source: Caselaw Access Project

author: ARCENEAUX, District Judge.

license: Public Domain

text:
    RIVERCITY v. AMERICAN CAN COMPANY.
    Civ. A. No. 78-1014.
    United States District Court, E.D. Louisiana.
    April 12, 1984.

      Sidney W. Provensal, Jr., New Orleans, La., for plaintiff and The French Eighth.
    Monroe & Lemann, Jerry A. Brown, A. Justin Ourso, III, New Orleans, La., for American Can Company.
    Milling, Benson, Woodward, Hillyer & Pierson, John C. Christian, James K. Irvin, W. Richard House, Jr., New Orleans, La., for Whitney National Bank of New Orleans.
   OPINION

ARCENEAUX, District Judge.

Plaintiff, Rivercity, a Louisiana ordinary partnership, instituted this removed diversity-based suit against American Can Company (“American”), a New Jersey corporation, with its principal place of business in a state other than Louisiana, seeking damages for alleged breach of contract.

Rivercity claims to have lost $2,777,-128.44 as a result of American’s failure to honor an option on certain real property in New Orleans on which the Jackson Brewery, owned originally by Jackson Brewing Company (“Jax”), was located. American subsequently filed a third party complaint against French Eighth, a Louisiana ordinary partnership, for indemnity and contribution. A further exposition of the facts is set forth In the Matter of Jackson Brewing Co., 567 F.2d 618 (5th Cir.1978). This litigation is no stranger to the courts of this district.

A trial before the Court without a jury commenced on June 27, 1983. The Court deferred ruling on defendant’s motion for involuntary dismissal under Fed.R.Civ.P. 41(b), and, at the close of all evidence, took the entire matter under submission. Having throroughly reviewed the evidence, the transcript, the memoranda of counsel and the applicable law, the Court now rules that:

1. American’s motion for involuntary dismissal is denied; and

2. Judgment will be entered in favor of defendant and against plaintiff, for reasons hereinafter set forth;

3. American’s third-party claims against French Eighth partnership are dismissed as moot.

FACTS

Prior to December 9, 1970, the Jackson Brewing Company had been essentially a family business, owned and operated by the Fabacher family of New Orleans. Its principal product was a widely consumed beer bearing the brand name “Jax”. On December 9, 1970 the Fabacher family sold all of the outstanding brewery stock to JBC Inc., a corporation whose stock was wholly owned by a Mr. and Mrs. James Howard. Shortly thereafter, allegedly on January 1, 1971, Jax granted an option to Rivercity to purchase a certain parcel of real property located on the riverside of Decatur Street in the French Quarter, then owned by Jax. The recited consideration for the option was $1,000 (Exh. RC 1). The option could only be exercised during the period January 1, 1975 — January 31, 1975. The stated purchase price in the option was stated to be $2,777,128.44. The Rivercity partnership was comprised of Thomas C. Farrell, Jr., Paul A. Nalty, Margaret A. Perez and JBC, Inc. Farrell and Nalty were designated managing partners of Rivercity. They were also members of the Board of Directors of Jax at the time the option was granted. Nalty, an attorney, held partnership status in a New Orleans law firm which was counsel for Jax, Rivercity and JBC, Inc. and French Eighth. (Tr. 140-144).

The relationship between American and Jax at the time the option was allegedly granted was that of supplier and customer; American supplied containers to Jax into which Jax placed its beer. In fact, Jax was a major customer of American in the New Orleans area. Therefore, when in early 1970 Jax began to have financial problems, American allowed it to defer payments. Later, when Jax needed to borrow over $5 million to pay the National Bank of Commerce which had financed the JBC, Inc. acquisition of the brewery’s stock, American “introduced” Jax to the Whitney National Bank (Whitney). Thereafter, on September 8, 1971, the Whitney loaned $5.2 million to Jax. This loan, was secured by pledges of the Jax stock, and security interests in both the movable and immovable property owned by Jax. In making the loan to Jax, the Whitney asked for and received a “take-out” commitment from American which in effect provided that should the Whitney become “uncomfortable” with the Jax loan, American would “take-out” the Whitney. (Exh. RC 23).

Also on September 8, 1971, certain letters were exchanged between the Whitney and Rivercity (Exhs. RC 13 and 14). These letters represent the basis of plaintiff’s claim.

Plaintiff maintains that these letters, which contain identical language regarding Rivercity’s right to purchase “real property” owned by Jax, contractually obligated American to honor the option granted by Jax to Rivercity.

In May of 1974 the Whitney expressed its lack of comfort with the Jax loan, and requested that American fulfill its take-out promise. American promptly complied, became substituted by assignment from the Whitney as the Jax creditor, and thereby acquired the bank’s first lien position as to the collateral securing the loan. By June 3, 1974, the financial condition of Jax had further deteriorated. American called the loan and proceeded against the Jax stock, pledged as collateral. American subsequently acquired all of that stock as the only bidder at a public foreclosure sale of the stock, and thereby became the sole stockholder of Jax.

On November 13, 1974, Jax was adjudicated a bankrupt. On January 31, 1975 the trustee in bankruptcy was notified in writing that Rivercity was exercising its rights under the option. The trustee rejected the option as a burdensome, executory contract. That rejection was upheld. In the Matter of Jackson Brewing Co., supra.

Thereafter, on May 2, 1978, American bought the property in question from the trustee in bankruptcy for $5.5 million in debt receipts. On February 6,1982, American sold the property to a third party for $5.55 million.

Plaintiff sued American in state court on March 2, 1978; the case was removed to this court on March 29, 1978.

Rivercity’s complaint alleges that American breached obligations originally undertaken by the Whitney in connection with the above referenced loan; Rivercity claims that the Jax-Whitney loan was at all times, essentially a Jax-American loan, because the Whitney was American’s agent, thus binding American under applicable principles of Louisiana agency law.

American denies any agency relationship with the Whitney, but alternatively asserts that even if there were, the so called option agreement was null and void from the beginning.

The Court turns first to the agency claims.

NO AGENCY — NO CONTRACT

A letter of September 8, 1971 from the Whitney to Rivercity contains the following language: (Exh. RC 13)

“Whitney and Jackson specifically take cognizance of the fact that the rights of Rivercity to purchase “real property” as described in the option are now and shall remain at all times hereafter superior to and shall prime any and all rights of Whitney under the Act of Collateral Mortgage, and the Note paraphed for identification therewith, and the Act of Subordination.

Plaintiff maintains that the Whitney was the agent of American and that therefore American is bound by the obligation expressed in the letter.

Though there is clearly no reference to American in this document, Rivercity maintains that it was generally acknowledged among all parties, including American, that the agreement was to bind all of them. Rivercity acknowledges that there was no express mandate establishing an agency relationship between American and the Whitney, but it nevertheless maintains that such a relationship did, in fact, exist and can be established through application of other jurisprudentially recognized principles — namely implied agency, apparent agency and ratification. Plaintiff has correctly identified phraseology which has meaning within Louisiana agency law, or more properly, the Louisiana law of mandate — but for simplicity herein, referred to as “agency”. However the use of these phrases is, at best confused.

Under Louisiana law, an agent is one who acts for or in the place of another by virtue of authority from the latter. Intercontinental Engineering Mfg. v. C.F. Bean, 647 F.2d 621, 628 (5th Cir., 1981). Craft v. Trahan, 351 So.2d 277, 281 (La.App. 3rd Cir.1977). Generally, agency law is applied where an actual agency relationship is in existence, that is, when there has been a meeting of the minds between agent and principal regarding the creation and scope of the agency. Agency may be either express or implied but it nevertheless is actual and binds both parties. Busby v. Walker, 84 So.2d 304, 307 (La.App.2nd Cir.1955), writ denied. Broadway v. All-Star Insurance Company, 285 So.2d 536 (La.1973).

In the instant case plaintiff concedes that there is no evidence of an express or formal establishment of agency between the Whitney and American. Plaintiff maintains, however, that there was an implied agency in existence, that is, an actual agency, created by the circumstances. It bases that claim on the testimony of Ed Jackson, local credit manager for American, and on correspondence between Jackson and counsel for American.

At trial, Jackson testified that he had no recollection of seeing either the original option agreement or the September 8 letter from the Whitney to Rivercity nor could he recall ever being asked to ratify the September 8 letter. (Tr. 345-346). Under cross-examination he admitted signing a document marked “Receipt”, dated May 22, 1974, (Exh. RC 44) wherein American acknowledged receiving the promissory notes of Jax from the Whitney as a result of the American “take out”. This receipt document itemizes the various notes and agreements affecting the original loan to Jax. One of the items listed was the letter of September 8, from the Whitney to Rivercity. Jackson also stated that he doubted he had seen the original loan agreement between the Whitney and Jax before September 8, 1971, though he could not say definitely when he had first seen it. (Tr. 356) This court finds that Jackson’s testimony simply does not provide plaintiff with the requisite substantive evidence that there was an implied agency in existence between the Whitney and American at any time.

