Chaplin v. Selznick

• Decision Date: 30 November 1944
• Citation: 293 N.Y. 529,58 N.E.2d 719
• Court: New York Court of Appeals Court of Appeals
• Parties: CHAPLIN v. SELZNICK et al.

293 N.Y. 529

58 N.E.2d 719

CHAPLIN

v.SELZNICK et al.

Court of Appeals of New York.

Nov. 30, 1944.

Appeal from Supreme Court, Appellate Division, First Department.

Stockholders' derivative action by Charles Chaplin, suing on behalf of himself and all other stockholders of United Artists Corporation similarly situated, against, David O. Selznick and others, wherein David O. Selznick Productions, Inc., and Vanguard Films, Inc., filed motions to vacate service of summons and complaint on ground, as to each, that it was not subject to jurisdiction of state court because it was not transacting business in New York. From an order of the Supreme Court, 267 App.Div. 973, 48 N.Y.S.2d 555, which affirmed, by a divided court, an order of the Special Term of the Supreme Court, New York County Pecora, J., denying the motion, the movants appeal by permission of the Appellate Division. By its order granting permission to appeal and certifying questions, the Appellate Division also certified that the findings of fact made by the Special Term had been affirmed by the Appellate Division.

Reversed in part and affirmed in part, and certified questions answered.

LEHMAN, C. J., and CONWAY, THACHER, and RIPPEY, JJ., dissenting in part. Lowell Wadmond and Chester Bordeau, both of New York City, for defendants-appellants appearing specially.

Louis D. Frohlich and Herbert P. Jacoby, both of New York City, for respondent.

CONWAY, Judge.

This is a stockholders' derivative action brought on behalf of United Artists Corporation (hereinafter referred to as ‘United’) against David O. Selznick Productions, Inc. (hereinafter referred to as ‘Productions'), Vanguard Films, Inc. (hereinafter referred to as ‘Vanguard’), David O. Selznick, Twentieth Century-Fox Film Corporation (hereinafter referred to as ‘Twentieth Century’) and United Artists Corporation.

As to the defendant corporations, the complaint alleges that United is a Delaware corporation having its principal place of business in the city and State of New York, and that Twentieth Century is a corporation organized and existing under the laws of the State of New York. As to Productions and Vanguard, the complaint alleges that each was organized under the laws of the State of California, and has an office for the transaction of business at 515 Madison Avenue in the City and State of New York ‘and has been transacting and does transact business in said State of New York.’ The residence of the nominal plaintiff is unimportant, since he is but the ‘instigator’ of the action on behalf of United.

Productions and Vanguard appeared specially and moved to vacate service of the summons and complaint upon the ground, as to each, that it was not subject to the jurisdiction of our State courts because it was not transacting business here.

Upon the denial of that motion and its affirmance by the Appellate Division, two questions were certified to us as follows:

‘1. Was the defendant, David O. Selznick Productions, Inc., doing business within the State of New York to such an extent as to subject it to the service of process in New York?

‘2. Was the defendant, Vanguard Films, Inc., doing business within the State of New York to such an extent as to subject it to the service of process in New York?’

While neither Special Term nor the Appellant Division made express findings of fact, the Appellate Division certified that the findings of fact made by the court at Special Term were affirmed. See Civil Practice Act, s 603. We must assume, therefore, that all controverted questions of fact in the record have been determined in favor of plaintiff.

The question presented, then, is whether, on those facts, Productions and Vanguard have been or are transacting business in this State. When a corporation created in one State goes into another, ‘it must be there by its agents authorized to transact its business in that State’ in order to be regarded as within the latter State. Each case, of necessity, must depend upon its own facts, but those facts must show that the corporation is actually doing business within the State in which the action is brought. International Harvester of America v. Commonwealth of Kentucky, 234 U.S. 579, 583, 34 S.Ct. 944, 58 L.Ed. 1479. We pointed that out in Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 265, 266, 268, 269, 115 N.E. 915, 916, 917, 918, which counsel for appellants now seeks to distinguish, if not indeed to have formally overruled. There we said:

‘The plaintiff, a resident of this state, has brought suit against the Susquehanna Coal Company, a Pennsylvania corporation. The defendant's principal office is in Philadelphia; but it has a branch office in New York, which is in charge of one Peterson. Peterson's duties are described by the defendant as those of a sales agent. He has eight salesmen under him, who are subject to his orders. A suite of office is maintained in the Equitable Building in the city of New York, and there the sale agent and his subordinates make their headquarters. The sign on the door is ‘Susquehanna Coal Company, Walter Peterson, sales agent.’ The offices contain eleven desks, and other suitable equipment. In addition to the salesmen there are other employes, presumably stenographers and clerks. The salemen meet daily and receive instructions from their superior. All sales in New York are subject, however, to confirmation by the home office in Philadelphia. The duty of Peterson and his subordinates is to procure orders which are not binding until approved. All payments are made by customers to the treasurer in Philadelphia; the salesmen are without authority to receive or indorse checks. A bank account in the name of the company is kept in New York, and is subject to Peterson's control, but the payments made from it are for the salaries of employes, and for petty cash disbursements incidental to the maintenance of the office. The defendant's coal yards are in Pennsylvania, and from there its shipments are made. They are made in response to orders transmitted from customers in New York. They are made, not on isolated occasions, but as part of an established course of business. In brief, the defendant maintains an office in this state under the direction of a sales agent, with eight salesmen, and with clerical assistants, and through these agencies systematically and regularly solicits and obtains orders which result in continuous shipments from Pennsylvania to New York.

‘To do these things is to do business within this state in such a sense and in such a degree as to subject the corporation doing them to the jurisdiction of our courts.’

We also said: ‘Unless a foreign corporation is engaged in buiness within the state, it is not brought within the state by the presence of its agents. But there is no precise test of the nature or extent of the business that must be done. All that is requisite is that enough be done to enable us to say that the corporation is here (citing cases). If it is here it may be served (citing case). * * * The essential thing is that the corporation shall have come into the state. When once it is here, it may be served; and the validity of the service is independent of the origin of the cause of action.’

Having that test before us, which the courts of this State have followed since, although the facts involved and the language employed in subsequent cases have necessarily varied (e. g., Holzer v. Dodge Brothers, 233 N.Y. 216, 135 N.E. 268;Lillibridge, Inc., v. Johnson Bronze Co., 247 N.Y. 548, 161 N.E. 177;Gaboury v. Central Vermont Ry. Co., 250 N.Y. 233, 165 N.E. 275;Yeckes-Eichenbaum, Inc., v. McCarthy, 290 N.Y. 437, 49 N.E.2d 517), we turn to the theory of plaintiff's cause of action.

In July, 1935, Selznick International Pictures, Inc. (hereinafter referred to as ‘Internation’), a corporation in which the defendant Selznich and another owned the controlling stock interest, entered into a contract with United which provided that International should produce and deliver at least four pictures for distribution through United, which as we have seen had its principal place of business in this State. International delivered two pictures. It then produced and distributed, through a corporation other than United, a picture called ‘Gone With the Wind,’ which resulted in very large profits for International. Thereafter, the defendant Selznick caused International to be dissolved, in order to effect a favorable solution of certain tax problems. The dissolution had to be accomplished within a definite period and it was necessary, within such period, to obtain a release from United of the obligation of International to produce the two other motion picture photoplays. Thereupon, Productions was organized in August, 1940, assumed the obligation of International for the two pictures and United executed the desired release of International. The defendant Selznick, at that time, entered into a separate agreement with United under which he personally agreed that until such two additional motion pictures had been delivered, he would not, directly or indirectly, engage in the production or distribution of other photoplays. Neither picture, however, was produced under that contract by Productions. Subsequently, more than a year later, negotiations were entered into which resulted in the making of new agreements on October 4, 1941, as follows: (a) An agreement between United and Productions whereby Productions and the defendant Selznick were released from the aforesaid assumed International agreement; (b) a distribution agreement between United, Productions and defendant Selznick whereby Productions agreed to produce a number of motion pictures and United to distribute them; (c) a stock purchase agreement between United and Productions, providing for the purchase of a 25% stock interest in United by Productions and defendant Selznick and for the manner of payment for such stock; and (d) a loan agreement between United and...