GOODYEAR TIRE RUBBER COMPANY v. UNOCHROME INTERNATIONAL LTD (1980)

The complaint of Goodyear Tire & Rubber Company (Goodyear) alleged the following.

Goodyear had, in California, entered into a written contract with defendant Lucas American Recyclers Inc. (hereafter Lucas American) for the latter's construction, in Michigan, of a “cyclonic furnace” facility which would burn discarded automobile tires as fuel for the generation of power. Both of those parties were authorized to do, and doing, business in California. Lucas American, it was further alleged, had among other things fraudulently induced Goodyear to enter into the contract and had breached the contract, as a result of which Goodyear had proximately suffered damage. And, “at all times mentioned,” another defendant, Unochrome International, Ltd. (hereafter Unochrome), a United Kingdom corporation, “controlled and conspired with” Lucas American “so as to cause them to do the things” alleged in the complaint.

Upon being served with summons, Unochrome moved to quash service as authorized by Code of Civil Procedure section 418.10, on the ground that the court lacked jurisdiction over it. The superior court granted the motion and thereupon entered judgment dismissing Goodyear's action as to Unochrome.

Goodyear has appealed from the order granting the motion to quash (Code Civ. Proc., § 904.1, subd. (c)), and from the judgment of dismissal (id., subd. (a)).

In support of its motion to quash, Unochrome offered the following proof:

“Unochrome is a corporation duty registered (chartered) and existing under the laws of the United Kingdom ․ Unochrome has never been domiciled in, resided in, nor been a legal citizen of the State of California or the United States at any time ․ Unochrome does not now maintain, nor has it ever maintained, any offices, employees, agents or other representatives of any kind in California or the United States ․ Unochrome has never conducted any local advertising in the State of California, maintained a telephone directory listing in the State of California, or solicited actively or otherwise any business in the State of California. The stationery of Unochrome has never listed a California office or telephone number. Unochrome has never filed or attempted to file a statement and designation and certificate of good standing in order to qualify it for the transaction of intrastate business in the State of California ․ Unochrome has never owned or leased any real or personal property located within the State of California or the United States․ Unochrome has never had any bank account or deposit within the State of California or the United States.”

In its resistance to the motion Goodyear established these substantially uncontroverted facts:

Lucas American, a California corporation, was a subsidiary and under the control of Unochrome. Unochrome owned 70 percent of the capital stock of a corporation known as Power Products, Inc., and 100 percent of the capital stock of another foreign corporation entitled Lucas England. Lucas England owned 20 percent of the capital stock of Power Products. Power Products owned 55 percent of the capital stock of Lucas American.

Lucas American's board of directors consisted of three members. One was also Unochrome's “managing director,” a position comparable to a combination of the usual American corporation's chairman of the board and president. Another director, and Lucas American's president, was also a director of Unochrome.

Unochrome owned, or at least controlled, the cyclonic furnace concept which had been invented by one of its corporation's directors. Lucas England (wholly owned, as noted, by Unochrome) entered into a licensing agreement, in California, with Lucas American under which the latter would market and erect such furnaces in the United States. In 1971, following many visits to California by Unochrome's managing director (also, as noted, a director of Lucas American), Lucas American entered into an agreement with Goodyear for construction of a cyclonic furnace facility in Michigan. The agreement, according to a letter of Unochrome's controller and chief financial officer, was “controlled” by Unochrome.

Work upon the cyclonic furnace facility was commenced. It was supervised or over-seen in large measure, if not entirely, by officials and engineers of Unochrome, and the cyclonic furnace's inventor.

During the work's progress, and otherwise, Lucas American was underfunded, and in a “negative cash position”; the project was supported by Unochrome's “sterling funds.”

