Source: https://law.justia.com/cases/federal/district-courts/FSupp/773/194/1608047/
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Matched Legal Cases: ['§ 1332', '§ 1332', '§ 1332', '§ 1332', '§ 1332', '§ 1332', '§ 1332', '§ 11', '§ 2', '§ 1332', '§ 1100', '§ 12', '§ 17', '§ 3625', '§ 3625', '§ 3']

Danjaq, SA v. MGM/UA COMMUNICATIONS, CO., 773 F. Supp. 194 (C.D. Cal. 1991) :: Justia
Justia › US Law › Case Law › Federal Courts › District Courts › California › Central District of California › 1991 › Danjaq, SA v. MGM/UA COMMUNICATIONS, CO.
Danjaq, SA v. MGM/UA COMMUNICATIONS, CO., 773 F. Supp. 194 (C.D. Cal. 1991)
U.S. District Court for the Central District of California - 773 F. Supp. 194 (C.D. Cal. 1991)
773 F. Supp. 194 (1991)
*195 Howard, King, Kevin S. Marks, Gang, Tyre, Ramer & Brown, Inc., Los Angeles, Cal., for plaintiff.
The actual business of filmmaking historically has been carried on by Danjaq through its wholly-owned U.K. subsidiary, Eon Productions, Ltd. ("Eon"), based in Pinewood studios outside of London. The scripts for Bond films are reviewed and plots conceived by Mr. Broccoli in Los Angeles in consultation with his London-based co-producer and stepson, Michael Wilson. Eon is charged with putting ideas on the screen. The production company goes on *196 location anywhere in the world where the dauntless Mr. Bond is needed, and returns to Pinewood studios for final editing. When a film is completed, Eon formally sells the picture to its parent corporation, Danjaq.
The first case to consider the issue employed a close literal analysis of § 1332(c), concluding that the statute did not apply to alien corporations because the word "State" used in § 1332(c) is spelled with a capital "S," which Congress uses to designate a state of the United States. See Eisenberg v. Commercial Union Insurance Company, 189 F. Supp. 500, 502 (S.D.N.Y.1960). In the alternative, the Eisenberg court held that, even if § 1332(c) applied to alien corporations, the worldwide principal place of business of the defendant alien corporation lay outside of the United States. See id. In the years following that decision, the trend has been to adopt the alternative holding of Eisenberg, applying § 1332(c) to alien corporations, as arguably more consistent with the intent of Congress to limit diversity jurisdiction. See Continental Motion Pictures v. Allstate Film Co., 590 F. Supp. 67, 70-72 (C.D.Cal.1984) (alternative Eisenberg holding is the "emerging rule"); see also Clifford Corp., N.V. v. Ingber, 713 F. Supp. 575 (S.D.N.Y.1989).
The Fifth Circuit, which was the first court of appeals to address the issue, adopted the alternative holding in Eisenberg, citing congressional intent to limit diversity jurisdiction to out-of-state citizens who are potentially subject to local bias. See Jerguson v. Blue Dot Investment, Inc., 659 F.2d 31 (5th Cir. 1981), cert. denied 456 U.S. 946, 102 S. Ct. 2013, 72 L. Ed. 2d 469. Recently, the Eleventh Circuit reached the same result. See Cabalceta v. Standard Fruit Company, 883 F.2d 1553 (11th Cir.1989).
*197 B. Whether Activities of a Subsidiary are Attributed to the Parent Corporation for Purposes of Determining the Parent Corporation's Principal Place of Business?
The only appellate decision directly to address this issue concluded that the separate corporate identities of the parent and subsidiary could not be ignored for the purpose of locating the parent's principal place of business. See de Walker v. Pueblo International, Inc., 569 F.2d 1169 (1st Cir.1978). In de Walker, the defendant corporation operated a chain of supermarkets in Puerto Rico but also owned a New Jersey subsidiary which accounted for 60% of the revenues of the parent corporation on a consolidated basis. Id. at 1171. In addition, the corporation's internal documents referred to the New Jersey subsidiary as a "division." Id. In spite of this uncontestably close relationship between the subsidiary and the parent, the First Circuit, relying on a line of Supreme Court cases relating to personal jurisdiction, concluded that the integrity of the corporate form must be respected in the absence of a formal piercing of the corporate veil. See id., citing Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 335, 45 S. Ct. 250, 251, 69 L. Ed. 634 (1925) (per Brandeis, J.).
