Shapiro v. Ford Motor Company

• Decision Date: 22 May 1973
• Docket Number: Civ. No. 71-1329-M.
• Citation: 359 F. Supp. 350
• Parties: Nelson H. SHAPIRO and Richard G. Board v. FORD MOTOR COMPANY, et al.
• Court: U.S. District Court — District of Maryland

359 F. Supp. 350

Nelson H. SHAPIRO and Richard G. Board v. FORD MOTOR COMPANY, et al.

Civ. No. 71-1329-M.

United States District Court, D. Maryland.

May 22, 1973.

Robert H. Rines, Boston, Mass., and Melvin J. Sykes, Baltimore, Md., for plaintiffs.

Norman P. Ramsey and David F. Albright and Semmes, Bowen & Semmes, Baltimore, Md., for defendant Ford Motor Co.

JAMES R. MILLER, Jr., District Judge.

Memorandum Opinion

In count 3 of the complaint in this case, plaintiffs have alleged, among other things, infringement by Ford Motor Company (hereinafter sometimes termed Ford) of United States Letters Patent No. 3,425,645. Defendant Ford has moved to dismiss count 3 on the ground of improper venue.

The applicable venue statute, 28 U.S. C. § 1400(b), provides as follows:

"Any civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." (emphasis added).

In this case there is no dispute over the fact that Ford does not "reside" in Maryland. Plaintiffs contend, however, that proper venue rests in the District of Maryland because Ford has a "regular and established place of business" in Maryland.

The burden of proving proper venue is clearly upon the plaintiffs. Grantham v. Challenge-Cook Brothers, Inc., 420 F.2d 1182 (7th Cir. 1969).

Preliminarily, there is no doubt that 28 U.S.C. § 1400(b) is the sole and exclusive statutory provision controlling venue in patent infringement cases, Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 77 S.Ct. 787, 1 L.Ed.2d 786 (1957), and that the requirement of venue under this section ". . . is specific and unambiguous; it is not one of those vague principles which, in the interest of some overriding policy, is to be given a `liberal' construction." Schnell v. Peter Eckrich and Sons, 365 U.S. 260, 81 S.Ct. 557, 5 L. Ed.2d 546 (1961). Furthermore, the test of "regular and established place of business" is a stricter test than the one of merely "doing business." Teledyne Ryan Aeronautical Co. v. Montgomery Ward and Co., 326 F.Supp. 813 (D.Colo. 1971), and cases therein cited.

There is no evidence in this case that Ford itself has any regular and established places of business in Maryland.¹ Plaintiffs argue, however, that venue over Ford can be established through the activities in Maryland of its subsidiaries. Plaintiffs' theory on venue here is that (1) the control exerted by Ford over its various subsidiaries which do have regular and established places of business in Maryland make those subsidiaries merely the "alter ego" of Ford and (2) Ford in carrying on all of its major functions through its Maryland subsidiaries is inducing the infringement in Maryland of the plaintiffs' patent. The court believes that the two theories advanced by the plaintiffs are, under the circumstances of this case, indistinguishable and should be considered together.

A discussion of the issue must start with Cannon Mfg. Co. v. Cudahy Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), a leading case in the area although not a case dealing with patent infringement. The Supreme Court there held that service on a foreign corporation cannot be obtained through service on a wholly owned and dominated subsidiary if the corporate separation between the parent and the subsidiary, although formal only, is real and not fictitious. The test is not the degree of control of the subsidiary by the parent, but rather the extent to which the subsidiary and the parent keep their operations distinct and separate. Manville Boiler Co. v. Columbia Boiler Co. of Pottstown, 269 F.2d 600 (4th Cir. 1959), cert. denied, 361 U.S. 901, 80 S.Ct. 208, 4 L.Ed. 2d 156 (1959); Harris v. Deere and Co., 223 F.2d 161 (4th Cir. 1955); see also, American Cyanamid Co. v. Nopco Chem. Co., 388 F.2d 818 (4th Cir. 1968), cert. denied, 392 U.S. 906, 88 S.Ct. 2057, 20 L.Ed.2d 1364 (1968); Holub Ind., Inc. v. Wyche, 290 F.2d 852 (4th Cir. 1961). A resolution of the issue of venue, then, requires the consideration of an extensive set of facts in each case. Cf. Penntube Plastics Co. v. Fluorotex, Inc., 336 F.Supp. 698, 702 (D.S.C.1971). It is necessary in this case to consider the relationship between Ford and its subsidiaries, Ford Marketing Corporation (hereinafter termed Ford Marketing) and Ford Motor Credit Company (hereinafter termed Ford Credit), which may have regular and established places of business in Maryland, as well as the relationship between Ford and its wholly or partially owned dealerships in Maryland, Security Ford Tractor, Inc., and Gateway Ford Tractor, Inc.

