Radio WHKW, Inc. v. Yarber

• Decision Date: 11 March 1988
• Docket Number: No. 87-4289,87-4289
• Citation: 838 F.2d 1439
• Parties: RADIO WHKW, INC., An Alabama Corporation, Plaintiff-Appellant, v. Ben YARBER, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1439

838 F.2d 1439

RADIO WHKW, INC., An Alabama Corporation, Plaintiff-Appellant, v. Ben YARBER, Defendant-Appellee.

No. 87-4289.

United States Court of Appeals Fifth Circuit.

March 11, 1988.

Rehearing Denied April 7, 1988.

Hunter M. Gholson, Gholson, Hicks & Nichols, Columbus, Miss., for plaintiff-appellant.

Wilbur O. Colom, Colom & Colom, Dennis Harmon, Donna S. Smith, Columbus, Miss., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before KING and DAVIS, Circuit Judges, and FELDMAN ^*, District Judge.

KING, Circuit Judge:

Radio WHKW, Inc., an Alabama corporation, appeals the district court's dismissal of its breach of contract claim against Ben Yarber, a Mississippi resident, for lack of subject matter jurisdiction. The district court concluded that Radio WHKW had "localized" its business activities in Mississippi, thereby engaging in intrastate commerce--but without first qualifying to do so under Mississippi laws which govern foreign corporations transacting business in the state. Therefore, the district court held, the radio station was barred from prosecuting a lawsuit in any Mississippi state or federal court under the state's door-closing statute.

Because our review of the record and relevant case law convinces us that the business activities of the radio station demonstrated a pattern of unitary interstate transactions, and not localized intrastate activity as found by the district court, we hold that the denial of access to Mississippi courts in this instance imposed an impermissible burden on interstate commerce under the commerce clause of the United States Constitution. We reverse and remand.

I.

The facts which underlie this case are uncontested and relatively straightforward. Appellant Radio WHKW, Inc. ("Radio WHKW") is an Alabama corporation; its principal place of business also is Alabama. Appellee Ben Yarber ("Yarber") is a Mississipi resident. Radio WHKW held by assignment a "management agreement" executed by Yarber which contained a noncompetition clause. Upon Yarber's resignation from his employment with Radio WHKW and his purchase of a radio station located within the primary coverage area of Radio WHKW--the territory purportedly covered by the noncompetition clause--Radio WHKW brought a diversity action against Yarber for breach of contract, seeking injunctive relief. Yarber raised various defenses, including the jurisdictional question before us.

Yarber's jurisdictional defense rests upon a Mississippi statute ("the door-closing statute") that barred any foreign corporation from maintaining a lawsuit in any Mississippi court unless the corporation obtained a certificate of authority prior to transacting business in the state. ¹ Despite its substantial business activity in Mississippi, Radio WHKW did not obtain a certificate of authority to do business prior to transacting business in the state. Hence, Yarber argued, Radio WHKW did not qualify to sue in Mississippi state or federal courts because of the door-closing statute. However, Radio WHKW claimed that, under the commerce clause, it need not comply with the certification requirement because the interstate character of its business shielded it from the reach of Mississippi's door-closing statute.

Following a hearing on the issue, the district court made the following factual findings regarding the interstate character of Radio WHKW's business. Radio WHKW's principal place of business was Kennedy, Alabama--where its corporate offices and transmitter were located, and where a substantial part of production and broadcasting and all administrative, recordkeeping, billing, payment and management activities occurred. However, Radio WHKW derived its income from the sale of "air time" to advertisers, many of which were Mississippi businesses. In fact, athough two-thirds of the station's advertisers were from Alabama and states other than Mississippi, Mississippi advertisers accounted for more than one-half of its advertising revenues. Contracts for air time were executed by advertisers at their places of business, were reviewed and approved as to form by sales personnel, and were subject to final acceptance at the corporate offices in Kennedy, Alabama. These factual findings by the district court are uncontested on appeal.

Having concluded that Radio WHKW's business "ha[d] a definite interstate flavor" which brought its activities within the purview of the commerce clause, the district court then determined that Radio WHKW had "localized" its business activities within Mississippi--thereby exceeding the protective arm of the commerce clause and subjecting itself to the state's door-closing statute. The district court's determination rested upon three additional factual findings: First, the court noted that Radio WHKW regularly conducted remote broadcasts of a promotional nature from Columbus, Mississippi locations. Second, Radio WHKW maintained a sales office in Columbus, Mississippi, out of which its largest sales staff operated; all daily sales meetings and most monthly meetings were conducted at that office. Third, the radio station purchased supplies and gasoline, and leased automobiles from Mississippi merchants for its personnel operating in Mississippi, and it entered into contractual arrangements with Mississippi residents such as Yarber. These factual findings by the district court also are uncontested.