Plaintiff also relies on correspondence between counsel for American and Ed Jackson. (See Exhs. RC 33 and 34.) These letters, exchanged in early December, 1972, make reference to certain loan agreements dealing with the Jax transaction. They contain language attributed to Jackson which Rivercity interprets as indicating Jackson’s belief that counsel for American was responsible for the “actual work on this original loan agreement.” (Exh. RC 34).

These letters are the strongest evidence which plaintiff presents to establish an implied agency because they indicate that American may have at least assisted in structuring the loan agreement between Jax and Whitney. This court finds, however, that this evidence, even if read in conjunction with the Jackson “receipt” evidence referred to earlier herein, fails to preponderate that the relationship between the Whitney and American was that of agent-principal. This finding is based on two grounds.

First, in Louisiana the essential test for determination of an actual agency, either express or implied, is whether the principal has the right to control the conduct of the agent and whether the agent has the right and authority to represent or bind the principal. Craft, supra at 281. Though the court recognizes that an agency may be established by a party’s conduct, even though the principal may not have intended to create one, Craft, supra, it is nevertheless crucial that the requisite degree of control be established in order to find that an actual agency existed. As a factual matter, this correspondence presented by plaintiff simply fails to demonstrate that American exercised or had the right to exercise that degree of control over the Whitney which the relevant law requires.

Second, the September 8 letter, which forms the basis of plaintiff’s complaint, does not refer at all to American, as either a principal or even as a guarantor. The court notes that one who deals with an agent is put on his guard when the agent acts in his name alone and that one who deals with such agent does so at his own risk. Plaintiff, who here relies on the agency, bears the burden, of inquiry to ascertain the nature and extent of the agent’s powers. Carey Hodges Associates, Inc. v. Continental Fidelity Corporation, 264 So.2d 734 (La.App. 1st Cir.1972). Buckley v. Woodlawn, 233 La. 662, 98 So.2d 92 (1957). There is no evidence to indicate that plaintiff inquired as to the agent-principal status of the Whitney and American, such that plaintiff could reasonably rely on correspondence from the Whitney, alone, as binding American.

Plaintiff is likewise unable to show an apparent agency, or, as it is sometimes called, agency by estoppel. “Agency by estoppel”, it must be noted, is not based on actual agency but instead is generally found under circumstances where third parties have been led to believe that an agency relationship was in existence and have relied on that belief to their detriment. Those parties then who have held out that there was an agency relationship in existence are estopped from denying same. Busby, supra.

Thus, this species of agency arises when a principal, by his act or conduct, has knowingly caused or permitted another to appear as his agent, to the detriment of third parties who have acted in reliance thereon, in reasonable prudence and in good faith Thompson v. Great Midwest Fur. Co., 395 So.2d 840 (La.App. 1st Cir. 1981).

In the instant case there has been absolutely no showing that American ever acted in such a manner so as to justify a belief by Rivercity, or to otherwise create any appearance sufficient in law, that the Whitney was American’s agent for purposes of the September 8 letter, or for any other transaction.

Rivercity also suggests to the court that the agency notion of ratification binds American to the Whitney’s obligation as set forth in the letter of September 8. In this regard plaintiff relies specifically on language in letters from American personnel to the Whitney in which American agreed to “ratify all actions you (Whitney) have taken in connection with this transaction.”

There are two problems with this “ratification” theory. First, in each of the cases cited to the court by plaintiff, the agency relationship was already established before the ratification issue was raised. Thus, ratification in this context presupposes some agency relationship; for example it would be appropriate where an agent has acted outside the scope of his authority, but where the principal, with knowledge, does not repudiate the act. Bamber Contractors v. Morrison Engineering, 385 So.2d 327 (La.App. 1st Cir.1980).

Ratification is not a separate basis for establishing the existence of an agency relationship. Rather, it is generally applied to broaden the scope of a previously-established agency arrangement. Bamber, supra.

Additionally, it is far from clear that a “ratification” of the type and nature relied on by Rivercity would be sufficient to bind American to the September 8 “commitment” to Rivercity by the Whitney. To find ratification, the facts must indicate a clear and absolute intention to ratify; no such intent will be inferred where the alleged ratification can be explained in some other way. Nationwide Finance Co. of Gretna, Inc. v. Pitre, 243 So.2d 326, 327 (La.App. 4th Cir.1971). The document which Rivercity relies on as proof of ratification is a letter from John Hirschauer, general credit manager for American, to the Whitney. The letter makes specific reference to the original take-out commitment which was given to the Whitney, to the release of James W. Howard and JBC, Inc. as obligors, and to an additional advance of $500,000.00 made by the Whitney to Jax, after the original loan package was completed. At the close of the letter, Hirschauer notes that “we further agree that we have been advised of and ratify all other actions you have taken in connection with this transaction.” The letter does not make any reference to the Rivercity option or any Whitney obligation to honor the option.

The language of this letter does not support a holding that American had a clear and absolute intent to ratify any act the Whitney may have taken with regard to Rivercity. This Court is persuaded that the purpose of this ratification letter is best explained as a waiver of any rights American would have otherwise had against the Whitney as a result of the release of Howard and JBC, Inc. from their obligations as guarantors of the Jax loan, and to the $500,000 increase in the debt, which took place after the confection of the loan documents, including American’s obligation to “take out” the Whitney. Language of this nature would have been desirable, if not absolutely necessary, lest the release of an obligor or obligors and an increase in the amount of the debt furnish American grounds to “back away” from its guaranty. See La.Civ.Code Arts. 3037 and 3061; Wilson v. Brian, 81 So.2d 142 (La.App. 2nd Cir.1955). The letter specifically addresses those issues and the Court finds its purpose to be precisely that.

To succeed in a breach of contract action, plaintiff must first demonstrate that a contract was in existence. Under La.Civ.Code art. 1779, consent is clearly a required element of a contract. Plaintiff’s failure to establish the existence of an agency relationship between American and the Whitney and thus bind American to any obligations existing between the Whitney and Rivercity is fatal to its claim; plaintiff has shown no other way to link American to what Rivercity claims is an obligation in its favor undertaken by the Whitney, as expressed in the September 8 letter.

II. NO BREACH

It is also clear that any benefit flowing to Rivercity by virtue of the September 8 Whitney letter could not have affected much less improved any of the substantive rights or obligations expressed in the original option contract between Rivercity and Jax. Theoretically, the September 8 agreement was executed solely for the purpose of assuring performance on the original option. That option contract severely limited the purchase rights of Rivercity to the exercise of option rights to the period January 1, 1975, to January 31, 1975. During this period, Jax was in bankruptcy.

It is well established that contracts have the effect of law upon the parties and that courts are bound to give legal effect to such agreements according to the true intent of all the parties. La.Civ.Code art. 1945. Pendleton v. Shell Oil Co., 408 So.2d 1341 (La.1982). The terms of the option agreement between Rivercity and Jax are clear and unambiguous. Subsection (B)(2) of that agreement provides specifically that Rivercity may not give written notice of intention to exercise the option before January 1, 1975 and that such notice must be given on or before January 31, 1975. Obviously, Rivercity is not entitled to any more rights than those which it acquired with the option, assuming arguendo that the option itself was valid. Any obligation of performance on the part of Jax was transferred to the trustee in bankruptcy, subject to the supervision of the Bankruptcy Court. That Court’s rejection of the option contract was affirmed. In the Matter of Jackson Brewing Co., supra.

Thus, even had Rivercity been successful in establishing an agency relationship between the Whitney and American, Rivercity is unable to cross the threshold of a crucial second step in this action, a breach of contract by American. Clearly, even assuming a proven agency, American could not be held responsible for any breach of an obligation which, through no fault of its own, it had no power to perform. This was the effect of the opinion of the reorganization Court, which was affirmed by the Fifth Circuit In the Matter of Jackson Brewing Co., supra. Under this analysis, there is no “... controversy between American and Rivercity which is ripe for decision.” (See Footnote 13, Matter of Jackson Brewing Co., supra.) The cleansing bath of bankruptcy has washed away any otherwise available remedy based on breach of the option contract.

