Rayco Manufacturing Co. v. Chicopee Manufacturing Corp.

• Decision Date: 22 January 1957
• Citation: 148 F. Supp. 588
• Parties: RAYCO MANUFACTURING COMPANY, Plaintiff, v. CHICOPEE MANUFACTURING CORPORATION, Defendant.
• Court: U.S. District Court — Southern District of New York

148 F. Supp. 588

RAYCO MANUFACTURING COMPANY, Plaintiff, v. CHICOPEE MANUFACTURING CORPORATION, Defendant.

United States District Court S. D. New York.

January 22, 1957.

S. Stephen Baker, New York City, for plaintiff, William E. Woods and Burton B. Wiener, New York City, of counsel.

Morgan, Finnegan, Durham & Pine, New York City, for defendant, Granville M. Pine, and John D. Foley, New York City, William D. Denson, Washington, D. C., of counsel.

PALMIERI, District Judge.

Rayco Manufacturing Company (Rayco) and Chicopee Manufacturing Corporation (Chicopee) are involved in a contest concerning the validity and effect of two patents held by Chicopee for puffed plastic fabrics. The present motions were brought on by each party to fix the litigation, presently in three different federal courts, in the circuit respectively thought to be most convenient.

Litigation began with two suits brought on August 8, 1956, by Chicopee in the Eastern District of Virginia: one against the Virginia Fiber Corporation, apparently a competitor of both Rayco and Chicopee, and the other against Rayco of Arlington Boulevard Inc., a franchised dealer of Rayco. Chicopee's affidavits indicate that these two suits have been consolidated. The next step was taken by Rayco. On August 15, 1956, it filed a suit in the Southern District of New York for a declaratory judgment that Chicopee's patents were invalid and that Rayco did not infringe. Chicopee and Rayco then began a series of maneuvers by motions with a view toward fixing the litigation in one of these two circuits, Chicopee moving to dismiss Rayco's suit or, in the alternative, to transfer it to Virginia, and Rayco moving to enjoin proceedings taken or to be taken by Chicopee. Before these motions were heard, Chicopee instituted step three in the contest. On November 23 or 26, 1956 (the affidavits set forth both dates), it filed a suit charging infringement in the District of New Jersey against Hy-Grade Woven Plastics Inc. (Hy-Grade), a company which manufactures the controversial puffed plastic fabric and sells it only to Rayco. Immediately thereafter, Chicopee amended its prior motion to dismiss or to transfer the New York suit to Virginia by adding a motion to transfer the former suit to New Jersey. Rayco also opposed this motion and brought on an additional motion of its own to enjoin Chicopee from prosecuting the New Jersey suit against Hy-Grade and from harassing Rayco's customers by threatening or commencing suits. Furthermore, Hy-Grade, through Rayco's attorney, moved to intervene in the declaratory judgment action in the Southern District. On oral argument, Chicopee withdrew its motion to transfer to Virginia, so that the choice remaining, if one is to be made, is between the Southern District of New York and the District of New Jersey.

I turn first to Chicopee's motion to dismiss Rayco's suit on the ground that the Southern District lacks personal jurisdiction of the defendant. Specifically, Chicopee contends that it was not incorporated in New York and that it does not do business in New York. The corporation served, it says, was Chicopee Mills, Inc., (Mills) a wholly owned, but completely independent, New York subsidiary of Chicopee.

Chicopee is a Massachusetts corporation with its principal place of business at New Brunswick, New Jersey. Its only contacts with New York are through its subsidiary, Mills, which is a New York corporation qualified to do business in New York, and has a large office in New York City where the parent's goods are displayed. Mills' function is to act as a selling agent for commissions on sales made, mostly for Chicopee but for other concerns as well. Ninety-five per cent of the parent's business, amounting to approximately 25 million dollars a year, originates with the subsidiary. Mills, however, does not sell Chicopee's goods; it merely solicits customers, the orders of whom must be accepted by Chicopee. Any complaints or returns of goods sold are sent directly to Chicopee or forwarded through Mills. Invoices are made out under a Chicopee letterhead with merely a reference to Mills as the selling agent, and payments are made, not to Mills, but to Chicopee. These are sent to a Post Office box kept by Chicopee in New York. The parent also has a bank account in New York City.

