Phone Directories Co., Inc. v. Contel Corp., Civ. No. 91-C-673W.

• Decision Date: 14 February 1992
• Docket Number: Civ. No. 91-C-673W.
• Citation: 786 F. Supp. 930
• Parties: PHONE DIRECTORIES COMPANY, INC., a Utah Corporation, Plaintiff, v. CONTEL CORPORATION, Defendants.
• Court: U.S. District Court — District of Utah

786 F. Supp. 930

PHONE DIRECTORIES COMPANY, INC., a Utah Corporation, Plaintiff, v. CONTEL CORPORATION, Defendants.

Civ. No. 91-C-673W.

United States District Court, D. Utah, C.D.

February 14, 1992.

COPYRIGHT MATERIAL OMITTED

Richard W. Casey, Mark Y. Hirata, Giauque, Crockett & Bendinger, Salt Lake City, Utah, for plaintiff.

Reid E. Lewis, Mark W. May, Moyle & Draper, P.C., Salt Lake City, Utah, for defendants.

MEMORANDUM DECISION AND ORDER

WINDER, District Judge.

This matter is before the court on Defendant's Motion to Dismiss. The court heard this motion on January 24, 1991. Plaintiff, Phone Directories Company, Inc. ("Phone Directories"), was represented by Richard W. Casey and Mark Y. Hirata. Defendant, Contel Corporation ("Contel"), was represented by Reid E. Lewis and Mark W. May. Before the hearing, the court carefully reviewed the memoranda and all other pertinent papers in the file of the case. Having further considered the law and the facts, the court now renders the following memorandum decision and order.

PROCEDURAL HISTORY

Phone Directories filed the Complaint in this matter on June 28, 1991. In the Complaint, Phone Directories alleges that Contel has sought to monopolize and restrain trade in telephone directory advertising in violation of the Sherman Anti-trust Act, 15 U.S.C. §§ 1, 2, and the Utah Antitrust Act, U.C.A. §§ 76-10-911 to -920. Phone Directories also alleges that Contel's behavior with respect to telephone directory advertising violates the Utah Unfair Practices Act, U.C.A. §§ 13-5-1 to -18, and constitutes tortious interference with Phone Directories' business relations.

Before filing an Answer to the Complaint, Contel filed a motion to dismiss this action on August 30, 1991. Contel asserts that venue for this action is improper in the District of Utah, and that this court lacks personal jurisdiction over Contel. See Fed. R.Civ.P. 12(b)(2), -(3). Contel argues that the nature and magnitude of its contacts with this district do not satisfy the requirements of either the antitrust venue provisions, 15 U.S.C. §§ 15, 22, or the general venue statute, 28 U.S.C. § 1391(b). Moreover, Contel contends that if its contacts with this district are not sufficient to support venue, they cannot fulfill the requirements of the due process clause with respect to personal jurisdiction.

FACTUAL BACKGROUND

Phone Directories is a Utah corporation engaged in publishing telephone directories. Its principal place of business is in Orem, Utah. According to the Complaint, Phone Directories competes in the telephone directory publishing market nationwide, including some areas of the state of Utah.

Contel is a holding company incorporated in Delaware and headquartered in Atlanta, Georgia. Contel's subsidiaries, most of which are wholly-owned, are engaged in providing local exchange telephone services, cellular telephone services, and integrated telecommunications and information systems and services. Contel of the West, Inc. ("Contel West") is a wholly-owned subsidiary of Contel.

Contel is qualified to do business, and is doing business, in Georgia. Contel does not have an office in Utah. It does not directly employee any persons in Utah. Contel does not have any bank accounts in Utah nor does it own any real property in Utah. Contel is not subject to the regulatory jurisdiction of the Utah Public Service Commission or any other Utah regulatory agency.

Contel West is a telephone operating company that provides local communications and information services to customers in Utah, Arizona, New Mexico, and Idaho. Contel West is incorporated in the state of Arizona. It is subject to the regulatory jurisdiction of the Utah Public Service Commission and various other Utah regulatory agencies. Contel West is interconnected with other telephone companies and the toll networks of national long distance carriers.

Contel and Contel West are separately incorporated. They are each governed by separate, independent boards of directors. The companies do not share directors. Contel and Contel West each maintain separate books and records. Contel, however, monitors the books and records of Contel West.