To controvert First Circuit's analysis in de Walker, Danjaq cites two district court cases decided soon after the enactment of § 1332(c). See Textron Electronics, Inc. v. Unholtz-Dickie Corp., 193 F. Supp. 456 (D.Conn.1961); Lancer Industries, Inc. v. American Insurance Company, 197 F. Supp. 894 (W.D.La.1961). Both decisions consolidated activities of subsidiary corporations with those of the parent for the purpose of locating the parent's principal place of business. In Textron, the court observed that the phrase "principal place of business" is not new but already appears in the (now-repealed) Bankruptcy Act and that the legislative history of § 1332(c) encouraged the courts to be guided by bankruptcy decisions when construing the identical phrase in § 1332(c). See 193 F. Supp. at 458; see also S.Rep.No. 1830, 85th Cong., 2d Sess. 5 (1958), reprinted in U.S.Code Cong. & Admin.News 1958, at 3102. The Textron court then concluded that "[i]nclusion of a subsidiary's business as a part of the business of the parent corporation ... is no innovation as far as the Bankruptcy Act is concerned." 193 F. Supp. at 459. Each step in the Textron analysis is now worth re-examining.
The old Bankruptcy Act authorized venue for a corporate debtor in the district in which such debtor had its "principal place of business." See 11 U.S.C. § 11, sub. a(1), repealed by Pub.L. 95-598. As a consequence, a whole body of law grew around the construction of the venue provision, with place of operations and location of executive offices emerging as the two principal tests for determining a corporation's bankruptcy venue. See 1 Moore, Moulder, Collier on Bankruptcy, 14th ed., § 2.19, at 214. However, nothing in the congressional record, in the Bankruptcy Act, or cases decided thereunder gives guidance on how to treat the activities of a wholly-owned subsidiary. On this issue, the bankruptcy jurisprudence is even more obscure than the jurisprudence under § 1332(c). Although *198 the Textron court concluded that the consolidation of a subsidiary's activities with those of its parent is "no innovation" under the Bankruptcy Act, it relied for this proposition on a murky lower court ruling made some forty-five years prior to the Textron decision.
In fact, it is an undisputed axiom even in bankruptcy that "ownership of all of the outstanding stock of a corporation is not the equivalent of ownership of the subsidiary's property or assets." 5 King, Collier on Bankruptcy, 15th ed., § 1100.06; see, e.g., In re Beck Industries, Inc., 479 F.2d 410 (2d Cir.1973), cert. denied 414 U.S. 858, 94 S. Ct. 163, 38 L. Ed. 2d 108. Except where it operates as a mere shell or a fraud, a corporation retains a separate legal identity apart from its shareholders, whether they number one or many. This is the rule as much in bankruptcy as in other areas of the law. See, e.g., Stone v. Eacho, 127 F.2d 284 (4th Cir.1942). In light of this well-settled principle, the Textron decision appears to be unfounded insofar as it relies on bankruptcy jurisprudence to attribute activities of a separately incorporated subsidiary to the parent. (The Lancer case, decided in the same year as Textron and relying primarily on it, does not need to be separately addressed.)
Accordingly, since no alter-ego showing has been made here by Danjaq, there is no reason to disregard the separate corporate identity of Eon.[1]See de Walker v. Pueblo International, Inc., supra.
Indeed, the divergence in result between de Walker and Textron is not so surprising, because the Textron court rejected without discussion the relevance of a line of Supreme Court cases which was found to be controlling in de Walker. See Textron Electronics, Inc. v. Unholtz-Dickie Corp., supra, 193 F. Supp. at 459; de Walker v. Pueblo International, Inc., supra, 569 F.2d at 1172-73. In Cudahy Packing, the Supreme Court held that the courts cannot look to the activities of a subsidiary for the purpose of determining whether its parent corporation was "doing business" in a state. See Cannon Manufacturing Co. v. Cudahy Packing Co., supra, 267 U.S. at 335-37, 45 S. Ct. at 250-52. From this the First Circuit concluded that if a parent corporation cannot "do business" in a state by reason of the activities of its subsidiary, a fortiori, it cannot have its "principal place of business" in that state. de Walker v. Pueblo International, supra, 569 F.2d at 1173.