Having determined from the above factors that Radio WHKW had localized its intrastate business activities, the district court ruled that the radio station could not sue in Mississippi courts because it failed to qualify under the door-closing statute. Further, although Radio WHKW did obtain a certificate of authority just prior to filing suit, the district court held that such action could not cure Radio WHKW's earlier default because the court must look to the radio station's qualification to sue at the time the cause of action arose. Since Radio WHKW had not qualified to sue at the time that Yarber initially began his competitive activities, which the district court determined was the time at which the cause of action arose, the court dismissed Radio WHKW's suit.

II.

On appeal, Radio WHKW challenges the district court's determination that Radio WHKW had "localized" its otherwise interstate business by its activities within the state of Mississippi, and that it thereby had forfeited its constitutional immunity from the requirement that a foreign corporation transacting business in interstate commerce qualify to do business within the state. ² Yarber responds that the district court's finding is not clearly erroneous and, therefore, must be affirmed.

As a preliminary matter, we reject Yarber's endorsement of the "clearly erroneous" test as the appropriate standard of review for this case. Federal Rule of Civil Procedure 52(a) prescribes the "clearly erroneous" standard for findings of fact. "Localization," however, is a legal conclusion which merely rests upon subsidiary, historical facts. The subsidiary facts relevant to a determination of "localization" are undisputed in this case; hence, we have no occasion to apply the "clearly erroneous" test. As a conclusion of law, "localization" is freely reviewable by this court. United States v. Grayson County State Bank, 656 F.2d 1070, 1075 (5th Cir. Unit A 1981), cert. denied, 455 U.S. 920, 102 S.Ct. 1276, 71 L.Ed.2d 460 (1982); see, e.g., Brock v. Mr. W Fireworks, Inc., 814 F.2d 1042, 1045 (5th Cir.), cert. denied, --- U.S. ----, 108 S.Ct. 286, 98 L.Ed.2d 246 (1987); Horn v. C.L. Osborn Contracting Co., 591 F.2d 318, 320 (5th Cir.1979). Imbued with this plenary power of review, we turn our attention to the issue.

In evaluating state regulation of foreign corporations, we follow the general rule that, "where a foreign corporation has established a continuing presence in a state for the purpose of 'doing business' within that state, it is fair that [the foreign corporation] be required to comply with qualification statutes." Diversacon Indus. v. National Bank of Commerce, 629 F.2d 1030, 1034 (5th Cir.1980). However, the power of a state to impose qualification requirements on foreign corporations is not unfettered; the commerce clause to the United States Constitution delimits state authority to regulate the activities of foreign corporations. In Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239 (1921), the Supreme Court explained that "[a] corporation of one State may go into another ... for all the legitimate purposes of [interstate] commerce; and any statute of the latter State which obstructs or lays a burden on the exercise of this privilege is void under the commerce clause." Id. at 291, 42 S.Ct. at 109. Thus, where the business of the foreign corporation is interstate in nature, a state may not burden such business with state qualification requirements unless the business of the corporation includes a distinct and separable intrastate focus, Eli Lilly & Co. v. Sav-On-Drugs, 366 U.S. 276, 279-83, 81 S.Ct. 1316, 1318-20, 6 L.Ed.2d 288 (1961), or the corporation has "localized" its business within the state, Union Brokerage v. Jensen, 322 U.S. 202, 212, 64 S.Ct. 967, 973, 88 L.Ed. 1227 (1944). Further, as we expressed in Diversacon, for purposes of commerce clause analysis, interstate commerce includes "any activity of an intrastate nature which [is] an integral part of an overall interstate pattern or transaction." 629 F.2d at 1033.

The crux of the issue in the instant case is whether the specific intrastate business activities upon which the district court anchored its decision reflect either a distinct and separable intrastate focus, as in Eli Lilly, or had become localized to such a degree that they were separable from the interstate character of the business, as in Union Brokerage. In deciding that Radio WHKW had localized its business activities, the court...