Rabinowitz v. Kaiser-Frazer Corp.

• Decision Date: 16 March 1950
• Citation: 198 Misc. 707
• Parties: Joseph Rabinowitz, Plaintiff,<BR>v.<BR>Kaiser-Frazer Corporation et al., Defendants.
• Court: New York Supreme Court

198 Misc. 707

Joseph Rabinowitz, Plaintiff,

v.Kaiser-Frazer Corporation et al., Defendants.

March 16, 1950.

Willkie, Owen, Farr, Gallagher & Walton for Kaiser-Frazer Corporation, defendant.

Nemerov & Shapiro for plaintiff.

WALSH, J.

This is one of two separate motions made by two of the three named defendants appearing specially to vacate the service of the summons. The defendant Kaiser-Frazer Corporation moves for an order to vacate the service of a summons herein on the ground that it was not served upon a proper person in accordance with section 229 of the Civil Practice Act. A third motion is made by the plaintiff for an examination pursuant to section 307 of the Civil Practice Act in the event that additional proof is needed with respect to the opposition to the motion to dismiss made by the defendant Kaiser-Frazer Corporation. A separate decision is published herewith on the motion of the defendant Bank of America National Trust and Savings Association to dismiss. (Rabinowitz v. Kaiser-Frazer Corp., 198 Misc. 312.)

The application of the Kaiser-Frazer Corporation will be considered first. Kaiser-Frazer was incorporated under the laws of the State of Nevada. It has filed no certificate permitting it to do business in New York State, but, nevertheless, plaintiff asserts it is actually doing so; it is "here" (Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 268). Service upon it was effected, plaintiff maintains, by delivery of a copy of the summons and complaint in New York City to one Angus J. Wiese, who describes himself as sales manager for the Kaiser-Frazer Sales Corporation, New York Division. Kaiser-Frazer Sales Corporation, chartered in Michigan but authorized to do business in New York State, is not named as a party defendant. The motion to dismiss service is based on the contention that the sales corporation is a separate corporate entity from the Kaiser-Frazer Corporation itself, in fact as well as in name. The position of the sales corporation as put by its vice-president, E. E. Trefethen Jr. (who is also vice-president of the defendant corporation), briefly is: "Kaiser-Frazer Corporation makes cars. It sells these to Kaiser-Frazer Sales Corporation which takes title to the cars. Kaiser-Frazer Sales Corporation then sells the cars to dealers who pay Kaiser-Frazer Sales Corporation. In these transactions both Kaiser-Frazer Corporation and Kaiser-Frazer Sales Corporation each acts for its own account and neither is responsible for the acts of the other, nor does either commit the other to act in any way."

Plaintiff challenges this claim. Plaintiff's position is that the independence of the sales corporation from the manufacturing corporation is nominal and a mere pretense, that actually the sales corporation functions either as the active and exclusive agent of the defendant manufacturing corporation in carrying on here a substantial part of the latter's business, or that it is a mere instrumentality of such corporation — that it is Kaiser-Frazer itself.

In support of such assertion plaintiff contends, and factually asserts, that Kaiser-Frazer, the Nevada corporation and parent body, has an organizational set-up which consists of (1) the above sales corporation "which among other things hereinafter stated, markets and distributes the Kaiser-Frazer passenger automobiles and parts within the United States;" (2) Kaiser-Frazer Export Corporation, "which markets the same products outside the United States"; (3) Kaiser-Frazer of Canada, Ltd., "which is the Kaiser-Frazer outlet in Canada"; and (4) Kaiser & Frazer Parts Corporation "which operates rolling mills for the production of sheet metal for the use of Kaiser-Frazer in fabricating its automobiles and parts". The four enterprises above named, although nominally independent corporate entities, actually function, plaintiff asserts, as mere departmental divisions of the Kaiser-Frazer Corporation's business, indicative of which is the following: although the parent corporation has outstanding stock of upwards of 5,000,000 shares, the sales corporation and the export corporation have outstanding shares of but one hundred each and the parts corporation, ninety, all of $100 par value. Kaiser-Frazer of Canada, Ltd. has outstanding 1,000 shares of no par value. The outstanding shares of all of the four corporations are in the exclusive ownership of the Kaiser-Frazer Corporation, the parent body. Not only are such corporations wholly owned subsidiaries, but they are also consolidated subsidiaries, and consolidated financial statements are made. Further summarizing the presentation made in its opposing affidavits, plaintiff, in his brief, continues (p. 7 et seq.):

"The subsidiaries are entirely dependent financially upon Kaiser-Frazer, operating on direct advances by KAISER-FRAZER or through the use of KAISER-FRAZER'S credit. They are in no sense independent subsidiaries which can stand on their own feet and rely upon their own resources. At the end of 1948, advances by KAISER-FRAZER to its subsidiaries aggregated over $14,000,000., of which amount the SALES CORPORATION had received almost $7,000,000. Just as departments of a corporation would not pay interest on their allotted appropriations, the wholly-owned subsidiaries have not been paying interest upon these advances. Furthermore, less than 15% of the total consolidated assets and consolidated gross revenues are attributed to these subsidiaries combined. As would naturally be the case, the subsidiaries have never paid dividends to KAISER-FRAZER. Banks, other financing institutions and government agencies have continuously required KAISER-FRAZER to guarantee repayment of loans made by them to the subsidiaries. Building Loan Agreements and Assignments of Accounts in 1948, between KAISER-FRAZER and KAISER & FRAZER PARTS CORP., on the one hand, and the First Security Trust Co., on the other, required KAISER-FRAZER to become co-maker with its subsidiary upon notes aggregating approximately $400,000. The 1949 loans of the Reconstruction Finance Corporation (R.F.C.) to KAISER-FRAZER and the SALES CORPORATION, of which $10,000,000. was allotted to the SALES CORPORATION, were made upon the guarantee of KAISER-FRAZER to repay the

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