalf of WMB, the claims do not relate to a fraudulent misuse of the corporate form, as "a mere assertion of fraud on the part of a subsidiary does not constitute an abuse of the corporate form." In re Washington Mutual, Inc., 418 B.R. 107, 115 (Bankr. D. Del. 2009) (citing Trevino v. Merscorp, Inc., 583 F. Supp. 2d 521, 530 (D. Del. 2008)). Youkelsone's claim of fraudulent conduct by WMB does not allege abuse of the corporate form, and therefore, the Court finds it insufficient to state a claim for relief against WMI under the doctrine of corporate disregard.
ii. Alter Ego
In a parent-subsidiary relationship, the general principle that the parent corporation is not liable for the acts of its subsidiaries is ignored only in exceptional cases. Campagnolo S.r.l., 2010 WL 2079694, at *2 (quoting U.S. v. Bestfoods, 524 U.S. 51, 61 (1998)). Under the alter ego theory, a parent corporation will be found liable for acts of its subsidiary only if piercing the corporate veil is necessary to prevent fraud or injustice to third parties and the parent "so dominates and controls [the subsidiary] as to make [it] merely an adjunct to [the parent]." Superior Portland Cement, Inc. v. Pac. Coast Cement Co., 205 P.2d 597, 620 (Wash. 1049).
[T]here must be such a commingling of the affairs of two corporations as to work an injustice on third parties if their separate status is recognized. . . . Their property rights must be so commingled and their affairs so intimately related in management as to render it apparent that they are, in fact and in intent, one, and so related, to have them regarded otherwise would work a fraud upon third persons.
Wade Cook,
375 B.R. at 599.
The Amended Complaint makes numerous claims related to WMI's control and domination of WMB. Many of these claims, however, are merely conclusory allegations of law, unreasonable inferences or deductions of fact, or threadbare recitals of the elements of alter ego. Therefore, they need not be accepted as true by the Court. These include allegations that WMI "controlled, supervised, directed, and completely dominated all of the Bank's financial operations, Bank's policies and business practices in respect to all transactions generated by the Bank" (Am. Compl. ¶ 12), "completely directed, managed and controlled" the business affairs of the Bank (id. at ¶ 18), "directed, supervised and controlled all decision making, treasury, cash management, finance, governance, regulatory and executive functions of the Bank" (id. at ¶ 25), had common divisions, subdivisions, and departments as WMB (id. at ¶ 17), "operated the Bank the same as if it were one of the division of the Defendant rather than a wholly owned subsidiary" (id. at ¶ 26), had its "business affairs, assets and liabilities . . . so connected, commingled and intertwined [with WMB] that no separation of the corporate entity is possible" (id. at ¶ 28), controlled and directed Bank's transactions for its own benefit (id. at ¶ 29), and "used its subsidiary Bank as mere instrumentality, completely dominated and controlled all financial operations, policies, and business practices to the extent that the Defendant is the ultimate party in interest and should be regarded in law and in fact as a sole party liable for its subsidiary Bank's acts, omissions and wrongdoings" (id. at ¶ 30).
These claims offer mere conclusions that WMI controlled WMB but offer no factual allegations which would lead to a plausible inference that WMI directed WMB to engage in misconduct specifically related to the servicing of Youkelsone's mortgage. The Court need not accept as true any conclusory statements or legal conclusions in the Complaint. Iqbal, 129 S.Ct. at 1949-50. Therefore, these statements are not accepted as true in assessing whether Youkelsone states a claim of alter ego.
The Amended Complaint also includes allegations which are not plausible in light of the public record. See, e.g., Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (holding that the court need not accept as true anything in the complaint which contradicts facts of which the court may take judicial notice); O'Boyle, 337 F. App'x at 164 (holding that courts may take judicial notice of public records).
For example, the allegation that WMI "maintained no separate legal formalities such as filing necessary papers, reports and corporate tax reports" (Am. Compl. ¶ 27) is contrary to the public record. WMI was a public company whose securities traded on the New York Stock Exchange and was subject to strict regulation, including the informational disclosure requirements of the Securities Exchange Act of 1934. The public record discloses that WMI filed annual, quarterly, and current reports and other information with the SEC under its own name. Similarly, WMB was a national bank subject to extensive regulation by the OTS, FDIC and other agencies. Also, the August 31, 1999 Tax Sharing Agreement is evidence that WMI and WMB did adhere to legal formalities required by the IRS with respect to corporate taxes. See 26 U.S.C. § 1501 ("An affiliated group of corporations shall . . . have the privilege of making a consolidated return . . . for the taxable year in lieu of separate returns.").
