In accordance with the accompanying memorandum, IT IS HEREBY ORDERED THAT:
1) The motion of Canada Development Corporation to dismiss for lack of personal jurisdiction is granted;
2) Canada Development Corporation is dismissed as a counter-defendant from the captioned action;
3) In accordance with the court's order of October 20, 1986, all discovery shall be completed within 120 days of the date of this order;
4) Pretrial motions, if any, and supporting briefs shall be filed no later than September 25, 1987;
5) A pretrial conference will be held on Tuesday, December 1, 1987 at 9:00 a.m. in Chambers of Courtroom No. 2;
6) The parties shall submit pretrial memoranda in conformity with the local rules on or before November 25, 1987; and
7) This case is placed on the January, 1988 trial list. Jury selection for cases on the January list will be held at 10:00 a.m. on Monday, January 4, 1987 in Courtroom No. 2, Ninth Floor, Federal Building, Third and Walnut Streets, Harrisburg, Pennsylvania. Trials will commence at 9:30 a.m. on Tuesday, January 5, 1987.
Sylvia H. Rambo, United States District Judge.
Before the court is the motion of Canada Development Corporation to dismiss the counterclaim of Heritage Copy Products, Inc. for lack of personal jurisdiction. The motion has been fully briefed and is ripe for disposition.
The captioned action began on March 28, 1984, with the filing of a complaint by Savin Corporation (Savin) against Heritage Copy Products, Inc. (Heritage) and two individual defendants. Generally, the complaint alleges that Heritage and its guarantors owed Savin several hundred thousand dollars pursuant to dealer agreements which the parties had entered. The next pleading which is pertinent to the instant motion is the second amended counterclaim (hereinafter referred to as the counterclaim), filed by Heritage on June 30, 1986. In the counterclaim Heritage alleges that Savin has made misrepresentations to Heritage, breached express and implied warranties, violated the Racketeer Influenced and Corrupt Organizations Act (RICO),
and engaged in price-fixing in violation of the Sherman Anti-Trust Act.
Each of these theories of liability was also asserted against Canada Development Corporation (CDC) on the grounds that Savin was the alter ego, instrumentality or agency of CDC.
CDC is a Canadian corporation, established pursuant to the laws of that country. Created as a holding company, CDC has made investments in companies which encompass a variety of industry sectors. Among the companies in which CDC has invested is Savin. In 1982 CDC purchased fifty-seven percent of Savin's common shares. CDC's percentage of ownership rose to sixty-eight percent in 1984 and then decreased to sixty-two percent in 1986, where it remained at the time the instant motion was made.
CDC has its office in Toronto. There are no CDC offices or property in Pennsylvania. CDC is not authorized to do business in Pennsylvania and has no agent for service of process in Pennsylvania. Further, CDC claims that it does no business in Pennsylvania. Thus, CDC argues that this court lacks personal jurisdiction over CDC and should dismiss it from the counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(2).
On the basis of facts which will be more fully developed below, Heritage argues that CDC is vicariously liable for the actions of Savin because of its control of Savin. It is Heritage's position that this vicarious liability subjects CDC to personal jurisdiction in Pennsylvania.
Heritage also claims that CDC is subject to personal jurisdiction in Pennsylvania due to CDC's knowledge of Savin's misrepresentations and under the nationwide venue provisions of RICO and the antitrust act.
CDC's motion and the arguments contained in the parties' briefs raise four issues for the court to address. First, the court must consider whether the rule of Cannon Manufacturing Co. v. Cudahy Co., 267 U.S. 333, 45 S. Ct. 250, 39 L. Ed. 634 (1925) should be applied in this case. The second issue is whether the facts as they are set forth in the affidavits and answers to depositions which are part of the record show that Savin is the alter ego, instrumentality, or agent of CDC such that CDC is subject to personal jurisdiction in Pennsylvania. Thirdly, the court must decide whether it should assert jurisdiction over CDC on the basis of the venue provisions of the RICO and anti-trust acts. The final issue is whether CDC's alleged knowledge of Savin's misrepresentations subjects CDC to the jurisdiction of this court.
Before addressing the specific issues mentioned above, it is important to outline the general standards by which the court is guided in addressing a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction. In Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61 (3d Cir. 1984), the Third Circuit Court of Appeals distinguished between the standards to be applied to Rule 12(b)(6) and Rule 12(b)(2) motions. Id. at 66, n.9. Whereas a court must accept as true the allegations of the non-moving party when considering a Rule 12(b)(6) motion, the disposition of a Rule 12(b)(2) motion ". . . requires resolution of factual issues, outside the pleadings, i.e. whether in personam jurisdiction actually lies." Id. The burdens of the parties in the context of such a motion was established as follows:
Once the defense has been raised, then the plaintiff must sustain its burden of proof in establishing jurisdictional facts through sworn affidavits or other competent evidence. Contrary to the dissent's suggestion, therefore, at no point may a plaintiff rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion to dismiss for lack of in personam jurisdiction. [citation omitted]. Once the motion is made, plaintiff must respond with actual proofs, not mere allegations.