The court has considered the extensive affidavits, depositions, and exhibits filed by the parties relative to this motion. Based upon that consideration, the court has made certain factual findings for the purpose of this motion, which findings are set forth in the respective sections of this opinion.

I

Ford Marketing is a wholly owned subsidiary of Ford; it purchases domestically produced vehicles manufactured by Ford and resells them to Ford franchised dealers. Vehicles manufactured by Ford become the property of Ford Marketing as they come off the Ford assembly line, and the sale of such vehicles to dealers is the responsibility of Ford Marketing. There are common directors between Ford and Ford Marketing, and at least one common officer, but Ford Marketing holds its own separate board meetings. Ford Marketing uses the "Ford" trademark in common with Ford and its other subsidiaries. Ford Marketing does not prepare a separate annual report; Ford issues consolidated financial statements which include the accounts of Ford and many of its subsidiaries, including Ford Marketing. Ford Marketing files individual unemployment compensation returns and Maryland corporation income tax returns. Although Ford and its domestic subsidiaries, including Ford Marketing, have common employee benefit plans, each participant subsidiary of Ford, including Ford Marketing, contributes its relative share of the cost of the benefit plans. Ford Marketing has an independently adopted and administered arbitration agreement with Ford dealers and Lincoln-Mercury dealers and negotiates in its own name the Ford sales and service agreement with Ford dealers. Ford Marketing maintains independent financial records of all sales transactions with Ford, maintains bank accounts in its own name, pays its employees with checks drawn on its own bank accounts, owns or leases in its own name all its office facilities, and maintains separate business records from Ford at Ford Marketing headquarters. Ford Marketing pays its own operating expenses and has a validly issued corporation charter which has never been revoked. Ford Marketing buys accessories and repair parts from Ford and other suppliers although its purchasing decisions are limited by the choice of original equipment placed on the cars by Ford. Under a consent decree entered against Ford in a United States District Court in 1959, Ford Marketing is prohibited from encouraging Ford dealers to use Ford Credit.

Ford Marketing maintains an office and one employee in Maryland. It maintains an inventory of glass and batteries in Maryland and from time to time has possession in Maryland of damaged vehicles refused by Ford dealers in Maryland. Ford Marketing also maintains in Maryland inventories of imported vehicles pending their distribution to dealers. Ford Marketing has registered to do business as a foreign corporation in Maryland.

II

Ford Credit is a wholly owned subsidiary of Ford. Ford Credit was formed by Ford to provide financial assistance to Ford dealers as well as to engage in the general finance business. Of the receivables of Ford Credit, 10% or approximately Four Hundred Sixty-Five Million Dollars ($465,000,000) represents loans on airplanes, construction, flight simulators, apartment houses, and other items exclusive of Ford products. In 1971 Ford Credit financed non-Ford consumer loans to be used for any purpose in the amount of Thirty-Nine Million Dollars ($39,000,000). In 1971 five out of 11 of the directors of Ford Credit also sat on the board of Ford, but Ford Credit held its own separate board meetings. Ford Credit uses the "Ford" trademark in common with Ford and its other subsidiaries although its logo more prominently displays the word "Credit" than it does the word "Ford." Ford Credit provides dealers with capital loans, working capital, loans for dealership facilities, and mortgage loans. Substantially all of the dealers serviced by Ford Credit are Ford dealers and about 90 to 95% of the retail sales financing conducted by Ford Credit on new cars is on Ford cars. Ford Credit issues its own annual report, but Ford includes Ford Credit in Ford's consolidated financial statements in its own annual report. Ford Credit employees are generally covered by common employee benefit plans in conjunction with Ford and its subsidiaries, but Ford Credit pays its pro rata share of the cost of said plans. Ford dealers are not required to use Ford Credit financing and the majority do not use such financing. Under the consent decree entered into by Ford in 1959, Ford and its other subsidiaries may not coerce or influence a dealer to patronize Ford Credit or any other particular finance company. Many Ford dealerships display decals of financing companies other than Credit, such as C.I.T., Public Commercial Credit, and others. Non-Ford investment decisions of Ford Credit are made by the Board of Directors of Ford Credit and its employees. No recommendations are made by Ford Marketing to Ford Credit regarding loans to Ford dealers. Upon application to Ford Credit for a loan by a Ford dealer, Ford Credit evaluates the dealer independently of Ford in determining whether it wants to extend financing to that dealer. Approval of floor plan financing of dealers is done by Ford...