qualified as a foreign corporation in Pennsylvania, and has not consented to the jurisdiction of Pennsylvania courts (Lunn affidavit, paragraph 4). According to defendants' assertion on pages 23 and 24 of their Memorandum in Support of the Motion to Dismiss, this is also true of Babcock.
The critical issue for this court's consideration is whether Babcock and Babcock International have carried on a continuous and systematic business in Pennsylvania through their relationship with Acco such that they are subject to the jurisdiction of this court. However, because plaintiff has petitioned for an opportunity to conduct discovery on this issue, the court will also address the question of whether plaintiff should be given leave to do so prior to disposition of defendants' motion.
A. Personal Jurisdiction
It is an established principle of law that even though a parent corporation is not located in or personally doing business in a state, the parent may be subject to the jurisdiction of that state if a subsidiary located therein is deemed to be merely an "alter ego" of the parent. Indian Coffee Corp. v. Procter and Gamble Co., 482 F. Supp. 1098, 1104 (W.D. Pa. 1980). The question of whether a non-resident parent corporation is subject to the jurisdiction of a state via the presence in that state of a subsidiary was addressed by the Supreme Court in Cannon Manufacturing Company v. Cudahy Co., 267 U.S. 333, 45 S. Ct. 250, 69 L. Ed. 634 (1925). In that case, a North Carolina corporation brought an action against an Alabama corporation which had an office in North Carolina. Because the Alabama corporation was wholly owned by a Maine corporation, the plaintiff also made the Maine corporation a defendant. The Maine corporation did not have offices in North Carolina and therefore objected that the federal court in North Carolina did not have personal jurisdiction over it.
The Court found as a factual matter, that the Maine corporation dominated and controlled the Alabama corporation through its ownership of the stock of the Alabama corporation, but that the two corporations were distinct corporate entities. Affirming the lower court's dismissal of the action against the Maine corporation, the Court held that the separation between the two corporations was sufficient to prevent the Maine corporation from being amenable to suit in North Carolina. Id. at 336-337.
"Pennsylvania, like most jurisdictions, has adopted the Cannon rule." Indian Coffee Corp., supra, at 1104, citing Botwinick v. Credit Exchange Inc., 419 Pa. 65, 213 A.2d 349 (1965). As a result, this court is obligated to apply the Cannon rule to the facts in the present case.
It is undisputed that Acco, like the Alabama corporation in Cannon, is a wholly owned subsidiary of Babcock, which in turn is wholly owned by Babcock International. However, the affidavits which have been submitted by the defendants indicate that each of the three corporations is a separate entity, each having its own bylaws, articles of incorporation and board of directors. Defendants admit that the boards of the three companies share several directors, and plaintiff emphasizes this fact in its reply to defendants' Motion to Dismiss.
Where a parent company constitutes one hundred percent of the stockholders of the subsidiary, it is to be expected that there will be directors which are common to the boards of both. It is quite possible that those who occupy such positions might exercise some degree of control over the subsidiary. Nevertheless, as long as the corporations are separate entities, the subsidiary will not be deemed to be the "alter ego" of the parent, no matter how much control the parent exercises. Cannon, supra.
In Bellomo v. Pennsylvania Life Co., 488 F. Supp. 744 (S.D. N.Y. 1980), the plaintiff sought to establish jurisdiction over the defendant on the basis of actions taken by the defendant's subsidiaries. The court held that:
Where a holding company is nothing more than an investment mechanism - a device for diversifying risk through corporate acquisitions - the subsidiaries conduct business not as its agents but as its investments. The business of the parent is the business of investment, and that business is carried out entirely at the parent level. Where, on the other hand, the subsidiaries are created by the parent, for tax or corporate finance purposes, to carry on business on its behalf, there is no basis for distinguishing between the business of the parent and the business of the subsidiary. There is a presumption, in effect, that the parent is sufficiently involved in the operation of the subsidiaries to become subject to jurisdiction.