Atwood Hatcheries v. Heisdorf & Nelson Farms

• Decision Date: 05 April 1966
• Docket Number: No. 22042.,22042.
• Citation: 357 F.2d 847
• Parties: ATWOOD HATCHERIES, Appellant, v. HEISDORF & NELSON FARMS, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

357 F.2d 847 (1966)

ATWOOD HATCHERIES, Appellant, v. HEISDORF & NELSON FARMS, Appellee.

No. 22042.

United States Court of Appeals Fifth Circuit.

March 10, 1966.

Rehearing Denied April 5, 1966.

Wallace S. Craig and Clyde, Hines & Craig, Fort Worth, Tex., for appellant.

Victor D. Lawrence, Seattle, Wash., Howard Barker, Cantey, Hanger, Gooch, Cravens & Scarborough, Fort Worth, Tex., Roberts, Shefelman, Lawrence, Gay & Moch, Timothy R. Clifford, Seattle, Wash., Howard Barker, Fort Worth, Tex., Victor D. Lawrence, Seattle, Wash., of counsel, for appellee.

Before RIVES, BROWN and MOORE,^* Circuit Judges.

JOHN R. BROWN, Circuit Judge:

The broad legal question here is whether the Texas Long Arm statute¹ tries to reach as far as the State of Washington and, concluding that Texas would hardly grope for less than its reach, whether the Federal Constitution reduces the grasp. Reduced to the biologico-legal terms of this record, the question in the Hanson-Denckla² concept is whether the corporation has "* * * purposefully availed itself of the privilege of conducting activities within the * * * State" when, under the contractual relationship, in addition to a few roving human inspectors, visitors, veterinarians, or ambassadors of good will coming to Texas, its regular representatives are pure bred male chicks under a sort of fowl bare-boat charter-lease whose Texas mission is to fertilize the eggs of purchased female chicks of like lineage whose progeny is to carry on the good name of the strain to the mutual advantage of the Vendor-Lessor and Buyer-Lessee.

The District Court, after removal³ of the cause from the State Court by the nonresident Defendant Washington corporation,⁴ sustained the motion to dismiss for want of jurisdiction over the person of the Defendant. We disagree and reverse.

The facts are without material dispute. Heisdorf and Nelson Farms, the Vendor-Lessor, is a State of Washington corporation engaged in the chicken breeding business. Vendor-Lessor entered into a written franchise hatchery contract with appellant Atwood Hatcheries, a Texas corporation, the Buyer-Lessee. The Buyer-Lessee brought this suit in the Texas State Court alleging that Vendor-Lessor breached the franchise hatchery contract and seeking damages therefor. Service of process was accomplished on Vendor-Lessor's general manager while he was attending a national convention in Dallas, Texas. Buyer-Lessee's State Court petition acknowledged the Defendant's nonresident status and stated that Vendor-Lessor is "engaged in and doing business in the State of Texas by virtue of the fact that it * * * leases to the Plaintiff, male chickens for the purpose of breeding stock." The Vendor-Lessor removed the case to the federal District Court and filed a motion to dismiss on the ground that the Court lacked jurisdiction over it, inasmuch as its contacts with the State of Texas were insufficient to render it subject to the jurisdiction of a Court of that State. The "contacts" with the State of Texas were developed by affidavit,⁵ which establishes that Vendor-Lessor had from time to time entered⁶ into as many as five separate franchise hatchery contracts with Texas hatcheries. In addition Vendor-Lessor employed three field representatives, one of whom calls on the Texas franchise hatcheries for consultation and advise three or four times a year. The field representatives are not authorized to and do not solicit or accept orders. On rare occasions, however, an order may be communicated through a field representative to Vendor-Lessor's Washington office. Also on rare occasions a geneticist or veterinarian employed by Vendor-Lessor visits and consults with a Texas franchise hatchery. None of Vendor-Lessor's places of business are located in Texas. Except for its leased male chicks, it has never maintained a stock of goods, nor does it maintain a bank account, or telephone listing in Texas. It has never had any employees, agents, or representatives regularly residing in Texas. And whether it ought to have or not, it has never paid taxes to Texas.

