Porter v. LSB Industries, Inc.

• Decision Date: 16 July 1993
• Citation: 600 N.Y.S.2d 867,192 A.D.2d 205
• Parties: , Prod.Liab.Rep. (CCH) P 13,699 Eugene V. PORTER and Gail Porter, Respondents, v. LSB INDUSTRIES, INC., Appellant.
• Court: New York Supreme Court — Appellate Division

Page 867

600 N.Y.S.2d 867

192 A.D.2d 205, Prod.Liab.Rep. (CCH) P 13,699

Eugene V. PORTER and Gail Porter, Respondents, v. LSB INDUSTRIES, INC., Appellant.

Supreme Court, Appellate Division Fourth Department.

July 16, 1993.

Damon & Morey by Debra Norton, Buffalo, for appellant.

Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria by John Collins, Buffalo, for respondents.

Before DENMAN, P.J., and BALIO, LAWTON, FALLON and DAVIS, JJ.

DENMAN, Presiding Justice:

Plaintiffs brought this action sounding in strict products liability and negligence to recover for injuries sustained by plaintiff husband while operating a "Rockland" lathe at his place of employment. Plaintiffs originally sued LSB Industries, Inc. (LSB) on the theory that LSB, the registered owner of the "Rockland" trademark, had manufactured, sold, or distributed the lathe or otherwise placed it in the stream of commerce. As revealed by the record, however, the lathe actually had been sold by LSB's wholly owned subsidiary, Summit Machine Tool Manufacturing Corp. (Summit), which is not a party to this appeal.

On LSB's appeal from denial of its motion for summary judgment, the following issues are presented: whether LSB is subject to long-arm jurisdiction based on its own contacts with New York; whether LSB is subject to jurisdiction based on Summit's contacts with New York; whether LSB can be found liable for its own conduct; and whether LSB can be found liable for Summit's conduct. Because we answer all of those questions in the negative, we reverse and grant summary judgment dismissing the complaint against LSB for lack of jurisdiction and failure of proof of liability.

BACKGROUND

Plaintiff Eugene V. Porter was injured on January 7, 1987 while employed by Buffalo Pumps, Inc. (Buffalo Pumps). Porter was removing a chuck from the lathe he was operating when the drive activated, causing his injury. The lathe bore the trademark "Rockland", which is registered to LSB. Plaintiffs commenced a products liability and negligence action against LSB, asserting jurisdiction under CPLR 302, the long-arm statute. The complaint alleges that the lathe was defectively designed, manufactured, assembled or placed on the market by LSB or its agents. In its answer, LSB generally denied liability, denied that it was subject to long-arm jurisdiction, and raised a defense of lack of personal jurisdiction.

Following disclosure, LSB moved for summary judgment dismissing plaintiffs' complaint on the grounds of lack of personal jurisdiction and lack of liability for the alleged torts of its subsidiary, Summit. Plaintiffs opposed the motion. The motion papers reveal the following facts relevant to the issues of jurisdiction and liability: LSB was originally incorporated in Oklahoma in 1968 and reincorporated in Delaware in 1977 as a successor corporation to the original. Headquartered in Oklahoma City, LSB is a diversified holding company that conducts all of its business through wholly owned subsidiaries, of which there are at least 20, and all of which were ongoing businesses when acquired by LSB for investment purposes. Generally, the subsidiaries are in the business of manufacturing and selling chemical products, heating and air conditioning equipment, bearings, oil field equipment, and industrial products, including machine tools. LSB has never designed, manufactured, distributed or sold any goods. In contrast to its subsidiaries' stock, LSB's stock is publicly traded, and is held by several thousand shareholders. During the most recent reporting periods covered by the record, LSB continued to diversify its holdings by acquiring new subsidiaries, resulting in the parent's "sales" growing from approximately $75,000,000 in 1984 to approximately $212,000,000 in 1988.

LSB has no direct contacts with New York. It has never maintained offices, solicited business, maintained bank accounts or other properties, or maintained employees in New York, nor has it derived revenue directly from the sale of goods or services in New York. None of LSB's subsidiaries engages in activities in New York for the benefit of LSB, under its direction or control, or with its permission.

