Acme Engineers v. Foster Engineering Company

• Decision Date: 07 April 1958
• Docket Number: No. 16951.,16951.
• Parties: ACME ENGINEERS, Inc., Appellant, v. FOSTER ENGINEERING COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

254 F.2d 259 (1958)

ACME ENGINEERS, Inc., Appellant, v. FOSTER ENGINEERING COMPANY, Appellee.

No. 16951.

United States Court of Appeals Fifth Circuit.

April 7, 1958.

Howard S. Hoover, Carroll R. Graham, Houston, Tex., for appellant.

Alvin M. Owsley, Jr., Houston, Tex., Baker, Botts, Andrews & Shepherd, Houston, Tex., of counsel, for appellee.

Before RIVES, BROWN and WISDOM, Circuit Judges.

RIVES, Circuit Judge.

This appeal is from a judgment quashing service and dismissing an action without prejudice on the ground that the court had not acquired and could not acquire jurisdiction over the defendant, a foreign corporation.

The action was brought to recover commissions allegedly due plaintiff from sales in Texas of defendant's products. Federal jurisdiction was based on diversity of citizenship. 28 U.S.C.A. § 1332. Acme Engineers, Inc. was incorporated under the laws of Texas, while Foster Engineering Co. was organized in New Jersey. The attempted service of process was on Gulf States Specialties, Inc., a Texas corporation, which acted in the capacity commonly known as a "manufacturer's representative or agent" for Foster.

The facts were developed by affidavits and deposition, and are without material dispute. Foster manufactures and sells various types of engineering equipment, mostly for the petroleum and chemical industries. It does not have, and never has had, a permit to do business in Texas, and has not appointed an agent for service of process in that State. The complaint alleged that, from 1947 until sometime in 1955, Acme had sold and promoted the sale of Foster's products throughout the State of Texas, excepting the Panhandle. In 1954 and 1955, it made four sales for which unpaid commissions were claimed in the amount of $8,948.97.

Gulf States' first contact with Foster occurred the latter part of 1955 at an exhibit of Foster's products during the oil exposition at the Coliseum in Houston, Texas. Subsequently, the General Sales Manager for Foster came to Houston and reached a verbal agreement with Gulf States under which it solicits sales on a commission basis for Foster's products in Texas, except in the Panhandle and except to municipalities. Another company handles sales to cities. Gulf States has exclusive representation on some but not all of the equipment which Foster manufactures. The verbal contract between Foster and Gulf States is terminable at will by either party. The stock of Gulf States is owned entirely by Mr. Schoonover and Mr. Mercer and their families. Gulf States does not own any stock of Foster, nor does Foster own any stock of Gulf States. Gulf States is a manufacturer's representative in Texas for eight other companies, whose products do not compete with each other nor with those of Foster. About ten per cent of Gulf States' business concerns Foster products. Gulf States employs two men, Schoonover and Mercer, and two office secretaries.

When a customer is induced to purchase a Foster product, he issues a purchase order made out to Foster which is either turned over or sent to Gulf States, or mailed directly to Foster. Payment for the product goes directly to Foster. Gulf States gives no opinion on credit risks. After a product is ordered, Gulf States frequently receives inquires from the purchaser as to when delivery can be expected and what progress is being made, and, after making inquiries of Foster, Gulf States advises the purchaser with respect to such matters. Some of the products have to be specially made for particular purchasers. Schoonover is a graduate engineer himself and makes use of his professional knowledge, but when there is some doubt in his mind as to the need for or suitability of certain equipment, Foster sends down an engineer to look over the plant. Complaints are sometimes made to Gulf States concerning malfunction of a product, and occasionally Schoonover goes out and looks at the machinery, but makes no recommendation. He simply notifies Foster describing what he has found. Neither Gulf States nor Schoonover receive compensation for this informational service. Sometimes a Foster employee comes into Texas and makes repairs on equipment. In such cases Gulf States exercises no supervision.

