Garrett v. Southern Railway Company

• Decision Date: 08 May 1959
• Docket Number: Civ. A. No. 3465.
• Citation: 173 F. Supp. 915
• Parties: W. H. GARRETT v. SOUTHERN RAILWAY COMPANY.
• Court: U.S. District Court — Eastern District of Tennessee

173 F. Supp. 915

W. H. GARRETT v. SOUTHERN RAILWAY COMPANY.

Civ. A. No. 3465.

United States District Court E. D. Tennessee, N. D.

May 8, 1959.

Hodges & Doughty, Knoxville, Tenn., for plaintiff.

Key & Lee, Knoxville, Tenn., for defendant.

ROBERT L. TAYLOR, District Judge.

The plaintiff in this case was employed as a wheel moulder by Lenoir Car Works, a Tennessee corporation. He claims injuries from silicosis contracted from silica dust permeating the foundry. But the questions whether he had silicosis, and the amount of injury, are not reached in this phase of the case.

The sole question here is whether defendant, Southern Railway Company (hereinafter referred to as Southern), which acquired the entire capital stock of Lenoir Car Works (referred to hereinafter as Lenoir) in 1904, the year of the latter's organization, so completely dominated Lenoir that the latter was but an adjunct, or instrumentality, of Southern. If it did, then the complainant would, for the purpose of this case, be an employee of Southern and would be entitled to recover under the Federal Employers' Liability Act, 45 U.S.C.A. § 51 et seq. Because there is a real question that Lenoir is but an instrumentality of Southern, the plaintiff in order to protect his rights, has also brought suit in the State courts against Lenoir for Workmen's Compensation.

The general rule is that stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Sheridan v. Pan-American Refining Co., D.C.N.Y. 123 F.Supp. 81. The general rule is also stated in an Annotation appearing in 50 A.L.R. 611. See also Kentucky Electric Power Co. v. Norton Coal Mining Co., 6 Cir., 93 F.2d 923, 926. Whether the subsidiary is an instrumentality of the owner corporation is a question to be determined from all the surrounding circumstances. Fletcher Cyclopedia Corporations, Sec. 43 (p. 157), Sec. 6222; Berkey v. Third Ave. R. Co., 244 N.Y. 84, 155 N.E. 58, 50 A.L.R. 599 (opinion by Cardozo); Costan v. Manila Electric Co., 2 Cir., 24 F.2d 383, 384. Items to be considered in reaching such a determination are common directorships, common officers, common fiscal set up, etc.

The plaintiff relies upon the following circumstances:

That all directors and officers of Lenoir are employees of Southern and live in Washington; that Southern owns all the stock of Lenoir except five qualifying shares; that between 1942-1957 Lenoir sold to Southern, or its affiliates, over 30 million dollars worth of its products while selling approximately four and a half million to outside purchasers; that all profits of Lenoir went to Southern; that all claims of Lenoir employees for accidents are handled by the claim's office of Southern; that all litigation against Lenoir is handled by Southern's attorneys; that general accounting of Lenoir is handled in Washington by personnel of Southern; that the Railroad Retirement Board decided that employees of Lenoir were entitled to benefits under the Railroad Retirement Act, 45 U.S.C.A. § 215 et seq., because of the relationship between Lenoir and Southern; that Lenoir has the power of eminent domain; and that on May 13, 1904, the Board of Directors of Southern authorized the purchase of the entire capital stock of Lenoir.

Our question is whether these factors would establish Lenoir as the mere creature of Southern. The defendant railroad says that these matters are not controlling and to sustain its position emphasizes the following facts:

That although Lenoir sells the majority of its products to Southern or its affiliates, it does not sell to them exclusively and in the fifteen-year period prior to the suit sold twelve percent to other customers; that Lenoir maintains its offices and business in Lenoir City, Tennessee, although it concedes that the corporate and accounting offices are in Washington in a building owned by Southern; that the management of Lenoir is vested in a manager, Henry Marius, who has held the position continuously since July 1, 1945, is paid by Lenoir, and although he holds and votes the proxy of Southern at the annual stockholders meeting, he has no other connection with Southern; that never has any individual served at the same time as a Director of Lenoir and Southern; that the work of Lenoir is a specialty and in the last 20 years no official or supervising employee of Southern has by training, or experience, been in a position to direct or supervise the operation of such a business; that Southern has not purchased all its wheels, steel and brass castings from Lenoir, but has bought substantial amounts from others; that Southern has followed the custom in the trade as to price quotations and supplying scrap material in its dealings with Lenoir, and all sales to Southern have been upon the basis of a bid price or negotiated price; that in every case Southern obtains bids from several manufacturers and purchases from the lowest bidder; that the manager of Lenoir establishes the prices of all prospective purchases, including that of Southern; that the manager expects to make a profit and is not informed by Southern of bids of its competitors even when the prices are negotiated; that bids are revised sometimes, but never with knowledge of the bids of competitors; that all sales are the result of the business judgment of the Manager and not the result of threats, persuasion or intimidation by Southern; that at no time has any individual occupied the same official position in both companies with the exception of corporate and financial officials; that Lenior has since 1919 been a duly qualified employer under the Tennessee Workmen's Compensation Law, T.C.A. § 50-901 et seq., and with the exception of this and several similar suits has settled all claims made under and covered by the Tennessee Workmen's Compensation Law; that Lenoir maintains a separate bank account and has never intermingled its funds with those of Southern; that the companies keep separate books and Lenoir pays its own taxes; that Southern issues no passes to the manager or any other employee of Lenoir; that Lenoir owns no track or rolling stock, publishes no tariffs, files no reports with the Interstate Commerce Commission and uses no facilities or property jointly with Southern; that claims of employees are investigated and settled by the Claim Department of the Southern Railway System, which likewise defends claims litigation; that the general accounting of Lenoir is handled by the Accounting Department of the Southern Railway System, but local accounting is handled by Lenoir employees at Lenoir City; that salaries of employees of the System doing this general work are paid by Southern, but reimbursement of its fair proportionate part thereof is made by Lenoir and other members of the System at monthly intervals, and that the share of Lenoir is $2,000 monthly; that Lenoir makes separate collective bargaining agreements with its employees and there is no interchange of seniority between operations of Lenoir and the railroad, or vice versa; that Lenoir has its own legal counsel in Lenoir City, selected by its manager in addition to the use it makes of the Legal Department of the System.

Counsel have been commendably frank and candid in the pre-trial conference, and in answering interrogatories...