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finding financial dependence factor not satisfied where initial investment derived from parent but subsidiary had financially independent operations and received no day-to-day financing
Summary of this case from Am. Lecithin Co. v. RebmannOpinion
99-CV-0312E(F)
August 11, 2000
ATTORNEYS FOR THE PLAINTIFF: Jeffrey J. Signor, Esq., c/o Moriarty Dee, 1109 Delaware Ave., Buffalo, N.Y. 14209.
ATTORNEYS FOR THE DEFENDANT: Charles S. Desmond II, Esq., c/o Gibson, McAskill Crosby, Suite 900, Chemical Bank Bldg., 69 Delaware Ave., Buffalo, N.Y. 14202-3866 and Frank C. Morris, Jr., Esq., and Brian Steinbach, Esq., c/o Epstein Becker Green, PC, 1227 25th St., NW, Suite 700, Washington, D.C. 20037.
MEMORANDUM and ORDER
Plaintiff seeks damages under Title I of the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq., and Title I of the Civil Rights Act of 1991, as codified at 42 U.S.C. § 1981, resulting from her discharge as a post-press operator. She has sued defendants Ashton-Potter (USA), Ltd. ("Ashton-Potter") and MDC Corporation, Inc. ("MDC"). Subject matter jurisdiction is purported to lie "pursuant to 28 U.S.C. § 451, 1331, 1337 and 1343." Compl. ¶ 2. Presently before this Court is MDC's motion to dismiss all claims against it, pursuant to Rule 12(b)(2) and Rule 12(b)(5) of the Federal Rules of Civil Procedure ("FRCvP"). Such motion will be granted in its entirety.
Captioned above as Ashton Potter.
Captioned above as MDC Communications Corporation.
Ashton-Potter is a Delaware corporation doing business in the State of New York. Switzer Decl. ¶¶ 2-3. MDC is a Canadian corporation which wholly owns Ashton-Potter. Lewis Decl. ¶¶ 2, 7. Plaintiff, who has been diagnosed with breast cancer, was employed by Ashton-Potter as a post-press operator prior to her termination.
MDC first moves for dismissal on the grounds that there has been insufficient service of process pursuant to FRCvP 12(b)(5). A copy of the summons and complaint had been left with one Krista Domsic, a receptionist for MDC at its corporate office in Toronto, Ontario, Canada. Cancilla Aff. of Serv. ¶ 2. According to FRCvP 4(h) and (4)(f)(1), service upon a corporation in a foreign country is to be effected using internationally agreed means reasonably calculated to give notice. Inasmuch as the United States and Canada are both signatories to the Convention on Service Abroad of Judicial and Extrajudicial Documents in Civil and Commerical Matters, Nov. 15, 1965 ("Hague Convention"), [1969] 20 U.S.T. 361, T.I.A.S. No. 6638, the terms which govern such cross-border service of process are set forth thereunder. See Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699 (1988). The Hague Convention requires service through a "Central Authority" or by other means if the "State of destination does not object." Hague Convention, arts. 2 and 10. To determine whether the destination country objects to a particular form of service, courts have looked to the service laws of that country to determine whether the employed method of service would be valid therein. See, e.g., Chowaniec v. Heyl Truck Lines, No. 90 C 07034, 1991 WL 111156, at *2-3 (N.D.Ill. June 17, 1991) (discussing service by mail to Canada); In re Hunt's Pier Associates, 156 B.R. 464, 470 (Bankr.ED.Pa. 1993) (applying law of the Province of Ontario).
Service effected upon a foreign corporation "shall be effected" in any of the manners prescribed for individuals under FRCvP 4(f), except for personal service as provided in FRCvP 4(f)(2)(C)(i).
The federal system of Canada requires examining the law of the Province of Ontario. The relevant rule provides that service on a corporation is made "by leaving a copy of the document with an officer, director, or agent of the corporation, or with a person at any place of business of the corporation who appears to be in control or management of the business." Ontario Rule of Civil Procedure 16.02(c). The instant Complaint was served on MDC's receptionist with the concomitant affidavit of service stating only that she is an adult able to accept documents on behalf of MDC. Cancilla Aff. of Serv. ¶ 2. Plaintiff has not alleged that the receptionist was an "officer, director or agent" of MDC or that the receptionist appeared to be in control of or part of the management of the business. Moreover, Ontario law does not allow an individual to become an agent of a corporation simply by stating that she can accept service. In short, plaintiff has not rebutted — or even addressed — MDC's assertion that any such service under Ontario law on a secretary would have been improper and the present record indicates that the demands of service under Ontario law have simply not been met. See, e.g., Twin City Mechanical v. Chicapee Park Centre Ltd., [1991] 47 C.L.R. 4 (Ont. Gen. Div.). Consequently, inasmuch as the requirements of Ontario law have not been met, the Hague Convention, a priori, has not been satisfied in the instant case.
