TACA International Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 N.Y.2d 97 (1965)

A foreign parent corporation is subject to personal jurisdiction in New York if its subsidiary operates as a mere department or instrumentality of the parent, effectively conducting the parent’s business within the state.

Summary

TACA International Airlines sued Rolls-Royce of England (Ltd.) for damages. Ltd. moved to vacate service of process, arguing it wasn’t doing business in New York. The New York Court of Appeals considered whether Rolls-Royce, Inc. (Inc.), the American subsidiary of Ltd., operated as a mere department or instrumentality of the parent company. The court held that Ltd. was subject to jurisdiction in New York because Inc. functioned as its sales and service department, thus Ltd. was doing business in New York through Inc.

Facts

TACA sued Rolls-Royce of England, Ltd. (Ltd.), a British corporation, for damages to its airplane allegedly caused by negligence. Ltd. moved to set aside service of the summons, which was served on Rolls-Royce, Inc. (Inc.), a Delaware corporation and a subsidiary of Ltd., in New York City. Ltd. manufactured and sold motor cars and airplane engines worldwide. Rolls-Royce of Canada, Ltd. owned all stock of Rolls-Royce, Inc., and Rolls-Royce of England, Ltd. owned all stock of the Canadian company. Inc.’s business was solely the sale and servicing of products manufactured by Ltd.

Procedural History

Special Term granted Ltd.’s motion to vacate service, finding Ltd. was not doing business in New York and Inc. was not its representative. The Appellate Division reversed, holding Inc. functioned as a department of Ltd. The dissenting judge believed Special Term’s finding of Inc.’s independence was justified. The case then went to the New York Court of Appeals.

Issue(s)

Whether Rolls-Royce, Inc. operated as a mere department or instrumentality of Rolls-Royce of England, Ltd., such that service on Inc. constituted valid service on Ltd. for the purpose of establishing personal jurisdiction.

Holding

Yes, because Rolls-Royce, Inc. functioned as a department of Rolls-Royce of England, Ltd., acting as the American sales and service department of the British corporation. The court found the claimed independence of the American subsidiary was illusory.

Court’s Reasoning

The court relied heavily on the factual findings regarding the relationship between Ltd. and Inc. The court noted the common directors and executive personnel, frequent conferences to determine policies, technical training provided by Ltd. to Inc. employees, and sales literature written and published by Ltd. Inc. bought cars from Ltd. at a fixed price, and Ltd. provided warranties directly to purchasers, with Inc. delivering the warranties. Ltd. paid Inc. a fixed annual fee for services rendered under these warranties. All of Inc.’s net income went to Rolls-Royce of Canada, and then appeared on the balance sheet of Ltd. Key personnel were frequently exchanged between New York and England and considered part of the Rolls-Royce employee “group”. All operations of Inc. were reported to Ltd. and Canada, Ltd., and all American business appeared in the consolidated earnings statements of Ltd. The court found these facts showed Inc. was not an independent entity. The court cited Rabinowitz v. Kaiser-Frazer Corp. as a controlling authority. The court emphasized that the question was whether Inc. was “a really independent entity or a mere department of Ltd.? If the latter, then obviously Ltd, was doing extensive business in our State through its local department separately incorporated as Inc.” The court determined the latter was true here.