III. NO OPTION

Finally, the Court concludes that under no circumstances would Rivercity be entitled to claim damages for breach of the option contract on the basis of the September 8, 1971 Whitney letter, or otherwise, because the option agreement between Rivercity and Jax is void.

A. BANGOR PUNTA

The Court notes that Rivercity has asserted that the Bangor Punta doctrine bars American from attacking the validity of the option agreement. This essentially equitable doctrine denies stockholders the right to seek damages from former directors for corporate mismanagement when claimants’ stock was acquired by them with knowledge of the prior misconduct. Bangor Punta Operations v. Bangor & A.R. Co., 417 U.S. 703, 94 S.Ct. 2578, 41 L.Ed.2d 418 (1974). The clear thrust of that decision was to deny subsequent shareholders what would otherwise be an unjust enrichment where the harm was done before such stockholders acquired their shares. REA Express, Inc. v. Travelers Ins. Co., 406 F.Supp. 1389, 1393 (D.D.C.1976), aff’d in part, modified in part, 554 F.2d 1200 (D.C.Cir.) writ denied, 434 U.S. 858, 98 S.Ct. 182, 54 L.Ed.2d 131 (1977).

The Court finds that Bangor Pun-ta is inapplicable for two reasons.

First, Rivercity’s contract claim against American arises out of the September 8, 1971 letter. At that time, American owned no stock in Jax. The public sale at which American acquired the stock did not take place until June 3, 1974. Bangor Punta by its own terms could not be applied to bar American from attacking an option granted prior to its stock acquisition. Thus, since Bangor Punta has not stripped American of its right to attack the original option, by no stretch of the imagination (or the Bangor Punta rule) could that essentially equitable doctrine deny to American the right to defend against option-based claims. Particularly is this true under circumstances such as these, where American became a Jax shareholder only by virtue of its prior position as creditor and by virtue of a stock acquisition resulting from a public sale under order of Court.

Second, as indicated above, the thrust of Bangor Punta is to deny unjust enrichment which might otherwise occur when those who buy stock at a price reflecting pre-purchase corporate misconduct, seek to convert that price into a profit-producing claim for damages.

Rivercity’s effort to use the Bangor Punta shield as a sword is perhaps the ultimate irony. The facts are that Jax was indebted to American for at least $6 million. (Exh. RC 39). Major assets of Jax were the proceeds of the sale of the property which Rivercity claims by virtue of the option. It is not disputed that Rivercity’s total investment in the option transaction was what it may have paid for the option, allegedly $1,000. As between the parties, American and Rivercity, the facts eloquently answer the questions of equity and fair play, which are the foundation stones of Bangor Punta.

B. THE HEART OF THE MATTER

More importantly, however, even if the Court should assume that American breached some contractual obligation to honor Rivercity’s option, it soon becomes clear that the option is so rife with deficiencies and corporate irregularities as to make it unenforceable and void. These deficiencies include failure to prove that even the meager consideration stated in the option was ever paid; failure by the Jax directors to observe even rudimentary corporate formalities; total disregard of the Louisiana Business Corporation Law requirements dealing with voting by “interested directors” and, finally, flagrant breach by certain Jax directors of the fiduciary duty which every director owes to the corporation by virtue of his position on the board.

The Court will treat these seriatim:

1. Plaintiff has failed to prove, as required by Louisiana law, that the consideration recited in the option was ever paid. La.Civ.Code art. 2462, Moresi v. Burleigh, 170 La. 270, 127 So. 624 (1930). At trial, Rivercity entered into evidence a check for $1,000 payable to a New Orleans law firm. The check was drawn on the account of the French Eighth, another partnership whose interests, as noted above, were held by the same persons who held similar interests in Rivercity. Not only was that law firm general counsel for Jax, but it also represented Rivercity, French Eighth, and JBC, Inc. simultaneously. The check itself bears no reference or representation regarding payment, and is dated May 4, 1971.

In maintaining that this check was the consideration paid for the January, 1971 option, Rivercity tenuously explains that this amount was paid to the law firm in reimbursement for another check which the law firm had issued to Jax in payment for the option. This was done, it is alleged, because Rivercity did not yet have a bank account. Not only is this contention unsupported by evidence of any subsequently opened bank account, or reimbursement by Rivercity to French Eighth, it lacks credibility when the credentials of the players are reviewed.

In this regard, the Court takes notice of the fact that the managing partners of Rivercity are not naive, wide-eyed country bumpkins intimidated at the prospect' of opening a checking account. On the contrary, they were and are, seasoned, shrewd businessmen, astute enough to negotiate an option which, in itself, was extremely valuable, at a final purchase price which, by any account, would produce a profit of over a million dollars. The explanation advanced by Rivercity is simply unsatisfactory and falls short of establishing by a preponderance of the evidence that the consideration recited in the option was in fact ever paid.

Even had plaintiff succeeded in proving that the $1,000 was paid, this court has serious doubts as to whether that amount was adequate to bind Jax to the option. However, this analysis would involve an application of the “serious consideration” rule of La.Civ.Code art. 2464 to the controlling article on options, La.Civ.Code art. 2462. Since this issue of law remains an open one in Louisiana, and since its resolution is not necessary to the result herein reached, the Court will avoid the temptation presented to plow new ground and hold that $1,000, even if paid, could hardly be deemed “serious consideration,” adequate to remove a multi-million dollar parcel of New Orleans commercial French Quarter riverfront real estate from the market for a period of some five years.

2. It is further clear that the subject option was not confected in proper observanee of the formalities attendant to corporate transactions.

Louisiana law requires that the authority to act on behalf of a corporation must be evidenced by the corporate charter or by a resolution of the Board of Directors. LSA-RS 12:81, 82; Margolis v. Allen Mortgage & Loan Corp., 268 So.2d 714 (La.App. 4th Cir.1972). The option dated January 1,1971, was signed on behalf of Jax by Ben Sisson, then Chairman of the Board of Directors of Jax. While plaintiff concedes that the Jax Board of Directors never passed a valid resolution authorizing Sisson to enter into the option agreement, it contends that the option was properly ratified at a September 1971 board meeting. However, it is clear that LSA-RS 12:84 bars Rivercity’s reliance on that ratification to satisfy the corporate formality rules.

LSA-RS 12:84 A sets forth the standards governing transactions between a corporation and a director of that corporation. This so-called “interested directors” statute provides in pertinent part that such transactions are neither void nor voidable if:

1. The material facts as to his (the director’s) interest as to the contract or transaction were disclosed or known to the Board of Directors or the committee, and the board or committee in good faith authorized the contract or transaction by a vote sufficient for each purpose without counting the vote of the interested director or directors; or
2. The material facts as to his interest and as to the contract or transaction were disclosed or known to the shareholders entitled to vote thereon and the contract or transaction was approved in good faith by vote of the shareholders, or;
3. The contract or transaction was fair as to the corporation as of the time it was authorized, approved or ratified by the board of directors, committee, or shareholders. (Emphasis added)

In ruling on the validity of transactions between directors and their corporations, Louisiana courts have adopted the “rigorous scrutiny” standard identified in Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939). A landmark case in Louisiana on this issue is Noe v. Roussel, 310 So.2d 806 (La.1975). The Noe court made it clear that the burden of establishing the validity of the transaction itself falls squarely on the director.

That court characterized the director’s burden in the following way:

We hold, therefore, that an agent who acquires his principal’s property, or one who otherwise acts in a fiduciary capacity, bears the burden of establishing that the transaction was an arm’s length affair. This means that the agent or fiduciary must handle the matter as though it were his own affair. It also means the agent or fiduciary may not take even the slightest advantage, but must zealously, diligently and honestly guard and champion the rights of his principal against all other persons whatsoever, and is bound not to act in antagonism, opposition or conflict with the interest of the principal to even the slightest extent. Noe, supra, at 819.

Plaintiff relies on the disjunctive language of the three paragraphs of LSA-RS 12:84 A and maintains that, notwithstanding the undeniable intent of the Noe court, the transaction between Rivercity and Jax is in technical compliance with both subsections 1 and 2, and that plaintiff has therefore satisfied the burden it must carry. Plaintiff, in this regard, does not rely on subsection 3.

