C. H. Stuart, Inc. v. Bennett, 52379

• Decision Date: 23 September 1980
• Docket Number: No. 52379,52379
• Citation: 617 P.2d 879,1980 OK 135
• Parties: C. H. STUART, INC., a New York corporation, d/b/a Sarah Coventry, Appellant, v. Charles H. "Ben" BENNETT and Diane Bennett, Appellees.
• Court: Oklahoma Supreme Court

Page 879

617 P.2d 879

1980 OK 135

C. H. STUART, INC., a New York corporation, d/b/a Sarah Coventry, Appellant, v. Charles H. "Ben" BENNETT and Diane Bennett, Appellees.

No. 52379.

Supreme Court of Oklahoma.

Sept. 23, 1980.

Appeal from the District Court of Oklahoma County, Raymond Naifeh, Trial Judge.

The appellant, a New York corporation, brought an action in the District Court of Oklahoma County for damages and an injunction against the appellees for breach of an employment contract. The appellees moved the trial court to dismiss the case. The trial court, finding that the appellant had engaged in business in the State of Oklahoma without domesticating or filing a trade name report, dismissed the case.

AFFIRMED.

McAfee, Taft by John N. Hermes, Oklahoma City, for appellant.

Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, for appellees.

LAVENDER, Chief Justice:

This is an appeal by C. H. Stuart, Inc. ("Sarah Coventry"), from an order of the District Court of Oklahoma County dismissing its cause. Sarah Coventry sought damages and an injunction against Ben and Diane Bennett for breach of an employment contract. The district court found that Sarah Coventry had engaged in business in Oklahoma without domesticating or filing a trade name report, and was therefore foreclosed from suing in Oklahoma courts by our corporations statutes, 18 O.S.1971, §§ 1.201(a), 1.11b.

I

C. H. Stuart, Inc. is engaged in the business of selling costume jewelry nationwide under the trade name "Sarah Coventry." The company uses a network of employees who reside in the states and solicit other state residents to hold "fashion shows" to which they invite acquaintances and at which the employees solicit orders for jewelry. A Sarah Coventry employee attends each party to demonstrate the jewelry from a demonstration kit, owned by Sarah Coventry, containing samples of its products.

By normal operating procedure, all orders solicited at the party are forwarded to Sarah Coventry's New York office, where the order is either accepted and filled or rejected. The condition that all orders are subject to acceptance in New York is printed on the face of all order blanks filled in by customers.

The testimony below was that the Bennetts and others, with the permission of their superiors, made sales directly from the jewelry stock in their demonstration kit to Oklahoma residents and instructed their employees under them to do likewise. These sales occurred up to four times annually, especially at the time just prior to Christmas, and apparently on a regular basis. The Bennetts would replenish the stock in the kit by ordering directly from Sarah Coventry and having the replacement jewelry sent directly to them.

Sarah Coventry's employees in a state are organized in a heirarchy of four levels: Area Manager, Region Manager (the Bennetts' former position), Branch Manager, and Unit Director. Fashion show directors and party hostesses are characterized as independent contractors. All employees must complete employment contracts prior to employment. These contracts are completed by the prospective employee in his home state and are subject to acceptance only at the home office in New York. The contracts contain provisions whereby the employee agrees that upon termination of his employment, he will not for two years use or disclose any customer or salespeople/employee lists or solicit any of the salespeople or employees to leave Sarah Coventry's employ.

After a four-year period of employment, the Bennetts quit and began working for a competitor. Sarah Coventry alleged that the Bennetts breached their employment contracts by recruiting other Oklahoma employees of Sarah Coventry prior to the end of the two-year period. Each of the Bennetts was sued for $50,000 in damages, and Sarah Coventry sought a temporary restraining order against further solicitation.

The district court issued the temporary restraining order. After an evidentiary hearing, however, the court sustained the Bennetts' motion to dismiss. The court found that certain activities of Sarah Coventry constituted conducting business within the State of Oklahoma within the meaning of 18 O.S.1971, §§ 1.201(a) ¹ and 1.11b. ² We agree that Sarah Coventry has engaged in business within Oklahoma as contemplated by the statutes, and hold that the cause was properly dismissed.

