Frito-Lay, Inc. v. Procter & Gamble Company

• Decision Date: 18 July 1973
• Docket Number: Civ. A. No. CA 3-6671-E.
• Citation: 364 F. Supp. 243
• Parties: FRITO-LAY, INC. v. The PROCTER & GAMBLE COMPANY, and Procter & Gamble Distributing Company.
• Court: U.S. District Court — Northern District of Texas

364 F. Supp. 243

FRITO-LAY, INC. v. The PROCTER & GAMBLE COMPANY, and Procter & Gamble Distributing Company.

Civ. A. No. CA 3-6671-E.

United States District Court, N. D. Texas, Dallas Division.

July 18, 1973.

Stanley S. Crooks, Dallas, Tex., Stanton T. Lawrence, Jr., and John L. Sigalos, New York City, Richard A. Lochner, Dallas, Tex., for plaintiff.

Eugene Jericho, Dallas, Tex., George B. Finnegan, Jr., Jerome G. Lee, and Warren H. Rotert, New York City, for defendants.

MEMORANDUM ORDER

MAHON, District Judge.

Plaintiff, Frito-Lay, Inc., has brought suit pursuant to 28 U.S.C. §§ 2201-02 (1970), seeking declaratory judgment of the invalidity and unenforceability of United States Patent No. 3,498,798 issued to The Procter & Gamble Company on March 3, 1970. The subject of the patent in question is,

"a package for chip-type snack food products and a method of packaging the chips. . . . The chips used are of non-planar shape and are first formed into the desired curved shape in a uniform manner to permit the chips to be stacked one upon the other to form a grouped array and thereby minimize the void space therebetween. The chips are stacked one upon the other with corresponding surfaces similarly oriented and are then placed in a substantially rigid, tubular container which is adapted to enclose the stack of closely packed chips. After being inserted into the tubular container, the latter is sealed closed by securing one or more ends thereto. Both the tubular container and the ends are fabricated from materials which are impervious to oxygen and water vapor to prevent the entrance of additional atmospheric oxygen and water vapor into the interior of the package which would rancidify the frying fat retained by the chips and result in the chips becoming stale." United States Patent No. 3,498,798 (March 3, 1970).

Frito-Lay urges that it has manufactured and sold a packaged chip-type snack food product encompassed within the above patent. Plaintiff also alleges that it has "embarked on the manufacture and acquisition of additional equipment and plant facilities for the manufacture of its aforesaid product," and that it has made financial arrangements and commitments to that end. In addition to the declaration that the patent is invalid and unenforceable, Frito-Lay further seeks a determination that its actions in manufacturing and selling a chip-type food product similar to that marketed by Procter & Gamble Company have not previously constituted, and will not in the future constitute, infringement.

This matter is now before the Court on defendants' motion to dismiss. Defendants, The Procter & Gamble Company (sometimes hereinafter P & G) and The Procter & Gamble Distributing Company (sometimes hereinafter Distributing Co.), urge that dismissal of this cause of action is warranted because, "Defendant The Procter & Gamble Company . . . is not amenable to service of process in Texas and has not properly been served with process in Texas. Consequently, this Court has not acquired in personam jurisdiction over P & G. P & G is an indispensable party to this action and therefore the action should not proceed." Defendants also contend that venue does not properly lie in the Northern District of Texas and, further, that there is a lack of subject matter jurisdiction in that the facts fail to show the existence of a justiciable controversy.

The Procter & Gamble Company is a corporation whose principal offices are located in Cincinnati, Ohio. It is primarily a manufacturer and distributor of household products.¹ Defendant Distributing Company is a wholly-owned subsidiary of The Procter & Gamble Company whose principal offices are also located in Cincinnati. Distributing Company is licensed to do business and is doing business in the State of Texas. The Procter & Gamble Company is not licensed to do business in Texas and does not maintain either a regular place of business or a registered agent for service of process in this state.

The Court is concerned at the outset with the issue of jurisdiction over Defendant The Procter & Gamble Company, the undisputed owner of the patent. Frito-Lay alleges that Distributing Co. is an alter ego for P & G and Frito-Lay has sought to effectuate service of process on the parent company through use of the Texas "Long Arm" statute.² Specifically, plaintiff attempted to serve The Procter & Gamble Company by serving the registered agent of the subsidiary in Texas, and by thereafter mailing a copy of the summons and complaint to the parent company in Ohio. The plaintiff also undertook to serve process upon the Secretary of State of Texas, pursuant to Article 2031b, Sec. 3, Tex.Rev. Civ.Stat.Ann. (1964).

