Sears, Roebuck & Co. v. Sears Plc, Civ. A. No. 88-342-JLL.

• Decision Date: 24 July 1990
• Docket Number: Civ. A. No. 88-342-JLL.
• Citation: 744 F. Supp. 1297
• Court: U.S. District Court — District of Delaware
• Parties: SEARS, ROEBUCK & COMPANY, Plaintiff, v. SEARS plc and Sears Financial Services Limited, Defendants.

744 F. Supp. 1297

SEARS, ROEBUCK & COMPANY, Plaintiff, v. SEARS plc and Sears Financial Services Limited, Defendants.

Civ. A. No. 88-342-JLL.

United States District Court, D. Delaware.

July 24, 1990.

Arthur G. Connolly, Jr. of Connolly, Bove, Lodge & Hutz, Wilmington, Del. (James A. Drobile of Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., and Nancy Schaefer of Schaefer, Rosenwein & Fleming, Chicago, Ill., of counsel), for plaintiff.

Jesse A. Finkelstein of Richards, Layton & Finger, Wilmington, Del. (Shelby R. Grubbs of Grant, Konvalinka & Grubbs, P.C., Chattanooga, Tenn., of counsel), for defendants.

MEMORANDUM OPINION

LATCHUM, Senior District Judge.

I. BACKGROUND

Sears, Roebuck and Company ("Roebuck") filed this trademark and trade name infringement suit on June 28, 1988, Docket Item ("D.I.") 1, against Sears plc ("PLC"), a company incorporated under English and Welsh law. Roebuck amended its complaint on March 10, 1989, and added Sears Financial Services Limited ("SFSL") as a defendant. Discovery closed on December 15, 1989. Currently before the Court are PLC's motions to dismiss for lack of personal jurisdiction, D.I. 204, PLC's motion for summary judgment, D.I. 222, and Roebuck's motion for partial summary judgment, D.I. 220.¹

II. FACTS

This is not the first legal confrontation concerning the use of the name "Sears" between these two corporate groups. In 1985, PLC changed the name of a Tennessee corporation from "Edgar Pickering, Inc." to "Sears, Inc." D.I. 48 at ¶ 19. The new "Sears, Inc." was to be a holding company for other American corporations. (Id.) "Sears, Inc." changed its name to E.P. Securities Inc., in response to a complaint filed by Roebuck. That complaint was subsequently dismissed with prejudice and without any admission of liability.

E.P. Securities, Inc., however, never acquired any stock. Instead, for tax reasons, PLC incorporated a new corporation in January 1986 in Delaware. D.I. 238 at 11. PLC named this new corporation "Sears, Inc."

The new "Sears Inc." was intended to be a holding company of other American corporations. Id. at ¶ 20. In response to a complaint filed by Roebuck, "Sears, Inc." of Delaware changed its name to Delaware Mercantile Holdings, Inc. ("DMH"). Roebuck's complaint was subsequently dismissed without admission of liability and with prejudice. As part of the settlement, DMH agreed that neither it, nor any of its subsidiaries, would use the name "Sears." See D.I. 238 at 5.

The use of the word "Sears" in the names of subsidiaries is part of PLC corporate policy. As the chairman of PLC related:

Sears is the family name of the group, and it's a perfectly natural thing to form companies for trading purposes ... but much more pertinent was that companies on the shelf, what we call dormant companies, when required for use in a holding situation, should be called Sears. That's our name.

There are many examples of us changing the names of dormant companies to Sears companies, such as Sears Travel.

D.I. 238A at A39 (emphasis added). PLC's overall policy concerning its relationship with its subsidiaries is relatively "hands off."

Sears PLC does, however, have direct and indirect subsidiaries. Those subsidiaries are generally entitled, as subsidiaries, to identify their parent or ultimate parent company, namely Sears plc. Moreover, they are, in certain filings within the United Kingdom, required to note their relationship with Sears plc. Otherwise, while Sears plc has the ability to prevent a subsidiary from using the "Sears" name, in practice it would not do so.

Further, on a practical level, Sears plc is not able to "control" the everyday activities of its subsidiaries (indeed, it is hard to see how any company of its size and standing could do so) and it has made no effort to do so.

Id. at 28-29. As a practical matter, it is apparent that while PLC fosters the use of the name "Sears" by its subsidiaries, PLC does not become deeply involved with the day-to-day affairs of the corporations it owns.

DMH is owned by PLC and three of PLC's wholly owned subsidiaries. D.I. 238 at 12.² Three of DMH's four directors are also directors of PLC. D.I. 238A at 171-75. Roebuck contends that DMH is a mere shell. The record Roebuck compiled in discovery, however, shows that DMH is a functioning holding company. During the relevant time period, DMH directly owned SUSA Mercantile Corporation and two other holding companies, Butler Investments, Inc. and Sears USA Investments Corporation. D.I. 238A at A185. From 1986 through 1989, DMH's investments in subsidiary companies totaled over $160 million. See D.I. 238A at A427-45. DMH's board of directors authorized the purchase of its three immediate subsidiaries, D.I. 238A at A7; issued stock, id. at A9; opened its own bank account, id. at A12, A22; changed the name to "Delaware Mercantile Holdings, Inc." from "Sears, Inc.," D.I. 238A at A14; reviewed and approved its balance sheets, e.g., id. at A15, A16; reviewed and approved corporate actions, resignations and appointments, e.g., id. at A17; authorized discovery searches for litigation, id. at A19; approved settlement agreements, id. at A20; approved repayment of treasury stock, id. at A24; authorized the sale of a subsidiary, id. at A25; and elected its own directors.