Id. CDC's motion will be considered in light of these standards.
A. The Cannon Rule
In Cannon Manufacturing Co. v. Cudahy Co., 267 U.S. 333, 45 S. Ct. 250, 69 L. Ed. 634 (1925), a North Carolina corporation brought suit against a Maine corporation in a federal court located in North Carolina. The Maine corporation had not "entered North Carolina in its corporate capacity", id. at 336, but it owned a subsidiary which did have an office and did transact business in North Carolina. The question before the Court was whether the Maine corporation was present and doing business in North Carolina through the presence there of its subsidiary.
The facts which seemed to establish the identity of the Maine corporation and its subsidiary were that the subsidiary was the instrumentality employed by the parent to market the parent's products in North Carolina, that the parent owned one-hundred percent of the subsidiary's stock, and that the parent exercised complete control over the subsidiary both commercially and financially. Id. at 335.
Despite these identifying factors, the Court determined that the separation between the Maine corporation and its subsidiary was "real" and not "pure fiction." Id. at 337. The subsidiary was not the parent's agent. The subsidiary itself purchased products from the parent for resale. The books of the two corporations were kept separate, and transactions between the two were appropriately recorded in their respective books "as if the two were wholly independent corporations." Id. at 335. Finding that, for purposes of jurisdiction, the business of the subsidiary had not become the business of the parent, the Court affirmed the district court's dismissal of the Maine corporation for lack of personal jurisdiction.
Heritage argues that the Cannon decision is inapplicable to the case at bar. According to Heritage, the reasoning of International Shoe Co. v. State of Washington, 326 U.S. 310, 90 L. Ed. 95, 66 S. Ct. 154 (1945) has undermined the Cannon analysis. In International Shoe, the Supreme Court held that,
. . . due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of a forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."
Id. at 316 (citation omitted). Following International Shoe, argues Heritage, the "presence" doctrine on which the Cannon decision was based was discarded. It appears from Heritage's argument, then, that Heritage is urging the court to conduct a minimum-contacts analysis to determine whether CDC is subject to jurisdiction in Pennsylvania.
"In a diversity action when a question of jurisdiction over the person arises, a federal court must first look to the law of the state in which it sits to find whether the authority for the exercise of jurisdiction exists." Novinger v. E.I. DuPont de Nemours and Co., 89 F.R.D. 588, 591 (M.D.Pa. 1981) (citations omitted). The Pennsylvania statute which provides for assertion of jurisdiction over and service upon non-resident defendants is found at 42 Pa.C.S.A. § 5322. Known as the "Long-Arm Statute", § 5322 permits the assertion of jurisdiction by Pennsylvania courts "to the fullest extent allowed under the Constitution of the United States . . .", on the basis of the most minimum contacts with Pennsylvania. 42 Pa.C.S.A. § 5322(c). Pennsylvania law also permits the assertion of jurisdiction over a non-resident corporation which carries on a "continuous and systematic part of its general business within this Commonwealth." 42 Pa. C.S.A. § 5301(a)(2)(iii).
Prior to the enactment of these statutes, the Pennsylvania Supreme Court adopted Cannon as the leading case on the subject of asserting jurisdiction over a foreign, parent corporation through the presence of its subsidiary. Botwinick v. Credit Exchange, Inc., 419 Pa. 65, 71, 213 A.2d 349, 353 (1965). Although Botwinick preceded the current form of Pennsylvania's long-arm statute, it followed and made reference to the development of the minimum-contacts analysis found in International Shoe. Id. at 68, 213 A.2d at 352. The willingness of the Pennsylvania Supreme Court to follow Cannon, even after the International Shoe decision, leads this court to the conclusion that under Pennsylvania law Cannon is still valid despite the development of the minimum contacts analysis. Heritage has not referred the court to any Pennsylvania state-court case which would compel a different conclusion.
The recognition of Cannon as still being applicable is in conformity with opinions of the Third Circuit Court of Appeals. In Quaker State Dyeing and Finishing Co. v. ITT Terryphone Corp., 461 F.2d 1140 (3d Cir. 1972), the court cited Cannon as authority for the proposition that where there is a real separation between a parent and its subsidy, the separate place of business of the subsidiary is recognized in determining jurisdiction. Id. at 1142. More recently, the court underscored some of the concepts in Cannon without specifically citing Cannon. In Lucas v. Gulf & Western Industries, Inc., 666 F.2d 800 (3d Cir. 1981), the court reasoned as follows:
Generally, "[a] foreign corporation is not subject to the jurisdiction of the forum state merely because of its ownership of the shares of stock of a subsidiary doing business in the state." 2 Moores Federal Practice § 4.25 (1981). Other factors which may have a bearing on the jurisdictional issue are whether the subsidiary corporation played any part in the transactions at issue, whether the subsidiary was merely the alter ego or agent of the parent, and whether the independence of the separate corporate entities was disregarded.