LD Reeder Contractors of Ariz. v. Higgins Industries

• Decision Date: 10 March 1959
• Docket Number: No. 15870.,15870.
• Citation: 265 F.2d 768
• Parties: L. D. REEDER CONTRACTORS OF ARIZONA, an Arizona corporation, Appellant, v. HIGGINS INDUSTRIES, INC., a Louisiana corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

265 F.2d 768 (1959)

L. D. REEDER CONTRACTORS OF ARIZONA, an Arizona corporation, Appellant, v. HIGGINS INDUSTRIES, INC., a Louisiana corporation, Appellee.

No. 15870.

United States Court of Appeals Ninth Circuit.

March 10, 1959.

Wiseman & Elmore, Andrew J. Weisz, Los Angeles, Cal., for appellant.

James A. Williams, Los Angeles, Cal., Richard B. Montgomery, New Orleans, La., for appellee.

Before FEE, CHAMBERS and BARNES, Circuit Judges.

BARNES, Circuit Judge.

This is an action based on diversity of citizenship, filed by appellant L. D. Reeder Contractors against Higgins Industries, Inc., the manufacturer, and McCauley Lumber and Flooring Co., the wholesaler, seeking recovery of damages for an alleged breach of contract, breach of warranty, and for misrepresentation, in furnishing certain wooden flooring blocks. 28 U.S.C. § 1332. The appeal is from a judgment of the District Court for the Southern District of California, Central Division, dismissing the action as to Higgins Industries.

The appellant (hereinafter referred to as Reeder) is an Arizona corporation. The appellee-defendant is a Louisiana corporation (hereinafter referred to as Higgins). The other defendant below, McCauley Lumber and Flooring Co. (hereinafter referred to as McCauley) — not a party to this appeal — is a California corporation. The amount in controversy, exclusive of interest and costs, exceeds $3,000, the jurisdictional limit at the time this suit was filed.

Appellee Higgins filed a motion to dismiss and to quash service, which was granted below, upon the ground that Higgins was not doing business in California.¹ Appellant having filed a timely appeal, this Court has jurisdiction. 28 U.S.C. § 1291.

Because the determination of whether a court has jurisdiction over a party turns primarily on the facts, we only generally outline the facts leading up to the alleged cause of action at this point, leaving the details to our discussion which follows.

It appears from the record before us that appellant Reeder was awarded a subcontract to do the flooring on a housing development to be built in Phoenix, Arizona. The complaint alleges, and it is not denied by any of the affidavits filed in support of the motion to dismiss, that Higgins contracted (presumably in Arizona) and induced the owner and architect of the development to specify that Higgins oak flooring blocks be used in constructing the project. (Rental Development Corporation of America was the builder; Rubenstein Construction Company was the general contractor. Both were Arizona corporations.) Defendant McCauley, having learned of the specification, contacted Reeder sometime prior to November 2, 1954, and offered to sell to Reeder the necessary 150,000 square feet of Higgins flooring block. On or about November 2, 1954, Reeder and McCauley entered into a contract whereby Reeder bought the requisite flooring block. Apparently, McCauley sought and obtained from Higgins a quotation for this job before entering into the contract.

It further appears from the record that McCauley, knowing that Higgins had entered into exclusive sales agreements with three other distributors in the Los Angeles area which prevented it from shipping its goods into Southern California on McCauley orders, placed the order with Higgins for the flooring blocks to be shipped to Reeder at Phoenix, Arizona. The McCauley order was accepted at Higgins' offices in Louisiana.

After execution of the contract, in January or February of 1955, Crozat, sales manager for appellee Higgins, called on appellant in its Los Angeles offices to determine the reason for Reeder's failure to request shipment. Crozat stated that the delay was inconveniencing his company and that it was considering cancelling the order unless shipment was requested. Bell, sales and production manager of Reeder, explained to Crozat that there was some delay at the job site in Arizona, but agreed to accept shipment of another carload of the flooring at that time, in order to avoid having the order cancelled.

Ultimately some 70,000 square feet of the flooring block was delivered, in accordance with the instructions in the McCauley order, to the job site in Phoenix, Arizona. The appellant, however, alleges that a substantial portion of the block was defective and generally not up to the samples shown it. Because of this, the appellant alleges various losses due to additional installation costs, replacement costs, etc., which total $182,402.00 in general and special damages.

