author: CAMPOS, District Judge.

text:
    Jo ALLEN, d/b/a/ Automatic Business Systems, Plaintiff, v. TOSHIBA CORPORATION, et al., Defendants.
    No. CIV-81-994 C.
    United States District Court, D. New Mexico.
    June 15, 1984.

      George M. Moore, Albuquerque, N.M., for plaintiff. ■
    John J. Witmeyer, III and. Michael L. Anania, Ford, Marrin, Esposito & Witmeyer, New York City, Civerolo, Hansen & Wolf, P.A., Richard Civerolo, Kathy Levy, Albuquerque, N.M. for Toshiba.
    Gregory D. Huffaker, Jr., Poole, Tinnin & Martin, Albuquerque, N.M., J. William Hayton, Bell, Boyd & Lloyd, Chicago, 111., for Underwriters’ Laboratories.
   MEMORANDUM OPINION AND ORDER

CAMPOS, District Judge.

This matter comes before the Court on three Motions to Dismiss filed separately by the various Defendants. The Plaintiff has also filed a Motion to Strike Affidavits as a partial response to the Defendants’ legal arguments. The Court has considered the parties’ memoranda, reviewed the materials accompanying the Motions, and examined the legal authority which is germane to the issues. It is the Court’s conclusion that the Defendants’ Motions are, for the most part, well taken and the relief which has been requested should be substantially granted.

This case arises from the dissolution of a business relationship between the Plaintiff, Jo Allen d/b/a Automatic Business Systems (“ABS”) and one of the Defendants, Toshiba America, Inc. (“TAI”). In 1977, the Plaintiff was appointed by TAI to be an authorized photocopier dealer in Albuquerque, New Mexico. The Plaintiff purchased photocopies and reprographic materials from TAI. TAI purchased the photocopiers from the manufacturer, the Defendant Toshiba Corporation (“Toshiba”). These purchases were transacted in Japan. TAI is a wholly owned subsidiary of Toshiba.

ABS continued doing business as a TAI dealership through 1978, 1979, and 1980. The Plaintiff offered various models of photocopiers to its customers. It is alleged that the Toshibafax copiers, by reason of defective design and manufacture, developed serious mechanical problems, that they “had a tendency to catch on fire and emit smoke” and further “made poor quality copies.” Civil Complaint, Second Cause of Action, ¶ VI. The Plaintiff claims that “[t]he defects in the machines severely and substantially impaired their value to Allen inasmuch as Allen was in the business of selling photocopy machines to business customers.” Id., Twelfth Cause of Action, If VI. The defects, together with various other “problems” allegedly encountered in the use of the copy machines, constitute the core of the Plaintiff’s claims for breach of warranties, fraudulent misrepresentations, and various torts brought under products liability theories.

The Plaintiff derives, from this fact pattern, twelve causes of action which are as follows: (1) breach of contract; (2) intentional faulty design, manufacture, assembly and testing; (3) negligent design, manufacture, assembly and testing; (4) breach of express warranty; (5) breach of implied warranty of fitness for purpose; (6) breach of implied warranty for merchantability; (7) negligent failure to warn; (8) action for fraudulent misrepresentation; (9) action for fraud in non-disclosures of material facts; (10) action for deceit in conduct, transactions and operations; (11) negligent misrepresentation; and (12) commercial revocation of previous agreements and obligations. The Defendants have moved to dismiss all of the claims.

The Complaint also joins as party Defendants Sidney Reisch and Underwriters Laboratories, Inc. The Defendant Underwriters is a Delaware corporation with its principal place of business in Illinois. It is alleged that Underwriters was responsible for the testing and evaluation of Toshiba-fax photocopiers. The Defendant Reisch is an employee of TAI who was formerly national sales manager of the business equipment division, copier operations, and is presently the vice president and general manager of the copier products division. Reisch is sued individually for alleged acts committed in his corporate capacity.

The Defendant Reisch has filed a Motion to Dismiss asserting the Court’s lack of personal jurisdiction over him for this action. The uncontroverted affidavit of Mr. Reisch avers that he has never been a resident of New Mexico, that he has never owned real property within the state, that he derives no personal income from New Mexico, that any business transactions with the Plaintiff were conducted solely within the scope of his employment with TAI, and finally that he owns no stock in either TAI or Toshiba. Mr. Reisch’s affidavit is supported by the allegations concerning his activities, found in the Complaint.

The Complaint alleges as pertinent to this Defendant that:

Defendant Sid Reisch (“Reisch”) is a citizen of the United States, residing in the State of California, and was and is at all times material to these pleadings, at first National Sales Manager of TAI and subsequently its Vice-President. In those capacities he was and is at all times material to this action transacting business and contracting to supply goods and manufactured products within the State of New Mexico. Defendant Reisch, at all times which are material to these pleadings derived and still continues to derive substantial compensation from the sales of goods and manufactured products sold and used within the State of New Mexico.

Civil Complaint, First Cause of Action, If VI (emphasis added). The Complaint also. alleges that “the Defendants and each of them were at all times herein mentioned, agents of each of the remaining Defendants and were at all times herein mentioned acting within the scope and agency of said employment.” Id. at 11X (emphasis added). These two references, aside from the general allegations, constitute the sum total of the specific allegations concerning Mr. Reisch. Thus, it can safely be said that Reisch’s contacts with New Mexico, if any, were purely in a corporate capacity, that there is neither allegation nor indication that he performed any commercial acts of a personal nature outside the scope of his employment.

The Tenth Circuit has recognized, as an equitable principle, what has come to be known as the fiduciary or corporate shield doctrine. See Wilshire Oil Co. v. Riffe, 409 F.2d 1277, 1281-82 (10th Cir.1969). See also Segil v. Gloria Marshall Management Co., 568 F.Supp. 915, 918 (D. Utah 1983). A succinct statement of the rule was recently formulated by the Second Circuit.

[I]f an individual has contact with a particular state only by virtue of his acts as a fiduciary of the corporation, he may be shielded from the exercise, by that state, of jurisdiction over him personally on the basis of that conduct. Thus, his conduct, although it may subject him to personal liability, may not form the predicate for the exercise of jurisdiction over him as an individual.

Marine Midland Bank v. Miller, 664 F.2d 899, 902 (2d Cir.1981); See also Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d 902, 906 (1st Cir.1980) (“The general rule is that jurisdiction over the individual officers of a corporation may not be based merely on jurisdiction over the corporation.”); Bloom v. A.H. Pond Co., 519 F.Supp. 1162, 1170 (S.D.Fla.1981); Quinto v. Legal Times of Washington, Inc., 506 F.Supp. 554, 558 (D.D.C.1981); PSC Professional Services Group, Inc. v. American Digital Systems, 555 F.Supp. 788, 791 n. 5 (E.D.Pa.1983); Quinn v. Bowmar Publishing Co., 445 F.Supp. 780, 786 (D.Md.1978); but see Columbia Briargate Co. v. First National Bank, 713 F.2d 1052, 1058-61 (4th Cir.1983). The equitable rationale which underlies the doctrine is that “it is unfair to force an individual to defend a suit brought against him personally in a forum with which his only relevant contacts are acts performed not for his own benefit but for the benefit of his employer.” Marine Midland Bank v. Miller, 664 F.2d at 902.

In the present case, there are no allegations to tie Reisch to this forum in a personal capacity. It is uncontroverted that what contacts he may have had with New Mexico related solely to his position with TAI and were conducted entirely within the province of his employment. Under these circumstances and in light of the law of this circuit, the exercise of personal jurisdiction over this Defendant would stretch beyond the bounds of due process. The Defendant Reisch’s motion to dismiss will be granted.

TAI has moved to dismiss, inter alia, the Second, Third, and Seventh Causes of Action on the basis that tort theories of liability may not be utilized to recover for purely economic injury. This question of substantive law is, of course, to be resolved by recourse to the law of New Mexico. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). As the Tenth Circuit has noted, “ ‘[t]he responsibility of federal courts in matters of local law is not to formulate the legal mind of the state, but merely to ascertain and apply it.’ Yoder v. Nu-Enamel Corp., 117 F.2d 488, 489 (8th Cir.).” Hardy Salt Co. v. Southern Pacific Transportation Co., 501 F.2d 1156, 1163 (10th Cir.1974).

The New Mexico appellate courts have not addressed the issue. This district has, however, predicted that New Mexico would follow the majority rule and would not allow recovery for purely economic loss under a theory of strict liability. See Garrett v. Joan of Arc Co., Civ. No. 80-344-HB, slip op. at 2-3 (D.N.M. January 24, 1983). The Defendants would have this Court dismiss those causes of action which sound in tort, resonating both in negligence and strict products liability.

The central dichotomy between those courts which have permitted recovery in tort for economic injury and those which have not may be traced to two seminal cases decided in 1965. The Supreme Court of New Jersey opined in Santor v. A and M Karagheusian, 207 A.2d 305 (N.J.1965) that a cause of action under strict liability could be utilized to recover economic losses. The Supreme Court of California rejected this position several months later in the landmark decision of Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (Cal.1965). The heart of the opinion is Chief Justice Traynor’s analysis of the relationship between the laws of contract and tort.

