960 F.2d 1080 (1st Cir. 1992), 91-1824, United Elec., Radio and Mach. Workers of America v. 163 Pleasant Street Corp.

Docket Nº:91-1824, 91-1947 and 91-2001.
Citation:960 F.2d 1080
Party Name:UNITED ELECTRICAL, RADIO AND MACHINE WORKERS OF AMERICA, et al., Plaintiffs, Appellees, v. 163 PLEASANT STREET CORPORATION, et al., Defendants, Appellees, International Twist Drill (Holdings), Limited, Defendant, Appellant. UNITED ELECTRICAL, RADIO AND MACHINE WORKERS OF AMERICA, et al., Plaintiffs, Appellants, v. 163 PLEASANT STREET CORPORATION, e
Case Date:March 30, 1992
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 1080

960 F.2d 1080 (1st Cir. 1992)

UNITED ELECTRICAL, RADIO AND MACHINE WORKERS OF AMERICA, et

al., Plaintiffs, Appellees,

v.

163 PLEASANT STREET CORPORATION, et al., Defendants, Appellees,

International Twist Drill (Holdings), Limited, Defendant, Appellant.

UNITED ELECTRICAL, RADIO AND MACHINE WORKERS OF AMERICA, et

al., Plaintiffs, Appellants,

v.

163 PLEASANT STREET CORPORATION, et al., Defendants, Appellees.

Nos. 91-1824, 91-1947 and 91-2001.

United States Court of Appeals, First Circuit

March 30, 1992

Argued Nov. 7, 1991.

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Mark D. Stern, Somerville, Mass., with whom Robin Alexander, Washington, D.C., was on brief, for plaintiffs.

Mark D. Stern, Somerville, Mass., with whom Edward J. Dailey, Boston, Mass., was on brief, for defendant Blue Cross and Blue Shield.

Charles L. Janes, with whom James C. Stokes, R. Scott Henderson, and Bingham, Dana & Gould, Boston, Mass., were on brief, for defendant Intern. Twist Drill (Holdings), Ltd.

Before BREYER, Chief Judge, SELYA and CYR, Circuit Judges.

SELYA, Circuit Judge.

These appeals call upon us to ascertain the extent of a federal court's power, in an ERISA case, to assert personal jurisdiction over a foreign corporation. To complete our task, we must also consider when, and on what terms, separate corporate identities can be disregarded, to the end that a parent corporation may be sued and held responsible for a subsidiary's employee benefit obligations. At the conclusion of our odyssey, we find that the court below lacked personal jurisdiction over the primary defendant in this case. Hence, we vacate the orders which lie at the heart of these appeals.

I. BACKGROUND

We begin by sketching the factual background mindful that, as is often true at the preliminary injunction stage, the record is somewhat scanty. For present purposes, we credit the undisputed facts presented below and adopt the district court's findings as to controverted matters to the extent they are supported by the record and not clearly erroneous.

The plaintiffs comprise an employees' union, the United Electrical, Radio and Machine Workers of America (the Union), and certain retired or disabled employees of 163 Pleasant Street Corporation (PSC). PSC is a Delaware corporation having its principal place of business in New Bedford, Massachusetts. The individual plaintiffs include both union and nonunion employees, some of whom worked for PSC's predecessor-in-interest, Morse Tool, Inc. 1 All these employees had entered into, or were beneficiaries of, agreements under which PSC contracted to pay retirees' health-care premiums.

The chief defendant is International Twist Drill (Holdings), Ltd. (ITD), a corporation organized under the laws of Scotland and maintaining its headquarters there. In June 1987, ITD purchased all the common stock of Morse Tool, which thereafter became PSC. At the time of purchase, Morse Tool was mired in bankruptcy. Although the Commonwealth of Massachusetts, through its Economic Stabilization Trust, held 150,000 shares of Morse Tool's non-voting preferred stock in connection with a preexisting debt, ITD was the sole voting shareholder. To all intents and purposes, then, PSC became a wholly owned subsidiary of ITD.

Both before and after the acquisition, ITD maintained an active role in connection with PSC's affairs. During the period when purchase was under consideration, John Lindsay, a principal of ITD, became involved in negotiations regarding the company's collective bargaining agreement--but ITD was not itself a signatory to that pact. After the purchase had been consummated, ITD appointed PSC's directors, selecting primarily members of its own board to serve in that capacity. Lindsay acted for a period of time as PSC's president. Robert Massie, another principal of ITD, served for a different period as PSC's chief executive officer and treasurer. Throughout, ITD paid Lindsay's and Massie's salaries. Moreover, at the end of each month, James Dee, PSC's controller, telephoned Scotland to discuss the subsidiary's fiscal affairs and obtain directions on how to manage its finances. ITD provided PSC

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with (1) ITD's financial statements (which PSC disseminated to its suppliers in order to assuage fears about its credit); (2) funds (when necessary to ameliorate PSC's often precarious fiscal situation); and (3) certain goods and services that PSC required from time to time. All in all, ITD pumped $8,000,000, more or less, into its subsidiary.