Venue is proper in the Southern District if these facts indicate that Chicopee was doing business within the provisions of 28 U.S.C. § 1391(c) (1952).¹ Despite the frequency with which this issue is determined by the courts, there is no, and probably can be no authoritative standard for deciding it. It seems, however, that the federal courts have applied the doctrine of International Shoe Co. v. State of Washington² (which decided how much personal jurisdiction a state could assume without violating due process) to federal jurisdiction and have felt themselves satisfied if they found minimum contacts and no imbalance of equities against the defendant.³ Furthermore, there seems to be a growing tendency to make the determination depend only on the existence of minimum contacts;⁴ any assessment of convenience and fairness that may be necessary can be made with a view to invoking the transfer provision of 28 U.S.C. § 1404 (a) (1952).⁵ This development, it would seem, takes advantage of the flexible scheme provided by the Judiciary Code for insuring litigants prompt access to the courts. Increasingly, it is felt that questions of personal jurisdiction do not challenge the power of the federal courts; they merely are awkward means of determining which federal court is the proper one.⁶

Using this guide, I find no trouble in concluding that Chicopee is amenable to suit in the Southern District of New York. The volume of its sales in this District, the presence in this District of a Post Office box in which it receives payments for goods sold, and its bank account in this District constitute sufficient contacts to make Chicopee answerable to the process of this court. It is of no moment that service was made on a Vice-President of its independent subsidiary,^6a who was also a Director of the parent, Chicopee. This is not a case where the parent sells goods to the subsidiary which in turn sells the goods to others. Perhaps in the latter situation the law is justified in not holding the parent answerable to service made on the subsidiary.^6b Mills, however, is but a sales agent and, as such, is the extension of Chicopee into this District by which the latter makes its sales. If such an arrangement could immunize Chicopee, every case that found jurisdiction from extended solicitation in a District would have been wrongly decided.

It should be noted, however, that this suit does not arise directly from Chicopee's or Mill's activities in the Southern District.⁷ Since Rayco, which also is a New Jersey corporation and regularly engaged in business in that state, has even fewer contacts with the Southern District with respect to this litigation than does Chicopee, an interesting question arises as to why suit was brought in this District. I turn now to consider this point.^7a Rayco, in its affidavits and briefs filed in opposition to Chicopee's motion to transfer, advances the usual reasons for its exercise of choice of venue: Although its incorporation and principal place of business are in New Jersey, it is just as convenient for it to litigate in the Southern District, in fact, more so for it retains New York counsel; its records are in New York; and certain prior use witnesses whom it cannot command are New York residents. In addition, it alleges that Chicopee's patents were prosecuted from New York and that the latter's records are with its New York counsel. And as a further argument for sustaining its choice of venue, Rayco thrusts the epithet of "forum shopping" against Chicopee.

All this may be true and yet I feel that the real reason for Rayco's coming into New York has been left unsaid, and for apparent reasons. There appears to be a general attitude among the patent bar that the Second Circuit is most uncharitable to patents.⁸ Consequently, a party desiring to have a patent declared invalid will probably seek to sue here, while a party suing to enforce its patent in an infringement suit will probably bring it elsewhere, even to the point of suing a customer of the infringer instead of the direct infringer.⁹ These tactics are plainly evident from the federal reports¹⁰ and have been recognized by the Supreme Court.¹¹ Generally, priority has been given to the swiftest;¹² contending parties have been known to initiate infringement or declaratory judgment suits minutes after a patent grant by the Patent Office.¹³

I find these tactics deplorable. That the issuance of a patent should be tantamount to the blowing of a starter's whistle in a foot race among patent counsel is indeed a lamentable spectacle. I believe that a litigant, whether a swift first or as a prompt retaliator, is open to the charge of forum shopping whenever he chooses a forum with slight connection to the factual circumstances surrounding his suit.¹⁴ Litigants should be encouraged to attempt to settle their differences without imposing undue expense and vexatious situations on the courts.

In the instant case, there are two forums affected, separated only by the width of a river and with the courts only a few miles from each other. Because HyGrade seeks to intervene in New York, and because Rayco will probably intervene or defend Hy-Grade against Chicopee in New Jersey, the present posture of the litigation is that the same parties will be affected by the same issues in both forums.¹⁵ The New York suit was begun before the New Jersey action, but the business activities of all the parties are much more closely connected with New Jersey. Furthermore, Rayco's affidavits indicate that the prior use witnesses also have contact with New Jersey.

Under the circumstances, I believe that New Jersey is a more...