Penntube Plastics Company v. Fluorotex, Inc.

• Decision Date: 17 December 1971
• Docket Number: Civ. A. No. 71-483.
• Citation: 336 F. Supp. 698
• Parties: PENNTUBE PLASTICS COMPANY, Plaintiff, v. FLUOROTEX, INC. and Fluorodynamics, Inc., Defendants.
• Court: U.S. District Court — District of South Carolina

336 F. Supp. 698

PENNTUBE PLASTICS COMPANY, Plaintiff, v. FLUOROTEX, INC. and Fluorodynamics, Inc., Defendants.

Civ. A. No. 71-483.

United States District Court, D. South Carolina, Greenville Division.

December 17, 1971.

Thomas A. Evins, Spartanburg, S. C., David H. Pfeffer, New York City, for plaintiff.

Robert A. Clay, Greenville, S. C., Fritz L. Schweitzer, Jr., New York City, for defendants.

MEMORANDUM OPINION AND ORDER

BLATT, District Judge.

This is a patent infringement action brought by the plaintiff Penntube, a Delaware corporation, against Fluorodynamics, Inc., also a Delaware corporation, and its subsidiary, Fluorotex, Inc., a purported South Carolina corporation. Subsequent to the commencement of this action, Fluorodynamics brought a declaratory judgment action in the District of Delaware against the plaintiff, alleging invalidity of the patent asserted in this action. Fluorotex is not a party to the Delaware action.

The plaintiff's patent, No. 3,265,092 (and the reissue thereof, No. Re 27,028) relates to heat-shrinkable tubing of a material known as FEP Teflon.

The Delaware defendant, Fluorodynamics, has moved for dismissal under 28 U.S.C. § 1400(b) for improper venue and has additionally moved for quash of service. Both defendants have moved for transfer under 28 U.S.C. § 1404(a) to the District of Delaware.

Plaintiff, in turn, has moved for an order restraining Fluorodynamics from prosecuting the Delaware action. In addition, without actually moving for default judgment, plaintiff has suggested that the defendants are in default for failure to file a timely response to the complaint herein.

The following shall constitute the findings of fact and the conclusions made by the Court in determining the various matters before it.

DEFAULT

Plaintiff resorted to statutory service procedures against both defendants. It was unable to effect an actual service of papers upon Fluorodynamics, because it has no office, as such, within the District. As to Fluorotex, it had forfeited its corporate charter in January 1971, prior to commencement of this action. The statutory service procedure followed by plaintiff required service upon the Secretary of State of South Carolina, mailing of the summons and complaint by the Secretary of State to the defendants at their respective last known addresses, and filing of registered mail receipts. I find that these procedures, while not precisely followed, were substantially complied with. On the other hand, defendants claim never to have been actually served, through the mail, or otherwise, with a copy of the summons and complaint, and counsel for defendants stated at the hearing on these motions that defendants learned of the action only indirectly and sent an agent to the Court to purchase a copy of the complaint. In this connection, it appeared that the papers mailed to Fluorodynamics were inadvertently mailed to the wrong city by the Secretary of State. It is not clear what happened to the papers mailed to Fluorotex, although that defendant claimed never to have received them and, indeed, no return receipt for them is on file.

Under all the circumstances, the Court holds that the statutory service procedures were sufficiently observed to give this Court jurisdiction over both parties. At the same time and as an integral part of the previous ruling, the Court will treat the defendants' objections to service as, in effect, a motion under Rule 6(b) for enlargement of time. Since the defendants did not have actual knowledge of a purported service of process, any failure to file a timely response is excusable. Defendants have evidenced an intent to vigorously defend the issues presented by this action. Default would not be appropriate and, indeed, plaintiff referred to it only by innuendo and not by motion under Rule 55.

The motion to quash service upon Fluorodynamics will be denied.

Defendants shall have twenty (20) days from the date of this order in which to answer the complaint herein.

MOTION TO DISMISS FOR IMPROPER VENUE

Defendant Fluorodynamics, appearing specially, contested venue in this case by way of a motion to dismiss based on 28 U.S.C. § 1400(b), a special statute covering venue in patent infringement cases. Section 1400(b) provides that:

"Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business."

It is the sole and exclusive provision controlling venue in patent infringement actions. Fourco Glass Company v. Transmirra Products Corporation et al., 353 U.S. 222, 77 S.Ct. 787, 1 L.Ed.2d 786. See also Dow Chemical Co. v. Metlon Corp. et al., 4th Cir. 1960, 281 F.2d 292.