The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the ‘luck’ of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appro- . priately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer’s business unless he agrees that the product was designed to meet the consumer’s demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer .agrees that it will. Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.

Id. 45 Cal.Rptr. 17, at 151-152 (emphasis added). By far, the majority of courts have followed Seely and held that economic losses are not recoverable under theories of recovery based on the law of torts. See Jones & Laughlin Steel v. Johns-Manville Sales Corp., 626 F.2d 280, 287 n. 13 (3d Cir.1980) (collecting the cases and jurisdictions which have followed Seely). See also Bright v. Goodyear Tire & Rubber Co., 463 F.2d 240, 242 (9th Cir.1972).

This case involves the recovery of business losses, an economic injury which is unrelated to any claim of personal, that is physical injury suffered by the Plaintiff. Indeed, there is no claim that the Plaintiff has suffered any physical injury. Absent some contrary indication from the appellate courts of New Mexico, this Court will not extend tort theories of liability into the economic losses. The better-reasoned authority and the vast majority of cases which have addressed the issue stand firmly against the proposition. Therefore, the Second, Third, and Seventh Causes of Action will be dismissed.

The Defendant Toshiba has filed a Motion to Dismiss which is based upon an alleged absence of personal jurisdiction. There is no dispute that TAI has submitted itself to the jurisdiction of New Mexico’s courts. As previously noted, TAI is a wholly-owned subsidiary of Toshiba, the parent corporation. Even in the absence of direct contacts between Toshiba and this forum, personal jurisdiction may, nevertheless, be acquired through the subsidiary where the relationship between the parent and the subsidiary is one of agency or where the subsidiary is' merely an alter ego of the parent. See generally, R. Casad, Jurisdiction in Civil Cases 113.02[2][b][ix] at 3-83 to 3-88 (1983); 2 J. Moore, J. Lucas, H. Fink, & H. Thompson, Moore’s Federal Practice 114.25[6] at 4-270 to 479 (2d ed. 1984).

At the outset it is necessary to address the Motion to Strike Affidavits filed by the Plaintiff. The Motion seeks to strike the affidavits of Sidney Reisch and Toshimitsu Kitagawa, filed by Toshiba in support of its jurisdictional motion to dismiss, for an alleged failure to comply with Fed.R.Civ.P. 56(e). The Rule provides that “[sjupporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein.”

The Tenth Circuit has held, in the context of a motion for summary judgment, that “generalized, conclusionary [sic], unsubstantiated, non-personal affidavits are insufficient to successfully oppose a motion for summary judgment.” Stevens v. Barnard, 512 F.2d 876, 879 (10th Cir.1975). To this may be added that the affiant’s competence must appear affirmatively in the affidavit. See F.S. Bowen Electric Co. v. J.D. Hedin Construction Co., 316 F.2d 362, 364 (D.C.Cir.1963). The affidavits at issue are sufficient, in light of these standards, to present a challenge to the allegations contained in the Complaint. The competence of the affiants is affirmatively stated and their averments are specific and non-conclusional.

The jurisdictional “facts,” upon which this Court’s decision must be based, reveal that Toshiba is not licensed to do business in New Mexico, does not own or lease any real property within the state, and maintains no bank accounts, offices, employees, or places for the regular conduct of business in New Mexico. Kitagawa Affidavit ¶¶ 2, 3, 4, 5. Toshiba, as a business entity, has not engaged in any transactions with ABS. Id. 116. The Plaintiff states that “[although at all times the marketing representative was indicated as Toshiba America, Inc. I understood I was dealing with Toshiba Corporation because of the various and sundry documents which were furnished me.” Jo Allen Affidavit If 3. There is no question that Toshiba was the manufacturer of the photocopiers which were marketed by TAI. Many of the “documents” to which the Affidavit refers are concerned with the specifications for the various machines. The Plaintiff also asserts that “whenever I dealt with any representative of Toshiba America, Inc., I was made to understand that all direction and all activity for control of Toshiba sales, including the models that would be marketed in the United States, the price to be charged by TAI, the suggested list price for dealers and all other aspects of the product were established in Japan and not in the United States.” Id. ¶ 8.

The Complaint alleges that at all times TAI was “acting as the agent for Defendant Toshiba Corporation.” Civil Complaint, First Cause of Action ¶ XI. This allegation is controverted by opposing affidavit. Sidney Reisch Affidavit, February 1, 1982, ¶ 6. TAI is a wholly owned subsidiary of Toshiba, but TAPs management is separate and independent, TAI is separately incorporated, and Toshiba has no control over the internal affairs and daily operational management of TAI. Id. ¶ 6; Kitagawa Affidavit ¶ 8. Toshiba also avers that the two corporations have “separate directors and officers, keep separate corporate records, file separate tax returns, and have separate accountants.” Id. II7; Kitagawa Affidavit 119. This statement of the interrelationships between Toshiba, TAI, the Plaintiff and New Mexico constitutes the factual core of the jurisdictional issue.

The existence vel non of jurisdiction in personam is analyzed under state law in suits brought under the federal grant of diversity jurisdiction. See Quarles v. Fuqua Industries, 504 F.2d 1358, 1361 (10th Cir.1974); Wilshire Oil Co. v. Riffe, 409 F.2d at 1280 n. 4; Leney v. Plum Grave Bank, 670 F.2d 878, 879 (10th Cir.1982); O’Hare International Bank v. Hampton, 437 F.2d 1173, 1175 (7th Cir.1971). Where the alleged jurisdictional basis is controverted, the Plaintiff must sustain the burden of proof on the jurisdictional issue. See State, ex rel. Anaya v. Columbia Research Corp., 92 N.M. 104, 105, 583 P.2d 468 (1978); Aetna Casualty and Surety Co. v. Bendix Control Division, 101 N.M. 235, 680 P.2d 616, 23 S.B.B. 576, 578 (Ct.App.1984); See also Forsythe v. Overmyer, 576 F.2d 779, 781 (9th Cir. 1978); Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d at 904 (1st Cir.1980); Hoffman v. United Telecommunications, Inc., 575 F.Supp. 1463, 1469 (D.Kan.1983). The question thus becomes whether the Plaintiff has sustained this burden under New Mexico law and under the federal due process “minimum contacts” requirement.

Personal jurisdiction over Toshiba is founded upon the New Mexico Long Arm Statute.

A. Any person, whether or not a citizen or resident of this State, who ... does any of the acts enumerated in this subsection thereby submits himself ... to the jurisdiction of the courts of this State as to any cause of action arising from:
(1) the transaction of any business within this state; ...
(3) the commission of a tortious act within this state; ...
B. Service of process may be made upon any person subject to the jurisdiction of the courts of this State under this section by personally serving the summons upon the defendant outside this State and such service has the same force and effect as though service had been personally made within this State.
C. Only causes of action arising from acts enumerated in this section may be asserted against a defendant in an action in which jurisdiction is based upon this section.

N.M.Stat.Ann. § 38-1-16 (1978). The inquiry into the presence of personal jurisdiction under á state long-arm statute is bipartite. The Fifth Circuit has offered a succinct statement of the analysis.

In deciding whether the state jurisdictional statute confers jurisdiction over a nonresident defendant in a diversity suit, it must be determined that (1) the defendant is in fact amenable to service under the statute (state law of the forum controls- this question), and (2) if the state statute has been complied with, then federal law must be applied to determine whether assertion of jurisdiction over the defendant comports with due process.

Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir.1983) (quoting Walker v. Newgent, 583 F.2d 163, 166 (5th Cir. 1978)); See also Leney v. Plum Grove Bank, 670 F.2d at 879.

The Court has already ruled that those causes of action framed by the law of torts are not cognizable in New Mexico. Therefore, if the Plaintiff is to bring Toshiba within the ambit of the New Mexico long-arm statute, jurisdiction must be predicated upon Section 38-l-16(A)(l), “the transaction of any business within the state” provision.

New Mexico has extended the reach of § 38-l-16(A)(l) to the limit of due process permitted by the Constitution. See United Nuclear Corp. v. General Atomic Co., 91 N.M. 41, 42 (1977). The question thus becomes whether, to employ the well-worn shibboleths of personal jurisdiction, there exist such minimum contacts, as reflected by the nature and quality of the defendant’s intra-forum acts, that “the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’ ” International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940)); See also Helicopteros Nacionales de Colombia v. Hall, — U.S. -, -, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984). “In judging minimum contacts, a court properly focuses on ‘the relationship among the defendant, the forum, and the litigation.’ ” Keeton v. Hustler Magazine, Inc., — U.S. -, -, 104 S.Ct. 1473, 1478, 79 L.Ed.2d 790 (1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 2579, 53 L.Ed.2d 683 (1977).