Plaintiff’s argument places squarely before this court a question which has apparently not been directly addressed by Louisiana judicial interpretations of LSA-RS 12:84 A: Can a director, by mere disclosure, validate a transaction which would otherwise be, in fact, unfair to the corporation. Although no Louisiana court has yet found it necessary to turn this virgin corporation law soil, California courts have interpreted statutes which are nearly identical to LSA-RS 12:84 A and have clearly rejected the argument advanced by plaintiff. Remillard Brick Co. v. Remillard-Dandini Co., 109 Cal.App.2d 405, 241 P.2d 66 (1952). See also Note, “Corporations, Fiduciaries, and Conflicts of Interest,” 36 La.L. Rev. 320 (1975). This Court does likewise. The clear rationale of the Noe decision and other well established case law in Louisiana, as well as the clear terms of the statutory fiduciary duty which a director owes to his corporation, lead this Court to but one conclusion: a purgative disclosure cannot remove the taint of unfairness or self-serving opportunity and thus permit a director, or a group of directors, to advantage themselves at the cost of the corporation upon whose Board of Directors they serve. “Consent” secured by the blandishment of disclosure does not justify, excuse, or permit an economic assault upon a body corporate by one of its directors. A fiduciary — duty bound director cannot absolve himself of that duty by admitting his self serving designs. Indeed, such candor, it could be well argued, may well violate the vote of the “remaining” directors since a full disclosure of a disadvantage in corporate disposition may signify a fiduciary violation on their part, since the statute, in any event, requires that the board authorize transaction “in good faith.” Noe, supra; House of Campbell v. Campbell, 172 So.2d 727 (La.App. 4th Cir.1965), Crescent City Brewing Co. v. Flanner, 44 La.Ann. 22, 10 So. 384, 385 (1891). However, even had plaintiff been successful in persuading the court that an unfair transaction may nevertheless be authorized by “uninterested” corporate directors after full disclosure, Rivercity is not entitled to rely on this portion of the statute, since by it’s own admission, the Jax Board of Directors ratified, as opposed to authorizing, the option agreement.

The only part of LSA-RS 12:84 A which refers to a ratification by the Board of Directors as validating an insider’s transaction is paragraph 3, which also requires that the contract be “... fair as to the corporation as of the time it was ... ratified...”.

The respective subsections of the statute have been deliberately structured to require disclosure of a director’s interest at the time a contract is authorized in good faith by the Board of Directors, with the fairness test imposed in the event of a ratification. The differences are genuine and realistic. Disclosure prior to authorization permits the issue of fairness to be ventilated at the meeting, where discussion can catalyze the appropriate Board response. Even here, however, the statute requires that the disinterested directors authorize the action “... in good faith ... ”.

Ratification occurs after the “horse has left the barn”, or, at least, after some action has been taken by a corporate officer or agent. Hence, the statute requires that a post-event review of action taken under the pressure of past circumstances disclose that the contract be “... fair ...” Rivercity has not attempted to show that the transaction was fair to Jax at the time it was granted and the Court doubts that it could do so if it tried. The “ratification” is therefore ineffective. Rivercity urges, however, that even if the requisites of paragraph 1 of LSA-RS 12:84 A were not met, the shareholders of Jax approved the option, and their absolution purged any stain of earlier sin.

LSA-RS 12:84 A(2) allows shareholders to approve an “interested directors” transaction provided that the material facts are disclosed or known to the shareholders and that they nevertheless approve a transaction in “good faith”.

Initially the court notes that the statute clearly contemplates a different factual scenario than is present in this case. James Howard, with his wife owned all outstanding shares of JBC Inc. JBC Inc., owned 99% of the Jax stock. JBC Inc. was also “interested” in the Rivercity option, for JBC, Inc. was a Rivercity partner. Indeed Jax director and Rivercity partner Farrell testified that Howard had made his approval of the option contingent upon JBC, Inc. being included in the Rivercity partnership. The agreement between Farrell, Nalty and Howard concerning the ultimate option transaction was made before Howard, through JBC Inc., made the tender offer which resulted in the Howard interests acquiring Jax outstanding stock. At that time, Farrell was on the Jax Board and it was he who recommended to the Fabacher family that they sell to Howard by way of JBC Inc.

Certainly, a plain reading of the statute indicates that it is designed to apply to situations where stockholders are disinterested. For this reason alone, there is grave doubt as to whether this section of the statute is available as a cleansing agent.

In any event, the statute requires that not only must officer-director interest in a transaction be disclosed to the shareholders, any such shareholder approval must be “in good faith.”

Relevant events at the time call into question the “good faith” of Howard who, through JBC, Inc., was voting 99% of the Jax stock. Howard did not appear or testify at trial — his whereabouts are said to be unknown. However, the trial testimony and a review of the Jax bankruptcy pro-ceedings reveal that Howard’s vote as a shareholder in approving the Rivercity option could under no circumstances be deemed “in good faith”. From December 7,1970, the date JBC, Inc. acquired the Jax stock, until June 7, 1972, when that stock was sold, Howard maneuvered Jax and JBC, Inc., so that approximately $14 million was transferred from Jax to JBC, Inc. The tender offer itself — which was, in effect, paid for with Jax assets, — amounted to only $11.5 million. Thus JBC, Inc. acquired the equivalent of some $2.5 million in Jax assets, to say nothing of a 1/3 interest in each of the Rivercity and French Eighth partnerships, which took “bargain basement” long term options on Jax’s valuable French Quarter properties. The funds which were upstreamed by Jax, to JBC, Inc. were styled as ‘loans’ but they were represented by unsecured, non-interest bearing JBC notes. (See Tr, 326-327). Through this process, Jax, a corporation already struggling when purchased from the Fabachers, was effectively bled white. As a result of Jax’s subsequent failure, its creditors including American and the Jax employees pension funds, lost heavily. Thus, even a cursory review of the facts casts a cloud of doubt over the entire series of transactions sufficient indeed for the Court to find that Howard et al’s “shareholder approval” was not in good faith.

Rivercity, of course, reads LSA-RS 12:84 in a different way, but the Court notes that the validating provisions of paragraphs A(l) through A(3) do not stand alone. They are integral, but component parts, of a clear statutory scheme, designed to permit corporations to deal with “insiders” if certain conditions are met. But even literal compliance with those conditions is not absolute, for the statute, in effect, declares that what would otherwise be an interest tainted insider transaction shall not be “... void or voidable solely because the common or interested director or officer was at or participated in the meeting ... or solely because his or her vote were counted for such purpose, if ____” one of the three alternative methods of authorization/approval/ratification are met. (Emphasis added).

Thus, “interest” cannot provide the “sole” grounds to void a corporate-insider transaction if the requisite statutory approvals are given — but other grounds to nullify such transactions may well be present, i.e. lack of good faith and fairness, respectively, and if so, would not be affected by the “purge” provisions of LSA-RS 12:84 A.

Indeed, such is the case at hand. It is clear beyond peradventure that the directors of Jax who were also partners in Rivercity breached the most fundamental duty a director owes to his corporation. Directors are fiduciaries as to their corporations, and are required to discharge the duties of their position in good faith and “with the diligence, care, judgment and skill which ordinarily prudent men would exercise under similar circumstances in like positions” LSA-RS 12:91, supra.

Noe, supra, places the burden of proving compliance with the statutory standard squarely upon a director who chooses to do business with his corporation; the Noe court cites approvingly the language in House of Campbell, supra, to the effect that because of the fiduciary relationship between a director and his corporation, an interested director bears the burden of proving his good faith in entering into the transaction as well as the inherent fairness of such transaction from the standpoint of the corporation. Noe, supra at 819.

The partners-directors acted in clear disregard of the statutory duty they owed to Jax. Neither have carried the burden of proving the Woe-endorsed and statutory requirements of good faith and fairness. Although both were keenly aware of the precarious financial situation of the brewery, both participated in a transaction having as its obvious purpose securing an advantage to their partnership, Rivercity,— i.e., long term option rights to Jax riverfront real property secured at bargain basement prices — at the cost of an already troubled Jax. A key factor in successfully negotiating this real estate coup was their presence on the Jax board of directors where they held positions of influence over corporate activities and decisions. Indeed, the corporate records indicate that both voted for the Rivercity option when it was first brought before the Board although they abstained on a ratification vote several months later. This Court finds that both partners used their positions on the Jax Board as a means of securing an advantageous real estate proposition for their partnership, Rivercity. Indeed, one testified frankly at trial that he never believed that any regional brewery had any long range capability, “and all we were interested in was the real estate, and everybody involved in the transaction knew that.” (Tr. p. 173.)

While the Court cannot help but admire this witness’ candor, it nevertheless illustrates the problems basic to Rivercity’s case. A corporation, particularly a troubled one, is not a piece of fruit to be sucked dry of its juices by insiders, while employees and other creditors must try to slake their thirst at the dry well of bankruptcy. The fiduciary duty of corporate directors is not to be casually shrugged away with accompanying disregard for consequences. In this case, the consequence for plaintiff, Rivercity, marks the end of a costly, time-consuming and unsuccessful struggle for property rights. It is perhaps the ultimate irony that these rights could have perhaps belonged to Rivercity had the partners-directors simply dealt with the corporation in a fair and forthright manner.

