Volkswagen Interamericana, SA v. Rohlsen

• Decision Date: 17 May 1966
• Docket Number: No. 6634.,6634.
• Citation: 360 F.2d 437
• Parties: VOLKSWAGEN INTERAMERICANA, S.A., Defendant, Appellant, v. Henry ROHLSEN, Plaintiff, Appellee.
• Court: U.S. Court of Appeals — First Circuit

360 F.2d 437 (1966)

VOLKSWAGEN INTERAMERICANA, S.A., Defendant, Appellant, v. Henry ROHLSEN, Plaintiff, Appellee.

No. 6634.

United States Court of Appeals First Circuit.

May 17, 1966.

COPYRIGHT MATERIAL OMITTED

Raymond J. Falls, Jr., New York City, with whom Stephen A. Greene, Cahill, Gordon, Reindel & Ohl, New York City, McConnell, Valdes & Kelley, San Juan, P. R., and Gonzalez, Gonzalez-Oliver & Novak, Santurce, P. R., were on brief, for appellant.

John D. Marsh, Christiansted, St. Croix, V. I., with whom Young, Isherwood & Marsh, Christiansted, St. Croix, V. I., and Dubon & Dubon, Santurce, P. R., were on brief, for appellee.

Before ALDRICH, Chief Judge, MARIS^* and COFFIN, Circuit Judges.

ALDRICH, Chief Judge.

This is an action brought under the so-called Automobile Dealers' Day in Court Act, 15 U.S.C. §§ 1221-1225, hereinafter Dealers' Act, by one Rohlsen, a former Volkswagen dealer in St. Croix, Virgin Islands, against the regional Volkswagen distributor, Volkswagen Interamericana, S.A., a Mexican corporation. The suit was instituted in the United States District Court for the District of Puerto Rico. Process was served on the manager of Volkswagen de Puerto Rico, hereinafter VWPR, a local dealer franchised by defendant, as defendant's alleged agent. The jury returned a verdict for the plaintiff in the amount of $300,000. Defendant's appeal raises, at the outset, questions of jurisdiction.

Little time need be spent over defendant's reliance upon a provision of the franchise agreement restricting actions to the courts of Mexico. We need not consider whether this provision is sufficiently reasonable that it should be respected in an ordinary suit arising out of the contract. See Wm. H. Muller & Co. v. Swedish American Line Ltd., 2 Cir., 1955, 224 F.2d 806, 56 A.L.R.2d 295, cert. den. 350 U.S. 903, 76 S.Ct. 182, 100 L.Ed. 793. The Dealers' Act contains its own venue provisions,¹ which are very broad, and are designed to assure the dealer as accessible a forum as is reasonably possible. Cf. Snyder v. Eastern Auto Distributors, Inc., 4 Cir., 1966, 357 F.2d 552, cert. den. June 13, 1966, 86 S.Ct. 1889. The very purpose of the act is to give the dealer certain rights against a manufacturer independent of the terms of the agreement itself. Cf. Barney Motor Sales v. Cal. Sales, Inc., S.D.Cal.1959, 178 F.Supp. 172, 175. This protection would be of little value if a manufacturer could contractually limit jurisdiction to a forum practically inaccessible to the dealer. The act cannot so easily be thwarted. Cf. Boyd v. Grand Trunk Western R. R., 1949, 338 U.S. 263, 70 S.Ct. 26, 94 L.Ed. 55.

Defendant further alleges that it was not present in Puerto Rico so as to be amenable to suit there, and that it was not properly served with process. If defendant is subject to jurisdiction in Puerto Rico, it is only because of defendant's relationship with its franchised Puerto Rico Volkswagen dealer, VWPR, and it is to this that we turn.

It was uncontroverted that Krause, Hennings, and Reuss, the president, finance director, and managing director of defendant, were, respectively, the president, vice-president, and a director of VWPR. Hinke, a vice-president and director of VWPR, was one of defendant's two chief shareholders, the other one being Krause. From this, although the record is confused as to the actual ownership of VWPR, it could reasonably be concluded that defendant exercised direct control over the Puerto Rico dealership. We do not rest on this alone. Although VWPR's franchise agreement was not introduced into evidence, the plaintiff's was. It was a printed form, and, in the absence of contrary evidence, we think it not unreasonable to infer that it was standard, and that VWPR's agreement subjected it to no less control by defendant.² Under the form franchise, defendant reserved the right to control, inter alia, the dealer's automobile and spare parts inventory, its area of distribution, the number of salesmen and customers' service personnel in its employ, and even its stationery and business forms. Defendant further reserved the right to inspect, at its will, the dealer's premises and all of its business records.