There is no talisman or rote incantation which unlocks the jurisdictional door for suits against non-resident defendants. This is especially true in the area of complex corporate relationships. As perceptively noted by one court:

It would be helpful were the law to provide some grand jurisdictional ledger sheets upon which formal points such as these [minimum contacts] could be assigned weight and totted up. That is not possible in our real world where so much depends on nuances, on a sense of interrelationships and on a realistic appraisal of subtle economic and power connections.

Bulova Watch Co. v. K. Hattori & Co., Ltd., 508 F.Supp. at 1340. In determining the true commercial nexus between the forum and a corporate defendant, “realism, not formalism, should be dominant; the problem must be solved in the light of commercial actuality, not in the aura of juristic semantics.” Echeverry v. Kellogg Switchboard & Supply Co., 175 F.2d 900, 903 (2d Cir.1949). “[T]he ‘minimum contacts’ test of International Shoe is not susceptible of mechanical application; rather, the facts of each case must be weighed to determine whether the requisite ‘affiliating circumstances’ are present.” Kulko v. California Superior Court, 436 U.S. 84, 92, 98 S.Ct. 1690, 1697, 56 L.Ed.2d 132 (1978) (citing Hansen v. Denckla, 357 U.S. 235, 246, 78 S.Ct. 1228, 1235, 2 L.Ed.2d 1283 (1958); See also Shanks v. Westland Equipment & Supply Co., 668 F.2d 1165, 1166 (10th Cir.1982); Premier Corp. v. Newsom, 620 F.2d at 222.

In the case at bar Toshiba’s contacts are virtually nonexistent. Therefore, the jurisdictional issue hinges upon the relationship between Toshiba and its subsidiary, TAI. An initial framework for the discussion which follows is provided by the Restatement.

Judicial jurisdiction over a subsidiary corporation does not of itself give a state judicial jurisdiction over the parent corporation. This is true even though the parent owns all of the subsidiary’s stock. So a state does not have judicial jurisdiction over a parent corporation merely because a subsidiary of the parent does business within its territory.
If the subsidiary corporation does an act, or causes effects, in the state at the direction of the parent corporation or in the course of the parent corporation’s business, the state has judicial jurisdiction over the parent to the same extent that it would have had such jurisdiction if the parent had itself done the act or caused the effects.
Judicial jurisdiction over a subsidiary corporation will likewise give the state judicial jurisdiction over the parent corporation if the parent so controls and dominates the subsidiary as in effect to disregard the latter’s independent corporate existence.
Even in the absence of a stock relationship between a local and a foreign corporation, jurisdiction over the foreign corporation has sometimes been exercised on the basis of activities that the local corporation has conducted in the state as the agent of the foreign corporation. The existence of an agency relationship may be found When the foreign corporation consigns goods to the local corporation and exercises control over the latter with respect to price, merchandising or advertising.

Restatement (Second) of Conflicts of Laws § 52 Comment b (1971). See also 2 Moore’s Federal Practice, supra, 114.25[b] at 4-272. Thus, the nature of the relationship between the parent and the subsidiary is the critical point of inquiry; for it will determine whether acts of the subsidiary may be imputed to the parent for the purpose of establishing personal jurisdiction.

The general rule, as suggested by the Restatement is that “a foreign corporation is not subject to the jurisdiction of a forum state merely because its subsidiary is present or doing business there; the mere existence of a parent-subsidiary relationship is not sufficient to warrant the assertion of jurisdiction over the foreign parent.” Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1159 (5th Cir.1983); See also Quarles v. Fuqua Industries, Inc., 504 F.2d 1358, 1362 (10th Cir.1974); Ryder Truck Rental v. Acton Foodservices Corp., 554 F.Supp. 277, 279 (C.D.Cal.1983). This is true even where the parent is the sole owner of the subsidiary. See Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d at 905. The rule stems from the venerable opinion of Justice Brandeis in Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S.Ct. 250, 69 L.Ed. 634 (1925).

It is incumbent upon the Plaintiff to overcome the presumption of corporate separateness either by establishing an agency relationship, see Kramer Motors, Inc. v. British Leyland Ltd., 628 F.2d 1175, 1177 (9th Cir.1980), or by “clear evidence that the parent in fact controls the activities of the subsidiary.” Escude Cruz v. Ortho Pharmaceutical Corp., 619 F.2d at 905; see also Hargrave v. Fibreboard Corp., 710 F.2d at 1161 (subsidiary the “alter-ego” of the parent); Quarles v. Fuqua Industries, Inc., 504 F.2d at 1362 (“alter-ego” theory); cf. O.S.C. Corp. v. Toshiba America, Inc., 491 F.2d 1064, 1067 (9th Cir.1974). These are the general principles which must illuminate the case at bar.

The law of New Mexico controls the issue of corporate domination. S'ee Quarles v. Fuqua, 504 F.2d at 1362; Hargrave v. Fibreboard Corp., 710 F.2d at 1161. The recent case of Cruttenden v. Mantura, 97 N.M. 432, 640 P.2d 932 (1982), discusses under what circumstances a subsidiary is merely an “alter ego” of the parent. In the Mantura case, the Supreme Court of New Mexico reversed an order which held Marriott Corporation liable for the debts of its wholly-owned subsidiary Marriott International Corporation. The plaintiff (Cruttenden) was the successor, through garnishment, to Mantura’s rights against Marriott International Corporation. Mantura had a contract with Marriott Corporation which Marriott Corporation later assigned to Marriott International Corporation when the latter was formed. Marriott Corporation formed Marriott International Corporation to handle Marriott Corporation’s overseas activities. Marriott Corporation had given to Marriott International Corporation all of the latter’s assets (i.e., Marriott Corporation’s overseas business). According to the trial court, this established that Marriott International Corporation was under the sole and direct control of Marriott Corporation, and the two would be considered indivisible and identical. Thus, according to the trial court, Marriott Corporation was responsible for Marriott International Corporation’s obligations to Mantura and, in turn, to Cruttenden.

The Supreme Court of New Mexico reversed, holding that there was an insufficient factual showing that Marriott International Corporation could be considered the “alter-ego” of Marriott Corporation. The court noted that “[t]o find that a subsidiary is the alter ego of the parent corporation, it must be established that the parent control is so complete as to render the subsidiary an instrumentality of the parent.” Cruttenden v. Mantura, 97 N.M. at 434, 640 P.2d 932 (citing Edgar v. Fred Jones Lincoln Mercury, 524 F.2d 162, 166 (10th Cir.1975)). The Mantura court proceeded to list ten factors, drawn from Fish v. East, 114 F.2d 177, 191 (10th Cir.1940), which the trial court should “consider in determining whether or not to recognize the corporations as separate entities.” Cruttenden v. Mantura, 97 N.M. at 435, 640 P.2d 932.

Some guidelines to be followed in determining if the alter ego theory is appropriate are, whether:
“(1) The parent corporation owns all or majority of the capital stock of the subsidiary.
(2) The parent and subsidiary corporations have common directors or officers.
(3) The parent corporation finances the subsidiary.
(4) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.
(5) The subsidiary has grossly inadequate capital.
(6) The parent corporation pays the salaries or expenses or losses of the subsidiary.
(7) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to it by the parent corporation.
(8) In the papers of the parent corporation, and in the statements of its officers, ‘the subsidiary’ is referred to as such or as a department or division.
(9) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take direction from the parent corporation.
(10) The formal legal requirements of the subsidiary as a separate and indepen- ' dent corporation are not observed.”

Id. at 434-35, 640 P.2d 932.

The Court has considered these factors in relation to the facts presently before it. The separation between Toshiba and TAI, though perhaps merely formal, is not fictional, but rather is merely part of a corporate reality. See Cannon Manufacturing Co. v. Cudahy Co., 267 U.S. at 337, 45 S.Ct. at 251. The record indicates that TAI and Toshiba have separate directors and officers, that the two corporate entities are separately and independently managed, that the parent has no control over the internal affairs of the subsidiary, and that the corporate records and business management are distinct. There is no competent evidence before the Court that TAI is financed by Toshiba or is undercapitalized or that there is any “substantial intertwining” in their respective corporate affairs. See Hargrave v. Fibreboard Corp., 710 F.2d at 1162. This Court, under the rigorous standard of Mantura, simply cannot conclude that TAI is the alter ego of Toshiba.

There are also certain allegations that Toshiba either controlled or participated in the foreign marketing of the photocopiers. As one court has observed, “[f]oreign-actswith-forum-effects jurisdictional principle ‘must be applied with caution, particularly in an international context.’ ” Kramer Motors, Inc. v. British Leyland, Ltd., 628 F.2d at 1178 (quoting Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1341 (2d Cir.1972)). Kramer Motors concerned an automobile dealer, Kramer Motors, that lost its supply of foreign automobiles after the United States importer subsidiary of the foreign corporation, which manufactured and marketed those automobiles, revised its marketing plan and cancelled the automobile dealer’s dealership. Id. at 1176. The automobile dealer sued three British corporations: British Leyland International, Ltd. (BLIL) (the overseas marketer of British Leyland products), British Leyland Motor Corporation, Ltd. (BLMC) (a holding company within the British Leyland chain), and British Leyland Ltd. (BLL) (the top holding company for separate manufacturers and marketers of British Leyland Products). Id. at 1176 n. 2.

