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Dewey v. Volkswagen AG

March 31, 2008

DEWEY, ET AL., PLAINTIFFS,
v.
VOLKSWAGEN AG, ET AL., DEFENDANTS.
DELGUERCIO, ET AL., PLAINTIFFS,
v.
VOLKSWAGEN OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hochberg, District Judge

FOR PUBLICATION

OPINION

This matter comes before the Court upon Defendant Volkswagen of America's ("VWoA") Motion to Dismiss the Dewey Plaintiffs' Complaint and Plaintiff Delguercio's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (Dewey DKT#24; Delguercio DKT#16), and Defendants' Motions to Quash Purported Service of Process on Volkswagen AG, Audi AG, and Volkswagen De Mexico, S.A. de C.V. in both cases (Dewey DKT#29; Delguercio DKT#18). The Court has considered the arguments of the parties on the papers pursuant to Federal Rule of Civil Procedure 78 and will grant Defendant's Motion to Dismiss in part and deny it in part, and will grant Defendant's motion to quash service in part and deny it in part.

I. BACKGROUND

A. Procedural Background Relevant to Defendants' Motions to Quash Service

On December 28, 2007, Plaintiff Delguercio delivered to an office of Volkswagen of America ("VWoA") summonses and Complaints directed to Volkswagen AG ("VWAG"), Audi AG ("AAG"), and Volkswagen De Mexico, S.A. de C.V. ("VWDM") (collectively "the foreign Defendants"). Certification of Adam Slater, Esq., dated December 28, 2007, ("Slater Cert."), at ¶¶ 7-9; Defendants' Reply Brief at 1-2. On October 15, 2007, the Dewey Plaintiffs delivered to CT Corporation ("CT") copies of the summonses and Complaints directed to the foreign Defendants. Declaration of Samuel P. Sporn, Esq., ("Sporn Dec"), dated Dec. 10, 2007, at Ex. 10.*fn1 CT is VWoA's registered agent authorized to receive service on VWoA's behalf. Affirmation of Kenneth Uva ("Uva Aff.") at ¶ 3. CT did not accept the summons addressed to AAG and VWDM, stating that it lacked the authority to receive service for these entities. Id. at ¶¶ 6-7. On October 29, 2007, the Dewey Plaintiffs served CT with a summons and Complaint directed to VWoA "as an agent for Volkswagen AG." Affirmation of Daniel V. Gsovski, Esq., ("Gsovski Aff.") dated Dec. 14, 2007 at Ex. A. CT forwarded the documents to VWoA. Id.

B. Facts Relevant to Defendants' Motion to Dismiss

These Class Actions arise from design defects allegedly present in certain Volkswagen and Audi automobiles ("Class Vehicles"). Plaintiff Delguercio brings suit individually and on behalf of a Plaintiff Class defined as those who have since 1997 purchased or leased Volkswagens, including Passats, Passat Wagons, Jettas, GTIs, Audis, and all other Volkswagen vehicles that suffer from the allegedly defective parts. See Delguercio First Amended Complaint and Jury Demand ("Delguercio Compl.") ¶ 1. The Dewey Plaintiffs bring suit on behalf of themselves and all others who currently own or lease, or have owned or leased, Volkswagens of model years 1998-2006 or Audis of model years 1997-2006, with the alleged defects. See Dewey First Amended Class Action Complaint ("Dewey Compl.") ¶ 2.

Plaintiff Delguercio alleges that the class of vehicles described above "have defective pollen filters, pollen filter housing seals, plenum drains, powertrains, transmissions and transmission control modules ("TCM")." Delguercio Compl. ¶ 1. The Dewey Plaintiffs allege design defects in the Class Vehicles' pollen filter gasket areas and sunroof drains. See Dewey Compl. ¶ 1. Both putative classes allege that, as a result of these defects, the Class Vehicles were damaged by flooding. See Delguercio Compl. ¶ 7 ("[T]he Class Vehicles' defects allowed the plenum drain to easily clog with debris, causing water to pool in the cowl area and spill over or drain into the vehicles' interior through the pollen housing seal and the pollen filter itself, and the location, housing, and placement of the TCM's [sic] allow the powertrain, transmission, and TCM to be damaged by water entering the interiors of the Class Vehicle[s]."); Dewey Compl. ¶ 1 ("Both defects cause, inter alia, serious flooding in the body of the vehicle which significantly impairs the safety, usability and the value . . . of the Class Vehicles.").

