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In re Flint Water Cases

United States District Court, E.D. Michigan, Southern Division

April 5, 2018

In re Flint Water Cases. This Order Relates To: ALL CASES



         Defendant Leo A. Daly Company (“LAD”) is the parent company of defendants Lockwood, Andrews & Newnam, P.C. and Lockwood, Andrews & Newnam, Inc. (collectively, “LAN”). LAD has moved to dismiss all claims asserted against it across all Flint Water cases in which it has been named for lack of personal jurisdiction. (See, e.g., Case, Dkt. 278.)[1]

         I. Background

         Plaintiffs state in their complaint this Court has jurisdiction over LAD and LAN because “each of them have personally availed themselves of the benefits and protections of the State of Michigan.” (Dkt. 238 at 10.) Further, these defendants are alleged to have “conducted business and committed torts in Michigan, by themselves and their agents and/or alter egos, which caused Plaintiffs to suffer severe personal and property injuries in Michigan.” (Id.)

         Plaintiffs allege that LAD “exerts nearly unfettered control” over LAN. (Id. at 23.) LAD is also alleged to represent that its services are “extended through” LAN. (Id. at 22.) The complaint further alleges that in June 2013, LAN, through which LAD was operating, was formally retained by the City of Flint to provide engineering services for the Flint water system related to switching water sources to a water supply that poisoned its recipients. (Id. at 49.) The switch occurred in April 2014, and LAN is alleged to have provided services related to the switch without providing proper corrosion control treatment. (Id. at 53-54.)

         In February 2015, LAN is alleged to have issued a report entitled “Trihalomethane Formation Concern, ” discussing the elevated presence of certain disinfection byproducts in Flint's water supply following the switch in water sources. (Id. at 66.) Plaintiffs contend that the analysis was done improperly and failed to draw obvious conclusions that the switch in water supply had corroded the pipes carrying the water, which would inevitably lead to elevated levels of lead and legionella bacteria in the water system. (Id. at 66-67.) Finally, plaintiffs allege that in August 2015, LAN made an improper recommendation to increase the dose of ferric chloride in the water supply, which would have increased the corrosive quality of the water rather than decreased it. (Id. at 75.)

         On December 1, 2017, LAD filed a motion to dismiss for lack of personal jurisdiction under Fed.R.Civ.P. 12(b)(2) and for failure to state a claim under Fed.R.Civ.P. 12(b)(6). (Dkt. 278.) This followed the filing of similar motions in other cases arising out of these same events, all of which are currently pending before the Court. The Court permitted limited jurisdictional discovery, pursuant to a stipulation entered into November 1, 2017. (Dkt. 239.)

         LAD provided with its motion the affidavit of Edward Benes, who is Senior Vice President, Corporate Secretary, and General Counsel of LAD, and Corporate Secretary and General Counsel of Lockwood, Andrews & Newnam, Inc. (Dkt. 278-3; Dkt. 378-3 at 18.) In that affidavit, Benes states that LAD is a company incorporated in Nebraska, with its principal office in Omaha, Nebraska. (Id. at 4.) He states that Lockwood, Andrews & Newnam, Inc. is incorporated in Texas, with its principal office in Houston, Texas, and two offices in Michigan, and that Lockwood, Andrews & Newnam, P.C. is a Michigan corporation established to satisfy licensing requirements with respect to work to be performed by Lockwood, Andrews & Newnam, Inc. in Michigan. (Id. at 4-6.)

         Benes' affidavit included an Employee Leasing Agreement, which LAD and LAN entered into on March 1, 2004. (Dkt. 278-3 at 11-15.) Under the Agreement, LAD leased “certain of its employees (“Staff”) [], to be designated by [LAN], to [LAN] to perform such work and for such periods of time as are specified by Lessee from time to time to meet Lessee's staffing needs.” (Id. at 11.) “As consideration for the Staff leased to [LAN] by [LAD], all fees, payments, proceeds and other consideration of any nature whatsoever received by Lessee from clients, owners and any third parties for the Services performed by the Staff . . ., shall as soon as practicable be transmitted to the Lessor by Lessee.” (Id.)

         The Agreement also states that “[LAD] and its employees are not employees of [LAN].” (Id.) “[LAD] shall be responsible for all risks incurred in the operation of its business and shall enjoy all the benefits thereof. The Staff shall be under the mutual control and direction of [LAD] and [LAN].” (Id.)

         In his affidavit, Benes cited the Agreement to show that “[t]he workforce of Lockwood, Andrews & Newnam, Inc. is seconded to [it] by Leo A. Daly Company pursuant to a formal Employee Leasing Agreement. (Exhibit A). Pursuant to this agreement, Leo A. Daly Company performs the necessary payroll and employee benefits services as a matter of convenience and efficiency.” (Id. at 7.)

         Benes was deposed on January 10, 2018. (Dkt. 378-3.) At his deposition, he stated that all revenue received by either LAD or LAN goes into the “exact same bank account, ” although that revenue is accounted for based on the company that receives it. (Id. at 9.) He stated that LAN makes “no payment, per se, . . . between the companies for the employees.” (Id.) LAD leases three to four hundred employees to LAN. (Id. at 17.) All of LAN's employees are leased from LAD. (Id.) When those employees were leased at the time relevant to this litigation, LAD issued their paychecks. (Id.) At the end of 2017, LAN began issuing paychecks to leased employees from the same joint account to comply with Texas law. (Id.)

         Benes, who is Corporate Secretary and General Counsel of LAN, does not receive a salary from LAN. (Id. at 18.) He is identified as a LAD employee, and states that although his salary is not paid by LAN, it is paid through a cost-sharing system in which his salary comes pro rata from the amount of work he does for LAD and LAN. (Id.) The pay of other employees, including those who worked on the transfer of Flint's water supply, was accounted for in a similar fashion at the time of events in this lawsuit. Revenue that came in from LAN's activities was put into the joint LAD/LAN account, and when LAD paid employees, it was accounted for from LAN's revenue. (Id.)

         When asked whether he was familiar with the Agreement, Benes stated that “this leasing agreement was brought to my attention during the Flint litigation. I didn't even know it existed. There are a number of provisions here that aren't followed by the companies.” (Id. at 27.) Benes disputed the provision of the Agreement that stated all fees, payment, proceeds, and other consideration that LAN received would go to LAD, because “[t]here is no check or payment made by LAN to Leo A. Daly for Flint.” (Id. at 26-27.) When asked if he was saying that the companies didn't follow that provision, Benes stated, “I think that's what I'm saying.” (Id. at 27.)

         Benes also stated that he did not believe the unemployment, workers compensation, and indemnification portions of the Agreement were followed. (Id.) He did, however, state that the companies followed certain provisions of the Agreement, but did not specify which provisions were followed. (Id.) He later stated that LAD and LAN did not follow the “mutual control” provision, either. (Id.) Benes admitted that there is no “written description on how you apply this agreement anywhere.” (Id. at 30.) Benes stated that LAD also obtained all ...

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