The opinion of the court was delivered by: WEINSTEIN
This motion to dismiss for lack of personal jurisdiction (F.R.Civ.P. 12(b) (2)), presents a classic problem in adjudicating claims against a multinational corporation using subsidiaries to penetrate the American market. Under current doctrine, to be subject to personal jurisdiction by a state, the parent must 1) itself be present because it is doing business in the state (N.Y. CPLR 301); or, 2) under a "long arm" concept, have conducted specific activities out of which the cause of action arose either in the state or outside the state with foreseeable substantial effects in the state (N.Y. CPLR 302); in addition, exercise of judicial power over the person of defendant must not offend our notions of fairness. See, e.g., International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945); Restatement (Second) of Conflict of Laws § 27(1)(g) (h) ("doing business in the state" and "an act done in the state" are bases for exercise of jurisdiction); Restatement (Second) of Judgments § 8, Comment a (Tent. Draft No. 5, 1978) (where party, inter alia, does business in state or does act in state relationship is "such that the exercise of jurisdiction is reasonable").
Largely for reasons of historical and conceptual development, the doing business concept treats a defendant corporation as if it were present for all purposes in any kind of a suit to the same extent as a real person living and working here would be. The long arm alternative was designed to be used only in limited situations in which an outsider has a transient impact on activities in the state and it applies only to claims arising from that narrow contact.
Multinational activities such as those before us present a factual pattern that sometimes does not quite fit into either of the two tidy conceptual categories reflected in N.Y. CPLR 301 and 302. Here the foreign parent corporation may be considered to be doing business under 301 for limited purposes during the period of penetration of the American market before its subsidiaries have matured to relatively full independence. The implications of this view are that the foreign parent may be deemed to be present for the purpose of expanding into a new market by setting up subsidiaries and dealing with competition, while it may not be doing business for the purposes of day-to-day commercial activity such as dealing in watches, cars or sealing wax e.g., when a suit is based upon negligent operation of a car operated by an employee of a locally organized subsidiary. Similarly, while not within the strict limits of the 302 long arm provision, the parent's actions might be sufficiently within the CPLR's penumbra so that the combination of 301 and 302 read together covers the particular claims asserted and long arm personal jurisdiction lies. None of this would violate any constitutional requirements.
We do not suggest that the present jurisdictional bases be eliminated a proposal for the legislature rather than a trial court in any event. Nor do we ignore traditional indicia utilized to measure parent-subsidiary control for jurisdictional purposes. Rather, we note that in this as in so many other areas of the law, stuffing new and complex factual patterns into absolutely rigid legal cubbyholes often results in distortion of the facts. Some give in the categories is desirable lest the law lose touch with the real world.
To any layman it would seem absurd that our courts could not obtain jurisdiction over a billion dollar multinational which is exploiting the critical New York and American markets to keep its home production going at a huge volume and profit. This perception must have a bearing on our evaluation of fairness. The law ignores the common sense of a situation at the peril of becoming irrelevant as an institution.
An apparent growing tendency by the Supreme Court to view jurisdictional bases narrowly in the interest of what it considers to be fairness to defendants is reflected in a few recent cases. Shaffer v. Heitner, 433 U.S. 186, 97 S. Ct. 2569, 53 L. Ed. 2d 683 (1977); Rush v. Savchuk, 444 U.S. 320, 100 S. Ct. 571, 62 L. Ed. 2d 516 (1980), on remand, 290 N.W.2d 633 (Minn.1980); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980). Unreasoned extrapolation of such cases can lead to unfairness to plaintiffs who may be denied a natural forum unless the court carefully analyzes the economic and social realities of the "significant contacts between the litigation and the forum." Rush v. Savchuk, 444 U.S. at 329, 100 S. Ct. at 578. Cf. Kamp, Beyond Minimum Contacts: The Supreme Court's New Jurisdictional Theory, 15 Ga.L.Rev. 19 (1980) (criticizing recent cases as "not based on present constitutional or social reality"); Comment, Federalism, Due Process and Minimum Contacts: World-Wide Volkswagen Corp. v. Woodson, 80 Colum.L.Rev. 1341 (1980) ("abstract notions of territoriality are too mechanical to achieve consistently desirable results").