Based on these facts, and those detailed below, the court dismissed the action as to Higgins on the ground that Higgins was not doing business in California and, therefore, could not be sued there. Appellant, taking exception to this determination, makes two specifications of error. First, that the court below erred in holding that appellee was not doing business in California; and second, that the court erred in holding that appellee was not amenable to service of process issued by a court sitting in California.

I — The Law as to Doing Business

"Jurisdiction" in law is not a simple matter. To obtain a valid judgment, the party seeking it must (a) proceed in a competent court; (b) give his opponent reasonable notice of the litigation and grant him a reasonable opportunity to be heard;^1a and (c) establish "judicial jurisdiction" over the defendant involved.

Obviously, a lack of competence of the court to hear the matter will prevent the entry of a valid judgment. In statutory courts, of which the federal court is one, compliance with the statutory jurisdictional requirements, such as diversity and amount in controversy, must be alleged and proved. McNutt v. General Motors Acceptance Corp., 1936, 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135; Chicago, Burlington & Quincy R. Co. v. Willard, 1911, 220 U.S. 413, 419-421, 31 S.Ct. 460, 55 L.Ed. 521.

A judgment will be invalid for lack of due process if no reasonable notice or no reasonable opportunity to present a defense is given. Mullane v. Central Hanover Bank & Trust Co., 1950, 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865; McDonald v. Mabee, 1917, 243 U.S. 90, 37 S.Ct. 343, 61 L.Ed. 608.

But more than this is needed, and it has been described as "judicial jurisdiction." The Restatement² says that judicial jurisdiction exists whenever a state has sufficient contact with a person to make the exercise of jurisdiction reasonable, i. e., to make it consistent with the requirements of due process for the state to try in its courts a particular case relating to that person. This definition has met the approval of recent writers on the subject, particularly those who had a hand in drafting the definition.³

Judicial jurisdiction over nonresidents is one of the shifting areas existing in the conflict of laws. Every law student has studied the landmark case of Pennoyer v. Neff, 1878, 95 U.S. 714, 24 L.Ed. 565, and its rule that a state has judicial jurisdiction over persons within, or domiciled within, its borders.⁴ But as has been so aptly stated recently, a state also has jurisdiction over and beyond persons within its borders.⁵

The legal boundaries established by Pennoyer v. Neff, in 1878, have been greatly expanded by more recent decisions of the Supreme Court.

A case described as "undoubtedly the most important case in the field of judicial jurisdiction"⁶ is International Shoe Co. v. State of Washington.⁷ That case involved an attempt by that state to enforce an assessment of contributions to its state unemployment fund. There, some thirteen salesmen of a Delaware corporation traveled within the State of Washington. They had authority only to solicit orders. This was held on the appeal, by Mr. Chief Justice Stone, to satisfy the fundamental test of judicial jurisdiction, i. e., that there be "certain minimum contacts" with the state of the forum in order that "the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" It will not do, he wrote, to attempt to draw a fine line of distinction between what constitutes doing business and what does not, for the existence of jurisdiction does not depend upon whether a corporation's activity in the state "is a little more or a little less." Rather we must determine whether the demands of due process are met "by such contacts of the corporation with the state of the forum as make it reasonable * * * to require the corporation to defend the particular suit which is brought there." The ultimate question, then, is reasonableness.

Mr. Chief Justice Stone enumerated certain situations where the reasonableness test was satisfied, such as when the activities of the corporation in the state have not only been "continuous and systematic," but also when those activities give rise to the liabilities sued on, even though no consent to be sued or authorization to an agent to accept service of process has been given. Clearly, the casual presence of an agent, or even his conduct within a state of an isolated activity not connected with the subject matter of the suit, does not necessarily establish judicial jurisdiction. And yet it may, under Mr. Chief Justice Stone's exposition of the subject, if "some single or occasional act" by the corporate agent, because of its nature and the circumstances surrounding the occurrence, makes it reasonable to hold the actor accountable for the cause of action arising out of that act.

In 1957, the Supreme Court ruled on the facts in McGee v. International Life Ins. Co.⁸ Mr. Justice Black noted that there existed a steady trend "toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents."⁹

In the McGee case, the insured, domiciled in California, purchased a life insurance policy from a company incorporated in Arizona which apparently solicited by mail, since the Arizona corporation maintained no office and had no agents or sales personnel in California. Thereafter ...