II

Sarah Coventry first contends that a foreign corporation engaged in strictly interstate commerce within the state is not required to comply with Oklahoma's domestication and trade-name registration statute. We agree with this contention. Any corporation engaged in strictly inter state sales and no intra state sales to Oklahoma residents may bring suit in Oklahoma courts without complying with Oklahoma's domestication and trade-name registration statutes, since interstate commerce is protected by the Commerce Clause of the United States Constitution. ³ Sarah Coventry asserts that it is engaged solely in interstate sales to Oklahoma residents.

However, the Bennetts urged and the district court found that Sarah Coventry's activities also included sales of a wholly intrastate nature. The most important of the activities urged to be intrastate sales was the practice of the Bennetts and other employees of making sales directly from the demonstration kits. These kits were supplied by Sarah Coventry to employees for the purpose of showing samples of its products to potential customers. Testimony disclosed that the Bennetts, at the direction of their supervisor, made sales up to four times each year directly from the sales kits to customers, in contravention to the stated company policy of making sales only by use of an order blank, filled in by the customer, that was subject to acceptance by the company in New York. All parties agree that the latter type of sales are interstate in nature and that conducting such sales would not subject Sarah Coventry to the Oklahoma statutes requiring registration.

The district court relied for its definition of what constitutes engaging in business for purposes of the Oklahoma registration statutes on a Tenth Circuit Case, Wilson v. Williams. ⁴ In that case the United States Court of Appeals interpreted 18 O.S.1971 § 1.201 and found that it did not apply to the activity in issue, drilling a single oil well. The court said that engaging in business in Oklahoma consisted of "the doing or performing of a series of acts which require time, attention, and labor, for the purpose of livelihood, profits, or pleasure; and the doing of a single act of business in the state does not constitute the doing of business ...." ⁵ This test was first articulated in an early Oklahoma case, Fuller v. Allen. ⁶

Sarah Coventry contends that its method of doing business qualifies its sales as strictly interstate commence because: (1) the purchase order is subject to final acceptance or approval outside the state in which it is given, (2) the order is filled by a shipment originating from a state other than that in which the purchaser is located, and (3) payment is made to an office of the seller located in a state other than that in which the purchaser is located. This Court has applied these considerations and the Fuller test when considering the nature of business in Oklahoma for purposes of the domestication statute.

A contract to sell machines to an Oklahoma purchaser by sending the machines into Oklahoma f. o. b. the seller's out-of-state place of business was held to be interstate sales and not conducting business within Oklahoma for purposes of the statute requiring domestication. Fuller v. Allen. ⁷

Where an undomesticated foreign corporation had two agents in the state, one to make sales agreements and one to promote good will and make collections, the corporation's shipments to fill the orders solicited by the agent, shipped f. o. b. the seller's plant outside the state, were held not doing business within the state. Sooner Beverage Co. v. G. Heileman Brewing Co. ⁸ Similarly, simply appointing an agent to transact the company's business within the state was not doing business within the state. Verdigris River Land Co. v. Stanfield. ⁹

Paying an Oklahoma resident to notarize a conditional sales contract and forward a used machine to a resident of a third state was held to be doing something merely incidental to an interstate transaction and not conducting business within the state. Cugley Incubator Co. v. Franklin. ¹⁰

A corporation that maintained a branch office in Oklahoma from which its agent solicited orders to be accepted by the corporation in another state, and that shipped the goods from the other state into Oklahoma, was not required to register in Oklahoma in order to be able to bring suit since its activities were only interstate. Fruit Dispatch Co. v. Wood. ¹¹

However, a corporation's activities were held to constitute conducting business within the state and not interstate commerce where goods were shipped by the corporation to its agent, not in response to the order of a customer but to be held in stock and thereafter sold in Oklahoma. Bailey v. Parry Mfg. Co. ¹² Similarly, a foreign corporation that owned merchandise stock and fixtures located in Oklahoma, under the charge of its agents in Oklahoma and kept for sale at retail in Oklahoma, was held to be doing business in Oklahoma sufficient to require its registration as a condition precedent to maintaining suit in the state. Seidenbach's v. A. E. Little Co. ¹³

The decisions in these cases turned on the regularity of an admittedly intrastate transaction, whether the transaction was merely incidental to interstate commerce, or on the mechanics of the transaction itself. If merchandise is mailed from outside the state in response to an order from inside the state, the transaction is purely interstate, while direct sales to state residents from inventory in the state is conducting business within the state.

The...