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PHILIP MORRIS INCORPORATED v. OTAMEDIA

United States District Court, S.D. New York


June 14, 2004.

PHILIP MORRIS INCORPORATED, Plaintiff,
v.
OTAMEDIA, Defendant.

The opinion of the court was delivered by: KEVIN FOX, Magistrate Judge

MEMORANDUM and ORDER

In this action, the plaintiff, Philip Morris USA Incorporated ("Philip Morris USA"), alleged trademark infringement, trademark dilution, false advertising and unfair competition against the defendant, Otamedia, an internet cigarette vendor operating in Switzerland On March 2, 2004, Philip Morris USA served a subpoena on nonparty Swiss Post International USA, Inc. ("Swiss Post USA"), a subsidiary of Swiss Post, the public postal operator of Switzerland The subpoena seeks testimony and documents that, according to the plaintiff, are relevant to the defendant's alleged violation of an injunction obtained by the plaintiff previously in this action. Before the Court is Swiss Post USA's motion, made pursuant to Rule 45(c) of the Federal Rules of Civil Procedure, to quash the subpoena. For the reasons set forth below, the motion to quash is granted.

BACKGROUND

  By order dated January 27, 2003, United States District Judge Allen G. Schwartz directed that a default judgment be entered against the defendant and that the plaintiff's request for injunctive relief be granted. Judge Schwartz then referred the matter to the undersigned for resolution of discovery disputes, enforcement of the January 2003 order and an assessment of damages, if any, including attorney's fees. In May 2003, this case was reassigned to United States District Judge Gerard E. Lynch.

  According to Philip Morris USA, in the interval since the court issued its order granting injunctive relief, Otamedia has continued to ship large quantities of Philip Morris brand cigarettes into the United States each month, knowing that the shipments are in violation of that order. Thus, the subpoena issued by the plaintiff to Swiss Post USA seeks testimony and documents concerning, among other things, the delivery into the United States of cigarettes from Otamedia, the business relationship between Swiss Post and Otamedia, the involvement of the United States Postal Service and/or the United States Customs and Border Protection agency in the shipment or seizure of cigarettes from Otamedia, and the identity of Swiss Post USA's officers and directors and those of its parents, subsidiaries and affiliates.*fn1

  On April 6, 2004, Swiss Post USA moved to quash the subpoena. In connection with its motion, Swiss Post USA submitted, in addition to memoranda of law and supporting documents, the declaration of Michael Knorr ("Knorr"), a United States citizen and an officer and director of Swiss Post USA. Knorr avers that: (a) Swiss Post USA is a New York corporation and the wholly-owned subsidiary of Swiss Post International A.G. ("SPI-AG"); (b) SPI-AG, a Swiss corporation, is the wholly-owned subsidiary of Swiss Post and a holding company for Swiss Post international entities, including Swiss Post USA; and (c) Swiss Post, a Swiss corporation, is the public postal operator of Switzerland

  Furthermore, according to Knorr, Swiss Post USA is concerned solely with outbound shipments from the United States to foreign destinations. Thus, Knorr maintains, because Swiss Post USA has no information about the delivery into the United States of cigarettes from Otamedia, the relationship between its parent, Swiss Post, and Otamedia, or any other matter raised by the plaintiff in its subpoena, its motion to quash the subpoena should be granted. Specifically, Swiss Post USA contends that: (a) it has no documents or knowledge concerning the matters about which Philip Morris USA seeks discovery; (b) it lacks control over the documents and witnesses of its parent, Swiss Post; (c) by its subpoena, plaintiff seeks discovery that is prohibited by Swiss law; and (d) discovery would be futile because Swiss Post cannot provide information concerning only shipments of Philip Morris brand cigarettes, as required by the subpoena.

  Philip Morris USA opposes the motion. It argues that it is entitled to test Swiss Post USA's claimed lack of knowledge about materials and information that are the focus of the subpoena. In addition, the plaintiff maintains, Swiss Post USA has, at the least, the practical ability to obtain documents from Swiss Post, as evidenced by, among other things, the fact that Swiss Post USA was able to obtain copies of relevant correspondence between the plaintiff and Swiss Post. The plaintiff also maintains that the applicability to this matter of the Swiss law provisions cited by Swiss Post USA has not been established. Moreover, according to the plaintiff, discovery must be obtained about all of Otamedia's shipments of cigarettes if the court's January 2003 order is to be enforced; therefore, notwithstanding any modification of the subpoena, discovery in this case would not be futile.