It is a firmly established principle of our jurisprudence, reiterated in Cudahy Packing, that a corporation exists separately even from its sole shareholder, despite such shareholder's ability to direct the activities of the corporation. While the corporate separation between Danjaq and Eon may perhaps be merely formal, it is nonetheless real. See Cannon Manuf. v. Cudahy Packing Co., supra, 267 U.S. at 337, 45 S. Ct. at 251 ("The corporation separation, though perhaps merely formal ... was not pure fiction."). If any doubts existed about the continued vitality of this principle, they have been put to rest by a recent decision of the Supreme Court. See Carden v. Arcoma Associates, 494 U.S. 185, 110 S. Ct. 1015, 108 L. Ed. 2d 157 (1990). In Carden, the Supreme Court noted that the corporation remains the one artificial entity in our law whose citizenship, for jurisdictional purposes, is determined without reference to the identity or character of its owners. Id. 110 S. Ct. at 1017-19.
There is a separate argument favoring the respect for Danjaq's separate identity apart from Eon. It appears beyond doubt that if Eon itself had brought this lawsuit against MGM, Eon would be entitled to a *199 federal forum as a U.K. corporation with its principal place of business in the U.K. The problem with that suit would be that Eon is not a signatory to the Distribution Agreement with MGM, and to bring such a suit Eon would have to vault over additional hurdles, such as establishing a third-party beneficiary claim against MGM. Instead, what Danjaq chose to do is to bring the suit in its own name, thereby eliminating the additional hazard of a third-party beneficiary claim, but also to request a federal forum in the name of Eon. This kind of oblique maneuver cannot be rewarded.
The courts have developed several not necessarily inconsistent tests for locating a corporation's principal place of business. Where a majority of a corporation's visible public activities is conducted in a single state, that state is designated as the corporation's principal place of business. See Industrial Tectonics, Inc. v. Aero Alloy, supra, 912 F.2d at 1094. Plainly, a corporation cannot be an "outsider" in the state where it carries on a majority of its operations, employs the most people, and interacts most visibly with the public. However, where the activities of a corporation are dispersed among many states or countries, such that no state accounts for a majority of its business, the courts have applied the "nerve center" test to locate the principal place of business of a far-flung enterprise. See Scot Typewriter Corp. v. Underwood Corp., 170 F. Supp. 862 (S.D.N.Y.1959). Typically, the corporation's nerve center is coincident with the situs of its executive headquarters and of its administrative apparatus. See id.
The novelty, also the difficulty, of applying the nerve center test to the present case lies in Danjaq's separation of its administrative and executive apparatus. Usually, the two go hand in hand, but not here. See, e.g., Scot Typewriter Corp. v. Underwood, supra, 170 F. Supp. 862. There is no dispute that Danjaq's representatives in Switzerland, Messrs. Schlaeppi and Reynard, make no decisions on behalf of Danjaq, and in general know little about the film industry. Although Mr. Schlaeppi reviews all of Danjaq's contracts for compliance with Swiss law (to the extent that Swiss law bears on Danjaq's contracts), he does not initiate or conduct any negotiations on behalf of Danjaq. Mr. *200 Reynard's role in the operation, as earlier described, is even more modest. He keeps track of payments made to Danjaq's accounts and deposits them in interest-bearing bank accounts only, with no authority to make more imaginative investments.
