Davenport v. HansaWorld USA, Inc.

Citations: 23 F. Supp. 3d 679; 2014 U.S. Dist. LEXIS 69044; 122 Fair Empl. Prac. Cas. (BNA) 1665; 2014 WL 2095190Docket: Civil Action No. 2:12-CV-233-KS-MTP

Court: District Court, S.D. Mississippi; May 20, 2014; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The Court, presided over by District Judge Keith Starrett, reviewed and granted the motions to dismiss from both HansaWorld USA, Inc. and HansaWorld Holding Limited. Plaintiff Kimberlee Davenport brought multiple federal and state law claims against HansaWorld USA, alleging sexual harassment primarily by her supervisor, Karl Bohlin, and discrimination based on her national origin as an American. Davenport, who worked as a sales manager from January 2011 to October 2012, contended she was wrongfully terminated after raising concerns about the harassment and the company's compliance with U.S. tax and immigration laws. Her claims under Title VII include discrimination, retaliation, and a hostile work environment, along with state law claims of defamation, emotional distress, wrongful discharge, breach of contract, and negligent supervision.

Davenport initially filed suit on December 13, 2012, and later amended her complaint to include HansaWorld UK Ltd. and HansaWorld Ireland, asserting they were alter egos of HansaWorld USA. HansaWorld USA contested the amended complaint on jurisdiction and venue grounds, but the Court denied these motions. Claims against Bohlin and the additional HansaWorld entities were subsequently dismissed. In her Second Amended Complaint, filed on January 10, 2014, Davenport retained her claims against HansaWorld USA and HansaWorld Holding, asserting they operated as interconnected entities with shared governance and resources, omitting only the malicious interference claim against Bohlin.

On January 16, 2014, HansaWorld USA filed a Motion to Dismiss specifically targeting Davenport's Title VII claim. Subsequently, on March 5, 2014, HansaWorld Holding filed its own Motion to Dismiss the Second Amended Complaint, citing lack of personal jurisdiction and insufficient service of process, while also supporting HansaWorld USA’s motion against Davenport's Title VII claims. The motions are fully briefed and ready for the Court's decision.

HansaWorld USA contends that Davenport's Title VII claims should be dismissed because it does not meet the definition of an "employer" under Title VII, which requires having fifteen or more employees for a specified duration. HansaWorld USA argues dismissal is warranted under Federal Rule of Civil Procedure 12(b)(6), claiming the Complaint lacks sufficient allegations to establish its status as an employer. Alternatively, it suggests that summary judgment may be appropriate under Federal Rule of Civil Procedure 56.

Regarding Rule 12(b)(6), the standard necessitates that a complaint must present sufficient factual content to state a plausible claim for relief. Mere labels or legal conclusions are insufficient. The Supreme Court has clarified that the employee numerosity requirement is part of a plaintiff's claim and not a jurisdictional issue. While there is some disagreement among district courts on whether the number of employees must be explicitly stated in the complaint, Davenport's Second Amended Complaint implies that HansaWorld USA employed multiple individuals, with additional claims suggesting at least forty-five employees.

The Court notes that typically, a pleading defect should not result in dismissal without allowing for an amendment. Therefore, granting HansaWorld USA's motion to dismiss under Rule 12(b)(6) would likely be counterproductive, postponing proceedings while Davenport amended the pleadings to meet the employee numerosity requirement. Consequently, the Court indicates that this issue should be addressed under Rule 56 instead of dismissing the Title VII claim outright.

Federal Rule of Civil Procedure 56 establishes that a court must grant summary judgment when the moving party demonstrates there is no genuine dispute regarding any material fact and is entitled to judgment as a matter of law. The moving party only needs to show a lack of evidentiary support for the nonmoving party's case, which must then provide specific facts indicating a genuine issue for trial. A material issue can affect the action's outcome, while a genuine issue requires sufficient evidence for a reasonable jury to side with the nonmoving party. The court cannot make credibility assessments or weigh evidence, and must view facts favorably to the nonmoving party. Conclusory statements, speculation, and unsubstantiated claims do not suffice to show a genuine issue.

