Energy Reserves Group, Inc. v. Superior Oil Co.
| Decision Date | 17 October 1978 |
| Docket Number | Civ. A. No. 77-1318. |
| Citation | 460 F. Supp. 483 |
| Parties | ENERGY RESERVES GROUP, INC., et al., Plaintiffs, v. The SUPERIOR OIL COMPANY and Superior Overseas Development Company, Ltd., Defendants. |
| Court | U.S. District Court — District of Kansas |
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Timothy E. McKee of Martin, Pringle, Schell & Fair, Clark R. Mandigo, II, Wichita, Kan., for plaintiffs.
Richard Jones, Jack D. Sage of Hershberger, Patterson, Jones & Roth, Wichita, Kan., Willard B. Wagner, Jr., Dan A. Spencer, The Superior Oil Co., Houston, Tex., for defendants.
This matter comes before the Court on the motion of defendant Superior Overseas Development Company Ltd. (hereinafter "Superior Overseas") to dismiss this action pursuant to Rule 12(b)(2), Federal Rules of Civil Procedure, for lack of personal jurisdiction. This Court has previously disposed of two motions of defendant Superior Oil Company (hereinafter "Superior") in an order dated January 5, 1978, which set for hearing the instant motion of Superior Overseas. This hearing was held on January 19, 1978. Counsel for both sides were then granted additional time within which to file supplemental briefs on the personal jurisdiction question before the Court. Having examined the parties' briefs and having heard their oral argument, this Court finds that the matter is now ready for resolution.
This is a declaratory judgment action brought for common law breach of contract. Subject matter jurisdiction is predicated on the diversity statute, 28 U.S.C. § 1332(a). Both defendants are Nevada corporations. Superior has its principal place of business in Texas, and Superior Overseas has its principal place of business in London, England. Superior is authorized to do, and for many years has done, extensive business in Kansas in the oil and gas industry. It appears that plaintiffs obtained service of process in Kansas on Superior's resident agent for service. Superior does not contest personal jurisdiction. Superior Overseas was served in Houston, Texas, pursuant to the Kansas long-arm statute. K.S.A. § 60-308(b) (1976), and Rule 4(e), Federal Rules of Civil Procedure.
The dispute between the parties arises from the contractual arrangements made by plaintiffs to finance the exploration, development and production of License P-244, which covers certain blocks in the North Sea area of the United Kingdom continental shelf. Plaintiffs hold a percentage working interest in the license which conveys rights for oil and gas exploration in the North Sea. Plaintiffs and defendants have entered into agreements to provide financing for the development of the Clinton interest in License P-244, to provide between the parties for the distribution of the earnings expected to flow from that development, and to provide for control of the voting rights attending plaintiffs' interest in the development of P-244.
Plaintiffs are allegedly under contractual obligations to the other owners of interest in the same areas. Plaintiffs allege that the defendants' refusal to participate in decisions made by the majority interest holders of P-244 has jeopardized the plaintiffs' license interest and has exposed plaintiffs to severe monetary penalties and possible forfeiture of their interest. Plaintiffs allege that defendants' failure to participate in the development of exploratory wells, in conformity with the majority vote of interest holders, is a material breach of their agreement with the defendants which excuses them from performance of their obligations under the contract. Plaintiffs allege in a separate count of their complaint that the defendants' conduct constitutes a default under the terms of the contracts and permits plaintiffs to terminate or rescind the agreements between the parties. Plaintiffs seek declaratory relief in a judgment ruling that the defendants' rights or interests under the contracts have terminated.
Superior Overseas has moved to dismiss on grounds of lack of personal jurisdiction. Superior Overseas has been served pursuant to the Kansas long-arm statute as one who has contracted with a Kansas resident for partial performance in the state. In the alternative, Superior Overseas has been served as one who transacts business in the forum through the agent or instrumentality of its parent corporation, Superior. Plaintiffs also allege that Superior Overseas is the mere "alter ego" of its parent and that jurisdiction over Superior, without more, provides jurisdiction over its absent subsidiary. Plaintiffs therefore urge this Court on corporate law principles to pierce the corporate veil between the two affiliated defendant corporations.
