Empire Steel Corp. of Texas, Inc. v. Superior Court, Los Angeles County
| Decision Date | 06 June 1961 |
| Citation | 13 Cal.Rptr. 854 |
| Court | California Court of Appeals Court of Appeals |
| Parties | EMPIRE STEEL CORPORATION OF TEXAS, INC., a corporation, Petitioner, v. SUPERIOR COURT of the State of California in and for the COUNTY OF LOS ANGELES, Respondent. Civ. 25412. |
Frank De Marco, Jr., Los Angeles, for petitioner.
Greenberg, Shafton & Schlei, Los Angeles, for real party in interest.
Petitioner, Empire Steel Corporation of Texas, Inc., (hereinafter called 'Empire') seeks to prevent the superior court from proceeding in an action brought against it by Associated Metals and Minerals Corporation, real party in interest here. Petitioner is a corporation organized under and having its principal place of business in Texas. Real party in interest is a corporation organized and existing under the laws of the state of New York. Real party in interest is, and petitioner is not, qualified to do business in this state.
Real party in interest commenced an action in respondent court to recover damages for the breach by Gachman Steel Corporation of California (a California corporation hereinafter called 'Gachmen') of a contract to purchase from real party in interest certain steel. The complaint filed by it is in two counts. The first count alleges the contract between it and Gach man and the breach thereof. By the second count the same cause of action as is set forth in the first count is repleaded but alleges facts by which it is sought to hold petitioner upon the contract between real party in interest and Gachmen upon the theory that Gachman is the alter ego of petitioner. Service of process was made upon petitioner by serving in this state one Dan Gachman, who was then the president of Gachman and vice president of petitioner. Petitioner moved the respondent court to quash the service of summons and its motion having been denied applied to this court for writ of prohibition. We issued an alternative writ of prohibition but are now satisfied that the writ we should have issued was one of mandate (Code Civ.Proc. § 416.3), and we treat this proceeding as one in mandate.
Petitioner is subject to the jurisdiction of the court of this state if it was 'doing business in this state' within the meaning of section 411, Code of Civil Procedure. The term 'doing business in this State' is 'a descriptive one that the courts have equated with such minimum contacts with the state 'that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice'''. Henry R. Jahn & Son v. Superior Court, 49 Cal.2d 855, at page 858, 323 P.2d 437, at page 439. "[D]oing business' within the meaning of section 411 of the Code of Civil Procedure is synonymous with the power of the state to subject foreign corporations to local process.' 49 Cal.2d at page 858, 323 P.2d at page 439.
There is no mechanical or quantitative test as to whether a foreign corporation is doing business within this state so as to make service upon it of process satisfy due process but each case must be decided upon its own facts. Henry R. Jahn & Son v. Superior Court, supra, 49 Cal.2d at page 862, 323 P.2d at page 411; Fisher Governor Co. v. Superior Court, 53 Cal.2d 222, 1 Cal.Rptr. 1.
We are satisfied that petitioner's activities and contacts with this state did not constitute doing business within this state within the meaning of section 411, Code of Civil Procedure, as that section has been construed by our Supreme Court, and to make it subject to process in the pending action.
The facts as disclosed by the declarations filed in support of and in opposition to petitioner's motion in the trial court are: Petitioner has its principal office and principal place of business in Fort Worth, Texas; it is there engaged in maintaining a steel warehouse for the brokering and warehousing and selling of steel products; it is not engaged in any manufacture but ships steel products in interstate commerce; its principal activities, however, being in the state of Texas. In 1957, petitioner desired to engage in business in California but found that because its books were kept in Texas that it could not secure financing from the banks in California. It thereupon caused Gachman to be organized and acquired all of the issued capital stock of Gachman in return for cash, steel inventories, office furniture, equipment and receivables, of the total value of $225,000 and at that time loaned to Gachman the sum of $92,000 for which it took Gachman's note bearing interest at 5 1/2 per cent per annum. Petitioner has no salesmen or solicitors within the state of California, does not solicit or make sales within the state of California, does not receive orders for any sales to customers within the state of California, has no employees within the state of California other than that the president of Gachman is also an officer and director of petitioner. It maintains no bank accounts in the state of California, purchases no products from California, maintains no office in the state of California, owns no property in the state, pays no rent or other charges to any preson in the state of California; makes no sales to independent contractors, jobbers or other persons in the state of California for resale there and does not negotiate for or arrange the distribution of any of its products within the state. Petitioner and Gachman keep and at all times have kept separate books of accounts and records, each set of books being kept at the home office of each corporation each corporation has separate auditors, separate personnel (exclusive of officers and directors), separate capitalization and no contract exists requiring Gachman to purchase goods from petitioner. The same persons are directors of both corporations.
After the formation of Gachman it paid to petitioner the sum of $75,000 in reduction of the principal of the aforesaid note. In 1959, due to the steel strike, Gachman got into financial difficulties and from that time until the fall of 1960, Empire sold to Gachman certain merchandise of the value of approximately $23,000 for which it did not receive payment, which sum was apparently added to the principal of the note.
In October 1960, the subject action was commenced and shortly thereafter, on its petition, Gachman was declared a bankrupt.
When analyzed, these facts show that petitioner's contacts with the state of California consisted of (1) its acquisition and continued ownership of all of the outstanding stock of Gachman, (2) sales of merchandise in interstate commerce to Gachman and the extension of credit to Gachman therefor. In our opinion these contacts are not sufficient to constitute doing business in California under the rules laid down by our Supreme Court in Henry R. Jahn & Son v. Superior Court, supra, 49 Cal.2d 855, 323 P.2d 437; Carl F. W. Borgward, G. M. B. H. v. Superior Court, 51 Cal.2d 72, 330 P.2d 789; Fisher Governor Co. v. Superior Court, supra, 53 Cal.2d 222, 1 Cal.Rptr. 1.
Ownership by petitioner of all of the stock of Gachman did not constitute doing business in California by petitioner so as to make it subject to process in an action brought in this state upon a contract of Gachman with a foreign corporation. Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634; National Carbide Corp. v. Commissioner, 336 U.S. 422, 69 S.Ct. 726, 93 L.Ed. 779, see note at p. 789; Berkman v. Ann Lewis Shops, 2 Cir., 246 F.2d 44; Harris v. Deere & Company, 4 Cir., 223 F.2d 161, at page 162; Manville Boiler Co. v. Columbia Boiler Co. of Pottstown, 4 Cir., 269 F.2d 600, at page 606; 14 Cal.L.Rev. 12-21; 18 Fletcher, Cyclopedia Corporations, § 8773, pp. 817-821. There is nothing in the facts before us to show that Gachman acted as the agent of petitioner but to the contrary the facts demonstrate that the entity of Gachman was strictly perserved and that it operated as an entirely separate entity.
The sales of merchandise by Empire to Gachman and the extension of credit upon those sales are not sufficient contacts to constitute doing business and to give the courts of this state jurisdiction over petitioner in an action brought upon a contract of Gachman which has no relationship whatsoever to the sales made by petitioner. Fisher Governor Co. v. Superior Court, supra, 53 Cal.2d 222, 1 Cal.Rptr. 1.
The fact that the person served with process was an officer of petitioner does not serve to subject...
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