Berkman v. Ann Lewis Shops

• Decision Date: 12 June 1957
• Docket Number: Docket 24344.,No. 233,233
• Citation: 246 F.2d 44
• Parties: Doris BERKMAN, Appellant, v. ANN LEWIS SHOPS, Inc., Appellee.
• Court: U.S. Court of Appeals — Second Circuit

246 F.2d 44 (1957)

Doris BERKMAN, Appellant, v. ANN LEWIS SHOPS, Inc., Appellee.

No. 233, Docket 24344.

United States Court of Appeals Second Circuit.

Argued February 14, 1957.

Decided June 12, 1957.

George M. Lehr, New York City, for appellant.

Samuel Mezansky, New York City, for appellee.

Before HINCKS, LUMBARD and WATERMAN, Circuit Judges.

WATERMAN, Circuit Judge.

The plaintiff, Doris Berkman, appeals from a judgment below entered for the defendant after trial to the court without a jury. The plaintiff, as assignee, sued to recover $7,211.77 with interest, as the balance owed on three separate judgments obtained by the plaintiff's assignor, Cuesta Rey & Company, against the defendant and a subsidiary of the defendant in a Florida state court. This action was originally commenced in the Supreme Court of the State of New York, New York County, but it was removed to the United States District Court for the Southern District of New York on the ground of diversity of citizenship.

The defendant, Ann Lewis Shops, Inc., was incorporated in January 1946 under the laws of the State of Delaware. It was organized for the purpose of owning the stock of subsidiary corporations which, in turn, operated retail stores in various states for the sale of women's apparel. These stores operated under several trade names such as "Ann Lewis," "Barbara Stone Shops," and "Cardell's." The defendant has qualified to do business in New York, and has its principal office in New York City.

On or about February 23, 1946, Louis Silver, the president of Ann Lewis Shops, Inc., began negotiating with Cuesta Rey & Company for a lease of certain store premises in Tampa, Florida. In July it was decided that the defendant organize a subsidiary corporation for the purpose of operating a retail store in Tampa. Therefore, on July 18, 1946, Ann Lewis Shops of Tampa, Inc. was incorporated under the laws of Delaware. Subsequently a lease was entered into between the subsidiary, Ann Lewis Shops of Tampa, Inc., and Cuesta Rey & Company. The subsidiary's obligations under the lease were guaranteed by the defendant. Louis Silver and Ira Silver signed the agreement in New York City on September 10, 1946, as president and secretary of both the parent and the subsidiary corporation. The lease was signed on the landlord's behalf in Tampa, Florida, on October 15, 1946. In 1951 an agreement modifying the lease was signed by the same individuals on behalf of the three parties — lessor, lessee, and guarantor — in Tampa and New York City respectively.

The Tampa subsidiary had an original paid-in capital of $10,000. A total of $70,169 was invested in, or loaned to, this subsidiary by the defendant, which was its sole stockholder. Although the subsidiary had substantially the same officers and directors as its parent, it maintained separate books and bank accounts and, with rare exceptions, paid its own bills. The subsidiary employed five or six persons at its Tampa store who were not employees of the parent-defendant.

The defendant maintained a central buying service which purchased merchandise to be retailed by its subsidiaries, and each subsidiary was charged proportionately with the expense of maintaining this buying service.

On June 8, July 1, and July 7, 1955, Cuesta Rey & Company, the landlord, commenced actions upon the lease against both Ann Lewis Shops of Tampa, Inc., the lessee, and the parent-guarantor in the Circuit Court for the 13th Judicial Circuit in and for Hillsborough County, Florida. The lessor's attorney sent, by registered mail, to the parent-guarantor, the defendant here, notices of the institution of the suits, pursuant to sections 47.16¹ and 47.30² of the Florida Statutes, F.S.A., along with copies of the summons and complaint. He also filed copies in the office of the Secretary of State of Florida, thereby complying in all respects with the prescribed Florida procedure for substituted service of process. The defendant received the notices, as well as the summons and complaint, at its main office in New York City.

Neither the defendant nor its Tampa subsidiary appeared in the Florida action; and, on motion of the plaintiff, default judgments were rendered against both the defendant, Ann Lewis Shops, Inc., and its subsidiary, Ann Lewis Shops of Tampa, Inc., in all three actions. The first two judgments were for rent installments unpaid for May 1 and June 1, 1955. The third was for delinquent taxes that were to be paid on April 1, 1955. All three judgments include costs and sums for reasonable attorneys' fees claimed pursuant to a provision in the lease permitting such recovery.