Summit is 100% owned by LSB. LSB did not underwrite Summit's incorporation; rather, Summit was an independent corporation and ongoing business when purchased by LSB in 1968. Summit's business consists of the distribution of machine tools, some of which, like the lathe in question, are marketed under the trade name Rockland. Although that trademark has been registered to LSB since 1969, it has never been used by LSB. None of LSB's other subsidiaries markets products under the Rockland trademark. Apparently, Summit does so by way of an informal arrangement with LSB rather than any formal licensing agreement. Summit sells its Rockland tools through independent distributors who market throughout the United States. One such distributor, Slagla, is located in Rochester, New York and possibly distributes Summit's products in New York. Another is New England Machine Tool Corp. (New England), an unrelated entity located in Lynn, Massachusetts, which distributes Summit's products throughout the northeast. Summit does not maintain offices, employees, bank accounts or other properties in New York. Given its limited business contacts with New York distributors, Summit derives less than one percent of its revenues from sales of goods or services in New York.

The Rockland lathe in question was manufactured in Yugoslavia by a company known as Potisje Ada, for which Summit was the exclusive distributor in the United States. The lathe was shipped to Summit in the United States in 1971. Upon receiving a shipment from the European manufacturer, Summit typically would uncrate and clean the lathes, check them for damage, check their operation, and affix the Rockland nameplates before reselling them. Summit sold the lathe to New England in March, 1972. New England then sold the lathe to plaintiff's employer, Buffalo Pumps. Typically, New England would place an order with Summit either for its own inventory or for direct shipment to a customer pursuant to a specific order. Summit sometimes stocked machines for New England and in that case would ship directly to New England's customer, but did not directly ship the lathe to Buffalo Pumps in this instance. Summit sometimes performed installation and maintenance work on the ultimate customer's premises, but again did not do so in this instance. Apparently Buffalo Pumps made payment directly to New England and New England paid Summit. Not only was Summit not involved in the ultimate sale, it did not enter the State for the installation, inspection, repair or maintenance of the lathe, never contacted representatives of Buffalo Pumps, and never contracted with any party to supply inspection, maintenance or repair services in New York. LSB had no knowledge of New England's subsequent sale of the lathe to Buffalo Pumps and received no benefit.

With respect to the relationship between LSB and Summit, the record establishes that Summit, like LSB, is headquartered in Oklahoma City. Prior to 1974, Summit's principal offices and warehouse were located at the same address as LSB's offices, but in a separate facility. Since 1974, Summit's offices have been located over a mile from LSB's, in a building owned by another of LSB's subsidiaries. No other subsidiaries of LSB do business at Summit's facility. The current president of Summit is Steven Golsen, the son of Jack Golsen, who is LSB's chairman and president and former president of Summit. Summit's president and vice-president are not and never have been officers or directors of LSB. LSB has 13 officers and directors; Summit has six officers and two directors. Four of those who are officers or directors of LSB are also officers or directors of Summit. The two entities do not have common shareholders.

LSB does not remove or appoint Summit's officers or directors. The officers and directors of Summit act independently and do not take their orders from LSB. LSB does not interfere in the hiring or assignment of any of Summit's 60 to 70 employees, nor does LSB control the marketing or operational policies of Summit. LSB does not decide what products Summit will distribute or how resources will be allocated to various products. Additionally, Summit maintains its own business contacts, generates its own product brochures and literature, and does its own advertising.

Concerning the financial relationship between the two entities, the record establishes that, although Summit submits its annual budget to LSB for approval, Summit maintains its own assets. LSB does not finance Summit's day-to-day operations, and does not pay the salaries of Summit's personnel or its other expenses or losses. In LSB's financial statements, Summit is not referred to as a division or department. Although LSB provides certain accounting, legal and banking services for Summit, Summit pays LSB at competitive market rates for all such services. LSB has loaned money to Summit, albeit with interest. LSB has never guaranteed a loan to Summit.

LSB IS NOT SUBJECT TO JURISDICTION BASED ON ITS OWN CONDUCT AND FORUM CONTACTS.

Plaintiffs' arguments concerning personal jurisdiction over LSB and LSB's substantive liability are based on the fact that LSB is the registered owner of the "Rockland" trademark. Plaintiffs assert that, under New York and Federal law, by registering the Rockland trademark, LSB identified and represented itself as the sole "user" of the trademark. Plaintiffs thus argue that LSB is estopped from denying that it put the lathe and other Rockland products into the stream of commerce, or that it appointed Summit as its agent for that purpose. Similarly, with respect to the issue of jurisdiction, plaintiffs argue, based on the trademark registration, that LSB either committed a tortious act outside the State while maintaining the requisite New York...