Ultra Sucro Co. v. Illinois Water Treatment Co.

• Decision Date: 16 November 1956
• Citation: 146 F. Supp. 393
• Parties: ULTRA SUCRO COMPANY, Plaintiff, v. ILLINOIS WATER TREATMENT COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

146 F. Supp. 393

ULTRA SUCRO COMPANY, Plaintiff, v. ILLINOIS WATER TREATMENT COMPANY, Defendant.

United States District Court S. D. New York.

November 16, 1956.

Leonard Feldman, New York City, for plaintiff.

Cahill, Gordon, Reindel & Ohl, New York City, for defendant, appearing specially, Robert G. Zeller, New York City, Ralph Menapace, New York City, of counsel.

IRVING R. KAUFMAN, District Judge.

By this motion defendant seeks an order pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S. C. vacating the service of summons and complaint and dismissing this action for want of jurisdiction over the defendant, or in the alternative seeks an order pursuant to Title 28 U.S.C. § 1404(a) transferring the action to the United States District Court for the Northern District of Illinois.

The underlying action is based on plaintiff's allegations that the defendant corporation wrongfully appropriated, used and disclosed plaintiff's trade secrets which had been confided to the defendant in a confidential relationship.

Plaintiff initiated this action in the Supreme Court of the State of New York by the service of a summons and complaint upon a Mr. Thompson, supervisor of defendant's New York City office, on October 5, 1956. On October 10, 1956, defendant, appearing specially, moved in the state court for an order vacating the service of process and complaint on the ground that the defendant was not subject to service of process in the State of New York. On October 18, 1956, before a determination of this question was made in the state court, defendant removed the action to this court because of diversity of citizenship. It now renews its motion to vacate the service of the summons and complaint. Rule 12(b), Federal Rules of Civil Procedure.

Although defendant is an Illinois corporation, it has maintained a sales office in New York under its corporate name for approximately ten years and has been at its present address for the last five years, pursuant to a lease signed by the defendant. The defendant is the sole occupant of the suite of offices and its name appears on the door. The New York Telephone directories list the defendant. All orders which are solicited by this office must be approved by the Illinois office. Shipment is made directly to the purchaser. Defendant has not been required to file a Certificate of Doing Business within the State of New York, or to pay the general business tax in the City of New York or the franchise tax within the State of New York.

The office is presided over by Mr. Joseph Thompson, whose duties, as described by the affidavit of the president of defendant corporation, consist of "* * * supervision of the office and coordination of the sales efforts of himself and the other sales representatives of defendant in the East with the sales policies established by the home office in Rockford, Illinois." The duties of the other two men in the office according to the president's affidavit, are to promote sales, assist in the completion of special requirement jobs and supervise the installation of equipment.

Defendant has represented its New York City office as the general office for all company business on the Eastern Seaboard. Mr. Thompson is the highest representative of the defendant in that region. The office also serves as the resident office for defendant's principal officers when they are in New York, and it is the place where many important decisions are negotiated, including the original negotiations leading to the agreement out of which the present lawsuit arose.

To determine whether jurisdiction was obtained over the defendant corporation, it is necessary to decide whether it was doing business in New York. If this action had been brought in the federal district court originally, there would be a close question as to whether the state or the federal test for "doing business" should apply.¹ Since this case was removed from a state court, however, federal jurisdiction is derivative, and the federal judge must pass on objections to the jurisdiction of the state court.² Thus, in the first instance, it is necessary to determine whether service was valid under New York law. Since it is impossible to formulate any one concise standard for "doing business", it is necessary to look at the state decisions and to compare them with the facts involved in the instant case.

Some of these decisions³ have gone so far as to equate the New York rule with the constitutionally permissible standard of reasonableness enunciated in the International Shoe case.⁴ Even if this view does not represent the "true" law of New York, and I do not believe that it does, it nevertheless indicates the liberality with which many of the New York courts approach the question. In any case, it is clear that they will take jurisdiction over a foreign corporation when, "* * * it is here, not occasionally or casually, but with a fair measure of permanence and continuity * * *". This standard was established by the Court of Appeals in an opinion written by Judge Cardozo in the leading case of Tauza v. Susquehanna Coal Co., 1917, 220 N.Y. 259, 267, 115 N.E. 915, 917. It was held there that where a foreign corporation has a sales office in New York, where sales agents systematically and regularly solicit orders which result in continuous shipments from out-of-state into New York, the corporation is subject to service in New York.

In Tauza as in the instant case, sales orders were not binding until they were confirmed by the home office, payment was to be made directly to the home office rather than to the sales agents, no one had been authorized to accept service and the corporation did not come within the General Corporation Law standard of doing business for purposes of filing a certificate. Nevertheless, Judge Cardozo's opinion held the foreign corporation amenable to suit in the state. This decision has been consistently followed and even expanded by subsequent New York cases.⁵

The defendant seeks to distinguish these cases from the instant one by claiming that the volume of sales by the New York City office did not result in "continuous" shipments into New York and represented only a fraction of defendant's total volume. This argument misses the point entirely. The question is not how successful a corporation is in doing business, but rather, whether it is making a regular and continuous effort to carry on such business in the state. The New York City office of the defendant certainly represents much more than a casual or occasional endeavor and in many respects it is an even stronger case than Tauza.

As to the question of whether service on Thompson was valid under section 229(3) of the New York Civil Practice Act, "* * * we understand the New York courts to hold that, whatever activities make the corporation `present,' the agent in charge of those activities is the `managing agent' pro hac vice". Bomze v. Nardis Sportswear, Inc., 2 Cir., 1948, 165 F.2d 33, 37.

Since service was proper and the defendant was doing business under New York's test, and since that test is surely within the constitutional limits of International Shoe, this Court has jurisdiction over the defendant. Defendant's motion for dismissal is denied.

We come now to defendant's alternative motion seeking an order transferring the action to the federal district court for the Northern District of Illinois. The Judicial Code provides that "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). Although the reviser's note on section 1404(a) states that it was drafted in accordance with the doctrine of forum non conveniens, the Supreme Court has established that it is more than a mere codification of that doctrine.⁶ District courts now have the discretion to grant transfers upon a lesser showing of inconvenience by a defendant than would be required for dismissal under forum non conveniens. While the relevance of state case law under Erie R. Co. v. Tompkins⁷ to the decision of a transfer motion in a diversity of citizenship case was an open question until recently,⁸ it now seems to be settled, in the Second Circuit at any rate, that the state rule of forum non conveniens does not control the federal court.⁹ The criteria used to determine whether transfer should be granted, however, are still basically those applied in forum non conveniens cases. The Norwood v. Kirkpatrick case did not alter the basic considerations set forth in Gulf Oil Corp. v. Gilbert, 1947, 330 U.S. 501, 506-507, 67 S.Ct. 839, 843, 91 L.Ed. 1055:

"Important considerations are the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive."

Before applying these considerations to the instant case, it would be well to set forth the basic contentions of the parties in the underlying action. Plaintiff alleges the following:

(1) That it is in possession of a revolutionary new trade secret which will substantially reduce the costs of refining sugar;

(2) That after many negotiations in New York City as well as in the State of Illinois, the plaintiff imparted to the defendant corporation in confidence, its hitherto undisclosed process;

(3) That this disclosure was made on the basis of an agreement under which the defendant undertook to keep such disclosures confidential;

(4) That defendant has pirated the process, claims it as its own development, and is disclosing it to unauthorized persons in violation of the confidential relationship.

Defendant contends that the plaintiff has not developed a new process; that if it has it...