HansaWorld USA asserts in support of its summary judgment that it has not employed more than fifteen individuals on any given workday during the requisite time frame and that its total employment numbers are significantly below this threshold. Additionally, it contends that foreign employees do not count toward the employee requirement under Title VII. In contrast, Davenport claims that while employed at HansaWorld USA, she interacted with forty-five individuals connected to the company and argues that HansaWorld USA and HansaWorld Holding form an integrated enterprise employing hundreds globally, which she refers to as the "HansaWorld Group." Davenport disputes the non-inclusion of non-U.S. citizens in the employee count and suggests that the HansaWorld Group has twenty U.S. business partners, each likely employing at least one U.S. citizen. HansaWorld USA counters this by disputing its classification as an employer of the U.S. business partners' employees and provides a declaration from its Chief Legal Advisor stating that HansaWorld Holding had no employees during the relevant years. Consequently, HansaWorld USA maintains that even as an integrated enterprise, it does not meet the employee numerosity requirement under Title VII.

HansaWorld USA acknowledges the existence of other HansaWorld entities internationally and concedes, for the Motion to Dismiss, that all such entities may be treated as a single enterprise. It argues that it employs "fifteen or more individuals," including foreign employees abroad, but contests that foreign citizens employed outside the U.S. should not count in determining employer status under Title VII. HansaWorld USA's position is based on two assertions: (1) foreign citizens employed abroad do not qualify as employees under Title VII, and (2) no HansaWorld entity has employed the requisite number of U.S. citizens or foreign nationals in the U.S. for the necessary duration.

The Court determines that the resolution of HansaWorld USA's summary judgment request hinges on whether foreign citizens employed outside the U.S. are included in the employee count under 42 U.S.C. 2000e(b) and whether there is enough evidence for a jury to conclude that HansaWorld USA is an employer of its U.S. business partners' employees.

On the first issue, there is a division in judicial authority. Most courts hold that foreign employees working exclusively outside the U.S. do not count towards the 15-employee threshold for Title VII coverage. The Second Circuit's case, Morelli, supports the notion that foreign employees can be counted, while dissenting opinions, such as that of Judge Fernandez on the Ninth Circuit, argue against it. The Court finds that the case of Mousa v. Lauda Air Luftfahrt, AG, which also deals with Title VII, aligns more closely with the current case and supports the interpretation that Title VII's definition of "employee" excludes foreign citizens employed abroad. The Court concludes that Title VII's provisions, including those that specifically exclude non-U.S. citizens working internationally, mean that such individuals are not counted in determining whether an entity meets the employee requirement under Title VII. Consequently, the Court holds that foreign citizens employed outside the United States are excluded from the employee count under 42 U.S.C. 2000e(b).

Foreign citizens working in the U.S. must meet specific criteria—being employed "for each working day in each of twenty or more calendar weeks in the current or preceding year"—to be included in the fifteen-employee threshold under Title VII. HansaWorld USA claims it has never employed fifteen or more individuals in the U.S. during the required timeframe, and Davenport has not provided evidence to dispute this claim. The assertion that forty-five employees worked at various HansaWorld branches globally does not demonstrate that any were employed in the U.S. for the requisite duration. Additionally, Davenport's argument that some employees were intermittently present in the U.S. is inadequate.

The Court also rejects Davenport's reliance on a prior affidavit regarding personal jurisdiction, concluding that her Title VII claims will be dismissed due to insufficient evidence regarding the employee count unless an outstanding issue is resolved in her favor. Davenport attempts to demonstrate that employees of HansaWorld USA's business partners should be counted under Title VII using two tests for "employer" status: the single employer test from Trevino v. Celanese Corp. and the hybrid economic realities/common law control test. The Court finds that Davenport has not established a genuine issue for trial under either test.

In applying the Trevino test, which assesses the interrelations of operations, control over labor relations, common management, and ownership, no evidence shows that U.S. business partners made employment decisions affecting Davenport. While she cites a declaration from a former business partner alleging an integrated enterprise, the Court emphasizes that the crucial factor is which entity made final employment decisions, not attempts at influence. The relationship between HansaWorld and its business partners is characterized as a typical business arrangement. Although HansaWorld offers training and control over software sales by partners, this does not constitute the atypical interrelation needed to classify them as a single employer under Title VII. Further, the remaining factors of common management and ownership do not support aggregation. Stephen Jay's declaration clarifies that there is no mutual management between HansaWorld and its business partners. Lastly, the Court finds that information from HansaWorld's website does not impact the Trevino analysis regarding employee status.

