Erlanger Mills v. Cohoes Fibre Mills

• Decision Date: 07 November 1956
• Docket Number: No. 7262.,7262.
• Parties: ERLANGER MILLS, Inc., Appellant, v. COHOES FIBRE MILLS, Inc., Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

239 F.2d 502 (1956)

ERLANGER MILLS, Inc., Appellant, v. COHOES FIBRE MILLS, Inc., Appellee.

No. 7262.

United States Court of Appeals Fourth Circuit.

Argued October 18, 1956.

Decided November 7, 1956.

COPYRIGHT MATERIAL OMITTED

Walter F. Brinkley and Don A. Walser, Lexington, N. C., for appellant.

Hiram H. Ward and S. A. DeLapp, Lexington, N. C., for appellees.

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

SOBELOFF, Circuit Judge.

This appeal involves the jurisdictional power of the state of North Carolina to subject a foreign corporation to the processes of its courts. The relevant portions of the North Carolina statute, G.S. § 55-38.1, provide as follows:

"Jurisdiction over foreign corporations not transacting business in this State — (a) Every foreign corporation shall be subject to suit in this State, by a resident of this State or by a person having a usual place of business in this State, whether or not such foreign corporation is transacting or has transacted business in this State and whether or not it is engaged exclusively in interstate or foreign commerce, on any cause of action arising as follows:

"(3) Out of the production, manufacture, or distribution of goods by such corporation with the reasonable expectation that those goods are to be used or consumed in this State and are so used and consumed, regardless of how or where the goods were produced, manufactured, marketed, or sold or whether or not through the medium of independent contractors or dealers." (Italics supplied.)

The appellant, Erlanger Mills, Inc., a North Carolina corporation having its principal place of business in Lexington, contracted to purchase rayon garnet (a synthetic yarn) from the appellee, Cohoes Fibre Mills, Inc., a New York corporation having its principal offices in Cohoes, New York, the goods to be used in Erlanger's manufacturing plant in North Carolina. The order was placed by Erlanger after a visit by its representatives to Cohoes' plant in New York and was accepted there. The goods were sold f. o. b. Cohoes, New York. Shortly after receiving the shipment, Erlanger complained that the yarn was defective; and following several communications between the parties, Crowther, the general manager of Cohoes, went to Lexington to discuss the complaint. The appellant concedes that Cohoes had never done any business in North Carolina prior to these transactions with appellant.

Erlanger filed suit in the Superior Court of Davidson County, North Carolina to recover damages, alleged to be $17,000. The deputy sheriff served Crowther with the summons while he was in the offices of Erlanger in Lexington, discussing its claim.

The case was subsequently removed to the Federal District Court, where a motion was made to quash the service on the ground that the North Carolina statute G.S. § 55-38.1(a) (3) was invalid as applied to this case. The Judge concluded that Cohoes was not doing business and was not present in North Carolina and that the statute, as applied to it, was a denial of due process of law. The case was accordingly dismissed; whereupon this appeal was entered.

The question for determination is whether or not § 55-38.1(a) (3) may validly subject the appellee to the jurisdiction of North Carolina for a single sale consummated in New York "with the reasonable expectation that those goods are to be used in North Carolina and are so used and consumed".

It is elementary that for a court to entertain an action in personam against a foreign defendant, jurisdiction over the "person" must be acquired. Traditionally, this has comprised two elements: (1) the power to subject him to the jurisdiction of the court, and (2) effectively bringing him before the court by proper notice. Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565. It is the former with which we are here concerned.

In order to subject a foreign corporation to the state's jurisdiction, due process of law had long required it to be constructively "present" within the state by doing business therein unless it had consented to jurisdiction either explicitly or impliedly by a general appearance. Where such facts were found, the obligation of submitting to the processes of the State's courts was deemed the justifiable price for the benefit of conducting business activities under the protection of the local laws, even if it involved the inconvenience of defending suits away from home and the place where it customarily did business. International Shoe Co. v. State of Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 90 L.Ed. 95.

