Court Opinion

ID: 9479403
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:17:11.133232+00
Date Added: 2024-06-11T17:47:00.554082
License: Public Domain

KEITH, Circuit Judge,
concurring.
I agree with the majority’s assessment that in the present case, defendant WEDGE is subject to personal jurisdiction in Tennessee. I write separately, however, to express my views on the substantial due process issues that arise when jurisdiction over a corporate parent, such as WEDGE, is obtained by virtue of jurisdiction over a wholly-owned subsidiary, such as TRC.
On appeal, WEDGE argues that its alleged contacts with Tennessee arose solely from its ownership of TRC. In addition, WEDGE contends that it should not be required to respond to a Tennessee lawsuit on the sole ground that its subsidiary, TRC, conducted business in Tennessee. The majority opinion dismisses WEDGE’s arguments in an initial footnote, stating that:
This court has held that the ownership of a subsidiary that conducts business in the forum is “one contact or factor to be considered in assessing the existence or non-existence of the requisite minimum contacts.” Velandra v. Regie Nationale Des Usines Renault, 336 F.2d 292, 297 (6th Cir.1964).
The majority then proceeds to resolve the issues raised by the present action solely under the standards set forth by this court in Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374 (6th Cir.1968). It is on this point that my views tend to differ with those of the majority. I am of the opinion that the present case is governed by this court’s holding in Velandra v. Regie Nationale Des Usines Renault, 336 F.2d 292 (6th Cir.1964). Thus, differing from the approach of the majority, I would emphasize and apply the Velandra rule for determining when jurisdiction may *1093be properly obtained through the parent-subsidiary relationship.
In Velandra, the plaintiffs sued for damages sustained in an automobile accident caused by the defective brakes in a Renault automobile manufactured in France by an initial defendant, Regie, and imported into the United States by a second defendant, Renault, before ultimate sale to the plaintiffs in Ohio. 336 F.2d at 295. Plaintiffs urged that the defendants were amenable to suit in Michigan because Regie, the manufacturer, owned 100% of the stock of Renault, the importer, and Renault, in turn, owned 100% of the stock of Great Lakes, the Michigan distributor. Id. at 296. Rejecting plaintiffs’ arguments, this court concluded that:
[T]he ownership of the [Great Lakes] subsidiary carrying on local activities in Michigan represents merely one contact or factor to be considered in assessing the existence or non-existence of the requisite minimum contacts with the State of Michigan, but is not sufficient of itself to hold the present foreign corporations amenable to personal jurisdiction.
Id. at 297 (emphasis added).
To resolve such personal jurisdiction issues, this court initially relied upon the early case of Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925), where the Supreme Court held that the activities of a subsidiary did not subject its parent corporation to the personal jurisdiction of a local court. See id. at 337, 45 S.Ct. at 251. We subsequently distinguished the Cannon rule in our Velandra decision, explaining that foreign parent corporations have been properly held amenable to the “personal jurisdiction of local courts because of the local activities of subsidiary corporations upon the theory that the corporate separation is fictitious, or that the parent has held the subsidiary out as its agent, or ... that the parent exercised an undue degree of control over the subsidiary.” Velandra, 336 F.2d at 296 (citations omitted). See also Nixon v. Celotex Corp., 693 F.Supp. 547, 551 (W.D.Mich.1988) (following Velandra to conclude that foreign parent corporation’s active participation in local subsidiary’s personnel, pension and sales decisions justified exercise of specific jurisdiction over parent).
In the aftermath of our Velandra decision, the Fifth Circuit has consistently ruled that so long as a parent corporation and its subsidiary maintain separate and distinct corporate entities, the presence of one in a local forum may not be attributed to the other. See, e.g., Bearry v. Aircraft Corp., 818 F.2d 370, 372-73 (5th Cir.1987).
In Southmark Corp. v. Life Investors, Inc., and USLICO Corp., 851 F.2d 763 (5th Cir.1988), the plaintiff contended that even though defendant USLICO had no offices, real property, bank accounts, advertisements, employees, or service providers in Texas, USLICO was, nonetheless, amenable to suit in Texas. Plaintiffs argued that “USLICO’s subsidiaries that do business in Texas are alter egos or agents of USLICO and that the general jurisdiction that Texas courts have over the subsidiaries may be imputed to USLICO.” Southmark Corp., 851 F.2d at 773. The Fifth Circuit, however, rejected plaintiff’s contentions and accepted the district court’s findings that US-LICO’s subsidiaries: (1) kept separate books and bank accounts; (2) filed income tax returns separate from USLICO; (3) were managed by separate boards of directors that had overlapping, but not identical, memberships with USLICO; and (4) were centrally managed by the officers of the largest USLICO subsidiary, but not the officers of USLICO. See id. at 773. Thus, the Fifth Circuit held that where “a wholly owned subsidiary is operated as a distinct corporation, its contacts with the [local] forum cannot be imputed to the [foreign] parent. Since USLICO has no other systematic and continuous contacts with Texas, we conclude that general jurisdiction does not exist.” Id. at 773-74. See also Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1160 (5th Cir.1983) (demanding “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.”).