ITD's largesse notwithstanding, PSC was unable to survive. The company halted manufacturing operations in early 1990. In a letter dated June 1, 1991, PSC informed the plaintiffs that it would cease paying their health insurance premiums and that, consequently, coverage would expire at the end of July.

Plaintiffs filed suit in the United States District Court for the District of Massachusetts, naming PSC, ITD, and the health-care insurer as defendants. The complaint alleged that the planned cessation of payments would violate Massachusetts common law, the Labor-Management Relations Act (LMRA), 29 U.S.C. §§ 141-187 (1988), and the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (1988). On July 24, 1991, the district court held a hearing and entered a temporary restraining order maintaining the insurance coverage in force. On August 13, the court denied ITD's motion to quash the complaint for want of personal jurisdiction and ordered ITD to pay the health-care premiums pendente lite, as they accrued. 2

In granting the injunction, the district court found "that ITD ... does not have ties to Massachusetts except through [PSC] or Morse Tool." Those ties, the court said, constitute "clear and convincing evidence that ITD Holdings did play an active and direct role in [PSC's] management." Although "[t]he mere fact that a subsidiary company does business within Massachusetts does not confer jurisdiction over its nonresident parent company, even if the parent is the sole owner of the subsidiary," the ITD/PSC relationship was, in the court's view, "sufficient to establish both personal jurisdiction and liability on the part of ... ITD."

On August 15, 1991, ITD filed a notice of appeal. It also sought to stay the injunction. The stay was denied, first by the district court, then by a duty panel of this court. On August 22, PSC filed for bankruptcy without paying the disputed premiums. When ITD refused to make the payments, the district court granted plaintiffs' motion to hold ITD in contempt and imposed daily fines to continue for as long as the contemnor remained obdurate. ITD sought unsuccessfully to stay the contempt order and filed a second notice of appeal. 3

II. THE DECISIONAL FRAMEWORK

Although the defendant's notices of appeal target the district court's preliminary injunction and contempt decree, respectively, both of those orders were premised on the district court's finding that ITD was subject to personal jurisdiction in Massachusetts--a finding that ITD has consistently disputed. Our initial investigation proceeds along those lines. After all, an absence of jurisdictional authority would render both orders void. See Kulko v. Superior Court, 436 U.S. 84, 91, 98 S.Ct. 1690, 1696, 56 L.Ed.2d 132 (1978) ("It has long been the rule that a valid judgment ... may be entered only by a court having jurisdiction over the person of the defendant."); see also Willy v. Coastal Corp., --- U.S. ----, 112 S.Ct. 1076, 1081, 117 L.Ed.2d 280 (1992) ("Given that civil contempt is designed to coerce compliance with the court's decree, it is logical that the [contempt] order itself should fall with a showing that the court was without authority to enter the [underlying] decree.").

The parties have focused singlemindedly on the strength of PSC's corporate veil as the linchpin of the jurisdictional inquiry. We deem it advisable to take a step backward. While we are cognizant that a certain symbiosis exists between the jurisdictional inquiry and the corporate inquiry,

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the inquiries are separate and unequivalent. We think it best, therefore, to begin by scrutinizing ITD's amenability to suit in Massachusetts without reference to veil piercing. Only if this query produces negative results must we proceed to the question of whether ITD can be subjected to jurisdiction by disregarding PSC's independent corporate identity.

III. DIRECT PERSONAL JURISDICTION

The case at bar presents a golconda of questions concerning the assertion of personal jurisdiction over an alien corporation in a situation where subject matter jurisdiction is premised upon the existence of a federal question. See 28 U.S.C. § 1331 (1988) (grant of federal question jurisdiction); 29 U.S.C. §§ 185(c), 1132(e)(1) (establishing subject matter jurisdiction under LMRA and ERISA, respectively). We take a step-by-step approach.

A.

Because the instant case is premised on a federal question, it is distinguishable from cases that address personal jurisdiction in the context of diversity jurisdiction, 28 U.S.C. § 1332 (1988)--a context in which the focal point is, of necessity, the Fourteenth Amendment. The distinction is of potential consequence. When a district court's subject matter jurisdiction is founded upon a federal question, the constitutional limits of the court's personal jurisdiction are fixed, in the first instance, not by the Fourteenth Amendment but by the Due Process Clause of the Fifth Amendment. See Lorelei Corp. v. County of Guadalupe, 940 F.2d 717, 719 (1st Cir.1991) (per curiam); Whistler Corp. v. Solar Elecs., Inc., 684 F.Supp. 1126, 1128 (D.Mass.1988). Inasmuch as the federalism concerns which hover over the jurisdictional equation in a diversity case are absent in a federal question case, a federal court's power to assert personal jurisdiction is...

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