Both putative classes allege that Defendants were aware of these defects, but improperly failed to notify class members of the known defects. See Delguercio Compl. ¶ 33-34; Dewey Compl. ¶¶ 45-47, 52-67. Both putative classes bring claims for breach of express warranty, see Delguercio Compl. ¶¶ 27-35, Dewey Compl. ¶¶ 77-84; breach of implied warranty, see Delguercio Compl. ¶¶ 36-47, Dewey Compl. ¶¶ 85-93; breach of duty of good faith and fair dealing, see Delguercio Compl. ¶¶ 54-58, Dewey Compl. ¶¶ 109-113; negligent misrepresentation, see Delguercio Compl. ¶¶ 59-62, Dewey Compl. ¶¶ 102-108; violation of the New Jersey Consumer Fraud Act, see Delguercio Compl. ¶¶ 63-66, Dewey Compl. ¶¶ 68-76; unjust enrichment, see Delguercio Compl. ¶¶ 67-72, Dewey Compl. ¶¶ 114-118; and common law fraud, see Delguercio Compl. ¶¶ 73-76, Dewey Compl. ¶¶ 94-101. Plaintiff Delguercio includes separate counts for improper repair and breach of warranty, see Delguercio Compl. ¶¶ 48-53, and injunctive relief, see Delguercio Compl. ¶¶ 77-78.

For purposes of the analysis that follows, it is important to establish at the outset certain basic and undisputed facts as to each Class Representative and their Class Vehicle. These facts include the residence of each Class Representative, where each Class Representative purchased their Class Vehicle, the duration of the express warranty on their Class Vehicle, and when the alleged damage to their vehicle occurred.

* Plaintiff Delguercio is a New Jersey resident who purchased a 2001 Passat in New Jersey on or around October 3, 2000 with a 2 year/24,000 mile warranty. See Delguercio Compl. ¶¶ 13, 18; Frederick Decl. Ex. F (Bill of sale), Ex. G (2001 Passat Warranty).

The damage to Delgeurcio's vehicle allegedly occurred after the vehicle "had been driven approximately 56,000 miles . . . ." Delguercio Compl. ¶ 19.

* Plaintiff Dewey is a Maryland resident who purchased a 2002 Volkswagen Passat in Maryland on or around April 27, 2002 with a 4 year/50,000 mile warranty. See Dewey Compl. ¶ 17; Frederick Decl. Ex. A (Warranty record for Dewey vehicle), Ex. B (2002 Passat Warranty). Dewey alleges the damage to his vehicle occurred in July 2006. See Dewey Compl. ¶ 18.

* Plaintiff DeMartino is a resident of New Jersey who owns a 1999 Passat. See id. ¶ 20. DeMartino's vehicle was originally sold in New Jersey on or around May 28, 1999 with a 2 year/24,000 mile warranty. See Frederick Decl. Ex. C (Warranty record for DeMartino vehicle), Ex. D (1999 Passat Warranty). Mr. DeMartino alleges that the damage to his vehicle occurred "[i]n 2006 . . . ." See Dewey Compl. ¶ 21.

* Plaintiff Romeo is a New York resident who purchased a 2003 Passat on or around May 14, 2003 in New York.*fn2 See Dewey Compl. ¶ 23; Frederick Decl. Ex. E (Retail certificate for Romeo vehicle). Ms. Romeo alleges that the damage to her vehicle occurred "[i]n February of 2005 . . . ." See Dewey Compl. ¶ 24.

