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FIRST NATL. BANK OF MEADVILLE v. NIAGARA THERAPY M

May 11, 1964

FIRST NATIONAL BANK OF MEADVILLE, PENNSYLVANIA, Executor of the Estate of Kenneth W. Rice, deceased, Plaintiff,
v.
NIAGARA THERAPY MANUFACTURING CORPORATION, Defendant



The opinion of the court was delivered by: WILLSON

The plaintiff in this case is the First National Bank of Meadville, Pennsylvania, Executor under the will of Kenneth W. Rice, deceased. Mr. Rice was killed in an airplane accident at the Port Erie Airport on January 22, 1962. The complaint was filed on January 7, 1963. Plaintiff seeks damages from the defendant, Niagara Therapy Manufacturing Corporation, under the diversity jurisdiction of the Court. Defendant filed a responsive answer on February 13, 1963. Thereafter on June 24, 1963, defendant filed a motion in which it sought summary judgment alleging that the Court lacked jurisdiction because the principal place of business of defendant is at Adamsville, Crawford County, Pennsylvania, in this district, and as the plaintiff is a banking institution in the City of Meadville, also in this district, no jurisdiction exists under the diversity statute as amended 28 U.S.C.A. § 1332. That statute, of course, provides that a corporation shall be deemed a citizen in any state in which it has been incorporated, and the state in which it has its principal place of business. It is not controverted that the defendant is a Delaware corporation. The parties agreed, and the Court directed that the issue as to defendant's principal place of business be first tried. As trial judge, I heard testimony on this issue on July 22 and 23, 1963, at Erie. After hearing the evidence I orally stated to counsel that I was convinced that the principal place of business of the defendant corporation was not in Pennsylvania, and that the motion would be dismissed, and the case would thereafter be tried on the merits. The case, therefore, came on for trial on the merits on February 10, 1964, and continued for some five trial days. At the conclusion of the trial on the merits, counsel were orally informed that judgment would be entered for the plaintiff on the issue of liability, but the amount of damages would await the filing of briefs and arguments. Briefs have now been filed and the parties heard. The three issues to be covered in this Opinion are therefore those relating to jurisdiction, liability, and damages.

JURISDICTION

 Defendant was incorporated under the laws of the State of Delaware in 1952 to manufacture massage devices. Manufacturing plants were located in New York and in North Carolina. On January 1, 1962, a merger of defendant's two sales companies, Niagara Distributing Corporation and Niagara Western, Inc., into the Niagara Therapy Manufacturing Corporation became effective. Subsequently the North Carolina plant was closed, and all of defendant's manufacturing activities were being carried on in Brocton, New York, at the time suit was filed on January 7, 1963.

 While it is clear that defendant's manufacturing is centered in New York, defendant's products are sold by franchised distributors throughout the United States except for eight company-owned stores, one of which is situate in Pennsylvania. From the standpoint of sales, the genius behind the distribution of defendant's products is Mr. Owen K. Murphy, defendant's founder and majority stockholder. In his capacity as National Sales Manager and Director, most of his time is devoted to flying to various places throughout the country promoting the sale of defendant's products. The center of Mr. Murphy's sales activities is located at an estate-type executive headquarters at Stuart, Florida.

 The New York activities increased after the merger. Several months later all the books of original entry, including the sales books, of the corporation were moved from Adamsville, Pennsylvania, to its Brocton, New York, office and plant. The accounting and credit departments with their personnel and all accounting records and machines were also transferred from Pennsylvania to New York. Since the merger the defendant spends 40 per cent of its gross income in its New York operations. About two-thirds of its total employees work at the Brocton plant and offices. Since January 1, 1962, R. A. Morrison, Vice President in Charge of Manufacturing and Secretary-Treasurer of the corporation, has maintained his offices there.

