Reul v. Sahara Hotel

• Decision Date: 19 March 1974
• Docket Number: Civ. A. No. 72-H-629.
• Citation: 372 F. Supp. 995
• Parties: George REUL et al. v. SAHARA HOTEL et al.
• Court: U.S. District Court — Southern District of Texas

372 F. Supp. 995

George REUL et al. v. SAHARA HOTEL et al.

Civ. A. No. 72-H-629.

United States District Court, S. D. Texas, Houston Division.

March 19, 1974.

Ernest H. Cannon, Brown, Kronzer, Abraham, Watkins & Steely, Houston, Tex., for plaintiff.

John H. Boswell, Boswell, O'Toole, Davis & Pickering, Houston, Tex., for Sahara Hotel.

Sam H. Hood, Jr., Fulbright, Crooker & Jaworski, Houston, Tex., for Jones Chemicals, Inc.

Memorandum and Order

SINGLETON, District Judge.

Plaintiffs in this products liability tort action are George and Kay Reul.

The suit arises out of an incident which occurred on or about September 11, 1970. Plaintiff George Reul was a guest at the Sahara Hotel in Las Vegas, Nevada, when he was injured by an explosion of a chlorine tank which occurred near the pool area of the hotel. The plaintiffs allege that the tank had been supplied to the Sahara Hotel and was maintained by the defendants Jones Chemicals, Inc., a New York corporation, Jones Chemicals, Inc., a New York Corporation, d/b/a J. W. Jones, Inc., and Jones Chemicals, Inc., Western Division, a California corporation. The plaintiffs have sued all three of these entities on the theories of strict liability or negligence. They allege further that the three entities were engaged in the business of selling such products and that they were expecting the product to reach, and the product did reach, the Sahara Hotel without substantial change in the condition in which it was sold.

Defendants are the Sahara Hotel, Jones Chemicals, Inc., a New York corporation, Jones Chemicals, Inc., a New York Corporation d/b/a J. W. Jones, Inc., and Jones Chemicals, Inc., Western Division, a California corporation. Plaintiffs reside in Harris County, Texas. The Sahara Hotel is a Nevada corporation doing business in Texas, and as to it there has been no problem of jurisdiction. Jones Chemicals, a New York corporation, has a permit to do business in Texas under the name of J. W. Jones, Inc.; has been served; and has answered. Plaintiffs allege that the defendant Jones Chemicals, Western Division, does business in Texas through its parent corporation. Jones Chemicals, Inc., Western Division, maintains no registered agent in Texas and is incorporated under the laws of California. The California corporation was served by way of the Secretary of State of Texas in Austin, in accordance with Article 2031(b) of the Vernon's Annotated Revised Civil Statutes of Texas. Notice of the suit was mailed to J. K. Galliger, secretary of the corporation, at its principal place of business in Torrence, California.

At this point there is no problem with defendant Sahara Hotel. There is no problem with Jones Chemicals, Inc., a New York corporation, or its branch office in Texas which does business by permit as J. W. Jones, Inc. These are admittedly the same corporation and have answered in the suit. The defendant Jones Chemicals, Inc., Western Division, a California corporation, has vigorously objected, however, to the maintenance of the suit as to it. Several of its objections are easily answered.

Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction is clearly unfounded. The amount in controversy is in excess of $10,000 and between citizens of different states. Clearly, then, this case falls within 28 U.S.C.A. § 1332, giving the district courts of the United States original jurisdiction.

Defendant's Motion to Dismiss for Lack of Venue Over the Defendant or Subject Matter is also clearly unfounded. 28 U.S.C.A. § 1391(a) provides: "A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose." Mr. and Mrs. Reul, the only plaintiffs, both reside in the Southern District of Texas. Thus, venue is clearly proper in accordance with that statutory provision.

Defendant's Motion to Quash Service and to Dismiss for Want of Proper Service, for Lack of Jurisdiction Over the Defendant, and for Insufficiency of Service of Process is concerned with essentially the same question of law. The question resolves itself into one of whether or not this court has jurisdiction over the person of the California corporation via the Texas long arm statute.

