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AKARI IMEJI CO. v. QUME CORP.

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION


September 7, 1990

AKARI IMEJI COMPANY, Plaintiff,
v.
QUME CORPORATION, a California Corporation, LEX COMPUTER SYSTEMS, a Division of Schweber Electronics Corporation, Schweber Electronic Corporations, a New York Corporation, MICROAMERICA, INC., a Delaware Corporation, and CASIO Computers Co., Ltd., a Japan corporation, Defendants

The opinion of the court was delivered by: NORGLE

ORDER

 CHARLES R. NORGLE, UNITED STATES DISTRICT JUDGE

 Before the court are three motions: plaintiff Akari Imeji Company's ("AIC") motion for default judgment, and defendant Casio Computer Ltd.'s ("Casio Computer") motions to set aside entry of default, and to quash service of process. For the reasons discussed below, AIC's motion is denied and both of Casio Computer's motions are granted.

 FACTS

 On January 23, 1989, AIC filed suit against defendant Qume Corporation ("Qume"), alleging that Qume had infringed Patent No. 3,824,604 entitled "Alphanumeric Printing System Employing Liquid Crystal Matrix" (the "Stein Patent"). *fn1" On April 24, 1989, AIC filed an Amended Complaint, adding defendants Lex Computer Systems and Micro America, Inc. AIC added defendant Casio Computer in its Second Amended Complaint which it filed on November 17, 1989. This pleading alleges that Casio Computer has infringed the Stein patent by:

 

its development and subsequent making, selling, distributing and inducing others to use, in the United States, products, including the Crystal Print Series II Page Printer, the Crystal Print WP Page Printer and the Crystal Print Publisher, covered by the claims of the Stein patent.

 Second Amended Complaint, para. 6.

 AIC initially attempted to serve Casio Computer by mail through Casio Inc., a U.S. subsidiary incorporated under the laws of New York. AIC mailed the summons to Casio, Inc.'s corporate headquarters in Dover, New Jersey, but received no return acknowledgement form. On January 26, 1989, AIC had two summonses served personally at Casio Inc.'s New Jersey headquarters. One summons was addressed to "Casio Computer Co., Ltd." and the other was addressed to "Casio Computers Co., Ltd., c/o Casio, Inc."

 After Casio Computer failed to respond to the summons within the requisite period, AIC asked the Clerk of the Court to enter a technical default against Casio Computer. On February 27, 1990, the Clerk entered the default. AIC then moved for a default judgment against Casio Computer, prompting Casio Computer to file its appearance and move to set aside the technical default. Casio Computer later filed its Response to AIC's Motion for Default Judgment, together with a Motion to Quash the service of summons. *fn2"

 DISCUSSION

 The common denominator of each of the three motions before the court is the issue of sufficiency of service. If service was improper, the entry of default against Casio Computer is void; *fn3" Casio Computer's Motion to Set Aside Entry of Default and Motion to Quash necessarily must be granted, and AIC's Motion for Default Judgment necessarily must be denied. Conversely, if service was proper, the Motion to Quash must be denied and the court must apply the "good cause" test of Fed. R. Civ. P. 55(c) to determine whether to set aside the default, or enter judgment on it. Because the sufficiency of service issue is central to all of the motions before the court, it is addressed first.

 Where the defendant is not an inhabitant of, or found within, the state in which the court sits, Fed. R. Civ. P. 4(e) provides the applicable rule regarding proper service of summons. *fn4" Rule 4(e) states that when an action is brought under a federal statute which does not provide for service of summons, service may be made under the circumstances and in the manner prescribed by the statutes or rules of the court of the state in which the district court sits. As this action is brought under the U.S. Patent Act (Title 35, U.S.C.), which does not prescribe a manner of service, service in this case must be made in accordance with the Illinois service rules.

 Ill. Rev. Stat. ch. 110, para. 2-208(b) provides the manner in which a summons must be served on a defendant outside Illinois:

 

The service of summons shall be made in like manner as service within this State, by any person over 18 years of age not a party to the action. No order of court is required. An affidavit of the server shall be filed stating the time, manner and place of service. The court may consider the affidavit, or any other competent proofs, in determining whether service has been properly made.

