UNITED STATES v. SCOPHONY CORPORATION OF AMERICA ET AL.
No. 41
SUPREME COURT OF THE UNITED STATES
Argued January 12-13, 1948. Decided April 26, 1948.
333 U.S. 795
Edwin Foster Blair argued the cause and filed a brief for Scophony, Ltd., appellee.
MR. JUSTICE RUTLEDGE delivered the opinion of the Court.
The appellee Scophony, Limited is a British corporation which has its offices and principal place of business in London, England. The question is whether that company “transacted business” and was “found” within the Southern District of New York under § 12 of the Clayton Act,1 so that it could be sued and served there in a civil proceeding charging violation of §§ 1 and 2 of the Sherman Act.
Scophony manufactures and sells television apparatus and is the owner and licensor of inventions and patents covering television reception and transmission.4 With the outbreak of the European War in 1939, the British Broadcasting Corporation stopped television broadcasting. Consequently it became impossible for Scophony to continue in the commercial development, manufacture and sale of television equipment in England. It therefore sent personnel to the United States, opened an office in New York City, and began demonstrations of its product and other activities preliminary to establishing a manufacturing and selling business in this country.
Late in 1941 Scophony found itself in financial distress, in part because of restrictions imposed by the British Government on the export of currency. It became imperative that new capital from American sources be found for the enterprise. Accordingly, Arthur Levey, a director
The master agreement was executed by Scophony, William George Elcock, as mortgagee of all of Scophony‘s assets, General Precision, and Productions, the latter a wholly owned subsidiary of Paramount. It provided for the formation of a new Delaware corporation, American Scophony, with an authorized capital stock of 1,000 Class “A” shares and a like number of Class “B” shares. Scophony and individuals interested in it5 were to be given the Class “A” shares. Under the agreement, ownership of those shares conferred the right to elect three of American Scophony‘s five directors and its president, vice president and treasurer. The Class “B” shares were allotted to General Precision and Productions. By virtue of such ownership those two corporations were entitled to name the remaining two directors and the secretary and assistant secretary of American Scophony. Levey was named in the agreement as the president and a director of the new corporation.
The master agreement set forth the general desire of the parties to promote the utilization of the Scophony inventions “particularly in the United States of America
Pursuant to the master agreement‘s terms, the first supplemental agreement was executed by Scophony, Elcock, as mortgagee of its assets, and American Scophony; the other, by American Scophony, General Precision, and Productions. For present purposes it is necessary to set forth only the general effect of the agreements taken together. Scophony transferred to American Scophony not only all of its equipment in the United States, but also all patents and other interests in the Scophony inventions within the Western Hemisphere. General Precision and Productions were granted exclusive licenses under American Scophony‘s patents. They agreed to pay royalties on the products produced under the licenses and American Scophony undertook to transmit fifty per cent of such royalties to Scophony. American Scophony gave Scophony an exclusive sublicense for the Eastern Hemisphere on a royalty basis under all patents licensed to American Scophony by General Precision and Productions. Provision was also made for the interchange of technical data and information respecting the Scophony inventions. Finally, it was agreed that Scophony would not market any product involving the Scophony inven-
This rather complex plan soon fell of its own weight. Starting in 1943, an impasse developed in the affairs of American Scophony. It stemmed from the failure and unwillingness of General Precision and Productions to exploit the Scophony inventions themselves and their refusal to modify the agreements to permit the licensing of other American firms under the inventions. Several manufacturers expressed an interest in obtaining licenses. But in each instance the directors representing the American interests holding the Class “B” shares were unwilling to approve the necessary modifications in the existing arrangements. In July, 1945, the directors representing the “B” interests resigned. This made it impossible for American Scophony to transact business, since charter and by-law provisions adopted pursuant to the master and supplemental agreements required the presence of at least one Class “B” director for a quorum. Adding to the difficulties were American Scophony‘s shortage of funds and the apparent reluctance of the American interests to cooperate in efforts to place American Scophony on firmer financial footing. American Scophony‘s affairs were further complicated by the institution of the present antitrust proceeding on December 18, 1945.