I. USE OF JUDICIAL NOTICE
A common sense appraisal of economic relationships is often more useful than prior cases based on situations different in detail. Meat Systems Corp. v. Ben Langel-Mol, Inc., 410 F. Supp. 231, 231-232 (S.D.N.Y.1976), remanded without opinion, 551 F.2d 300 (2d Cir. 1976). We tend to come closer to the mark when we examine a business relationship from the practical viewpoint of businessmen rather than through the distorting lens of a legal conceptual framework established in an earlier era. In the multidimensional complexity of real life a two dimensional straight line provides a misleading boundary. A court cannot simply "isolate each contact of the defendant with New York and say that each such contact does not constitute the doing of business." Potter's Photographic Applications Co. v. Ealing Corporation, 292 F. Supp. 92, 100 (E.D.N.Y.1968). Rather it must look to the "cumulative significance" of all activities of a foreign corporation within the state in order to determine whether the corporation is doing business within the state for jurisdictional purposes. Id. In doing so it must make use of so much of judicial notice as is required to understand general commercial settings and the particular relationships of the parties and their dispute.
Judicial notice may be resorted to on a motion to dismiss for lack of jurisdiction. Fed.R.Evid. 201(f) ("judicial notice may be taken at any stage of the proceeding"); Singleton v. City of New York, 632 F.2d 185, 204 (2d Cir. 1980) (dissent) (motion to dismiss for lack of timeliness); St. Louis Baptist Temple, Inc. v. Federal Deposit Insurance Corp., 605 F.2d 1169, 1172 (10th Cir. 1979) (summary judgment); United States ex rel. McLaughlin v. People of the State of New York, 356 F. Supp. 988, 990 (E.D.N.Y.1973) (motion to dismiss on merits); Fox v. Kane-Miller Corp., 398 F. Supp. 609, 651 (D.Md.1975), aff'd, 542 F.2d 915 (4th Cir. 1976) (motion for judgment notwithstanding verdict); Webb v. Nolan, 361 F. Supp. 418, 420 (M.D.N.C.1972), aff'd, 484 F.2d 1049 (4th Cir. 1973) (motion to dismiss for lack of jurisdiction).
The information that may be noticed where jurisdiction is sought over a multinational is much broader than the narrow form of "adjudicative" fact either "generally known within the territorial jurisdiction" or capable of "determination by resort to sources whose accuracy cannot reasonably be questioned," Fed.R.Evid. 201(a)(b) e.g., the day of a week of a certain date. The judgments involved in determining questions of jurisdiction such as the one before us involve mixed questions of law and fact. Inextricably intertwined in the decision is a normative judgment of what is fair and reasonable a question primarily of law rather than an adjudicative fact. Thus the factual issues are closer on a spectrum to legislative facts necessary in interpreting the meaning of law and filling in its interstitial detail. The data noticed also provide the general knowledge needed to understand and draw inferences from the particular evidence in the controversy before the court to those material propositions of fact necessary in determining jurisdiction.
There is always a danger in the superficial sociological musings of lawyers and judges who must perforce be relatively ignorant of the realities underlying the diverse situations with which they must deal and which they must try to understand. Yet, whether we explore the economic, political or social settings to which the law must be applied explicitly, or suppress our assumptions by failing to take note of them, we cannot apply the law in a way that has any hope of making sense unless we attempt to visualize the actual world with which it interacts and this effort requires judicial notice to educate the court.
A court's power to resort to less well known and accepted sources of data to fill in the gaps of its knowledge for legislative and general evidential hypothesis purposes must be accepted because it is essential to the judicial process. See, generally, Davis, Facts in Lawmaking, 80 Colum.L.Rev. 931 (1980). Here flexible judicial notice is required first, in interpreting N.Y. CPLR 301 and 302, and, second, in understanding the relationship of the Japanese parent to its American subsidiaries.
