Maryland National Bank v. Shaffer Stores Co.

• Decision Date: 26 April 1965
• Docket Number: Civ. A. No. 15954.
• Citation: 240 F. Supp. 777
• Parties: MARYLAND NATIONAL BANK, Trustee v. SHAFFER STORES COMPANY.
• Court: U.S. District Court — District of Maryland

240 F. Supp. 777

MARYLAND NATIONAL BANK, Trustee v. SHAFFER STORES COMPANY.

Civ. A. No. 15954.

United States District Court D. Maryland.

April 26, 1965.

David R. Owen, Semmes, Bowen & Semmes, Baltimore, Md., for plaintiff.

William A. Agee, Sherbow, Shea & Doyle, Baltimore, Md., for defendant.

R. DORSEY WATKINS, District Judge.

This suit was brought in the Superior Court of Baltimore City by the successor Trustee under an Indenture agreement dated May 7, 1954 between Shaffer Stores Company, a Pennsylvania corporation, predecessor obligor; Fidelity-Baltimore National Bank and Trust Company, predecessor Trustee; and The Levering Coffee Company of Baltimore City, a Maryland corporation, Guarantor, to recover the principal amount of all remaining, outstanding debentures issued under said Indenture agreement by Shaffer Stores Company, the Pennsylvania corporation, plus interest, together with various expenses. The defendant corporation, a Delaware corporation, is, by various mergers, the successor corporation to the Pennsylvania corporation of the same name which executed the Indenture referred to above, and as such surviving corporation has succeeded to the liability, if any, originally incurred thereunder by the Pennsylvania corporation. Substituted service of process was made on the defendant Delaware corporation pursuant to the provisions of Article 23, sections 92(d), 96(d), 97 and 98 of the Annotated Code of Public General Laws of Maryland, 1957 Edition. The defendant Delaware corporation appeared specially in the State court, filed a motion to quash the service of process and to dismiss, and petitioned for removal of the suit against it to this court. Removal has been effected. Jurisdiction is based upon diversity of citizenship. The requisite amount is in controversy.

Defendant's motion to quash service of process and to dismiss, filed in the State court and now pending in this court, raises two questions:

1. May, under the facts of this case, the provisions of section 92(d) of Article 23, purporting to subject a foreign corporation "to suit in this State by a resident of this State or by a person having a usual place of business in this State on any cause of action arising out of a contract made within this State * * * whether or not such foreign corporation is doing or has done business in this State" be constitutionally applied so as to subject the defendant corporation to the jurisdiction of this court?

The defendant corporation contends that it has had no contacts whatsoever with the State of Maryland, that it has done no business here, that it has no representative here and that it has made no contracts, including the one on which the present suit is brought, in this State. Defendant urges that its sole contact with this State is that it is the successor, by several corporate mergers, to an alleged obligor under a contract concededly made in Maryland and that under these circumstances it would be a denial of due process to subject it to suit in Maryland. Defendant does not deny that because of the various mergers herein involved it has assumed the contractual responsibilities and obligations originally undertaken by Shaffer Stores Company, a Pennsylvania corporation. It does deny that its assumed obligations and liabilities, if any, may be enforced against it in the same manner and to a like extent as they could have been enforced against the Pennsylvania corporation which actually executed the Indenture agreement in question, had that corporation continued in existence.

The parties have stipulated as to the corporate ancestry of the present defendant. The Pennsylvania Shaffer Stores Company was incorporated in the Commonwealth of Pennsylvania on August 14, 1919. It executed the Indenture in question in the State of Maryland on May 7, 1954. On April 21, 1961 the Pennsylvania corporation duly registered to do interstate and foreign business in the State of Maryland and appointed as its resident agent, Corporation Trust Company, First National Bank Building, Baltimore, Maryland. On April 17, 1961 a corporation of the same name as the Pennsylvania Shaffer Stores Company was organized in the State of Delaware, and the Pennsylvania corporation was merged into the Delaware corporation pursuant to an agreement of merger filed in Delaware on May 29, 1961 and Articles of Merger filed in Pennsylvania on June 16, 1961, the Delaware corporation being the surviving corporation. On September 28, 1961 the merged Pennsylvania Shaffer Stores Company "withdrew from the State of Maryland and thereby terminated" (paragraph 1, page 2, lines 3 and 4) its previous registration to do interstate and foreign business in the State of Maryland. On the same date the State Department of Assessments and Taxation issued its "Certificate of Withdrawal of Foreign Corporation". The surviving Delaware corporation, Shaffer Stores Company, then merged with Shafstor, Inc., a New York corporation, creating Shaffer Stores Company, a second Delaware corporation pursuant to an Agreement of Consolidation filed in Delaware on April 27, 1962 and Certificate of Consolidation filed in New York on April 27, 1962. The resulting Shaffer Stores Company was merged into a Delaware corporation known as S.S.C., Inc., on July 23, 1962, pursuant to Certificate of Ownership and Merger filed in Delaware on August 6, 1962. On August 6, 1962 S.S.C., Inc., changed its name to "Shaffer Stores Company", the corporate entity now defendant in the present suit.

