The opinion of the court was delivered by: WEINFELD
Plaintiff, Morse Typewriter Co. ("Morse") commenced this diversity action in October 1984 against three defendants: Samanda Office Communications Ltd. ("Samanda"), G. Richard Cook and Northern Telecom Ltd., ("NTL"). The action arises from Samanda's sale to Morse beginning in May 1984 of Intelligent REmote Input Stand ("IRIS") equipment designed to enable certain typewriters to provide word processing functions. In essence, Morse alleges that the IRIS units it purchased did not perform as they should have and it asserts causes of action for breach of express and implied warranties and negligent and intentional misrepresentation against Samanda, from which it purchased the units directly, Cook, Samanda's vice president in charge of marketing, and NTL, which allegedly developed the IRIS, licensed it to Samanda, and sold its IRIS inventory to Samanda.
Plaintiff is a New York corporation with its principal place of business in New York City; Samanda and NTL are Canadian corporations with their principal places of business in Ontario, Canada. Cook is a Canadian resident. On February 15, 1985, this Court granted Morse's motion for a default judgment against Samanda, which is presently in bankruptcy receivership in Canada where its assets are being liquidated under the receiver's supervision.
NTL moves pursuant to Fed. R. Civ. P. 12(b)(2) to dismiss the action against it upon the ground that the Court lacks in personam jurisdiction over it or, alternatively, under the doctrine of forum non conveniens. Morse argues that jurisdiction exists on any of three separate grounds: (1) NTL is "doing business" in New York through its American subsidiary, Northern Telecom, Inc. ("NTI") within the meaning of N.Y.Civ.Prac.Law § 301; (2) NTL "transacted business" in New York within the meaning of New York's long arm statute, Civ.Prac.Law § 302(a)(1); and (3) NTL committed a "tortious act without the state causing injury to person or property within the state," within the meaning of the long arm statute, Civ.Prac.Law § 302(a)(3).
On this motion to dismiss the complaint, plaintiff has the burden of establishing this Court's in personam jurisdiction over the defendant.
This Court granted discovery limited to the jurisdictional questions posed by NTL's motion, but did not conduct a full blown evidentiary hearing. "In the absence of a full blown evidentiary hearing on the merits, plaintiff on this motion, through its own affidavits and supporting materials, need only make a prima facie case that the Court has jurisdiction over the defendant."
Such a prima facie showing does not relieve Morse of its burden of establishing in personam jurisdiction at trial by a fair preponderance of the evidence.
Under section 301, N.Y.Civ.Prac.Law, NTL is subject to the Court's in personam jurisdiction if, at the time the action was commenced, it was "'engaged is such a continuous and systematic course of "doing business" [in New York] as to warrant a finding of its "presence" in this jurisdiction.'"
NTL must be found to have been "present" in New York, not "'occasionally or casually, but with a fair measure of permanence and continuity,'" so that it is reasonable and just to require it to defend an action in New York.
Morse does not claim that NTL itself is doing business in New York. Indeed, NTL asserts, and Morse does not dispute, that NTL is not doing business and is not licensed to do business in New York; that it has no offices, employees, telephone listings, mailing addresses or leased properties in New York and does not manufacture, sell or warehouse goods in New York. Equally undisputed is that NTI, NTL's American subsidiary, is doing substantial business in New York.
Accordingly, Morse claims as a result of the activities of the subsidiary in New York and the relationship between the two corporations, NTL is doing business in New York and is subject to the Court's in personam jurisdiction. Morse asserts that this relationship creates jurisdiction over NTL in either of two ways; NTL is a "corporate shell" that conducts no business of its own and NTI, the subsidiary, is a "mere department" of NTL.
In Bellomo v. Pennsylvania Life Co.,
the Court held that a parent corporation is "doing business" if the parent is a mere "corporate shell" that conducts no business of its own, independent of its subsidiaries. Here, the facts show that while NTL conducts most of its business through its various subsidiaries, it cannot be characterized as a holding company or shell. NTL conducts venture capital and licensing activities in connection with the development of new technology which amount to approximately $14 million (Canadian). NTL invested in Samanda, acquiring a 15% minority stock interest and entered into licensing agreements with Samanda. Until May 1985, NTL had its own data systems division which in 1984 yielded revenues of approximately $50 million. Morse's conclusory assertions to the contrary do not establish a prima facie case of jurisdiction under the Bellomo decision.
The second argument raised by Morse to support its contention that NTL is doing business in New York is that under our Court of Appeals' decision in Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp.,
NTI is a "mere department" of NTL. In Volkswagenwerk, the Court set forth four factors to guide the determination of whether personal jurisdiction over a parent corporation exists under section 301 by virtue of the activities of its subsidiary in New York. The first of these factors, common ownership, is not in dispute. NTI, the American subsidiary, is wholly-owned by NTL. The remaining three factors are: (1) financial dependency of the subsidiary on the parent corporation; (2) the degree to which the parent interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities; and (3) the degree of the parent's control over the subsidiary's marketing and operational policies.
In Volkswagenwerk, the subsidiary was "wholly dependent upon [the parent's] financial support to stay in business."
The parent had extended credit to the subsidiary in excess of the latter's cash balances and had provided a $400,000 no-interest loan with no payment date. In contrast, the evidence before this Court establishes that NTI is a large, self-sustaining corporation that does not depend for its existence on the financial support of its parent, defendant NTL. In 1984, NTI's revenues throughout the United STates totalled $2.2 billion. The company enters into its own supply contracts, pays for its own product advertising and issues its own commercial paper. While NTL made two loans to NTI in 1984 totalling $240 million, both loans were at competitive market interest rates. Moreover, NTI, along with the other Northern Telecom subsidiaries, pays a percentage of its revenues to NTL pursuant to a research and development cost sharing agreement. In sum, NTI stands on its own two feet financially and does not receive benefits from NTL for which it does not pay its fair share.
The next factor for Court must weigh is the degree to which the parent interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities. Two of the three members of the NTI's board of directors are NTL officers.
As the Second Circuit recently noted, "[o]f course, the officers of a parent normally control the board of directors of a subsidiary in their capacity as representatives of the controlling stockholder."
But more must be shown ...