In recent years, however, the fictional phrase "constructive presence" has been replaced by a test couched in more realistic language. The standard of jurisdictional due process as now expressed is that the defendant have "certain minimum contacts" with the state of the forum, "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. State of Washington, supra, 326 U.S. at page 316, 66 S. Ct. at page 158, 90 L.Ed. 95; Travelers Health Association v. Com. of Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 94 L.Ed. 754. The problem in each case, therefore, is to determine whether or not the relationships, ties, and contacts between the defendant and the state of the forum warrant jurisdiction.

Assuredly the extension of jurisdiction over foreign corporations in the circumstances provided by Section (a) (3) could not be sustained under the "constructive presence" or "doing business" tests, for the statute is indeed entitled "Jurisdiction over foreign corporations not transacting business in this State." That the appellee had never previously done business in North Carolina is conceded by Erlanger, and it would be difficult to rationalize the single transaction consummated in New York, and a shipment f. o. b. New York, as "doing business" in North Carolina. Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U.S. 516, 43 S.Ct. 170, 67 L.Ed. 372; Cooper Manufacturing Co. v. Ferguson, 113 U.S. 727, 5 S.Ct. 739, 28 L.Ed. 1137; Dealer's Transport Co. v. Reese, 5 Cir., 138 F.2d 638; Ladd Metals Co. v. American Mining Co., C.C.Or., 152 F. 1008.

This is so even though the place of execution and of performance of the contract are not alone decisive. Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 316, 62 S.Ct. 602, 87 L.Ed. 777; Travelers Health Association v. Com. of Virginia, supra, 339 U.S. at page 648, 70 S.Ct. at page 929.

But the appellant presses upon us that the "minimum contacts" test laid down in the International Shoe case so liberalized the law that jurisdiction may be maintained over a foreign corporation which does no more than ship its product into North Carolina on one occasion. Though the "minimum contact" theory may have liberalizing tendencies, it was not so much an innovation on due process as it was a rephrasing of the prevailing fictional tests, in order more properly to describe the judicial methodology long employed. "Presence" is a word used merely to symbolize the amount of the corporation's activities within the state which courts require in order to satisfy due process. International Shoe Co. v. State of Washington, supra, 326 U.S. at page 317, 66 S.Ct. at page 158, citing Hand, J. in Hutchinson v. Chase & Gilbert, 2 Cir., 45 F.2d 139, 141.

Our attention has been called to no case either before or after International Shoe that would justify jurisdiction on the minimal contact which appellee had with North Carolina.

The facts of the International Shoe case are in no way analogous to those here presented. The International Shoe Co. was engaged in the manufacture and interstate sale of shoes. It had no offices in the State of Washington, and made no contracts of sale or purchase there, sales not being final until accepted by the St. Louis office. But the company had as many as thirteen salesmen who resided there and sold its products in that state exclusively. The salesmen solicited a large volume of business in Washington, and their annual commissions sometimes totaled as high as $31,000. At times they rented "sample rooms" in office buildings or hotels where the company's products were exhibited to customers. In these circumstances the Supreme Court held that the required minimum contacts existed to support jurisdiction.

Travelers Health Association v. Com. of Virginia, supra and Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 492, are also cited by appellant to justify jurisdiction in this case. In the former, the Iowa association did not have agents in Virginia as did International in the State of Washington, but since 1904 they had solicited new members in Virginia by mail, and had approximately 800 members in the state. That case and the one before us are patently different. In the words of Mr. Justice Black in Travelers': "The Association did not engage in mere isolated or short-lived transactions. Its insurance certificates, systematically and widely delivered in Virginia following solicitation based on recommendations of Virginians, create continuing obligations between the Association and each of the many certificate holders in the state." Travelers Health Association v. Com. of Virginia, supra, 339 U.S. at page 648, 70 S.Ct. at page 930.

And in the Perkins case, the Supreme Court held that due process would not be violated if the courts of Ohio maintained jurisdiction in a suit by a non-resident against a foreign corporation which held directors' meetings in Ohio, did its banking and carried on other administrative functions in the state. The Court pointed out that the corporation was carrying on a part of its business within the State continuously and systematically; this cannot possibly be said of Cohoes.

While the due process test applied to the problem of state jurisdiction over non-residents for taxing purposes is not identical with the due process test for the exercise over them...