by James A. Endicott

I. Introduction

When trying to establish venue against a large corporation with subsidiaries, the plaintiff's attorney, as part of the venue analysis, should ascertain whether or not a wholly-owned subsidiary of the parent corporation has an office or agent located in the desired county sufficient to justify venue in the county against the parent corporation. While no reported Missouri decision has addressed this venue question, plaintiff can assert a valid argument, depending on the facts of the parent-subsidiary relationship, to support venue against the parent corporation in the county where the subsidiary has an office or agent.

II. The Problem

Your client lives in county A, and your office is located in county A.¹ Your client brings to you a product liability action against an automobile manufacturer with a principal place of business in the state of Michigan. The allegedly defective vehicle was assembled in county B, which is more than 200 miles from county A. The automobile manufacturer has an office or agent at the assembly plant in county B for the transaction of its usual and customary business. The accident in which your client was involved occurred in county C, which is 300 miles from county A. Following the accident, your client was treated by physicians located primarily in county A, and your client has an intense desire to bring and maintain the suit in county A. You would like to stay in county A because your office is located there, and you believe a jury in county A would be sympathetic to your client's case. The automobile manufacturer does not appear to have any office or agent in county A for the conduct of its business. An automobile dealership which sells the automobile manufacturer's vehicles is located in county A, but the dealership is not owned by the automobile manufacturer. A credit corporation that finances vehicles manufactured by the automobile manufacturer has an office in county A. You discover the credit corporation is a wholly-owned subsidiary of the automobile manufacturer. If you file suit in county A, can you withstand a motion to dismiss by the automobile manufacturer for improper venue under Rule 55.27(a)(3)?²

III. The Legal Background

Missouri's corporate venue statute, § 508.040, RSMo 1994, states as follows:

Suits against corporations shall be commenced either in the county where the cause of action accrued, or in case the corporation defendant is a railroad company owning, controlling or operating a railroad running into or through two or more counties in this state, then in either of such counties, or in any county where such corporations shall have or usually keep an office or agent for the transaction of their usual and customary business.

Early on, our courts interpreted "agent" broadly. In State ex rel. Pagliara v. Stussie, the court observed that "agent," as used in § 508.040, need not be defined in the same way as it has been defined in service of process cases. The court noted that § 508.040 is not drafted in terms of a "general agent" as used in the service of process statutes, but simply requires the agent be one for the "'transaction of their (the corporation's) usual and customary business.'"³ The court interpreted the legislature's failure to utilize the term of art "general agent" in § 508.040 as suggesting a distinction between venue and service of process statutes.⁴ After referring to Missouri's broad policy of subjecting corporations to suits, the court concluded "agent" as used in § 508.040 should not be narrowly defined, and, therefore, the court adopted the broad definition of "agent" as "[a] person authorized by another to act for him, one intrusted with another's business."⁵ Using this broad definition of "agent," the court in Pagliara held venue was proper against defendant company because it employed a special representative in St. Louis County for the solicitation of business on behalf of the company, the special representative maintained and paid for a St. Louis County post office box, and he received business calls at home and used a company credit card for business calls made from his residence.⁶

The courts in State ex rel. Wilson v. Sanders, and State ex rel. Cameron Mut. Ins. Co. v. Reeves, adopted the reasoning in Pagliara and held venue was proper against an insurance company in the county where independent agents selling its products were located. Both courts emphasized the insurance agents in question had the authority to bind the defendant insurers and to solicit and submit applications for insurance to those insurers.⁷ In a later case, however, the court found no agency relationship between an independent adjuster and an insurance company where the adjuster was retained on an occasional basis and was neither authorized to act for the company nor entrusted with the company's business.⁸

In Ball v. American Greetings Corp., the court followed the rationale set forth in Pagliara and confirmed the appropriate definition for agent in the context of Missouri's corporate venue statute was the one found in Black's Law Dictionary. The court in Ball found venue in Jackson County to be valid where the defendant corporation maintained seven sales representatives and 14 part-time merchandisers in Jackson County, the sales representatives solicited orders for defendant corporation and had authority to bind the corporation to employment contracts, and the corporation employed a district manager who worked out of his home in Jackson County and supervised the sales representatives.⁹

