First Flight Company v. National Carloading Corporation

• Decision Date: 04 October 1962
• Docket Number: Civ. A. No. 3761.
• Citation: 209 F. Supp. 730
• Parties: FIRST FLIGHT COMPANY v. NATIONAL CARLOADING CORPORATION v. BOWMAN TRANSPORTATION, INC., St. Louis-San Francisco Railway Company, and Atchison, Topeka and Santa Fe Railway Company.
• Court: U.S. District Court — Eastern District of Tennessee

209 F. Supp. 730

FIRST FLIGHT COMPANY v. NATIONAL CARLOADING CORPORATION v. BOWMAN TRANSPORTATION, INC., St. Louis-San Francisco Railway Company, and Atchison, Topeka and Santa Fe Railway Company.

Civ. A. No. 3761.

United States District Court E. D. Tennessee, S. D.

October 4, 1962.

COPYRIGHT MATERIAL OMITTED

Cameron, Turner & Oehmig, Chattanooga, Tenn., for plaintiff.

Whitaker, Hall & Haynes, Chattanooga, Tenn., for defendant National Carloading Co.

Blaine Buchanan, Chattanooga, Tenn., for third-party defendant Bowman Transp., Inc.

Witt, Gaither, Abernathy, Caldwell & Wilson, Chattanooga, Tenn., for third-party defendant Atchison, T. & S. F. Ry. Co.

FRANK W. WILSON, District Judge.

This case arises from the alleged damaging of a $110,000 shipment of golf clubs in transit from Chattanooga, Tennessee to Los Angeles, California. The principal suit is brought by First Flight Company, the owner of the clubs, against National Carloading Corporation, the company to which the clubs were originally delivered for shipping from Chattanooga. The complaint purports to state a claim under Title 49 U.S.C.A. § 20(11), and, possibly, under the common law as well, since diversity of citizenship, as well as the existence of a federal question, is alleged.¹

National has filed a third-party suit against three companies alleged to have had custody of the clubs consecutively between Chattanooga and Los Angeles. The third-party complaint charges that any damage to the clubs occurred while the same were in the custody of one or another of these three companies, and that such company is liable to National, under either Title 49 U.S.C.A. § 20(12), or the common law, "for any loss, damage or injury with respect to which Third-Party Plaintiff is liable to the original Plaintiff."

One of the third-party defendants, Atchison, Topeka and Santa Fe Railway Company, has moved to quash the service of process and dismiss the third-party action as to itself, upon the ground that Santa Fe does no business in Tennessee, and therefore is not subject to the jurisdiction of this Court. Santa Fe also seeks a dismissal for want of proper venue, upon the ground that it is neither incorporated, licensed to do, nor doing business within the Eastern District of Tennessee. Finally, Santa Fe has contended in oral argument that under Title 49 U.S.C.A. § 20(11) the third-party suit cannot properly be maintained against it in Tennessee, because it owns no railroad lines within this State.

Considering this last point first, it is sufficient to observe that as against Santa Fe the third-party suit is based upon Title 49 U.S.C.A. § 20(12) and the common law, and not upon 49 U.S.C.A. § 20(11), and that the latter section's requirement of lines within the state of suit does not apply to suits under the former section. Santa Fe's contention in this regard is therefore without merit, and will be overruled.

With regard to the venue objection, it appears that the great weight of authority deems a third-party suit ancillary to the original suit for purposes of venue, with the result that the usual venue requirements need not be met as to a third-party defendant.² Therefore, this ground of Santa Fe's motion will likewise be overruled.

A more difficult problem is presented by Santa Fe's challenge to the jurisdiction of the Court. With reference to this problem the parties have rather fully developed the general nature and extent of Santa Fe's business activities by affidavit and deposition.

It appears that Santa Fe is a corporation organized under the laws of Kansas, and operating railroad lines throughout most of the West and Southwest. It neither owns nor operates any lines in Tennessee, and it appears that no Santa Fe line is closer to Tennessee than Joplin, Missouri. Santa Fe is not licensed to do business in Tennessee, and does no business here except such as may be done by a single office which it maintains in Memphis, Tennessee, and which is staffed by two employees of Santa Fe, a "District Agent" and a "clerk."³ Service of the third-party process in this case was made upon one of these employees, the District Agent,⁴ though neither has been designated by Santa Fe as an agent to receive process.

