WH Elliott & Sons Co. v. E. & F. KING & CO.

• Citation: 144 F. Supp. 401
• Decision Date: 18 April 1956
• Docket Number: Civ. A. No. 1465.
• Parties: W. H. ELLIOTT & SONS CO., Inc. v. E. & F. KING & CO., Incorporated, and Nuodex Products Co., Inc.
• Court: U.S. District Court — District of New Hampshire

144 F. Supp. 401

W. H. ELLIOTT & SONS CO., Inc. v. E. & F. KING & CO., Incorporated, and Nuodex Products Co., Inc.

Civ. A. No. 1465.

United States District Court D. New Hampshire.

April 18, 1956.

COPYRIGHT MATERIAL OMITTED

McLane, Carleton, Graf, Greene & Brown, Stanley M. Brown, Manchester, N. H., for plaintiff.

Upton, Sanders & Upton, John H. Sanders, Concord, N. H., for E. & F. King & Co.

Sulloway, Jones, Hollis & Godfrey, Frank J. Sulloway, Concord, N. H., for Nuodex Products Co.

CONNOR, District Judge.

This is a civil action brought by W. H. Elliott & Sons Co., Inc. against two foreign corporations, E. & F. King & Co., Incorporated and Nuodex Products Co., Inc. The complaint alleges two theories of recovery on separate counts, the first for negligence, and the second for breach of warranty. Jurisdiction is based on diversity of citizenship, and service of process was made under Rule 4(d)(3) and (7) of Federal Rules of Civil Procedure, 28 U.S.C.A. in the mode prescribed by the statutory laws of this state. RSA 300:11. Venue for this court is established by the fact that the plaintiff is a resident of New Hampshire.

Each defendant filed a motion to dismiss, that of defendant King Company being on the sole ground that it was a foreign corporation, not doing business in the District of New Hampshire, and hence not subject to service of process here. This motion has been waived. The defendant Nuodex Products Co. moved to dismiss upon two grounds, the first, that the complaint failed to state a claim upon which relief could be granted, and second, that Nuodex is a foreign corporation, not doing business in the State of New Hampshire, and therefore not subject to service of process in this district. Upon hearing, the court denied the first part of the motion. A further hearing was had on the question of jurisdiction. Prior thereto, the defendant King Company answered to the merits, and filed a cross-claim against Nuodex, alleging that Nuodex was doing business within the state of New Hampshire and subject to the jurisdiction of this court.

The hearing was limited to two issues: (1) whether the defendant Nuodex was transacting business in New Hampshire so as to be subject to service of process within this district, and (2) whether the defendant Nuodex has waived its right to contest the question by previously arguing and submitting for decision the issue of whether the plaintiff states a claim upon which relief can be granted.

Findings of Fact.

The plaintiff in this action, W. H. Elliott & Sons Co., Inc., hereinafter referred to as Elliott, is a New Hampshire corporation, having its usual place of business in Madbury, New Hampshire. The defendants, E. & F. King & Co., Incorporated, hereinafter referred to as King, and Nuodex Products Co., Inc., hereinafter referred to as Nuodex, are corporations chartered in Massachusetts and New York, respectively. The plaintiff alleges that it suffered substantial property damage due to a product, Super-Adit, manufactured by defendant Nuodex, and added by defendant King to greenhouse paint which King sold to the plaintiff.

Nuodex is a manufacturer of special-purpose chemicals and has its usual place of business in New Jersey. As its products are used chiefly by manufacturers, Nuodex does not customarily sell through the retail market. Instead, its sales in the United States are primarily, although not exclusively, entrusted to seventeen corporate sales representatives whose activities are supervised by six regional Nuodex sales managers. In the region which includes New Hampshire, Nuodex' sales representative is D. H. Litter Company (hereinafter referred to as Litter), a New York corporation, having a branch office in Allston, Massachusetts. Besides representing Nuodex, Litter has at least seven other accounts, mostly with chemical concerns. It is an independent corporation, and Nuodex has no financial interest in it or any control over it. Litter's payment from Nuodex is in the form of a five per cent commission, and its soliciting personnel are its own employees who are paid directly by it.

Litter's activity in New Hampshire on Nuodex' behalf has been carried on by a single employee. He regularly contacted and solicited all business firms in this state known to have a present or prospective interest in any of Nuodex' products. In order to help Litter stimulate sales, Nuodex furnished it with advertising material and samples. On behalf of Nuodex, the salesman gave customers such technical advice and assistance as he could. On at least two occasions, the New England divisional manager of Litter came into New Hampshire to confer in reference to business pertaining to Nuodex. Although the salesman would occasionally receive an order from a particular customer, the customers would generally forward the order directly to Nuodex, which, in turn, shipped the product to the customer, and Nuodex alone determined whether the purchase could be made on credit. The products promoted in New Hampshire by Litter consisted, at one time or another, of most of Nuodex' output, including Super-Adit, the product here complained of.

