Omega Homes, Inc. v. Citicorp Acceptance Co.

• Decision Date: 10 March 1987
• Docket Number: Civ. A. No. 82-0718(R).
• Parties: OMEGA HOMES, INC., Plaintiff, v. CITICORP ACCEPTANCE CO., et al., Defendants.
• Court: U.S. District Court — Western District of Virginia

656 F. Supp. 393

OMEGA HOMES, INC., Plaintiff, v. CITICORP ACCEPTANCE CO., et al., Defendants.

Civ. A. No. 82-0718(R).

United States District Court, W.D. Virginia, Roanoke Division.

March 10, 1987.

COPYRIGHT MATERIAL OMITTED

Douglas D. Wilson, Parvin & Wilson, Roanoke, Va., for plaintiff.

William J. Creech, Jr., William R. Rakes, Gentry, Locke, Rakes & Moore, Roanoke, Va., Gerald A. Novack, Barrett, Smith, Shapiro, Simon & Armstrong, New York City, for defendants.

MEMORANDUM OPINION

TURK, Chief Judge.

This case comes before the court on the motions of the plaintiff and the defendants. Defendant Citicorp moves to Quash Service, or in the Alternative to Dismiss on the ground that the court lacks in personam jurisdiction over it. All of the defendants move to dismiss Count VI of the complaint for lack of standing. The plaintiff moves to modify the stipulated protective order entered by the court on June 29, 1983. For the reasons stated below, the court will grant the defendants' motions and deny the plaintiff's motion.

PARTIES

The plaintiff Omega Homes ("Omega") is a retailer of mobile homes and related goods and services and is located principally in Blacksburg, Virginia.

Defendants Citicorp Acceptance Corp. ("CAC") and Citicorp Homeowners, Inc. ("CHI") are Delaware Corporations with their principal places of business in St. Louis, Missouri. CAC and CHI are wholly owned subsidiaries of defendant Citicorp. CAC is the successor in interest to CHI. The fourth defendant, Advance Mortgage Corp. ("Advance") was a subsidiary of Citicorp during the times relevant to this suit. It is a Delaware Corporation and it too was a predecessor in interest to CAC.

Defendant Citicorp is a bank holding company that is a Delaware Corporation with its principal place of business in New York City. Citicorp, except for its ownership interest, does not actively participate in its subsidiaries' daily affairs. Omega, however, has submitted proof that Citicorp is not a completely silent participant in the subsidiaries' affairs. The proof consists of Federal Reserve Board Opinions, applications submitted by Citicorp to the Federal Reserve Board pursuant to Section 4(c)(8) of the Bank Holding Company Act, 12 U.S.C. ž 1843(c), and an affidavit submitted by Omega's attorney, Carl Tibbets.

The documents indicate that Citicorp determined the operating locations of its subsidiaries, infused large amounts of capital into the subsidiaries and provided the subsidiaries with management expertise and resources.

BACKGROUND

a. The Defendants' Actions

Omega began in 1974 as a retailer of mobile homes and an authorized insurance agent. In November 1974, in connection with its mobile home sales, it also began offering mobile home financing that originated with Advance, and later with CHI and CAC. The amended complaint documents the complex relationships between the parties and the multi-faceted economic arrangements that are the subject of this suit. Omega alleges that the defendants breached various agreements and duties owed to it and that they violated the Federal antitrust and banking laws. Defendants' motions concern only the antitrust and banking law claims and the facts relevant to those motions can be briefly summarized.

Omega's position as an outlet for homes, insurance, and financing reflects standard practice in the mobile home industry. In all mobile home sales, the financing of the purchase is conditioned on the buyer's obtaining repossession, alteration, collision, and conversion insurance. Further, the financer invariably requires the buyer to carry physical damage insurance, payable to the financer, to protect the financer's security interest in the home. Dealers like Omega enable mobile home consumers to obtain their home, their insurance, and their financing at one location. The monthly fees for the mortgage and insurance are usually consolidated into one payment to the dealer. Like other insurance agents, a mobile home dealer like Omega receives a commission for all the insurance it sells.

While the term of a mobile home mortgage typically ranges from ten to fifteen years, the term of a mobile home insurance contract runs from 2 to 3 years. Thus a mobile home purchaser must renew his insurance several times during his relationship with the broker. At the end of each insurance period, the consumer has the option of obtaining insurance with another company or of renewing its existing policy. Most often, the consumer does not obtain other insurance and the existing policy is automatically renewed or "force-placed." The commission for a force-placed policy is rewarded to the broker of the original insurance.

