Danjaq, SA v. MGM/UA COMMUNICATIONS, CO., CV 90-5498-SVW.

Citation773 F. Supp. 194
Decision Date26 June 1991
Docket NumberNo. CV 90-5498-SVW.,CV 90-5498-SVW.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
PartiesDANJAQ, S.A., a corporation, Plaintiff, v. MGM/UA COMMUNICATIONS, CO., a corporation; Pathe Communications Co., a corporation, et al., Defendants.

Howard, King, Kevin S. Marks, Gang, Tyre, Ramer & Brown, Inc., Los Angeles, Cal., for plaintiff.

Terry D. Avchen, Eric N. Landau, John M. Gatti, Christensen, White, Miller, Fink & Jacobs, Los Angeles, Cal., for defendants MGM/UA Comm. Co., Tracinda Corp. and K. Kerkorian.

Arthur Groman, Thomas Lambert, Daniel Romano, Ann Loeb, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for defendants Pathe Comm. Corp. and MGM-Pathe Comm. Co.

ORDER DISMISSING COPYRIGHT ALLEGATIONS FOR FAILURE TO STATE A CLAIM AND DISMISSING REMAINING STATE-LAW CLAIMS FOR LACK OF SUBJECT MATTER JURISDICTION

WILSON, District Judge.

Introduction

In the beginning, harmony prevailed among Bond's assistants. Danjaq, S.A. ("Danjaq") produced Bond films and MGM/UA Communications Co. ("MGM") distributed them. Sixteen Bond films in all, from "Dr. No" to "License to Kill," were produced and distributed under this arrangement, going back 19 years to the 1962 Distribution Agreement between Danjaq and MGM (the "Distribution Agreement"). But perfect harmony cannot last forever, and Pathe Communications Co. ("Pathe") appeared on the scene to prove this saying true.

Pathe made a bid for and in November 1990 acquired MGM to form a new entertainment industry giant MGM-Pathe. In the eleventh hour before the merger, Danjaq, suspecting the derogation of its rights under the Distribution Agreement, appealed to this court, without success, to enter a restraining order against the merger. Danjaq's complaint depicted a Machiavellian scheme by Pathe to finance the merger by peddling Bond films throughout the world at "fire-sale" prices. The alleged wrongs were breach of contract, breach of fiduciary duty, conspiracy to do the same, and copyright infringement.

In the end, it turns out that the copyright allegations do not state a claim and there is no diversity of citizenship between the parties so as to confer jurisdiction upon this court to hear the state-law claims.

Background

Danjaq is incorporated in Switzerland with its principal office in Lausanne. Danjaq's sole director is a Swiss attorney, Mr. Schlaeppi, residing in Lausanne. Mr. Schlaeppi admittedly knows little about the entertainment industry and performs strictly ministerial functions on behalf of Danjaq, and on behalf of fifteen other corporations for whom he serves in a similar capacity of a sole director. Danjaq has one additional employee in Switzerland, Mr. Reynard, who performs the bookkeeping function of monitoring royalty and other payments made to Danjaq's accounts in Switzerland. Danjaq files its income tax returns in Switzerland.

Danjaq's principals, Albert Broccoli and his wife Dana, have been residents of Los Angeles for the past twenty years. Danjaq's general counsel in the United States is Mr. Tyre of Gang, Tyre, Ramer & Brown, a Los Angeles law firm. Danjaq's principal business relationship is with MGM, which finances and distributes Bond films under the Distribution Agreement with Danjaq. Los Angeles is the situs of several meetings each year between the policymaking personnel of Danjaq and MGM. Mr. Broccoli maintains an office in the MGM building in Culver City, California, although the office is formally the headquarters of Warfield Productions, Inc., a separate entity controlled by Mr. Broccoli.

The actual business of filmmaking historically has been carried on by Danjaq through its wholly-owned U.K. subsidiary, Eon Productions, Ltd. ("Eon"), based in Pinewood studios outside of London. The scripts for Bond films are reviewed and plots conceived by Mr. Broccoli in Los Angeles in consultation with his London-based co-producer and stepson, Michael Wilson. Eon is charged with putting ideas on the screen. The production company goes on location anywhere in the world where the dauntless Mr. Bond is needed, and returns to Pinewood studios for final editing. When a film is completed, Eon formally sells the picture to its parent corporation, Danjaq.

Discussion
I. DIVERSITY OF CITIZENSHIP

The plaintiff is a citizen of the world, Swiss in origin, but with a presence in Lausanne, Los Angeles, London and New York. Defendants are all citizens of California. To maintain suit in this court, the plaintiff's principal place of business must be other than California. See 28 U.S.C. § 1332(c).