Davenport has not provided adequate evidence to support her claim that HansaWorld USA and its U.S. business partners function as a single employer. According to the Hybrid Economic Realities/Common Law Control Test, the critical factor is the right to control an employee's conduct. The Court determined that Davenport failed to show HansaWorld USA exerted control over the employees of its U.S. partners. Although Davenport referenced information from HansaWorld’s website indicating a connection among employees, the Court found this insufficient to impact the legal analysis under Trevino. Previous cases cited, such as Tipton v. Northrup Grumman Corp. and McLaurin v. Fusco, underscore that beliefs based on external information do not establish genuine issues of fact regarding employment relationships. The Fifth Circuit’s explanation of the hybrid test emphasizes the need for evidence of control, such as hiring and firing rights, supervision, and payment of salaries. Davenport's attempt to apply this test to employees of third parties lacks factual support, as she has not identified these employees or sufficiently addressed Title VII’s employer definition within her arguments.

Under Title VII, an "employer" is defined as an entity with at least 15 employees for each working day in 20 or more calendar weeks within the current or preceding year. The court critiques the plaintiff's reliance on assumptions and speculation regarding the existence of employees who meet this definition in her case against HansaWorld. The court emphasizes that unsupported inferences are inadequate for summary judgment.

Davenport asserts her former role as a partner and discusses the hybrid test related to employee classification. Although it is acknowledged that she and Ara Darajkian were former partners, this does not eliminate HansaWorld's lack of control over hiring or firing partners' employees. While HansaWorld may supervise the sale of its software, it does not supervise all aspects of the business partners’ employee work, particularly when those employees may also represent other companies.

Economic factors further indicate a lack of an employment relationship; business partners are compensated on a commission basis, HansaWorld does not withhold taxes or provide insurance for them, and the partnership agreements classify them as independent contractors. There is no evidence that HansaWorld offers partners’ employees benefits such as annual leave or retirement. Overall, Davenport has not presented sufficient evidence to support her claim that HansaWorld is the employer of its business partners’ employees. Therefore, the court concludes that no reasonable jury could find HansaWorld liable under the Title VII employee numerosity requirement.

Davenport fails to prove that Hansa-World USA employed the requisite number of employees under Title VII, thus granting Hansa-World USA a legal judgment in its favor. Regarding HansaWorld Holding's motion to dismiss, personal jurisdiction in Mississippi requires adherence to the state's long-arm statute and federal due process. The plaintiff must establish a prima facie case for personal jurisdiction, and the court must view all undisputed facts in favor of the plaintiff. HansaWorld Holding contends it is not subject to Mississippi's long-arm statute, supported by a declaration from its manager, which states that HansaWorld Holding has no business activities, contracts, property, or advertisements in Mississippi. Davenport does not dispute these assertions but claims HansaWorld USA is the alter ego of HansaWorld Holding, arguing that the court's previous ruling on personal jurisdiction over HansaWorld USA applies to HansaWorld Holding. However, a foreign parent corporation is generally not subject to jurisdiction based solely on its subsidiary's activities in the state. The presumption of corporate separateness can only be rebutted by clear evidence of control that suggests the entities are essentially one for jurisdictional purposes. The Hargrave case outlines factors to consider when determining whether personal jurisdiction can extend to a parent corporation based on a subsidiary's actions, starting with the amount of stock ownership.

The analysis centers on the criteria for establishing alter ego jurisdiction versus liability, focusing on several key factors: the existence of separate headquarters for the two corporations, the presence of common officers and directors, adherence to corporate formalities, maintenance of separate accounting systems, and the extent of authority exercised by the parent and subsidiary. HansaWorld Holding, headquartered in Ireland, owns 100% of HansaWorld USA, which operates in Florida and shares some officers and directors with its parent. However, mere 100% ownership and shared leadership do not suffice to establish an alter ego relationship, as established in previous case law.

The first three Hargrave factors are not contested. The disputed factors, primarily concerning corporate formalities, are highlighted through conflicting affidavits. Davenport asserts that HansaWorld USA failed to observe corporate formalities, lacking board meetings and formal approvals, which she claims to know from her past role as board member and corporate secretary. In contrast, O’Carroll counters that both entities maintain corporate separateness and adhere to formalities, asserting that Davenport was not involved in board meetings or decisions. The outcome hinges on the resolution of these conflicting claims regarding corporate governance and formalities.