  In opposition to the motion to quash, Philip Morris USA has submitted a memorandum of law, declarations of counsel and supporting documents. Based on a review of the parties' submissions, the Court finds that Swiss Post USA has established that the subpoena issued by the plaintiff should be quashed.

  DISCUSSION

  As noted above, Swiss Post USA contends, among other things, that Swiss law prohibits Swiss Post and its employees from complying with the discovery requests set forth in the subpoena. The Swiss laws at issue are Article 13 of the Swiss Constitution, which guarantees the right to privacy, Article 273 of the Swiss Criminal Code, which provides for penalties, including a fine and/or imprisonment, for the disclosure of industrial or commercial secrets, and Article 321 of the Swiss Criminal Code, which imposes penalties for the disclosure by employees or agents of postal service operators of the contents of its customer's postal communications. Swiss Post USA also claims that Philip Morris USA's failure to comply with the requirements of the Hague Convention constitutes another reason to quash the subpoena. Moreover, according to Swiss Post USA, the plaintiff "has made no explicit allegation of jurisdiction over Swiss Post . . . and cannot seriously contend or establish the existence of jurisdiction."

  Philip Morris USA maintains that Swiss Post USA has not shown that the relevant provisions of Swiss law are applicable here, or that the interests served by those provisions are so compelling "as to require the Court to refuse to exercise its subpoena power with respect to an entity over which it undisputedly has jurisdiction." It is well established that a federal district court "has the power to impose discovery under the Federal Rules of Civil Procedure when it has personal jurisdiction over the foreign party." SEC v. Euro Security Fund, No. 98 Civ. 7347, 1999 WL 182598, at *3 (S.D.N.Y. Apr. 2, 1999) (quoting Societe Nationale Industrielle Aerospatiale v. United States District Court, 482 U.S. 522, 553 n. 4, 107 S.Ct. 2542, 2561 n. 4 [1987][Blackmun, J. concurring] [emphasis in original]) (internal quotation marks omitted); see also Alfadda v. Fenn, 149 F.R.D. 28, 33-34 (S.D.N.Y. 1993). Thus, questions concerning the appropriate scope and method of discovery, including whether the requirements of the Hague Convention should be applied, see First American Corp. v. Price Waterhouse LLP, 154 F.3d 16, 21 (2d Cir. 1998), or the United States has a strong national interest in ordering disclosures prohibited by the law of a foreign nation, see Bodner v. Paribas, 202 F.R.D. 370, 374-75 (E.D.N.Y. 2000), do not arise unless personal jurisdiction over the entity from whom discovery is sought has been established.

  "A New York subsidiary can confer jurisdiction over a foreign parent where the subsidiary is so dominated by the parent as to be, in practice, a `mere department' of the parent rather than a truly independent entity." Salemi v. Boccador, Inc., No. 02 Civ. 06648, 2004 WL 943869, at *3 (S.D.N.Y. Apr. 29, 2004) (citing Public Administrator v. Royal Bank of Canada, 19 N.Y.2d 127, 278 N.Y.S.2d 378 [1967]). In determining whether a subsidiary is a "mere department" of a foreign parent, a court should consider: (1) whether the two entities share common ownership; (2) the extent of the subsidiary's financial dependence on the parent; (3) the degree of parental interference in the selection and assignment of the subsidiary's executive personnel and the failure to observe corporate formalities; and (4) the degree of control exercised by the parent over the subsidiary's marketing and operational policies. See id. (citing Volkswagenwerk Aktiengesellschaft v. Beech Aircraft Corp., 751 F.2d 117, 120-22 [2d Cir. 1984]); see also Canterbury Belts Ltd. v. Lane Walker Rudkin, Ltd., 869 F.2d 34, 40 (2d Cir. 1989) ("Under New York law, where a corporate subsidiary is essentially a `separately incorporated department or instrumentality' of a foreign corporation, the activities of the subsidiary will be attributed to the foreign parent for purposes of determining the parent's amenability to personal jurisdiction in New York.").

