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Blount v. Peerless Chemicals

April 15, 1963

AUGUSTUS BLOUNT ET AL., PLAINTIFFS-APPELLANTS,
v.
PEERLESS CHEMICALS (P.R.) INC., AND PEERLESS OIL & CHEMICAL CORP., DEFENDANTS-APPELLEES.



Author: Kaufman

Before WATERMAN and KAUFMAN, Circuit Judges, and BRYAN, District Judge.

KAUFMAN, Circuit Judge.

This is a consolidated appeal from two orders, one in the District Court for the Southern District of New York, and the other in the District Court for the Eastern District of New York, vacating service and dismissing the complaint against defendant-appellee, Peerless Chemicals (P.R.) Inc., a Puerto Rican corporation. The action, first brought in the Southern District, is founded upon personal injuries suffered by plaintiffs, Baltimore longshoremen, aboard the S.S. Frances in Baltimore Harbor, and alleged to have resulted from the escape of chlorine gas from certain supposedly empty chlorine cylinders owned and shipped by Peerless Chemicals (P.R.) Inc., hereinafter referred to as Peerless (P.R.). Jurisdiction rests upon diversity of citizenship, 28 U.S.C. ยง 1332. Judge MacMahon vacated service upon Dennis J. Carey, Jr., president of Peerless (P.R.), effected at the Long Island City offices of the parent corporation, Peerless Oil and Chemical Corp., hereinafter referred to as Peerless. He also dismissed the complaint against Peerless (P.R.), finding that it was doing no business within the state of New York and that any possible inferences to the contrary indicate at best that business is being conducted in the Eastern District, where the offices of the parent are located. Plaintiff's then filed their complaint in the Eastern District. Judge Dooling held, after considering a lengthy deposition of Peerless (P.R.) through its president Dennis Carey, that the corporation was doing no business in New York, and that the court was therefore without jurisdiction.

We are thus confronted with the question whether Peerless (P.R.) was "doing business" in New York, more specifically in Long Island City, such that a federal court sitting in New York may assert jurisdiction over it in the particular circumstances of the case before us.

Whether the standard of "doing business" for federal diversity cases is that of the state in which the federal court sits, or is a distinct federal standard, was resolved by this Court in an alternative holding in Jaftex Corp v. Randolph Mills, 282 F.2d 508 (2d Cir. 1960); there, over the dissenting voice of Judge Friendly, Judges Lumbard and Clark decided that a federal standard, apparently congruent with that set down in International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945), should apply. This Court is presently reconsidering this problem in banc, in the case of Arrowsmith v. United Press International (appeal from 205 F.Supp. 56 (D.Vt.1962)). The outcome of that case is of no moment here, because both parties have agreed that this Court should apply the International Shoe test - fashioned there not as a federal jurisdictional standard, but as a constitutional limitation upon the exertion of state judicial power - which is though to be more permissive than the prevailing New York jurisdictional test, see Tauza v. Susquehanna Coal Co., 220 N.Y. 259,115 N.E. 915 (1922). It is true that partiies cannot, by consent, confer jurisdiction on the federal courts, but that too is of no moment, for we hold that the Puerto Rican corporation was not, even under International Shoe, doing sufficient "business" in New York, and we therefore affirm the dismissal of the complaints in both the Southern and Eastern District Courts.

I.

The Supreme Court's approach to the question of personal jurisdiction over a foreign corporation is revealed not only in International Shoe but also in such more recent cases as Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S. Ct. 413, 96 L. Ed. 485 (1952), and Hanson v. Denckla, 357 U.S. 235, 250-255, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958). See generally Kurland, "The Supreme Court, the Due Process Clause and the In Personam Jurisdiction of State Courts", 25 U. of Chi.L.Rev. 569 (1958); "Developments in the Law - State-Court Jurisdiction", 73 Harv.L.Rev. 909, especially 919-35 (1960); Note, "Jurisdiction Over Foreign Corporations - An Analysis of Due Process", 104 U. of Pa.L.Rev. 381 (1955). One concludes from a study of the foregoing that the two fundamental factors determinative of the propriety of personal jurisdiction appear to be the nature and extent of the business activities conducted by and on behalf of the foreign corporation in the forum state, and the relationship to that state and those activities of the cause of action upon which suit is founded. Thus, a corporation which expends money, time, and effort extensively within a state, thereby exercising the privilege of dealing with its residents, may receive considerable economic benefit; when its activities are given protection by state law, it ill behooves the corporation to complain about appearing there to litigate. See Hanson v. Denckla, 357 U.S. at 253, 78 S. Ct. at 1239; International Shoe Co. v. Washington, 326 U.S. at 319, 66 S. Ct. at 159. Similarly, the state has an interest in subjecting to its judicial process a corporation whose activities in that state expose its residents to a risk of physical harm or economic loss; the state's interest in regulating such objectionable conduct within its borders is apparent even though the plaintiff may be a nonresident; and the propriety of exercising jurisdiction is more obvious when the plaintiff is a resident. See McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957); Perkins v. Benguet Consolidated Mining Co., supra; Travelers Health Ass'n v. Virginia, 339 U.S. 643, 70 S. Ct. 927, 94 L. Ed. 1154 (1950).*fn1