Accordingly,

IT IS ORDERED that judgment be entered in favor of defendant and against plaintiff, each party to bear its own costs. The third party demand for indemnity is now moot and is likewise DISMISSED.

      . The French Eighth Partnership was comprised of the same partners, holding the same partnership interests, as plaintiff. French Eighth purchased properties owned by Jax which were located on the lakeside of Decatur Street in a cash sale on January 1, 1971.

      . The facts relating to the transactions affecting the parties to this action are many and complex. Only the essential transactions affecting this action are noted here.

      . Margaret A. Perez later withdrew from the Rivercity partnership.

      . The term “introduction” may be misleading. The Whitney, had in fact been the bank of Jax before the JBC, Inc. buy-out.

      . As originally filed this suit named both Whitney and American as party defendants. However, by order entered on January 7, 1980 this Court dismissed the Whitney on the grounds that Rivercity had failed to state a valid claim against it: The Court found that, assuming Whitney had acted as agent of American under La.Civ.Code art. 3012, Whitney was not personally liable for actions taken in its capacity as agent. In a related finding the Court also held that the Whitney had not breached any contractual obligation it owed to Rivercity.

      . In a second order issued on July 13, 1978, at request of counsel for American, the Court clarified the January 7 ruling and held that "no factual finding relative to Whitney National Bank's status as a disclosed agent for American Can Company was made by the Court in its January 7, 1980 ruling.”

      . American had claimed that this correspondence, (Exhs. RC 33 and 34) as well as other evidence introduced by Rivercity, was protected under the attorney client privilege and the related attorney work product privilege. All of the documents in dispute were reviewed by Judge charles Schwartz, Eastern District of Louisiana, who recommended that this particular correspondence not be protected under either privilege. Judge Schwartz's recommendation was adopted for purposes of trial.

      . The Fifth Circuit avoided ruling on the controversy which is now before the Court. In affirming the Bankruptcy Court’s rejection of the Rivercity option that Court noted that the Bankruptcy Judge properly resisted an attempt by Rivercity to litigate its dispute with American in that forum.

      . At trial, plaintiffs admitted that the option itself was not signed on January 1, 1971, and in fact did not take effect until early'May, some tive months later. The Rivercity partners explained simply that they wanted the option contract "to speak in terms of January 1, 1971.”

      . LSA-R.S. 12:91 sets forth the fiduciary duty owed under these circumstances. It provides: "Officers and directors shall be deemed to stand in a fiduciary relation to the corporation and its shareholders, and shall discharge the duties of their respective positions in good faith, with that diligence, care, judgment and skill which ordinarily prudent men would exercise under similar circumstances in like positions...”

      . As observed by the Fifth Circuit, "Rivercity has assiduously avoided explaining how an option granted for five years for a consideration of $1,000 to purchase land — worth at least $5.1 million — for $2,777,128.44 could be anything but an onerously burdensome contract to the Jackson estate no matter who, secured or unsecured creditors, ultimately benefits from the rejection.” In the Matter of Jackson Brewing Co., supra, at 621.


author: RICE, District Judge.

text:
    Christine LAVROV, Plaintiff, v. NCR CORPORATION, et al., Defendants.
    No. C-3-82-275.
    United States District Court, S.D. Ohio, W.D.
    April 20, 1984.

      Kathryn Olson, Jane M. Picker, Cleveland, Ohio, Randal S. Bloch, Cincinnati, Ohio, Judith E. Kurtz, Nancy L. Davis, Donna Hitchens, San Francisco, Cal., for plaintiff.
    Janet K. Cooper, Dayton, Ohio, for defendants.

      This opinion, previously published at 591 F.Supp. 102, is republished to reflect corrections made in the appearances of counsel.

   DECISION AND ENTRY ON PENDING MOTIONS; ORDER BIFURCATING ISSUES FOR TRIAL; CONFERENCE CALL SET TO DETERMINE IF EXISTING TRIAL DATE CAN BE MET ON NARROW ISSUE SET FORTH BELOW OR, IN THE ALTERNATIVE, TO SET NEW TRIAL DATE ON BIFURCATED BASIS

RICE, District Judge.

In 1976, Defendant NCR Corporation (“NCR”) employed Plaintiff Christine Lavrov as a system support analyst at its San Francisco office. During November, 1976, Plaintiff served as a guide and interpreter for a visiting Soviet delegation. Subsequently, Plaintiff began pursuing employment with NCR’s International Division where she could use both her computer related skills and her fluency in Russian. To this end, Plaintiff sought employment with Defendant NCR GmbH (“NCR GmbH”). NRC GmbH is a German corporation, a wholly owned subsidiary of NCR, whose principal place of business is Augsburg, Germany.

In January, 1977, Plaintiff wrote Mr. Erwin Pruditsch, General Manager of NCR GmbH, to inquire about employment opportunities with the company. Initially, Plaintiff received no response. However, after Mr. Clarke E. Reynolds, NCR Vice President, Europe, intervened, Plaintiff received a response from Pruditsch. Plaintiff was not offered a position. Plaintiff continued to correspond with Pruditsch and Reynolds regarding her qualifications and the availability of a position for her with NCR GmbH. She received a variety of explanations why no such position was available. Ultimately, Plaintiff came to the conclusion that the real reason she was not offered employment with NCR GmbH was her sex. Consequently, Plaintiff initiated this action, alleging that NCR and NCR GmbH discriminated against her on the basis of her sex, in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e et seq.

This cause is before the Court on two discovery related motions, as well as upon Defendants’ motion for summary judgment. The Court will address the discovery related motions first. Then, it will turn to the motion for summary judgment.

Plaintiff has filed a motion to request production of documents prior to the expiration of thirty days (Doc. # 19). As the thirty days has expired, the Court hereby overrules said motion as moot.

Defendants have filed a motion to strike (Doc. # 21) Plaintiff’s requests for production of documents and notices of deposition. Defendants argue that Plaintiff filed these in contravention of Local Rules 4.7.1 and 4.7.3. Even assuming that Defendants’ basic premise is correct, the Court is convinced that Defendants’ motion must be overruled. Defendants do not assert that they were prejudiced by Plaintiff filing these discovery requests. Indeed, the Local Rule does not purport to relieve a party of its obligation to comply with Rules 26-37 of the Federal Rules of Civil Procedure. The Court is unable to conclude that Plaintiff’s filings have in any way impeded discovery. To grant Defendants’ motion would subvert the purpose of the Local Rules. The purpose of the Local Rules was to require counsel to endeavor to resolve discovery disputes extrajudicially. Sustaining Defendants’ motion would subvert this salutary purpose. Such a result would encourage the filing of motions which, contrary to the intent of the Local Rules, would require the Court to become involved in resolving disputes. The ultimate resolution of such a motion would have no impact on the outcome of discovery or upon the ultimate result of the case. Accordingly, Defendants’ motion to strike is overruled.

As stated above, this action is also before the Court on Defendants’ motion for summary judgment (Doc. # 11), together with various memoranda in support and in opposition to the motion (Docs. # 12, 30, 32, 33). In support of their motion for summary judgment, Defendants raise four distinct arguments, two of which apply to each Defendant: (1) Plaintiff’s complaint fails to state a claim against NCR; (2) NCR is not an “employment agency” within the meaning of Title VII; (3) this Court lacks personal jurisdiction over NCR GmbH; and (4) NCR GmbH is not an “employer” as that term is used- in Title VII.

In ruling on Defendants’ motions, this Court will first review the standards which govern motions for summary judgment. Then, the Court will address, seriatim, the Defendants’ arguments, which are set forth above.

Under Rule 56(c), Fed.R.Civ.P., a motion for summary judgment must be overruled unless there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. In Snider v. Creasy, 548 F.Supp. 601 (S.D.Ohio 1982), Judge Rubin summarized this standard:

The summary judgment standard in this circuit is a stringent one. Federal Rule of Civil Procedure 56(c) permits the Court to grant summary judgment only when there is no genuine issue of material fact and when the moving party is entitled to judgment as a matter of law. Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 64 S.Ct. 724, 88 L.Ed. 967 (1944); Tee-Pak, Inc. v. St. Regis Paper Co., 491 F.2d 1193, 1195 (6th Cir.1974). In deciding a Motion for Summary Judgment, the Court must construe evidence most favorably to the opposing party. Bohn Aluminum & Brass Corp. v. Storm King Corp., 303 F.2d 425, 427 (6th Cir.1962).