Levey kept Scophony advised of developments in the dispute between the “A” and “B” factions and otherwise
On April 5, 1946, a summons and a copy of the complaint directed to Scophony were also served on Elcock in New York City. He was a dominant figure in Scophony. He arrived in this country in March, 1946, with the mission of investigating and ending the impasse and disposing of Scophony‘s interest in American Scophony. Elcock not only was mortgagee of Scophony‘s assets by virtue of having made a large loan to the company. He was also its financial comptroller and a member of its board. At the time of service on him, he held a comprehensive power of attorney, irrevocable until March, 1947, giving him complete power to act with regard to Scophony‘s interests in the United States, including those in American Scophony.9
The District Court, in granting the motion to quash service and dismiss the complaint as to Scophony, held
I.
Section 12 of the Clayton Act has two functions, first, to fix the venue for antitrust suits against corporations; second, to determine where process in such suits may be served. Venue may be had “not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business.” And all process may be served “in the district of which it is an inhabitant, or wherever it may be found.” (Emphasis added.)
A plain and literal reading of the section‘s words gives it deceptively simple appearance. The source of trouble lies in the use of verbs descriptive of the behavior of human beings to describe that of entities characterized by Chief Justice Marshall as “artificial, invisible, intangible, and existing only in contemplation of law.” Dartmouth College v. Woodward, 4 Wheat. 518, 636.10
The translation, or rather the necessity for it, permeates every significant word of § 12, not wholly excluding “or transacts business.” If the statutory slate were clean, one might readily conclude that the words “inhabitant” and “found” would have the same meaning for locating both
The statutory slate, however, is neither entirely new nor clean. Both legislative and judicial hands have written upon it. The writing is meandering, unclear in part, and partly erased. But it cannot be disregarded. What is legible must furnish guidance to decision. We deal here with a problem of statutory construction, not one of constitutional import.13 Nor do we have any question of the exercise of Congress’ power to its farthest limit. The issue is simply how far Congress meant to go, and specifically whether it intended to create venue and liability to service of process through the occurrence within a district of the kinds of acts done here on Scophony‘s behalf.
Section 12 of the Clayton Act is an enlargement of § 7 of the Sherman Anti-Trust Act. Eastman Co. v. Southern Photo Co., 273 U.S. 359. The earlier statute
We do not stop to review the decisions construing § 7 and similar statutes, cf. Suttle v. Reich Bros., 333 U.S. 163; see International Shoe Co. v. Washington, supra, at 317-319, except to refer to People‘s Tobacco Co. v. American Tobacco Co., 246 U.S. 79. There the foreign corporation was sued in a district in which it did not “reside.” Because the Court found that the company had withdrawn from the state in which the district was located and had revoked the authority of its principal agents there, it held that the defendant was not “found” in the district, although certain corporate activities continued.
The conventional rationalization applied equated “found” in sequence to “presence,” to “doing business by its agents there,” to “of a character warranting inference of subjection to the local jurisdiction.”14 The facts that the company continued to advertise its goods in the state and district, to make interstate sales to jobbers there, to send in drummers who solicited retail orders to be turned over to the jobbers, and finally to own stock in local subsidiaries, were held not to constitute the sort of “doing business” warranting the inference of subjection to the local jurisdiction for the statute‘s purposes. International Harvester Co. v. Kentucky, 234 U.S. 579, was narrowly distinguished. 246 U. S. at 87.
The argument was certainly plausible, but for the fact that it made the addition of “or transacts business” to “inhabitant” and “found” in § 12 redundant and meaningless. The Court refused to accept the argument, because doing so would have defeated the plain remedial purpose of § 12.16 That section was enacted, it held, to enlarge the jurisdiction given by § 7 of the Sherman Act
This construction gave the words “transacts business” a much broader meaning for establishing venue than the concept of “carrying on business” denoted by “found” under the preexisting statute and decisions. The scope of the addition was indicated by the statement “that a corporation is engaged in transacting business in a district . . . if in fact, in the ordinary and usual sense, it ‘transacts business’ therein of any substantial character.” Id. at 373. (Emphasis added.)