The court must apply these factors to the particular circumstances of the case before it, see MacInnes v. Fontainebleau Hotel Corp., 257 F.2d 832, 833 (2d Cir. 1958), in order to determine whether it is "reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought" in the forum. International Shoe Co. v. Washington, 326 U.S. at 317, 66 S. Ct. at 158. Another factor - although in large measure a reformulation of the two basic ones just set out - is the so-called "balance of conveniences" of the parties in conducting the lawsuit in a given forum. Ibid. See Hutchinson But we have been recently reminded by the Supreme Court that jurisdiction cannot be conferred solely because of the relative convenience of the parties; restrictions upon personal jurisdiction "are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States. However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has had the 'minimal contacts' with that State that are a prerequisite to its exercise of power over him." Hanson v. Denckla, 357 U.S. at 251, 78 S. Ct. at 1238.

II.

With these principles of law in mind, we turn to the facts of this particular case. These facts have already been set out with meticulous care in the opinion of Judge Dooling, and need not, therefore, be repeated here in detail. His findings are clearly supported by the record. In determining whether Peerless (P.R.) had business contacts with New York of such a nature and extent as to warrant the conclusion that it was "present" or "doing business" here, Judge Dooling evaluated the relationship between the Puerto Rican corporation and its New York parent, Peerless, as well as between that corporation and its president, who resides in New York.

Judge Dooling found, and we agree, that

"Peerless (P.R.) is in no sense a department or agency of Peerless New York. Its business is distinct in composition and location and it has its own operating personnel. * * * Equally, it does not appear that Peerless New York was the agent or implement of Peerless (P.R.) The parties were free to choose their forms of doing business with each other and there is no indication that they violated the integrity of the forms they chose or rendered them unreal by any course of conduct shown in the evidence." Although Peerless (P.R.) was in effect wholly owned by Peerless of New York, the evidence is quite clear that the relationship of the New York corporation to the Puerto Rican corporation was primarily that of seller to purchaser, and not that of puppeteer to puppet. Peerless (P.R.) purchased property and erected its plant in Ponce, Puerto Rico, for the purpose of marketing and distributing chemicals and petroleum products. The New York corporation had been doing a similar business since 1945. Peerless made no loans to Peerless (P.R.), guaranteed none of its obligations, and underwrote none of its liabilities. Peerless is one of several suppliers of chemicals to Peerless (P.R.), supplying it with 10% of its purchases by tonnage and 30% in dollar value, and charging the same price charged all other purchasers. Orders are sent by Peerless (P.R.) from Puerto Rico to all suppliers and invoices are paid by checks drawn on its Puerto Rican bank. Marketing of its products is solely by local solicitation in Puerto Rico. Peerless (P.R.) pays no taxes to the State of New York, has no employees here, no telephone listing here, and is not authorized to do business here.*fn2

In this case, we do not have a foreign corporation which "buys merchandise, in a systematic and continuing fashion, through an exclusive purchasing agent with an established and permanent place of business in New York,"*fn3 Sterling Novelty Corp. v. Frank & Hirsch Distributing Co., 299 N.Y. 208, 212, 86 N.E.2d 564, 566, 12 A.L.R.2d 1435 (1949), or an employee group soliciting sales on a regular basis, see International Shoe Co. v. Washington, supra; Jaftex Corp. v. Randolph Mills, Inc., 282 F.2d 508 (2d Cir. 1960); Nash-Ringel, Inc. v. Amana Refrigeration, Inc., 172 F.Supp. 524 (S.D.N.Y.1959); Ronson Art Metal Works, Inc. v. Brown & Bigelow, Inc., 104 F.Supp. 716 (S.D.N.Y.1952), or a firm within the forum state which performs for the foreign corporation such an overwhelming portion of its business that the latter "has achieved most of the advantages which would accrue if the corporation performed the activity itself," see Note, 104 U. of Pa.L.Rev. 381, 402 (1955) - factors which singly or in combination might justify the exercise of jurisdiction over a foreign corporation.

The appellants refer us to cases in which the parent corporation has been held subject to the jurisdiction of another state because of the activities there of its subsidiary, see, e.g., State of Maryland for use of Mitchell v. Capital Airlines, Inc., 199 F.Supp. 335 (S.D.N.Y. 1961); and they urge, therefore, that the converse should hold true. In order to evaluate this argument, it is necessary to determine the rationale for the exercise of jurisdiction in appropriate cases over the parent of a local corporation, for we know that the mere existence of a parent-subsidiary relationship is not alone sufficient. See Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333,336, 45 S. Ct. 250 69 L. Ed. 634 (1925); Echeverry v. Kellogg Ardswitchbo & Supply Co., 175 F.2d 900, 903 (2d Cir. 1949). First, the parent's control over the subsidiary may be such that it is deriving considerable profit from the subsidiary's activities within the forum state; as we have already noted, the state's extension of protection to those activities may render it fair and reasonable that the parent submit to jurisdiction there. Second, control over the subsidiary and its personnel and records in the forum state may render it convenient for the parent to defend there. Jurisdiction over the parent therefore becomes unfair to the extent that the independence of the local subsidiary is a reality. See Note, 104 U. of Pa.L.Rev. at 403-06, and the ...


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