Relying heavily on Wilson and Cameron Mutual., the court in State ex rel. Ford Motor Co. v. Dierker, held venue was proper against Ford in the City of St. Louis where a Ford dealership was located. The court in Ford Motor Co. seized upon the Black's Law Dictionary definition of agent as adopted by Wilson and Cameron Mutual and found "inescapable the conclusion that Ford has authorized and entrusted its dealers with the conducting of its warranty business to even a greater degree than the insurance companies and the independent sales agents in Wilson and Cameron Mutual."¹⁰ It was sufficient for the court in Ford Motor Co. that the agent be authorized and entrusted to transact corporate business, and the agent need not necessarily have the power to bind the principal.¹¹ The court found against Ford despite the expressed disavowal contained in the sales and service agreement between Ford and the dealer that the dealer was not to be considered an agent of Ford.¹²

In 1993, the Supreme Court of Missouri began to narrow the broad definition of agent as used in § 508.040. In State ex rel. Elson v. Koehr, the Court referenced the Black's Law Dictionary definition of agent used in Pagliara but opted to use a "more comprehensive," and yet consistent, definition from the Restatement (Second) of Agency. Relying on the Restatement, the Elson Court held the essential characteristics of the agency relation are: (1) that an agent holds a power to alter legal relations between the principal and a third party; (2) that an agent is a fiduciary with respect to matters within the scope of the agency; [and] (3) that a principal has the right to control the conduct of the agent with respect to matters entrusted to the agent."¹³ Under this more narrow definition of agency in the context of the corporate venue statute, the court still found venue to be valid against Southwest Airlines in the City of St. Louis because independent travel agencies selling tickets for Southwest Airlines were located in the city, the airline was bound to provide air travel to customers who purchased airline tickets from the travel agencies, the travel agencies operated as fiduciaries of the airline within the scope of the agency agreement entered into between Southwest and the travel agencies, and the airline exercised control over the efforts of the travel agencies to sell and promote air travel.¹⁴ The Court went on to hold the phrase "usual and customary business" as used in § 508.040 did not require the agent to participate in or have authority to act in all facets of a corporation's usual and customary business.¹⁵ The Court determined it would be sufficient if the facet of the business in which the agent had authority to act was a significant part of the usual and customary business of the corporation in question.¹⁶ The Court concluded the sale of airline tickets was an integral component in the daily operation of a passenger airline, and, as such, was a significant part of the airline's usual and customary business.¹⁷

A few months after deciding the Elson case, the Supreme Court of Missouri amplified upon that ruling in State ex rel. Bunting v. Koehr. The Court in Bunting encountered a fact situation similar to the one set forth in Ford Motor Co. The question concerned whether or not venue was proper against a boat motor manufacturer where the only potential office or agent for the conduct of its business in the City of St. Louis was the presence of two independent boat motor dealers selling boat motors in the city.¹⁸ The Court reconfirmed its reliance on the Restatement as accepted in Elson, then went further by quoting language in the Restatement more directly applicable to the manufacturer/dealer question:

One who receives goods from another for resale to a third person is not thereby the other's agent in the transaction: whether he is an agent for this purpose or is himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of one delivering the goods to him or is to act primarily for his own benefit.¹⁹

Since the dealers did not sell the manufacturer's products principally for the benefit of the manufacturer, the Court reasoned, the relationship between the dealers and the manufacturer for the sale of the manufacturer's products was that of buyers and seller, not agents and principal.²⁰ The Court held, furthermore, a dealer's act of extending the manufacturer's product warranty to and perfecting it for the ultimate purchaser did not support the legal conclusion that the dealer was the manufacturer's agent.²¹ On this point, the Court expressly overruled the holding in Ford Motor Co. that agency existed as a result of the dealer's performance of warranty work for the manufacturer and the purchaser.²² The Bunting Court disagreed with Ford Motor Co. because the warranty the manufacturer sold with its product established the legal relationship between the manufacturer and the purchaser, and the dealers did not alter that relationship when they undertook the repairs and/or replacements provided by the warranty.²³ Venue, therefore, was not proper against the manufacturer in the county where the manufacturer's dealers were doing business.²⁴

The importance of the Court's decision in Bunting was its interpretation of Elson. The Court in Bunting read its own decision in Elson as an implicit rejection of the Black's Law Dictionary definition of agent adopted by the Wilson court.²⁵ The Bunting Court described the Black's Law Dictionary definition of agent as insufficiently precise to determine the existence of an agency relationship.²⁶ The Bunting Court emphasized that all three attributes of agency as set forth in Elson must exist to establish an agency relationship sufficient to support corporate venue.²⁷ We have in Elson and Bunting, therefore, a beginning effort to restrict what had become a broad interpretation by Missouri courts of agency in the context of corporate venue.