The Court of Appeals, in affirming the district court’s dismissal for want of jurisdiction, as to all three defendants held that:

The record discloses no act by BLL or BLMC which gave rise to this cause of action. BLIL, however, did approve (an act) the marketing scheme which when implemented eventually caused Kramer to lose its supply of Triumph automobiles (the effect). BLIL and BLMI [the States importer] obviously shared an interest in promoting British Leyland car sales. But the British parent’s mere approval of a marketing scheme developed by its United States subsidiary does not constitute the kind of deliberate forum protection-involving act which the law requires.

Id. at 1178. In short, even if the foreign manufacturer affirmatively approved a marketing effort by its American subsidiary, the manufacturer is still not subject to jurisdiction for the economic consequences caused by that decision.

Finally, the evidence does not establish an agency relationship. TAI, which purchased the photocopiers in Japan, was merely marketing the products in New Mexico. The “owner’s manuals,” pointed to by the Plaintiff, which were provided by TAI are merely explanations of the products which TAI was selling and ABS was purchasing. These and the other documents provided to ABS simply do not support the Plaintiff’s conclusory statement that TAI was merely Toshiba’s agent. The Plaintiff has failed to carry the burden of proof on an agency theory of personal jurisdiction.

As measured by the minimum contacts standard of due process the forum contacts of Toshiba are insufficient, as a matter of law, for this Court to exercise personal jurisdiction over a non-resident foreign corporation. The Court has considered the other issues raised by TAI in its Motion to Dismiss and finds that they should be denied.

IT IS, THEREFORE, ORDERED that the Motion to Dismiss filed by the Defendant Sidney Reisch shall be, and hereby is, granted.

IT IS FURTHER ORDERED that the Second, Third, and Seventh Causes of Action shall be, and hereby are, dismissed.

IT IS FURTHER ORDERED that the Motion to Dismiss filed by the Defendant Toshiba Corporation shall be, and hereby is, granted.

      . The Affidavits and accompanying materials have been considered only in connection with the question of personal jurisdiction. Since there is no statutory mode for the resolution of a motion raised pursuant to Fed.R.Civ.P. 12(b)(2), the Court is left free to formulate its own method for determination. See Gibbs v. Buck, 307 U.S. 66, 71-72, 59 S.Ct. 725, 728-29, 83 L.Ed. 1111 (1939); Schramm v. Oakes, 352 F.2d 143, 149 (10th Cir.1965). The Court finds that the affidavits and discovery materials submitted with the Motion constitute a sufficient basis for its conclusions. See Simon v. United States, 644 F.2d 490, 497 (5th Cir.1981) ("In resolving this issue [personal jurisdiction over the defendant], not only the well-pleaded allegations of the complaint may be considered, but also factual showings made by way of depositions, affidavits, and exhibits adduced in the trial of the issue.”)

      . The particular models involved in this dispute are the Models BD 601, BD 702A, BD 707, BD 728, and BD 909 Toshibafax photocopy machines.

      . For example, the Plaintiff claims that "the repair frequency was high;” "replacement parts were not readily available;" "the cost of maintenance and supplies was inordinate as the machines did not perform adequately;” "the paper-feed system was not excellent;” and "the copy machines experienced frequent paper jams.” Civil Complaint, Eighth Cause of Action, ¶ V. These allegations relate to the misrepresentation claims, but also indicate an aspect of the Plaintiffs dissatisfaction with the performance of the copiers.

      . Although presented with every opportunity by the Court to supplement the Complaint with additional allegations gleaned from discovery, the Plaintiff has done nothing.

      . It is, of course, beyond contravention that “[i]n diversity suits ... a federal court can obtain personal jurisdiction over nonresidents by complying with the long-arm statute of the state in which it sits.” Wilskire Oil Co. of Texas v. Riffe, 409 F.2d 1277, 1279 n. 1 (10th Cir.1969); See also Premier Corp. v. Newsom, 620 F.2d 219, 221-22 (10th Cir.1980). At the time this suit was filed Fed.R.Civ.P. 4(d)(7) provided that "it is also sufficient if the summons and complaint are served in the manner prescribed by ... the law of the state in which the district court is held for the service of summons or other like process upon any such defendant in an action brought in the courts of general jurisdiction of that state.” The 1983 Amendments to Rule 4 eliminated this provision. See generally 2 J. Moore, J. Lucas, H. Fink, & C. Thompson, Moore’s Federal Practice ¶ 4.08[3] at 4-99 (1984). Fed.R.Civ.P. 4(c)(2)(C)(i), which replaces Rule 4(d)(7), now provides that "[a] summons. and complaint may be served upon a defendant of any class referred to in paragraph (1) or (3) of subdivision (d) of this rule—
      (i) pursuant to the law of the State in which the district court is held for the service of summons or other like process upon such defendant in an action brought in the courts of general jurisdiction of that State.”

      . For a discussion of the hierarchical character of Japanese economic organization and an interesting observation concerning the cultural-linguistic reflection of this hierarchy as it pertains to Japanese companies, see Bulova Watch Co. v. K. Hattori & Co., Ltd., 508 F.Supp. 1322, 1339 (E.D.N.Y.1981).

      . Mr. Kitagawa is the Manager, Legal Staff, Administration Division of Toshiba Corporation and would be competent to testify as to the corporate structure of Toshiba.

      . Since the well-pleaded allegations in the Complaint are, for the purposes of a motion to dismiss, regarded as true, certain "facts” for jurisdictional purposes may or may not constitute evidentiary facts. This is the case at least insofar as the allegations are uncontroverted by the non-movant’s affidavits. See Black v. Acme Markets, Inc., 564 F.2d 681, 683 n. 3 (5th Cir. 1977).

        . The Court has been solicitous, perhaps overly so, of the difficulty a Plaintiff may encounter in establishing a jurisdictional nexus between a parent and subsidiary. The Plaintiff in this case has had an extended period of time to engage in discovery which could supplement the present record. Plaintiffs counsel has been invited to supplement his jurisdictional arguments and to adduce additional facts for the Court’s consideration. No supplementation has been forthcoming.

      . The Court rejects a second theory proffered by the Plaintiff which is premised upon the placement, by Toshiba, of the photocopiers into the stream of commerce. "The stream-of-commerce theory developed as a means of sustaining jurisdiction in products liability cases in which the product had traveled through an extensive chain of distribution before reaching the ultimate consumer.” DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 285 (3d Cir.1981). The seminal case in this area, Gray v. American Radiator & Standard Sanitary Corp., 22 Ill.2d 432, 176 N.E.2d 761 (Ill.1961), arose in the context of products liability. Recently, the New Mexico Court of Appeals read the long-arm statute’s "commission of a tortious act within this state” provision to include "negligent acts which occur outside New Mexico which cause injury within New Mexico.” Roberts v. Piper Aircraft Corp., 100 N.M. 363, 366, 670 P.2d 974, 977 (Ct.App.1983). The limitation of the stream of commerce theory to those cases where tortious conduct forms the basis for the claim is sound. In the context of purely economic losses resulting from unhappy business relationships it is even less appropriate, than in the case of personal injuries, for a "seller of chattels ... [to] appoint the chattel his agent for service of process.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286; 296, 100 S.Ct. 559, 566, 62 L.Ed.2d. 490 (1980). The stream of commerce theory is, to some extent, predicated upon the foreseeability that a product, once marketed, may cause personal injury in a distant forum. As the Supreme Court has noted, however, “the foreseeability that is critical to the due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather, it is that the defendant’s conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.” Id. at 297, 100 S.Ct. at 567 (citations omitted). This Court will not extend, the rationale of Gray beyond the context of a tort claim for personal injury. See H. Ray Baker, Inc. v. Associated Banking Corp., 592 F.2d 550, 555 (9th Cir.1979); Cf. Iowa Electric Light & Power Co. v. Atlas Corp., 603 F.2d 1301, 1306 (8th Cir.1979); but cf. Stabilisierungsfonds Fur Wein v. Kaiser Stuhl Wine Distributors, 647 F.2d 200 (D.C.Cir.1981).

      . As one court has noted, "Cannon ... stands for the proposition that so long as a parent and subsidiary maintain separate and distinct corporate entities, the presence of one in a forum state may not be attributed to the other." Hargrave v. Fibreboard Corp., 710 F.2d at 1160.

      . The court also noted that "if sufficient separateness between a parent corporation and a subsidiary is maintained, service on the parent corporation does not subject the subsidiary corporation to local jurisdiction.” Cruttenden v. Mantura, 97 N.M. at 434, 640 P.2d 932 (citing State v. MacPherson, 62 N.M. 308, 309, 309 P.2d 981 (1957)). The court’s analysis is equally applicable to the present case where service upon the subsidiary, valid because of the subsidiary’s contacts, is used to assert jurisdiction over the parent.'


source: Caselaw Access Project

author: KISER, District Judge.

license: Public Domain

text:
    T.H. KEMPER, Trustee of the Gopher Stockholders’ Liquidating Trust, successor to Gopher, Incorporated, Plaintiff, v. UNITED STATES of America, Defendant.
    Civ. A. No. 83-0873-R.
    United States District Court, W.D. Virginia, Roanoke Division.
    June 27, 1984.

