Harris v. Deere & Company, Civ. No. 503.

• Decision Date: 15 February 1955
• Docket Number: Civ. No. 503.
• Citation: 128 F. Supp. 799
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: Robert M. HARRIS, Plaintiff, v. DEERE & COMPANY, Defendant.

128 F. Supp. 799

Robert M. HARRIS, Plaintiff, v. DEERE & COMPANY, Defendant.

Civ. No. 503.

United States District Court, E. D. North Carolina, Wilson Division.

February 15, 1955.

W. L. Thorp & W. L. Thorp, Jr. (of Thorp & Thorp), Rocky Mount, N. C., Chauncey H. Leggett (of Leggett & Taylor), Tarboro, N. C., for plaintiff.

Hugh M. Dorsey, Jr. (of Jones, Williams, Dorsey & Kane), Atlanta, Ga., Robert C. Howison, Jr. (of Joyner & Howison), Raleigh, N. C., for defendant.

GILLIAM, District Judge.

Action to recover damages for injuries sustained by plaintiff when a tractor manufactured by defendant overturned on him. Plaintiff is a resident of North Carolina, defendant is an Illinois corporation and jurisdiction is based on diversity of citizenship. The accident happened in North Carolina.

Summons was served on the North Carolina process agent of John Deere Plow Company of St. Louis, a Missouri corporation, defendant's wholly owned sales subsidiary. Defendant moved to dismiss for lack of jurisdiction or to quash service, on the ground that it is not doing business in North Carolina and its subsidiary is not its agent for service of process. Defendant also moved to dismiss because of improper venue, but this objection has no merit since suit was brought in the district of plaintiff's residence. 28 U.S.C.A. § 1391(a).

From the complaint and affidavits of the parties the following facts appear. The defendant is the second largest company in the agricultural equipment business in the United States. Its charter empowers it to manufacture and sell agricultural machinery in any and all of the states and territories of the United States. It distributes the products of fourteen factories through twenty subsidiary corporations, all of which have "Deere" or "John Deere" in their corporate names. The subsidiary directly involved here, John Deere Plow Company of St. Louis, maintains a branch office in Atlanta, Georgia, which contracts with and sells tractors and other farm equipment to dealers in North Carolina for resale to users of such equipment.

The defendant parent corporation owns and votes all of the stock of the subsidiary and elects its directors, a majority of whom are also directors or officers of defendant. The parent and subsidiary have the same president. Four of the subsidiary's nine officers are officers or directors of the parent. Through these officers and directors the parent completely controls and directs the policies and business of the subsidiary and integrates its activities into the entire Deere organization. The subsidiary is referred to in the parent's 1953 annual report to stockholders as one of its "Branch Houses".

Despite the control exercised by the parent, the separate corporate entity of the subsidiary is observed. The subsidiary buys products of the parent and sells them to its dealers. The subsidiary buys some farm implements and equipment from firms other than the parent. The parent and subsidiary have their own separate employed personnel, keep separate books and accounts and file separate federal income tax returns. Combined financial statements of defendant and all its subsidiaries are published in its annual reports. The percentage of dollar volume of farm equipment manufactured by the defendant and sold to its subsidiaries in 1954 was 93.1 and in 1953 was 93.5.

Plaintiff's cause of action is founded on the alleged negligent manufacture and design of a tractor which was distributed through John Deere Plow Company of St. Louis to a retail dealer in North Carolina and sold by him to plaintiff's employer. Plaintiff, driving the tractor, was attempting to pull another tractor out of the mud when his tractor reared up and fell over on him, inflicting serious permanent injuries.

The fundamental law of the case is clear. The Court must have jurisdiction in personam of the defendant in order to entertain this action and render judgment. In the absence of a waiver of service, jurisdiction in personam requires valid service of process within the territorial limits of North Carolina. Federal Rules of Civil Procedure 4(f). Rule 4(d) (3) and 4(d) (7), 28 U.S.C.A., the latter incorporating by reference N.C.General Statute, § 1-97, designate the agents upon whom service may be made, but an additional element of valid service on a foreign corporation, long required by both federal and North Carolina law, is that the corporation conduct or carry on activities within the State sufficient to constitute "doing business" therein. Lafayette Insurance Co. v. French, 18 How. 404, 59 U.S. 404, 15 L. Ed. 451; Philadelphia & Railroad Co. v. McKibbin, 243 U.S. 264, 37 S.Ct. 280, 61 L.Ed. 710; International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L.Ed. 95; Lunceford v. Commercial Travelers' Mut. Accident Association, 190 N.C. 314, 129 S.E. 805; Lambert v. Schell, 235 N.C. 21, 69 S.E.2d 11.