Id. at 602. See also, Bouldis v. U.S. Suzuki Motor Corp., 711 F.2d 1319 (6th Cir. 1983); Weaver v. Shopsmith, Inc., 556 F.Supp. 348 (S.D.Ohio 1982); Schwarzer, Summary Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99 F.R.D. 465. Of course, if a motion for summary judgment is properly supported, the opposing party may not rest on her pleadings; rather, she must present affidavits or other evidence which set forth specific facts demonstrating the existence of a genuine issue of material fact. Rule 56(e), Fed.R.Civ.P.; Gillmore v. Proctor & Gamble Company, 417 F.2d 615 (6th Cir.1969).

With these standards in mind, the Court will now address the specific arguments in support of summary judgment raised by Defendant NCR.

I.

In her complaint, Plaintiff asserts liability against NCR on two, independent theories. NCR has moved for summary judgment on both of these theories, raising distinct arguments for each. The theories and NCR’s corresponding arguments in favor of summary judgment will be discussed separately.

A.

Initially, Plaintiff seeks to impose liability on NCR on the theory that NCR and its wholly owned subsidiary, NCR GmbH, are a single or joint employer within the meaning of Title VII. Plaintiffs complaint (Doc. # 1) at If 16.

NCR seeks summary judgment on the theory that it and its wholly owned subsidiary, NCR GmbH, are separate entities and not a single employer. NCR asserts that as a general rule a parent corporation is not liable for violations of Title VII by its wholly owned subsidiaries. Consequently, Plaintiff fails to state a claim against NCR and, therefore, NCR is not liable for the alleged discrimination by NCR GmbH. In making this argument, NCR relies, primarily, on Hassell v. Harmon Foods, Inc., 454 F.2d 199 (6th Cir.1972), affirming, 336 F.Supp. 432 (W.D.Tenn.1971).

In Hassell, the Sixth Circuit affirmed the District Court’s grant of a summary judgment for the defendant employer. The Court noted that the District Court had found that the relationship between parent and subsidiary was a normal one which could not be called a sham. Therefore, the Court concluded that the subsidiary was legally contemplated as a separate corporation, because the parent would not be liable for the debts of the subsidiary and the subsidiary was a separate corporation for tax purposes. 454 F.2d at 200. On that basis, the District Court declined to find that the two corporations constituted a single employer for purposes of Title VII. Similarly, the Court of Appeals determined that the record supported the District Court’s finding. Id.

However, in Armbruster v. Quinn, 711 F.2d 1332 (6th Cir.1983), the Sixth Circuit said that “Hassell does not set forth an inflexible test.” Id. at 1336 (footnote omitted). The court noted that while corporate law doctrines may be helpful in determining whether to treat a parent and subsidiary as separate entities:

[T]he most important requirement is that there be sufficient indicia of an interrelationship between an immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer. When such a degree of interrelatedness is present, we consider the departure from the “normal” separate existence between entities an adequate reason to view the subsidiary’s conduct as that of both.

Id. at 1337 (citations omitted).

Next, the court turned its attention to the task of setting standards, by which the degree of interrelationship might be assessed.

For guidance in testing the degree of interrelationship, we look to the four-part test formulated by the NLRB and approved by the Supreme Court in Radio Union v. Broadcast Service, 380 U.S. 255, 85 S.Ct. 876, 13 L.Ed.2d 789 (1965) (per curiam). Accord Mas Marques v. Digital Equipment Corp., 637 F.2d 24, 27 (1st Cir.1980); Williams v. Evangelical Retirement Homes of St. Louis, 594 F.2d 701, 703 (8th Cir.1979); Baker v. Stuart Broadcasting Co., 560 F.2d 389, 392 (8th Cir.1977); see also, EEOC v. American National Bank, 652 F.2d 1176, 1185 (4th Cir.1981), cert. denied, [459] U.S. [923], 103 S.Ct. 235, 74 L.Ed.2d 186; cf. Dumas v. Town of Mt. Vernon, 612 F.2d 974, 980 n. 9 (5th Cir.1980). This Circuit has also adopted this test which assesses the degree of (1) interrelated operations, (2) common management, (3) centralized control of labor relations, and (4) common ownership. See, e.g., NLRB v. Borg Warner Corp., 663 F.2d 666 (6th Cir.), cert. denied, 457 U.S. 1105, 102 S.Ct. 2903, 73 L.Ed.2d 1313 (1982). While each factor is indicative of interrelation and while control over the elements of labor relations is a central concern, see, Sheeran v. American Commercial Lines, 683 F.2d 970, 978 (6th Cir.1982), the presence of any single factor in the Title VII context is not conclusive.
All four criteria need not be present in all cases and, even when no evidence of common control of labor relations policy is presented, the circumstances may be such that the Title VII single-employer doctrine is applicable. See, Metropolitan Detroit Bricklayers v. J.E. Hoetger & Co., 672 F.2d 580, 584 (6th Cir.1982); Local No. 627, Operating Engineers v. NLRB, 518 F.2d 1040, 1045-46 (D.C.Cir.1975), aff'd in relevant part sub nom. South Prairie Construction Co. v. Local 627, Operating Engineers, 425 U.S. 800, 96 S.Ct. 1842, 48 L.Ed.2d 382 (1976); see generally, Soule Glass and Glazing Co. v. NLRB, 652 F.2d 1055, 1075-76 (1st Cir.1981).
The showing required to warrant a finding of single-employer status has been described as “highly integrated with respect to ownership and operations.” Fike v. Gold Kist, Inc., 514 F.Supp. 722, 726 (N.D.Ala.1981), aff'd, 664 F.2d 295 (11th Cir.1982), quoting, Riverside Motor Inn, 199 NLRB 1033 (1972) and Operating Engineers, Local 428, 169 NLRB 184 (1968). The test may also be satisfied by a showing that there is an amount of “participation [that] is sufficient and necessary to the total employment process,” even absent “total control or ultimate authority over hiring decisions.” Rivas v. State Board for Community Colleges and Occupational Education, 517 F.Supp. 467, 470 (D.Colo. 1981).

Id. at 1337-38 (footnote omitted).

Finally, the court set forth the standard to be used in making such determinations.

From the reasoning of the courts in the above-discussed cases and from our examination of the apparent Congressional intent, we adopt a “facts and circumstances” test which pays heed to the factors found relevant to the question of single-employer status in the National Labor Relations Act context. This test seeks to effectuate the broad and remedial purposes of the Act reaffirmed in the comprehensive Equal Employment Opportunity Act of 1972. The appropriate standard is whether, upon review of the circumstances of the intercorporate relationship, [the parent corporation] exercises a degree of control that exceeds the control normally exercised by a parent corporation which is separate and distinct from the subsidiary corporate entity.

Id. at 1338. See also, EEOC v. Wooster Brush Company Employees Relief Assn., 727 F.2d 566, 33 FEP 1823 (6th Cir.1984).

This Court now applies the standards set forth in Armbruster to the affidavits and other evidence before the Court. The issue which must be resolved is whether the interrelationship of NCR and NCR GmbH raises a genuine issue of fact on the question of whether they are separate companies or entities. NCR is entitled to summary judgment only if there is no genuine issue of fact as to the control exercised by NCR over NCR GmbH and that, as a matter of law, the control NCR exercised was no greater than that normally exercised by a parent corporation over its subsidiary.

Viewing the evidence in the light most favorable to the Plaintiff, the Court concludes that whether NCR exercises greater control over NCR GmbH than that normally exercised by a parent corporation over its subsidiary, so that the two may be considered a single employer for purposes of Title VII, raises a genuine issue of fact. In reaching this conclusion, the Court, as directed by Armbruster, pays particular attention to the factors developed to determine single-employer status within the context of the National Labor Relations Act.

Examining these factors in reverse order, first, it is not controverted that NCR and NCR GmbH have common ownership. NCR GmbH is a wholly owned subsidiary of NCR. Second, there is ample evidence before the Court to create an issue of fact as to whether the labor relations of NCR and NCR GmbH were centralized. The depositions of Erwin H. Heinz, director of personnel resources for NCR-Europe, demonstrates the existence of such a genuine issue of fact. NCR GmbH is not authorized to change any remuneration plans, benefits, or operating conditions without prior approval from NCR. (Heinz Dep. at 66). Subsidiaries such as NCR GmbH were expected to implement NCR corporation-wide personnel policies unless such policies violated local law. (Id. at 33). Certain personnel decisions with regard to individual employees, such as hirings, firings and raises, required approval by NCR. (Id. at 7; 19-20).

