111 F. Supp. 342 | E.D. Wash. | 1953
Defendant American Power and Light Company, hereafter called American, by its motion to quash the return of service of process and to dismiss the action, questions the sufficiency of the service and its own amenability to service, within the state of Washington. The action was commenced by the filing of the complaint, on July 16, 1952. The return of service shows that, on the following day, the summons and complaint were served upon American by handing copies thereof to the statutory agent of the Washington Irrigation and Development Company, at Vancouver, Washington.
The pertinent facts are set forth in the amended complaint and in an affidavit of Howard L. Aller, president of American. These documents, as counsel on both sides seem 'to agree, may be considered by the court in the light of the related information contained in the published reports of the Securities and Exchange Commission and the federal courts dealing with the creation, the corporate structure, and the interrelationship of the three corporations named as defendants in the present action.
The defendants General Electric Company (referred to herein as General) and Electric Bond and Share Company (hereafter designated Bond and Share) are New York corporations. Defendant American is a Maine corporation, which is doing business in the state of Washington. At all times mentioned (which covers a period from prior to 1913 to July, 1952), General and American have wholly controlled the Washington Irrigation and Development Company, a Washington corporation, and have used it as a “Dummy” and instrumentality, so that'they could perform their respective businesses through and by it. Prior to and at the time of the commence,ment of the action, the Washington corporation was owned by American and was being used by it in the same manner and for a like purpose. In April, 1913, all three defendants and the plaintiffs, in the city of New York, entered into an oral, joint venture agreement for the construction of a dam and hydro-electric power plant, at the Priest Rapids site, on the Columbia-River, in the state Of Washington, and for the ■ irrigation of a large area of adjacent, arid land. Prior to the making of the agreement, plaintiffs had done considerable preliminary development work. General had “made certain investments in the Priest Rapids power site” and had acquired certain nearby land which it “held owned and controlled through its dummy, Washington Irrigation and Development Company.” After the joint venture agreement had been made, General and Bond and Share, in the name of their “agent- and dummy,” Washington Irrigation and Development Company, applied for a permit for construction of the dam at Priest Rapids, and the Federal Power Commission issued a permit on March- 3, 1921. Bond and Share and General then “undertook diamond drilling of the dam foundation” and proceeded with engineering work and plans in the engineering offices of the respective defendants in New York -City. The field work and engineering plans for the dam were completed in June, 1922. On March 25, 1925, the Federal Power Commission issued a license for the dam. Construction was long delayed, however, by various enumerated conditions and events, and, ultimately, defendants abandoned and breached the joint venture agreement, to plaintiffs’ damage in a very large sum.
Summarized briefly, the factual recitals in the affidavit of Mr. Aller, the president of American, are as follows:
American was created under the laws of the state of Maine, September 20, 1909. Throughout its entire corporate existence, it has had its principal office in Augusta, Maine. It has also maintained an office in New York City, but has had no other office, and, specifically, has not maintained any place of business in the state of Washington. The corporation has always been a holding company, engaged in the business of acquiring, in New York state and interstate commerce, and holding for investment and realization thereon, the securities of public utility companies operating in various states, including the state of Wash-, ington; but it has never conducted any of “its ordinary or regular business” in that state. The Securities and Exchange Commission, acting pursuant to the Public Utility Holding Company Act of 1935, 15 U. S.C.A. § 79 et seq., by an order dated August 22, 1942, directed that the existence of American be terminated and the corporation dissolved. The order was affirmed successively by the United States Court of Appeals for the First Circuit and the Supreme Court.
This is a civil action, governed, as to the manner of service of process, by the Federal Rules of Civil Procedure. The rules provide that service shall be made upon a foreign corporation by delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or to any other agent, authorized by appointment or by law to receive service of process.
. In the presént case, as stated above, American was served by delivery of the summons to the statutory agent of Washington Irrigation and Development Company, a wholly owned subsidiary of American. The service was insufficient to meet the requirements of either the. federal rules or the state law, unless we disregard the separate corporate entity of the domestic corporation and regard service upon it as, in legal effect, service upon American.
It is a well established general rule that a foreign corporation, which owns or controls the capital stock and dictates the policies and directs the affairs of a subsidiary corporation, which is doing business within a state, is not thereby subject to service of process through service upon an agent of the subsidiary in that state. A leading case is Cannon Manufacturing Company v. Cudahy Packing Company, 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634.
Cannon Mfg. Co. v. Cudahy, supra, has never been overruled. It was relied upon and followed by the Ninth Circuit Court of Appeals in the recent case of Gravely Motor Plow & Cultivator Co. v. H. V. Carter Co., 9 Cir., 193 F.2d 158. The Supreme
“Through ownership of the entire capital stock and otherwise, the defendant [the parent corporation] dominates the Alabama corporation [the subsidiary], immediately and completely, and exerts its control both commercially and financially in substantially the same way, and mainly through the same individuals, as it does over those selling branches or departments of its business not separately incorporated which are established to market the Cudahy products in other states.”