Plaintiff argues that the Hague Convention does not apply in this case because our Supreme Court has held that a foreign corporation may be served by serving a domestic subsidiary that is the corporation s involuntary agent for service under state law and, inasmuch as Ashton-Potter is deemed a citizen of New York for diversity purposes, New York provides the pertinent standards. See Schlunk, at 708. The first problem with this argument is that such service was not directed to Ashton-Potter, even though the Complaint shows that MDC was a named co-defendant. The second problem with plaintiff's argument is that Ashton-Potter cannot act as MDC's involuntary agent pursuant to New York Business Corporation Law § 307. See, e.g., Stewart v. Volkswagen of America, Inc., 584 N.Y.S.2d 886 (App.Div.2d Dep't 1992) (holding that service upon subsidiary was proper inasmuch as it was made on an involuntary agent, so that the Hague Convention was inapplicable), rev'd on other grounds, 81 N.Y.2d 203 (1993). Mere ownership is insufficient to create an agency relationship. See Turick v. Yamaha Motor Corp., USA, 121 F.R.D. 32, 33 (S.D.N.Y. 1988). Plaintiff bears the burden of establishing the validity of service of process. See Rich Products Corp. v. Floveyor Int'l, Ltd., No. 94-CV-0551E(M), 1995 WL 591134, at *2 (W.D.N.Y. Sept. 14, 1995). Under New York law, the decisive test of whether an in-state representative is acting as a non-resident's agent is whether the New York representative provides services that are sufficiently important to the foreign corporation that its own officials would perform them if the corporation did not have a representative within the jurisdiction. See Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116, 120-121 (2d Cir. 1967) (citing Frummer v. Hilton Hotels Int'l, Inc., 19 N.Y.2d 533, 537 (1967)). In the instant case, MDC is in the business of investing in a variety of corporate acquisitions and owns Ashton-Potter as well as other entities. Lewis Decl. ¶ 2. Ashton-Potter is engaged in the business of security and specialty printing. Switzer Decl. ¶ 2. Inasmuch as MDC is not directly involved in such business of its subsidiary, it cannot be said that MDC would have its own officials perform services within New York absent the existence of Ashton-Potter. Under the Gelfand test, Ashton-Potter is not a representative of MDC such that it could be an involuntary agent to receive process for MDC. To satisfy her burden of establishing an agency relationship between MDC and Ashton-Potter, plaintiff must make more than an unsupported conclusory statement. See Turick, at 34. Therefore the service of process requirements mandated by the Hague Convention through FRCvP 4(f) apply in this case and plaintiff's attempt to serve MDC was insufficient.
Plaintiff's Mem. at 10.
Plaintiff's motion for leave to re-serve jf the Hague Convention is applicable to this case is denied because, as will be discussed, MDC is not subject to personal jurisdiction in this Court.
Even if process had been properly served on MDC, plaintiff has not made a prima facie showing that MDC is subject to personal jurisdiction in New York or anywhere else in the United States. Unless federal law provides for national service of process, a federal court is to apply the forum state's laws to determine whether it has personal jurisdiction over a defendant. See Mareno v. Rowe, 910 F.2d 1043, 1046 (2d Cir. 1990). Inasmuch as the parties have not conducted discovery on the issue of personal jurisdiction, plaintiff need only make a prima facie showing that MDC is subject to personal jurisdiction in New York. Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181 (2d Cir. 1998); Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 196-197 (2d Cir. 1990). For purposes of this motion, the pleadings and affidavits are construed in the light most favorable to, and any ambiguity is resolved in favor of, the plaintiff. Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985); Roberts-Gordon, LLC v. Superior Radiant Products, 85 F. Supp.2d 202, 208 (W.D.N.Y. 2000).
