Perry v. American Motors Corp.

• Decision Date: 24 February 1976
• Citation: 353 A.2d 589
• Parties: Joan PERRY, Plaintiff, v. AMERICAN MOTORS CORPORATION, a Maryland Corporation, et al., Defendants.
• Court: Delaware Superior Court

Page 589

353 A.2d 589

Joan PERRY, Plaintiff, v. AMERICAN MOTORS CORPORATION, a Maryland Corporation, et al Defendants.

Superior Court of Delaware, New Castle County.

Submitted Jan. 30, 1976.

Decided Feb. 24, 1976.

American Motors Corporation Motion to Quash Service of Process. denied.

James A. Erisman, Conner, Daley & Erisman, Wilmington, for plaintiff.

John J. Schmittinger and I. Barry Guerke, Schmittinger & Rodriguez, P.A., Dover, for defendant, American Motors Corp.

WALSH, Judge.

In this personal injury action, the plaintiff, Joan Perry, seeks recovery for damages sustained while driving a 1972 Gremlin manufactured by the defendant, American Motors Corporation (AMC). Plaintiff, though a Delaware resident, was temporarily in New Jersey where the accident occurred on August 17, 1972. In addition to AMC, she has named as a defendant the dealer from whom she purchased the vehicle, Newark American, Inc., a Delaware corporation.

AMC is a foreign corporation not qualified to do business in Delaware. Substituted service of process was made upon the Secretary of State of Delaware pursuant to 8 Del.C. § 382, ¹ Delaware's 'Long Arm Statute'. AMC has moved to quash that service on the ground it is not a corporation 'transacting business' in Delaware under the standards of § 382(a) and (b). The crucial language of § 382, added by amendment in 1961, is the definition of transaction of business as 'the course or practice of carrying on any business activities in this State including, without limiting the generality of the foregoing, the solicitation of business or orders in this State'. The issue here is whether the particular connection or contacts between AMC and the State of Delaware rise to the statutory level. ²

AMC, a Maryland corporation with its principal place of business in Detroit, Michigan, has no offices, factories, assembly plants, storage facilities or terminals in Delaware. It has no salesmen or agents located in the state, and there is no history of regular visitation by salesmen or agents.

The plaintiff's automobile, as well as all other AMC automobiles, came into Delaware via American Motors Sales Corporation (AMSC), a wholly owned subsidiary of AMC. AMSC buys all AMC automobiles from its parent at locations remote from Delaware and, in turn, resells them to dealers (such as Newark American) franchised by AMSC, not AMC. This appears to be the sole function and activity of AMSC.

AMC advertises extensively on television and radio broadcasts in Delaware. Magazines and newspapers with substantial Delaware circulation are also carriers of AMC advertising. In addition, AMC direct mails brochures to previous purchasers of AMC automobiles in Delaware. AMC offers directly to retailers, promotional information and display paraphernalia, as well as newspaper and radio copy. To the purchaser of an AMC automobile, AMC provides a 'Buyer Protection Plan' which is a heavily advertised and an allegedly extensive warranty on all AMC vehicles. This warranty is extended through the retailer but the consumer is provided a toll free number to AMC offices, and all literature, in particular the warranty and car window sticker, identify AMC, not AMSC.

Plaintiff first argues that AMC and its subsidiary AMSC are in effect the same corporation and since AMSC clearly has contacts in Delaware (it is a Delaware corporation) then AMC, the parent is Ipso facto amenable to service in Delaware.

Although the question of Alter ego corporate existence for jurisdictional purposes was obliquely dealt with in Mazzotti v. W. J. Rainey, Inc., 31 Del.Ch. 447, 77 A.2d 67 (1950), no Delaware case has dealt squarely with the problem of the wholly owned subsidiary insulating the parent from service of process through discharge of certain of its commercial activities. Two cases involving suits by plaintiffs injured in Renault automobiles yielded differing results. In the earlier case, Regie Nationale Des Usines Renault, Billancourt, (Seine) France v. Superior Court, 208 Cal.App.2d 702, 25 Cal.Rptr. 530 (1962), a French manufacturer sold automobiles to its wholly owned U.S. subsidiary which, in turn, sold the vehicles to the dealer in California from whom an injured plaintiff had purchased the car. In rejecting a motion by the parent to quash service the Court noted that the parent cannot so design its marketing efforts to arrange for 'independent' agents to avoid the jurisdictional effect of its deliberate contacts with the purchasing public.

In Velandra v. Regie Nationale Des Usines Renault, Ct. of App., 6th Cir., 336 F.2d 292 (1964), a Federal Court, on very similar facts, rejected the theory that the mere ownership of a wholly owned subsidiary is alone sufficient to justify jurisdiction over the parent. Relying on Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), the court refused to accept any theory of fictitious corporate separation, Alter ego or agency. However, the court noted that the 'ownership of the subsidiary carrying on local activities in Michigan (the forum state) represents merely one contact or factor to be considered in assessing the existence or non-existence of the requisite minimum contacts with the State of Michigan'. 336 F.2d 297.

In Crucible, Inc. v. Stora Kopparbergs Bergslags AB, D.C.W.D. of Pa., 403 F.Supp. 9 (1975), the defendant was a Swedish steel manufacturer whose products were sold in the United States through a wholly-owned subsidiary, which resold the products exclusively to local purchasers. Initially, the District Court rejected Cannon Mfg. Co. v. Cudahy Packing Co., supra, as an impediment to finding Stora-Sweden amenable to process in Pennsylvania. Admittedly, the Court in Crucible was interpreting Pennsylvania's long arm statute but its policy announcement is illuminating. In rejecting the parent's claim of third party status the Court held that a foreign corporation should not be permitted to market its products and retain immunity from suit in local courts 'simply by structuring its business operation in such a way as to avoid direct activity . . .' 403 F.Supp. 12.

While a strong policy argument may be fashioned in this case to permit service upon a wholly owned subsidiary (AMSC) as constituting service upon the parent (AMC) it is unnecessary to posit jurisdiction upon that sole consideration. An examination of AMC's admitted contacts leads to the same result. If the focus be upon AMC as a nonqualified foreign corporation it is necessary to apply the two-pronged test of amenability to process under § 382. That test as outlined in Simpson v. Thiele, Inc., D.Del., 344 F.Supp. 7, 8 (1972) is: '(1) the corporation must be transacting business generally in Delaware, and (2) the suit must arise or grow out of a particular business transaction which occurred in the State.'

The second prong of the test is clearly satisfied in the instant case. This suit is based upon the failure of the brakes of an automobile bought and allegedly serviced in Delaware. The occurrence of the accident in New Jersey is purely fortuitous and does not detract from the conclusion that this action had its genesis in a business transaction consummated in Delaware.

As to analyzing the first prong, the general transaction of business test, decisions interpreting Delaware's Long Arm Statute have held consistently that the language of § 382 should be liberally construed in favor of finding jurisdiction. County Plumbing and Heating Company v. Strine, Del.Super., 272 A.2d 340 (1970); Gentry v. Wilmington Trust Company, D.Del., 321 F.Supp., 1379 (1970); Crowell Corporation v. Topkis Construction Co., Del.Super., 267 A.2d 613 (1970); Delaware Lead Construction Company v. Young Industries, Inc., D.Del., 360 F.Supp. 1244 (1973). (See also the Annotation in 19 A.L.R.3d, 13 for a...