Delagi v. Volkswagenwerk A.G. of Wolfsburg, Germany

• Decision Date: 13 January 1972
• Citation: 29 N.Y.2d 426,278 N.E.2d 895,328 N.Y.S.2d 653
• Parties: , 278 N.E.2d 895 Nicholas J. DELAGI, Respondent, v. VOLKSWAGENWERK AG OF WOLFSBURG, GERMANY, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 653

328 N.Y.S.2d 653

29 N.Y.2d 426, 278 N.E.2d 895

Nicholas J. DELAGI, Respondent, v. VOLKSWAGENWERK AG OF WOLFSBURG, GERMANY, Appellant.

Court of Appeals of New York.

Jan. 13, 1972.

Herbert Rubin, Bernard J. Wald and Michael Hoenig, New York City, for appellant.

Bernard R. Lieberman and Seymour M. Liebowitz, New York City, for respondent.

JASEN, Judge.

This action, based on negligence and breach of warrantly, comes to us in the pleadings stage for a determination as to whether jurisdiction was validly acquired over the defendant, Volkswagenwerk AG of Wolfsburg, Germany, a German corporation, hereinafter referred to as VWAG.

The plaintiff in his complaint alleges that, in 1965, he purchased a Volkswagen automobile from an authorized Volkswagen dealer in Germany. While operating said vehicle in Germany, plaintiff claims that 'the front wheel suspension and its appurtenant parts broke and collapsed, causing the front wheels to cave in and the motor vehicle to run out of control and hit a bridge abutment with such force as to cause (him) serious injuries'.

Upon his return to the United States, plaintiff brought suit in New York against VWAG, alleging that 'the defendant transacted sufficient of its business within the State of New York to subject itself to the jurisdiction of the courts of this State.' Service of process was made on the defendant, pursuant to CPLR 313, in Germany.

The following facts are not in dispute. Defendant, VWAG, a German corporation, manufactures and sells, in Germany, Volkswagen automobiles and parts. VWAG has never qualified to do business in New York and has no office or place of business here. VWAG exports its automobiles into the United States through Volkswagen of America, Inc. (VWoA), a New Jersey corporation, which is a wholly owned subsidiary of VWAG ¹ and the exclusive American importer of Volkswagen automobiles. Likewise, VWoA has never qualified to do business in New York and has no office or place of business here. After these cars arrive in the United States at various ports, none of which are in New York they are resold to 14 wholesale distributors franchised by VWoA. These distributors take title to the vehicles at the delivery point and, in turn, reship the cars to local independent franchised dealers. In New York State, the franchised wholesale distributor is World-Wide Volkswagen Corp. (World-Wide). The entire capital stock of World-Wide and its New York franchised dealers in owned by United States investors unrelated to either VWoA or VWAG.

Plaintiff does not claim that his cause of action arose from the German corporation's direct transaction of any business in New York in order to bring the defendant within the jurisdiction of our courts pursuant to CPLR 302 (subd. (a), par. 1), but argues that jurisdiction was properly acquired over the defendant VWAG because it is 'engaged in a systematic and regular course of business' in New York which subjects it to our jurisdiction pursuant to CPLR 301.

Our most recent pronouncement in this area of the law, Frummer v. Hilton Hotels Int., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851 reiterated the rule that a foreign corporation is amenable to suit in our courts if it is engaged in such a continuous and systematic course of 'doing business' in New York as to warrant a finding of its 'presence' in this jurisdiction. Frummer held that Hilton (U.K.) was 'doing business' in New York in the 'traditional sense' because of services performed--specifically publicity work and the making of final room reservations--by the Hilton Reservation Service as agent for Hilton (U.K.). The affiliate relationship existing between the Reservation Service and Hilton (U.K.) ² was significant only as it gave rise to an inference of an agency relationship. This 'valid inference' may not, however, extend the actual scope of the agency. ³ 'The 'presence' of Hilton (U.K.) in New York,' Chief Judge Fuld wrote, 'for purposes of jurisdiction, is established by the activities conducted here on its behalf by its agent, the Hilton Reservation Service, and the fact that the two are commonly owned is significant only because it gives rise to a valid inference as to the broad scope of the agency in the absence of an express agency agreement such as the one which existed in the Berner case, 3 N.Y.2d 1003, 170 N.Y.S.2d 340, 147 N.E.2d 732, Supra.' (Frummer v. Hilton Hotels Int., Supra, at p. 538, 281 N.Y.S.2d at p. 44, 227 N.E.2d at p. 854.)

In the case before us, however, the undisputed facts do not give rise to a valid inference of agency. Concededly World-Wide is an independently owned corporation, in no way directly related to VWAG, and related to VWoA only by way of a 'Distributor Agreement'. Under this agreement, World-Wide purchases Volkswagen automobiles and parts outright from VWoA, takes possession at dock in Newark, New Jersey, and resells same to local Volkswagen dealers in its franchise area of New York, New Jersey and Connecticut. Where, as here, there exists truly separate corporate entities, not commonly owned, a valid reference of agency cannot be sustained.

One point remains--whether jurisdiction was properly acquired over VWAG by reason of the 'control' the foreign corporation exerts over World-Wide and the franchise dealers in the State. Specifically, plaintiff asserts that VWAG maintains a rigid control over World-Wide and its dealers by requiring: (1) sale by each dealer of a minimum number of automobiles upon penalty of forfeiture of their dealer franchise; (2) uniform design for dealer service...