The California corporation has neither sold nor solicited the sale of any products or service on its own behalf in the state of Texas; has not received any income from the sale of any products of service in Texas arising solely out of its "divisional" operation; has not been granted a permit to do business in Texas; and owns no property in Texas in its "divisional" name. These facts are undisputed. The plaintiffs nevertheless are asserting that this court has jurisdiction over the defendant California corporation. The question presented is a unique one, possibly one of first impression in its particular posture: Is the relationship between the parent New York corporation, which assuredly does business in the state of Texas, and the subsidiary California corporation one which allows a court to find that the doing of business of the parent corporation can be imputed to the subsidiary so that Texas can acquire in personam jurisdiction over the California corporation? Couched in slightly different terms, the question becomes: Is the phrase "doing business" used in the Texas long arm statute broad enough to cover a situation such as the one presented here?

It is important to note at this juncture that the court is not faced yet with the question of holding the parent corporation liable for the acts of its subsidiary California corporation or vice versa. That question may have to be reached eventually, but the court believes the legal test of liability is different from and should be more stringent than a legal test relating to the amenability of process and forum. For that reason the many, many cases which treat the liability question are of limited value. Cf. Bland v. Kentucky Fried Chicken, 338 F.Supp. 871, 875 (S.D.Tex. 1971).

Unfortunately, the court is faced with no clearly articulated standard in this area. Although there are cases in the general area, each seems to be decided on its own peculiar facts. Many Texas state courts and federal courts have discussed the scope of the Texas long arm statute, and it is a well-settled fact that the statute will "reach as far as due process will permit." Atwood Hatcheries v. Heisdorf & Nelson Farms, 357 F. 2d 847 (5th Cir. 1966); Eyerly Co. v. Killian, 414 F.2d 591 (5th Cir. 1969); Jetco Electronic Industries, Inc. v. Gardiner, 473 F.2d 1228 (5th Cir. 1973).

The Texas long arm statute is very long and involved. In parts relevant to this case, it reads:

Art. 2031b. Service of process upon foreign corporations and nonresidents

Failure to appoint agent; designation of Secretary of State as lawful attorney

Sec. 1. When any foreign corporation . . . subject to Section 3 of this Act, has not appointed or maintained a designated agent, upon whom service of process can be made . . . such corporation . . . shall be conclusively presumed to have designated the Secretary of State of Texas as their true and lawful attorney upon whom service of process or complaint may be made.

* * * * * *

Act of engaging in business in state as equivalent to appointment of Secretary of State as agent

Sec. 3. Any foreign corporation . . . that engages in business in this State . . . and does not maintain a place of regular business in this State or a designated agent upon whom service may be made upon causes of action arising out of such business done in this State, the act or acts of engaging in such business within this State shall be deemed equivalent to an appointment by such foreign corporation . . . of the Secretary of State of Texas as agent upon whom service of process may be made in any action, suit, or proceeding arising out of such business done in this State, wherein such corporation . . . is a party or is to be made a party.

Doing Business in state; definition

Sec. 4. For the purpose of this Act, and without including other acts that may constitute doing business, any foreign corporation . . . shall be deemed doing business in this State by entering into contract by mail or otherwise with a resident of Texas to be performed in whole or in part by either party in this State, or the committing of any tort in whole or in part in this State. (Emphasis added.)

Most courts have been faced with the rather clear-cut question of finding a tort or a contract upon which to base the finding that the corporation was "doing business" in Texas. As Professor Thode pointed out in his historical treatise on Article 2031(b), however, the words "without including other acts that may constitute doing business," contained in § 4 of the article, were perhaps an inelegant attempt to keep the statute from being limited to torts and contracts. Thode, "In Personam Jurisdiction; Art. 2031(b), The Texas `Long Arm' Statute; and the Appearance to Challenge Jurisdiction in Texas and Elsewhere," 42 Tex.L.Rev. 279 (1964). This court believes that that language is perfectly suited to the instant case. While the California corporation has clearly not committed a tort in Texas nor entered into a contract to be performed in Texas, its very relationship with its parent corporation gives rise to a situation in which its "acts . . . constitute doing business." Since there is no question that the New York parent is amenable to process in Texas and is within the court's jurisdiction, this court is convinced that the actual relationship between parent and subsidiary permits the California subsidiary to be amenable to process in Texas via 2031(b).

John Wiley Jones and his son Robert B. Jones own and control a tightly held family corporation based in Caledonia, New York. This corporation, alone or in connection with Jones family members, in turn owns four other...