In view of the extensive judicial notice taken, based partly upon the court's own research, the court issued a preliminary memorandum and invited the parties to be heard on the "propriety of taking judicial notice and the tenor of the matter noticed" upon motion made within ten days. This procedure complies with the spirit of Rule 201(e) of the Federal Rules of Evidence reading as follows:
(e) Opportunity to Be Heard. A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken.
Inviting parties to participate in such ongoing colloquy has the advantage of reducing the possibility of egregious errors by the court and increases the probability that the parties may believe they were fairly treated, even if some of them are dissatisfied with the result.
Accepting this invitation, the defendant Hattori submitted affidavits and separate materials and reargued the motion. These submissions were most helpful and resulted in the courts modifying a number of conclusions, but not the final result.
Plaintiff Bulova Watch Co., Inc. charges K. Hattori & Co., Ltd. and individual defendants Moriya, Segal, Murphy, Waldman and others with unfair competition and disparagement and with engaging in a conspiracy to raid plaintiff's marketing staff in order to appropriate plaintiff's trade secrets.
Bulova is a New York corporation with its principal place of business in Flushing, New York. It manufactures and sells watches and claims to have the largest direct sales marketing system in the watch business.
Hattori is a company incorporated under the laws of Japan with its principal offices in Tokyo. It owns all the stock of Seiko Corporation of America (SCA), a New York corporation. SCA owns all the stock of Seiko Time Corp., Pulsar Time, Inc., and SPD Precision, Inc., all New York corporations. Hattori contracts in Japan for the manufacture of its watches and sells them under the Seiko, Pulsar and other brand names to its three American sub-subsidiaries. The Japanese parent's annual sales in 1978 were in excess of $ 1 billion. While the "Hattori group" manufactures many products including computers, measuring instruments, industrial robots, spectacle lenses and electric shavers, Moriya Affidavit of January 21, 1981 at para. 3, watches and clocks account for approximately ninety percent of Hattori's sales. Securities Report Series 1979, Exhibit 5 to Defendant's Supplemental Memorandum at 8. A very substantial amount of its total revenue is derived from exports of watches and timepieces, the United States being its largest foreign market. In 1980 over four million Hattori timepieces were sold in this country at prices to the consumer of one hundred twenty-five dollars and higher far more than half a billion dollars at retail. Oral Statement of Defendant, Hearing, February 11, 1981.
Hattori sells products to distributors in over one hundred countries around the world. Wholly-owned subsidiaries of Hattori handle distribution of Hattori's products in about ten of those countries, including the United States. In the rest, or the great majority of the countries in which Hattori's products are sold, sales are made by Hattori or its subsidiaries to independent distributors who conduct their own advertising and other marketing activities and maintain their own repair centers pursuant to agreement or arrangements with Hattori. Moriya Affidavit of January 21, 1981 at para. 4. Hattori has never directly marketed its products in any country except Japan. Id.
Hattori's United States subsidiaries sold Seiko-branded products totalling over $ 50,000,000 in wholesale dollars in 1979 to retail customers and wholesale distributors in the Caribbean, South America and Europe. SCA has also made substantial investments in third countries to assist Hattori in selling its Japanese manufactured timepieces. It owns one hundred percent of the capital stock of Pulsar subsidiaries which it has established in Canada and Europe during the past two years. Seiko Time Canada, Ltd., in 1979, represented an investment of $ 5,000,000 and accounted for Canadian sales of Hattori products in excess of $ 35,000,000 in wholesale dollars. In 1980, Seiko Corporation of America also acquired one hundred percent of the stock of a Brazilian corporation, Seiko Time, Ltd., which in turn acquired all the stock of Hase, S. A., a company which sells Hattori's Seiko-branded products in Brazil. Memorandum of Hattori, January 21, 1981 at 20.