 Because Casio Computer does not challenge the age or affidavit of the process server, the court looks to § 2-204, which provides the rule for service on corporations, to determine whether service was "made in a like manner as service within this State," for the purposes of § 2-208. Section 2-204 states:

 

Service on private corporations. A private corporation may be served (1) by leaving a copy of the process with its registered agent or any officer or agent of the corporation found anywhere in the State; or (2) in any other manner now or hereafter permitted by law. A private corporation may also be notified by publication and mail in like manner and with like effect as individuals.

 Ill. Rev. Stat. ch. 110, para. 2-204. *fn5" It is undisputed that service here was not on a "registered agent" or "officer" of Casio Computer. The sole question before the court, therefore, is whether Casio, Inc. may be deemed to be the "agent" of Casio Computer for the purpose of § 2-204. AIC has the burden of establishing this relationship. See Slates v. Int'l House of Pancakes, Inc. 90 Ill. App. 3d 716, 413 N.E.2d 457, 463, 46 Ill. Dec. 17 (4th Dist. 1980).

 In the Slates case, the court looked to the law of agency to define the relationship necessary to render one corporation the agent of another for the purposes of service.

 

Agency is a consensual, fiduciary relationship between two persons, created by law by which one, the principal, has a right to control the conduct of the agent, and the agent has a power to effect the legal relations of the principal. (Seavey, Law of Agency, sec. 3 at 3 (West 1964).) The agency relationship differs from other fiduciary relationships in that it is the duty of the agent to respond to the desires of the principal. Reuschlein, Agency and Partnership, sec. 5 at 11 (West 1979).

 413 N.E.2d at 463. There is no precise test for defining how much control a foreign parent corporation must wield over its domestic subsidiary before the subsidiary will be deemed its agent for the purposes of service. However, the general rule is that:

 

The mere existence of a parent-subsidiary relationship is insufficient to establish the close ties necessary for a subsidiary to be deemed a parent's agent for the service of process. (See, e.g., Geick [ v. American Honda Motor Co.], 117 F.R.D. 123 (C.D. Ill. 1987)). On the other hand, it is not necessary that a parent's control of a subsidiary be so pervasive as to make the two corporations essentially one, or to make the subsidiary an alter ego or mere department of the parent. Schlunk [ v. Volkswagenwerk Aktiengesellschaft ], 145 Ill. App. 3d 594, 105 Ill. Dec. 39, 503 N.E.2d 1045 (1986).

 Wissmiller v. Lincoln Trail Motosports, Inc., 195 Ill. App. 3d 399, 552 N.E.2d 295, 298, 141 Ill. Dec. 927 (4th Dist. 1990).

 Several recent Illinois cases applying this general rule have established a list of factors which courts may consider in categorizing parent/subsidiary relationships which fall between these two extremes. See Geick v. American Honda Motor Co., 117 F.R.D. 123 (C.D. Ill. 1987); Schlunk v. Volkswagenwerk Aktiengesellschaft, 145 Ill. App. 3d 594, 503 N.E.2d 1045, 105 Ill. Dec. 39 (1st Dist. 1986), aff'd, 486 U.S. 694, 100 L. Ed. 2d 722, 108 S. Ct. 2104 (1988); Maunder v. DeHavilland Aircraft of Canada, 102 Ill. 2d 342, 466 N.E.2d 217, 80 Ill. Dec. 765, cert. denied, 469 U.S. 1036, 83 L. Ed. 2d 401, 105 S. Ct. 511 (1984). Although not expressly articulated, a guiding principle underlying the factors in these cases, as in Slates, appears to be the issue of control. See Geick, 117 F.R.D. at 127 ("The court in Schlunk also required significant evidence of control by the parent over the subsidiary before it found that the subsidiary should be considered a registered agent of the parent corporation").

