Neirbo Co v. Bethlehem Shipbuilding Corporation

• Citation: 84 L.Ed. 167,128 A.L.R. 1437,308 U.S. 165,60 S.Ct. 153
• Decision Date: 22 November 1939
• Docket Number: No. 38,38
• Parties: NEIRBO CO. et al. v. BETHLEHEM SHIPBUILDING CORPORATION, Limited
• Court: United States Supreme Court

308 U.S. 165

60 S.Ct. 153

84 L.Ed. 167

NEIRBO CO. et al.

v BETHLEHEM SHIPBUILDING CORPORATION, Limited.

No. 38.

Argued Oct. 17, 18, 1939.

Decided Nov. 22, 1939.

Messrs. Robert P. Weil and Laurence Arnold Tanzer, both of New York City, for petitioners.

Mr. William D. Whitney, of New York City, for respondent.

[Argument of Counsel from page 166 intentionally omitted] Mr. Justice FRANKFURTER delivered the opinion of the Court.

The case is here to review the affirmance by the Circuit Court of Appeals for the Second Circuit of an order of the District Court for the Southern District of New York setting aside service of process upon Bethlehem Shipbuilding Corporation, Ltd., (hereafter called Bethlehem) and dismissing as to it petitioners' bill, 2 Cir., 103 F.2d 765. The suit was based on diversity of citizenship and was not brought 'in the district of the residence of either the plaintiff or the defendant.' Section 51 of the Judicial Code, Act of March 3, 1887, 24 Stat. 552, as corrected by Act of August 13, 1888, 25 Stat. 433, 28 U.S.C. § 112, 28 U.S.C.A. § 112.¹ We took the case, 307 U.S. 619, 59 S.Ct. 1037, 83 L.Ed. 1499, because of the uncertainties in application of § 51, emphasized by conflict between the views below and those of the Circuit Court of Appeals for the Tenth Circuit. Oklahoma Packing Co. v. Oklahoma Gas & Elec. Co., 10 Cir., 100 F.2d 770. The sole question in the case is whether § 51 is satisfied by the designation by a foreign corporation of an agent for service of process, in conformity with the law of a state in which suit is brought against it in one of the federal courts for that state.

The jurisdiction of the federal courts—their power to adjudicate—is a grant of authority to them by Congress and thus beyond the scope of litigants to confer. But the locality of a law suit—the place where judicial authority may be exercised—though defined by legislation relates to the convenience of litigants and as such is subject to their disposition. This basic difference between the court's power and the litigant's convenience is historic in the federal courts. After a period of confusing deviation it was firmly reestablished in General Inv. Co. v. Lake Shore Ry., 260 U.S. 261, 43 S.Ct. 106, 67 L.Ed. 244; and Lee v. Chesapeake & Ohio Ry., 260 U.S. 653, 43 S.Ct. 230, 67 L.Ed. 443, over-ruling Ex parte Wisner, 203 U.S. 449, 27 S.Ct. 150, 51 L.Ed. 264, and qualifying In re Moore, 209 U.S. 490, 28 S.Ct. 585, 706, 52 L.Ed. 904, 14 Ann.Cas. 1164. All the parties may be non-residents of the district where suit is brought. Lee v. Chesapeake & Ohio Ry., supra. Section 51 'merely accords to the defendant a personal privilege respecting the venue, or place of suit, which he may assert, or may waive, at his election.' Commercial Ins. Co. v. Stone Co., 278 U.S. 177, 179, 49 S.Ct. 98, 99, 73 L.Ed. 252.

Being a privilege, it may be lost. It may be lost by failure to assert it seasonably, by formal submission in a cause, or by submission through conduct. Commercial Ins. Co. v. Stone Co., supra. Whether such surrender of a personal immunity be conceived negatively as a waiver or positively as a consent to be sued, is merely an expression of literary preference. The essence of the matter is that courts affix to conduct consequences as to place of suit consistent with the policy behind § 51, which is 'to save defendants from inconveniences to which they might be subjected if they could be compelled to answer in any district, or wherever found.' General Inv. Co. v. Lake Shore Ry., supra, 260 U.S. at page 275, 43 S.Ct. at page 113, 67 L.Ed. 244.

