American Fire Prevention Bureau v. Automatic S. Co.

• Decision Date: 24 April 1941
• Citation: 42 F. Supp. 220
• Parties: AMERICAN FIRE PREVENTION BUREAU, Inc., v. AUTOMATIC SPRINKLER CO. OF AMERICA.
• Court: U.S. District Court — Southern District of New York

42 F. Supp. 220

AMERICAN FIRE PREVENTION BUREAU, Inc., v. AUTOMATIC SPRINKLER CO. OF AMERICA.

District Court, S. D. New York.

April 24, 1941.

Beals & Nicholson, of New York City (Wilber W. Chambers and John D. Beals, Jr., both of New York City, of counsel), for plaintiff.

Whitman, Ransom, Coulson & Goetz, of New York City (Colley E. Williams and Forbes D. Shaw, both of New York City, of counsel), for defendant, appearing specially, etc.

LEIBELL, District Judge.

Defendant, Automatic Sprinkler Company of America (hereinafter called the "Company"), appearing specially, has moved pursuant to Rules 12(b) and 81(c), Federal Rules of Civil Procedure, 28 U.S. C.A. following section 723c, for an order vacating and setting aside the service of the summons and complaint herein and dismissing the above-entitled action, upon the ground that the court has no jurisdiction over the person of the defendant.

The complaint herein alleges that the action is brought by the plaintiff, a New York corporation, against the defendant, a Delaware corporation, to recover $9,579.59 claimed to be due plaintiff under written agreements entered into between the parties on March 8, 1928.

The present action was originally instituted in the Supreme Court of the State of New York, New York County. The summons and complaint were served on J. A. Coakley, president of the defendant, at the Biltmore Hotel, New York City, on December 5, 1940. Thereafter on December 20, 1940, the defendant, appearing specially for such purpose, filed a petition and bond for the removal of the action from said State Court to this Court. On January 18, 1941, the action was removed and a certified copy of the record therein filed in this Court.

Defendant contends in its moving papers that it is a foreign corporation, not doing business in the State of New York and therefore is not subject to the jurisdiction of this Court in an action in personam.

In opposition, plaintiff contends (1) that a finding of fact contained in a decision in prior litigation between plaintiff and defendant in the New York State Court to the effect that defendant has "a place of business in the Borough of Manhattan, City of New York" is "res judicata" and is binding upon the defendant in this action; (2) that the contracts in suit, covering a period of fifteen years, required the defendant to do business in New York in the performance of certain provisions thereof, and that defendant has been and still is doing business in New York City; (3) that even if defendant does its business in New York through a wholly owned subsidiary, the said subsidiary is completely dominated by defendant and acts as a mere "agent, dummy or decoy" for defendant.

With respect to plaintiff's contention (1) supra, it appears that on January 27, 1939, an action was instituted by plaintiff in the Supreme Court, New York, against the defendant for a breach of provisions of the contracts here in question. The defendant appeared, answered and counterclaimed in that action and no question was raised whether or not defendant was doing business in New York State. The trial court in that action granted judgment in favor of the plaintiff and made a finding that defendant had a place of business in the State of New York, to wit, New York City. The judgment was affirmed on appeal. I am of the opinion that inasmuch as the defendant voluntarily appeared and answered in the prior litigation in the New York State court, in fact counterclaimed, the question of whether or not defendant was doing business in this State was not put in issue or litigated. Consequently the finding by the state court that defendant was doing business in New York cannot be held to be "res judicata". Donahue v. New York Life Ins. Co., 259 N.Y. 98, 102, 181 N.E. 62; Oklahoma Packing Co. v. Oklahoma Gas & Electric Co., 309 U.S. 4, 11, 60 S.Ct. 215, 84 L.Ed. 537. Defendant also explains its voluntary submission to the jurisdiction of the New York Supreme Court in that case by stating that it hoped thereby to avail itself of a ruling of the Appellate Division on similar agreements in a suit entitled American Fire Prevention Bureau, Inc., v. Rockwood Sprinkler Co. of Massachusetts, 244 App. Div. 423, 279 N.Y.S. 368.