In other words, for venue purposes, the Court sloughed off the highly technical distinctions theretofore glossed upon “found” for filling that term with particularized meaning, or emptying it, under the translation of “carrying on business.” In their stead it substituted the practical and broader business conception of engaging in any substantial business operations. Cf. Frene v. Louisville Cement Co., 77 U. S. App. D. C. 129, 134 F. 2d 511; International Shoe Co. v. Washington, supra. Refinements such as previously were made under the “mere solicitation” and “solicitation plus” criteria, cf. Frene v. Louisville Cement Co., supra, and like those drawn, e. g., between the People‘s Tobacco and International Harvester cases, supra, were no longer determinative. The practical, everyday business or commercial concept of doing or carrying on business “of any substantial character” became the test of venue.
Thus, by substituting practical, business conceptions for the previous hair-splitting legal technicalities encrusted upon the “found“—“present“—“carrying-on-business” sequence, the Court yielded to and made effective Congress’ remedial purpose. Thereby it relieved persons injured through corporate violations of the antitrust laws from the “often insuperable obstacle” of resorting to distant forums for redress of wrongs done in the places of their business or residence. A foreign corporation no longer could come to a district, perpetrate there the injuries outlawed, and then by retreating or even without retreating19 to its headquarters defeat or delay the retribution due.
Nevertheless, for service of process § 12 had specified “the district of which it is an inhabitant, or wherever it may be found” without adding “or transacts business,” as was done in the venue clause. Accordingly the Court took account of this difference and went on to indicate that for purposes of liability to service the section merely carried forward the preexisting law, so that in some situations service in a district would not be valid, even though venue were clearly established under § 12.21
II.
In this case, however, we deal with a company incorporated outside the United States. But there can be no question of the existence of “jurisdiction,” in the sense of venue under § 12, over Scophony in the Southern District of New York. To say that on the facts presented Scophony transacted no business “of any substantial character” there during the period covered by institution of the suit and the times of serving process would be to disregard the practical, nontechnical, business standard supplied by “or transacts business” in the venue provision. It would be also to ignore the fact that Scophony then and there was carrying on largely, if not exclusively, the only business in which it could engage at the time.
Scophony‘s operations in New York were a continuous course of business before and throughout the period in question here. They consisted in strenuous efforts not simply to save an American “investment,” as is urged, but to salvage and resuscitate Scophony‘s whole enterprise from the disasters brought upon it by the war. As with
First was the phase of attempting to set up in this country as manufacturer and seller of television equipment. When that failed, the company turned to licensing and exploiting its patents by other means. This was done through the complicated arrangements for what practically if not also technically was a joint adventure with other companies. That project was carried out not merely through corporate forms and arrangements but by contracts binding the participating companies to the common enterprise, as well as the special medium of executing it, American Scophony. In this each corporate participant had its special functions, controls and restrictions created in part by share ownership in American Scophony, but also in important respects by contract both beyond the stock controls and dictating their character.22 Finally, as the affairs of the keystone of the structure,
This is a story of business in trouble, even desperate. We may have sympathy for the company‘s plight. But it does not follow that such continuing, intensive activities to save the business and put it on a normal course, even though shifting as they did in the successive winds that blew, did not constitute “transacting business” of “any substantial character.” Nor can we say that any of the major shifts in tacking toward the ultimate end stopped or interrupted the course of the company‘s business activity. At no time was the drive toward achieving its basic objects suspended.
Appellee would avoid this view and its consequences by taking an entirely different conception of what took place. It emphasizes that Scophony‘s corporate objects, as stated in its charter, were to manufacture and sell television equipment. Hence it concludes that when all New York activity directly pointing to that end ceased, and was followed by the phase of seeking to exploit the patents through the arrangements centering around American Scophony, the British company ceased to be engaged in promoting its corporate objects and thus in carrying on or doing business in New York for the relevant statutory purposes. From then on, it is claimed, Scophony became concerned solely with creating and protecting an “investment,” namely, in American Scophony‘s shares. Nor did Scophony resume the doing of business when that effort also failed and the final stage of seeking to break the impasse arrived, because manufacturing and sale of equipment were not revived.