Defendants have responded that the two corporations have scrupulously maintained their separate corporate identities and that plaintiffs have demonstrated none of those facts necessary for a finding that the corporate veil may be pierced. Superior Overseas further contends that it lacks contacts with the forum sufficient to render proper this Court's exercise of jurisdiction over its person. Superior Overseas contends that it lacks any physical contact with Kansas and that its sole relationship with this forum is a signed contract which it mailed into the state for acceptance and final execution here by one of the plaintiffs. Superior Overseas strenuously argues that this sole act is insufficient to render the exercise of personal jurisdiction consistent with traditional notions of fair play and substantial justice as set forth in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977).
This Court cannot agree. Relying on the concepts of fundamental fairness and substantial justice, this Court is compelled to hold that personal jurisdiction over Superior Overseas is both authorized by statute and properly within the confines of the due process clause of the Fourteenth Amendment. This Court specifically declines to reach the issue whether the corporate veil between the two defendants may be pierced. That issue may be appropriately reserved, if necessary, until the trial on the merits of this action. This Court today concludes that alter ego principles no longer play any proper role in the analysis of the constitutional propriety of the exercise of jurisdiction properly invoked by service authorized by statute. This Court further concludes that because of the broad wording of the Kansas long-arm statute, and because of the liberal interpretation to be given its literal reach, alter ego principles play no viable role in the construction and applicability of that statute and consequently do not restrict those who might be reached for service thereunder.
The Court thus decides two jurisdictional questions. The Court first holds that the long-arm statute, which authorizes service on anyone who commits certain acts "through an agent or instrumentality," permits service of process on a non-resident corporation which has in the forum an affiliated corporation that has committed one of those acts at the direction or for the benefit of the non-resident corporation. The statutory language "agent or instrumentality" extends service beyond non-resident corporations who act merely as "alter egos" of an affiliated corporation in the forum and thus permits service on the non-resident corporation without a determination whether the corporate veil might be pierced. This Court concludes that the Kansas legislature did not intend to restrict the reach of the long-arm statute only to those who commit the enumerated acts through a corporate "alter ego," a concept which derived from principles of corporate law unrelated to the limitations on quasi-sovereign states to issue service of process beyond their territorial borders.
The Court secondly holds that formal separation of corporate identities does not raise a constitutional barrier to the exercise of jurisdiction over a non-resident whose affiliated corporation has a substantial nexus with the forum. This follows from the conclusion that the time-honored doctrine of Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), must no longer be followed. The Court finds Cannon to be limited in scope or modified in holding by International Shoe and its progeny. Reliance on the rule of Cannon is unsound when extraterritorial service is authorized by statute and when personal jurisdiction is predicated on the due process standards of International Shoe.
The Court concludes that the constitutional analysis under International Shoe permits consideration of a non-resident's relationship with an affiliated corporation in the forum, notwithstanding their proper maintenance of separate corporate identities. The Court may also consider as "affiliating circumstances" with the forum the contacts or activities of the affiliated corporation itself where those activities are intended to bestow a benefit upon the nonresident corporation that the latter has purposefully sought or might reasonably foresee. The relative significance of these factors are dependent upon the facts of each given case. They assume greater significance where, as here, the domestic corporation's activities are substantially related to the obligations giving rise to plaintiffs' claims against the non-resident subsidiary corporation. The Court considers these contacts relevant to any realistic judgment of the relative fairness of requiring Superior Overseas to defend itself in this forum on the contracts in question. It considers these activities of the parent corporation notwithstanding any lawful and viable separation of corporate identities maintained between the defendants.
The Court therefore finds personal jurisdiction over Superior Overseas proper on two grounds. Because of the relationship and...
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