Fluorodynamics, a Delaware corporation, is not a corporate "resident" of South Carolina, so that the first alternative of § 1400(b) obviously does not apply. The second alternative of § 1400(b) requires that the defendant have committed acts of infringement and that the defendant have a regular and established place of business in the District. Absent "residence", both conditions of the second alternative must be satisfied before venue is properly laid in this District.

In the case of Schnell et al. v. Peter Eckrich & Sons, Inc., et al., 1961, 365 U.S. 260, 81 S.Ct. 557, 5 L.Ed.2d 546, the Supreme Court said, with reference to Section 1400(b),

"The requirement of venue is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a `liberal' construction."

It is not contested by defendants that products alleged to infringe are sold in this District, so the controlling issue is whether Fluorodynamics has a "regular and established" place of business in South Carolina. It is plaintiff's position that the Fluorotex subsidiary is nothing more than a local sales office of Fluorodynamics.

Fluorodynamics relies heavily upon Manville Boiler Co., Inc. v. Columbia Boiler Co., 4th Cir. 1959, 269 F.2d 600, cert. den. 361 U.S. 901, 80 S.Ct. 208, 4 L.Ed.2d 156, as authority for the proposition that a separate subsidiary corporation is not a place of business of the parent. Many facts were brought out, through affidavits and by deposition testimony of Frank Bennett, the former president of Fluorotex. The controlling facts are as follows:

Fluorodynamics manufactures the accused product in Newark, Delaware and sells it directly and through other parties, including Fluorotex.

Fluorotex was incorporated in South Carolina in 1967, with an office in Greenville, S. C. All the stock of Fluorotex is owned by Fluorodynamics. Fluorotex was formed for the limited purpose of selling products of Fluorodynamics to the textile industry, and its activities were in fact restricted to selling products of Fluorodynamics. At the time of commencement of this suit, Fluorotex had only one full time employee.

Although Fluorotex initially at least, may have had a separate corporate identity, it became less and less distinct with the passage of time. Originally, Fluorotex had a separate bank account, but since 1968 all its bills have been paid by Fluorodynamics. Likewise, at the outset, Fluorotex was invoiced for products purchased from Fluorodynamics, but that practice was discontinued prior to commencement of the present action and the purchases and sales of Fluorotex were settled by bookkeeping entries made at the Newark, Delaware offices of Fluorodynamics.

All orders taken by Fluorotex were submitted to Fluorodynamics for approval. Shipment and invoicing of Fluorotex sales were handled by Fluorodynamics personnel in Delaware, and checks received by Fluorotex in payment were transmitted uncashed to the Fluorodynamics office in Delaware. All sales brochures, samples, and price lists used by Fluorotex were supplied by Fluorodynamics. At least some of the sales literature, and even Fluorotex invoices, described Fluorotex as a "division of Fluorodynamics, Inc."

Frank Bennett, Fluorotex's President, regularly submitted sales call reports to Mr. Shoffner in Wilmington, addressing him as President of Fluorodynamics. Shoffner was the chief executive of Fluorodynamics, and also was Chairman of Fluorotex. As such, he had ultimate responsibility for the acts of both Fluorotex and Fluorodynamics. Bennett also assisted directly in Fluorodynamics' sales efforts by traveling with Fluorodynamics salesmen, and took instructions from Mr. Connolly, a Fluorodynamics' marketing official.

All the expenses of operating the Fluorotex office were paid by Fluorodynamics. In addition, Frank Bennett used a car rented by Fluorodynamics and was afforded medical insurance through the Fluorodynamics benefits program.

Such minimal separate corporate identity as may have existed between Fluorodynamics and Fluorotex effectively vanished in January 1971, five months before the complaint herein was filed, when Fluorotex suffered a forfeiture of its corporate charter. An application for reinstatement was not filed until after commencement of the action.

Under all of the circumstances, the Court concludes that Fluorotex, at the time of commencement of this action, was merely a resident sales agent for Fluorodynamics, and its office constituted a "regular and established place of business" of Fluorodynamics within this District. The separate corporate status, if any, of Fluorotex can and should be disregarded under the present facts, and the Court feels fully justified in piercing the corporate shield.

"It is well established that where the interest of the corporation and the dominant shareholder are identical one is the alter ego of the other and the corporate form may be disregarded." Long v. McGlon, D.S.C., 1967, 263 F. Supp. 96, 98.

There is additional, well reasoned authority for piercing the corporate shield for purposes of establishing venue under 28 U.S.C. § 1400(b) as to a parent foreign corporation.

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