Wehner v. Syntex Agribusiness, Inc.

No. 83-642 (E.D. Mo. April 1, 1985)

In an action to recover response costs from a corporate hazardous waste generator under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the court holds that it lacks personal jurisdiction over defendant's parent corporation. Initially, the court rules that since CERCLA does not authorize nationwide service of process, the court may exercise jurisdiction only if the corporate parent is subject to service in the courts of Missouri. The court rules that jurisdiction over a subsidiary confers jurisdiction over the parent only when the two do not function as separate entities. It then finds that under the facts of this case the presumption of corporate separateness remains intact. The subsidiary makes its own business decisions, raises capital independently, and keeps separate records. Since the parent owns no property in the state and has committed no act giving Missouri courts long-arm jurisdiction, the court holds that it lacks jurisdiction and grants the parent corporation's motion to dismiss. The court also lifts an order staying discovery on the merits.

[Related cases appear at 14 ELR 20212 & 20265 and 15 ELR 20210 & 20346.]

Counsel are listed at 15 ELR 20210.

[15 ELR 20346]

Filippine, J.:

Memorandum and Order

This matter is before the Court on the motion of Syntex Corporation ("Corporation") to dismiss for lack of personal jurisdiction.

This is a private action for response costs brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601, et seq. Plaintiffs allege they have incurred compensable response costs as a result of their exposure to dioxin within the state of Missouri.

Corporation is a publicly owned life sciences and health care company. Syntex (U.S.A.) Inc. ("USA") is the wholly owned American subsidiary of Corporation. USA in turn owns the stock of various subsidiaries, including Syntex Agribusiness ("Agribusiness"). Thus, Corporation owns USA, which owns Agribusiness.

Agribusiness is a separate entity and owns, in its own name, plants, property, and equipment located in Missouri and Iowa valued [15 ELR 20347] at $35,000,000 Corporation itself owns no real or personal property in Missouri; nor does it transact any business within this state. Agribusiness acquired the assets of a Missouri corporation called Hoffman-Taff, Inc. ("Old HT"). After this acquisition Agribusiness carried on the activities of Old HT. Plaintiff maintains that this Court has jurisdiction over Corporation because of Corporation's relationship to the activities of Agribusiness. Plaintiff has also named Agribusiness as a defendant.

The initial issue with regard to the motion to dismiss is the proper law to be applied in determining the existence of personal jurisdiction over Corporation. This lawsuit is brought under CERCLA which does not authorize nationwide service of process. This Court looks to the provisions of Rule 4 of the Federal Rules of Civil Procedure in determining the manner in which this Court may exercise jurisdiction over Corporation. Rule 4(e) provides that, absent a statute authorizing nationwide service of process, a defendant may only be served under the circumstances and in the manner prescribed by a statute or rule of court of the state in which the district court sits. Thus, in order for this Court to exercise personal jurisdiction over Corporation, Corporation must be subject to the jurisdiction of the Missouri state courts. Amenability to service of process is controlled by state long-arm statutes and the Fourteenth Amendment to the United States Constitution. DeMelo v. Toche Marine, Inc., 711 F.2d 1260, 1264-72 (5th Cir. 1983); 4 C. Wright & A. Miller, Federal Practice and Procedure § 1075 at 312-13 (1969 & Supp. 1984); 2 J. Moore, J. Lucas, H. Fink & C. Thompson, Moore's Federal Practice PP4.32[1], 4.41-1[3] (1982). But see, A. vonMehren & D. Troutman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv. L. Rev. 1121, 1123 n.6 (1966) (critical of the view that Rule 4(e) adopts state provisions on amenability of process); Handley v. Indiana Michigan Elec. Co., 732 F.2d 1265 (6th Cir. 1984) (apparently holding that only statutory requirements of state service must be satisfied).