An exception to the general rule is recognized where a plaintiff seeks to hold a parent corporation liable for an act or omission of its subsidiary corporation, or to enforce against a subsidiary a liability of the parent, and the primary concern is with the enforcement of substantive rights. A number of cases, apparently regarded by the court as within the exception, are cited and expressly distinguished in Cannon Mfg. Co. v. Cudahy, supra, 267 U.S. at page 337, 45 S.Ct. 250.
Another exception is recognized where a corporate subsidiary is used as an instrumentality or adjunct of the parent corporation for the accomplishment of some illegal or fraudulent or dishonest purpose.
“In adjudicating two corporations to he, in legal effect, one, it must appear that the one so dominates and controls the other as to make the other a mere tool or instrument of the one, so that justice requires the dominant corporation to be held liable for the results, and, further, that there shall be such a commingling of their funds and property interests, and their affairs so intimately related in management, that to consider them other than as one would work a fraud upon third persons.”
It does not appear that American has had any contacts in the state of Washington, except through its subsidiary corporations.
The motion under consideration, however, raises a broader issue than the procedural sufficiency of the service of process upon' American. Even if service had been made in the manner prescribed by the civil rules and the Washington statute, jurisdiction would not be vested in this court, unless the requirements of due process of the United States Constitution have been satisfied.
It fairly appears, without more extensive review of the authorities, that the minimum requirements necessary to satisfy due process, where the action is not based upon any activities of the foreign corporation within the forum state, are that there must be some substantial business activity carried on by such corporation within the state, and the activity must amount to more than casual, isolated, or disconnected transactions, or the mere presence in the state of a passive agent or agency of the corporation.
As has been pointed out, plaintiff’s action is based upon a breach of a joint venture agreement, not upon any business activity , of American within the state of Washington. The amended complaint states the conclusions that American “is doing business in the state of Washington” and that it has used its subsidiary, Washington Irrigation and Development Company as a “dummy” and instrumentality for the transaction of its business; but there is no specific allegation that American has performed any business act, or carried on any business activity in the state, either directly or through a subsidiary corporation. The only showing in the amended complaint of, any particular business activity carried on through the Washington Irrigation and Development Company consists of allegations to the. effect that General acquired lands near Priest Rapids, which it held, owned, and controlled through the Washington -Company as its dummy, and that General and Bond and Share applied for a permit to build a dam at Priest Rapids through the Washington corporation, as their agent and dummy. On the other hand, it appears from the affidavit of American’s president that, since November 25, 1946, American has been in the process of dissolution and has entered into no: commercial transactions in the state of Washington for the last several years. It seems clear that minimum due process requirements have not been met.
The motion of defendant American is granted.
. In re Electric Bond & Share Co. et al., 11 Securities and Exchange Commission Decisions and Reports, 1146; American Power and Light Co. v. Securities and Exchange Commission, 1 Cir., 141 F.2d 606; American Power and Light Co. v. Securities and Exchange Commission, 329 U.S. 90, 67 S.Ct. 133, 91 L.Ed. 103.
. For ease citations, see footnote 1.
. Fed.Rules Civ.Proc. rule 4(d) (3), 28 U.S.C.A.
. Fed.Rules Civ.Proc. rule 4(d) (7), 28 U.S.C.A.
. RCW 4.28.080(9).
. For other cases in which the rule has been applied, see annotation, 18 A.L.R. 2a187, 194.
. Another case factually similar to the case at bar, in which Cannon Mfg. Co. v. Cudahy was followed, is Lane v. Maple Leaf Milling Co., D.C., 87 F.Supp. 741.
. 18 A.L.R.2d 187,198.
. Dobson v. Farbenfabriken of Elberfeld Co., D.C., 206 F. 125. See also Hazeltine Corp. v. General Electric Corp., D. C., 19 F.Supp. 898, 903, and Industrial Research Corp. v. General Motors, D.C., 29 F.2d 623, 627. The case last cited is an example of an action against a par- . ent corporation for patent infringement by manufacture or sale of the patented device through controlled subsidiary corporations.
. See also First National Bank v. Walton, 146 Wash. 367, 262 P. 984; Briggs & Co. v. Harper Clay Products Co., 150 Wash. 235, 272 P. 962.
. American owns all of the capital stock of another domestic corporation, the Washington Water Power Company, which is not involved in the present action.
. Peoples’ Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587; Chipman, Ltd. v. Thomas B. Jeffery Co., 251 U.S. 373, 40 S.Ct. 172, 64 L.Ed. 314; Bomze v. Nardis Sportswear, 2 Cir., 165 F.2d 33, 35; Favell-Utley Realty Co. v. Harbor Plywood Corp., D.C., 94 F.Supp. 96, 98.