II. STANDARD

A. Standard for Service

Upon Foreign Corporations Federal Rule of Civil Procedure Rule 4(h) provides two methods for the service of a foreign corporation. First, Rule 4(h)(1)(A) permits service upon a foreign corporation "in the manner prescribed by Rule 4(e)(1) for serving an individual." FED. R. CIV. P. 4(h)(1)(A). Rule 4(e)(1) permits service upon an individual by following, among other things, "[the] state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located." FED R. CIV. P. 4(e)(1). New Jersey Court Rule 4:4-4(a)(6) provides that personal jurisdiction can be obtained over a non-New Jersey defendant corporation by "serving a copy of the summons and Complaint on any officer, director, trustee or managing or general agent, or any person authorized by appointment or by law to receive service of process on behalf of the corporation." N.J. CT. R. 4:4-4(a)(6).

Second, Rule 4(h)(1)(B) permits service upon a foreign corporation "by delivering a copy of the summons and of the Complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process. . . ." FED. R. CIV. P. 4(h)(1)(B). Thus, both Rule 4(h) and New Jersey law permit service of process upon a foreign corporation by serving an agent of the foreign corporation who is authorized by appointment or by law to receive it. See Signs by Tomorrow-USA, Inc. v. G.W. Engel Co., Inc., Civ. No. 05-4353, 2006 WL 2224416, *3-4 (D.N.J. Aug. 1, 2006); Glass v. Volkswagen of Am., Inc., 172 F. Supp. 2d 743, 743 (D. Md. 2001). Here, VWAG, VWDM and AAG claim that VWoA and its registered agent, CT, are not their appointed agents. Whether Rule 4(h) or New Jersey law is applied, the central inquiry is whether VWoA is an "agent by law" of any of the other Defendants.

B. Motion to Dismiss

Motions to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim result in a determination on the merits at an early stage of a plaintiff's case. SeeMortensen v. First Fed. Sav. and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). As a result, "plaintiff is afforded the safeguard of having all its allegations taken as true and all inferences favorable to plaintiff will be drawn." Id. In order to survive a 12(b)(6) motion to dismiss, "[t]he plaintiff must allege facts sufficiently detailed to 'raise a right to relief above the speculative level,' and must 'state a claim to relief that is plausible on its face.'" Pronational Ins. Co. v. Shah, No. 07-1774, 2007 WL 2713243, *1 (E.D. Pa. Sept. 17, 2007) (quoting Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007)). At this stage, the Court must determine whether the complaint "contain[s] either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory." Haspel v. State Farm Mut. Auto. Ins. Co., No. 06-3716, 2007 WL 2030272, *1 (3d Cir. July 16, 2007) (quoting Twombly, 127 S.Ct. at 1969).

III. DISCUSSION

A. Whether Service on the Foreign Defendants was Proper

The issue before the Court is whether the summonses and Complaints directed to the foreign defendants, but served upon VWoA's office in Michigan and upon CT in New Jersey, constitute proper service. As noted above, the central inquiry is whether VWoA is an "agent by law" of any of the foreign defendants.

i. Whether VWoA is an Agent of VWAG for Service of Process

In Delguercio, process for the foreign Defendants was delivered to an office of VWoA, a wholly owned subsidiary of VWAG. Affirmation of Joseph S. Folz ("Folz Aff.") at ¶ 13. Under New Jersey law, service on a wholly owned subsidiary confers jurisdiction over the foreign parent only if the subsidiary is an alter ego or agent of the parent. Patent Incentives, Inc. v. Seiko Epson, Corp., Civ. No. 88-1407, 1988 WL 92460 (D.N.J. Sept. 6, 1988) (citing Akzona Inc. v. E.I. DuPont de Nemours & Co., 607 F. Supp. 227, 236-37 (D. Del. 1984)). To determine if a subsidiary is acting as an agent of the parent, courts consider: (1) whether the subsidiary is doing business in the forum that would otherwise be performed by the parent, Seltzer v. I.C. Optics, Ltd., 339 F. Supp. 2d 601, 609-10 (D.N.J. 2004); see also Cintron v. W&D Machinery, Co., Inc., 440 A.2d 76, 80 (N.J. Super Ct. Law Div. 1981) (stating that a subsidiary that is a "mere instrumentality of the foreign corporation . . . should be held to occupy the status of a managing agent of the foreign corporation within the meaning of statutory provisions authorizing service of process upon a managing agent of a corporation"); (2) whether there is common ownership of the parent and subsidiary; (3) whether there is financial dependency; and (4) whether the parent interferes with the subsidiary's personnel, disregards the corporate formalities, and/or controls the subsidiary's marketing and operational policies, Carfagno v. Ace, Ltd., Civ. No. 04-6184, 2005 WL 1523530, * 6 (D.N.J. June 28, 2005) (quoting Pfundstein v. Omnicom Group Inc., 666 A.2d 1013, 1016-17 (N.J. Super Ct. App. Div. 1995)).