 In determining that a domestic subsidiary was an agent for a Canadian airplane manufacturer for the purposes of service, the court in Maunder noted numerous facts which helped define the relationship between the two corporations: the subsidiary was established and wholly owned by the parent; the parent paid the salaries of the subsidiary's directors; the parent guaranteed the subsidiary's lease; the subsidiary's sole business was the sale of aircraft parts for the parent's airplanes; and the parent listed the subsidiary's address in advertisements carried in American aviation journals. Maunder, 466 N.E.2d at 219. *fn6"

 Similarly, in Schlunk, the court listed numerous factors which it considered in ruling that a domestic subsidiary was the agent of a German automobile manufacturer ("VWAG") for the service of process. Among other things, the court noted that the subsidiary was wholly owned by VWAG and existed predominantly to promote the sale and distribution of the VWAG products in the United States; was obligated to repair and sell parts for VWAG automobiles within a prescribed territory, regardless of where these automobiles were sold; was contractually required to apprise VWAG of all aspects of its business; and was authorized to prosecute trademark infringement suits in VWAG's name. Schlunk, 503 N.E.2d at 1053. VWAG, in turn, was empowered to terminate the importer agreement without prior notice if the subsidiary experienced business or financial difficulties; controlled the subsidiary's choice of dealers, designation of products and services, stock levels, and methods of ordering; and dominated the subsidiary's board of directors. *fn7" Id. The Schlunk court also found that the subsidiary often conducted its board meetings in its parent's domicile; *fn8" and did not publish its own annual report, but was listed on a consolidated financial sheet along with the parent and other subsidiaries. Id. 503 N.E.2d at 1051. The court concluded that the subsidiary exercised "no free will of its own in deciding whether to accept the importer agreement of any other aspect of its relationship with VWAG." Id. 503 N.E.2d at 1054.

 In Geick, the court explicitly adopted and followed the reasoning of the Schlunk case in holding that American Honda Motor Company, Inc. ("American Honda") was not the agent of its foreign parent, Honda Motor Company Ltd. ("Honda Limited"), for the purposes of service. The court listed all of the relevant factors upon which the Schlunk court based its finding of an agency relationship, and held that the majority of these factors were not established by the plaintiffs.

 

There is no evidence in the record to establish that: (1) Honda Limited makes any decisions regarding the operations or ordering method of American Honda; (2) American Honda is precluded from bringing claims against Honda Limited for a rejection of its orders; (3) Honda Limited is relieved of liability to American Honda for early, late or non-deliveries; (4) American Honda is required to consult with Honda Limited before establishing dealership arrangements and setting sales objectives; (5) American Honda was required to protect Honda Limited's service and trademarks to the extent that it was allowed to prosecute suits in Honda Limited's name; and (6) under the terms of the agreement, Honda Limited required American Honda to keep it fully informed of all aspects of its business. [Emphasis in original.]

 

The only evidence in the record which establishes any evidence of control by Honda Limited over American Honda is: (1) out of 26 officers and directors of American Honda, one resides in Japan, the remaining 25 reside at various locations in the United States; (2) four of American Honda's officers and directors are also officers and directors of Honda Limited; and (3) Honda Limited uses American Honda's financial statements in preparing its annual report.

 Geick, 117 F.R.D. at 127. The Geick court concluded that these factors failed to establish that the relationship between American Honda and Honda Limited was anything more than a parent/subsidiary relationship -- which was not enough to make American Honda the agent of Honda Limited for the purposes of service of process. Id.

 Casio Computer applies the Maunder and Schlunk factors to the facts of this case and argues that here, as in Geick, these factors are not met. The basic facts upon which Casio Computer relies are largely undisputed by AIC. Unlike the parties in Maunder, Casio, Inc. is not wholly owned by Casio Computer (Casio Computer owns 60% of the voting stock of Casio, Inc., and Toyo Menka Kaisha Ltd., another Japanese corporation, owns the remaining 40%); Casio Computer does not pay the salaries of any of Casio, Inc.'s officers or directors; Casio, Inc. is not the sole or exclusive distributor in the United States of all products manufactured by Casio Computer; *fn9" Casio, Inc. is not obligated to sell only products manufactured by Casio Computer, and in fact purchases and distributes the products of other manufacturers; and neither Casio, Inc. nor Casio Computer uses the address of the other company in its advertising. Only one Maunder factor clearly cuts in AIC's favor: Casio, Inc. was founded by the directors of Casio Computer. In light the numerous Maunder factors weighing against a finding of agency, this factor alone is not enough to render Casio, Inc. its parent's agent for the purposes of service under Maunder.