Plaintiff urges this Court to find that MDC is subject to personal jurisdiction pursuant to either section 301 or section 302 of New York's Civil Practice Law and Rules ("CPLR"). CPLR 301 confers general jurisdiction over a foreign corporation — i.e., a corporation neither licensed to do business nor incorporated in New York — that does business within the state, not occasionally or casually, but regularly, continuously and systematically and thereby demonstrates a sufficiently fair measure of permanence to warrant a finding of constructive presence within New York. Landoil Resources v. Alexander Alexander Serv., 918 F.2d 1039, 1043 (2d Cir. 1990); Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 266-267 (1917). Having contacts with New York such as "bank accounts, employees, ownership of leases on real property, public relations and publicity work, or sales within the state, constitutes the requisite level of conduct to justify a New York court's exercise of jurisdiction over a defendant." U.S. v. International Broth. of Teamsters, 945 F. Supp. 609, 619 (S.D.N.Y. 1998) (citing Vendetti v. Fiat Auto S.p.A., 802 F. Supp. 886, 890 (W.D.N.Y. 1992), and Laufer v. Ostrow, 55 N.Y.2d 305 (1982)).
MDC does not engage directly in any business in the United States. Lewis Decl. ¶ 15. It maintains no office, telephone listing, mailing address, real property, or bank account in New York. Id. ¶ 17. MDC has no involvement in the labor and employment practices of its subsidiary. Id. ¶ 19. In addition to ownership of Ashton-Potter, MDC is an indirect majority shareholder in "Margeotes/Fertitta + Partners, LLC" which is located in New York. Campbell Decl. ¶ 3. MDC is also a fifty-percent shareholder in Strategies International, a Canadian corporation. Strategies International, in turn, has a wholly owned subsidiary, Strategies International America, Inc., a Delaware corporation with an office in New York. Id. ¶ 4. MDC's control over these corporations is limited in that they are financially independent operations that receive no financing (after an initial investment) from MDC, are not controlled by MDC on a day-today basis and MDC has no direct involvement in the selection of their executive personnel other than, in some cases, their presidents. Id. ¶¶ 4-5.
If a parent company and its subsidiary are acting as a single entity, the parent may be subject to personal jurisdiction within the subsidiary's state based upon the subsidiary's actions. In such situation, the subsidiary is said to be acting as a "mere department" of the parent company. Four factors are relevant to this Court's analysis. The first factor — common ownership — is essential to finding a subsidiary to be a "mere department." See Knapp v. Consolidated Rail Corp., No. 89-CV-1034S, 1992 WL 170891, at *3 (W.D.N.Y. July 7, 1992) (citing Volkswagenwerk Aktiengesellschaft v. Beech Aircft., 751 F.2d 117 (2d Cir. 1984)). Inasmuch as Ashton-Potter is wholly owned by MDC, this factor is satisfied. The second factor is financial dependency of Ashton-Potter on MDC. Examples of situations in which financial dependency has been found are no-interest loans, control of finances of subsidiary by parent and financing of inventory by parent. In the instant case, MDC provided only initial financing to Ashton-Potter, not day-to-day or annual financing. Campbell Decl. ¶ 2. Plaintiff argues that Ashton-Potter is dependent upon MDC because Ashton-Potter's assets and liabilities are carried on the books of MDC. Plaintiff's Mem. Ex. B at 25-27. However the Second Circuit Court of Appeals has held that generally accepted accounting principles require parent corporations to consolidate financial statements if the parent owns more than fifty percent of the subsidiary's stock, so consolidation of financial statements is non-dispositive. Beech Aircrft., at 121 n. 3. Plaintiff also points to a statement on MDC's World Wide Web pages that its strategy is to provide management support and capital to help business to achieve growth. Plaintiff's Mem. Ex. B at 11. The evidence shows only that MDC provided initial financing to Ashton-Potter and not that the subsidiary is dependent upon MDC for financial support. Accordingly, the Court finds that the plaintiff has not met her burden re the financial-dependency factor of the test. The third factor is the degree of interference in the selection of the subsidiary's executive personnel and the extent of disregard for corporate formalities. In the instant case, MDC directly controls the selection of the president of Ashton-Potter, but of no other executive personnel. Lewis Decl. ¶ 11; Switzer Decl. ¶ 9. There is also some overlap in the corporate boards of directors — viz., half of the officers of Ashton-Potter are also directors or officers of MDC. Switzer Decl. ¶ 7. Having common