The substance of Danjaq's accusations is that, prior to the merger with MGM, Pathe toured the capitals of Europe offering to license the exhibition of Bond films to every television station along the way at cut-rate prices, thereby diminishing the value of Danjaq's copyright on the world market. Counsel alleges that negotiations were conducted between Pathe and French, Italian, and Spanish telecasters. Only the Spanish deal is alleged to have culminated in a final licensing agreement. In each case, Pathe made its licensing offer contingent upon a successful merger with MGM.[2]
*201 The word "authorize" did not appear in the Copyright Act of 1909 but was added by Congress in 1976. See Peter Starr Prod Co. v. Twin Continental Films, 783 F.2d 1440, 1443 (9th Cir.1986); see generally Nimmer on Copyright, supra, § 12.04(A). The absence of an express statutory mandate, however, did not prevent the courts from imposing, in appropriate circumstances, liability upon contributory infringers of copyright long before the 1976 amendment; examples of contributory infringement before 1976 included the licensing of copyrighted works or authorizing third parties to display publicly copyrighted works without the copyright owner's permission. See, e.g., Northern Music Corp. v. King Record Dist. Co., 105 F. Supp. 393, 400 (S.D.N.Y.1952) (defendant infringed plaintiff's copyright by "authorizing public performances of the infringing musical composition").
The pre-1976 law was stated by the Second Circuit as follows: a party "who, with knowledge of the infringing activity, induces, causes, or materially contributes to the infringing conduct of another, may be held liable as a `contributory infringer.'" Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971). Contributory infringement, under this standard, plainly does not lie without primary infringement. This, of course, does not mean that the primary infringer must be a co-defendant in the case; there may be many reasons why a party may not be held accountable for its conduct in court. What is important is that contributory infringement be hinged upon an act of primary infringement, even if the primary infringer for some reason escapes judicial scrutiny. Cf. Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 526, 92 S. Ct. 1700, 1706, 32 L. Ed. 2d 273 (1972) (patent case) ("But it is established that there can be no contributory infringement without the fact or intention of a direct infringement.").
Although instances are conceivable in which an act of authorization alone may injure the copyright owner, such instances in all likelihood are remediable under the applicable state law without the need to invoke jurisdiction under the Copyright Act. See id. Tort actions in the nature of interference with prospective economic advantage are particularly apt in providing relief to the copyright owner in those exceptional circumstances where he is injured by a naked authorization. See id. n. 85; Cf. Ernst & Ernst v. Carlson, 247 Cal. App. 2d 125, 55 Cal. Rptr. 626 (1966) (defendant enjoined from interfering in plaintiff's relationship with its clients).
Indeed, Professor Nimmer's general proposition is amply borne out by the plaintiff's complaint in this action. Danjaq has not been at a loss to find state-law causes of action against Pathe or MGM. The complaint alleges that Pathe's acts of authorization, made with MGM's permission, amounted to a breach of contract and fiduciary duty by MGM, and a conspiracy by MGM and Pathe to interfere with Danjaq's *202 contractual rights, and a conspiracy to breach fiduciary duty. This list, which may grow longer with discovery, suggests that Danjaq will not be left without some remedy if in fact the value of its Bond copyright had been wrongfully diminished through Pathe's negotiations in Europe.
Section 106 of the Copyright Act does not prohibit every authorization in respect of a copyrighted work but only authorizations of an infringing use of a copyrighted work, such as public display or distribution. In a recent case, for example, copyright owners brought an infringement suit against a hotel for renting videodiscs and providing video equipment to the hotel guests for in-room viewing of copyrighted motion pictures. See Columbia Pictures Ind., Inc. v. Professional Real Estate Inv., 866 F.2d 278 (9th Cir.1989). The plaintiffs contended that hotel rooms were public places and that the hotel, therefore, authorized public performances of copyrighted works. See id. at 280. But the Ninth Circuit disagreed, holding that hotel rooms were not public places under the Copyright Act and affirming, without further discussion, a summary judgment for the defendant hotel. Id. at 282. To be sure, the Ninth Circuit did not hold that the hotel did not authorize the performances of copyrighted works, which the hotel certainly did, but rather that the performances so authorized did not infringe the exclusive rights of copyright owners because such performances were nonpublic. The decision in Columbia Pictures has confirmed the intuitive suspicion that no liability can arise under the Copyright Act from the authorization of a noninfringing use of a copyrighted work.[3]
The second ground, which easily lends itself to resolution on a motion to dismiss, rests on the undisputed axiom that the *203 United States copyright laws do not operate extraterritorially. See, e.g., American Banana Co. v. United Fruit Co., 213 U.S. 347, 356, 29 S. Ct. 511, 512, 53 L. Ed. 826 (1909) (per Holmes, J.); Filmvideo Releasing Corp. v. Hastings, 668 F.2d 91 (2d Cir.1981); see generally 3 Nimmer on Copyright, supra, at § 17.02. Even a public performance of a copyrighted film overseas does not violate the U.S. Copyright Act. It may, perhaps, violate the copyright protection laws of the country of performance, but not those of the United States. Cf. Robert Stigwood Group v. O'Reilly, 530 F.2d 1096, 1101 (2d Cir.1976) ("The Canadian performances, while they may have been torts in Canada, were not torts here.").