Applying these factors to the record it is apparent that the relationship between VWAG and VWoA is so close that VWoA operates as an agent of VWAG by law for the purpose of service of process. First, VWAG owns 100% of the outstanding stock of VWoA. Folz Aff. at ¶ 13. Second, VWoA is the sole authorized U.S. importer and distributor of vehicles manufactured by VWAG. Id. at ¶ 7. Third, VWAG has the power to appoint VWoA's President and CEO. See Sporn Dec. at Ex. 3 (news article on VWAG's website stating that VWAG has appointed the president and CEO of VWoA). Fourth, the Importer Agreement governing the relationship between VWAG and VWoA illustrates that VWAG has substantial control over VWoA's activities. See Folz Aff Ex. A at 6 (stating "VWoA shall not modify Contractual Products [vehicles] without the prior written approval of VWAG. However, to the extent that VWAG deems modification of Contractual Products necessary or desirable because of technical considerations, VWAG may at any time prior to shipment modify the Contractual Product delivered to VWoA, or may require VWoA to modify the Contractual Product at VWAG's expense"), 7 (stating "VWAG shall, to the extent it deems appropriate, advise and assist VWoA"), 9 (stating "VWOA shall take . . . in the name of VWAG, all measures, including the institution and prosecution of lawsuits, which may be reasonably required to prevent" trademark infringement and comply with VWAG's legal department's instructions), 12 (stating that VWoA shall conclude agreements with the Contractual Enterprises based upon uniform terms and conditions prepared by it from time to time after due consultation with VWAG and they will agree upon the annual sales and VWAG shall place firm orders), 13. Indeed, the Importer Agreement is not limited only to matters of importation of VWAG vehicles. The Importer Agreement also governs every phase of VWoA's operation, including VWoA's marketing, distribution and sales of VWAG vehicles, the proliferation and development of independent dealerships that sell VWAG products, the training of dealership personnel, after-sales service, warranties and recalls, and the terms of payment between individual customers and VWoA. Id. at 6-22. Based on this relationship, it is apparent that VWAG cannot do business in the United States absent its wholly owned subsidiary. "[A]s the documents demonstrate, the relationship goes far beyond that of simply parent and subsidiary. The provisions quoted above prove that the authority of VWAG is absolute, and that, in a very real sense, VWAG determines on a day-today basis exactly how VW[o]A is to operate." Lamb By and Through Donaldson v. Volkswagenwerk Aktiengesellschaft, 104 F.R.D. 95, 101 (S.D. Fla. 1985). The Court finds that VWoA is an agent of VWAG by law for service of process because "the subsidiary is doing business in the forum that would otherwise have to be done in the forum by the parent."*fn3 Seltzer, 339 F. Supp. 2d at 609. The motion to quash service upon VWAG in Delguercio is denied.

In Dewey, the record is clear that VWoA designated CT to receive service on its behalf and that the Dewey Plaintiffs served CT with summonses and Complaints to be forwarded to VWoA. Uva Aff. ¶¶ 6-10. On October 29, 2007, the Dewey Plaintiffs served CT with a summons and Complaint, which was directed to "Volkswagen of America, Inc., . . ." "as an agent for Volkswagen AG." Gsovski Aff. Ex. A. CT forwarded the summons and Complaint to VWoA. Id. As a result, there is no doubt that VWoA is in possession of the summons and Complaint meant for VWAG. Defendants do not argue that CT was precluded from forwarding to VWoA the documents directed to VWAG. Rather, Defendants challenge service by claiming that VWoA is not an agent authorized to accept service for VWAG. Therefore, as in Delguercio, the issue is whether VWoA can accept service on behalf of VWAG as an agent. For the reasons set forth above, the Court finds that VWoA is an agent of VWAG for the purpose of service of process. The motion to quash service upon VWAG in Dewey is denied.