Roebuck contends that DMH's subsidiaries bypassed DMH and reported directly to PLC. The evidence cited by Roebuck does not support this contention, however. The affidavits relied on by Roebuck only indicate that DMH did not submit its own report consolidating the activities of its subsidiaries. See, e.g., D.I. 238A at 216-17. DMH, however, did not exercise its power as owner of all outstanding shares of its subsidiaries' stock to elect its subsidiaries' directors. See D.I. 238A at 196-200.

Finally, PLC has also authorized the sale of unsponsored American Depositary Receipts ("ADRs"). See D.I. 238 at 10. ADRs, representing depositary shares, are issued by United States banks against securities of foreign corporations which those banks hold as depositaries. United States investors use ADRs as a substitute for trading the foreign security itself. See Consolidated Gold Fields PLC v. Minerco, S.A., 871 F.2d 252, 255 (2d Cir.1989); 17 C.F.R. § 230.405 (1990) (definition of depositary share); Annual Review of Federal Securities Regulation, 39 Bus.Lawyer 1105, 1108-09 (May 1984); Royston, The Regulation of American Depositary Receipts: Americanization of the International Markets, 10 N.C.J. Int'l L. & Com. Reg. 87, 87 (1985). An unsponsored ADR program is one in which the foreign issuer neither promotes the trading of the ADRs in this country, nor makes the necessary filings with the SEC. See, e.g., Consolidated Gold Fields, PLC v. Anglo American Corp. of South Africa Limited, 698 F.Supp. 487, 494 (S.D.N.Y.1988); Lorenz, EEC Law and Other Problems in Applying the SEC Proposal on Multinational Offerings to the U.K., 21 Bus.Lawyer 795, 801 n. 42 & accompanying text (1987). The entire program, except for the foreign issuer's supplying of basic financial information, is administered by the United States depositary. As one commentator has noted, "ADRs are unique instruments in that the Depositary does not necessarily act for or as an agent of the foreign corporation ... whose stock is deposited against the issuance of ADRs." Moxley, The ADR: An Instrument of International Finance and a Tool of Arbitrage, 8 Vill.L.Rev. 19, 33 (1962).

PLC ADRs became available in 1984, after the Irving Trust Company had approached PLC the year before. Currently, Citibank and The Bank of New York are United States depositaries for PLC stock and issue ADRs on an unsponsored basis. The ADRs are traded under the name "Sears" and the share prices are listed in the Wall Street Journal. Because the ADRs are available over-the-counter, they are available in Delaware. There is no evidence in the record that a Delaware resident has ever owned a PLC ADR.

III. PERSONAL JURISDICTION

Rule 4 of the Federal Rules of Civil Procedure permits assertion of personal jurisdiction over an out-of-state party pursuant to the law of the state in which a District Court sits. See Fed.R.Civ.P. 4(e). Thus, the personal jurisdictional analysis is comprised of two parts. The Court must first determine whether the forum's long-arm statute applies. If the long-arm statute does apply, the Court must determine whether assertion of personal jurisdiction over the defendant would comport with due process. See Max Daetwyler Corp. v. R. Meyer, 762 F.2d 290, 293 (3d Cir.), cert. denied, 474 U.S. 980, 106 S.Ct. 383, 88 L.Ed.2d 336 (1985); United States v. Consolidated Rail Corp. ("Conrail"), 674 F.Supp. 138, 142 (D.Del.1987); Blue Ball Properties, Inc. v. McClain, 658 F.Supp. 1310, 1315 (D.Del.1987); Dentsply International, Inc. v. Pentron Corp., 648 F.Supp. 856, 858 (D.Del.1986); Afros S.p.A. v. Krauss-Maffei Corp., 624 F.Supp. 464, 466 (D.Del.1985); Moore v. Little Grant Indus., Inc., 513 F.Supp. 1043, 1046 (D.Del. 1981), aff'd, 681 F.2d 807 (3d Cir.1982); LaNuova D & B, S.p.A. v. Bowe Co., Inc., 513 A.2d 764, 768 (Del.1986); Waters v. Deutz Corp., 479 A.2d 273, 274 (Del.1984).

A. The Long-Arm of Delaware

Roebuck, as plaintiff, has the burden of showing the existence of personal jurisdiction. See Altech Indus., Inc. v. Al Tech Specialty Steel Corp., 542 F.Supp. 53, 55 (D.Del.1982); Harmon v. Eudaily, 407 A.2d 232, 233 (Del.Super.1979), aff'd, 420 A.2d 1175 (Del.1980); Plummer & Co. Realtors v. Crisafi, 533 A.2d 1242, 1244 (Del. Super.1987); Finkbiner v. Mullins, 532 A.2d 609, 612 (Del.Super.1987); see also Chalek v. Klein, 193 Ill.App.3d 767, 140 Ill.Dec. 760, 764, 550 N.E.2d 645, 649 (1990); Reeves v. Baltimore & Ohio R.R. Co., 171 Ill.App.3d 1021, 122 Ill.Dec. 145, 147, 526 N.E.2d 404, 406 (1988).³

The set procedure for establishing personal jurisdiction under a long-arm statute, such as Delaware's, is: First, if the jurisdictional challenge occurs prior to...