  In it papers submitted in opposition to the instant motion, plaintiff included copies of pages from Swiss Post's website, swisspost.ch, which were downloaded in March and April 2004, and a compact disk containing a copy of a videotape that was viewed on the website. The website pages indicate that: (i) Swiss Post comprises eight "business units," including Swiss Post International; (ii) Swiss Post International handles international mail for Swiss Post and offers its customers a range of services for mailing goods and documents worldwide; (iii) Swiss Post's "international approach" involves subsidiaries in several countries, including the United States; (iv) Swiss Post International is the Swiss Post division that "feels at home all over the world;" and (v) the United States branch of Swiss Post was founded in September 1998 and operates two exchange offices, one in New York and one in Los Angeles. The videotape on Swiss Post's website features individuals from different countries, including the United States, all of whom are employed by Swiss Post. Philip Morris USA argues that Swiss Post's website materials depict the operations of Swiss Post, SPI-AG and Swiss Post USA as an integrated unit, suggesting that the three entities operate as one.

  A review of the record in this case indicates that Swiss Post USA and Swiss Post share a common ownership and, thus, meet the first and "essential" requirement of the test for deciding whether a New York subsidiary is a mere instrumentality of a foreign parent or, rather, an independent entity. As noted above, according to Knorr, Swiss Post USA is a wholly-owned subsidiary of SPI-AG which, in turn, is a wholly-owned subsidiary of Swiss Post. See Motown Record Co. v. IMesh.Com, Inc., No. 03 Civ. 7339, 2004 WL 503720, at *4-5 (S.D.N.Y. Mar. 12, 2004) (finding that the "essential" common ownership element was established where the New York corporation was shown to be a wholly-owned subsidiary of its parent).

  However, the record in this case is barren of the type of evidence that would enable the Court to determine whether the other elements needed for assertion of jurisdiction over a foreign related corporation are established. Thus, neither the Knorr declaration nor the materials presented in Swiss Post's website provide enough or sufficiently specific information from which the Court may ascertain the extent of Swiss Post USA's financial dependence on Swiss Post, the degree to which Swiss Post interferes in the selection of Swiss Post USA's executive personnel or fails to observe corporate formalities, or the degree of control exercised by Swiss Post over Swiss Post USA's marketing and operational policies. Cf. Salemi, 2004 WL 943869, at *3 (finding that the court had personal jurisdiction over parent corporation where documentary and testimonial evidence indicated that parent had "near total" control over marketing and operational policies of subsidiary and the same person served as president of both corporations); Motown Record Co., 2004 WL 503720, at *5 (finding that the court had personal jurisdiction over parent corporation where documentary and testimonial evidence indicated manifest "indifference to the corporate form" by the chief officer of both entities); Taca Int'l Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 N.Y.2d 97, 101, 256 N.Y.S.2d 129, 131-32 (1965) (finding that a subsidiary was a "mere department" of the parent corporation where undisputed facts showed subsidiary was "set up," controlled and staffed by the parent).

  Since it cannot be determined whether Swiss Post USA is "so dominated" by its parent, Swiss Post, as to be a "mere department" of that entity, rather than an independent corporation, the plaintiff has not established that Swiss Post is subject to jurisdiction in New York based on the presence and activities of Swiss Post USA. Furthermore, because the plaintiff has not met its burden of establishing personal jurisdiction over Swiss Post, the issue of whether the Court has the power to impose discovery pursuant to the Federal Rules of Civil Procedure, even if to do so would require Swiss Post and its subsidiary to violate Swiss law, cannot be resolved. Therefore, the plaintiff has not shown that it can overcome a fundamental objection to compliance with the subpoena. Under the circumstances, the Court need not address the other claims asserted by Swiss Post USA in connection with the instant motion.

  CONCLUSION

  For the reasons set forth above, nonparty Swiss Post USA's motion to quash the subpoena issued by the plaintiff is granted.

  SO ORDERED.


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