The restriction on the term agency in the context of corporate venue continued in the case of State ex rel. Domino's Pizza, Inc. v. Dowd. The issue in Domino's Pizza was whether or not a franchisee was the agent of the franchisor, Domino's, for the purpose of establishing corporate venue. The court noted Domino's in Missouri only sold and supervised franchises and did not itself sell and deliver pizzas.²⁸ The court observed that the franchisees conducted their businesses primarily for their own benefit, not Domino's.²⁹ The fact, moreover, that the franchisees paid Domino's on a weekly basis a small percentage of the gross income did not create a fiduciary relationship but was evidence only of a contractual obligation between the two.³⁰ Following Elson and Bunting, the court held the franchisees did not hold a power to alter legal relations between Domino's and a third party, and the franchisees were not fiduciaries with respect to matters within the scope of any agency relationship, and therefore venue was not proper in the City of St. Louis where the franchisees were doing business.³¹

IV. A Proposed Solution

At the beginning of this article, I hypothesized a dealership located in county A. Obviously, Bunting provides clear authority for rejecting venue in county A on the basis of a dealer/manufacturer relationship. None of the above Missouri cases, however, addressed the other issue presented in the example: whether a wholly-owned subsidiary of the automobile manufacturer with an office or agent located in county A is sufficient to establish venue against the automobile manufacturer in county A. Plaintiffs in other states have argued in favor of this question with mixed results.

The Supreme Court of Alabama dealt with the wholly-owned subsidiary question in two cases: Ex parte Charter Retreat Hospital, Inc. v. Charter Retreat Hosp., Inc., and Ex parte Beard v. Talladega County Commission. In Charter Retreat Hosp., the court ruled that if the entity was the means by which the principal was able to do business in a particular county, then the entity was the agent of the principal for venue purposes.³² The court pointed out that the business of the parent corporation was the ownership and operation, for profit, of a wholly-owned hospital, and the hospital returned its profits to the parent at the end of each year.³³ Under these facts, the court stated it would be hard pressed to say the hospital in question was not the means by which the parent performed some of the business functions for which it was created.³⁴ The court in Beard went even further than Charter Retreat Hosp., holding that a railroad corporation, which owned a controlling majority interest in another railroad corporation, maintained an agent for business purposes where the latter corporation was located.³⁵

In Siruta v. Hesston Corp., the court found venue was proper against a manufacturer of farm equipment where the manufacturer had no office in Ellis County, but it marketed its products there through an independent dealer under an agreement that gave the manufacturer considerable control over the dealer's operations. An additional factor noted by the court was that the manufacturer's parent corporation financed equipment owned by the manufacturer that was displayed for sale on the dealer's lot.³⁶ While the court's analysis did not turn on the agency relationship between a subsidiary and a parent corporation, the court did rely to some extent on the interrelationship between the subsidiary and the parent in concluding the subsidiary was transacting business under the Kansas venue statute.³⁷

In Stambaugh v. International Harvester Co., the court held venue was not proper against the defendant manufacturer whose only connection to St. Clair County was the sale of its products there through independent dealers, and, therefore, the manufacturer was not "doing business" in the county under the Illinois venue statute. Plaintiff argued that many of the dealers financed their purchases through a wholly-owned subsidiary of the defendant manufacturer, but the court found the subsidiary was a distinct corporate entity engaged in a different business with different corporate purposes.³⁸ Similarly, in Gardner v. International Harvester Co., plaintiff demonstrated defendant manufacturer financed dealer purchases through its wholly-owned subsidiary, which subsidiary admittedly was doing business in St. Clair County, and accepted payments payable to that subsidiary. The court, however, was unpersuaded, determining the wholly-owned subsidiary and the manufacturer to be separate and different businesses with distinct objectives.³⁹

These cases in other jurisdictions have limited precedential value because of the different standards of venue and/or agency applied by those jurisdictions as compared to those applied by Missouri. The Illinois court in Stambaugh focused on whether the defendant manufacturer was "doing business" as set forth in the Illinois venue statute, not on whether the manufacturer had an agent in St. Clair County.⁴⁰ The Gardner court agreed with Stambaugh, interpreting Stambaugh to conclude that the subsidiary was not acting as the manufacturer's legal agent. But neither Gardner nor Stambaugh used a narrow agency test as used in Missouri.⁴¹ The Kansas court in Siruta, while also focusing on a venue statute requiring defendant to transact business in Ellis County, in effect applied a broad standard of agency by examining the extent of the manufacturer's control over the dealer's operations. Such a broad agency analysis was abandoned in Missouri with the decisions of Elson and Bunting.⁴² The Alabama cases, in Charter Retreat Hospital and Beard, were grounded on a broad definition of agency in the context of corporate venue similar to the stance taken by Missouri courts prior to Elson and Bunting.⁴³ The remaining question, therefore, is whether or not a Missouri court, when faced with the restrictive definition of agency as set forth in Elson and Bunting, would conclude that the office or agent of a wholly-owned subsidiary is also the office or agent of the parent corporation for corporate venue purposes.