The next factor to consider is the common management of the parent and subsidiary. A supervisory board, with six members each from management and employees, oversees NCR GmbH. (Reynolds Dep. at 11). NCR appointed Reynolds to the board, and it also appointed the other management members of that board. (Id. at 11-12; 75-77). This is sufficient indicia to raise a genuine issue of fact over the common management of NCR and NCR GmbH.

Additionally, there is a genuine issue of fact regarding the interrelated operations of NCR and NCR GmbH. NCR GmbH markets products assigned to it by NCR. (Id. at 24). NCR GmbH must receive approval of NCR prior to entering into a new product line. (Id. at 27-30; 43-44).

Based on the foregoing, the Court concludes that whether NCR and NCR GmbH are a single employer or separate companies and entities presents a genuine issue of material fact. Accordingly, this branch of Defendants’ motion for summary judgment is overruled.

B.

Plaintiff’s alternative theory of liability against NCR is that it is an employment agency within the meaning of Title VII. Plaintiff’s Complaint at H17. Defendants move for summary judgment on this allegation arguing that it does not fall within the statutory definition of employment agency.

Under Title VII:

The term “employment agency” means any person regularly undertaking with or without compensation to procure employees for an employer or to procure for employees opportunities to work for an employer and includes an agent of such a person.

42 U.S.C. § 2000e(c) (emphasis added).

Defendants argue that the single act of Reynolds contacting Pruditsch, at Plaintiffs request, does not make NCR an employment agency. What is missing, Defendants contend, is the requirement of regularity.

In the Court’s opinion, the affidavit of Reynolds does not demonstrate the absence of a fact question regarding the regularity with which NCR would procure employees for NCR GmbH. In the affidavit, Reynolds states that “on rare occasions,” NCR would expatriate workers to NCR GmbH at the latter’s request. This does not demonstrate the absence of a genuine issue of fact regarding the regularity of NCR’s actions. Based on the foregoing, it would appear that this branch of the Defendant’s motion should be overruled.

Nevertheless, in spite of the foregoing, the Court is troubled by an issue that the parties do not directly address in the present context. As set forth above, an employment agency is a person who either procures employees for an employer or procures employment opportunities for employees to work with an employer. The parties do discuss in detail, although not in this context, whether NCR GmbH is an employer within the meaning of Title VII. For reasons set forth in Section 11(B) below, this Court concludes that NCR GmbH is not an employer within the meaning of Title VII. Thus, the Court concludes that NCR is not an employment agency when it neither procured employees for an employer, nor procured, for an employee, the opportunity to work for an employer. Accordingly, this branch of Defendants’ motion for summary judgment is sustained, and Plaintiff’s claim that NCR is liable as an employment agency is dismissed.

II.

Defendants raise two independent grounds in support of summary judgment for NCR GmbH. First, Defendants argue that this Court lacks personal jurisdiction over NCR GmbH. Second, Defendants argue that NCR GmbH is not an employer within the meaning of Title VII, and as a consequence, .NCR GmbH cannot be held liable under Title VII. These arguments will be discussed in order.

A.

Defendants move for summary judgment asserting that the Court lacks personal jurisdiction over NCR GmbH. Initially, the Court notes that the proper procedural mechanism for challenging a court’s jurisdiction over a party is through a motion to dismiss under Rule 12(b), Fed.R.Civ.P. See generally, 6 Moore, Federal Practice, ¶¶ 56.02[3], 56.03; 10 Wright, Miller & Kane, Federal Practice and Procedure, § 2713 at p. 608-13. In accordance with the practice of other courts, this Court will treat this branch of Defendants’ motion as one to dismiss. See, e.g., Meench v. Raymond Corp., 283 F.Supp. 68 (E.D.Pa.1968).

A federal court, even when the underlying action is a federal question, may use the long arm statute of the forum state to determine whether it has personal jurisdiction over a defendant. Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 376 n. 2 (6th Cir.1968); Rule 4(e), Fed.R.Civ.P. Consequently, the Court turns to the Ohio “long arm” statute, Ohio Rev. Code § 2307.382, to determine whether it has personal jurisdiction over NCR GmbH.

The Sixth Circuit has held that § 2307.382 is intended to extend the personal jurisdiction of courts to the constitutional limitations of due process. Welsh v. Gibbs, 631 F.2d 436, 439 (6th Cir.1980); In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 225 (6th Cir.1972). In order not to offend traditional notions of due process, a defendant must have “mini-' mum contacts” with the forum state before a court may exercise jurisdiction over the defendant. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). To determine whether sufficient minimum contacts between the defendant and the forum state exist, so as to support the exercise of jurisdiction under § 2307.382 and not to offend due process, the Sixth Circuit has adopted a three-part test.

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant’s activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Welsh v. Gibbs, supra, 631 F.2d at 440 (quoting from Southern Machine Co. v. Mohasco Industries, Inc., supra, 401 F.2d at 381). Accord, In-Flight Devices Corp. v. Van Dusen Air, Inc., supra.

When a defendant challenges a court’s jurisdiction over his person, the plaintiff has the burden of demonstrating that the Court has personal jurisdiction. First National Bank of Louisville v. J.W. Brewer Tire Co., 680 F.2d 1123 (6th Cir.1982).. When the court decides the question of its jurisdiction over a party solely on the basis of the pleadings, the plaintiff need only make out a prima facie case of jurisdiction. Welsh v. Gibbs, supra, 631 F.2d at 438. If the moving party submits affidavits in support of its motion, the opposing party must respond with affidavits or other permissible evidence which set forth specific facts showing that the court has jurisdiction. Weller v. Cromwell Oil Co., 504 F.2d 927 (6th Cir.1974). Finally, if the court concludes that the written submissions raise either issues of credibility or disputed issues of fact, the court may conduct an evidentiary hearing wherein the plaintiff must prove, by a preponderance of the evidence, that jurisdiction exists. Welsh v. Gibbs, supra, 631 F.2d at 439.

Because an issue of fact exists, the Court is not able to rule on this branch of Defendants’ motion. In addition to asserting that the Sixth Circuit’s three-part test has not been met, Defendants argue that the presence of the parent corporation, NCR, is not a sufficient basis to assert jurisdiction over the subsidiary, NCR GmbH. The relationship of NCR and NCR GmbH is thus posited as the existing fact question. In light of the existence of this fact question, the Court finds it unnecessary to decide whether the Sixth Circuit’s three-part test, above referenced, has been met.

Normally, as Defendants assert, the presence of a parent corporation in the forum state does not alone give a court jurisdiction over the parent’s subsidiaries. Velandra v. Regie Nationale Des Usines Renault, 336 F.2d 292 (6th Cir.1964). However, courts have relied on the presence of a parent or subsidiary to assert jurisdiction over the other when the subsidiary is considered a mere instrumentality of the parent. See, e.g., Lakota Girl Scout Council, Inc. v. Havey Fund-Raising Management, Inc., 519 F.2d 634 (8th Cir.1975); Leach Company v. General SaniCan Mfg. Corp., 393 F.2d 183 (7th Cir.1968); Captain International Industries v. Westbury, Chicago,. Inc., 416 F.Supp. 721 (N.D.Ill.1975); Freeman v. Gordon & Breach Science Publishers, Inc., 398 F.Supp. 519 (S.D.N.Y.1975); Industrial Research Corp. v. General Motors Corp., 29 F.2d 623 (N.D.Ohio 1928).

Herein, the Court has concluded, in Section 1(A) above, that the interrelationship of NCR and NCR GmbH is an issue of fact. This same question also raises an issue of fact for purposes of ascertaining the Court’s jurisdiction over NCR GmbH. The usual procedure would be to hold a hearing to resolve this issue of fact. Welsh v. Gibbs, supra. However, the Court con-eludes, in Section 11(B) below, that NCR GmbH is not an employer within the meaning of Title VII and thus dismisses NCR GmbH. Consequently, it is unnecessary to conduct such a hearing or to ascertain the Court’s jurisdiction over NCR GmbH. Therefore, this branch of Defendants’ motion is overruled as moot.

B.

Assuming, arguendo, that the Court has jurisdiction over NCR GmbH, the Defendants’ alternative ground for summary judgment in favor of NCR GmbH presents a sufficient, independent basis to grant summary judgment in favor of that Defendant. In this branch of their motion, Defendants point to the uncontroverted fact that NCR GmbH is a West German corporation that does not operate in the United States. Defendants argue that Title VII does not apply to foreign corporations such as NCR GmbH. For reasons that follow, this Court agrees that Title VII is not applicable to foreign corporations, at least with respect to the employment of persons in foreign countries.