The Memphis office consists of two rooms, each 12 by 15 feet. It has been maintained in Memphis continuously since 1953. The employees in the office solicit freight and passenger traffic which can be moved by Santa Fe to and from points in the Memphis area, but make no contracts therefor. The office has approximately 400 "accounts" or clients within its area, some 85% of which are in Tennessee. The office receives credit for some 20,000 carloads of freight annually, which, according to the District agent, constitutes a "very small" percentage of Santa Fe's total business. The Assistant General Auditor of Santa Fe has certified that Santa Fe moved some 1,728,955 carloads of revenue freight during the year 1961.

The Memphis office processes no claims against Santa Fe, other than to forward them to the company's freight claims department. The employees have no authority to draw checks upon Santa Fe, which apparently maintains no bank account in Tennessee. It appears that Santa Fe retains no permanent counsel in Tennessee.

Turning now to the pertinent legal questions, the parties are in disagreement first as to whether the extent of the Court's jurisdiction over a foreign corporation is governed by federal law or by the law of Tennessee. Santa Fe contends that Tennessee law is controlling in this regard, while National argues that federal law is applicable.

The explanation for Santa Fe's contending that state law is pertinent on the question of jurisdiction is not far to seek. Federal law defines the extent to which the states may go, under the due process clause of the Fourteenth Amendment, in exercising personal jurisdiction over foreign persons and corporations.⁵ But the states need not go — and frequently do not go — as far as the Constitution permits in authorizing their courts to exercise such jurisdiction.⁶ In the present case, Santa Fe conceives that Tennessee has not gone as far as the Constitution would permit in providing for the exercise of personal jurisdiction over foreign corporations.⁷ Therefore, Santa Fe urges the application of a state test in the present case, in support of its contention of a lack of jurisdiction.

Santa Fe's position is that the present case is at least partly a diversity case, and is therefore governed by state law under the principle of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188. There is authority to support this contention,⁸ but the Court is of the opinion that the authorities taking the opposite view are the more cogent and correct.⁹ The gist of these latter authorities is to the effect that the extent of the personal jurisdiction of a federal court

"is to be considered so much a part of the make-up of a federal court that it is not lightly to be superseded, and the settled policy that federal courts should apply state substantive law in diversity cases does not go to the extent of requiring the contrary."¹⁰

This view appears to have been tacitly followed in a number of diversity cases in this Circuit, where questions of jurisdiction were answered solely by reference to federal law.¹¹

In any event, it does not appear that the present case is properly to be regarded as a diversity case. The original complaint is based at least partly upon a federal question under Title 49 U.S. C.A. § 20(11), as is the third-party complaint under Title 49 U.S.C.A. § 20(12). It cannot be said that these federal claims are plainly wanting in substance, and they therefore confer jurisdiction upon the Court to entertain the non-federal aspects of the case under the concept of pendent jurisdiction, and no additional basis of jurisdiction, such as diversity of citizenship, is required.¹² The same result is reached under the concept of ancillary jurisdiction, whereby no independent basis of jurisdiction is required to sustain a third-party suit, once jurisdiction of the principal suit is established.¹³ Under either of these theories of pendent or ancillary jurisdiction, the third-party suit against Santa Fe would not be regarded as a suit based upon diversity of citizenship.

Santa Fe might also argue that Tennessee law is controlling upon the issue of personal jurisdiction because service was made upon Santa Fe's agent not under Rule 4(d) (3) of the Federal Rules of Civil Procedure, Title 28 U.S.C.A., but, pursuant to Rule 4(d) (7), under a state statute providing for service upon foreign corporations. Rules 4(d) (3) and 4(d) (7) are as follows:

"Rule 4(d). Summons: Personal Service. The summons and complaint shall be served together. The plaintiff shall furnish the person making service with such copies as are necessary. Service shall be made as follows: * * *

"(3) Upon a domestic or foreign corporation * * * by delivering a copy of the summons and of the complaint to an officer, a managing or general agent. * * *

"(7) Upon a defendant of any class referred to in paragraph (1) or (3) of this subdivision of this rule, it is also sufficient if the summons and complaint are served in the manner prescribed by any statute of the United States or in the manner prescribed by the law of the state in which the service is made for the service of summons or other like process upon any such defendant in an action brought in the courts of general jurisdiction of that state."

Thus Rule 4(d) (3) provides for a wholly federal method of service, while Rule 4(d) (7) adopts local methods to some extent, and Santa Fe might argue that the validity of service made under a state statute pursuant to Rule 4(d) (7) would be governed by state law.

Without passing upon the correctness of this hypothetical argument, not actually raised by the parties, it may be observed that service appears to have been made upon the District Agent in the...