To this view of the sequence of events appellee then seeks to apply this Court‘s decisions interpreting “found”
Obviously this view of the facts and of the determinative legal approach is at wide variance from the ones we have taken in dealing with the question of venue. But we do not find it necessary, in order to reject it for purposes of sustaining the service, to consider whether the process clause of § 12 should be given scope beyond that indicated by the Eastman dictum. For in any event we think that appellee and the District Court have misconceived the effects of the facts and of the decisions on which they rely, for determining the validity of the service in this case.
Certainly appellee‘s conclusionary premise cannot be accepted, that its sole authorized or actual business was manufacturing and selling equipment; or therefore the
The alternative one chosen was not a matter simply of licensing patents to others, for active exploitation by them. Nor was it only a casual act or acts of contracting. The whole framework of this phase of the New York activities was dictated by the master and supplemental agreements. These were not mere licensing arrangements, nor did they make Scophony nothing more than a shareholder for investment purposes, with only such a shareholder‘s voting rights and control in American Scophony. The contracts created controls in Scophony, and in the American interests as well, which taken in conjunction with the stock controls called for continuing exercise of supervision over and intervention in American Scophony‘s affairs.25 We need not decide whether, in view of the agreements’ continuing and pervasive effects, they could be considered as sufficing in themselves to make Scophony “found” within the New York district.26
That necessity was shown, among other ways, by the contractual provisions for interchange of data and information, and further by the fact that there was sustained interchange of correspondence between Levey and Scophony devoted to Scophony‘s affairs and interests in this country. Levey kept Scophony informed fully of all that went on here, and in turn received and carried out its instructions respecting American Scophony‘s affairs and its own.
In all this he was not acting merely as an officer of American Scophony. Rather he was also Scophony‘s director and representative, authorized to act in its behalf and interest. Indeed it was as Scophony‘s representative that he was named as president of American Scophony. His position was a dual one. He was not a mere shareholder‘s or investor‘s agent seeking information about that corporation‘s affairs for purposes of dealing with the stock. His functions and activities were much broader and related to Scophony‘s interests as much as to American Scophony‘s. Scophony‘s New York activities therefore were not confined to negotiation and execution of the agreements. Neither were they concerned only with mere stock ownership or “investment” as is urged, nor were they simply occasional acts of contracting, like those in the decisions appellee cites.
Moreover, other individuals carried on for Scophony in continuing efforts27 to resolve the impasse. Apart
Those efforts were not cessation of engaging in business. They were directed entirely to warding off that fate. Their object was not to liquidate, it was to resuscitate the business of Scophony and, as in all previous stages, put it on a normal course again. In doing all this, Scophony was engaging in business constantly and continuously, not retiring from it or interrupting it. Cf. Mutual Life Insurance Co. v. Spratley, 172 U.S. 602; Pennsylvania Lumbermen‘s Insurance Co. v. Meyer, 197 U.S. 407; St. Louis S. W. R. Co. v. Alexander, 227 U.S. 218. The interruptions were only in particular phases of its authorized adventure, not in the continuity, intensity or totality of the adventure itself.
In sum, we have no such situation as was presented in the manufacturing and selling cases on which appellee relies. They concerned entirely different facts and enterprises. In none was there a shifting from a course of business in pursuit of one corporate object or objects, viz., manufacturing and selling, to another continuing mode of achieving a basic corporate objective, namely, the exploiting of patents by complex working arrangements partaking practically of the character of a common enterprise with others and requiring constant supervision and intervention beyond normal exercise of shareholders’ rights by the participating companies’ representatives qua such.
