Johnson v. Helicopter & Airplane Services Corp.

• Decision Date: 13 November 1975
• Docket Number: Civ. No. 72-832-Y.
• Citation: 404 F. Supp. 726
• Parties: Harvey B. JOHNSON v. HELICOPTER & AIRPLANE SERVICES CORPORATION et al.
• Court: U.S. District Court — District of Maryland

404 F. Supp. 726

Harvey B. JOHNSON v. HELICOPTER & AIRPLANE SERVICES CORPORATION et al.

Civ. No. 72-832-Y.

United States District Court, D. Maryland.

November 13, 1975.

COPYRIGHT MATERIAL OMITTED

Lawrence F. Rodowsky, Baltimore, Md., and John P. McKenna, Washington, D. C., for plaintiff.

Robert R. Winter, Baltimore, Md., for defendant Societe Nationale Industrialle Aerospatiale of France.

Francis J. Ford, Rockville, Md., for defendant Societe Turbomeca of France.

Joseph S. McCarthy, Rockville, Md., for defendant Fairchild Industries, Inc.

John S. Yodice, Bethesda, Md., for defendants Helicopter & Airplane Service Corp., Richard H. Sanders and Robert Sanders.

Edmund P. Dandridge, Jr., Baltimore, Md., for defendant Republic Aviation Corp.

MEMORANDUM AND ORDER

JOSEPH H. YOUNG, District Judge.

The issue presently, and finally, before this Court is a determination under Fed.R.Civ.P. 17(b) of RAC Corporation's capacity to be sued in this products liability suit. In a memorandum and order filed December 20, 1974, the Court found that it did not have personal jurisdiction over RAC, and transferred the case to the United States District Court for the Southern District of New York. RAC then moved to strike the order transferring the case, having stipulated on January 17, 1975, to a withdrawal of its motion to dismiss on the grounds of lack of personal jurisdiction and defects in service of process. The order transferring the case was set aside on February 6 in the interest of judicial economy.

FACTS

RAC was originally incorporated in Delaware 1931 under the name Siversky Aircraft Corporation. In 1939 the name of the corporation was changed to Republic Aviation Corporation. Throughout its existence, the corporation's principal place of business was in Farmingdale, New York; it procured a license to do business in that state during the 1930's.

In 1965, the corporation sold all of its operating assets to another defendant in the instant action, Fairchild-Hiller Corporation. The corporation then changed its name to RAC Corporation and proceeded to wind up its affairs. On October 1, 1965, RAC's board of directors passed a resolution authorizing the filing of a certificate of dissolution for the company with Delaware's Secretary of State. That certificate was filed on November 19, 1968, and the Secretary issued a formal certificate of dissolution.

RAC has continued to prosecute certain tax claims with the United States and the State of New York in an effort to wind up its affairs prior to liquidation. The continued existence of the corporation is authorized under provisions of the Delaware corporation law which give a dissolved corporation a limited three-year existence to dispose of its affairs. 8 Del.Code Ann. § 278 (1975).

The corporation has not, however, surrendered its license to do business in New York, asserting that retention of the license is necessary in order to protect its right to pursue tax claims in that state.¹ Those proceedings have not concluded and RAC is still carrying on significant activities and transactions. It regularly holds meetings of its board of directors, files state and federal tax returns, takes out insurance (including insurance relevant to this case), and issues shareholder reports. RAC has also continued to invest its corporate assets; since 1973, it has invested a substantial percentage of its multimillion dollar assets in short-term commercial paper.

At a hearing on June 1, 1973, this Court granted RAC's motion to dismiss under Fed.R.Civ.P. 12(b)(6) for lack of capacity. That decision was appealed to the Fourth Circuit, which held that the motion should have been treated as one for summary judgment under Fed. R.Civ.P. 56, and remanded to this Court to provide the parties a reasonable time for discovery. Johnson v. RAC Corporation, 491 F.2d 510 (4th Cir. 1974).

The plaintiff conducted discovery relevant to the jurisdictional and capacity motions, and RAC then renewed its motion to dismiss, asserting that discovery had not uncovered any information requiring a different result than that which the Court reached on June 1, 1973. This is correct.

The opinion of the Fourth Circuit noted that "the right to maintain a products liability suit against a dissolved corporation, in the process of liquidation under statutory authority, for post-dissolution-accrued claims has received at best limited judicial or textbook consideration." Johnson v. RAC Corporation, 491 F.2d at 514 (footnote omitted). This would seem to invite a more lengthy examination of the question of capacity in this case than was given in the oral opinion of June, 1973, and the Court takes this opportunity to elaborate its reasoning fully.

FEDERAL LAW

Rule 17(b) provides in part:

The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized.

