Caesar's World, Inc. v. Spencer Foods, Inc.

• Decision Date: 20 June 1974
• Docket Number: No. 73-1771.,73-1771.
• Citation: 498 F.2d 1176
• Parties: CAESAR'S WORLD, INC., formerly known as Lum's, Inc., Appellant, v. SPENCER FOODS, INC., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

498 F.2d 1176 (1974)

CAESAR'S WORLD, INC., formerly known as Lum's, Inc., Appellant, v. SPENCER FOODS, INC., Appellee.

No. 73-1771.

United States Court of Appeals, Eighth Circuit.

Submitted February 15, 1974.

Decided June 20, 1974.

William R. Glendon, Rogers & Wells, New York City, for appellant.

Robert R. Eidsmoe, Sioux City, Iowa, for appellee.

Before GIBSON, STEPHENSON and WEBSTER, Circuit Judges.

WEBSTER, Circuit Judge.

We granted appellant Caesar's World, Inc. leave to pursue this interlocutory appeal from an order of the District Court denying the motion of Caesar's World to dismiss for lack of personal jurisdiction the complaint of Spencer Foods, Inc. alleging breach of contract and fraudulent misrepresentation. We hold that personal jurisdiction of appellant was acquired by the lawful application of the Iowa long-arm statute and affirm the order of the District Court.

Caesar's World, Inc. was formerly known as Lum's, Inc. and was the creator of a franchise restaurant system known as "Lum's System". Lum's wholly owned a number of subsidiary corporations which carried on various aspects of the business of this system, including Lum's Restaurant Corporation ("LRC") and Dirr's Gold Seal Meats, Inc. ("Dirr's"). Spencer Foods, Inc. ("Spencer") is a Delaware corporation engaged in the meat packing business, with its principal headquarters in Spencer, Iowa. On July 15, 1970, Lum's and Dirr's entered into an agreement with Spencer and a newly created subsidiary of Spencer, Spencer-Dirr's, Inc., a Florida corporation, pursuant to which all the assets of Dirr's were acquired by Spencer-Dirr's. As a part of that agreement, Lum's undertook to purchase from Spencer-Dirr's "its entire requirements for meat and meat products for use in restaurants (but not hotels) owned by it or its subsidiaries in the continental United States. . . ."¹ Previously, restaurants in the Lum's chain received their meat supplies from Dirr's.

In August, 1971, Lum's sold its interest in LRC and the Lum's System to a third party who in turn sold it to Riviana Foods, Inc. Riviana notified Spencer² on September 8, 1972 that it would discontinue using Spencer's products in Lum's Restaurants effective September 29, 1972. Spencer filed this lawsuit on January 4, 1973, alleging breach of contract for failure to perform the five year requirements provision and fraudulent misrepresentation, claiming that Lum's knew it was going to sell its franchising business when it entered into the contract. Appellant moved to dismiss for lack of in personam jurisdiction, asserting that the contract did not come within the Iowa long-arm statute and that Lum's did not have sufficient contacts with the state of Iowa to satisfy due process requirements.

The trial court found that Lum's had agreed to purchase the meat requirements for all Lum's restaurants from Spencer-Dirr's and that there were several Lum's restaurants in Iowa, and it therefore concluded that the contract was to be performed in part in Iowa within the meaning of the long-arm statute, Iowa Code § 617.3. The trial court further concluded that the minimum contacts test of the due process clause was satisfied because Lum's had guaranteed the leases for the Iowa franchises, was named as an additional insured on all policies insuring the premises covered by these leases and, under the franchise agreements, "had considerable control over how these restaurants were operated". The court found it unnecessary to consider the relationship between Lum's and its subsidiaries to determine whether the subsidiaries' contacts might be attributable to Lum's for jurisdictional purposes because it found Lum's direct contacts sufficient to sustain jurisdiction. The court also stated: "The fact that defendant has sold its restaurant divisions and is no longer doing business in Iowa is of no consequence."

Appellant argues on this appeal that (1) the contract was primarily for the sale of assets of one Florida corporation to another and was not to be performed in whole or in part in Iowa; (2) even if the long-arm statute is deemed applicable, its application would violate due process because Lum's contacts with Iowa have not been sufficient to satisfy the minimum contacts requirement; and (3) Lum's had no contacts with Iowa at all at the time the cause of action arose or at the time it was served and therefore cannot be sued in Iowa consistent with due process.

The Iowa Long-Arm Statute

The Iowa long-arm statute provides in part:

If a foreign corporation makes a contract with a resident of Iowa to be performed in whole or in part by either party in Iowa, . . . such act shall be deemed to be doing business in Iowa by such foreign corporation for the purpose of service of process or original notice on such foreign corporation under this section, and, if the corporation does not have a registered agent or agents in the state of Iowa, shall be deemed to constitute the appointment of the secretary of state of the state of Iowa to be its true and lawful attorney upon whom may be served all lawful process or original notice in actions or proceedings arising from or growing out of such contract. . . .

