Berkman v. Ann Lewis Shops

• Decision Date: 20 June 1956
• Citation: 142 F. Supp. 417
• Parties: Doris BERKMAN, Plaintiff, v. ANN LEWIS SHOPS, Inc., Defendant.
• Court: U.S. District Court — Southern District of New York

142 F. Supp. 417

Doris BERKMAN, Plaintiff, v. ANN LEWIS SHOPS, Inc., Defendant.

United States District Court S. D. New York.

June 20, 1956.

George M. Lehr, New York City, for plaintiff.

Kugel, Mezansky & Berkeley, New York City, for defendant, Samuel Mezansky, New York City, of counsel.

DAWSON, District Judge.

This action, tried by the Court without a jury, is one wherein the plaintiff sues as assignee of three judgments returned in Florida against the defendant. The action was started in the State Courts of New York and removed to this Court by reason of diversity of citizenship. The defendant admits that the judgments were rendered against it in Florida, but contends the judgments are void on the ground that the Florida Court lacked jurisdiction over it.

The action involves primarily the question as to whether jurisdiction was obtained in Florida over the defendant, a Delaware corporation with no office or agent in the State of Florida, solely because of the fact that the defendant had a wholly-owned subsidiary in that State.

The Facts

There is no controversy as to the essential facts. The defendant, Ann Lewis Shops, Inc., was organized in 1946 under the laws of the State of Delaware. Its business was described by its president as that of "a parent company operating various subsidiaries, owning various subsidiaries which operate women's retail establishments." The defendant does not operate any of the establishments by itself; it does not operate any shops or selling agencies directly; it had no office or place of business in Florida.

Defendant did cause to be organized a wholly-owned subsidiary, also chartered under the laws of Delaware, under the name of "Ann Lewis Shops of Tampa, Inc." (hereafter sometimes referred to as the "subsidiary"). This was the only subsidiary of the defendant which engaged in business in the State of Florida. At the time of the organization of this subsidiary, the defendant had approximately forty-seven separate subsidiaries.

This subsidiary, Ann Lewis Shops of Tampa, Inc., was incorporated for the specific purpose of owning and operating a store in Tampa, Florida. It had $10,000 paid-in capital. The defendant invested $70,169 in the form of capital contribution and/or loans in this subsidiary, and has been the sole stockholder of the subsidiary since its inception. The parent company and the subsidiary maintained separate books of account and had separate bank accounts. The subsidiary had five or six employees in Florida, none of whom was an employee of the parent company. The officers and directors of the parent and subsidiary companies were substantially the same. The parent company maintained a buying service which made purchases, and each subsidiary was charged with the expense of maintaining such central buying service.

On or about September 10, 1946, a lease was entered into between the subsidiary and Cuesta Rey & Company, a Florida corporation which is the plaintiff's assignor. This lease was the basis of the causes which underly the Florida judgments. The lease was signed by the subsidiary, and the obligations under the lease were guaranteed by the parent corporation. Louis Silver and Ira Silver signed as president and secretary of both the parent and the subsidiary corporations in New York City on September 10, 1946. It was signed on the landlord's behalf on October 15, 1946 in Tampa, Florida. An agreement modifying the lease was signed by the same individuals on behalf of the three parties in 1951 again in New York City and Tampa, respectively.

On June 8, July 1, and July 7, 1955, Cuesta Rey & Company, the landlord, commenced actions upon the lease against both the parent and the subsidiary in the Circuit Court for the 13th Judicial Circuit in and for Hillsborough County, Florida. The attorney sent to the defendant in this action, by registered mail, notices of the institution of the suits pursuant to §§ 47.16 and 47.30 of the Florida Statutes, F.S.A., along with copies of the summons and complaint. He also filed copies in the office of the Secretary of State of Florida and apparently complied in all respects with the prescribed procedure for substituted service of process. The defendant has conceded that it received the notices at its main office in New York City. Neither the parent nor the subsidiary appeared and on motion of the plaintiff, default judgments were rendered against both the defendant and its subsidiary in the three actions as follows:

No. 30124-L for $2,273.85 on July 21, 1955;

No. 30174-L for $2,278.77 on August 2, 1955;

No. 30197-L for $6,687.74 on August 2, 1955.