The Procter & Gamble Company, an indispensible party, would be subject to this Court's jurisdiction if (1) service upon the wholly-owned subsidiary was effective as service upon the parent corporation, or, provided the Secretary of State were a proper agent for services, (2) if service were made upon him in strict compliance with article 2031b.

For there to be jurisdiction of The Procter & Gamble Company, it would be necessary to show that it had such "minimum contacts with the forum . . . that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Company v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95, 102 (1945). Personal jurisdiction over a non-resident defendant requires "that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283, 1298 (1958). Where service of process has been undertaken in strict compliance with the Texas "Long Arm" statute, in personam jurisdiction over an out-of-state corporation will attach with reference to acts wherein such corporation has either engaged in or done business in Texas or where such corporation has committed a tort in this state. Art. 2031b § 4, Tex.Rev.Civ.Stat. (1964).

The Court notes that, "as a general rule, the relationship of parent corporation and subsidiary corporation is not of itself a sufficient basis for subjecting the non-resident parent corporation to the jurisdiction of the forum state." 2 Moore's Federal Practice, ¶ 4.25 6 at 1174 (2d ed. 1970). In Cannon Manufacturing Company v. Cudahy Company, 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), the Supreme Court addressed itself to a similar problem. There, the plaintiff, a North Carolina company brought suit in that state against a Maine corporation for breach of contract. Service of process was attempted to be made upon the local agent of an Alabama corporation that was a wholly-owned subsidiary of the parent company designed to be an instrumentality for the marketing of the parent's products. In order to sustain service, the plaintiff undertook to establish identity between the parent corporation of Maine and the Alabama corporation whose agent was present in North Carolina. In affirming the trial court's dismissal of the action for lack of jurisdiction, the Supreme Court stated:

"Through ownership of the entire capital stock and otherwise, the defendant dominates the Alabama corporation, immediately and completely; and exerts its control both commercially and financially in substantially the same way, and mainly through the same individuals, as it does over those selling branches or departments of its business not separately incorporated which are established to market the Cudahy products in other States. The existence of the Alabama company as a distinct corporate entity is, however, in all respects observed. Its books are kept separate. All transactions between the two corporations are represented by appropriate entries in their respective books in the same way as if the two were wholly independent corporations." 267 U.S. at 335, 45 S.Ct. at 251.

The Court went on to state that the parent company,

"For reasons satisfactory to itself did not choose to enter the state in its corporate capacity. It might have conducted such business through an independent agency without subjecting itself to the jurisdiction. Bank of America v. Whitney Central Bank, 261 U.S. 171 43 S.Ct. 311, 67 L.Ed. 594. It preferred to employ a subsidiary corporation. Congress has not provided that a corporation of one state shall be amenable to suit in the federal court for another state in which the plaintiff resides, whenever it employs a subsidiary corporation as the instrumentality for doing business therein. . . . That such use of a subsidiary does not necessarily subject the parent corporation to the jurisdiction was settled by Conley v. Mathieson Alkali Works, 190 U.S. 406, 409-11 23 S.Ct. 728, 47 L.Ed. 1113; Peterson v. Chicago, Rock Island and Pacific Ry. Co., 205 U.S. 364 27 S.Ct. 513, 51 L.Ed. 841; and Peoples Tobacco Co., Ltd. v. American Tobacco Co., 246 U.S. 79, 87 38 S.Ct. 233, 62 L.Ed. 587. In the case at bar, the identity of interest may have been more complete and the exercise of control over the subsidiary more intimate than in the three cases cited, but that fact has, in the absence of an applicable statute, no legal significance. The corporate separation, though perhaps merely formal, was real. It was not pure fiction." (emphasis added) 267 U.S. at 336-337, 45 S.Ct. at 251.

This Court has no reason to believe that the rule of Cannon v. Cudahy is not still controlling where applicable. Accordingly, there are at bar either two separate and distinct corporate entities under Cannon, or there is but one which is doing business in this forum. If there are two under Cannon, that decision dictates that the parent is not present and service upon the subsidiary would not be service upon The Procter & Gamble Company, and further, that the actions of the subsidiary could not be imputed to the parent...