Opinion ID: 420942
Heading Depth: 1
Heading Rank: 3

Heading: t & n's appeal in fults: personal jurisdiction

Text: 19 The logical priority of jurisdictional considerations prompts us to address T & N's cross-appeal first. 1 Nicolet bases the existence of personal jurisdiction over T & N on the Texas long-arm statute, Tex.Rev.Civ.Stat.Ann. art. 2031b (Vernon 1964 & Supp.1982-1983). 2 In deciding whether the state jurisdictional statute confers jurisdiction over a non-resident defendant in a diversity suit, it must be determined that (1) the defendant is in fact amenable to service under the statute (state law of the forum controls this question), and (2) if the state statute has been complied with, then federal law must be applied to determine whether assertion of jurisdiction over the defendant comports with due process. 20 Walker v. Newgent, 583 F.2d 163, 166 (5th Cir.1978). The party seeking to invoke the court's jurisdiction has the burden of establishing jurisdiction, by making a prima facie showing of the facts upon which it may be based. Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 490-81 (5th Cir.1974). 21 Our initial inquiry concerns T & N's amenability to process under Texas law. On appeal, Nicolet advances two strategies for maintaining jurisdiction over T & N under the Texas long-arm statute. First, Nicolet claims that T & N itself had sufficient direct contacts with Texas to warrant the assertion of Texas jurisdiction. Because this theory was not presented to the district court, 3 we may not consider it on appeal. See Stanley Educational Methods, Inc. v. Becker C.P.A. Review Course, Inc., 539 F.2d 393, 394 (5th Cir.1976); Pierre v. United States, 525 F.2d 933, 936 (5th Cir.1976). Second, Nicolet asserts that personal jurisdiction existed over T & N through the torts of K & M. In order to sustain jurisdiction under this second theory, Nicolet is required to show that K & M's activity in Texas would subject it to the reach of the Texas long-arm statute and that K & M's activities may properly be imputed to T & N. For present purposes, we will assume that K & M would be subject to jurisdiction in Texas and focus upon the second prong of Nicolet's theory, the relationship between K & M and T & N. 22 Generally, a foreign parent corporation is not subject to the jurisdiction of a forum state merely because its subsidiary is present or doing business there; the mere existence of a parent-subsidiary relationship is not sufficient to warrant the assertion of jurisdiction over the foreign parent. 2 J. Moore & J. Lucas, Moore's Federal Practice p 4.25, at 4-272 (2d ed. 1982). It has long been recognized, however, that in some circumstances a close relationship between a parent and its subsidiary may justify a finding that the parent does business in a jurisdiction through the local activities of its subsidiaries. See, e.g., Walker, 583 F.2d at 167; Cousteau, 495 F.2d at 492; Turner v. Jack Tar Grand Bahama, Ltd., 353 F.2d 954, 956 (5th Cir.1965). The rationale for such an exercise of jurisdiction is that the parent corporation exerts such domination and control over its subsidiary that they do not in reality constitute separate and distinct corporate entities but are one and the same corporation for purposes of jurisdiction. 2 J. Moore & Lucas, supra, at 4-273. See also 4 C. Wright & A. Miller, Federal Practice and Procedure Sec. 1069, at 255-57 (1969). Problems arise, however, in articulating the type and degree of control necessary to ascribe to a parent the activities of its subsidiary. 23 The Supreme Court addressed this problem in Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925). In Cannon, a North Carolina corporate plaintiff brought an action in a North Carolina court against a Maine corporation, asserting breach of contract. Service of process was made upon the local agent of an Alabama corporation that was the wholly owned subsidiary of the defendant. In order to sustain the validity of the service, the plaintiff sought to establish an identity relationship between the parent corporation in Maine and the Alabama subsidiary whose agent was present in North Carolina. The Supreme Court affirmed the district's court dismissal of the action for lack of jurisdiction, stating: 24 Through ownership of the entire capital stock and otherwise, the defendant dominates the Alabama corporation, immediately and completely, and exerts its control both commercially and financially in substantially the same way, and mainly through the same individuals, as it does over those selling branches or departments of its business not separately incorporated which are established to market the Cudahy products in other states. The existence of the Alabama company as a distinct corporate entity is, however, in all respects observed. Its books are kept separate. All transactions between the two corporations are represented by appropriate entries in their respective books in the same way as if the two were wholly independent corporations. 