      William B. Poff, James B. Massey, III, Woods, Rogers & Hazlegrove, Roanoke, Va., for plaintiff Kemper.
    Jennie L. Montgomery, Asst. U.S. Atty., Roanoke, Va., D. French Slaughter, III, Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C., for defendant.
   MEMORANDUM OPINION

KISER, District Judge.

This is a suit for refund of federal income taxes pursuant to 28 U.S.C. § 1346(a)(1). The matter is before the Court on cross-motions for summary judgment.

The facts of the case are not in dispute and are briefly as follows. The Plaintiff is the trustee of a liquidating trust for Gopher, Inc. which prior to October 16, 1981, was named Mick-or-Mack Stores Co., Inc. Mick-or-Mack operated a wholesale and retail grocery business until October 12, 1981. On that date, the corporation sold substantially all of its assets to a third party pursuant to a plan of complete liquidation.

In the tax year of 1974, the company had adopted the half-year averaging convention to calculate the depreciation deduction with respect to depreciable assets acquired or disposed of during the year. Under the convention, the corporation deducted as a depreciation allowance with respect to each depreciable asset it acquired or disposed of during a taxable year an amount equal to one-half of the deduction which would have been allowable had the asset been in service during the entire taxable year, regardless of when during the tax year the asset was acquired or disposed of.

The taxable year which is the subject of this action was the corporation’s 1981 tax year which ended January 2, 1982. For this year in question, the corporation did not utilize its previously adhered to half-year averaging convention with respect to depreciation of its assets sold on October 12, 1981. Instead, the depreciation deduction was based on the actual number of months during the year that those assets were in service (nine). The corporation did not file an “Application for Change in Accounting Method” with the Commissioner of Internal Revenue.

The depreciation deduction calculated without reference to the convention in that year was $344,718.52 and this amount was reported by the corporation on its federal income tax return. If the corporation had calculated the depreciation allowance for 1981 utilizing the half-year averaging convention, the allowable depreciation deduction would have been $228,610.00, a difference of $116,108.00. In a subsequent audit of the corporation’s 1981 tax year, the Internal Revenue Service imposed an additional tax of $43,500.00 as a result of the determination by the Internal Revenue Service that the corporation was required to calculate the depreciation on its depreciable assets disposed of in tax year 1981 using the previously applied half-year averaging convention.

The questions presented to this Court by the parties are (a) whether the taxpayer was entitled to cease using the half-year averaging convention without obtaining the consent of the Commissioner of Internal Revenue, and (b) whether the taxpayer was correct in not applying the half-year averaging convention in tax year 1981; that is, would the application of the convention in the year of the sale of the corporation’s assets result in a distortion of the depreciation allowance.

A.

The government contends that the abandonment of the half-year averaging convention in the case constituted a change of accounting which required the consent of the Commissioner pursuant to 26 U.S.C. § 446(e). This section in pertinent part provides that “... a taxpayer who changes the method of accounting on the basis of which he regularly computes his income in keeping his books shall, before computing his taxable income under the new method, secure the consent of the Secretary.” The taxpayer argues, however, that the taxpayer is required not to use the averaging convention in any year in which its use substantially distorts the depreciation allowance for that year. The regulation relating to this depreciation deduction provides that:

An averaging convention, if used, must be consistently followed as to the account or accounts for which it is adopted, and must be applied to both additions and retirements. In any year in which an averaging convention substantially distorts the depreciation allowance for the taxable year, it may not be used.

26 C.F.R. § 1.167(a)-10(b).

As I read this regulation, in any year in which the use of the convention substantially distorts the depreciation allowance the taxpayer is prohibited from using the convention. Since a change of accounting method is thus mandated, the consent of the Commissioner is not required. See also Douthit v. United States, 299 F.Supp. 397 (W.D.Tenn.1969), rev’d on other grounds, 432 F.2d 83 (6th Cir.1970) (“[T]he general requirement of consent to change yields before the more specific commands of the law.” 299 F.Supp. at 463.)

B.

Thus, the central question in this case is whether the application of the averaging convention substantially distorts the depreciation allowance for the taxable year 1981 for this taxpayer. Both the Plaintiff and Defendant have indicated that the case of Helfand v. Commissioner, 47 T.C.M. 1203, T.C. Memo. 1984—102 (March 1, 1984), is the only case which has specifically discussed the regulation in question.

In that case, Petitioners applied the averaging convention to certain property they purchased eleven days before the end of the taxable year (in effect getting depreciation for six months period or $1,557.00) and deducted this amount on their federal income tax return for that year. The deduction would have been $94.00 absent the averaging condition. The IRS disallowed the depreciation deduction.

After discussing whether petitioner’s property qualified as “multiple asset account” which is not at issue in the case at bar, the court resolved the issue of whether the averaging convention utilized by petitioners resulted in a substantial distortion of the depreciation allowance for their taxable year ending December 31, 1979, within the meaning of § 1.167(a)-10(b). The court noted that “[W]e think the correct stand for testing substantial distortion ... is to measure the depreciation under section 167 actually produced for the year by petitioners’ use of the averaging convention against the depreciation which would have been produced if the averaging convention had not been elected____” Helfand, supra, at 84-384.

The Court then turned to a quantitative assessment of the depreciation distortion occasioned by petitioners’ election to utilize an averaging convention for their taxable year 1979 by comparing the two figures reached — $1,557.00 and $94.00. Stating that “[a] comparison of these figures demonstrates that averaging convention utilized by petitioners resulted in substantial distortion of their depreciation allowance ... for 1979,” the court disallowed use of the averaging convention. Helfand, supra, at 84-385.

In this case, the Plaintiff has asserted that since the non-convention depreciation was greater than what the depreciation would have been using the convention, Plaintiff has shown a distortion of the depreciation allowance. According to Plaintiff, use of the half-year convention in 1981 would result in a depreciation allowance which is 33% less than the depreciation allowance computed on the basis of the actual months the assets were in service, a substantial distortion by any standard.

The government’s position is that the measure of substantial distortion of the depreciation allowance requires a comparison of convention and non-convention depreciation over the entire life of the assets. I believe this position is clearly not supported by the language of the regulation or the tax court’s ruling in the Helfand case. The regulation states that “in any year in which an averaging convention substantially distorts the depreciation allowance for the taxable year, it may not be used.” 26 C.F.R. § 1.167(a)-10(b). Therefore, I must, as the court in Helfand suggested, measure the depreciation actually produced by the taxpayer’s use of the averaging convention against the depreciation which would have been produced if the averaging convention had not been elected.

As reflected in the recitation of the facts in the case, the depreciation based on actual months in service was $344,718.52. If the corporation had utilized the convention, the depreciation would have been $228,-610.00. Further, I believe that an important fact in this case is that in this taxable year in question all or substantially all of the taxpayer’s depreciable assets were sold in October. This fact, by itself, is almost enough to negate the use of the averaging convention, the purpose of which is to simplify depreciation accounting where multiple assets are acquired or disposed of during the taxable year. Helfand, supra, at 84-384. As the court in Heft v. Commissioner, 294 F.2d 795, 797 (5th Cir.1961) stated, “To ascertain [the meaning of ‘substantial’] in any particular context one must examine the frame of reference and the purpose intended by the use of the term.”

At oral argument, the government submitted that 33% difference in depreciation was not substantial and that the regulation was aimed more at abusive situations. I do not concur. I believe in this year when the taxpayer sold all or substantially all of its assets a comparison of the depreciation produced yielded a substantial distortion of the depreciation allowance for the taxable year. In addition, I would submit that if the taxpayer had sold all or substantially all of its assets in March, the use of the convention would similarly distort the depreciation allowance for the taxable year and thus its use would not be permitted.

In conclusion, I find that the use of the averaging convention under the facts of this case substantially distort the depreciation allowance for taxable year 1981, and thus the taxpayer was required not to use the convention. Further, the taxpayer was not required to receive the consent of the Commissioner before calculating depreciation based on actual months in service.

Summary judgment shall be entered for Plaintiff.


author: BUA, District Judge.

text:
    Amos DIXON, et al., Plaintiffs, v. Jeffrey C. MILLER, etc., et al., Defendants.
    No. 77 C 1125.
    United States District Court, N.D. Illinois, E.D.
    June 28, 1984.
    See also, D.C., 76 F.R.D. 617, D.C., 537 F.Supp. 983.
   AMENDED ORDER OF DISMISSAL

BUA, District Judge.

