Holfield v. Power Chemical Company, Inc.

• Decision Date: 26 September 1974
• Docket Number: Civ. No. 73-926-Y.
• Citation: 382 F. Supp. 388
• Parties: Arthur W. HOLFIELD, Jr. v. POWER CHEMICAL COMPANY, INC.
• Court: U.S. District Court — District of Maryland

382 F. Supp. 388

Arthur W. HOLFIELD, Jr. v. POWER CHEMICAL COMPANY, INC.

Civ. No. 73-926-Y.

United States District Court, D. Maryland.

September 26, 1974.

Brendan V. Sullivan, Jr., James A. McGuire, Washington, D. C., for plaintiff.

William T. Brooks, Atlanta, Ga., Ronald A. Karp, Donald J. Chaikin, Washington, D. C., for defendant.

MEMORANDUM AND ORDER

JOSEPH H. YOUNG, District Judge.

Plaintiff Arthur W. Holfield, Jr., a citizen of Maryland, brings this diversity action to rescind a contract under which he was to distribute the products of Power Chemical Company, Inc., a Georgia corporation, and, alleging certain misrepresentations, seeks restitution of the sums he paid under that contract plus compensatory and punitive damages. Defendant is Howard E. Caldwell, a Georgia resident, who at the time relevant to this case was president of Power Chemical as well as a member of the board of directors and the majority shareholder.

Plaintiff, seeking to pierce the corporate veil, contends that Power Chemical is but a corporate shell, Caldwell's alter ego. The defendant has moved pursuant to Rule 12(b), Federal Rules of Civil Procedure, for a dismissal, arguing that the Court lacks personal jurisdiction over him.

In accordance with the local rules of this Court, defendant's motion and plaintiff's response have included a brief statement of the parties' respective arguments plus affidavits and, in the plaintiff's case, other exhibits.

As the defendant correctly notes, federal district courts exercise personal jurisdiction within the framework of Rule 4 of the Federal Rules of Civil Procedure. Rule 4 subsections (e) and (f) limit service of process by the district court, and therefore the court's personal jurisdiction, by confining service to the territorial limits of the state in which the court sits, unless federal statute, the federal rules, or state law authorizes extra-territorial service. The plaintiff apparently concedes that no federal statute or rule permits service on Caldwell and seeks to base service solely on Maryland's "long-arm" statute, Md.Ann.Code, Cts. & Jud.Proc. Art. § 6-103 (1974).^*

As the Fourth Circuit noted with regard to Virginia's "long-arm" statute, and both this Court and the Maryland Court of Appeals have previously declared, determining the applicability of section 6-103 to a particular fact situation is a two-step process. First, it must be determined if the defendant is within the ambit of the statute itself. If the court decides that the statute will permit service on the defendant, it then must determine if such service satisfies the constitutional demands of due process. See Haynes v. James H. Carr, Inc., 427 F.2d 700, 703 (4th Cir.), cert. denied, 400 U.S. 942, 91 S.Ct. 238, 27 L.Ed.2d 245 (1970); Topik v. Catalyst Research Corp., 339 F.Supp. 1102, 1105-1106 (D.Md.1972), cert. denied, 414 U.S. 910, 94 S.Ct. 231, 38 L. Ed.2d 148 (1973); Malinow v. Eberly, 322 F.Supp. 594, 597 (D.Md.1971); Lamprecht v. Piper Aircraft Corp., 262 Md. 126, 130, 277 A.2d 272, 275 (1971).

In determining the reach of Maryland's long-arm statute, decisions by the Maryland state courts interpreting the statute control. See Shealy v. Challenger Mfg. Co., 304 F.2d 102, 104 (4th Cir. 1962); Hare v. Family Publications Serv., Inc., 342 F.Supp. 678, 681 (D.Md.1972) hereinafter cited as Hare II. The burden of alleging and proving the jurisdictional facts upon which the personal jurisdiction of this Court are based lies with the plaintiff. See McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936); Haynes v. James H. Carr, Inc., supra, 427 F.2d at 704; Topik v. Catalyst Research Corp., supra, 339 F.Supp. at 1105. Mere averments of jurisdiction are not enough nor may conclusory, unsupported statements contained in the accompanying affidavits be relied upon to demonstrate jurisdiction. See Leasco Data Processing Equip. Corp. v. Maxwell, 319 F.Supp. 1256, 1260 (S.D.N.Y.1970), modified on other grounds, 468 F.2d 1326 (2d Cir. 1972). Finally where, as in this case, determination of factual disputes central to the assertion of jurisdiction may be dispositive of questions of liability as well, the plaintiff need only show "threshold" jurisdiction sufficient to demonstrate the fairness of allowing the suit to continue. The parties are not bound by the court's jurisdictional findings of fact when the case comes to trial on the merits. See Hare v. Family Publications Serv., Inc., 334 F.Supp. 953, 959 (D.Md.1971) hereinafter cited as Hare I; Malinow v. Eberly, supra, 322 F.Supp. at 601.