The first two judgments were for rent installments for May 1, and June 1, 1955. The third was for delinquent taxes that were to be paid on April 1, 1955. All three judgments include sums for reasonable attorneys' fees claimed pursuant to a provision in the lease, and costs. It is not disputed that the Florida Court had jurisdiction over the subsidiary.

Partial payments were made on all three judgments (by whom does not appear) so that there is now owing $746.16 on the first, $730.72 on the second, and $5,734.89 on the third, and interest. On October 11, 1955, Cuesta Rey & Company, the landlord, assigned the judgments to Doris Berkman, the plaintiff. Shortly afterward, the present action was commenced in the New York Supreme Court and removed by the defendant to this Court.

It is the defendant's contention that the Florida judgments are void because it was not doing business in Florida at the time of their rendition and of the substituted service of process.

The parent had no employees located in Florida, and has never done any business in that State except as may be inferred from the foregoing.

The statute under which jurisdiction was asserted in Florida provides, in part:

Section 47.16—Florida Statutes. "Service of process upon nonresidents engaging in business in state. The acceptance by any person or persons, individually, or associated together as a copartnership or any other form or type of association, who are residents of any other state or country, and all foreign corporations, and any person who is a resident of the state and who subsequently becomes a nonresident of this state or conceals his whereabouts, of the privilege extended by law to nonresidents and others to operate, conduct, engage in, or carry on a business or business venture, in the state, or to have an office or agency in the state, shall be deemed equivalent to an appointment by such persons and foreign corporations of the secretary of state of the state as the agent of such persons or foreign corporations upon whom may be served all lawful process in any action, suit or proceeding against them, or either of them, arising out of any transaction or operation connected with or incidental to such business or business venture, and the acceptance of such privilege shall be signification of the agreement of such persons and foreign corporations that any such process against them or either of them, which is so served shall be of the same legal force and validity as if served personally on such persons or foreign corporations."

This statute was enacted in 1951. To establish jurisdiction, it is necessary to determine whether, based upon the foregoing facts, the defendant's activities were such as "to operate, conduct, engage in, or carry on a business or business venture, in the State of Florida".

The recitals in the three judgments, upon which the Florida Court based its jurisdiction, were as follows:

"That the guarantee of the provisions of said Lease Agreement by Ann Lewis Shops, Inc., was in connection with the business venture of Ann Lewis Shops, Inc., in the State of Florida. That Ann Lewis Shops of Tampa, Inc., is a wholly owned subsidiary of Ann Lewis Shops, Inc., and, constitutes the vehicle by which Ann Lewis Shops, Inc., sold merchandise under the trade name `Ann Lewis' in the State of Florida. That Ann Lewis Shops, Inc. is engaged in the business of selling merchandise under the trade name `Ann Lewis', either individually, or through wholly owned subsidiaries, and the president and secretary of both Ann Lewis Shops, Inc. and Ann Lewis Shops of Tampa, Inc., are the same. That said Ann Lewis Shops, Inc., was duly and properly served in accordance with the provisions of Section 47.16 of the Florida Statutes."

Discussion

Ordinarily, of course, the judgment of a court of another state is entitled to full faith and credit in every Court within the United States as it has by law or usage in the state in which it was rendered. 28 U.S.C. § 1738. However, in a suit upon the judgment of another state, the jurisdiction of the Court which rendered it is still open to judicial inquiry and when the matter of fact or law on which jurisdiction depends was not litigated in the original suit, it is a matter to be adjudicated in the suit founded upon the judgment. Adam v. Saenger, 1938, 303 U.S. 59, 62, 58 S.Ct. 454, 82 L.Ed. 649.

The issues, therefore, which are presented for determination of this Court are whether the activities of the defendant were such as to give jurisdiction to the Courts of Florida under the particular statute of Florida here involved; and, if so, whether a statute so construed would be violative of the provisions of the Fourteenth Amendment to the United States Constitution as depriving a person of due process of law.

The Florida cases which have interpreted the Florida statute here involved have not passed upon the question as to whether a foreign corporation may be subjected to jurisdiction by reason of the fact that it has a wholly-owned subsidiary doing business in the state.¹

In one case decided before the enactment of the present statute, the Florida Supreme Court intimated that a foreign corporation is not "transacting business" within the state within a statute requiring a foreign corporation to obtain a permit to "transact business" within the state merely by...