On its part, Nuodex carried on few activities independent of Litter. It advertised in various trade journals which circulated in New Hampshire. It sometimes mailed samples directly to buyers, since it maintained a mailing list of all its customers, including those in this state. In one instance, Nuodex sent a technician from its New York laboratory to assist a local firm in solving some fabric-treating problems. Nuodex' most overt act was to register several of its products under the terms of a New Hampshire statute which provides that "it shall be unlawful for any person to distribute, sell, or offer for sale within this state * * * any economic poison which has not been registered * * *." RSA 438:2.

The product here complained of, Super-Adit, was sold by Litter to King in Massachusetts. King subsequently added this product to a special paint which it was selling for use in greenhouses. While there is no evidence that Elliott purchased this paint directly from King, the present state of the pleadings discloses this to be so. Similarly, there is no evidence that either Nuodex or Litter sold it to the plaintiff, nor is such asserted in either the complaint or answer.

Conclusions and Rulings.

The essential question here presented, whether a foreign corporation is subject to service of process, is one of substance. Canvas Fabricators, Inc., v. William E. Hooper & Sons Co., 7 Cir., 1952, 199 F.2d 485, 488. Since there is no federal statute applicable and this is a diversity case, it follows that the issue must be determined by state law, as in matters of substance this court is "in effect, only another court of the State * * *." Guaranty Trust Co. v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 1469, 89 L.Ed. 2079. Such is the rule of this circuit. Pulson v. American Rolling Mill Co., 1 Cir., 1948, 170 F.2d 193; Kelley v. Delaware, L. & W. R. Co., 1 Cir., 1948, 170 F.2d 195; see also Canvas Fabricators, Inc., v. Hooper & Sons Co., supra, 199 F.2d 486; Olshansky v. Thyer Mfg. Corp., D.C.N.D.Ill.1952, 13 F.R.D. 227, 230; Read v. Corbitt Co., D.C.E.D.Pa. 1950, 10 F.R.D. 125. And this position is further enforced by the fact that the validity of the service of process is predicated upon a state statute.

Despite the foregoing, it has been urged upon this court that this case is governed, not by local law, but by the rule laid down in International Shoe Co. v. State of Washington, Office of Unemployment Compensation and Placement, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95. In that case, the Supreme Court, brushing aside the old distinctions of "presence" and "doing business," announced that due process now requires only that a foreign corporation maintain such minimum standards within the state which is asserting jurisdiction, so that "the maintenance of the suit does not offend `traditional notions of fair play and substantial justice'." Id., 326 U.S. 316, 66 S.Ct. 158. In formulating this new "test", the Supreme Court was setting limitations upon state courts and was not defining the lengths to which a federal court must go in asserting jurisdiction over a foreign corporation. If International Shoe applies to federal courts at all, it applies when the federal court is expounding state law in a diversity case by laying down due process limitations upon the scope of its jurisdiction. A possible reason for the parties to the action urging an opposite view upon this court is found in the language of Grace v. Procter & Gamble Company, 95 N.H. 74, 57 A.2d 619, 621. There, the court quotes an earlier New Hampshire decision Campbell v. United States Radiator Corp., 86 N.H. 310, 167 A. 558 to the effect that the "`question is one of federal law'", and goes on to say that it considers "federal decisions as controlling rather than convincing." Id., 95 N.H. 76, 57 A.2d 621. This statement was taken to mean that federal law and not state law decides whether or not New Hampshire will exercise jurisdiction over a foreign corporation in a particular case. To accept the language as a statement of the law would be to ignore several other factors. First of all, the basic issue involved in all these cases is the scope of a state statute (in New Hampshire RSA 300:11), and except for the due process limitations placed on it by certain constitutional pronouncements like the International Shoe case, there can hardly be said to be any federal law on the question. Secondly, in a later case, Kenison, C. J., seems to have overruled any such interpretation of the language in Grace v. Procter & Gamble Company, supra, when he pointed out that while "many of the persuasive authorities cited are federal cases, the issue to be decided is one of state law." LaBonte v. American Mercury Magazine, Inc., 98 N.H. 163, 166, 96 A.2d 200, 202, 38 A.L. R.2d 742. Thirdly, the test laid down in International...