*1094After evaluating these principles of law and the contentions of the parties, I would emphasize and apply this court’s Velandra rule: where the “corporate separation is fictitious,” jurisdiction may be properly obtained through the parent-subsidiary relationship. Velandra, 336 F.2d at 296. I would then update and refine the Velandra rule, holding that a plaintiff seeking to establish jurisdiction over a defendant foreign parent corporation by virtue of jurisdiction over its local subsidiary must prove: (1) attribution, “that the absent parent instigated the subsidiary’s local activities;” or (2) merger, “that the absent parent and the subsidiary are in fact a single legal entity.” Brilmayer & Paisley, Personal Jurisdiction and Substantive Legal Relations: Corporations, Conspiracies, and Agency, 74 Calif.L.Rev. 1, 12 (1986).
In the present case, I am persuaded that WEDGE, the foreign corporate parent, failed to operate TRC, its subsidiary doing business in the local forum, as a distinct legal entity. For jurisdictional purposes, I would define the alleged separate legal relationship between WEDGE and TRC as entirely fictitious. See Velandra, 336 F.2d at 296. Thus, in my opinion, because WEDGE effectively consummated a merger with TRC, traditional notions of fair play and substantial justice are not offended by holding WEDGE accountable for TRC’s conduct in Tennessee, the local forum. See Rush v. Savchuk, 444 U.S. 320, 327, 100 S.Ct. 571, 576, 62 L.Ed.2d 516 (1980); Southmark Corp., 851 F.2d at 773-74; Velandra, 336 F.2d at 296; Brilmayer & Paisley, supra, at 12. Cf. Nixon, 693 F.Supp. at 551 (“There may be some situations where a subsidiary could not be considered an agent or alter ego under corporate law, but it would nonetheless be fair to subject the parent to jurisdiction for some [of] its subsidiary’s activities.”).
Because WEDGE failed to maintain a corporate identity separate from TRC, the record provides ample justification for Tennessee to obtain jurisdiction over WEDGE by virtue of its undisputed jurisdiction over TRC. First, WEDGE did not maintain financial records, bank accounts or corporate assets separate from those of TRC. Instead, to induce Third National to restructure its loans to TRC, WEDGE contributed $7.5 million to TRC, in exchange for TRC stock, to be treated as TRC capital. In addition, WEDGE established a new account, on behalf of TRC, at Third National’s Nashville, Tennessee branch. Compare Hargrave, 710 F.2d at 1160 (declining to find jurisdiction over corporate parent through its subsidiary where separate bank accounts, budgets and financial records were kept to maintain separate corporate identities). Second, WEDGE failed to file federal income tax returns separate from those filed by TRC. Upon review of the TRC-WEDGE Tax Sharing Agreement, the magistrate found that WEDGE obtained a written agreement from TRC that they would file a joint tax return. Moreover, the agreement stated that WEDGE would obtain the tax benefits in Tennessee. Compare Southmark Corp., 851 F.2d at 773 (declining to find jurisdiction over corporate parent through its subsidiary where separate federal income tax returns were filed). Third, WEDGE failed to maintain corporate officers different from those of TRC. The magistrate found that the President and Executive Vice President of WEDGE entered into negotiations with Third National to secure additional credit for TRC. During the course of the negotiations, Third National was assured that the WEDGE officers would control the disbursement of TRC funds and would remain actively involved in the management TRC. Compare Hargrave, 710 F.2d at 1160 (declining to find jurisdiction through the parent-subsidiary relationship where the two companies were independently managed and shared no common officers).
On these relevant facts, I conclude that the corporate separation between WEDGE and TRC was fictitious. Thus, because the present action concerns TRC’s Tennessee conduct, which WEDGE controlled, WEDGE should be held accountable for TRC’s contacts in Tennessee. Accordingly, I concur in the result reached by the majority.