In contention (2) supra, plaintiff asserts that defendant actually has been doing business in the State of New York. Defendant through J. A. Coakley, its president, in his first affidavit herein, sworn to January 18, 1941, stated that:

"The defendant, Automatic Sprinkler Company of America, is a foreign corporation, to wit, a corporation organized and existing under the laws of the State of Delaware, and having its principal office and place of business located in the City of Youngstown, State of Ohio. Its business consists in the holding of letters patent and the manufacturing of patented devices used in the sprinkler industry which it sells to its wholly-owned subsidiary, Automatic Sprinkler Corporation of America, a Delaware corporation engaged in the business of furnishing and installing sprinkler systems, and to other independent sprinkler companies which are licensed to use its devices. In addition to Automatic Sprinkler Corporation of America, the defendant owns all of the capital stock of Automatic Finance Corporation and Automatic Sprinkler Company of Canada, Ltd. Although the defendant and its subsidiary corporations have, in many instances, the same persons as officers and directors, each of these subsidiary corporations maintains a separate and complete organization, regularly holds its necessary stockholders' and directors' meetings, keeps its own books of account, pays its own officers and employees with its own funds, and otherwise functions as a distinct corporate entity.

"Since its incorporation under the laws of the State of Delaware on December 16, 1922, the defendant, Automatic Sprinkler Company of America, has never done business in the State of New York and has never sought or obtained any authority to do business in said State. It has had no office or place of business in said State, nor maintained an agency for the transaction of business within said State. It has taken no orders for goods of any kind, has made no sales or purchases, has had no telephone or listing in any telephone directory, nor had its name on any door, window or other place within said State. It has no bank account and owns no property in said State. Moreover, none of the officers and directors of the defendant resides or has his office in said State and the defendant has never been in any way amenable to the service of process within said State."

It is true that these statements were later qualified (see affidavit of Coakley sworn to March 21, 1941) in that defendant concedes that between 1922 and 1926, it did maintain an office in the City of New York and had a bank account and securities in New York at that time. However, defendant asserts that in 1926 it discontinued the New York office and transferred its business to the State of Ohio and since then "defendant has had no office and has done no business in the State of New York, nor have any meetings of the defendant's directors or stockholders been held within said State".

In order to sustain its contention that defendant is doing business in New York, plaintiff relies mainly upon the terms of the agreements of March 8, 1928 (the contracts sued upon herein); and upon defendant's performance under those contracts; and on certain checks, correspondence and the like.

There were two agreements executed by the parties on March 8, 1928. The "license agreement" provided that defendant should have a non-exclusive license to sell, and that plaintiff would manufacture and sell to defendant and its affiliates and licensees, certain of plaintiff's patented products (Derby Fire Sentinels and Derby Electric Releases) at certain prices to be agreed upon and in consideration for that arrangement and for other considerations, defendant guaranteed plaintiff that the sales made under the license agreement and a so-called "Panel Agreement", of even date, would result in a profit of $5,000 a year to plaintiff. The sales in fact did not produce this anticipated profit and plaintiff is suing defendant under its guarantee for the difference between the profit actually realized and the guaranteed profit for the years ending March 7, 1939, and March 7, 1940. The former suit in the New York Supreme Court, in which plaintiff was successful, was on the same guarantee for the amount of the deficiency for the year ending March 7, 1938.

The "license agreement" in paragraph 22nd contains a statement that the principal consideration for the license therein granted was the execution by the parties of a so-called "Panel Agreement" of even date. The plaintiff was the owner of certain patents for "Electric Signal Wiring Systems", and "Self Supervised Electric Systems" relating to closed circuit supervisory panels and systems of wiring, which were the subject of the "Panel Agreement" between plaintiff and defendant. Under said agreement the defendant agreed that it and its affiliates would buy exclusively from plaintiff all electric alarm panels of the closed...