Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Bendix Corp. v. Director

Decided: July 16, 1991.


On appeal from the Superior Court, Appellate Division, whose opinion is reported at 237 N.J. Super. 328 (1989).

For affirmance -- Chief Justice Wilentz, Clifford, Handler, O'Hern and Stein, and Judges Muir and Cohen (temporarily assigned). Opposed -- None. The opinion of the court was delivered by Muir, Jr., J.A.D., Temporarily Assigned.


[125 NJ Page 22] On this appeal, plaintiff, Bendix Corporation, a multi-jurisdictional, non-domiciliary corporation doing business in New Jersey, argues New Jersey transgressed the due process and commerce clause limitations of the United States Constitution when the State taxed capital gains Bendix earned from the sale of all its stock in two corporate affiliates. In 1981, Bendix sold its 20.6% stock ownership in ASARCO Inc., and its 100% stock ownership in United Geophysical Corporation (UGC). New Jersey relied on the unitary business/formula apportionment method to assess the tax on the resulting capital gains and related interest. The assessment resulted in an additional tax liability of $1,845,000, which the State set off against Bendix's 1981 refund. The Tax Court upheld the assessment. The Appellate Division affirmed. We now affirm.


Bendix filed a complaint in the Tax Court challenging the deficiency assessment that arose from the Director's inclusion of the capital gains realized from the sales and related investment-account interest in the tax base of the apportionment formula employed to calculate Bendix's corporate business tax. The parties presented a stipulated record that included the deposition of W.M. Agee, chief executive officer of Bendix from 1977 to 1983. The Tax Court found no constitutional infringement created by the tax imposition. It ruled Bendix a unitary business, concluding the active investment strategy that led to the capital gains made that intangible income unitary and, therefore, apportionable. The Tax Court reached its conclusion by focusing on the investment activities of Bendix rather than the activities of the corporation's affiliates or their relationship with Bendix. In making its decision, the Tax Court relied in particular on Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 103 S. Ct. 2933, 77 L. Ed. 2d 545 (1983), and Silent Hoist & Crane Co. v. Director, Division of Taxation, 100 N.J. 1, 494 A.2d 775, cert. denied, 474 U.S. 995, 106 S. Ct. 409, 88 L. Ed. 2d 359 (1985). The court also ruled Bendix failed to establish any ground for altering the statutory allocation formula employed.

The Appellate Division affirmed. 237 N.J. Super. 328, 568 A.2d 59 (1989). While that court did not "fully subscribe" to the legal distinction the Tax Court made between dividends and capital gains and emphasized the factual difference between Silent Hoist and this case, see id. at 336, 568 A.2d 59, it concurred in the Tax Court's recognition of Bendix's commitment "to a corporate strategy of international diversified growth" as a basis for finding Bendix a unitary business. The Appellate Division also affirmed the apportionment formula for the reasons expressed by the Tax Court. Bendix, relying on R. 2:2-1(a)(1), appealed to this Court as a matter of right, asserting a substantial question under the United States Constitution.


Bendix is a Delaware corporation with its principal office in Southfield, Michigan. In 1929, Bendix incorporated in Delaware. At that time it manufactured aviation and automotive parts.

In 1937, Bendix qualified to do business in New Jersey. Its operations in this State essentially consist of the production of several aerospace flight, guidance and test systems in Teterboro and of the manufacture of electric power-generating systems in Eatontown. The specific activities of Bendix in New Jersey are carefully detailed in the Tax Court opinion. 10 N.J. Tax. 46 (1988).

Bendix has grown to be a multi-jurisdictional corporation with activities through direct operation or affiliates in all fifty states and twenty-two foreign countries. According to the deposition of Agee, Bendix, from 1965 to 1981, sought to diversify the company's holdings and strengthen its operations. During that period, Bendix acquired either part or all of over forty separate companies. In the same period, Bendix sold off eight or more of its affiliates or divisions, including ASARCO and UGC.

Annual reports to stockholders during the growth period reflect a methodology of selective acquisitions and divestitures of companies to foster corporate expansion in new areas or of existing business activities. The 1969 annual report to shareholders reflects the growth program in the statement, "we intensified our efforts to expand [from businesses dependent on the government sector] in other commercial and industrial markets." The same report states, "[a]cquisitions have played a significant role in the growth of your Corporation during the past decade." The report refers to six corporate acquisitions and four corporate sales during the year.

