Kahn v. Maico Company

• Decision Date: 13 October 1954
• Docket Number: No. 6786.,6786.
• Citation: 216 F.2d 233
• Parties: Stanley KAHN and Courtney Kahn, co-partners trading as Kahn Brothers, Appellants, v. The MAICO COMPANY, Incorporated, a body corporate of the State of Minnesota, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

216 F.2d 233 (1954)

Stanley KAHN and Courtney Kahn, co-partners trading as Kahn Brothers, Appellants, v. The MAICO COMPANY, Incorporated, a body corporate of the State of Minnesota, Appellee.

No. 6786.

United States Court of Appeals Fourth Circuit.

Argued June 4, 1954.

Decided October 13, 1954.

Isidore Ginsberg, Baltimore, Md. (Hyman Ginsberg and Ginsberg & Ginsberg, Baltimore, Md., on brief), for appellants.

Stuart S. Janney, Jr., Baltimore, Md. (Robert M. Thomas and Venable, Baetjer

& Howard, Baltimore, Md., on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

This is an appeal from an order dismissing an action for lack of jurisdiction. The plaintiffs, residents of Maryland, constituted a partnership which held a franchise contract to act as exclusive distributor in certain Maryland counties of hearing aids manufactured by defendant. The action was to recover damages of defendant for alleged breach or wrongful termination of this contract. It was dismissed on the ground that defendant, a foreign corporation, was not doing business in the State of Maryland within the meaning of the applicable Maryland statute, Code Art. 23, sec. 88(a), which provides:

"Every foreign corporation doing intrastate or interstate or foreign business in this State shall be subject to suit in this State by a resident of this State or a person who has a usual place of business in this State, (1) on any cause of action arising out of such business, and (2) on any cause of action arising outside of this State."

The evidence shows clearly that plaintiffs were more than mere dealers in or distributors of defendant's products. Defendant was engaged in the manufacture and sale of hearing aids which it advertised and guaranteed to purchasers. It entered into a contract, designated a franchise contract, with plaintiffs under which plaintiffs were given the exclusive right to deal in these aids within certain counties in Maryland. While the contract speaks of the right of plaintiffs to purchase and resell the aids within the territory granted, other provisions of the contract and the evidence adduced at the hearing before the District Judge show clearly that much more than sale and resale were involved and that the business of plaintiffs was in fact controlled and directed by defendant. The prices at which plaintiffs made sales were fixed by defendant. Every sale was made on an order form provided by defendant, was reported to defendant and defendant wrote the purchaser with regard thereto. Advertisements were furnished and paid for by defendant under an arrangement which virtually precluded the use of other advertising by plaintiffs. Inquiries with respect to hearing aids were referred by defendant to plaintiffs, who were required to report to defendant action taken thereon. Plaintiffs were called upon by defendant to make deliveries of hearing aids to government agencies on sales negotiated within the state by another representative of defendant.

Defendant gave a written guaranty on every aid sold by plaintiffs and authorized plaintiffs to make the contract of guaranty in its behalf. It authorized plaintiffs to adjust complaints made under the guaranty, and consigned to plaintiffs repair parts with which to make the adjustments. It required plaintiffs to take out insurance against damages arising out of malpractice in the fitting of hearing aids, for protection of both plaintiffs and defendant, in a company which defendant designated. It had plaintiffs to insure the instruments sold against loss or damage and make report to it with regard thereto. It arranged for purchasers from plaintiffs to finance their purchases through a company with which it contracted. It had its representatives to visit plaintiffs and advise and direct plaintiffs as to the management of their business.

Plaintiffs were authorized to use the defendant's trade name "Maico" in connection with their business and did so use it, and defendant referred to them in correspondence as "Maico Hearing Service of Baltimore". They were listed in the telephone directory as "Maico Hearing Service."

Defendant relies upon the fact that it was not incorporated in Maryland and has never registered or qualified to do business in that state, that its office and factory are in Minnesota and that it has no warehouses and owns no property in Maryland, except small amounts of new parts for hearing aids consigned to the plaintiffs until paid for, that none of its officers or directors live in Maryland and that the goods shipped to plaintiffs by defendant with the exception of the small amount of consigned parts represent outright sales of products, shipped f. o. b. defendant's factory in Minneapolis. Upon the evidence taken as a whole, however, it is impossible to escape the conclusion that, through the plaintiffs, defendant was advertising and selling its hearing aids in the State of Maryland, that the business was in effect done in defendant's name and that it was as completely controlled by defendant as it would have been if plaintiffs had been mere selling agents. Furthermore, there can be no doubt but that defendant actually participated in the sales made by plaintiffs, since the guaranty given in connection with the sale of a hearing aid was a part of the sale, and in making the guaranty the plaintiffs were unquestionably acting as agents of defendant. They were also acting as agents of defendant in adjusting complaints made under the guarantees.

On these facts, we think that defendant was clearly doing business in the state within the meaning of the statute. In La Porte Heinekamp Motor Co. v. Ford Motor Co., D.C., 24 F.2d 861, and the very recent case of Thomas v. Hudson Sales Corp., Md., 105 A.2d 225, 228, in both of which jurisdiction was sustained, it was pointed out that, while it did not constitute doing business within the state for a foreign corporation to make sales outside the state to distributors who carried on business therein, even though a district superintendent might visit them and advise with respect to selling policies, nevertheless such foreign corporation would be held to be doing business within the state if it went beyond this pattern and exercised substantial control over the business of the local distributor.¹ Here the defendant not only controlled the business policies of the distributor, but also regulated the details of the business almost as completely as if the distributor had been an agent in all respects. No one would contend that what was done did not constitute doing business by defendant if plaintiffs had been compensated on a commission basis instead of by discounts allowed from the sale price which defendant fixed; but the method of compensating the one who carries on the business cannot defeat jurisdiction when it appears that it was in reality defendant's business that was being carried on.

The case is not one where sporadic or occasional transactions are relied on to establish the doing of business within the state; but one in which it is shown that business of defendant was regularly carried on. See Dobie on Federal Procedure pp. 488-489 and opinion of Mr. Justice Peckham in Pennsylvania Lumberman's Mutual Fire Ins. Co. v. Meyer, 197 U.S. 407, 415, 25 S.Ct. 483, 49 L.Ed. 810. The only question is whether defendant's connection with the business was established; and we think that it unquestionably was.

In Thomas v. Hudson Motor Corp., supra, which is controlling here, the Court of Appeals of Maryland said that prior decisions of that court were not helpful in the decision of the question there presented which is essentially the question before us, and the court proceeded to base its decision that the foreign corporation was "doing business" in the state within the meaning of that language as used in the Maryland statute largely upon the reasoning in Judge Soper's decision in La Porte Heinekamp Motor Co. v. Ford Motor Co., supra, and the later decisions of the Supreme Court of the United States in International Shoe Company v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, and Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485. The court quoted the following passages from the opinion in the International Shoe Company case in the discussion...