This final inquiry, necessarily, depends upon the facts in each case, and the plaintiff in our example benefits from the law that the party attacking improper venue has the burden of persuasion and proof that venue is improper.⁴⁴ The court, moreover, should allow sufficient discovery on the venue issue to the same extent as permitted on motions to dismiss for lack of personal jurisdiction.⁴⁵ The normal discovery tools should be used to ascertain the relationship between the wholly-owned subsidiary and the parent corporation. Formal admissions would be a good place to start, and if defendant's response is complete denial of the agency relationship, then interrogatories and depositions should follow. Requests for production, in addition, may uncover certain intercorporate agreements pointing to an agency relationship between the subsidiary and the parent. Investigation can be crucial in obtaining documents and information helpful in resolving this venue question. An inquiry at the Secretary of State's office may reveal the parent and subsidiary have the same registered agent and registered office. Both the parent and the subsidiary may be required to file the form 10-K with the Securities and Exchange Commission, which can be obtained easily on the Internet and scoured for details about the parent-subsidiary relationship and for admissions by the two entities.⁴⁶ Even advertisements in print and television will provide a clue into how the parent and subsidiary might view their own relationship.⁴⁷ Once these discovery and investigatory tools are used, the practitioner can present to the court a full picture of the relationship between the parent and subsidiary.

The above discovery and investigation, of course, must focus on the three essential characteristics of the agency relationship as set forth in Elson. Plaintiffs are guided by the assurance in Elson that at least the existence of the agency relationship must be established, however minute the scope of that agency.⁴⁸ It stands to reason, therefore, that if some control can be demonstrated between the parent and the subsidiary, and if the subsidiary holds some power to alter legal relations between the parent and a third party, and if the subsidiary is a fiduciary with respect to some matters within the scope of the agency with the parent corporation, then an agency relationship under § 508.040 should be found to exist. Most parent corporations exercise some control over their subsidiaries, so this element of the agency analysis should not be difficult to prove. The other two characteristics of agency, however, may be more difficult to prove. In Bunting, the plaintiff was unable to establish that the dealers had the power to alter the legal relations between the manufacturer and third parties.⁴⁹ In Domino's, moreover, plaintiffs failed because they could not prove the franchisees held the power to alter legal relations between Domino's and third parties, and they could not prove the franchisees were fiduciaries with respect to matters within the scope of any agency relationship.⁵⁰

Conclusion

In the final analysis, the strength in the argument in favor of agency as between the subsidiary and parent depends on the facts. If thorough discovery and investigation is done by the plaintiff's attorney, the results may yield a sufficient basis under Missouri law for arguing that the subsidiary is an agent of the parent for corporate venue purposes.

Endnotes

1 All counties in this example are in Missouri.

2 The motion could also be for transfer of the case to any division or circuit in which it could have been brought, such as county B in the example. See § 476.410, RSMo 1994.

3 Pagliara, 549 S.W.2d 900, 903 (Mo. App. E.D. 1977).

4 Id.

5 Id., quoting Black's Law Dictionary 59 (5th ed. 1979).

6 549 S.W.2d at 901-03.

7 Cameron Mutual, 727 S.W.2d 917, 917-18 (Mo. App. S.D. 1987); Wilson, 745 S.W.2d 735, 737 (Mo. App. E.D. 1987).

8 State ex rel. Cameron Mutual Insurance Co. v. Koehr, 850 S.W.2d 374, 375-76 (Mo. App. E.D. 1993).

9 752 S.W.2d 814, 825 (Mo. App. W.D. 1988).

10 766 S.W.2d 691, 694 (Mo. App. E.D. 1989).

11 Id. at 695.

12 Id.

13 856 S.W.2d 57, 60 (Mo. banc 1973), citing Restatement (Second) ofAgency §§12, 13 and 14, respectively.

14 Id. at 61.

15 Id.

16 Id.

17 ld. at 62.

18 Bunting, 865 S.W.2d 351, 352-53 (Mo. banc 1993).

19 Id., at 354, quoting Restatement (Second) of Agency §14J (emphasis theirs).

20 Id.

21 Id.

22 Id. at 355.

23 Id.

24 Id.

25 Id.

26 Id.

27 Id.

28 Domino's, 941 S.W.2d 663 (Mo. App. E.D. 1997).

29 Id. at 666.

30 Id. at 666-67.

31 Id. at 666.

32 Charter, 538 So.2d 787, 790 (Ala. 1989), and Beard, 556 So.2d 384 (Ala. 1990).

33 Id. at 792.

34 Id.

35 556 So.2d at 386.