From 1967 to 1971, and again from 1975 to July, 1979, Moriya was assigned by Hattori to New York. During the period when the events complained of occurred he was president and director of SCA and its corporate predecessor, sole director of Pulsar Time and SPD Precision, director of Seiko Time, an officer of two other of Seiko's American distributors and a director of a third. While in New York, Moriya held the following positions with Hattori: Deputy Manager and Manager, International Marketing Department and Manager, Personnel Department. Securities Report Series 1979, Exhibit 5 to Defendants' Memorandum in Relation to the Motion to Dismiss at 6, 7. Moriya's immediate superior was Reijiro Hattori, Chairman of SCA and second-in-command at Hattori.
At the date of the filing of the complaint Moriya was a director of Hattori, to which he was elected upon his return from his American assignment. After this action was started he was named Chairman of SCA and apparently he did not resign his position as its president upon his return to Tokyo until sometime after the complaint was filed. Exhibit 2 to Codraro affidavit.
Segal, a domiciliary of California, was Bulova's Western regional sales manager; he left Bulova in July, 1978 to join Omichron, Inc., a Seiko distributor. Murphy, a resident of Texas, is a former Bulova Chicago regional sales manager who left Bulova in late October, 1978 to join TexChron, a Seiko distributor partly owned by SCA. Waldman, who has lived in Texas for many years, is a former Bulova Southwestern regional sales manager who left Bulova in early December, 1978 to join SPD Precision, Inc.; after the incorporation of Pulsar Time, Inc., in early January, 1979, he became field sales manager for that company. Two other defendants, Lich and Cohen, do not object to personal jurisdiction.
Between July and December of 1978, six members of Bulova's staff three regional sales managers and three more senior executive personnel left Bulova to join either a Seiko subsidiary or a Seiko distributor. During December, 1978 four Bulova salesmen joined SPD Precision's Pulsar division which in January, 1979 was separately incorporated as Pulsar Time, Inc. Sometime during 1979 a number of Bulova salesmen were hired by Pulsar Time. What sharply divides plaintiff from defendant is the question of whether these hirings were the result of a conspiracy among defendants to appropriate Bulova's trade secrets and marketing system and to damage Bulova and destroy its business and reputation.
Plaintiff alleges that Hattori and Moriya decided during 1978 to market a new line of watches, Pulsar, a trademark that was acquired by Seiko Time in September, 1978. Defendants' Reply Memorandum at 18. Plaintiff also alleges that the decision was taken by Hattori and Moriya to organize a clock division of Seiko Time. Codraro Affidavit at para. 19. Seiko watches had been marketed through fifteen Seiko regional distributors, Id. and Moriya Deposition at 160-161, but the Pulsar watches were to be marketed directly to retail outlets. To accomplish this, a direct sales network had to be put quickly into place. Codraro affidavit at para. 20. It is contended that as part of the plan Moriya hired Schwartz, who had been vice-president and director of marketing at Bulova, to head the Pulsar operation.
In the beginning of October, Schwartz and Moriya met to discuss the Pulsar marketing strategy and Schwartz recommended that Moriya hire Cohen as director of sales. Meetings were held between Cohen and Schwartz, and Cohen was offered employment at SPD Precision with the view to directing Pulsar sales. Codraro affidavit at para. 19. Moriya, Cohen and Schwartz decided that a sales force of twenty would be required for the first year, 1979, Cohen Deposition at 35-36, and Cohen was told not to "divulge the name of his new employer" for one month. Hattori Memorandum, January 21, 1981 at 27, Codraro Affidavit at para. 19, Cohen Deposition at 47. He recommended the hiring of Waldman, a Bulova regional sales manager. In early December of 1978, Waldman met with Cohen and Schwartz in New York, and the next day Waldman left Bulova to join Pulsar as field sales manager. In order to implement the goal of hiring twenty salesmen by January 1, 1979, the three ex-Bulova employees actively solicited other Bulova employees. Codraro Affidavit at para. 19.