This cause coming to be heard on Plaintiffs’ Motion for Voluntary Dismissal pursuant to Federal Rules of Civil Procedure Rule 41(a)(2), the court finds that:

1. Pending before this Court are: (a) Plaintiffs’ Motion to Reconsider the Order of April 27, 1982; (b) Plaintiffs’ Motion to Stay Proceedings; (c) Plaintiffs’ Motion to Submit Additional Documentation; (d) Defendants’ Motion to Certify the Orders of February 11,1980 and April 27,1982 under F.R.C.P. Rule 54(b); (e) Defendants’ Motion to Clarify the Count I Class Definition; and (f) Defendants’ Motion to Set a Ruling Date on these Motions. The court has not ruled on any of these motions.

2. Proceedings in the Illinois court system, including (a) Watterson v. Miller, 117 Ill.App.3d 1054, 73 Ill.Dec. 513, 454 N.E.2d 373 (4th Dist.1983), a statewide class action, and (b) several individual cases decided by the Third and Fifth Appellate Districts (see Plaintiffs’ Motion to Stay Proceedings, January 20, 1983, at 2), may resolve all of plaintiffs’ claims on Count I of the Amended Complaint.

3. The court has certified a Count I class consisting of

all disabled persons whose assistance under (SSP) and Medicaid has been denied or (whose interim assistance has been) terminated by the IDPA solely because of an initial determination by the SSA that the applicant or recipient is not disabled, without a prior or subsequent hearing.

4. The court has certified a Count II class consisting of

all disability applicants for SSI who have applied for benefits in the State of Illinois and who have been found not to be disabled without being provided with written notice stating the basis for thé finding and who have not been provided with a hearing and a resulting decision within six months of a timely request for such a hearing. 537 F.Supp. 990 at 991.

5. The court has assessed the fairness of the proposed dismissal and determined that it constitutes a reasonable termination of the litigation. The Court had previously ordered that a notice of the proposed dismissal be sent to the classes and that a hearing on the fairness, adequacy and reasonableness of the dismissal be held.

6.. The fairness hearing having been held and this court having considered the fairness, adequacy and reasonableness of the proposed dismissal of the issues involved in this case, and this Court being of the opinion that the order represents a fair, adequate and reasonable resolution of this litigation, and that the public interest will be served by entry of this Order and that it should be approved pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, it is ORDERED, ADJUDGED and DECREED:

1. The prior orders in this case entered on February 11, 1980 and April 27, 1982, are vacated; and
2. This case is dismissed without prejudice, and without costs, pursuant to Federal Rules of Civil Procedure Rule 41(a)(2).


author: READY, District Judge.

text:
    David JORDAN, James Moore, Robert Sims, and Sammie Lee Chestnut, Plaintiffs, v. CITY OF GREENWOOD, MISSISSIPPI; Clay Ewing, Mayor, Sam Bass, Commissioner, and Charlie Wright, Commissioner, individually and in their official capacities as Members of the City Council of the City of Greenwood, City of Greenwood Municipal Democratic Executive Committee; G. Hite McLean, Chairman of the City Democratic Executive Committee; City of Greenwood Municipal Republican Executive Committee; Porter Peteet, Chairman of the City Republican Executive Committee; City of Greenwood Municipal Election Commission; Ms. A.J. Brewerton, Ms. A.C. Snellings, and Ms. Frances Tupper, Members of the City Election Commission, Defendants.
    Civ. A. No. GC77-52-WK-P.
    United States District Court, N.D. Mississippi, Greenville Division.
    July 25, 1984.

      Willie J. Perkins, North MS Rural Legal Services, Greenwood, Miss., for plaintiffs.
    Steven H. Rosenbaum, Voting Rights Sec., U.S. Dept, of Justice, Washington, D.C., for plaintiff-intervenor.
    Billy B. Bowman, Brewer, Deaton & Bowman, Greenwood, Miss., for defendants.
   MEMORANDUM OF DECISION

READY, District Judge.

This action on behalf of black residents of the City of Greenwood, Mississippi, challenging the city’s at-large commission form of government is before the court on remand from the Court of Appeals vacating the prior judgment of the district court entered March 23, 1982, Jordan v. City of Greenwood, 534 F.Supp. 1351. The cause was remanded for further consideration in light of Section 2 of the Voting Rights Act of 1965 as amended in 1982, 42 U.S.C. § 1973 (Supp.1984); Jordan v. City of Greenwood, 711 F.2d 667 (5th Cir.1983).

Following a status conference held after remand of the case, the United States, on December 28, 1983, was permitted to intervene as a plaintiff to address the single issue of whether Greenwood’s at-large election of commissioners violates amended Section 2. Both the Government and private plaintiffs contend that the election system is unlawful since under the “results” test of the amendment black voters are denied equal access tó the political process and to elect representatives of their choice. After the close of discovery on February 10, 1984, defendants decided not to contest the issue, but were unwilling to concede liability. In June 1984, the parties filed a lengthy Stipulation of Facts (hereinafter “Stip.”) that supplements the record from the first trial. The parties have agreed to forego an evidentiary hearing and submit the case for decision upon the previous record and the additional stipulations.

Prior to June 29, 1982, amendment to Section 2 of the Voting Rights Act, plaintiffs, claiming that an at-large election system unlawfully diluted minority voting strength in violation of the Voting Rights Act, had to prove purposeful discrimination in the adoption or maintenance of the challenged system, City of Mobile v. Bolden, 446 U.S. 55, 100 S.Ct. 1490, 64 L.Ed.2d 47 (1980). In March 1982, this court held that plaintiffs had failed to establish that Greenwood’s at-large election scheme had been adopted or maintained for racially discriminatory reasons. By the June 1982 amendment, Congress specifically rejected Bolden’s intent standard and eliminated the requirement that Section 2 plaintiffs demonstrate purposeful discrimination, S.Rep. No. 417, 97th Cong., 2d Sess. 16, 27-30, reprinted in 1982 U.S.Code Cong. & Ad.News 177, 193, 204-07. Instead Congress restored the pre-Bolden results” standard as enunciated in White v. Regester, 412 U.S. 755, 93 S.Ct. 2332, 37 L.Ed.2d 314 (1973), and subsequent cases including Zimmer v. McKeithen, 485 F.2d 1297 (5th Cir.1973) (en banc), aff'd on other grounds sub nom. East Carroll Parish School Board v. Marshall, 424 U.S. 636, 96 S.Ct. 1083, 47 L.Ed.2d 296 (1976); S.Rep. No. 417, supra at 27-30, 32. The “results” test focuses judicial inquiry on objective factors concerning the “totality of the circumstances” bearing on the present ability of minorities to participate effectively in the political process, rather than upon the motivation of lawmakers in enacting or maintaining the challenged practice.

The Senate Report identifies the following factors as relevant to the Section 2 “totality of circumstances” inquiry:

1. the extent of any history of official discrimination in the state or political subdivision that touched the right of the members of the minority group to regis-. ter, to vote, or otherwise to participate in the democratic process;
2. the extent to which voting in the elections of the state or political subdivision is racially polarized;
3. the extent to which the state or political subdivision has used unusually large election districts, majority vote requirements, anti-single shot provisions, or other voting practices or procedures that may enhance the opportunity for discrimination against the minority group;
4. if there is a candidate slating process, whether the members of the minority group have been denied access to that process;
5. the extent to which members of the minority group in the state or political subdivision bear the effects of discrimination in such areas as education, employment and health, which hinder their ability to participate effectively in the political process;
6. whether political campaigns have been characterized by overt or subtle racial appeals;
7. the extent to which members of the minority group have been elected to public office in the jurisdiction.
Additional factors that in some cases have had probative value as part of plaintiffs’ evidence to establish a violation are:
whether there is a significant lack of responsiveness on the part of elected officials to the particularized needs of the members of the minority group.
whether the policy underlying the state or political subdivision’s use of such voting qualification, prerequisite to voting, or standard, practice or procedure is tenuous.
While these enumerated factors will often be the most relevant ones, in some cases other factors will be indicative of the alleged dilution.

S.Rep. No. 417, supra, at 28-29, U.S.Code Cong. & Admin.News 1982, pp. 205, 206 (footnotes omitted).

Congress did not intend these factors “to be used ... as a mechanical ‘point counting’ device.” S.Rep. No. 417, supra, at 29, n. 118, U.S.Code Cong. & Admin.News 1982, p. 206. Nor is there a requirement “that any particular number of factors be proved, or that a majority of them point one way or the other.” Id. at 29 U.S.Code Cong. & Admin.News 1982, p. 206, (footnote omitted). Rather, evidence about these and other relevant factors is intended as a guide for the court’s exercise of its judgment about whether “the electoral system, in light of its present effects and historical context, treats minorities so unfairly that they effectively lose access to the political processes.” Jones v. City of Lubbock, 727 F.2d 364, 384-85 (5th Cir. 1984); see United States v. Marengo County Commission, 731 F.2d 1546 (11th Cir.1984).

Although the “results” test under Section 2 is based on the legal standard existing before the Supreme Court’s decision in City of Mobile v. Bolden, supra, the Fifth Circuit has noted a “subtle change in emphasis” in the statutory enactment:

First, Congress not only failed to follow Zimmer’s distinction between primary and enhancing factors, but also relegated two primary factors — unresponsiveness and tenuousness — to secondary importance. Second, Congress has articulated as an objective factor an evidentiary issue — polarized voting — that this court’s pre-Bolden cases had not treated as a matter of primary importance.