Partial payments were made on all three judgments (by whom it does not appear) with the result that there is now owing $746.16 on the first, $730.72 on the second, and $5,734.89 on the third, with interest. On October 11, 1955, Cuesta Rey & Company assigned the judgments to Doris Berkman, the plaintiff in this action. Shortly thereafter the present suit on these Florida judgments was brought in the New York Supreme Court, and then removed by the defendant to the United States District Court for the Southern District of New York.

The District Court concluded that the Florida court was without jurisdiction to render against the parent corporation, the defendant here, the judgments here sued upon, and therefore the judgments were void as against it. We affirm the District Court.

It was not disputed below or on appeal that the Florida court had jurisdiction over the subsidiary, Ann Lewis Shops of Tampa, Inc., which was admittedly "doing business" in the State of Florida, and the judgments against that corporation, not a defendant in this action, are valid. The Florida courts also had jurisdiction over the defendant corporation if the defendant "was engaged in * * * a business or business venture in the State of Florida" within the meaning of the applicable Florida Statute, section 47.16, F.S.A.³

The plaintiff-appellant contends that by virtue of the following facts the defendant was engaged in a "business venture" in Florida in 1955 when the causes of action originally arose: (1) the defendant owned all the stock of the Ann Lewis Shops of Tampa; (2) both parent and subsidiary had the same individuals as directors and substantially the same individuals as officers; (3) the defendant operated a central buying service for all its subsidiaries; (4) the defendant guaranteed the lease of the Tampa subsidiary; (5) that subsidiary had been organized by the defendant in 1946 for the sole purpose of operating a retail store in Tampa; and (6) the defendant had initiated negotiations for the Tampa lease several months prior to its decision to organize the subsidiary.

Of course the duly authenticated record of the judgment of a state is entitled to the same full faith and credit in every court within the United States as it has by law or usage in the courts of the state in which it was rendered.⁴ "But in a suit upon the judgment of another state the jurisdiction of the court which rendered it is open to judicial inquiry, Chicago Life Insurance Co. v. Cherry, 244 U.S. 25, 37 S.Ct. 492, 61 L. Ed. 966, and when the matter of fact or law on which jurisdiction depends was not litigated in the original suit it is a matter to be adjudicated in the suit founded upon the judgment. Thompson v. Whitman, 18 Wall. 457, 21 L.Ed. 897." Adam v. Saenger, 1938, 303 U.S. 59, 62, 58 S.Ct. 454, 456, 82 L.Ed. 649.

We recognize that "the burden of undermining the decree of a sister state `rests heavily upon the assailant.'" Cook v. Cook, 1951, 342 U.S. 126, 128, 72 S.Ct. 157, 159, 96 L.Ed. 146, but we find no merit in the contention that this defendant was subject to process within Florida. Therefore we affirm the court below in its holding that the Florida court lacked jurisdiction over this defendant to render the three judgments against it here sued upon.

I

In the leading case of Cannon Mfg. Co. v. Cudahy Packing, 1925, 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634, the Supreme Court held that a foreign corporation that solicited customers and sold and distributed its products in North Carolina through a wholly-owned subsidiary was not amenable to suit in a forum of that state since the separate identity of the two corporations was maintained and the activities within the state were actually carried on by the subsidiary. The Cannon rule has been followed;⁵ and it is generally held that where the parent and the subsidiary, for example, maintain separate books and bank accounts, submit separate tax returns, file separate financial statements, and meticulously charge each other for any services rendered, the corporations will be found to be separate entities for the purpose of applying this rule. See, e. g., Echeverry v. Kellogg Switchboard & Supply Co., 2 Cir., 1949, 175 F.2d 900; Gravely Motor Plow & Cultivator Co. v. H. V. Carter Co., 9 Cir., 1951, 193 F.2d 158; Harris v. Deere and Company, 4 Cir., 1955, 223 F.2d 161. It seems clear that in Florida a foreign corporation is not "doing business," within the meaning of statutes that employ that phrase or similar language, solely by reason of the fact that it owns or holds stock of a subsidiary corporation that is "doing" or "conducting" business within the State of Florida. Cf. Crockin v. Boston Store of Ft. Myers, 1939, 137 Fla. 853, 855, 188 So. 853, 858.

We hold that on the facts of this case the defendant was not "doing business" in the State of Florida within the meaning of that phrase as it was construed in the Cannon case and as equivalent language is employed in section 47.16 of the Florida Statutes, F.S.A. The separate corporate identities of the defendant and its Tampa subsidiary were carefully preserved, and thus the two were not merely principal and agent in one organization. The subsidiary had its own capital, kept its own books and bank accounts, rented its own store and office, paid its own bills, and hired its own...