Source: https://supreme.justia.com/cases/federal/us/333/795/
Timestamp: 2019-10-23 04:50:28
Document Index: 532515088

Matched Legal Cases: ['§ 12', '§ 1', '§ 1', '§ 7', '§ 7', '§ 12', '§ 12', '§ 12', '§ 7', '§ 12', '§ 12', '§ 7', '§ 7', '§ 12', '§ 7', '§ 12', '§ 12', '§ 12', '§ 7', '§ 12', '§ 7', '§ 12', '§ 12', '§ 12', '§ 12', '§ 12', '§ 7', '§ 12', '§ 7', '§ 12']

United States v. Scophony Corp. :: 333 U.S. 795 (1948) :: Justia US Supreme Court Center
Justia › US Law › US Case Law › US Supreme Court › Volume 333 › United States v. Scophony Corp.
The appellee Scophony, Limited, is a British corporation which has its offices and principal place of business in London, England. The question is whether that company "transacted business" and was "found" within the Southern District of New York under § 12 of the Clayton Act, [Footnote 1] so that it could be sued and served there in a civil proceeding charging violation of §§ 1 and 2 of the Sherman Act. 26 Stat. 209, 50 Stat. 693, 15 U.S.C. §§ 1, 2. The violations stated were that Scophony and the other defendants [Footnote 2] had monopolized, attempted to monopolize, and conspired to restrain and monopolize interstate and
foreign commerce in products, patents, and inventions useful in television and allied industries. The cause is here on direct appeal [Footnote 3] from an order of the District Court granting Scophony's motion to quash the service of process and dismiss the complaint as to it. 69 F.Supp. 666.
Scophony manufactures and sells television apparatus, and is the owner and licensor of inventions and patents covering television reception and transmission. [Footnote 4] With the outbreak of the European War in 1939, the British Broadcasting Corporation stopped television broadcasting. Consequently it became impossible for Scophony to continue in the commercial development, manufacture and sale of television equipment in England. It therefore sent personnel to the United States, opened an office in New York City, and began demonstrations of its product and other activities preliminary to establishing a manufacturing and selling business in this country.
The master agreement was executed by Scophony, William George Elcock, as mortgagee of all of Scophony's assets, General Precision, and Productions, the latter a wholly owned subsidiary of Paramount. It provided for the formation of a new Delaware corporation, American Scophony, with an authorized capital stock of 1,000 Class "A" shares and a like number of Class "B" shares. Scophony and individuals interested in it [Footnote 5] were to be given the Class "A" shares. Under the agreement, ownership of those shares conferred the right to elect three of American Scophony's five directors and its president, vice-president, and treasurer. The Class "B" shares were allotted to General Precision and Productions. By virtue of such ownership, those two corporations were entitled to name the remaining two directors and the secretary and assistant secretary of American Scophony. Levy was named in the agreement as the president and a director of the new corporation.
in the Western Hemisphere, and that General Precision and Productions would not export any such product to the Eastern Hemisphere. [Footnote 6]
made progress reports to Scophony on its interests in the United States. As the impasse heightened, other individuals were authorized by Scophony to act in its behalf in the United States. [Footnote 7] Service of process as to Scophony was made first on Levey in New York City on December 20, 1945. [Footnote 8]
On April 5, 1946, a summons and a copy of the complaint directed to Scophony were also served on Elcock in New York City. He was a dominant figure in Scophony. He arrived in this country in March, 1946, with the mission of investigating and ending the impasse and disposing of Scophony's interest in American Scophony. Elock not only was mortgagee of Scophony's assets by virtue of having made a large loan to the company. He was also its financial comptroller, and a member of its board. At the time of service on him, he held a comprehensive power of attorney, irrevocable until March, 1947, giving him complete power to act with regard to Scophony's interests in the United States, including those in American Scophony. [Footnote 9]
Section 12 of the Clayton Act has two functions, first, to fix the venue for antitrust suits against corporations; second, to determine where process in such suits may be served. Venue may be had "not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business." And all process may be served "in the district of which it is an inhabitant, or wherever it may be found." (Emphasis added.)