 The dominating personality in the defendant's business is unquestionably its President, Mr. Murphy. It is the type of business in which sales promotion must be continually carried on. That function is almost entirely assumed by Mr. Murphy. From the evidence it is somewhat difficult to say exactly where most of his time is spent. But if one was required to state with preciseness the headquarters of the sales activity that point would be Stuart, Florida. Also, most of the Board of Directors Meetings have been held at Stuart, and annual outings or sales meetings of the franchised dealers are held there.

 We, thus, have a situation in which there are two fixed places or headquarters of the business; manufacturing in the State of New York, and sales promotion in the State of Florida. The activity in Pennsylvania including sales promotion from the Adamsville Office is minimal at best. Under the statute if the principal place of business of the defendant is in Pennsylvania then there is no diversity because unquestionably the plaintiff is a Pennsylvania institution. But clearly under the evidence the State of Pennsylvania is not the state of the principal place of business of the defendant. I have considered this evidence in the light of all the factors set forth by Judge Goodrich in Kelly v. United States Steel Corporation, 284 F.2d 850 (3d Cir. 1950), a case in which I was the trial judge. See also the recent case of Egan v. American Airlines, Inc., 324 F.2d 565 (2 Cir., 1963). In the instant case the evidence and the law requires a denial of the Motion To Dismiss because of lack of diversity of citizenship. Counsel at the suggestion of the Court have presented detailed Findings of Fact and Conclusions on this issue, and they are adopted because they are supported by a fair preponderance of the evidence.

 I have read the admonition of the Supreme Court in the case of United States v. El Paso Natural Gas Company, 84 S. Ct. 1044, 1964, with regard to a trial judge's accepting findings submitted by counsel. Although I accept counsel's Findings and Conclusions, I independently came to my conclusion reached here during the course of the trial on this issue held on July 22 and 23, 1963, at Erie.

 1. The plaintiff executor is a national bank created under the laws of the United States, engaged in the banking business in the City of Meadville, Pennsylvania, is the duly appointed executor of the Estate of Kenneth W. Rice, deceased, and is a citizen of the Commonwealth of Pennsylvania.

 2. Defendant is a corporation incorporated under the laws of the State of Delaware, and from the time of its incorporation on January 7, 1952, it has engaged in its principal business activity of manufacturing equipment entirely within the State of New York and elsewhere than Pennsylvania.

 3. The defendant corporation was not authorized to do business in the Commonwealth of Pennsylvania until July 5, 1957.

 4. Prior to the merger of the defendant corporation with the two affiliated corporations, known as Niagara Distributing Corporation and Niagara Western Corporation, both incorporated in the State of Delaware, the defendant manufactured the same type of products in the State of North Carolina, as well as at its principal plant in Brocton, New York.

 5. For the year 1960, the defendant's New York corporate tax returns disclosed that 63 per cent of its average value of tangible property, 94 per cent of its gross receipts, and 83 per cent of its wages were allocated to New York, or an average of 82 per cent. The 1960 corporate tax return filed in the Commonwealth of Pennsylvania for the same year disclosed 9.7351 per cent of its tangible property, .2471 per cent of its gross receipts, and none of its wages assigned to Pennsylvania, or an average of 3.3274 per cent (Plaintiff's Exhibits Nos. 32 and 35).

 6. For the year 1961, defendant's New York corporate returns showed 54.7 per cent of its value of tangible property, 51.9 per cent of its gross receipts and 99.3 per cent of its wages assignable to New York, or an average of 66.8 per cent. The defendant's Pennsylvania tax returns for 1961 disclosed that it had assigned 11.7298 per cent of its tangible property, .6643 per cent of its gross receipts, and none of its wages to Pennsylvania, or an average of 4.1314 per cent (Plaintiff's Exhibits Nos. 33 and 36).

 7. For the year 1962, the defendant's New York corporate returns disclosed that 40 per cent of its tangible property, 41.3 per cent of its gross receipts, and 47 per cent of its wages were allocated to New York, or an average of 42.8 per cent. In its tax returns for the same year in Pennsylvania, the defendant assigned 16.9946 per cent of its tangible property, 4.1538 per cent of its gross receipts and 37.3013 per ...


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