Each annual report thereafter trumpets Bendix's strategies to pursue diversification and growth in both domestic and foreign markets. By 1975 Bendix had followed a "careful diversification . . . into four broad lines of business -- automotive,

aerospace-electronics, industrial-energy and shelter." Those four lines under Agee's direction changed to automotive, aerospace-electronics, forest products, and industrial-energy, with all affiliates being assigned to one of those four major operating groups. The New Jersey divisions fell essentially into the aerospace-electronics and the industrial-energy groups.

The operating groups served as the basis for vertical corporate supervision. Generally, while each subsidiary had its own management, that management reported to the chief executive of its group. The group chief executive reported to the Bendix CEO, who also served as chairman of the board. In that way, the CEO maintained almost exclusive control and decisionmaking power over the entire corporation. In his deposition, Agee stated he made the final decision on all acquisitions and divestitures subject to board approval where required.

Bendix maintained a planning department to advise group managers and Agee on "long and short range business proposals." Those proposals analyzed capital commitments to existing as well as new business activities, analyzed divestiture of affiliates or operating units, and evaluated acquisition candidates. As one stipulation put it, "[w]hile acquisition or divestiture was not the sole means of accomplishing certain . . . objectives, Bendix . . . engaged in selected acquisitions and divestitures of companies or assets over the years."

Agee, in his deposition, described some of the planning department's responsibilities on the strategies of growth. He characterized one of the department's responsibilities as what it takes to grow with and without capital and, if with it, how much more. These strategy reviews dovetailed with Bendix's consideration of group managers' plans for making an acquisition "in order to remain competitive" or with the general corporate goal of expansion within the existing financial base or one entailing the "need [for] more money." The record discloses evidence from which one can reasonably conclude that

such acquisition decisions entailed reliance on the cash flow from divestitures as a source of capital.

By 1977, under Agee's hand, diversification and expansion had become the by-word of corporate policy. The 1977 annual report states, "we have pursued a deliberate policy of diversification both within and among our lines of business, and geographically as well, in an effort to arrive at a combination of activities that helps insulate the company as a whole from the ups and downs of any one of them."

This theme in 1978 fostered a memorandum from Agee to Bendix's planning committee entitled Long Range Growth and Acquisition Planning. For the 1980s, the memorandum recommended diversification in several areas to encourage corporate growth, "rebalancing," and restructuring of a Bendix division with an eye to divestiture. The memorandum discusses the effect acquisitions would have on "near-term earnings" and notes "[e]ach major acquisition would be structured to leave us positioned financially to take the next action."

The 1978 memorandum specifically discusses several acquisitions required for "strong growth in the 80's." One of those acquisitions was ASARCO.


ASARCO's appeal to Bendix stemmed from ASARCO's profitable natural resource business, some of which occurred in New Jersey. The specific nature and extent of that business is described in ASARCO Inc. v. Idaho State Tax Commission, 458 U.S. 307, 102 S. Ct. 3103, 73 L. Ed. 2d 787 (1982).

Agee's 1978 memorandum targeted ASARCO for acquisition. The memorandum reviewed the alternatives between total acquisition and 20% stock ownership. Agee opined that, even with a minority stock ownership, Bendix's influence would be "felt" with one or two seats on ASARCO's board of directors. Agee projected the minority membership would give Bendix

"access to insider information which could inhibit but not bar further acquisition of shares."

By November 1978 Bendix owned 20.6% of ASARCO's stock. Bendix gained two seats on ASARCO's board in the persons of Agee and an outside director of Bendix. While an agreement negotiated with ASARCO placed limits on Bendix's ability to acquire more stock and despite the absence of further stock acquisitions, Bendix benefited significantly from its minority ownership. In 1979, ASARCO contributed 82 cent per share to Bendix's total earnings of $7.10 per share. In 1980, ASARCO contributed $2.22 per share to Bendix's total earnings of $7.68 per share.

During the time Bendix owned 20.6% of ASARCO, the companies had limited interaction. They shared no common officers, employees, office space, or legal services. Neither company loaned money to the other nor did either guarantee debts of the other. Also, while ASARCO subsidiaries made small arms length sales to Bendix, the companies did not make direct sales to one another. Bendix kept ASARCO's activities under review through a quarterly examination of ASARCO's books and continuous scrutiny of ASARCO's earnings by Bendix's board of directors.

In October 1980, ASARCO agreed to purchase the Bendix shares. The purchase occurred in 1981, yielding a capital gain of approximately $211,500,000. According to Agee, Bendix sold the ASARCO stock as part of its plan for restructuring the company. Agee characterized the restructuring as an effort to move into the high technology field to make the entire company less dependent on the automobile business for profits and to sell off those aspects of the corporation that did not financially or otherwise fit the "mainstream" mold Bendix's decision makers sought. Agee projected the ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.