The due process clause sets the outer limits on assertion of jurisdiction over a foreign corporation.³ The basic standard, enunciated in International Shoe Co. v. State of Washington, 1945, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, and developed in subsequent decisions, is that the foreign corporation must "have certain minimum contacts with the forum * * * such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Id. at 316, 66 S.Ct. at 158.

When jurisdiction is asserted over a foreign corporation because of its relationship with a local person or corporation, the nature and extent of this relationship, as well as the relevance of the subject-matter of the suit to defendant's affairs within the state are of significance. Defendant's dealers were not mere buyers, or outlets for its products, but, as we have indicated, were subject to its detailed supervision and control. Virtually indistinguishable franchises have been held sufficient to subject a foreign manufacturer or distributor to suit in the jurisdiction of its local dealer. Snyder v. Eastern Auto Distributors, Inc., supra; Delray Beach Aviation Corp. v. Mooney Aircraft, Inc., 5 Cir., 1964, 332 F.2d 135, cert. den. 379 U.S. 915, 85 S.Ct. 262, 13 L.Ed.2d 185; Fiat Motor Co. v. Alabama Imported Cars, Inc., 1961, 110 U.S.App.D.C. 252, 292 F.2d 745, cert. den. 368 U.S. 898, 82 S.Ct. 175, 7 L.Ed. 2d 94. Although interlocking ties of corporate control, such as common directors and officers, may not in themselves be sufficient to subject the foreign corporation to local jurisdiction, Cannon Mfg. Co. v. Cudahy Packing Co., 1925, 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634, they are relevant factors, and lend support to jurisdiction based on this contractual reservation of control. Boryk v. deHavilland Aircraft Co., 2 Cir., 1965, 341 F.2d 666; cf. Fooshee v. Interstate Vending Co., D.Kan., 1964, 234 F.Supp. 44.

When, as here, a foreign defendant's contacts with a forum are substantial, a suit may be maintained though it concern a matter having no connection with the forum. Perkins v. Benguet Consol. Mining Co., 1952, 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485. In the present case, moreover, the suit is not unrelated to Puerto Rico: throughout the period of the franchise, VWPR acted as agent for defendant in relation to its business with plaintiff. Cf. Fiat Motor Co. v. Alabama Imported Cars, Inc., supra.

Defendant could not carry on substantial economic activities within this country and at the same time claim to be absent when distasteful consequences ensued. Defendant was subject to personal jurisdiction in Puerto Rico, and was properly served by service upon VWPR's managing agent. Fed.R.Civ.P. 4(d) (3); Lone Star Package Car Co. v. Baltimore & O.R.R., supra, note 3.

We come next to the question whether defendant is a party who can be sued under the Dealers' Act. Section 1222 provides only for "suit against any automobile manufacturer." Section 1221(a) states,

"The term `automobile manufacturer\' shall mean any * * * business enterprise engaged in the manufacturing or assembling of motor vehicles * * *, including any person, partnership, or corporation which acts for and is under the control of such manufacturer or assembler in connection with the distribution of said automotive vehicles."

Defendant's position is that, although by section 1221(a) suit can be brought against a manufacturer for the misconduct of its distributor, the act does not authorize suit against the distributor itself. Defendant further contends that it was not a distributor acting for and under the control of a manufacturer.

We agree with defendant that the Dealers' Act is aimed at automobile manufacturers, not at distributors, as such, and that the inclusion of certain distributors in section 1221(a) was designed only to prevent a manufacturer from circumventing its responsibilities under the act by transacting business with its dealers through alter egos. We do not conclude from this, however, that when the manufacturer has acted through a distributor over whom it exercises the requisite control, suit cannot be brought against the distributor as well. It is basic agency law that an agent who has injured a third party cannot defend on the ground that he did so at the bidding of another. Indeed, if he so acts, he must do so subject to any special liability or disability that would attach to the principal for whom he is acting. It is entirely consistent with both the purpose and language of the act to hold that "automobile manufacturer" means, inter alia, "automobile distributor," when the distributor is subject to the manufacturer's control. Barney Motor Sales v. Cal Sales, Inc., supra.

Defendant's assertions that this requisite relationship was lacking, and that the court erred in excluding evidence relating to control, are based upon a misconception of the appropriate standard. Defendant is doubtless correct in suggesting that if the distributor is but an "instrumentality" of the manufacturer, in the special sense that the term is used in corporation law, this is a sufficient basis for bringing the distributor within the act. It is not, however, the only basis. "Acts for and is under the control of * * *" describes with equal aptness the relation between certain agents and their principals. A manufacturer can exercise the same kind of control through contractual provisions with a stranger as it can by owning and directing a subsidiary corporation, and evasion of its responsibilities by either method would equally undermine the purposes of the act. We believe the provision in question should be interpreted in the context of general agency law. It is sufficient that the distributor "is subject to the...