ii. Whether VWoA is an Agent of AAG or VWDM for Service of Process

The Delguercio and Dewey Plaintiffs have failed to produce sufficient evidence to show that VWoA is either an agent or an alter ego of AAG. AAG is a subsidiary of VWAG, Sporn Dec. at Ex. 2, and the record reflects that VWAG's contacts with AAG are extensive. See Slater Cert. at Ex. H. The relationship between VWoA and AAG, however, is not as substantial. The VWoA-AAG relationship is governed by an Importer Agreement that resembles the Importer Agreement between VWAG and VWoA. See Folz Aff. Exs. A, B and C. Nothing in the record, however, establishes that AAG has the same type of control over VWoA as VWAG has over VWoA. For example, there is nothing in the record to show that VWoA is a subsidiary of AAG or that AAG has any ownership interest in VWoA. Folz Aff. at ¶¶ 11-12. Moreover, Plaintiffs have not submitted any evidence that either AAG or VWoA selects or plays any part in the selection of the senior management of the other. Based upon the evidentiary record, this Court declines to find that VWoA is the agent by law for AAG and will not impute service of process upon VWoA to AAG.

The evidence that VWoA is an agent of VWDM is weaker still. First, there is no evidence that either VWoA or VWDM has an ownership interest in the other; indeed, VWAG owns both VWoA and VWDM. Second, the agreement between VWDM and VWoA is akin to a supply agreement and it lacks language suggesting that either party to the agreement controls the activities of the other. See Glass v. Volkswagen of Am., Inc., 172 F. Supp. 2d 743, 744 (D. Md. 2001) (declining to find that VWoA is an agent for VWAG or VWDM because no evidence was produced to justify piercing the corporate veil).

Finally, Plaintiffs have not presented legal authority permitting a subsidiary (VWoA) of a parent (VWAG) to accept service on behalf of the parent corporation's other subsidiaries (AAG and VWDM). The case law reveals that the relevant inquiry is not whether two companies share a parent, but rather the level of control exercised by one entity over another. See Colida v. LG Elecs., Inc., Civ. No. 03-1399, 2003 WL 22319221, *2 (D.C. Cir. Oct. 8, 2003) (stating that a "parent-subsidiary relationship without more does not establish an agency relationship for purposes of service of process. . . ."). Thus, the fact that AAG, VWDM, and VWoA share a corporate parent or that one serves as an agent for the parent does not make that subsidiary an agent for all of its parent's subsidiaries.

The factual record prevents the Court from finding that VWoA or CT are agents of either VWDM or AAG for the purposes of service, and no legal authority has been presented to demonstrate that as VWAG's agent, VWoA is authorized by law to accept service for a fellow subsidiary. The Court finds that service has not been effectuated on AAG or VWDM.*fn4 The Motions to Quash Purported Service of Process in Delguercio and Dewey are denied as to VWAG. The motions are granted as to VWDM and AAG.

B. Choice of Law in Defendants' Motion to Dismiss

New Jersey is the "forum state" for the instant litigation, and the Court "must apply the law of the forum state, including its choice of law rules." Barbey v. Unisys Corp., No. 06-2849, 2007 WL 4219470, *1 (3rd Cir. Nov. 30, 2007) (citing Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941)). New Jersey "currently subscribe[s] to the more flexible governmental-interests analysis." Rowe v. Hoffman-La Roche, Inc., 917 A.2d 767, 771 (N.J. 2007). The governmental interest approach requires a two-step analysis:

"The first step in the analysis is to determine whether a conflict exists between the laws of the interested states. Any such conflict is to be determined on an issue-by-issue basis."If there is no actual conflict, then the choice-of-law question is inconsequential, ...


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