A plain and literal reading of the section's words gives it deceptively simple appearance. The source of trouble lies in the use of verbs descriptive of the behavior of human beings to describe that of entities characterized by Chief Justice Marshall as "artificial . . invisible, intangible, and existing only in contemplation of law." Dartmouth College v. Woodward, 4 Wheat. 518. [Footnote 10]
The process of translating group or institutional relations in terms of individual ones, and so keeping them distinct from the nongroup relations of the people whose group rights are thus integrated, is perennial, not only because the law's norm is so much the individual man, but also because the continuing evolution of institutions more and more compels fitting them into individualistically conceived legal patterns. Perhaps in no other field have the vagaries of this process been exemplified more or more often than in the determination of matters of jurisdiction, venue, and liability to service of process in our federal system. [Footnote 11] It has gone on from Bank v. Deveaux, 5 Cranch 61, and Baptist Association v. Hart's Executors, 4 Wheat. 1, to International Shoe Co. v. Washington, 326 U. S. 310, and now this case. [Footnote 12]
The statutory slate, however, is neither entirely new nor clean. Both legislative and judicial hands have written upon it. The writing is meandering, unclear in part, and partly erased. But it cannot be disregarded. What is legible must furnish guidance to decision. We deal here with a problem of statutory construction, not one of constitutional import. [Footnote 13] Nor do we have any question of the exercise of Congress' power to its farthest limit. The issue is simply how far Congress meant to go, and, specifically, whether it intended to create venue and liability to service of process through the occurrence within a district of the kinds of acts done here on Scophony's behalf.
Section 12 of the Clayton Act is an enlargement of § 7 of the Sherman Anti-Trust Act. Eastman Kodak Co. v. Southern Photo Materials Co., 273 U. S. 359. The earlier statute
We do not stop to review the decisions construing § 7 and similar statutes, cf. Suttle v. Reich Bros.Const. Co., 333 U. S. 163; see International Shoe Co. v. Washington, supra, at 326 U. S. 317-319, except to refer to People's Tobacco Co. v. American Tobacco Co., 246 U. S. 79. There, the foreign corporation was sued in a district in which it did not "reside." Because the Court found that the company had withdrawn from the state in which the district was located, and had revoked the authority of its principal agents there, it held that he defendant was not "found" in the district, although certain corporate activities continued.
The conventional rationalization applied equated "found" in sequence to "presence," to "doing business by its agents there," to "of a character warranting inference of subjection to the local jurisdiction." [Footnote 14] The facts that the company continued to advertise its goods in the state and district, to make interstate sales to jobbers there, to send in drummers who solicited retail orders to be turned over to the jobbers, and, finally, to own stock in local subsidiaries were held not to constitute the sort of "doing business" warranting the inference of subjection to the local jurisdiction for the statute's purposes. International Harvester Co. v. Kentucky, 234 U. S. 579, was narrowly distinguished. 246 U.S. at 246 U. S. 87.
The suit in the People's Tobacco case was begun in 1912, but the decision was not rendered until 1918. Meanwhile, in 1914, Congress had enacted the Clayton Act, including § 12. The following year, the Eastman case, supra, was begun in the Northern District of Georgia. Process issued, and was served under § 12 on the defendant, a New York corporation at its principal place of business in Rochester. In 1927, this Court sustained both the venue and the service as against objections that § 12 had not broadened § 7 of the Sherman Act, but merely made explicit what had been decided under it. [Footnote 15]
The argument was certainly plausible, but for the fact that it made the addition of "or transacts business" to "inhabitant" and "found" in § 12 redundant and meaningless. The Court refused to accept the argument, because doing so would have defeated the plain remedial purpose of § 12. [Footnote 16] That section was enacted, it held, to enlarge the jurisdiction given by § 7 of the Sherman Act
273 U.S. at 273 U. S. 372. [Footnote 17]
"that a corporation is engaged in transacting business in a district . . . if, in fact, in the ordinary and usual sense, it 'transacts business' therein of any substantial character."
Id. 273 U.S. at 273 U. S. 373. (Emphasis added.)
In other words, for venue purposes, the Court sloughed off the highly technical distinctions theretofore glossed upon "found" for filling that term with particularized meaning, or emptying it, under the translation of "carrying on business." In their stead, it substituted the practical and broader business conception of engaging in any substantial business operations. Cf. Frene v. Louisville Cement Co., 77 U.S.App.D.C. 129, 134 F.2d 511; International Shoe Co. v. Washington, supra. Refinements such as previously were made under the "mere solicitation" and "solicitation plus" criteria, cf. Frene v. Louisville Cement Co., supra, and like those drawn, e.g., between the People's Tobacco and International Harvester cases, supra, were no longer determinative. The practical, everyday business or commercial concept of doing or carrying on business "of any substantial character" became the test of venue.