HansaWorld USA contends that Davenport lacks the ability to provide competent testimony on the corporate formalities of its board. The court must resolve the factual conflict regarding Davenport’s status as a former board member in his favor at this stage, following precedent that favors the plaintiff in conflicts over jurisdictional facts. Consequently, the court finds Davenport competent to testify about HansaWorld USA’s internal operations and accepts his claims about the company’s failure to conduct board meetings, maintain minutes, and approve key documents. However, evidence suggests HansaWorld USA is not a sham corporation, as indicated by a Certificate of Status from California affirming its authorization to operate, and its registration to do business in Mississippi with Davenport as the registered agent. Davenport has not provided evidence to demonstrate that HansaWorld Holding failed to observe corporate formalities, and he acknowledges that HansaWorld Holding conducted board meetings in Europe and filed separate annual reports. The court concludes that the observation of corporate formalities slightly favors exercising personal jurisdiction over HansaWorld Holding. Additionally, it is noted that HansaWorld Holding and HansaWorld USA maintain distinct accounting systems and financial records, do not file consolidated tax returns, and have separate documentation supporting these claims. Davenport's assertion that both entities share business departments lacks support. Evidence of financial interactions between HansaWorld USA and its subsidiaries, like HansaWorld UK Ltd. and HansaWorld Ireland, exists, but the focus remains on HansaWorld Holding. The court finds no competent evidence to prove that all HansaWorld subsidiaries are alter egos of HansaWorld Holding.

Plaintiffs face a heightened burden in establishing corporate domination across multiple subsidiary levels, necessitating proof of control at each tier. Intercorporate loans alone do not demonstrate the required dominance. To prove a parent corporation's control over a subsidiary, plaintiffs must show that the financial oversight is so extensive that both entities effectively function as one. Evidence such as financing arrangements, stock ownership, and shared officers can illustrate a standard parent-subsidiary relationship. However, affidavits from O’Carroll and Davenport are deemed insufficiently detailed to clarify issues of personal jurisdiction. O’Carroll asserts that HansaWorld Holding, as a holding company, does not dictate the policies of HansaWorld USA, which operates independently in Florida. Conversely, Davenport claims that HansaWorld USA follows directives from HansaWorld Holding and lacks autonomy. The court finds these assertions too vague to resolve jurisdictional questions. There is some indication that members of HansaWorld Holding’s board have influenced general policy matters at HansaWorld USA, including involvement in employment decisions. Notably, a board member was involved in the termination of an employee at HansaWorld USA, and another board member is identified as the CEO of HansaWorld. However, it remains unclear whether HansaWorld Holding itself, rather than individual board members, exercises authority over HansaWorld USA’s policies. Nonetheless, it is common for wholly-owned subsidiaries to delegate policy control to their parent companies.

Monitoring the subsidiary’s performance and managing financial decisions by a parent company does not create direct liability. Fifth Circuit rulings indicate a reluctance to link control over policy matters with personal jurisdiction. HansaWorld USA demonstrates operational independence, as evidenced by its separate invoicing, banking, and employment records. Davenport's contract was solely with HansaWorld USA, and there is no clear evidence that HansaWorld Holding dominates HansaWorld USA to the point of losing its corporate identity. Consequently, HansaWorld Holding is dismissed from the case due to lack of personal jurisdiction, and the court does not need to consider other dismissal grounds. Regarding subject matter jurisdiction over Davenport's state law claims, HansaWorld USA contends that if the federal claims are dismissed, the court may choose to dismiss state claims without prejudice. The court requires additional information on the jurisdictional basis for these claims and will seek further briefing from the parties before making a decision. Ultimately, HansaWorld USA’s motion to dismiss is granted, and Davenport's Title VII claims are dismissed with prejudice.

HansaWorld Holding Limited's Motion to Dismiss is granted, leading to its dismissal from the case without prejudice due to lack of personal jurisdiction. Within 21 days, the Plaintiff, Kimberlee Davenport, and HansaWorld USA, Inc. must provide a memorandum addressing two issues: (1) whether the Court has subject matter jurisdiction over the state law claims under 28 U.S.C. §§ 1332 or 1367, and (2) if § 1367 applies, whether the Court should exercise discretion to dismiss the state law claims without prejudice.

Davenport's Motion for Reconsideration is denied after the Court reviewed submissions, the record, and applicable law. The background includes a prior ruling on May 20, 2014, where Davenport's Title VII claim was dismissed because she could not prove that HansaWorld USA employed the requisite number of employees. The Court determined that foreign employees are excluded from the employee count under Title 42 U.S.C. § 2000e(b). HansaWorld Holding was found not subject to Mississippi jurisdiction as Davenport did not demonstrate its direct conduct justifying such jurisdiction, nor could HansaWorld USA's contacts be attributed to HansaWorld Holding under an alter ego theory.

The discussion on reconsideration indicates that while Federal Rules do not explicitly mention motions for reconsideration, they are often considered under Rule 59(e), which allows alterations or amendments to judgments within 28 days. Davenport’s motion was timely and could be reconsidered based on three grounds: changes in law, new evidence, or correcting clear legal errors. However, as no final judgment had been entered, the Court retains the authority to revise its ruling as deemed appropriate.