The United States Supreme Court has held on a number of occasions that in the absence of strong legislative intent, federal laws regulating employee/employer relations do not apply to foreign employers. Benz v. Compania Naviera Hidalgo, 353 U.S. 138, 77 S.Ct. 699, 1 L.Ed.2d 709 (1957); McCulloch v. Sociedad Nacional deMarineros deHonduras, 372 U.S. 10, 83 S.Ct. 671, 9 L.Ed.2d 547 (1963). See also, Lauritzen v. Larsen, 345 U.S. 571, 73 S.Ct. 921, 97 L.Ed. 1254 (1953) (Danish seaman may not use Jones Act to sue his employer, a Danish shipowner). As the Court said in McCulloch, supra:

We therefore conclude, as we did in Benz, that for us to sanction the exercise of local sovereignty under such conditions in this “delicate field of international relations there must be present the affirmative intention of the Congress clearly expressed.” 353 U.S. at 147, 77 S.Ct. at 704.

372 U.S. at 21-22, 83 S.Ct. at 677-678.

Plaintiff argues that § 702 of the 1964 Civil Rights Act, 42 U.S.C. § 2000e-1, evidences such an intent. Section 702 provides, in part, “[tjhis subchapter shall not apply to an employer with respect to the employment of aliens outside a State....” (emphasis added). Plaintiff argues that the negative implication of this language is that Congress intended Title VII to apply in the employment of American citizens in foreign countries. Indeed, two District Courts have seized on this language to hold American employers liable for their extraterritorial violations of Title VII. Love v. Pullman, 13 FEP 423 (D.Colo.1976), affirmed on nonrelevant grounds, 569 F.2d 1074 (10 Cir.1978); Bryant v. International Schools Services, Inc., 502 F.Supp. 472 (D.N.J.1980), reversed on other grounds, 675 F.2d 562 (3rd Cir.1982).

This Court will assume, for present purposes, that Title VII reaches the extraterritorial discrimination by American employers. Indeed, since Plaintiff sought employment outside this country, the Court may eventually have to decide whether Title VII has such a reach. In the event that the Court finds that NCR and NCR GmbH are a single employer and that they violated Title VII, it will be necessary to decide whether Title VII may be applied extraterritorially against an American employer, NCR. However, the question here is whether Title VII extends to the employment practices of foreign corporations, such as NCR GmbH, outside the United States. Section 702 does not answer this question because by its express language, it applies only to employers. As previously indicated, this Court has concluded that NCR GmbH is not an employer within the meaning of Title VII.

The Court has not been able to glean, nor has the Plaintiff supplied, evidence, from either the statute or the legislative history, that Congress intended Title VII to apply to the employment practices of foreign corporations outside the United States. Based upon the foregoing, in the absence of “affirmative intention of the Congress clearly expressed,” the Court concludes that NCR GmbH is not an employer within the meaning of Title VII. Accordingly, this branch of Defendants’ motion for summary judgment is sustained. Consequently, judgment is entered in favor of the Defendant NCR GmbH and against Plaintiff on Plaintiff’s claims against NCR GmbH. NCR GmbH is dismissed as a Defendant in this action.

III.

To summarize, the Court has ruled on the outstanding motions in this case in the following manner:

(1) Plaintiff’s motion for production of documents prior to the expiration of thirty days (Doc. # 19) is overruled as moot.

(2) Defendants’ motion to strike (Doc. # 21) is overruled.

(8) Defendants’ motion for summary judgment (Doc. # 11):

(a) That branch of Defendants’ motion which is directed at the Plaintiff’s allegation that NCR and NCR GmbH are a single employer is overruled.
(b) That branch of Defendants’ motion which is directed at the Plaintiff’s allegation that NCR is an employment agency is sustained.
(c) That branch of Defendants’ motion challenging the Court’s jurisdiction over NCR GmbH, treating same as a motion to dismiss under Rule 12(b), is overruled as moot.
(d) That branch of Defendants’ motion which asserts that NCR GmbH is not an employer within the meaning of Title VII is sustained.

The clerk will enter the appropriate judgment.

Ruling on the Defendants’ motion for summary judgment has demonstrated to the Court that there is one issue of overriding importance in this case: the interrelationship of NCR and NCR GmbH. Absent a finding that there is a sufficient interrelationship between NCR and NCR GmbH, Plaintiff can not recover from NCR for the actions of NCR GmbH, since the Court reads Plaintiff’s complaint as alleging independent discrimination, not by NCR, but by NCR GmbH. Plaintiff did not assert independent discrimination by NCR in her memoranda in opposition to Defendants’ motion. Therefore, the Court has determined that in the interests of judicial economy, the issues in this cause must be bifurcated. Pursuant to Rule 42(b), Fed.R. Civ.P., this Court hereby bifurcates the issues in this case and orders separate trial on the issue of the interrelationship of NCR and NCR GmbH. This issue will be tried to the Court, hopefully on the date originally set for trial upon the merits. Then, assuming the Court finds a sufficient interrelationship between NCR and NCR GmbH, the Court will try the remaining issues in this case. If the interrelationship referred to above, such as would cause this Court to conclude, as a matter of law, that NCR is responsible for the actions of NCR GmbH is not found, final judgment will be entered for the remaining Defendant, NCR.

A conference call, between the Court and the attorneys in this case, by conference call telephone communication, has been set for 1:15 p.m. on Tuesday, April 24, 1984, so that a new trial date and other pertinent dates can be set.

      . Additional evidence of the facts and circumstances surrounding this case will be discussed, when relevant, in connection with the Court’s resolution of the issues raised by Defendants’ motion.

      . The Court has rearranged the Defendants’ arguments merely for the sake of convenience so that arguments relating to each Defendant may be discussed in order.

      . It is axiomatic that the Court’s conclusion that a genuine issue of fact exists is not a finding that NCR and NCR GmbH are a single employer. Ultimate resolution of that question must await trial on the merits.

      . In their reply memorandum (Doc. #33), Defendants argue that use of the NLRA standards, as set forth in Armbruster, to find that NCR and NCR GmbH are a single employer is prohibited by Treaty. In particular, Defendants rely on Article XXV(5) of the Treaty of Friendship, Commerce and Navigation between the United States and Germany. 7 U.S.T. 1839, 1866 (1956).
      Whatever the merits of this contention, the Court declines to address them because Defendants did not raise same until their reply memorandum. Of course, Defendants are free to raise this argument in post-trial briefing.

      . The Defendants suggest that this Court should follow those courts which have held that the ADEA does not apply extraterritorially to domestic corporations. See, e.g., Pfeiffer v. William Wrigley, Jr., Co., 573 F.Supp. 458 (N.D.Ill.1983); Zahourek v. Arthur Young & Co., 567 F.Supp. 1453 (D.Colo.1983); Clearly v. United States Lines, Inc., 555 F.Supp. 1251 (D.N.J.1983). Defendants note that because of the similar structure and purpose of Title VII and the ADEA, interpretations of one statute are often used in interpreting the other. See, e.g., Oscar Mayer & Co. v. Evans, 441 U.S. 750, 756, 99 S.Ct. 2066, 2071, 60 L.Ed.2d 609 (1979).
      For the following reasons, this Court feels that these cases decided under the ADEA are clearly distinguishable and provide no basis for decision herein. First, the ADEA has no provision, similar to § 702, from which one could infer an intent by Congress to apply the ADEA extraterritorially. Second, § 626(b), 29 U.S.C. § 626(b), of the ADEA, unlike Title VII, incorporates into it § 216(d), 29 U.S.C. § 216(d), of the Fair Labor Standards Act (FSLA). § 216(d) of the FSLA, in turn, provides that an employer shall not be liable with respect to work performed at a workplace which is exempt under § 213(f), 29 U.S.C. 213(f). Section 213(f) provides that FSLA shall not apply to work performed in a foreign country.
      For the same reasons, those decisions refusing to apply the Equal Pay Act, 29 U.S.C. § 206(b), extraterritorially, see, e.g., Schultz v. Wheaton Glass Co., 421 F.2d 259 (3rd Cir.1970), cert. denied, 398 U.S. 905, 90 S.Ct. 1696, 26 L.Ed.2d 64, are not applicable.

      . Defendants did not raise this question in their motion for summary judgment; consequently, the Court expresses no opinion on it.