Consistent with the analysis required under Rule 12(b)(6), the Court does accept as true the factual allegations that WMI and WMB had the same offices (Am. Compl. ¶ 13), shared directors and officers (id. at ¶ 14), shared common employees (id. at ¶ 16), conducted all business affairs, and issued all correspondence "under combined name most commonly known as `WaMu'" (id. at ¶¶ 22 24), filed consolidated tax returns (id. at ¶ 20) and "operated a centralized cash management system" (id. at ¶ 21).
While Youkelsone's allegations may allege a close relationship, they are not sufficient to impose alter ego liability. That a parent and subsidiary corporation "are intimately related in carrying on their business for the purpose of mutual benefit is not enough to characterize a corporation as the alter ego of another corporation." Wade Cook, 375 B.R. at 599. Even common officers, directors and employees is acceptable because "it is a well established principle of corporate law that directors and officers holding positions with a parent and subsidiary can and do `change hats' to represent two corporations separately." Wyatt v. Ford Motor Co., No. C04-5666 RBL, 2006 WL 1663676, at *4 (W.D. Wash. June 13, 2006) (quoting Bestfoods, 524 U.S. at 69). Furthermore, a common trade name is frequently used in parent-subsidiary relationships and is not a basis for disregarding the corporate form. See, e.g., Bagel Bros. Maple, Inc. v. Ohio Farmers, Inc., 279 B.R. 55, 67 (W.D.N.Y. 2002). Youkelsone has failed to plead any factual allegations that WMI used the corporate form for fraudulent or improper purposes and has failed to offer any factual allegations leading to the plausible inference that WMI controlled and directed WMB in its misconduct related to servicing her mortgage. Therefore, the Court concludes that Youkelsone has failed to state a cause of action under the alter ego theory.
iii. Agency
Youkelsone asserts nonetheless that the Amended Complaint sufficiently pleads facts to hold WMI liable on an agency theory, because it asserts that WMI operated and managed WMB through the same board of directors, from the same office, and with the same employees.
Under Washington law, the elements of agency are mutual consent and control by the principal of the agent. Uni-Com Northwest, Ltd. v. Argus Pub. Co., 47 Wash. App. 787, 796-797 (1987). The crucial factor is control. It is not established if the asserted principal merely retains the right to supervise performance; it must control the manner of performance. Id. While courts have expressed doubt as to whether a separate agency theory exists to hold a parent corporation liable, it is clear that a higher degree of control is necessary to find agency in parent-subsidiary relationships. See Campagnolo S.r.l., 2010 WL 2079694, at *7 (stating that the court doubts whether alter ego and agency theories for parent liability are in fact separate and noting that to hold shareholder liable for corporation's wrongs through agency principles would seem to be a disguised way of finding corporate disregard). Imposing liability on a parent through agency "requires that the parent exercise total control over the subsidiary, well beyond the normal control exercised."Id. "A parent has no liability on an agency theory where it does not `direct . . . and authorize . . . the manner in which the subsidiary conduct[s] its business.'" Id. Whether the parent and subsidiary respected corporate formalities is relevant to the question of whether the parent so dominated the subsidiary that the subsidiary is a mere agent of the parent. Id.
The Court concludes that Youkelsone has failed to allege the complete control necessary to hold WMI liable for WMB's acts under Washington agency law. The allegations accepted as true by the Court in the Amended Complaint establish that a lawful parent-subsidiary relationship existed but fail to establish that WMI exercised complete control by directing and managing the manner in which WMB conducted business. Furthermore, the close regulation and adherence to corporate formalities discussed above negates the type of domination necessary to find WMB a mere agent of WMI.
Youkelsone argues that this Court has already found WMI to be liable for a contract entered into by WMB in another action because "WMB had at least implied authority to act as WMI's agent and to bind it to the Agreement." In re Washington Mutual, Inc., 421 B.R. 143, 150 (Bankr. D. Del. 2009). That holding, however, was based on "traditional principles of agency" rather than merely the corporate relationship alleged by Youkelsone. In the prior action, this Court found that an agency relationship existed based on a contract entered into by WMB, which "was structured so that WMB was acting as WMI's agent." Id. at 150. In this case, Youkelsone did not allege sufficient facts to establish that WMB was acting as WMI's agent in servicing her mortgage; WMI was not in the business of mortgage servicing. "Where a subsidiary is engaged in a completely different line of business, it cannot be said that the business of the parent is carried out by the subsidiary." Gallelli v. Crown Imports, LLC, 2010 WL 1177449, at *7 (E.D.N.Y. March 20, 2010) (holding that subsidiary corporations were not agents of parent holding company under New York law for tort action against subsidiary "where business of subsidiaries was beer brewing and distribution, and business of holding company was investment.") Therefore, the Court concludes that Youkelsone has failed to state a cause of action against WMI based on agency.
IV. CONCLUSION
For the reasons set forth above, the Court will grant the Defendant's Motion to Dismiss.
An appropriate order is attached.