Things did not go well on the Goodyear project. There were many visits to it in Michigan and in respect of it, to California, by Unochrome's officials. Finally the decision was made by Unochrome to remove all of Lucas American's people from further responsibility for the job. Lucas American's president (as noted, a director of Unochrome) “was taken off the job completely, had nothing to do with it from that period on”; he stayed on as president without any power. According to a letter of Unochrome's controller and financial director, Lucas American's “responsibility for technical matters on the furnace no longer exist[s], although they are still commercially responsible ․” (Emphasis added.) The work proceeded under the technical guidance of a director of Lucas England (as noted, 100 percent owned by Unochrome) who was the inventor of the cyclonic furnace, with Unochrome's controller and financial director the “ultimate manager of the project, …”

As suggested by Goodyear's complaint the contract appears never to have been satisfactorily performed.

The basic rule of our concern is stated by Code of Civil Procedure section 410.10:

“A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.”

“This section manifests an intent [that California's courts] exercise the broadest possible jurisdiction, limited only by constitutional considerations.” (Sibley v. Superior Court, 16 Cal.3d 442, 445, 128 Cal.Rptr. 34, 36, 546 P.2d 322, 324, cert. den., 429 U.S. 826, 97 S.Ct. 82, 50 L.Ed.2d 89.)

The state's exercise of jurisdiction will be constitutionally consistent under section 410.10 if it is “fair to do so” (Archibald v. Cinerama Hotels, 15 Cal.3d 853, 863, 126 Cal.Rptr. 811, 544 P.2d 947), or “reasonable” (Cornelison v. Chaney, 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 545 P.2d 264). (Emphasis added.)

The state's courts will, of course, always have jurisdiction over the state's residents and resident corporations organized under its laws.

The “fairness” and “reasonableness” of a state's exercise of jurisdiction over a foreign resident will generally be tested by the following authoritative guidelines.

“If a nonresident defendant's activities [within a state] may be described as ‘extensive or wide-ranging’ … or ‘substantial … continuous and systematic’ …, there is a constitutionally sufficient relationship to warrant jurisdiction for all causes of action asserted against him.” (Cornelison v. Chaney, supra, 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 354, 545 P.2d 264, 266.)

Where such a “defendant's activities in the forum are not so pervasive as to justify the exercise of general jurisdiction over him, then jurisdiction depends upon the quality and nature of his activity in the forum in relation to the particular cause of action. In such a situation, the cause of action must arise out of an act done or transaction consummated in the forum, or defendant must perform some other act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws ․ The crucial inquiry concerns the character of defendant's activity in the forum, whether the cause of action arises out of or has a substantial connection with that activity, and upon the balancing of the convenience of the parties and the interests of the state in assuming jurisdiction.” (Cornelison v. Chaney, supra, 16 Cal.3d 143, 147-148, 127 Cal.Rptr. 352, 354-55, 545 P.2d 264, 266-67.) There must be “a substantial nexus between plaintiff's cause of action and defendant's activities in California.” (Id., p. 149, 127 Cal.Rptr. p. 356, 545 P.2d p. 268.) (See Hanson v. Denckla, 357 U.S. 235, 250-253, 78 S.Ct. 1228, 1237-39, 2 L.Ed.2d 1283; McGee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223; Buckeye Boiler Co. v. Superior Court, 71 Cal.2d 893, 898-899, 80 Cal.Rptr. 113, 458 P.2d 57.)

In determining the degree or nature of such a defendant's activity in this state, courts should “focus on economic reality rather than the outward form of business transactions ․” (Buckeye Boiler Co. v. Superior Court, supra, 71 Cal.2d 893, 903, 80 Cal.Rptr. 113, 121, 458 P.2d 57, 65.)

Also to be considered by the courts in determining jurisdiction over a nonresident person or corporation will be the ease of plaintiff's “access to an alternative forum …; the avoidance of multiplicity of suits and conflicting adjudications …; and the extent to which the cause of action arose out of defendant's local activities ․” (Fisher Governor Co. v. Superior Court, 53 Cal.2d 222, 225-226, 1 Cal.Rptr. 1, 4, 347 P.2d 1, 4; and see authority there collected.)