In a diversity action, such as this, the question whether the defendant is doing business within the state and is, therefore, subject to service of process is in the first instance a question of state law. Kelley v. Delaware, L. & W. R. Co., 1 Cir., 170 F.2d 195; Steinway v. Majestic Amusement Co., 10 Cir., 179 F.2d 681, 18 A.L.R.2d 179; Canvas Fabricators, Inc., v. William E. Hooper & Sons Co., 7 Cir., 199 F.2d 485; Partin v. Michaels Art Bronze Co., Inc., 3 Cir., 202 F.2d 541. If this were not so, varying results might be obtained by resort to the federal rather than the state courts. Guaranty Trust Co. v. York, 326 U.S. 99, 109, 65 S.Ct. 1464, 89 L.Ed. 2079.

An affirmative answer to the state law question then presents the constitutional test of the state law's validity under the due process clause of the Fourteenth Amendment. Bomze v. Nardis Sportswear, Inc., 2 Cir., 165 F.2d 33; Harrison v. Corley, 226 N.C. 184, 37 S.E.2d 489.

North Carolina requires every foreign corporation having property or doing business in the State to appoint a process agent in North Carolina, and in case of failure to appoint such agent, process may be served on the Secretary of State. N.C.General Statutes, § 55-38. Service may also be made on an officer, managing or local agent of a foreign corporation doing business in North Carolina. If the corporation has property, or the cause of action arose, or the plaintiff resides in the State. N.C.General Statutes, § 1-97; Lambert v. Schell, 235 N.C. 21, 69 S.E.2d 11.

"Doing business in the state" means engaging in, carrying on, or exercising in North Carolina some of the things or some of the functions for which the corporation was created. Troy Lumber Co. v. State Sewing Machine Corp., 233 N.C. 407, 64 S.E.2d 415. Each case must be decided on its own facts. State Highway & Public Works Commission v. Diamond S. S. Transportation Corp., 225 N.C. 198, 34 S.E.2d 78. "in the last analysis the question is one of due process of law under the Constitution of the United States * * *." Harrison v. Corley, 226 N.C. 184, 186, 37 S.E.2d 489, 491.

Defendant insists that it has no agent in this State and is not and was not doing business in North Carolina. Plaintiff, on the other hand, says that defendant is and was doing business here through John Deere Plow Company of St. Louis, its wholly owned subsidiary, which is either an instrumentality or adjunct of defendant or the latter's sales and distribution agent. Of course, if plaintiff is correct in this argument, service on the subsidiary's process agent is service on the defendant.

A number of considerations recognized as material in the International Shoe Company and other cases appear to favor plaintiff's position.

Plaintiff is a resident of North Carolina and the cause of action arose here. International Shoe Co. v. State of Washington, 326 U.S. 310, 317, 319, 66 S.Ct. 154, 90 L.Ed. 95. In view of defendant's control of the subsidiary through stock ownership, and the common officers and directors of the two corporations, service on the subsidiary's process agent would be certain to give defendant actual notice of the suit, and did so in fact. Travelers Health Association v. Com. of Virginia ex rel. State Corp. Comm., 339 U. S. 643, 650, 70 S.Ct. 927, 94 L.Ed. 1154.

An estimate of the inconveniences to the defendant in trial here as compared with Illinois reveals no serious hardship on the defendant, such as would make it unreasonable to require defendant to defend this suit in North Carolina. International Shoe Co. v. State of Washington, 326 U.S. 310, 317, 66 S.Ct. 154, 90 L.Ed. 95. As Justice Black said in his separate opinion in Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 73 S.Ct. 900, 97 L.Ed. 1331, the defendant does not deny that it could be subjected to this suit in a federal district court in its home state, and therefore the real question is: "in what federal district court does the fair administration of justice require that this lawsuit be tried?" Id. 345 U.S. at page 671, 73 S.Ct. at page 905. The inconveniences to plaintiff of trial in Illinois are relevant in this connection. Bomze v. Nardis Sportswear, 2 Cir., 165 F.2d 33, 35.

If we apply a "practical, nontechnical, business standard" of doing business, United States v. Scophony Corp., 333 U. S. 795, 810, 68 S.Ct. 855, 863, 92 L.Ed. 1091, it is obvious that the defendant is doing business in North Carolina through its wholly owned sales subsidiary. In any practical sense the subsidiary is the defendant's agent for the distribution of its manufactured products. In law the contractual relationship between them may be that of seller and buyer, and the separate corporate entity of the subsidiary may be observed, but a disregard of the vital fact of actual control of the subsidiary is likely to appear to the laymen an exaltation of legal fiction. Certainly such a holding permits a foreign corporation to manufacture and distribute goods through its own extensive organization and yet be immune to suit in states where such goods, if negligently...