The hirings that ensued apparently resulted in a meeting between Bulova's then head, Flick, and Moriya at the end of the year, following which the solicitation of Bulova salesmen abated. Codraro Affidavit at para. 19, Moriya Deposition at 180-181. Subsequently, however, additional solicitations are alleged to have been made, Codraro Affidavit at para. 19, and more Bulova salesmen were hired. Cohen Responses to Interrogatories para. 5(a).
During December, special letters were drafted to be signed by Bulova salesmen joining SPD Precision, Pulsar's parent. The letters stated that the employees would not use any Bulova trade secrets and that SPD Precision was not interested in such secrets. It is plaintiff's theory that singling out Bulova personnel for use of these apparently self-serving letters suggests awareness of the impropriety of hiring such personnel.
A Bulova regional sales manager and a Bulova salesman stated that they were solicited by Segal after he left Bulova. McGann affidavit at para. 2, Pierce affidavit at para. 2. Another regional sales manager was solicited by Waldman. Donchin Affidavit at para. 2. During July and August, Moriya met four times with Lich, Bulova's director of department store sales and its merchandising manager, and hired him for Seiko Time's ongoing clock operations in early September, 1978. Codraro Affidavit at para. 21.
Bulova contends that the concerted action of Hattori, Moriya and the other individual defendants caused serious dislocation and disruption at Bulova's corporate headquarters. The departure of six high level employees is alleged to have damaged sales throughout the country and in New York, and to have contributed substantially to a decrease in sales of some $ 18 million. Codraro Affidavit at para. 22.
Moriya joined Hattori in Japan in 1954 after finishing his schooling. Exhibit 5 to Defendants' Memorandum in Relation to the Motion to Dismiss at 6, 7. He has never worked for any employer aside from Hattori or its American subsidiaries. Moriya Deposition at 90. As already noted, during the course of his employment with the American subsidiaries he simultaneously held the Hattori positions of Deputy Manager and Manager of the International Division and Manager of the Personnel Department. Exhibit 5 to Defendants' Memorandum in Relation to the Motion to Dismiss at 6, 7. Nonetheless, defendants assert that while in the United States "he performed services for the United States subsidiaries and none for Hattori." Defendants' Letter Filed September 30, 1980 at 2. The court has not been able to see its way to reading the undisputed facts in such an unusual fashion. Common sense, which need not be banished from our reckoning, dictates the conclusion that while in the United States Moriya loyally performed substantial services for Hattori.
Moriya was no mere liaison officer, and his assignment by Hattori was far from casual. He testified that both his tours were undertaken at the behest of his superiors at Hattori. He was sent first in 1967 when Hattori recognized the potential of America as a market for the sale of its watches, Moriya Deposition at 96, and he was ordered to New York "to take care of marketing." Id. at 94-95. Moriya understood that his assignment was undertaken to further the interests of Hattori and he admitted that he endeavored to carry out this task. Id. at 96. Although he was employed by the Hattori subsidiaries he would not deny that he considered Mr. Unno of Hattori his superior. Id. at 98.
While he was in New York as executive vice president of SCA's corporate predecessor, Moriya apparently was instrumental in formulating the marketing strategy that enabled Hattori to establish a formidable position in the American market. Id. at 160-163. In 1969 he made the crucial recommendation that a network of independent distributors be established to obviate the need for slowly building up a direct sales network. Id. This decision was made jointly with Reijiro Hattori, second in command at Hattori. Moriya also testified that Hattori's board of directors is the architect of the worldwide strategy of marketing Hattori products. Id. at 63. It seems plain from Moriya's testimony that he was attempting to advance Hattori's interests and its international marketing aims by formulating plans for the United States in cooperation with Reijiro Hattori and the Hattori Board. Even if we did not need to view the record in a light favorable to plaintiff, Loria & Weinhaus v. H.R. Kaminsky & Sons, 80 F.R.D. 494, 497 (S.D.N.Y.1978), motion granted, 495 F. Supp. 253 (S.D.N.Y.1980), there could be no doubt who Moriya's true master was. It is beyond cavil that the establishment of a major presence in the American market is of critical importance to a firm like Hattori. See, generally, E. Vogel, Japan as Number One, 134-136 (1979) (Japanese firms usually prefer even to defer profits in order to maximize sales and market share); K. Haitani, The Japanese Economic System: An Institutional Overview, 93 (1976) (same). The establishment of such a posture required major marketing planning. Moriya was directly responsible for formulating and implementing that strategy, and at all times his primary allegiance was to Hattori.