directors and officers is a normal business practice of a multi-national corporation and absent complete control there is "no justification to labeling a subsidiary a 'mere department' of the parent." Vendetti, at 895; see also Saraceno v. S.C. Johnson and Son, Inc., 83 F.R.D. 65, 71 (S.D.N.Y. 1979) (holding that a multinational parent corporation may make broad policy decisions for a subsidiary without the subsidiary being found to be a "mere department"). Plaintiff again points to the statement on the MDC World Wide Web pages that it provides "management support" for businesses such as Ashton-Potter. Plaintiff's Mem. Ex. B at 11. Officers of each entity have declared that Ashton-Potter observes its own corporate formalities. Lewis Decl. ¶ 8; Switzer Decl. ¶ 6. Accordingly, while MDC may have some influence over decisions made by Ashton-Potter, plaintiff has not shown that this control rises to such a degree as would suggest that the latter is a "mere department" of the former. The fourth factor is the degree of control over marketing and operational policies of the subsidiary. See, e.g., Taca Int'l Airlines, S.A., at 100-102 (parent provided training for subsidiary employees, published sales literature, set prices and issued warranties). Plaintiff relies again on the MDC World Wide Web pages, on which Ashton-Potter is listed as one of the operating units or divisions of MDC. Plaintiff's Mem. Ex. B at 6 and 12. The World Wide Web pages also refer to providing management support for acquired businesses. Id. at 6. The reference on the World Wide Web pages to the Maxxcom division as being within MDC — id. at 28 — does not affect the status of Ashton-Potter. These statements do not show that Ashton-Potter is a "mere department" of MDC. Again, MDC provided only initial capital to Ashton-Potter and not day-to-day or annual financing. Lewis Decl. ¶ 9. MDC does not have day-to-day control over marketing or operational policies of Ashton-Potter. Id. ¶ 12. Directly relevant to the underlying issues of the case, MDC is not generally involved in labor and employment policies of Ashton-Potter and had no involvement in the hiring or termination of the plaintiff. Id. ¶¶ 19, 21. This facet of the test is a question of degree and the control of MDC is limited. Upon weighing these four factors, this Court finds that Ashton-Potter is not a "mere department" of MDC under New York law such that MDC could be subject to personal jurisdiction in New York under CPLR 301.
Boryk v. deHavilland Aircraft Co., 341 F.2d 666, 668 (2d Cir. 1965).
Public Administrator v. Royal Bank, 19 N.Y.2d 127, 131 (1967).
Taca Int'l Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 N.Y.2d 97, 100 (1965).
Plaintiff also argues that there is personal jurisdiction under CPLR 302, New York's "long arm" statute. A court may exercise personal jurisdiction under CPLR 302(a) over a non-domiciliary that in person or through an agent
"(1) transacts any business within the state or contracts anywhere to supply goods or services in the state; or (2) commits a tortious act within the state . . .; or (3) commits a tortious act without the state causing injury to person or property within the state . . . if [it] (i) regularly does or solicits, or engages in any other persistent source of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial income revenue from interstate or international commerce; or (4) owns, uses, or possesses any real property situated within the state.
A defendant that is not found to be constructively present such that it is subject to personal jurisdiction pursuant to CPLR 301 may still be sued in New York pursuant to CPLR 302(a)(1) on a lesser showing of contacts if the cause of action arises from those particular contacts. See Beacon Enterprises, Inc. v. Menzies, 715 F.2d 757, 763 (2d Cir. 1983); Kirkpatrick v. Rays Group, 71 F. Supp.2d 204, 220 (W.D.N.Y. 1999). A single transaction is sufficient to confer jurisdiction over a foreign defendant pursuant to CPLR 302(a)(1) as long as such defendant's activities were purposeful and there is a substantial nexus between the activities and the claim. See Agency Rent A Car System v. Grand Rent A Car Corp., 98 F.3d 25, 31 (2d Cir. 1996).
MDC neither transacts nor contracts to supply goods and services in New York. As mentioned above, MDC has no involvement in the employment or hiring practices of Ashton-Potter. Lewis Decl. ¶¶ 19, 21. Further, communications from another locale ( e.g., Ontario) with a party in New York will not establish CPLR 302(a)(1) jurisdiction. See Beacon Enterprises, Inc., at 766. In such a situation, the parent company could not be said to have "purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." George Reiner and Co. v. Schwartz, 41 N.Y.2d 648, 651 (1977) (citing Hanson v. Denckla, 357 U.S. 235, 253 (1958)).