Certain other factors shedding light on the historical contacts and interests which the original obligors to the Indenture and their successors had in Maryland as well as their present corporate make-up have also been stipulated to by counsel:

"The only material asset of defendant is 141,055 shares of the common stock of R. C. Williams & Company, Inc., a New York corporation, representing approximately 46% of the issued and outstanding stock of said corporation. There are approximately 1,002 holders of the common stock of R. C. Williams & Company, Inc., the remaining 54% of which is widely and publicly held. Defendant is reported as the controlling person of R. C. Williams & Company, Inc., under the Federal Securities and Exchange Act. R. C. Williams & Company, Inc., through subsidiaries, is in the business of the roasting and sale of coffee and the blending and packaging of tea and in the slaughtering, processing and sale of meat and meat products.

"The Levering Coffee Company, a Maryland corporation which signed the said Indenture as guarantor, was incorporated in 1919 and on April 24, 1961, was merged into Shaffer Stores Company, a Pennsylvania corporation. As a result of the transaction referred to in the Declaration the Indenture, Shaffer Stores Company, the Pennsylvania corporation, acquired and continued to hold all of the capital stock of The Levering Coffee Company, the Maryland corporation.

"The Levering Coffee Company, a Delaware corporation, qualified to do intrastate business in the State of Maryland on May 7, 1958, and appointed as Resident Agent the said Corporation Trust Company. The Levering Coffee Company, the Delaware corporation, has remained qualified in the State of Maryland and currently lists as its principal office in this State 1200 66th Street, Baltimore, Maryland. It is engaged in the business of roasting and selling coffee. Said corporation is a wholly-owned subsidiary of R. C. Williams & Company, Inc.

"The principal office of Defendant and of The Levering Coffee Company, the Delaware corporation, is 2 Penn Place, Pelham Manor, New York.

"The President and Chairman of the Board of Defendant and of R. C. Williams & Company, Inc. and of The Levering Coffee Company, the Delaware corporation, is Arthur R. Lorch. The Secretary-Treasurer of said three corporations is Catherine Laughlin. The said Lorch and Laughlin are likewise directors of said three corporations. The said Lorch owns or controls all of the capital stock of Defendant."

Defendant takes the postion that because of the various transactions outlined above, it is insulated from the provisions of Article 23, section 92(d).

Article 23, section 92(d) purports to subject a foreign corporation to suit in Maryland "on any cause of action arising out of a contract made within this State." Defendant would have this court read into the statute the additional qualification that a foreign corporation is subject to suit in this State only on a cause of action arising out of a contract initially made by said foreign corporation itself within this State and would, accordingly, have the court find the defendant not amenable to suit in Maryland. The court does not so construe the statute. First, defendant comes within the literal wording of the statute. It is being sued on a contract made in Maryland. Secondly, it is not unreasonable to subject a corporation to a suit in Maryland on a contract made in Maryland where the corporation has voluntarily and by its own acts assumed performance under that contract. Otherwise the entire intent and purpose of Article 23, section 92(d) could easily be subverted merely by having one foreign corporation execute a contract in Maryland and another foreign corporation outside of Maryland undertake or assume (in the instant case by corporate merger) the performance of the contract executed in Maryland without thereafter being subject to suit in Maryland on a cause of action arising therefrom. Finally, in the instant case, general considerations aside, the defendant corporation is by a reading of the statutory provisions of the state of its incorporation expressly made amenable to suit in Maryland. Defendant, the surviving corporation of the merger with the Pennsylvania corporation which executed the contract, is a Delaware corporation as were all intermediate surviving corporations of the various mergers. Section 259 of the Delaware Corporation Law (Delaware Code Annotated, Title 8, section...