Continental Properties, Inc. v. Ullman Co.

• Decision Date: 13 May 1977
• Docket Number: Civ. A. No. 77-0109-R.
• Citation: 436 F. Supp. 538
• Court: U.S. District Court — Eastern District of Virginia
• Parties: CONTINENTAL PROPERTIES, INC. v. The ULLMAN COMPANY et al.

436 F. Supp. 538

CONTINENTAL PROPERTIES, INC. v. The ULLMAN COMPANY et al.

Civ. A. No. 77-0109-R.

United States District Court, E. D. Virginia, Richmond Division.

May 13, 1977.

Charles F. Witthoefft, Richmond, Va., for plaintiff.

Richard L. Williams, R. Brian Ball, Richmond, Va., for defendants.

MEMORANDUM

WARRINER, District Judge.

This matter is before the Court on the individual defendants' motion of 21 March 1977 to dismiss the above matter pursuant to Fed.R.Civ.P. 12(b)(6) on the ground that the complaint fails to state a claim against them upon which relief may be granted. They argue that plaintiff's efforts to establish a cause of action against them in this case by a statutory piercing of the corporate veil of defendant Ullman pursuant to Section 13.1-119 of the Code of Virginia should fail because defendant Ullman has not "transacted business"¹ within this State in a way which would subject the individual defendants to the provision of Va.Code § 13.1-119 (Repl.Vol.1973).²

Thus, the initial issue before the Court is the question of whether defendant Ullman, a foreign corporation, was transacting business in this Commonwealth so as to require it to procure a certificate of authority pursuant to Va.Code § 13.1-102 (Repl. Vol.1973)³ so as to subject the individual defendants, its officers and directors, to the penalty of personal liability under Code Section 13.1-119 for its failure to procure such certificate.

The concept of "transacting business" has been a source of confusion to both courts and corporations alike.⁴ Because the facts are of extreme importance in a determination of transacting business, the facts of this case should be set forth in extensio. Under Rule 12(b)(6) the complaint, as supplemented, may be looked to for the undisputed facts.

Defendant Ullman is a New York corporation engaged in the business of the manufacture and sale of sundry household items. In 1975, allegedly due to various adverse economic factors affecting its business performance in New York, Ullman decided to close its manufacturing facility in Brooklyn and to construct a new facility in Suffolk, Virginia. In furtherance of this effort, Ullman took direct responsibility for a number of actions in 1975 and the first months of 1976. Among other acts Ullman entered into a purchase agreement with the Industrial Development Authority of the City of Suffolk regarding the building site on which the manufacturing plant was to be constructed; employed a Connecticut architectural firm to prepare plans and specifications for the construction of the plant; commenced regular negotiations and business dealings with a general construction firm located in Suffolk to construct the plant; and undertook various initial steps to obtain the necessary financing for the construction of the plant. Realizing that its project lacked coordination and direction, Ullman entered into an agreement on 23 July 1976 with plaintiff, a Virginia corporation engaged in the general business of real estate development and investment, in which the plaintiff's involvement with regard to the project was set out. Plaintiff subsequently performed all conditions and obligations on its part to be performed with regard to the agreements between plaintiff and defendant Ullman. However, due to fraudulent actions and omissions of defendant Ullman, Ullman was unable to secure financing and consequently aborted its planned move to Virginia. As a direct and consequential result of these acts and omissions by defendant Ullman plaintiff has suffered substantial damages.

Although Ullman transacted the above acts in Virginia as a foreign corporation during 1975 and 1976, it failed to procure a certificate of authority from the State Corporation Commission until on or about 18 November 1976. The various acts and omissions by and for which Ullman is allegedly responsible to plaintiff took place prior to that date. As a result of the foregoing, and pursuant to Section 13.1-119, the plaintiff seeks to hold the individual defendants, the officers and directors of defendant Ullman, jointly and severally liable.

In view of the great variety of possible fact situations it is difficult to formulate a precise, consistent definition of the term "transacting business" in the foreign qualification sense. Nevertheless, an analysis of what the Virginia courts have considered to be significant contacts narrows the possible interpretations of the phrase.

According to the Virginia Supreme Court:

The term "doing business" has a legal significance which differs with the type of case to which it is applied. It is quite possible that a foreign corporation may be held to be "doing business" in a given State for one purpose, and not "doing business" for another. Three general classes of cases involving "doing business" are found in the reports, viz: (1) those involving service of process upon a foreign corporation; (2) those involving taxation; (3) those involving domestication or qualification under statutes regulatory of foreign corporations. Many of the cases of the second and third classes are primarily concerned with the nature and character of the business done, that is, whether the business is interstate, and hence beyond the power of the state to tax or regulate. In process cases that feature is not determinative. citations omitted.

The legal tests, for determining whether or not the foreign corporation is "doing business" in a state, differ as the case falls within one or the other of these classifications, and precedents dealing with one class are of little value in those instances when it is sought to apply them to another class. Tignor v. L. G. Balfour and Co., 167 Va. 58, 62, 187 S.E. 468, 470 (1936).

As the issue confronting the Court falls within the third class enumerated above regarding domestication or qualification of a foreign corporation, this Court must seek the applicable test to apply only among precedents dealing with that class. Though there have been several decisions by the Supreme Court of Virginia in this area⁵ no two cases deal with precisely the same fact situation.

Plaintiff argues that the proper test to apply is whether the foreign corporation has had such minimum contacts within Virginia that the maintenance of personal jurisdiction in this State over the foreign corporation "would not offend traditional notions of due process and fair play." The individual defendants correctly point out, however, that the test proposed by plaintiff applies to that class of cases involving service of process upon a foreign corporation.

It is generally held that a much stronger showing of in-State activities is required in order to invoke the sanctions of corporate qualification statutes than is required either to subject a foreign corporation to local taxation or to service of process. In considering this issue, the Court in Rochester Capital Leasing Corp. v. Sprague, 13 Ariz.App. 77, 474 P.2d 201 (1970), stated the following:

It is apparent from an analysis of the decisions concerning the doing of business question that generally the courts require a much stronger showing of in-state activities in order to invoke the sanctions of corporate qualification statutes than is required to subject the foreign corporation to local taxation or to state court jurisdiction through service of process.

With the foregoing in mind, we emphasize that the question before this Court is not whether the facts would have justified a finding that plaintiff-foreign corporation was doing or transacting business in Arizona sufficient to support in personam jurisdiction, or sufficient to uphold the validity of the imposition of a tax. Rather, as stated above, a much stronger showing of in-state contacts is required when the question before the court is whether or not a corporation's activities fall within the proscription of a corporate qualification statute. 474 P.2d at 203.

As previously noted, the corporate defendant was a New York corporation. It was engaged in the manufacture and sale of sundry household items made of vinyl and styrne. This suit has nothing to do with either manufacture or sale of such products within the Commonwealth of Virginia. Rather, plaintiff contends that defendant Ullman was "transacting business" within the statutory meaning of Sections 13.1-102, 13.1-119 as a result of its business dealings incidental to its attempt to move its manufacturing plant to Suffolk, Va. This may, indeed defendant Ullman concedes that it does, satisfy the broader service of process test as against the defendant foreign corporation. We are constrained to hold, however, that it falls short of satisfying the legal test requiring certification under Va.Code § 13.1-102.

Defendant Ullman was engaged in what some courts refer to as "acts preliminary to doing business."⁶ Entering into a purchase...