The defendants, however, use a different practice concerning renewal policies. CHI, for example, itself acts as a broker for several insurance companies. When a consumer of CHI financing has an insurance policy up for renewal, it must purchase the new policy directly through CHI, bypassing Omega, the original retail broker. Omega receives no commission on renewal policies sold through CHI's brokerage. Since the defendants began acting as their own insurance broker, Omega has lost the revenues it once received from its own brokerage business.

To further its position as insurance brokers, CHI has entered numerous agreements with insurance companies covering licensing fees and the sharing of information, such as mailing lists, about its mobile home finance customers. The defendants have also set up several new corporations to handle mobile home insurance, including an offshore brokerage in Bermuda.

According to Omega, the defendants have created a tying arrangement by requiring the consumers of their mobile home financing to obtain insurance exclusively through them, and by creating an institutional base to support its insurance brokerage affairs. Omega alleges that such a scheme violates the antitying restrictions of the antitrust laws and the banking laws.

b. The Protective Order

On June 29, 1983 the court entered a stipulated protective order that was submitted with the approval of the parties. The order was intended to ensure the confidentially of all discovery material in this case and ordered that discovered information "shall be utilized only in connection with this civil action." The order also reserved any party's right to apply for modification. Omega has moved to modify the order to remove the restriction on using the material only for this suit. Omega alerts the court to five similar federal lawsuits against CHI in other districts and argues that a relaxation of the prior order would save those litigants the time and expense of duplicative discovery.

I. Motion of Citicorp to Quash Service or in the Alternative to Dismiss

Omega asserts that there are two jurisdictional bases that justify Citicorp's presence in this suit: the Clayton Act venue provisions for antitrust suits, 15 U.S.C. ž 22, and Virginia's Long Arm Statute, Va. Code ž 8.01-328.1A (1950). Citicorp denies that jurisdiction exists under these laws because it is merely a silent, non-participating parent with no role in the day to day affairs of its subsidiaries. Citicorp contends that its relationship with CAC and CHI is too attenuated to make it liable for torts arising from the subsidiaries' regular course of business.

The court notes that to consider the motion to dismiss for lack of personal jurisdiction it considers as true all the allegations in the complaint. Barton v. Eustis, 415 F.Supp. 1355 (S.D.Fla.1976).

a. Jurisdiction Under the Clayton Act

Section 12 of the Clayton Act provides that:

Any suit, action, or proceeding under the antitrust law against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.

15 U.S.C. ž 22. In construing this jurisdiction/venue rule, the Supreme Court provides a broader scope over non-resident corporations in antitrust cases than it does in other cases. United States v. Scophony Corporation of America, 333 U.S. 795, 807-08, 68 S.Ct. 855, 861-62, 92 L.Ed. 1091 (1948). Indeed, the statutory terms "inhabitant," "wherein it (the corporation) may be found" and "transacts business" create three possible sources of antitrust venue for any one defendant.

It is relatively simple for a court to see if a defendant meets either of the first two standards. "Inhabitant" places venue in the corporation's state of incorporation. Aro Manufacturing Co. v. Automobile Body Research Corp., 352 F.2d 400 (1st Cir.1965), cert. denied, 383 U.S. 947, 86 S.Ct. 1199, 16 L.Ed.2d 210 (1966). Being "found within a district" connotes a corporations' presence in the district by way of its officers and agents carrying on corporate business within the district. Eastman Kodak Co. v. Southern Photo Materials Co., 273 U.S. 359, 371-73, 47 S.Ct. 400, 402-03, 71 L.Ed. 684 (1927) (construing identical language of ž 7 of the Sherman Act).

Citicorp is incorporated in Delaware. It has no office or other place of business in Virginia. It holds no assets here nor does it pay any taxes in Virginia. It is clear, therefore, that Citicorp is neither an inhabitant of nor found in this district. Consequently, to prove jurisdiction over Citicorp, Omega must rely on the third requirement and show that Citicorp transacts business in the Western District of Virginia. See King v. Johnson, Wax Assoc. Inc., 565 F.Supp. 711 (D.Md.1983).

Unlike the other two section 12 standards that a court can conclusively determine with a simple examination of a corporation's basic structure, the requirement that a corporation must "transact business" within a certain district requires a court's more searching examination of the particular facts of each case and of the unique elements of the defendant corporation's operation. Scophony, 333 U.S....