Gulf States mails out at its expense promotional literature furnished by Foster. It tries to follow up fairly promptly inquiries from prospective customers passed on to it by Foster. The Foster products are advertised in the "yellow pages" of the Houston Telephone Directory and, following that advertisement, the name, address and telephone number of Gulf States is listed. Foster pays for that advertisement. The General Sales Manager for Foster has called upon Gulf States at least six times in the past eighteen months. He has given Gulf States advice as to how to increase sales. The approximate volume of sales of Foster products made by Gulf States in 1956 was $50,000.00. A member of the Foster Engineering Department has also called upon Gulf States. He has been interested in the engineering phase of the business and he occasionally confers with Gulf States in regard to some problem a customer may have. If requested by Foster to inspect some product with which a customer has difficulty, Gulf States normally does so in order both to retain a satisfied customer and to satisfy Foster.

The questions presented are whether Foster was subject to the jurisdiction of the United States District Court for the Southern District of Texas, and whether jurisdiction was acquired by serving process for Foster on Gulf States.

Articles 1529 and 1536 of the Revised Civil Statutes of Texas require any foreign corporation "desiring to transact or solicit business in Texas, or to establish a general or special office in this State", to secure a permit under penalty of denial of its right to maintain any suit in Texas and forfeiture of from $100.00 to $5,000.00 for each month or fraction thereof it shall transact such business. The Texas Supreme Court has held that, within the meaning of those articles, a single transaction will constitute the doing of business.¹ When Foster sent agents into Texas to make repairs on equipment it may have violated those articles, but no attempt has been made to penalize it nor has it secured a permit.

The Texas statutes do not affirmatively require as a condition to the service of process on a foreign corporation that it be doing business in the State. See Davis v. Asano Bussan Co., 5 Cir., 1954, 212 F.2d 558, 563. The only Texas statute directly applicable is one specifying the agents or persons on whom process may be served, Article 2031 of the Revised Civil Statutes of Texas:

"In any suit against a foreign corporation, joint stock company or association, or acting corporation or association, pending or hereafter filed in this State, to which any foreign corporation is a party or is to be made a party, process may be served on the President, Vice-President, Secretary, Treasurer, General Manager, or upon any local or travelling agent or traveling salesman of such corporation, joint stock company or association, or acting corporation or association in this State. Acts 1885, p. 79; Acts 1919, p. 181; G.L. Vol. 9, p. 699; Acts 1935, 44th Leg., 2nd C.S., p. 1688, ch. 431, § 1."

The district court thought that this case was controlled by Robbins v. Benjamin Air Rifle Co., 5 Cir., 1954, 209 F.2d 173, 177, where Chief Judge Hutcheson, speaking for this Court, summarized the holding as follows:

"* * * In short, every case which has passed upon the question, including the International Shoe Co. case, International Shoe Co. v. State of Wash. 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 and the Gray case, Gray v. Ward Tex.Civ. App., 145 S.W.2d 650, on which appellant relies, has declared that something more than the mere solicitation of orders for goods to be shipped into a state is necessary in order to make a foreign corporation amendable to service of process in the state and `It is this extra quantum of activity which constitutes doing business so as to render it so amendable.\'

"Considering the facts of this case, in the light of these principles as laid down and applied in the authorities, including particularly Gray v. Ward, we think it perfectly clear that on the record in this case Greer was nothing more than a manufacturer\'s representative and a solicitor of orders and that he did none of the things of a local nature which are required, and have been held, to be sufficient to bring a foreign corporation into the state for service." 209 F.2d at pages 177-178.

Judge Hutcheson went on to note that the controversy in that case did not arise out of business done in the State, and that,

"* * * the fact that the suit is concerned with matters arising out of acts of the company or its representative in the state, has sometimes been given weight both in legislative acts and in court decisions sufficient to tip the scale in favor of finding that the defendant was present in the state for service." 209 F.2d at page 178.

The present action does arise from sales of Foster's products in Texas. There are other material distinctions between this case and the Robbins case, supra. For example, if a customer complained to Gulf States, Schoonover would inspect the product and advise Foster of what he saw and occasionally of the cause of the difficulty. Actual repairs on equipment in Texas were made on some occasions by employees of Foster. On other occasions employees of Foster came into Texas and inspected the purchaser's plant before the sale was...