Taking as given that the performance of Bond films on European television would not infringe Danjaq's U.S. copyright, the court must conclude that Pathe's alleged authorization of such performances is not actionable under the U.S. Copyright Act, not any more than was the defendant hotel's authorization of nonpublic performances in Columbia Pictures. The exclusive right of the copyright owner under Section 106 is not to authorize every performance of a motion picture, but only public performances and, because the section is enacted against a general background presumption of non-extraterritoriality, only in the United States. See E.E.O.C. v. Arabian American Oil Co., ___ U.S. ___, 111 S. Ct. 1227, 1230, 113 L. Ed. 2d 274 (1991) (background presumption against extraterritoriality).
Peter Starr addressed itself entirely to the question of subject matter jurisdiction and not to the sufficiency of the claim. Indeed, the Ninth Circuit only recently held that a copyright claim "arises under" federal law on the basis of a well-pleaded complaint. See Effects Associates, Inc. v. Cohen, 817 F.2d 72, 73 (9th Cir.1987). Hence, the complaint in Peter Starr, alleging authorization within the United States, may have been sufficiently well pleaded so as to arise under the U.S. Copyright Act; the Ninth Circuit has certainly so held. However, in that case the Ninth Circuit was neither presented with nor addressed *204 the question, whether the complaint properly arising under federal law also stated a claim for relief under that law. In view of the Ninth Circuit's subsequent decision in Columbia Pictures and for reasons stated in this opinion, this court concludes that the complaint in Peter Starr and Danjaq's instant complaint, while arising under the U.S. Copyright Act, failed to state a claim for relief under that Act.
Accordingly, Pathe's alleged authorization of noninfringing overseas performances is not actionable under the U.S. Copyright Act. The copyright claim is dismissed under F.R.C.P. 12(b) (6).
[1] The commentaries shed little light on this point. Professor Miller adopts, without discussion or citation to other cases, the questionable holding of Textron. See Wright, Miller & Cooper, Federal Practice & Procedure, supra, at § 3625 (Some of the cases cited in the treatise along with Textron involve the inapposite situations of determining the subsidiary's, not the parent's, principal place of business. See, e.g., Burnside v. Sanders Associates, Inc., 507 F. Supp. 165, 166 (N.D.Tex.1980), cited at § 3625 n. 41.) Professor Moore, in a cryptic footnote, citing Textron, suggests that "the activities of the subsidiaries may also be considered in determining the principal place of business of the parent corporation." Moore's Federal Procedure, at § 3.2 n. 7.
[2] The conditional character of the licensing offer may be important because with the acquisition of MGM, Pathe would also acquire a part ownership interest in the Bond copyright, thereby immunizing itself from infringement liability for any showings of Bond films made after the merger.
[3] The converse of the Columbia Pictures case, involving the same plaintiff but different defendants, arose in the Third Circuit, where a video store rented video cassettes and, if a patron so desired, a small room within the video store equipped with a video player to view the rented tape. See Columbia Pictures Ind., Inc. v. Aveco, Inc., 800 F.2d 59 (3d Cir.1986). In Aveco, the Third Circuit found the video rooms to be public places and imposed liability on the video store for having authorized public performances of copyrighted works. Id. at 61-64.