Vitro Electronics, Division of Vitro Corp. of America v. Milgray Electronics, Inc.

• Decision Date: 10 November 1969
• Docket Number: No. 34,34
• Citation: 255 Md. 498,258 A.2d 749
• Parties: VITRO ELECTRONICS, DIVISION OF VITRO CORPORATION OF AMERICA v. MILGRAY ELECTRONICS, INC.
• Court: Maryland Court of Appeals

Page 498

255 Md. 498

258 A.2d 749

VITRO ELECTRONICS, DIVISION OF VITRO CORPORATION OF AMERICA v. MILGRAY ELECTRONICS, INC.

No. 34.

Court of Appeals of Maryland.

Nov. 10, 1969.

H. Hughes Spragins, Silver Spring, Tomes, Spragins & McDonald, Silver Spring, on the brief, for appellant.

James J. Cromwell, Silver Spring, for appellee.

Before HAMMOND, C. J., and McWILLIAMS, FINAN, SINGLEY and SMITH, JJ.

FINAN, Judge.

This case sheds light on the question of how short is the Maryland 'Long Arm' statute. Maryland Code (Repl.Vol.1965) Article 75, § 96. ¹ The appeal is from a ruling of the Circuit Court for Prince George's County which granted defendant-appellee's motion to dismiss for lack of jurisdiction over the appellee, a foreign corporation. The sole issue before this Court is whether the motion was properly granted.

Plaintiff-appellant, Vitro Electronics, is engaged in the production of sophisticated electronic devices, many of which are used by the federal government in its space and missile programs. Vitro is a Delaware corporation duly qualified to do business in Maryland. In November, 1966, Vitro contracted with Milgray/Washington, Inc., to purchase a number of electronic parts. Milgray/Washington, Inc., a Maryland corporation, was informed that any parts furnished would have to comply with a certain government specification known as MIL-E-1. Milgray- /Washington, Inc., proceeded to order the necessary parts from Milgray Electronics, Inc., a New York corporation which owned 100% of the common stock of Milgray/Washington, Inc.

The parent corporation sent the parts to its subsidiary which then sent them to Vitro. After receiving them, Vitro became concerned that the parts might not meet government specifications and requested a certificate of compliance to which it was entitled under its contract with Milgray/Washington, Inc. The appellee addressed this certificate directly to the appellant and transmitted it to Milgray/Washington, Inc., who in turn sent it to the appellant. With this assurance, Vitro began to manufacture its product. However, the government refused to accept the finished items because specification MIL-E-1 was not complied with. Vitro then filed suit in the court below alleging breach of contract, negligence, and fraud against both Milgray/Washington, Inc., and the appellee. The appellee made a motion to dismiss the suit against it for lack of jurisdiction. After an evidentiary hearing, Judge Bowie granted a motion to dismiss. At the hearing the following undisputed facts emerged. Milgray Electronics, Inc., owned 100% of the common stock of Milgray/Washington, Inc. The officers of both corporations were the same. The accounting obligations of both corporations were performed by the same accountant in New York. Milgray Electronics, Inc., maintained a telephone listing in a Washington directory which covered surburban Maryland, giving a Maryland address, although in an affidavit it maintained that this listing was continued as a result of an error. Milgray/Washington, Inc., stocked a supply of the appellee's components on inventory; however, it often purchases such items from others. The appellee and Milgray/Washington, Inc., maintained separate corporate books, separate minutes, separate records, and separate and distinct accounting procedures, and held separate directors' meetings. The contract between the appellee and Milgray/Washington, Inc., was executed in New York. The record is not clear as to where the certificate of compliance was executed or as to how it was delivered. The issue before this Court is whether on these facts Maryland can entertain jurisdiction over this New York corporation.

The appellant would have us hold that the courts of Maryland have jurisdiction over the appellee on the basis that it has maintained a sufficient presence in Maryland to subject itself to the provision of our 'Long Arm' statute, Maryland Code (Repl.Vol.1965) Article 75, § 96 which provides in pertinent part:

'Personal jurisdiction over person (includes corporations) as to cause of action arising from business, etc., in State.

'(a) A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's

'(1) transacting any business in this State:

'(3) causing tortious injury in this State by an act or omission in this State;

'(4) causing tortious injury in this State by an act or omission outside the State if he regularly does or solicits business, engages in any other persistent course of conduct in this State; * * *.'