Applying it, the Court stated that "manifestly" the Eastman Company was not "present" in the Georgia district under the earlier tests of § 7 of the Sherman Act, either for the purpose of venue or as being amenable to service of process. 273 U.S. at 273 U. S. 371. It thus aligned the case under those tests with the People's Tobacco decision, rather than the International Harvester one. But, under the broader room given by § 12, venue was held to have been established. [Footnote 18]
Thus, by substituting practical business conceptions for the previous hairsplitting legal technicalities encrusted upon the "found" - "present" - "carrying on business" sequence, the Court yielded to and made effective Congress' remedial purpose. Thereby it relieved persons injured through corporate violations of the antitrust laws from the "often insuperable obstacle" of resorting to distant forums for redress of wrongs done in the places of their business or residence. A foreign corporation no longer could come to a district, perpetrate there the injuries outlawed, and then, by retreating, or even without retreating, [Footnote 19] to its headquarters, defeat or delay the retribution due.
With venue established under the new and broader approach, the Eastman case presented no problem regarding the service of process, except possibly for the ruling that process might run to another district than the one in which suit was brought. 273 U.S. at 273 U. S. 374. For, by whatever test, whether of the old § 7 or the new § 12, the service was good. As we have noted, the process had been directed to and served in the district where the Eastman Company was an "inhabitant." [Footnote 20] There was therefore no necessity for ruling upon the meaning of "found" as relating to any other district. Any such ruling necessarily could be no more than dictum, since no such issue was presented by the facts.
Nevertheless, for service of process, § 12 had specified "the district of which it is an inhabitant, or wherever it may be found" without adding "or transacts business," as was done in the venue clause. Accordingly, the Court took account of this difference and went on to indicate that, for purposes of liability to service, the section merely carried forward the preexisting law, so that, in some situations, service in a district would not be valid even though venue were clearly established under § 12. [Footnote 21]
But, regardless of the pronouncement's effect, the decision, by resolving the venue problem, substantially removed the serious obstacles and practical immunities to suit which had grown up under § 7 of the Sherman Act in by far the larger number of antitrust cases -- i.e., for those not involving companies incorporated outside the United States. In them, the fact that service may be dubious in the district of suit, and can be assured only by causing process to run to another district, as in the Eastman case, presents no such obstacle to bringing and maintaining the suit as existed prior to § 12. The necessity, if it is that, for directing process to another district creates, at most, some slight inconvenience and additional expense.
First was the phase of attempting to set up in this country as manufacturer and seller of television equipment. When that failed, the company turned to licensing and exploiting its patents by other means. This was done through the complicated arrangements for what, practically, if not also technically, was a joint adventure with other companies. That project was carried out not merely through corporate forms and arrangements, but by contracts binding the participating companies to the common enterprise, as well as the special medium of executing it, American Scophony. In this, each corporate participant had its special functions, controls, and restrictions, created, in part, by share ownership in American Scophony, but also, in important respects, by contract both beyond the stock controls, and dictating their character. [Footnote 22] Finally, as the affairs of the keystone of the structure,
under § 7 and similar requirements in application to manufacturing and selling companies, [Footnote 23] and also the like Eastman dictum concerning § 12. In doing this, it seeks especially to invalidate the service by casting up from those decisions a checklist of specific, and often minor, incidents of that sort of business done or not done as relevant to whether business is being carried on, and then matching against the list Scophony's New York activities as of the times of service. [Footnote 24]
Obviously this view of the facts and of the determinative legal approach is at wide variance from the ones we have taken in dealing with the question of venue. But we do not find it necessary, in order to reject it for purposes of sustaining the service, to consider whether the process clause of § 12 should be given scope beyond that indicated by the Eastman dictum. For, in any event, we think that appellee and the District Court have misconceived the effects of the facts and of the decisions on which they rely for determining the validity of the service in this case.