 Similarly, the vast majority of Schlunk factors weigh in favor of Casio Computer. Unlike the domestic subsidiary in Schlunk, Casio, Inc. is not obligated to warrant or repair products manufactured by Casio Computer; is not obligated to keep Casio Computer informed of all aspects of its business or to consult with Casio Computer in setting goals or business objectives; does not conduct its board meetings in its parent's domicile; *fn10" and is not authorized to institute any litigation in the United States in the name of or on behalf of Casio Computer -- to enforce trademark rights, or for any other purpose. Further, unlike VWAG, Casio Computer is not empowered unilaterally to terminate the importer agreements involving it and Casio, Inc.; does not designate which products Casio, Inc. will purchase; and does not dominate Casio, Inc.'s board of directors. *fn11"

 By contrast, comparatively few Schlunk factors appear to support AIC's position. Like the subsidiary in Schlunk, Casio, Inc. does not publish its own annual report, but is listed on a consolidated financial sheet along with Casio Computer and other "significant subsidiaries;" and Casio, Inc. exists predominantly to promote the sale and distribution of Casio Computer's products in the United States. *fn12" In view of the many factors weighing against a finding of agency, these two factors are not sufficient to render Casio, Inc. its parent's agent for the purposes of service under the Schlunk analysis.

 AIC appears implicitly to concede that the majority of factors upon which the Maunder and Schlunk courts relied are not supported by the facts here. See Reply Memorandum, p.16; Reply to Supplemental Memorandum, p.4. AIC argues, however, that the holdings of these cases are limited to their facts and that other facts unique to this case establish that Casio, Inc. is the agent of Casio Computer for the purposes of service. This argument was expressly rejected in the Geick case.

 

The Plaintiff makes the argument that Schlunk is inapplicable to the present case because of that court's assertion that "No two corporations have the same arrangements, and hence, no two cases will be exactly alike." Therefore, the Schlunk analysis is applicable only to the facts of that case.

 

Although this Court agrees that no two corporate structures are identical, it does not discern that statement in Schlunk to mean that it cannot use the Schlunk factors as a guide in evaluating what types of factors which give rise to a determination that a parent/subsidiary's relationship is more than just that under Illinois law. It is in this light that this Court has made use of the Schlunk factors, and has concluded that the record does not reflect that more than a parent/subsidiary relationship exists in the present case.

 Geick, 117 F.R.D. at 127. The court agrees with the reasoning of the Geick court and holds that the factors established in the Maunder and Schlunk cases provide a relevant guide in evaluating the nature of the relationship between Casio, Inc. and Casio Computer.

 The court also recognizes that the factors considered in these previous cases are not exclusive and do not constitute an inflexible test. It is therefore appropriate for the court to consider "additional factors" raised by AIC which were not raised in previous cases.

 Many of the factors listed by AIC are either irrelevant *fn13" or prove the opposite of what AIC seeks to establish. *fn14" Although some of the remaining factors do weigh somewhat in AIC's favor, *fn15" the court is not persuaded that these factors, as a whole, outweigh the majority of Maunder and Schlunk factors which cut against the existence of an agency relationship between Casio, Inc. and Casio Computer.

 CONCLUSION

 For the reasons set forth above, the court holds that Casio, Inc. is not the "agent" of Casio Computer for the purposes of service. Therefore, Casio Computer's motions to quash and set aside entry of default are both granted and AIC's motion for default judgment is denied.

 IT IS SO ORDERED.


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