The appellant first urges upon us that Milgray/Washington, Inc., although a subsidiary of and a separate corporation from its parent, the appellee, was in effect a branch office of the appellee. It would have us pierce the veil of corporate fiction and construe the relationship between the two as that of principal and agent with the actions of Milgray/Washington, Inc., being those of the appellee. The appellant endeavors to bring this relationship within the ambit of Thomas v. Hudson Sales Corp., 204 Md. 450, 105 A.2d 225 (1954), or failing that, within the scope of Novack v. National Hot Rod Assoc., 247 Md. 350, 231 A.2d 22 (1967). Further, the appellant presses the argument that under the more modern interpretation given to 'transacting business,' the appellee's minimal contracts gave it sufficient presence within the State. Therefore, following traditional notions of fair play and substantial justice, it would not be a denial of 'due process' to hold it amenable to the jurisdiction of Maryland. Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958); International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). We think, however, that the lower court was correct in its finding from the evidentiary hearing that Milgray/Washington, Inc., was not a branch office of the appellee.

There are numerous cases which hold that a foreign corporation is not construed as doing business within a state merely because of its ownership of all of the shares of stock of another corporation doing business in the state. See Rucker v. Personal Finance Co., 86 Ohio App. 110, 90 N.E.2d 428 (Ohio 1948); Moorhead v. Curtis Publ. Co., 43 F.Supp. 67 (D.Ky.1942); Garber v. Bancamerica-Blair Corp., 205 Minn. 275, 285 N.W. 723 (1939); Consolidated Textile Corp. v. Gregory, 289 U.S. 85, 53 S.Ct. 529, 77 L.Ed. 1047 (1933); Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925).

It is true that most of the cases cited above ante-date the decision of the United States Supreme Court in International Shoe Co., supra, wherein the Court expanded the area for state jurisdiction over foreign corporations and nonresident individuals where there was a showing that certain minimum contacts had been maintained in the forum state sufficient to warrant the exercise of jurisdiction without offending 'traditional notions of fair play and substantial justice.' See also Van Wagenberg v. Van Wagenberg, 241 Md. 154, 164, 215 A.2d 812 (1966); Frummer v. Hilton Hotel Internat'l, Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851 (1967); Longines-Wittnauer Watch Co. v. Barnes & Reinecke, 15 N.Y.2d 443, 261 N.Y.S.2d 8, 209 N.E.2d 68, 24 A.L.R.3d 508 (1965).

We are impressed with the opinion in Hilton Hotel, supra, in which Chief Judge Fuld, writing for a majority of the court, found Hilton Hotels Ltd., a British corporation, amenable to jurisdiction in the State of New York for a personal injury which occurred at the London Hilton which it leased and operated. The British corporation was owned in common by Hilton Hotels Corporation and Hilton Hotels International, Delaware corporations doing business in New York (who were also named defendants) and which corporations also owned Hilton Reservations Service. This latter corporation had a New York office, bank account, and telephone and confirmed, without charge, reservations for the London Hilton as well as any other Hilton Hotel. Hilton Reservations Service also did public relations and publicity work for the London Hilton. In holding the British corporation amenable to action in New York, the Court went beyond the New York 'Long Arm' statute and found that by virtue of the activity of Hilton Reservations Service it was 'doing business' in New York 'in the traditional sense.' The Court found, 'in short-and this is the significant and pivotal factor-the Service does all the business which Hilton (U. K.) could do were it here by its own officials.'

There can be no question but that Judge Fuld in Hilton expresses the liberal trend in court decisions tending to extend jurisdiction over foreign corporations and nonresident individuals. According to the dissenting opinion in Hilton, the net result of the majority opinion is to brush aside the corporate fiction and to consider the acts of the subsidiary as those of the parent corporation. ²

On the facts, we think the case at bar is distinguishable from Hilton. Milgray/Washington, Inc., was not, as was the subsidiary in Hilton, engaged in doing public relations work or publicity for the parent company in the forum state. The rationale adopted in Hilton, however, would enable the Maryland courts to assume jurisdiction over the appellee for, to paraphase Judge Fuld, 'Milgray/Washington, Inc., does all the business which Milgray Electronics, Inc., could do were it here by its own officials.' However, we are not prepared to adopt a doctrine which, in our opinion, would have the effect of breaking down observed distinctions between parent and subsidiary corporations, where fraud or deception is not present, nor do we think it necessary to go that far in the case at bar to extend jurisdiction to the appellee, should the record warrant it, and concerning which more will be said later.

In the instant case, without destroying the corporate fiction between parent and subsidiary, it...