The alternative one chosen was not a matter simply of licensing patents to others, for active exploitation by them. Nor was it only a casual act or acts of contracting. The whole framework of this phase of the New York activities was dictated by the master and supplemental agreements. These were not mere licensing arrangements, nor did they make Scophony nothing more than a shareholder for investment purposes, with only such a shareholder's voting rights and control in American Scophony. The contracts created controls in Scophony, and in the American interests as well, which, taken in conjunction with the stock controls, called for continuing exercise of supervision over and intervention in American Scophony's affairs. [Footnote 25] We need not decide whether, in view of the agreements' continuing and pervasive effects, they could be considered as sufficing in themselves to make Scophony "found" within the New York district. [Footnote 26]
Moreover, other individuals carried on for Scophony in continuing efforts [Footnote 27] to resolve the impasse. Apart
Those efforts were not cessation of engaging in business. They were directed entirely to warding off that fate. Their object was not to liquidate, it was to resuscitate, the business of Scophony. and, as in all previous stages, put it on a normal course again. In doing all this, Scophony was engaging in business constantly and continuously, not retiring from it or interrupting it. Cf. Connecticut Mutual Life Insurance Co. v. Spratley, 172 U. S. 602; Pennsylvania Lumbermen's Insurance Co. v. Meyer, 197 U. S. 407; St. Louis Southwestern R. Co. v. Alexander, 227 U. S. 218. The interruptions were only in particular phases of its authorized adventure, not in the continuity, intensity, or totality of the adventure itself.
In sum, we have no such situation as was presented in the manufacturing and selling cases on which appellee relies. They concerned entirely different facts and enterprises. In none was there a shifting from a course of business in pursuit of one corporate object or objects -- viz., manufacturing and selling -- to another continuing mode of achieving a basic corporate objective, namely, the exploiting of patents by complex working arrangements partaking practically of the character of a common enterprise with others and requiring constant supervision and intervention beyond normal exercise of shareholders' rights by the participating companies' representatives qua such.
We think that Scophony not only was "transacting business" of a substantial character in the New York district at the times of service, so as to establish venue there, but also, on the sum of the facts regarding its activities, was "found" there within the meaning of the service of process clause of § 12. Of course, such a ruling presents no conceivable element of offense to "traditional notions of fair play and substantial justice." See International Shoe Co. v. Washington, supra, at 326 U. S. 316; cf. Hutchinson v. Chase & Gilbert, 45 F.2d 139, 141.
See, e.g., 9 U. S. Deveaux, 5 Cranch 61, where he was unable to adapt the concept of corporate "inhabitancy," applied in decisions he cited, for fitting the corporation into the constitutional scheme of diversity jurisdiction. His individualistic solution brought difficulties which lasted for decades. See Henderson, The Position of Foreign Corporations in American Constitutional Law 50-76; Harris, A Corporation As a Citizen, 1 Va.L.Rev. 507. Cf. 17 U. S. Hart's Executors, 4 Wheat. 1.
See, e.g., Cahill, Jurisdiction over Foreign Corporations and Individuals Who Carry on Business within the Territory, 30 Harv.L.Rev. 676; Scott, Jurisdiction over Nonresidents Doing Business within a State, 32 Harv.L.Rev. 871; Bullington, Jurisdiction over Foreign Corporations, 6 N.C.L.Rev. 147; Note, What Constitutes Doing Business by a Foreign Corporation for Purposes of Jurisdiction, 29 Col.L.Rev. 187.
The very federalism of our structure magnifies the problem by multiplying state and other governmental boundaries across which corporate activity runs with the greatest freedom. The problem arises on constitutional, as well as statutory and common law, levels. Cf. International Shoe Co. v. Washington, 326 U. S. 310; Puerto Rico v. Russell & Co., 288 U. S. 476.
Appellee makes no suggestion of a constitutional issue. The Government, however, suggests that, in view of our recent decision in International Shoe Co. v. Washington, 326 U. S. 310, which was concerned with the jurisdiction of a state over a foreign corporation for purposes of suit and service of process, and in view of aspects of similarly between that problem and the one now presented, we extend to this case and to § 12 the criteria there formulated and applied. There is no necessity for doing so. The facts of the two cases are considerably different, and, as we have said, we are not concerned here with finding the utmost reach of Congress' power.
"The general rule deducible from all our decisions is that the business must be of such nature and character as to warrant the inference that the corporation has subjected itself to the local jurisdiction, and is, by its duly authorized officers or agents, present within the state or district where service is attempted. Philadelphia & Reading Ry. Co. v. McKibbin, 243 U. S. 264; St. Louis Southwestern Ry. Co. v. Alexander, 227 U. S. 218, 227 U. S. 226."
246 U.S. 79, 246 U. S. 87.
Counsel for the defendant equated the words "inhabitant" and "found" of § 12 to "resides or is found" of § 7 of the Sherman Act. They then went on to argue that the addition of "or transacts business" in the venue clause of § 12 did not broaden the section, but merely made explicit what the Court had already decided under the earlier statute. 273 U.S. at 36 [argument of counsel -- omitted]. This because "or transacts business" was said to be nothing more than "carrying on business," which was the content the Court had given to "is found" in § 7 by the People's Tobacco case and others.