Inasmuch as MDC had no involvement in the employment practices of Ashton-Potter — either in general or in this specific case —, there could not have been a tortious act within New York that would create personal jurisdiction pursuant to CPLR 302(a)(2). Even if a tortious act had occurred outside of New York, MDC would not be subject to personal jurisdiction pursuant to CPLR 302(a)(3), inasmuch as it does not conduct business within New York and does not derive substantial revenue from interstate or international commerce. There is no personal jurisdiction pursuant to CPLR 302(a)(4) because MDC does not use or possess any real property within New York. Lewis Decl. ¶ 17. Therefore MDC is not subject to personal jurisdiction pursuant to CPLR 302.
Even if MDC is not subject to personal jurisdiction under New York law, it could be subject to personal jurisdiction under FRCvP 4(k)(2) if the Court finds that the case arises under federal law and is not pending pursuant to diversity jurisdiction. See, e.g., International Broth. of Teamsters, at 617. Inasmuch as this lawsuit is based upon the Americans with Disabilities Act and the Civil Rights Act of 1991, FRCvP 4(k)(2) analysis is required because this matter is based upon federal question jurisdiction rather than diversity jurisdiction. Compl. ¶ 1. Consequently, this Court must examine the plaintiff's allegations to ascertain whether she has demonstrated that MDC has sufficient contacts with the United States to comport with constitutional requirements of due process under the Fifth Amendment. See, e.g., Roberts-Gordon, LLC, at 217. The exercise of personal jurisdiction is constitutionally permissible over a defendant in any State with which the defendant has "certain minimum contacts . . . such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Calder v. Jones, 465 U.S. 783, 788 (1984) (citations omitted). In determining whether minimum contacts exist, this Court must consider "the relationship among the defendant, the forum, and the litigation." Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984) (citing Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). To find personal jurisdiction if the entity is not present within the jurisdiction, it is essential "that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958). The actions taken by a foreign corporation that could satisfy the minimum contacts requirement are (1) doing business in the United States, (2) doing an act in the United States or (3) causing an effect in the United States through an act done elsewhere. See Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1340 (2d Cir. 1972) (citing Restatement (Second) of Conflict of Laws, § 27 et. seq.).
FRCvP 4(k)(2) states, in relevant part: "[i]f the exercise of jurisdiction is consistent with the Constitution and the laws of the United States, serving a summons . . . is also effective, with respect to claims arising under federal law, to establish personal jurisdiction over . . . any defendant who is not subject to the courts of general jurisdiction of any state."
As discussed above, Ashton-Potter and similar subsidiaries are separate corporations, not departments or divisions within MDC. MDC does not business in the United States to the extent that it could be said to avail itself purposefully of the benefits and protections of United States laws. Plaintiff apparently argues that MDC is subject to "general jurisdiction" based upon the totality of its contacts with the United States. Plaintiff's Mem. at 8-9. A finding of general jurisdiction requires that there are "continuous and systematic general business contacts" between the defendant and the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415 (1984). MDC invests in and owns several corporations within the United States but does not directly operate any of such entities. Lewis Decl. ¶ 2. MDC is not registered or licensed to do business in the United States. Id. ¶ 16. The benefits, protections and responsibilities of doing business in the United States attach to the subsidiaries such as Ashton-Potter rather than to the parent company, MDC. MDC has no involvement in Ashton-Potter's labor and employment policies. Id. ¶ 18. MDC's limited contacts with the United States do not subject it to general jurisdiction in the United States. To subject MDC to suit in the United States for the actions of Ashton-Potter would offend traditional notions of fair play and substantial justice and therefore personal jurisdiction over MDC is inconsistent with the Due Process Clause of the Fifth Amendment.
Plaintiff has not alleged that a specific act of MDC, either within or without the United States, subjects MDC to personal jurisdiction in the United States. MDC has never employed plaintiff and had no involvement in Ashton-Potter's hiring, disciplining or terminating plaintiff. Lewis Decl. ¶¶ 20-21. There is no allegation that supports a finding of" specific jurisdiction" such that MDC is subject to personal jurisdiction. Therefore defendant MDC is not subject to personal jurisdiction under FRCvP 4(k)(2).
"Specific jurisdiction" refers to when the court exercises jurisdiction in a suit arising out of or related to the defendant's contacts with the forum. See Hall, at 414 n. 8.
Accordingly, it is hereby ORDERED that MDC's motion to dismiss this action in its entirety is granted and that defendant MDC is dismissed from the case.