Peterson v. Chicago, Rock Island & Pacific Railway Co.

Background

An out-of-state railroad company (the Pacific Company) owned a controlling interest in a Texas railroad (the Gulf Company), which ran trains, sold tickets, and employed local workers in Texas. The plaintiffs tried to sue the Pacific Company in Texas by serving certain Gulf Company employees and train personnel, relying on Texas statutes that allow service on foreign corporations doing business in the State and on certain train conductors or ticket agents.

Reasoning

The Court framed the dispute as two factual questions: whether the Pacific Company was doing business in Texas, and whether the people served were authorized agents of the Pacific Company for that business. The Court found the Gulf Company was a separate Texas corporation with its own officers, property, payroll, and independent control. Although the Pacific Company owned most of the stock, it did not actively run Gulf’s local business. The record showed the conductors and ticket agent acted for the Gulf Company while in Texas, and the named individuals had no authority to represent the Pacific Company. Applying the rule that a foreign corporation can be sued in a State only when it is actually doing business there and the person served represents that corporation, the Court held Texas lacked authority over the Pacific Company in this case.

Real world impact

The decision means owning a majority of a local company’s stock does not automatically expose an out-of-state parent to suit where the local subsidiary handles its own affairs. Local subsidiaries that run operations remain the appropriate defendants, and service on local employees binds only the company they actually represent. The Circuit Court judgment was affirmed.

Dissents or concurrances

Two Justices (the Chief Justice and Justice Moody) dissented. The opinion does not give their reasons in the text provided.