It is an understatement to say that the contract⁷ is extraordinary. Neither for this Buyer-Lessee nor for the other four in Texas is it a single shot proposition. Rather, it contemplates a continuing relationship with the joint use of breeding stock under the most careful restrictions and supervisory powers to assure the maintenance of a good public image and the purity and poultry soundness of the Leghorn chickens introduced into Texas under Vendor-Lessor's "H&N-Nick Chick" trade name. The opening line of the contract recites that Vendor-Lessor, "engaged in the business of poultry breeding, * * * has developed special breeding stocks * * * with distinctive family lines not available to the public * * *." Par. 1 provides for the sale to Buyer-Lessee of "parent female chicks" subject to all "terms, conditions, and restrictions of this" contract. Subject to similar conditions, in par. 2 Vendor-Lessor agrees "to lease to Buyer-Lessee sufficient sexed H&N `Nick Chick' Leghorn parent stock male chicks for mating only with like sexed H&N `Nick Chick' Leghorn parent stock females purchased by" Buyer-Lessee. Presumably because this has some relation to production or productivity, Vendor-Lessor at its discretion is to fix the "ratio of male chicks to be leased for mating." Under par. 2 the activities of these leased male chicks are carefully circumscribed during life and even life itself, the time and consequences of death are likewise controlled.⁸ Under par. 6 Buyer-Lessee agrees that the "parent stock female chicks purchased and male chicks leased * * * will be used to produce hatching eggs to the extent that Buyer-Lessee can obtain sales for H&N `Nick Chick' Leghorns * * *" and that it "will make certain that any eggs produced by such chicks * * * which are not acceptable for hatching purposes will be placed in commercial egg market channels for human consumption only * * *." Par. 7 prescribes that "No person other than Buyer-Lessee shall be permitted to hatch any eggs produced by the H&N parent stock chickens purchased and leased * * *."

Under par. 8 Buyer-Lessee agrees to "take necessary action to insure that all H&N parent stock * * * are carefully and continually supervised and inspected * * *." To "avoid the possibility of H&N parent stock * * * becoming mixed with other chickens or eggs * * *," Buyer-Lessee agrees under par. 9 that it will "not keep or maintain * * * any White Leghorn or other white egg commercial laying type chickens except breed crosses or H&N parent stock." All of this is made doubly sure in par. 10 in which Buyer-Lessee agrees "that positive measures will be taken * * * to absolutely insure that female H&N parent stock `Nick Chick' Leghorns purchased hereunder will be mated only to male H&N parent stock `Nick Chick' Leghorns leased hereunder. * * *" Complete segregation is required.⁹ And by par. 11 Buyer-Lessee agrees to "keep its premises * * * clean and orderly to the satisfaction of Vendor-Lessor" and to "use * * * skill and judgment in accordance with good poultry husbandry in raising, housing, feeding, managing and testing all H&N parent stock chickens * * *," which activities "shall be open to inspection by" Vendor-Lessor "at all reasonable times."¹⁰

And if successful in raising the chicks to the point of sale, Buyer-Lessee's right to sell is severely circumscribed. Buyer-Lessee agrees "that all chicks hatched from eggs produced by the H&N parent stock chickens purchased and leased * * * will be sold under the name of Atwood Hatcheries, Inc. H&N `Nick Chick' Leghorns" (par. 6) and if sold "through the agency of dealers or other sales outlets * * *," this may be done "only if a written contract has been entered into * * * after being first approved by Vendor-Lessor" (par. 16). Moreover, in the non-poultry phases the Buyer-Lessee put itself under the domination of Vendor-Lessor. Thus the Buyer-Lessee binds itself to maintain good books and records subject to audit at any time by Vendor-Lessor (par. 17) and to "submit * * * whenever requested, copies of all printed advertising, and radio and television scripts, concerned with the sales * * * of H&N `Nick Chick' Leghorns" and to discontinue their use if "disapproved by Vendor-Lessor" (par. 18). The contract was for an indefinite period terminating only after 60 days' notice plus — in a sort of a poultry-perpetuity rule — the lives in being of the chicks, chickens, male, female, purchased or leased.¹¹

It is against this relationship that Texas and Federal policies must be assayed.

The problem of whether a foreign corporation may be subjected to the jurisdiction of the courts of the forum state divides itself along lines of state and national interest. The first inquiry is whether state law provides for the exercise of jurisdiction under the circumstances of the case presented. Conditioned on an affirmative answer to this is the question whether the exercise of jurisdiction pursuant to state law violates the Federal Constitution.¹²

The precision of Revised Civil Statutes of Texas article 2031b eliminates the first inquiry.¹³ Article 2031b (note 1, supra) authorizes the exercise of jurisdiction over a foreign corporation where it is "doing business" in Texas. And "doing business" is defined to include "entering into contract by mail or otherwise¹⁴ with a resident of Texas to be performed in whole or in part by either party in this State * * *." Since the exigencies of the case as a prelude to the discussion of the Federal question require it, we now declare what was more hesitatingly suggested in Lone Star¹⁵ and even more guardedly assumed in Jack Tar¹⁶ that "the Texas purpose in enacting article 2031b was to exploit to the maximum the fullest permissible reach under federal constitutional restraints."¹⁷

In this setting there can be no doubt that Texas intends — if it has the power — to reach this contract and the parties...