This rule applies to dissolved as well as active corporations. Oklahoma Natural Gas Co. v. Oklahoma, 273 U.S. 257, 260, 47 S.Ct. 391, 71 L.Ed. 634 (1927) (capacity of dissolved corporation governed by state of incorporation); Damon Alarm Corp. v. Am. Dist. Telegraph Co., 304 F.Supp. 83, 84 (S.D.N.Y.1969), citing Melrose Distillers, Inc. v. United States, 359 U.S. 271-272 (1959); 6 C. Wright and A. Miller, Civil § 1563, at 738 n. 19 and accompanying text.

Cases concerning Rule 17(b) dwell on the technical question of capacity, but deal very superficially with the substantive nature of capacity itself. Plaintiff has asserted two alternative propositions concerning the nature of capacity under Rule 17: the first is that capacity means "general capacity," as opposed to "the capacity to be sued"; and the second is that capacity implies "general capacity to be sued" rather than the enforceability of a particular cause of action. The first proposition is erroneous; the second is correct.

Capacity is the ability of a particular individual or entity to use, or to be brought into, the courts of a forum. Mather Constr. Co. v. United States, 201 Ct.Cl. 219, 475 F.2d 1152, 1155 (1973); Basch v. Talley Ind., Inc., 53 F.R.D. 9, 11 (S.D.N.Y.1971). It has no direct correlation to the conducting of business, the existence of an enforceable right, interest, cause of action, claim or defense, or whether a party is a real party in interest. See DeFranco v. United States, 18 F.R.D. 156, 159 (S.D. Cal.1955) (differentiated from cause of action); 6 C. Wright and A. Miller, Civil § 1559, at 727-28 (1971).

Thus, the plaintiff's assertion that if a corporation retains any existence, however tenuous, it has "capacity" and therefore may be sued in federal court, is a misconception of Rule 17. The rule was meant to be an adoption of local rules on capacity to sue and be sued, not an equation of capacity with the concept of "doing business." Uniformity is achieved among federal jurisdictions only insofar as the law interprets Rule 17(b) to provide that once a corporation is determined to have capacity to be sued in its original place of business, it may be sued in any federal court, regardless of the fact that the corporation may not have capacity to be sued in the particular state in which the federal court is sitting. Joseph Muller Corp. Zurich v. Societe Anonyme de Gerance et D'Armement, 314 F.Supp. 439, 441 (S.D.N.Y.1970), aff'd in part, rev'd in part on other grounds, 451 F.2d 727 (2d Cir. 1971), cert. denied, 406 U.S. 906, 92 S.Ct. 1609, 31 L.Ed.2d 816 (1972). The cases cited by the plaintiff refute the idea of "general capacity" and support instead the proposition that once state law is interpreted to determine that a corporation has capacity to be sued, the actual place of suit is irrelevant.²

Therefore, when turning to Delaware law, the appropriate inquiry is the capacity to be sued of a voluntarily dissolved Delaware corporation which has failed to surrender its certificate of authority to do business in New York and which is continuing to "wind up" its business after the three-year period provided in the Delaware corporation law for asserting claims against the corporation.

DELAWARE LAW

Since RAC was originally incorporated in Delaware, its capacity to be sued is governed by the law of that state.

At common law, the dissolution of a corporation was its civil death; dissolution abated all pending actions by and against a corporation, thus terminating abruptly its capacity to sue and be sued. Melrose Distillers, Inc. v. United States, 359 U.S. 271, 272, 79 S.Ct. 763, 3 L.Ed.2d 800 (1959); Note, Suits By and Against Dissolved Corporations, 48 Iowa L.Rev. 1006 (1963).³

In order to alter the common law and prolong the life of a corporation past dissolution, statutory authority is necessary, Oklahoma Gas Co. v. Oklahoma, 273 U.S. 257, 259, 47 S.Ct. 391, 71 L.Ed. 634 (1927); Johnson v. RAC Corp., 491 F.2d 510, 511-12 n. 3 (4th Cir. 1974).

The common law has been supplanted in Delaware, as in all states, by a statute which prolongs the life of a corporation in order to allow the corporation to dispose of its affairs in an orderly fashion. Section 278 of the Delaware Corporation Law, 8 Del.Code Ann. § 278 (1975), which provides for the continued limited existence of a corporation after dissolution, reads in part:

278. Continuation of corporation after dissolution for purposes of suit and winding up affairs.

All corporations, whether they expire by their own limitation or are otherwise dissolved, shall nevertheless be continued, for the term of 3 years from such expiration or dissolution or for such longer period as the Court of Chancery shall in its discretion direct, bodies corporate for the purpose of prosecuting and defending suits, whether civil, criminal or administrative, by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, to discharge their liabilities, and to distribute to their stockholders any remaining assets, but not for the purpose of continuing the

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