Jones v. City of Lubbock, supra, 727 F.2d at 384.

The effect of these “subtle changes in emphasis” are relevant to the case at bar. At the time this court decided this case, the law in this circuit required plaintiff to prove unresponsiveness in order to prevail in a vote dilution case. 534 F.Supp. at 1362; Lodge v. Buxton, 639 F.2d 1358, 1375, n. 35 (5th Cir.1981), aff'd on other grounds sub nom. Rogers v. Lodge, 458 U.S. 613, 102 S.Ct. 3272, 73 L.Ed.2d 1012 (1982)., Now proof of unresponsiveness is not essential to a claim of intentional discrimination under the Constitution, Rogers, supra, 458 U.S. at 625 n. 9, 102 S.Ct. at 3280 n. 9, and is of only “secondary importance” to a claim under the “results” test of Section 2. Indeed, under Section 2 defendant’s evidence of responsiveness is only relevant as rebuttal evidence should plaintiff first offer evidence of unresponsiveness. S.Rep. No. 417, supra, at 29, n. 116. In Jones v. City of Lubbock, the court of appeals affirmed a finding of a Section 2 violation even though defendants had been responsive. Thus, this court’s finding of responsiveness, 534 F.Supp. at 1357-58, by itself, no longer would support a judgment for defendants.

The elimination of the “intent” requirement of amended Section 2 is constitutional. Jones v. City of Lubbock, 727 F.2d at 373-75; accord United States v. Marengo County Commission, 731 F.2d at 1562-63.

Our task, therefore, is to determine whether the evidence establishes that the above-mentioned objective factors as they may bear on the totality of circumstances invalidate Greenwood’s at-large election system.

A. Background

Since March 16, 1914, Greenwood, the county seat of Leflore County, Mississippi, has been governed by a three-member city council that operates as a commission form of government. The council is comprised of a mayor and two commissioners who serve concurrent, four-year terms. The commissioners are elected from numbered posts and there is no subdistrict residency requirement. Under state law, a majority vote requirement applies to political party primaries, Miss.Code Ann. § 23-3-69 (1972), and special elections to fill vacancies, Miss.Code Ann. § 23-5-203 (1972). On September 6,1977, a proposal to change the commission form of government to one composed of a mayor and seven councilmen, the latter to be elected from wards, was defeated in a referendum submitted to the electorate. No black person has ever been elected to serve on Greenwood’s city council, although several have run for office.

Greenwood’s 1980 population was 20,115, of whom 10,460 (52.0%) were black. Blacks, however, were a minority of the voting age population (46.2%) and the registered voters (44% at the last municipal election). Stip. ¶ 4, Ex. 1 at 3.

B. History of racial discrimination and its present day effects

As this court has heretofore found, it is well documented that a pattern of racial discrimination in the past has existed in Leflore County, Greenwood, and Mississippi. Prior to the passage of the Voting Rights Act of 1965, blacks in Mississippi were effectively disenfranchised through the use of poll taxes, literacy tests and the like. 534 F.Supp. at 1357. This documentation not only touched the rights of blacks to register, to vote and otherwise to participate in the political process but also extended to racial discrimination in education, employment, public facilities, housing, public accommodations, and the provision of governmental services. Stip. 113. In 1964, only 2.1% of the non-white voting age population was registered to vote, in contrast to 71.5% of the registered white voting age population. Stip. ¶ 10. Since the passage of the Voting Rights Act, the Attorney General has sent examiners to register voters in Greenwood and Leflore County and observers to monitor elections in Leflore County. All told, about 25% of the registered voters in Greenwood were registered by federal examiners. Stip. II13, Ex. 1 at 4. Although the black voter registration rate has increased substantially since 1964, the black registration rate is still lower than the white registration rate. As of 1983, 71% of Greenwood’s voting age blacks were registered for municipal elections compared to 80% of Greenwood’s voting age whites. Stip. 119. Also, the City of Greenwood acted contrary to Section 5 of the Voting Rights Act, 42 U.S.C. § 1973c, by implementing two annexations (in 1967 and 1979) without obtaining preclearance. Stip. II19. These areas contained a virtually all white population and have been included in municipal elections. When the city on March 15, 1984, submitted the two annexations to the Attorney General for review, the Attorney General interposed an objection on May 14, 1984, on the ground that “racial bloc voting exists in the city and that the addition of 1,059 whites and 64 blacks ... reduces by 2.7% a black voting strength which, in the absence of the annexations, likely would be approaching 50% of the City of Greenwood.” Stip. HIT 19, 20, Ex. 6.

Greenwood’s black citizens continue to suffer the consequences of racial discrimination. Socioeconomic data show that blacks are substantially disadvantaged compared to whites in education, income, poverty status, employment, living conditions, and health. Stip. 111116-18. These disadvantages have contributed to decrease black political participation in Greenwood and make that participation less effective. Stip. Ex. 1, 2, 5(E). For example, the statistics on voter participation in municipal elections (1969-1983) establish that 42%-45% of the whites voted, in contrast to the mean black voter turnout of 11.4% in elections without black candidates and 23.5% in elections with black candidates.

Under Section 2, where blacks have a lower socioeconomic status than whites and where black political participation is depressed, as is true in Greenwood, “plaintiffs need not prove any further causal nexus between the disparate socioeconomic status and the depressed level of political participation.” S.Rep. No. 417, supra at 29 n. 114, U.S.Code Cong. & Admin.News 1982, p. 206. See Jones v. City of Lubbock, supra at 383; Cross v. Baxter, 604 F.2d 875, 880 (5th Cir.1979); Kirksey v. Board of Supervisors, 554 F.2d 139, 143-44 (5th Cir.1977).

C. The extent to which voting in Greenwood is racially polarized

The City of Greenwood is divided into three wards or precincts: East Greenwood which is predominantly black, North Greenwood which is virtually all white, and West Greenwood which is a mixed neighborhood. Voting in Greenwood’s elections has been predominantly along racial lines. 534 F.Supp. at 1354. In the 1969 and 1981 municipal elections, five black candidates unsuccessfully ran for city council. Professor Allan J. Lichtman, of American University of Washington, D.C., an expert in the history of voting and the methodology for inferring voter behavior from election returns and demographic information, has analyzed each city council contest since 1969 and confirms our prior finding that “none of the black candidates in any general election or primary have received more than relatively few of the votes cast in the [virtually all white] North Greenwood ward.” No black candidate for municipal office has received more than 2.3% of the North Greenwood vote, with the mean support for black candidates in that precinct being 1.1%. In contrast, support for the black candidates in the preponderantly black East Greenwood precinct has been high, with the average black candidate receiving 76.5% of the vote. Stip.Ex. 5(D). The unchallenged expert opinion, based upon statistical evidence, shows an extraordinarily high level of racial bloc voting, with little crossover voting of whites for black candidates or of blacks for white candidates. The same pattern apparently held true for the 1977 referendum on changing Greenwood’s commission form of government to a mayor-council form, when voting was predominantly along racial lines with blacks voting for the change and whites against it. 534 F.Supp. at 1354.

It is incontrovertible that since 1969 black candidates, although supported overwhelmingly by Greenwood’s black voters, have been, without exception, rejected by white voters. The extraordinarily high degree of racial bloc voting practically assures the defeat of black candidates in at-large elections.

D. The extent to which Greenwood has unusually large election districts and other voting practices that may enhance the chance for discrimination

1. Unusually large election districts. According to the 1980 census, Greenwood is the fifteenth largest city in population in Mississippi. Since whites, as the political majority, are able to elect all members of the city council, an election district encompassing the entire city tends to minimize the voting strength of minority groups. Rogers v. Lodge, 458 U.S. 613, 616, 102 S.Ct. 3272, 3275, 73 L.Ed.2d 1012.

2. Majority vote requirement. State law applicable to Greenwood’s elections requires that to win a party nomination or to win a special election to fill a vacancy in office, candidates must receive a majority of the votes cast. There can be little doubt that the majority system tends to strengthen the ability of the majority to submerge a racial minority in a multi-member district. Rogers, 458 U.S. at 627, 102 S.Ct. at 3280.

3. Anti-single shot provision. Greenwood’s numbered post requirement and Mississippi’s full slate law, Miss.Code Ann. § 21-11-15 (1972), minimize black voting strength by requiring candidates in municipal elections to run for designated seats and electors must vote on each seat separately. A numbered post requirement “enhances the [minority’s] lack of access because it prevents a cohesive political group from concentrating on a single candidate.” Rogers, 458 U.S. at 627, 102 S.Ct. at 3281.

4. Lack of a subdistrict residency requirement. There is no requirement that candidates for municipal office in Greenwood live in any particular section of the city. Miss.Code Ann. § 21-5-5 (1972). The lack of a residency requirement where housing patterns are racially segregated means that all elected officials may reside in Greenwood’s white neighborhoods. Rogers, 458 U.S. at 627, 102 S.Ct. at 3280.