Laid side-by-side, the parties' affidavits show no fundamental differences as to the facts. Both agree that the defendant is president, majority shareholder and a member of the three-man board of Power Chemical. Both also agree that the defendant is a Georgia resident and that he has never been in the State of Maryland except as a tourist. In addition, the two parties agree that though Power Chemical is now defunct, in 1972 it solicited Maryland residents for the purpose of selling "distributorships" for Power Chemical's hair spray. The defendant concedes that Power Chemical accepted the plaintiff's application for such a distributorship, the acceptance being executed by the defendant in his role as president of the corporation. After plaintiff's application was accepted, he was assigned an "exclusive" territory in Maryland, and the hair spray he was to distribute in Maryland was shipped to him.

In his affidavit the defendant seeks to interpose the corporate identity of Power Chemical between himself and the personal jurisdiction of this Court. He avers that he has neither advertised in Maryland, nor contracted with any of its residents, nor committed any torts in the state. It is his contention that the only link between himself and the State of Maryland is the role he played in his official capacity as president of Power Chemical—a role as the corporation's agent which shields him from the reach of Maryland's long-arm statute.

The plaintiff, on the other hand, relying heavily on the defendant's deposition, argues that the defendant's admissions in that deposition establish Power Chemical as a facade—the vehicle for the defendant's hair spray venture, having no identity of its own. In his deposition the defendant concedes that Power Chemical's sole business during the period in question was the distribution of hair spray. The corporation was used for hair spray distribution for approximately 12 months, and, during that time, its only capital was its inventory which, by the defendant's own estimate, never exceeded $40,000 in value and is presently virtually valueless. The deposition reveals that the distribution program was conceived by the defendant, managed by him, and brought to an end when he determined that it was no longer profitable. In both affidavit and deposition the defendant places heavy emphasis on the fact that distributorship solicitation was carried out by "independent contractors" who paid their own expenses out of the commissions they received for each distributorship they sold. Yet, the defendant admits that he hired "independent contractors" who in turn hired the next level of solicitors, that he supervised preparation of the advertising materials they used, and that he signed the distributorship agreements which these solicitors forwarded to the corporation for its acceptance— acceptance by the corporation's three-man board of which he, of course, was a member. Furthermore, while claiming in his affidavit that he never received any compensation for his services, in his deposition he admits that he did in fact draw a salary while the hair spray distribution was active. The defendant's deposition also reveals that Power Chemical received substantial sums for the sale of two distributorships in Maryland.

The question posed by the defendant's motion, therefore, is whether or not there is sufficient identity of interest between the defendant and Power Chemical for the acts of one to be attributable to the other, and, if that congruence of interest is found, whether or not the Maryland courts, in construing the Maryland long-arm statute, would then disregard the corporate entity to reach the defendant. Assuming that question to be answered in the affirmative, the second step of long-arm statute analysis comes into play. The Court then must decide if such a construction of the Maryland statute by the Maryland courts meets federal due process requirements.

Maryland's long-arm statute provides six possible bases for assertion of personal jurisdiction by Maryland courts over out-of-state residents. See Md. Ann.Code, Cts. & Jud.Proc. Art., § 6-103(b) (1974). If the defendant falls within any one of these six sources of jurisdiction, he is subject to service by Maryland. See Lawson v. Baltimore Paint & Chem. Corp., 298 F.Supp. 373, 377 (D.Md.1969); cf. Lamprecht v. Piper Aircraft Corp., supra, 262 Md. at 132-133, 277 A.2d at 276. Plaintiff argues that the defendant has transacted business within the State of Maryland, contracted to supply goods and/or manufactured products in Maryland, and caused tortious injury either in or outside of the state while deriving substantial revenue from goods used or consumed in the State of Maryland. He thereby seeks to bring the defendant under section 6-103(b)(1)-(4).

There would appear to be no real question that Power Chemical has sufficient contacts with the State of Maryland to justify assertion of personal jurisdiction over it under the Maryland long-arm statute. In Lamprecht the Maryland Court of Appeals held that a Pennsylvania corporation, which sold airplanes through independent distributors who in turn sold them to Maryland dealers, could be subjected to the personal jurisdiction of the Maryland courts under the statutory predecessor of section 6-103(b) (4) for tortious injuries caused by its products in Maryland. The...