For present purposes those decisions may be left untouched for the facts and situations in which they have arisen and to which they have been applied. But there could be no valid object in expanding their pulverizing approach to situations as different and distinct as this one, comprehended within neither their rulings nor their effects. More especially would such an extension be inappropriate, when it is recalled that § 12 governs venue and service in antitrust suits against corporations. For, in cases against companies incorporated outside the United States, that extension would bring back all the obstacles to enforcement of antitrust policies and remedies which existed for domestic corporations before § 12 was enacted to give relief from those obstacles. Even though venue were clearly established, as here, the extension often would make valid service impossible, since process could not be issued to run for such corporations to the foreign countries of which they are “inhabitants.” We are unwilling to construe § 12 in a manner to bring back the evils it abolished, for situations not foreclosed by prior decisions, and thus to defeat its policy together with that of the antitrust laws, so as to make another amendment necessary.
It remains only to say that we do not stop to consider whether, as is argued, Levey‘s authority to act for Scophony had expired or been revoked at the time service was made by delivery of process to him. For when service was made by delivery to Elcock, he had unrevoked and irrevocable authority to act in Scophony‘s behalf in the New York district, and that service was valid to confer personal jurisdiction over Scophony.
Accordingly, the judgment is reversed and the cause is remanded to the District Court for further proceedings in conformity with this opinion.
Reversed and remanded.
MR. JUSTICE JACKSON concurs in the result.
MR. JUSTICE FRANKFURTER, concurring.
I deem it appropriate to state why I concur merely in the Court‘s result.
The only question in this case is whether Scophony Limited, a British corporation, which has its offices and principal place of business in London, may be made a party defendant in a suit by the United States for violation of the Sherman Law pending in the Southern District of New York. The corporation may be brought into court in that District if its activities there satisfy the requirements of § 12 of the Clayton Act. According to
Whether a corporation “transacts business” in a particular district is a question of fact in its ordinary untechnical meaning. The answer turns on an appraisal of the unique circumstances of a particular situation. And a corporation can be “found” anywhere, whenever the needs of law make it appropriate to attribute location to a corporation, only if activities on its behalf that are more than episodic are carried on by its agents in a particular place. This again presents a question of fact turning on the unique circumstances of a particular situation, to be ascertained as such questions of fact are every day decided by judges.
What was done in the Southern District of New York on behalf of Scophony Limited, as detailed in the Court‘s opinion, establishes that the corporation was there transacting business and was found there in the only sense in which a corporation ever “transacts business” or is “found.” Accordingly, Scophony Limited was amenable to suit and service in the District within the requirements of § 12 of the Clayton Act.
To reach this result, however, I do not find it necessary to open up difficult and subtle problems regarding the law‘s attitude toward corporations. I abstain from joining the Court‘s opinion not because I am in disagreement with what is said but because I am not prepared to agree. And I am not prepared to agree because I do not wish to forecast, which agreement would entail, the bearing of the Court‘s discussion upon situations not now before us but as to which such theoretical discussion is bound to be influential. Law, no doubt, is concerned with “practical and substantial rights, not to maintain theories.”
From earliest times the law has enforced rights and exacted liabilities by utilizing a corporate concept—by recognizing, that is, juristic persons other than human beings. The theories by which this mode of legal operation has developed, has been justified, qualified, and defined are the subject-matter of a very sizable library. The historic roots of a particular society, economic pressures, philosophic notions, all have had their share in the law‘s response to the ways of men in carrying on their affairs through what is now the familiar device of the corporation. Law has also responded to religious needs in recognizing juristic persons other than human beings. Thus, in the Hindu law an idol has standing in court to enforce its rights. See, e. g., Pramatha Nath Mullick v. Pradyumna Kumar Mullick, 52 L. R. I. A. 245 (1925). Attribution of legal rights and duties to a juristic person other than man is necessarily a metaphorical process. And none the worse for it. No doubt, “metaphors in law are to be narrowly watched,” Cardozo, J., in Berkey v. Third Avenue R. Co., 244 N. Y. 84, 94. But all instruments of thought should be narrowly watched lest they be abused and fail in their service to reason.