Davenport's Title VII claims were dismissed as she failed to provide sufficient arguments or evidence for reconsideration. She contended that forty-five employees, although not physically in the U.S., should be counted under Title VII due to their work through the internet and other means. The court previously reviewed the authorities she cited and found them unpersuasive, noting that they did not substantiate her claims under Title VII. The court emphasized that Title VII does not apply extraterritorially to foreign citizens working outside the U.S. and upheld the dismissal based on Davenport's failure to demonstrate that HansaWorld USA employed the required number of individuals in the U.S. 

Regarding HansaWorld Holding, Davenport argued that the court incorrectly applied a summary judgment standard instead of solely reviewing pleadings to determine personal jurisdiction. She claimed she needed proper discovery for this assessment. However, the court noted that it is established law in the Fifth Circuit that personal jurisdiction can be determined using various forms of evidence beyond the pleadings. Therefore, the court maintained that it applied the correct standard in evaluating the evidence presented regarding personal jurisdiction.

Davenport's submission of an affidavit, banking records, immigration records, and a deposition transcript while asserting that the Court should rely solely on her pleadings in the Motion to Dismiss is deemed implausible. Davenport did not request a stay for discovery on HansaWorld Holding’s dismissal, leading to the Court affirming the dismissal. Following the dismissal of her federal claim, the Court reviewed whether original diversity or supplemental jurisdiction applied to Davenport’s state law claims, concluding that diversity jurisdiction is satisfied. Consequently, a case management conference will be scheduled with the Magistrate Judge to proceed with these claims. The Court denied Davenport's Motion for Reconsideration, finding no sufficient grounds for it. Parties are instructed to contact Magistrate Judge Michael T. Parker within fourteen days to arrange the conference. The Court may consider Davenport's EEOC Charge, referenced in the Complaint, without violating Rule 12(b)(6). Under Federal Rule of Civil Procedure 12(d), the notice requirement for presenting materials outside the pleadings has been met due to HansaWorld USA's alternative summary judgment request. Title VII's applicability to foreign entities and non-citizens is outlined, indicating it does not extend to individuals employed outside the U.S. or non-citizens, highlighting the definitions of 'employer' and 'employee' as key to determining Title VII protections.

Characterizing an individual as an employer rather than an employee influences Title VII's applicability in two significant ways: it may prevent the individual from filing a lawsuit since only employees can invoke the statute, and it excludes that individual from the employee count necessary to meet the fifteen-employee threshold for Title VII coverage. The Fourth Circuit has determined that partners in a law firm cannot be included in the employee count under Title VII, as they are not classified as employees. 

In contrast, the Fifth Circuit has identified various indicators of interrelated operations between entities, such as shared facilities and resources, which can influence employment relationships. The Fifth Circuit has also outlined eleven factors assessing the economic realities of employment, including the nature of supervision, skill required, equipment provision, duration of employment, payment methods, termination procedures, benefits offered, the integral nature of the work to the business, retirement benefits, social security tax payments, and the parties' intentions.

HansaWorld Holding contends that Davenport's claims regarding HansaWorld USA should be dismissed as they pertain to events preceding the complaint. However, this argument is flawed; the Fifth Circuit has established that only events occurring after the filing of a complaint are irrelevant for jurisdictional determinations, and no ruling has been provided indicating that prior circumstances should be disregarded. Additionally, a parent corporation can be dismissed from a case if it does not significantly control its subsidiary’s policies.

A wholly-owned subsidiary is not automatically deemed an alter ego of its parent corporation even if the parent influences its general policies and operations. In Turan v. Universal Plan Invs. Ltd., the court determined that plaintiffs did not provide sufficient evidence of an alter ego relationship. Similarly, in Dalton v. R. W Marine, Inc., the court ruled that Midland Enterprises did not qualify as the alter ego of its subsidiaries despite its oversight of their policies. The parent company's authority to approve capital investments, hire or fire officers, and select product lines was deemed appropriate for a sole shareholder and insufficient to establish an alter ego status (Hargrave). Subject matter jurisdiction is based on the circumstances at the time the action is initiated (Grupo Dataflux). Title VII protections do not extend to non-citizens employed outside the U.S. (Mota) and do not apply to aliens working abroad (Iwata). Additionally, Davenport previously requested a stay on HansaWorld USA's Motion to Dismiss, but her counsel later indicated that no further discovery was necessary for the court's decision on the motion after it was fully briefed.