This Court must now determine whether Corporation is amenable to service of process under the laws of the state of Missouri as limited by the Fourteenth Amendment. Plaintff seeks this Court to grasp Corporation within its jurisdictional reach under both the general service of process statute, R.S. Mo. § 506.150(3), and the long-arm statute, R.S.Mo. § 506.500 of the state of Missouri. Plaintiff grounds its prayer of this count on the grounds that Agribusiness, a subsidiary of Corporation, is subject to the jurisdiction of this Court. In support of this proposition plaintiff relies upon several district court opinions, e.g., Brunswick Corp. v. Suzuki Motor Co., 575 F. Supp. 1412 (E.D. Wis. 1983); Hoffman v. United Telecommunications, Inc., 575 F. Supp. 1463 (D. Kan. 1983); Energy Reserves Group, Inc. v. Superior Oil Co., 460 F. Supp. 483 (D. Kan. 1978), that depart from the well settled rule that jurisdiction over a parent corporation based upon the activities of its subsidiary is proper only when the separate corporate existence of the subsidiary has been ignored by the parent. Cannon Manufacturing Co. v. Cudahay Packing Co., 267 U.S. 333 (1925); Lakota Girl Scout Council, Inc. v. Havey Fund Raising Management, Inc., 519 F.2d 634 (8th Cir. 1975); Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902 (1st Cir. 1980); Blount v. Peerless Chemicals (P.R.), Inc., 316 F.2d 695 (2d Cir.), cert. denied sub nom. Colbert v. Peerless Chemicals (P.R.), Inc., 375 U.S. 831 (1963). Plaintiff also argues that under the facts of this case Corporation has ignored the corporate separateness of itself and its wholly owned subsidiary Agribusiness.

This Court declines to follow the dangerous innovations of the district courts relied upon by plaintiff. The law of corporations treats a parent and its subsidiary as two distinct and separate entities unless the parent and subsidiary act in a manner to destroy that separation. A court should walk with great caution when it is suggested that corporate separateness has two different meanings, one in the law of corporations and another in the law of jurisdiction. Drawing such a distinction serves no purpose and only results in confusion and uncertainty. This Court, thus, adheres to the well settled rule that the mere fact that a subsidiary does business within a state does not confer jurisdiction over its nonresident parent, even if that parent is the sole owner of the subsidiary. There is a presumption of corporate separateness that exists unless, from the evidence presented to the Court, the parent so controls the activities of the subsidiary that the latter is only a shell for the former. Lakota Girl Scout Council, 519 F.2d at 637. Moreover, "the fact that the parent may own all of the stock of the subsidiary and even maintain control incident to stock ownership does not justify ignoring the separateness of the two corporations." Escude Cruz, 619 F.2d at 905.

In the case at bar the presumption of corporate separateness remains intact. Corporate separateness of a parent and its subsidiary is recognized, absent illegitimate purposes, unless:

(a) The business transactions, property, employees, bank and other accounts and records of the corporations are intermingled;

(b) The formalities of separate corporate procedures for each corporation are not observed (where the directors and officers of each corporation are common, separate meetings and delineation of the respective capacities in which the common directors and officers are acting should be observed);

(c) The corporation is inadequately financed as a separate unit form the point of view of meeting its normal obligations foreseeable in a business of its size and character, because of either initial inadequate financing or having its earnings drained off so as to keep it in a condition of financial dependency;

(d) The respective enterprises are not held out to the public as separate enterprises;

(e) The policies of the corporation are not directed to its own interests primarily but rather to those of the other corporation.

H. Henn & J. Alexander, Laws of Corporations § 148 at 355-56 (1983). Corporation and Agribusiness are and remain separate corporate entities. Agribusiness itself makes decisions regarding its business goals, annual budget, the terms and prices of the raw materials it buys, and the product it manufactures. Furthermore, Agribusiness raises its own capital, maintains and keeps separate books of account and financial records. Corporation, however, did approve the appointment and salary of Agribusiness's top officers, guaranteed certain loans of Agribusiness, approved certain capital expenditures of Agribusiness and allowed Agribusiness employees to participate with Corporation employees in a joint investment and savings plan. These last activities, in the context of the entire record, are not sufficient for this Court to conclude that Agribusiness is a mere shell for Corporation. Rather the challenged activities of Corporation are simply normal activities incident to the parent's ownership of the subsidiary and do not warrant ignoring the separateness of the two corporations. Escude Cruz, 619 F.2d at 905.

This Court lacks personal jurisdiction over Corporation. Corporation itself owns no property within the state of Missouri; nor transacts any business within this state. In addition, Corporation has not committed an act that would subject it to this Court's jurisdiction by virtue of Missouri's long-arm statute, R.S.Mo. § 506.500. Furthermore, this Court's jurisdiction over Agribusiness, a wholly owned subsidiary of Corporation, does not subject Corporation to the jurisdiction of this Court.

The Court will, therefore, grant the motion of Corporation to dismiss for lack of personal jurisdiction. In addition the Court will lift its order staying discovery on the merits.

Accordingly,

IT IS HEREBY ORDERED that the motion of Syntex Corporation to dismiss for lack of personal jurisdiction be and is GRANTED.

IT IS FURTHER ORDERED that plaintiff's complaint against Syntex Corporation be and is DISMISED without prejudice.

IT IS FURTHER ORDERED that this Court's order of September 15, 1983, relating to discovery be and is VACATED.