36 Siruta, 659 P.2d 799, 804 (Kan. 1983).

37 Id.

38 Stambaugh, 464 N.E.2d 1011, 1015 (Ill. 1984).

39 Gardner, 499 N.E.2d 430, 433 (Ill. 1986).

40 Stambaugh, 464 N.E.2d at 1013-16.

41 While the court in Gardner believed Stambaugh concluded the subsidiary was not the manufacturer's legal agent, Stambaugh did not specifically reach that conclusion. Stambaugh simply pointed to another case, Baltimore & Ohio R.R. Co. v. Mosele, 368 N.E.2d 88 (Ill. 1977), in which the court there determined that a terminal and interchange facility was not the legal agent of the railroad because the railroad did not exercise influence or control over the facility. 464 N.E.2d at 1014.

42 659 P.2d at 801-803.

43 538 So.2d at 789-90.

44 Coale v. Grady Brothers Siding and Remodeling, Inc., 865 S.W.2d 887, 889 (Mo. App. S.D. 1993).

45 See Schilling v. Human Support Services, 978 S.W.2d 368, 370 (Mo. App. E.D. 1998), citing Chromalloy American Corp. v. Elyria Foundry Co., 955 S.W.2d 1, 4 (Mo. banc 1997) for the proposition that a trial court may hear a motion for lack of personal jurisdiction on affidavits, on oral testimony, or on depositions.

46 The Form 10-K for Ford Motor Company (Ford), for example, admits the following about its relationship with Ford Motor Credit Company (Ford Credit): (1) "Ford Credit is an indirect wholly owned subsidiary of Ford"; (2) Ford and Ford Credit have the same business address for their headquarters and the same business phone number; (3) Ford and Ford Credit share common directors and officers; (4) Ford is one of the largest providers of financial services worldwide; (5) Ford divides its principal business into two segments, automotive and financial services, and Ford Credit is one of the subsidiaries through which Ford engages in financial services worldwide; (6) "Ford Credit and its subsidiaries provide wholesale financing and capital loans throughout the world to Ford retail dealerships and associated non-Ford dealerships, most of which are privately owned and financed, and purchase retail installment sale contracts and retail leases from them;" (7) a substantial majority of all new vehicles financed by Ford Credit and its subsidiaries are manufactured by Ford and its affiliates; (8) Ford Credit financed approximately 38% of new Ford cars and trucks sold or leased at retail in the United States in 1996 and 1997, and Ford Credit financed approximately 80% of new Ford cars and trucks sold at wholesale in the United States in 1996 and 1997; (9) Ford and Ford Credit are parties to a profit maintenance agreement which provides for payment by Ford to the extent required to maintain Ford Credit's earnings at specified minimum levels; (10) Ford's 10-K implies that the employees in its financial services segment, which includes Ford Credit's employees, are also employees of Ford; (11) Ford Credit's financials are rolled

into and become part of Ford's financials; and (12) the Ford General Retirement Plan provides defined benefit plans for employees of Ford Credit and its subsidiaries in the United States. See websites for obtaining Ford's Form 10-K and Ford Credit's Form 10-K at http :/www. sec.gov/Archives/edgar/data/37996/0000037996-97-000008.txt and http://www.sec.gov/Archives/edgar/data/38009/0000950124-98-001447.txt, respectively.

47 Continuing with the Ford and Ford Credit example, I note Ford's vehicle advertisements prominently include terms of financing, such as 4.9% APR, but the fine print will state often that "Ford Credit APR" is for qualified buyers and not all customers will qualify for the lowest APR. Such advertisements are evidence that Ford Credit has the authority to change the terms of financing on sales and leases which terms were advertised by Ford in its promotions. At a minimum, such advertisements reflect Ford's cloaking of Ford Credit with apparent authority to act as Ford's fiduciary in approving candidates for financing.

48 856 S.W.2d at 61.

49 865 S.W.2d at 355.

50 941 S.W.2d at 666.

James A. Endicott is an attorney with the law offices of William H. McDonald & Associates, P.C., a Springfield firm, practicing in the areas of product liability, personal injury, and business litigation. He received a B.A. in English from Northeast Missouri State University in 1980 and a J.D. from the University of Missouri-Columbia in 1983. He also received a Master of Arts in English Literature from Rutgers-The State University of New Jersey in 1991.

Copyright © 1999, James A. Endicott