25 Id. at 335, 45 S.Ct. at 251. The Court later added that [t]he corporate separation, though perhaps merely formal, was real. It was not pure fiction. Id. at 337, 45 S.Ct. at 251. Hence, the Court refused to hold that the activities of the subsidiary in North Carolina could be imputed to the parent for the purposes of showing that the parent was doing business in the forum. 26 Cannon, then, stands for the proposition that so long as a parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to the other. Cases in this circuit appear to have followed the Cannon rule in applying the Texas long-arm statute, although sometimes without explicit citation. We have noted often that 100% stock ownership and commonality of officers and directors are not alone sufficient to establish an alter ego relationship between two corporations. Walker, 583 F.2d at 167; Turner, 353 F.2d at 956. Generally, our cases demand proof of control by the parent over the internal business operations and affairs of the subsidiary in order to fuse the two for jurisdictional purposes. See, e.g., Walker, 583 F.2d at 167; Cousteau, 495 F.2d at 493; Turner, 353 F.2d at 956; Murdock v. Volvo of America Corp., 403 F.Supp. 55 (N.D.Tex.1975); Reul v. Sahara Hotel, 372 F.Supp. 995 (S.D.Tex.1974); Frito-Lay, Inc. v. Procter & Gamble Co., 364 F.Supp. 243 (N.D.Tex.1973); Bland v. Kentucky Fried Chicken Corp., 338 F.Supp. 871 (S.D.Tex.1971). The degree of control exercised by the parent must be greater than that normally associated with common ownership and directorship. Reul, 372 F.Supp. at 998. All the relevant facts and circumstances surrounding the operations of the parent and subsidiary must be examined to determine whether two separate and distinct corporate entities exist. 2 J. Moore & J. Lucas, supra, at 4-275 to -276. 27 In the instant case, T & N owned 100% of the stock of K & M from 1938 to 1962. During this entire period, T & N maintained its corporate headquarters in Manchester, England, while K & M was headquartered in Ambler, Pennsylvania. The two companies shared no common officers and at no time had more than one common director. The corporate formalities were scrupulously observed. T & N and K & M maintained separate bank accounts, accounting and payroll systems, insurance contracts, budgets, and financial records; they also filed separate tax returns. No assets of the corporations were commingled. 28 In terms of K & M's internal affairs, it appears that T & N had complete authority over general policy decisions at K & M, including such matters as selection of product lines, hiring and firing of K & M officers, and approval of sizable capital investments. Day-to-day business and operational decisions, however, were made by K & M officers. K & M had sole responsibility for operation and management of its manufacturing facilities, research and development of new products, and marketing and sales strategies. Although T & N supplied the raw materials used to manufacture K & M products, K & M was in charge of determining its own supply requirements. 29 Nicolet, as the proponent of personal jurisdiction over T & N, had the burden of showing the facts upon which such jurisdiction might be predicated. Cousteau, 495 F.2d at 490-91. As this case aptly demonstrates, facts going to the merits of the action are likely to surface in the context of trying to establish jurisdiction. To avoid precipitating too extensive an investigation of the merits at this stage of the litigation, only a prima facie showing is required on a jurisdiction motion. 4 C. Wright & A. Miller, supra, Sec. 1068, at 250. See also Dotson v. Fluor Corp., 492 F.Supp. 313, 317 (W.D.Tex.1980); Reul, 372 F.Supp. at 997; Bland, 338 F.Supp. at 875. Even given the appropriateness of applying a less stringent standard for alter ego jurisdiction than for alter ego liability, however, we do not believe that Nicolet has demonstrated that T & N possessed and exercised the nature and degree of control over K & M necessary to fuse the two corporations for purposes of the Texas long-arm statute. T & N and K & M maintained a degree of corporate separation that was more than superficial; they were two separate corporations joined by the common bond of stock ownership. The policymaking authority held and exercised by T & N was no more than that appropriate for a sole shareholder of a corporation, and certainly not enough to warrant the extraterritorial exercise of jurisdiction over that shareholder under the Texas statute. Accord, Kramer Motors, Inc. v. British Leyland, Ltd., 628 F.2d 1175 (9th Cir.1980); Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406 (9th Cir.1977). The Lone Star of Texas may shine brightly throughout the world, but its long arm is not judicially all encompassing. 30 For the reasons stated above, we hold that Nicolet has failed to carry its burden of bringing T & N within the reach of the Texas long-arm statute; thus, we need not address the due process considerations ordinarily implicated by a motion to dismiss for lack of personal jurisdiction. 4 We therefore conclude that the district court erred in denying T & N's motion to dismiss for lack of personal jurisdiction in Fults. Accordingly, we vacate the summary judgment in Fults and remand to the district court with instructions to dismiss. 31