When the litigants are natural persons the conceptions underlying venue present relatively few problems in application. But in the case of corporate litigants these procedural problems are enmeshed in the wider intricacies touching the status of a corporation in our law. The corporate device is one form of associated enterprise, and what the law in effect has done is to enforce rights and duties appropriate for collective activity. Cf. United Mine Workers of America v. Coronado Coal Co., 259 U.S. 344, 42 S.Ct. 570, 66 L.Ed. 975, 27 A.L.R. 762; Puerto Rico v. Russell, 288 U.S. 476, 53 S.Ct. 447, 77 L.Ed. 903. It has done so largely by assimilating corporations to natural persons. The long, tortuous evolution of the methods whereby foreign corporations gained access to courts or could be brought there, is the history of judicial groping for a reconciliation between the practical position achieved by the corporation in society and a natural desire to confine the powers of these artificial creations.²

It took half a century of litigation in this Court finally to confer on a corporation, through the use of a fiction,³ citizenship in the chartering state for jurisdictional purposes. Compare Lafayette Ins. Co. v. French, 18 How. 404, 15 L.Ed. 451, with Hope Ins. Co. v. Boardman, 5 Cranch 57, 3 L.Ed. 36. Throughout, the mode of thought was metaphorical. The classic doctrine was that a corporation 'must dwell in the place of its creation, and cannot migrate to another sovereignty.' Bank of Augusta v. Earle, 13 Pet. 519, 588, 10 L.Ed. 274. Logically applied, this theory of non-migration prevented suit in a non-chartering state, for the corporation could not be there.⁴ And such was the practice of the circuit courts⁵ until the opinion of Chief Justice Waite in Ex parte Schollenberger, 96 U.S. 369, 24 L.Ed. 853, displaced metaphor with common sense. The essential difference between the practice which Mr. Justice Nelson⁶ initiated at circuit and the decision in Schollenberger's case was not a matter of technical legal construction, but a way of looking at corporations. Men's minds had become habituated to corporate activities which crossed state lines. The fact that corporations did do business outside their originating bounds made intolerable their immunity from suit in the states of their activities. And so they were required by legislatures to designate agents for service of process in return for the privilege of doing local business. That service upon such an agent, in conformity with a valid state statute, constituted consent to be sued in the federal court and thereby supplanted the immunity as to venue, was the rationale of Schollenberger's case.

To be sure, that case arose under the Judiciary Act of 1875, 18 Stat. 470, the language of which differed from the Act of 1887, now § 51 of the Judicial Code. The earlier provision was as follows: 'And no civil suit shall be brought before either of said courts against any person by any original process or proceeding in any other district than that whereof he is an inhabitant, or in which he shall be found * * *.' The Act of 1887 omitted the words 'in which he shall be found.' But, of course, the Phoenix and the Clinton Insurance Company in Ex parte Schollenberger, supra, were not geographically 'found' in Pennsylvania, and Chief Justice Waite so recognized. They were 'found' in the Eastern District of Pennsylvania only in a metaphorical sense, because they had consented to be sued there by complying with the Pennsylvania law for designating an agent to accept service. Not less than three times does the opinion point out that the corporation gave 'consent' to be sued; and because of this consent the Chief Justice added that the corporation was 'found' there. But the crux of the decision is its reliance upon two earlier cases, Baltimore & Ohio Railroad Company v. Harris, 12 Wall. 65, 20 L.Ed. 354, and Lafayette Ins. Co. v. French, 18 How. 404, 15 L.Ed. 451, recognizing that 'consent' may give 'venue'. The Phoenix and the Clinton Insurance Company consented not to be 'found' but to be sued. Since the corporation had consented to be sued in the courts of the state, this Court held that the consent extended to the federal courts sitting in that state. As to diversity cases, Congress has given the federal courts 'cognizance, concurrent with the courts of the several States'. Jud.Code § 24, 28 U.S.C.A. § 41. The consent, therefore, extends to any court sitting in the state which applies the laws of the state.⁷

The notion that the 1887 amendment, by eliminating the right to sue a defendant in the district 'in which he shall be found', was meant to affect the implications of a consent to be sued implications which were the basis of the Schollenberger decision derives from a misapplication of the purpose of Congress to contract diversity jurisdiction, based upon a misunderstanding of the legislative history of the 1887 amendment.⁸ The deletion of 'in which he shall be found' was not directed toward any change in the status of a corporate litigant. The restriction was designed to shut the door against service of process upon a natural person in any place where he might be caught. It confined suability, except with the defendant's consent, to the district of his physical habitation. Insofar as the 1887 legislation sheds any light upon the status of a corporate litigant in diversity suits, its significance lies outside the omission of the 'he shall be found' clause. The form in which that Act passed the House of Representatives contained a provision, wholly distinct from the general venue section, restricting the growing volume of litigation drawn to the federal courts by the fiction of corporate citizenship.⁹ It prohibited resort to the federal courts by foreign corporations authorized to do a local business. The Senate rejected, as it had done upon three previous occasions, this House proposal.¹⁰ But the bill, as it left the House, also contained the venue provision, with its omission of the 'found' clause. It would be strange indeed if the House in § 1 had dealt with the 'venue' of suits against corporate litigants who, like those involved in the Schollenberger case, by § 3 of the same bill were completely barred from the federal courts. It would be stranger still if, after passing a drastic measure curtailing resort by foreign...