Particularly apposite, we opine, to the problem before us is the rule reiterated by the nation's high court in Consolidated Rock Co. v. Du Bois, 312 U.S. 510, 524, 61 S.Ct. 675, 684, 85 L.Ed. 982:

“[I]t is well settled that where a holding company directly intervenes in the management of its subsidiaries so as to treat them as mere departments of its own enterprise, it is responsible for the obligations of those subsidiaries incurred or arising during its management.”

A similar rationale was expressed in McLouglin v. L. Bloom Sons Co., Inc., 206 Cal.App.2d 848, 851-852, 24 Cal.Rptr. 311, 313:

“‘A very numerous and growing class of cases wherein the corporate entity is disregarded is that wherein it is so organized and controlled, and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit, or adjunct of another corporation.”’

Other authoritative statements of this principle follow: “‘Normally, courts will and must respect such separate existence, but when, under the facts of a particular case, the administration of justice so requires, the fiction of corporate legal entity may be brushed aside and responsibility placed where it belongs.”’ (Consolidated Sun Ray, Inc. v. Oppenstein (8th Cir.) 335 F.2d 801, 808); “Cardozo, J. in Berkey v. Third Ave. R. Co., 244 N.Y. 84, 95, 155 N.E. 58, 61, 50 A.L.R. 599, declared that as between parent and subsidiary ‘Dominion may be so complete, interference so obtrusive, that by the general rules of agency the parent will be a principal and the subsidiary an agent’; …” (Hollander v. Henry (2d Cir.) 186 F.2d 582, 584 [cert. den., 341 U.S. 949, 71 S.Ct. 1017, 95 L.Ed. 1373]); “[W]hen one corporation owns or controls the entire property of another, and operates its plant and conducts its business as a department of its own business, or as its alter ego, it is responsible for its obligations incurred in so doing.” (Chicago Mill & Lumber Co. v. Boatmen's Bank (8th Cir.) 234 F. 41, 45); “Liability of parent corporation for improper acts of subsidiary which has directors and officers subordinate to parent corporation extends to all torts.” (Certain-Teed Products Corporation v. Wallinger (4th Cir.) 89 F.2d 427, 428[10]).

Under the above-related facts and authority we are impelled to hold, and do hold, that the United Kingdom corporation, Unochrome, was, as an “economic reality,” doing business in California through its alter ego and subsidiary, Lucas American, a corporate resident of this state. It will reasonably be treated in the same manner as Lucas American subject, as a matter of law, to jurisdiction of the courts of California.

Our holding, we opine, under the facts and circumstances of the case before us, is eminently “fair” and “reasonable.” (See Archibald v. Cinerama Hotels, supra, 15 Cal.3d 853, 863, 126 Cal.Rptr. 811, 544 P.2d 947; Cornelison v. Chaney, supra, 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 545 P.2d 264.) To do otherwise would permit a foreign corporation effectively to do business for its own economic advantage within this state, in the name of a closely controlled and intentionally underfunded subsidiary there authorized to do business. Through its local subsidiary the foreign corporation might use the laws of this state to insure its full benefit from any contract there made. But upon financial adversity such as the breach of contract liability here contended, it might compel an aggrieved resident creditor to pursue it to another state or nation for satisfaction of its claim. Such a result is wholly at odds with Code of Civil Procedure section 410.10 and the high judicial authority we have cited.

And were we not to so hold, it is nevertheless manifest that Unochrome, treated as a foreign corporation, did, as an “economic reality,” engage in activity in this state having a “substantial nexus” with plaintiff Goodyear's cause of action. Application of the relevant statute and principles would alternatively mandate that this state exercise jurisdiction over Unochrome in Goodyear's action.

The order quashing service of summons and the judgment of dismissal are, and each is, reversed.

ELKINGTON, Associate Justice.

RACANELLI, P. J., and NEWSOM, J., concur.