"the remedial provision of the Anti-Trust Act for the redress of injuries resulting from illegal restraints upon interstate trade, by relieving the injured person from the necessity of resorting for the redress of wrongs committed by a nonresident corporation, to a district, however distant, in which it resides or may be 'found' -- often an insuperable obstacle -- and enabling him to institute the suit in a district, frequently that of his own residence, in which the corporation in fact transacts business, and bring it before the court by the service of process in a district in which it resides or may be 'found.'"
273 U. S. 273 U.S. 359, 273 U. S. 373. (Emphasis added.)
See also note 16
273 U.S. at 273 U. S. 374.
referring in this connection to International Harvester Co. v. Kentucky, 234 U. S. 579, 234 U. S. 587, and Davis v. Farmers' Cooperative Equity Co., 262 U. S. 312, 262 U. S. 316. 273 U. S. 273 U.S. 359, 273 U. S. 373.
I.e., by artful arrangement of agents' authority, or of their comings and goings, or of the geography of minute incidents in contracting. Cf. People's Tobacco Co. v. American Tobacco Co., 246 U. S. 79. Such artifice saw its day end for creating substantive liability through a course of dealing contrary to the antitrust statutes, but without thereby also creating venue to enforce it, with the advent of § 12.
E.g., the hemispheric division of territories between the British and American interests; the exclusive licensing agreements which prevented Scophony from granting licenses to interested American companies, and the arrangements for the interchange of technical information were contractual, not charter, limitations on corporate powers. The particular corporate medium used, American Scophony, and the refinements in its charter and bylaws giving General Precision and Productions an effective veto power over its operations were themselves aspects of the contractual undertakings embodied in the master agreement and the two supplemental agreements. The master agreement also designated the persons to become officers and directors of American Scophony, as representatives of both the British and the American interests.
E.g., Cannon Mfg. Co. v. Cudahy Packing Co., 267 U. S. 333; Consolidated Textile Corp. v. Gregory, 289 U. S. 85; People's Tobacco Co. v. American Tobacco Co., 246 U. S. 79.
The catalogue emphasizes things not being done as of the dates of service -- e.g., maintaining an office, warehouse or place of business; owning realty or other physical property; keeping a staff of employees; having agents "other than counsel in this case and . . . Elcock;" keeping a telephone or a listing; making sales; conducting research; soliciting orders. Correspondingly appellee atomizes the things then being done into separate disconnected events -- viz., stock ownership (in American Scophony); contracting with American Scophony and the other corporations for transfer and licensing of patents; activities to protect Scophony's American "interests" by resolving the impasse.
See note 22 supra. Indeed, the contracts shaped the nature of the corporate distribution of powers and voting rights, so as to make them conform to the overall character and objects of the larger common enterprise. The charter and bylaw provisions of American Scophony therefore not only were governed by the contractual arrangements, but carried them into execution.
Davis v. Mills, 194 U. S. 451, 194 U. S. 457. But theories often determine rights. Since I do not know where the opinion in this case will take me in the future, I prefer to reach its destination by the much shorter route of recognizing that a corporation as such never transacts business, and is never found anywhere, but does "transact business" and is "found" somewhere by attribution to the corporation of what human beings do for it. No doubt legal reasoning must be on its guard not to oversimplify. Dangers also lurk in overcomplicating.
From earliest times, the law has enforced rights and exacted liabilities by utilizing a corporate concept -- by recognizing, that is, juristic persons other than human beings. The theories by which this mode of legal operation has developed, has been justified, qualified, and defined, are the subject matter of a very sizable library. The historic roots of a particular society, economic pressures, philosophic notions, all have had their share in the law's response to the ways of men in carrying on their affairs through what is now the familiar device of the corporation. Law has also responded to religious needs in recognizing juristic persons other than human beings. Thus, in the Hindu law, an idol has standing in court to enforce its rights. See e.g., Pramatha Nath Mullick v. Pradyumna Kumar Mullick, 52 L.R.I.A. 245 (1925). Attribution of legal rights and duties to a juristic person other than man is necessarily a metaphorical process. And none the worse for it. No doubt, "metaphors in law are to be narrowly watched," Cardozo, J., in Berkey v. Third Avenue R. Co., 244 N.Y. 84, 94, 155 N.E. 58, 61. But all instruments of thought should be narrowly watched lest they be abused and fail in their service to reason.