Iowa Code § 617.3.

When the contract was executed, appellant was a foreign corporation and appellee had its principal place of business in Iowa. The only question under the long-arm statute therefore is whether the contract was to be performed in whole or in part by either party in Iowa.

Whether a state long-arm statute applies in any particular case is a question of state law. Simpkins v. Council Mfg. Corp., 332 F.2d 733 (8th Cir. 1964); Jennings v. McCall Corp., 320 F.2d 64 (8th Cir. 1963). The Iowa statute is to be liberally applied in actions involving foreign corporations. Lundell v. Massey-Ferguson Services N. V., 277 F.Supp. 940 (N.D.Iowa 1967); Tice v. Wilmington Chemical Corp., 259 Iowa 27, 141 N.W.2d 616 (1966). Under Iowa law, jurisdiction under the long-arm statute will be sustained "if plaintiff makes a prima facie showing of the existence of a contract `to be performed in whole or in part' in Iowa." Midwest Packaging Corp. v. Oerlikon Plastics, Ltd., 279 F.Supp. 816, 818 (S.D.Iowa 1968); Sporcam, Inc. v. Greenman Bros., Inc., 340 F.Supp. 1168 (S.D.Iowa 1972); Fisher v. First National Bank of Omaha, 338 F.Supp. 525 (S.D.Iowa), appeal dismissed, 466 F.2d 511 (8th Cir. 1972). Once this prima facie showing has been made, the burden is on defendant to overcome or rebut that showing. Miller v. Vitalife Corp. of America, 173 N.W.2d 91, 92 (Iowa 1969); Tice v. Wilmington Chemical Corp., supra.

The contract provides that "a portion of the inducement for Spencer and Spencer-Dirrs into this Agreement is the assurance that business relationship between Dirr's and Lum's will continue, and if possible expand, between Spencer-Dirrs and Lum's, following the Closing." It specifically obligates Lum's to purchase its entire meat requirements for use in restaurants owned by it or its subsidiaries from Spencer-Dirr's for five years. At the time of execution and thereafter restaurants owned by Lum's or its subsidiaries were located and operating in Iowa.

The thrust of appellant's effort to rebut this prima facie showing is that the substance of the contract was the sale of assets of one Florida corporation to another and that all provisions relating to the transfer were carried out exclusively in Florida. This argument fails because it ignores that "portion of the inducement" quoted above.³ A similar argument was likewise rejected in Robinson v. Merlite Land Sea & Sky, Inc., 61 Misc.2d 462, 305 N.Y.S.2d 289 (1969), affirmed, 64 Misc.2d 911, 316 N.Y.S.2d 455 (1970). In that case, an Iowa plaintiff sued a New York firm for breach of contract under the Iowa long-arm statute and obtained a default judgment when the defendant failed to appear in Iowa court. When the plaintiff sued on the judgment in New York, the defendant challenged Iowa's jurisdiction, claiming it had "done nothing more than sell gift certificates to plaintiff in New York." 305 N.Y.S.2d at 292. The court held the judgment was entitled to full faith and credit because the contract provided, in addition to the sale of gift certificates, that defendant would not compete with plaintiff in Iowa and defendant would recruit Iowa agents for plaintiff's benefit—promises to be performed in Iowa and therefore supplying jurisdiction under the Iowa long-arm statute.

Lum's argues, however, that the contract does not require any performance in Iowa. Lum's reliance on Fisher v. First National Bank of Omaha, 338 F.Supp. 525, 528 (S.D.Iowa), appeal dismissed, 466 F.2d 511 (8th Cir. 1972), is misplaced. Fisher involved a credit card contract dispute between an Iowa resident and a Nebraska bank. Use of the card had the effect of issuing a draft on the bank which the bank promised to pay on presentation through ordinary banking channels at its Omaha headquarters. The bank had no agreements with Iowa merchants regarding use of the card and the cardholder's payments were to be made to the bank in Omaha. The court held that the contract claim did not meet the requirement of the Iowa long-arm statute that a contract with an Iowa resident must be performed in whole or in part in Iowa before the long-arm statute becomes available to obtain jurisdiction. 338 F.Supp. at 528.⁴ Signing a credit card purchase draft in Iowa on a Nebraska bank cannot be equated with purchasing meat from an Iowa resident for use in an Iowa restaurant. Spencer was a "resident" of Iowa and subsidiary-owned Lum's restaurants were in operation in Iowa at the time the contract was entered into. Thus an unrebutted prima facie showing has been made; the statutory requirements of Iowa Code, § 617.3 are satisfied.

Due Process

Having held the long-arm statute applicable by its terms, we must next determine whether its application in this case offends due process. This depends on whether the nonresident defendant...