A. Whether an Alien Corporation is a Citizen of its Principal Place of Business for Purposes of Diversity Jurisdiction?

Prior to 1958, an alien corporation was considered, for purposes of diversity jurisdiction, a citizen solely of the foreign country of its incorporation. See Wright, Miller & Cooper, Federal Practice and Procedure, 2d, § 3628, at 662 (1984). In that year, Congress opted to reduce the caseload of the federal courts by adding Section 1332(c) to the Judicial Code. Id. Section 1332(c) is now a familiar principle of law providing that for purposes of diversity jurisdiction a domestic corporation is deemed a citizen of its state of incorporation and of the state of its principal place of business. 28 U.S.C. § 1332(c). Whether alien corporations, like their domestic counterparts, are subject to the same dual-citizenship rule has been debated in the more than thirty years since the enactment of Section 1332(c). At the outset, it must be noted that the Ninth Circuit has thus far taken no part in that debate.

The first case to consider the issue employed a close literal analysis of § 1332(c), concluding that the statute did not apply to alien corporations because the word "State" used in § 1332(c) is spelled with a capital "S," which Congress uses to designate a state of the United States. See Eisenberg v. Commercial Union Insurance Company, 189 F.Supp. 500, 502 (S.D.N.Y.1960). In the alternative, the Eisenberg court held that, even if § 1332(c) applied to alien corporations, the worldwide principal place of business of the defendant alien corporation lay outside of the United States. See id. In the years following that decision, the trend has been to adopt the alternative holding of Eisenberg, applying § 1332(c) to alien corporations, as arguably more consistent with the intent of Congress to limit diversity jurisdiction. See Continental Motion Pictures v. Allstate Film Co., 590 F.Supp. 67, 70-72 (C.D.Cal.1984) (alternative Eisenberg holding is the "emerging rule"); see also Clifford Corp., N.V. v. Ingber, 713 F.Supp. 575 (S.D.N.Y.1989).

The Fifth Circuit, which was the first court of appeals to address the issue, adopted the alternative holding in Eisenberg, citing congressional intent to limit diversity jurisdiction to out-of-state citizens who are potentially subject to local bias. See Jerguson v. Blue Dot Investment, Inc., 659 F.2d 31 (5th Cir.1981), cert. denied 456 U.S. 946, 102 S.Ct. 2013, 72 L.Ed.2d 469. Recently, the Eleventh Circuit reached the same result. See Cabalceta v. Standard Fruit Company, 883 F.2d 1553 (11th Cir.1989).

Indeed, the same kind of abuse of diversity jurisdiction practiced by domestic corporations prior to § 1332(c) could be practiced by alien corporations nominally incorporated abroad but maintaining a substantial, if not a dominant, presence in some state of the United States. In the present context, there would no reason to afford the protections of a federal forum to a Swiss corporation if all of its visible public activities were carried on in California. See Industrial Tectonics, Inc. v. Aero Alloy, 912 F.2d 1090, 1094 (9th Cir.1990) ("local contact alleviates problems with local prejudice against outsiders"). This is the evil that Congress intended to eradicate by the enactment of § 1332(c).

Accordingly, § 1332(c) is applicable to alien corporations, such as plaintiff Danjaq, and it remains for the court to locate Danjaq's worldwide principal place of business.

B. Whether Activities of a Subsidiary are Attributed to the Parent Corporation for Purposes of Determining the Parent Corporation's Principal Place of Business?

The question of whether to attribute Eon's activities to Danjaq is of critical importance here, because the most visible and substantial activities of a filmmaker are associated with the films' production. Production requires a large staff, space, and business contacts, all of which tend to forge stable ties between the filmmaker and the community. Historically, Danjaq's production activities have been carried on by its U.K. subsidiary, Eon. Danjaq now contends that its principal place of business, if not Switzerland, must be Great Britain in view of Eon's substantial and longstanding presence there.

It has long been a matter of settled law that a subsidiary corporation maintains its own principal place of business, for purposes of diversity jurisdiction, apart from its parent corporation. See Wright, Miller & Cooper, Federal Practice & Procedure, supra, § 3625. What appears to be less clear is the separate principal place of business of the parent corporation apart from the activities of its subsidiaries.

The only appellate decision directly to address this issue concluded that the separate corporate identities of the parent and subsidiary could not be ignored for the purpose of locating the parent's principal place of business. See de Walker v. Pueblo International, Inc., 569 F.2d 1169 (1st Cir.1978). In de Walker, the defendant corporation operated a chain of supermarkets in Puerto Rico but also owned a New Jersey subsidiary which accounted for 60% of the revenues of the parent corporation on a consolidated basis. Id. at 1171. In addition, the corporation's internal documents referred to the New Jersey subsidiary as a "division." Id. In spite of this uncontestably close relationship between the subsidiary and the parent, the First Circuit, relying on a line of Supreme Court c...

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