In 1975, Moriya was again assigned to New York as head of American operations. During his second term, as during his first, Moriya was intimately involved with developing a new marketing system permitting Hattori to sell its newly acquired Pulsar line and its clocks. Moriya testified that he was "organizing the clock department." Moriya Deposition at 175. He decided to build up a direct sales force for the Pulsar line, Id. at 176, and he was directly involved in at least two of the hirings of Bulova personnel that are the subject of this action. Id. at 174, 177.
Even the advertising for Seiko artfully suggests to the reader the lack of distinction between the manufacturer in Japan and United States subsidiary distributors. It speaks, for example, of "the watch you buy from us" after reference to care in manufacture. A recent advertisement for "Seiko" in a major department store in The New York Times included the following copy:
There's even a chance that the watch you buy is not a real Seiko at all, but an imitation or forgery designed to exploit Seiko's popularity in the U.S. market.
When Seiko produces a watch for the U.S. market, certain important identification must be stamped or engraved on the movement and the case. Seiko does that before final assembly, before final quality control testing. So the watch you buy from us is in mint condition, truly representing the best of Seiko technology and craftsmanship.
When the objective is just to make a sale, not necessarily to make a long-term customer, slick salespeople become more important than knowledgeable ones. And if you need any servicing, they'll probably send you to Seiko. Seiko will give you great service of course, but if the watch is not covered by the valid Seiko warranty, you'll have to pay for it. However, if you buy an obsolete watch, or one that's not meant to be sold in the U.S. at all, don't hold your breath while you're waiting for parts. Because not even Seiko can inventory every part for every watch all the time.
The N.Y. Times, Dec. 8, 1980, p. B6 (emphasis in original).
We credit the affidavit of the present president of Seiko Time that he "personally devised" this advertising campaign, "without any consultation with any officer, director or other employee of Hattori." Pliskin Affidavit January 15, 1981 at para. 6. The reason for Seiko's and Hattori's concern was that Hattori was selling watches to third-country markets and these third countries were then shipping watches into the United States market as "parallel" exporters competing with Seiko Time which had to face discounters' price cutting. In support of Seiko's contention that the advertising indicated Seiko Time's independence, there was submitted an article from the November 1980 issue of Jewelers' Circular Keystone (p. 104), apparently a reputable journal in this field, describing the deleterious effects of this "parallel distribution pipeline" which accounted for nearly one million timepieces in 1979. What is interesting about this article is that it reveals how subtle and close is the cooperation between the United States subsidiaries and Hattori. To implement the American advertising campaign Hattori in Japan simultaneously took action by cutting down shipments to foreign countries in "efforts to tighten the spigot for parallel pipeline goods." Id. The Keystone article notes that Seiko's "$ 500,000 public relations campaign" is part of the Hattori-Seiko effort to stabilize the American market. Id. It is not credible that the Japanese head office and Moriya in particular was unaware of Hattori's worldwide integrated policies reflected in Seiko's American advertising copy.
III. JURISDICTION OVER K. HATTORI & CO., LTD.
In a diversity action such as this, the question of personal jurisdiction is determined in accordance with the law of the state in which the court sits. Arrowsmith v. United Press International, 320 F.2d 219 (2d Cir. 1963); Wright and Miller, Federal Practice and Procedure: Civil § 1075, n.50. We need not consider whether the Arrowsmith limitation on federal jurisdiction is reasonable in a controversy with national and international implications, or whether a question such as the one we now face should be addressed through nationwide service of process and adjustment of venue by "transfer to the most convenient forum" a matter for Congress rather than the courts. C.A. Wright, Law ...