On the other hand, the evidence establishes that the black population of Greenwood is sufficiently numerous and concentrated in areas of the city that, if members of the city council were elected from single-member districts, blacks would be in a voting majority in some districts and would have a reasonable opportunity to elect candidates of their choice. Stip. ¶ 25.

5. The extent to which there is a candidate slating process in Greenwood. There exists no slating process of candidates, and blacks are as free as whites to announce, qualify, and run as candidates in party primaries and general elections. The failure of black candidates in 1981 to gain the Democratic party primary nomination is not sufficient to justify a conclusion of discriminatory slating.

6. The extent to which political campaigns have been characterized by overt or subtle racial appeals. Although there is no direct evidence of racial appeals in past political campaigns other than that in the 1977 referendum, it is reasonable to infer that such appeals are tacitly, if not openly made; black candidates have clearly been the choice of the black community and white candidates the overwhelming choice of the white community. Racial considerations prominently surfaced in the 1977 referendum campaign, when subtle racial appeals urged voters to vote for or against the change.

7. The extent to which members of minority groups have been elected to public office. As stated, no black has been elected to a seat on the Greenwood city council. This is a circumstance that amended Section 2 expressly states is significant in determining whether minorities have less opportunity than other members of the electorate to participate in the political process and elect representatives of their choice. The failure of any black candidate to win an election under an at-large system, where racial bloc voting is shown to prevail, is strong evidence that the political processes leading to nomination or election in Greenwood are not equally open to participation by black citizens.

8. Responsiveness of elected officials to particularized needs of the black community; tenuousness of state policies favoring at-large elections. Both the Government and the private plaintiffs challenge our prior finding of responsiveness of Greenwood’s elected officials to the special needs of the black citizens. They argue that the city , has taken action to remove past discrimination in provisions for municipal services and employment only after litigation in federal court and that public housing projects sponsored by the city were accomplished by federal funds. They also assert that the representation of blacks on city boards and commissions, non-existent until 1970, has been inadequate and disproportionately low. They further emphasize that the city officials violated Section 5 of the Voting Rights Act by implementing voting changes after making two annexations without obtaining Section 5 preclearance, and which the Attorney General has determined to be dilutive of minority voting strength. Unquestionably, these arguments weaken the city’s case for current responsiveness, particularly in light of the Fifth Circuit ruling in Jones v. City of Lubbock, where the court observed that a city’s “action taken during the course of litigation in which the degree of responsiveness has been an important evidentiary issue cannot be decisive of past and future conduct by [the municipality];” and that city officials “cannot take credit entirely for the provision of ... services [when] the funds for these are derived largely from federal programs aimed at economically depressed areas.” 727 F.2d at 382. Notwithstanding these arguments, the court is unpersuaded that the Greenwood city council is currently unresponsive to the special needs of black citizens. It is unnecessary, however, to dwell on this point since proof of unresponsiveness is not an essential element to make out a case under amended Section 2.

There is no state policy favoring at-large elections of city council members, and only a few cities in Mississippi currently operate under a commission form of government. Most Mississippi cities with populations over 10,000 elect their city councils by district, Stip. ¶ 26; hence, the policy for Greenwood’s at-large electoral scheme must be regarded as tenuous.

In sum, the court is of the firm opinion that the evidence establishes almost every element of proof delineated by Congress as probative of a Section 2 violation, and from a totality of the circumstances, it is inescapably clear that the black voters of Greenwood have less opportunity than whites to participate in the political process and to elect representatives of their choice. This result is compelled by evidence no less convincing than the record upon which Hattiesburg's commission form of government was struck down as violative of Section 2 by United States Magistrate John M. Roper of the United States District Court for the Southern District of Mississippi in Boykins v. City of Hattiesburg, No. H-77-0062(C), slip op. (S.D.Miss. Feb. 29, 1984). The court therefore must require the establishment of single-member districts for the City of Greenwood.

Since Mississippi law provides for several forms of city government that do not require at-large election systems, the defendant mayor and commissioners shall have the responsibility of submitting to the court a proposal for the election of council members other than the mayor by wards. Since the new plan must be in place in time for the 1985 municipal elections, defendants’ proposal setting forth the number and boundaries of each ward, with the total population and voting age population by race assigned to each ward, shall be filed in court not later than November 1, 1984. Defendants, or their representatives, shall promptly confer with counsel for private plaintiffs and the United States with a view of presenting a mutually acceptable plan that complies with federal law. In this respect, it is essential that the new plan of city government be subject to preclearance by the Attorney General under Section 5 of the Voting Rights Act both to correct the city’s failure to obtain preclearance of the two prior annexations as well as to secure approval of the new plan for the entire city. In case of disagreement, whether in whole or in part, private plaintiffs and/or the United States shall submit their objections in writing not later than December 1, 1984, together with alternate proposals. The parties are admonished that the interests of the City of Greenwood and its citizens will be best served by reconcilement of differing views as to the number and structure of the wards and thereby avoiding prolonged and costly litigation.

JUDGMENT

Pursuant to Memorandum of Decision this date released, it is

ORDERED:

1. The City of Greenwood’s commission form of government with three council members elected at large violates Section 2 of the Voting Rights Act. of 1965, as amended in 1982, 42 U.S.C. § 1973 (Supp. 1983).

2. The defendants are hereby ENJOINED from further conducting political party primaries and general elections in the City of Greenwood of city council members on an at-large basis.

3. The defendant mayor and commissioners shall, not later than November 1, 1984, file with the court a proposal for the election of council members other than the mayor by single districts or wards, setting forth the number and boundaries of each ward and the total population and voting age population by race assigned to each ward. A copy of such plan shall be served upon counsel for private plaintiffs and the United States. Such plán must comport with federal constitutional and statutory law that satisfies the one-person, one-vote principle, avoids the dilution of minority voting strength, and provides equal access to the political process by black voters. The defendant mayor and commissioners, or their representatives, shall promptly confer with counsel for private plaintiffs and the United States with a view to reaching agreement, bearing in mind the necessity for preclearing under Section 5 of the Voting Rights Act two prior municipal annexations as well as the new electoral plan for the entire city. In case of disagreement, whether in whole or in part, private plaintiffs and/or the United States shall file with the court written objections not later than December 1, 1984, together with alternate proposals, with copy to be served upon counsel for defendants. If necessary, the court will thereafter schedule an evidentiary hearing as expeditiously as possible to resolve the issue.

      . The amendment reads as follows:
      (a) No voting qualification or prerequisite to voting or standard, practice, or procedure shall be imposed or applied by any State or political subdivision in a manner which results in a denial or abridgement of the right of any citizen of the United States to vote on account of race or color, or in contravention of the guarantees set forth in Section 4(f)(2), as provided in subsection (b).
      (b) A violation of subsection (a) is established if, based on the totality of circumstances, it is shown that the political processes leading to nomination or election in the State or political subdivisions are not equally open to participation by members of a class of citizens protected by subsection (a) in that its members have less opportunity than other members of the electorate to participate in the political process and to elect representatives of their choice. The extent to which members of a protected class have been elected to office in the State or political subdivision is one circumstance which may be considered: Provided, that nothing in this section establishes a right to have members of a protected class elected in numbers equal to their proportion in the population.
      Pub.L. No. 97-205, § 3, 96 Stat. 131, 134, codified at 42 U.S.C. § 1973 (Supp.1984).

      . The court of appeals ruled further that evidence of responsiveness does not overcome evidence of racially polarized voting. The court reasoned that ‘‘[w]hether or not city officials do ignore minority interests, polarization nevertheless frees them of political reprisal for disadvantaging the minority community.” 727 F.2d at 381.

      . According to the 1980 census, only 24.9% of Greenwood’s blacks, 25 years and older, have completed high school compared to 68.5% of the whites, 25 years and older. In 1979, 46.1% of the black families in Greenwood were living below the poverty level compared to 7.1% of the white families. The mean income of white families was $23,283, more than twice as high as the black mean ($9,148). The 1980 census shows that the black unemployment rate (15.7%) in Greenwood was nearly six times greater than the white unemployment rate (2.7%). Black infant mortality is much higher than it is for whites.

      . Black candidates ran as independents in the 1969 and 1973 general elections and in the Democratic party primary in 1981. There were no black candidates in 1977. Stip. Ex. 3. The results of these and other races are set out in the court's prior opinion and need not be repeated here.

      . Although Greenwood does not maintain voter registration by race, the parties agree that through statistical techniques reliable estimates of the racial composition of the voters may be ascertained. The number of registered voters is detailed by precinct for each municipal election in Greenwood since 1965 together with the estimated racial composition of the registered voters and the registration rates of whites and blacks since 1969. Stip. ¶ 8, Ex. 1.

      . Racial appeals to the voters appeared in local newspaper articles by white leaders of a group known as “Citizens for our Present Form of Government," and by the black president of the Greenwood Voters League. Statements of opponents and proponents of the change are set forth in the prior opinion, 534 F.Supp. at 1354-56, and need not be repeated here.