DISCUSSION

The general issues presented by Contel's Motion to Dismiss are: (1) whether venue is proper in the District of Utah; and, if so, (2) whether this court has personal jurisdiction over Contel.¹

A. Standard of Review.

Plaintiff bears the burden of establishing this court's jurisdiction over the defendant. Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir.1990), cert. denied, ___ U.S. ___, 111 S.Ct. 786, 112 L.Ed.2d 849 (1991) (citing Behagen v. Amateur Basketball Ass'n of U.S.A., 744 F.2d 731, 733 (10th Cir.1984), cert. denied, 471 U.S. 1010, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985)). See also Bartholomew v. Virginia Chiropractic Ass'n, 612 F.2d 812, 816 (4th Cir. 1979), cert. denied, 446 U.S. 938, 100 S.Ct. 2158, 64 L.Ed.2d 791 (1980) (plaintiff bears burden of establishing that venue is proper). When a motion to dismiss for lack of personal jurisdiction is brought before trial and supported by affidavits and other written materials, however, plaintiff need only make a prima facie showing of jurisdiction. Taylor, 912 F.2d at 431; Smokey's of Tulsa, Inc. v. American Honda Motor Co., 453 F.Supp. 1265, 1272 (E.D.Okla.1978) (venue). In assessing whether plaintiff has met its burden, allegations in the complaint that are uncontroverted by defendant's affidavits must be taken as true and all factual disputes should be resolved in favor of plaintiff. Taylor, 912 F.2d at 431.

B. Venue.

Although Contel argues that neither provision is satisfied, the parties apparently agree that only two venue statutes are relevant to this case: the special antitrust venue provision of § 12 of the Clayton Act, 15 U.S.C. § 22, and the general venue provisions of 28 U.S.C. § 1391(b).² Phone Directories argues that § 12 applies to this case because Contel "transacts business" in this district through its subsidiary, Contel West. Phone Directories also argues that § 1391(b) applies because Phone Directories' claim arose here.

1. Venue Under Section 12 of the Clayton Act.

Section 12 of the Clayton Act provides:

Any suit, action, or proceeding under the antitrust laws 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. § 22.

The parties agree that Contel is not an inhabitant of this district and cannot be found here. Thus, the essential issue with respect to § 12 is whether Contel's relationship with its subsidiary, Contel West, is such that Contel can be deemed to have transacted business in this district through Contel West. Phone Directories and Contel, however, fundamentally disagree over the meaning of the phrase "transacts business" as it applies in the context of a parent-subsidiary relationship. Contel urges that a parent company must be found to have directed "the detailed day-to-day activities" of the subsidiary before venue is proper. In contrast, Phone Directories argues that the parent company need only have "the ability to influence and control the decisions of its subsidiary."

The disagreement between the parties as to the appropriate test reflects the divergent approaches that federal courts have taken in addressing this issue. Most decisions converge around either the day-to-day control test or the ability to influence test as the appropriate measure for determining whether a parent transacts business through its subsidiary. See In re Chicken Litigation, 407 F.Supp. 1285, 1293 (N.D.Ga.1975) (noting existence of two distinct tests). Unfortunately, there is relatively little directly controlling authority for this court to follow in determining the proper test. Therefore, this court is required to decide the issue.

a. Scophony

In attempting to determine which of these tests is proper, the primary authority is the Supreme Court of the United States' opinion in United States v. Scophony Corp. of America, 333 U.S. 795, 68 S.Ct. 855, 92 L.Ed. 1091 (1948). In Scophony, the Supreme Court considered whether the activities of a British holding company vis-a-vis its American subsidiary constituted transacting business under § 12 of the Clayton Act. The British parent company, Scophony, originally had begun to do business in the United States directly. During World War II, however, the company was unable to import sufficient capital to maintain its operations here. In order to continue its presence in America, Scophony was forced to create a subsidiary, American Scophony, in conjunction with two American firms.

In considering whether venue was proper in New York for an antitrust action by the United States against Scophony, the Scophony Court began by emphasizing the remedial purpose of the "transacts business" provision of § 12. Section 12 was intended by Congress to "enlarge" the more stringent venue provision of § 7 of the Sherman Antitrust Act. Id. at 806, 68 S.Ct. at 861. Under § 7, venue is proper only in those districts where the defendant resides or is found. Id. at 805, 68 S.Ct. at 860. Decisions construing § 7 had equated the term "found" with that of formally "doing business" and being "present" in a district. Id. at 805, n. 14, 68 S.Ct. at 860, n. 14. This interpretation often created an "insuperable obstacle" for plaintiffs who sought to sue non-resident corporations in the plaintiffs' own districts. Id. at 806 n. 16, 68 S.Ct. at 861 n. 16. The "transacts business" language of § 12 was intended to remedy this situation by providing "a much broader meaning for establishing venue than the concept of `carrying on business' denoted by `found' under the preexisting statute and decisions." Id. at 807, 68 S.Ct. at 861.

In order to effect the remedial purpose of § 12, ...