Cement Asbestos Products Co. v. Hartford Acc. and Indem. Co., 77-1122

• Decision Date: 23 February 1979
• Docket Number: No. 77-1122,77-1122
• Citation: 592 F.2d 1144
• Parties: 25 UCC Rep.Serv. 1236 CEMENT ASBESTOS PRODUCTS COMPANY, Plaintiff-Appellee, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1144

592 F.2d 1144

25 UCC Rep.Serv. 1236

CEMENT ASBESTOS PRODUCTS COMPANY, Plaintiff-Appellee, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant-Appellant.

No. 77-1122.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted May 12, 1978.

Decided Feb. 23, 1979.

Donald Lawrence, Jr., Denver, Colo. (John R. Hickisch, Denver, Colo., with him, on brief), of Weller, Friedrich, Hickisch & Hazlitt, Denver, Colo., for defendant-appellant.

Wiley E. Mayne, Denver, Colo. (Bonnie Starr Mandell, Denver, Colo., with him, on brief), of Holland & Hart, Denver, Colo., for plaintiff-appellee.

Before DOYLE and LOGAN, Circuit Judges, and STANLEY, Senior District Judge. ^*

LOGAN, Circuit Judge.

Hartford Accident and Indemnity Company (Hartford) appeals a judgment in favor of plaintiff-appellee Cement Asbestos Products Company (Capco) in a suit against Hartford as surety on a contractor's payment and performance bond. Jurisdiction is based upon diversity, 28 U.S.C. § 1332. The principal on the bond, a joint venture between Yount Pipeline Constructors, Inc. and Concrete Curb and Paving, Inc. (Yount), failed to pay Capco for materials furnished under a sales contract. The trial court awarded Capco $69,518.98 damages plus 8% Interest from July 31, 1974, $5,000.00 attorney's fees, and costs.

We treat three issues presented in this appeal. First we determine whether the trial court properly held Capco's business activities in Colorado were insufficient to require a certificate of authority under Colo.Rev.Stat. § 7-9-103. For those required to obtain the certificate it is a prerequisite to the foreign corporation bringing an action in the Colorado state courts or a diversity suit in the federal district court in Colorado. Woods v. Interstate Realty Co., 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524 (1949). The other issues concern whether the trial court was correct when it awarded attorney's fees against the surety, and whether there is substantial evidence to support the court's damage calculations.

Capco is an Alabama corporation with its principal place of business in Birmingham. It manufactures and markets cement asbestos pipe and pipe products, made in plants in Ragland, Alabama, and Van Buren, Arkansas. Its products have been sold in Colorado since 1971, with sales arranged either through designated dealers or a Capco sales representative. Dealers order directly from the Capco office as sales are made. Sales through a Capco representative are handled directly with the company. The sales representative quotes a price for a Capco product to a contractor bidding on a particular job. If that contractor is awarded the contract, the representative submits the orders either to the Alabama or Arkansas office for acceptance. The contractor knows the quoted price, and his credit with Capco, is subject to acceptance and that the sales representative's quoted price is not binding on Capco.

In this case Capco sales representative Michael James (James) gave Yount a written quote on Class 150 12- and 16-inch cement asbestos pipe, and a supplemental oral quote for 24-inch pipe of the same type. Yount was bidding on a water improvement project for Thornton, Colorado. When Yount was successful James placed the order through the Alabama office. The order was accepted, Yount's credit approved, and a valid contract completed when Capco sent a written acknowledgment to Yount. Both the quote form and the acknowledgment listed ten "Terms and Conditions of Sale" on the reverse side; apparently none were discussed between the parties.

At the time James submitted the order, he indicated to Yount that Capco had no 24-inch pipe in stock, but that production would begin in time for Yount's construction schedule. The other pipe in the order was in stock and was shipped on schedule. Incomplete records by Yount and Capco prevent ascertaining precisely when the 24-inch pipe was shipped and received, but it is acknowledged Capco breached the contract by failing to deliver it until June.

Under Colorado law, Yount was required to execute a payment and performance bond. Colo.Rev.Stat. §§ 38-26-105, -106. Hartford was the surety on that bond in favor of the City of Thornton. Yount's contract with Thornton provided for completion of the project 120 days after February 25, 1974, the date of the contract. An extension was granted until July 9, 1974, due to a delay in obtaining an easement. In fact the job was not accepted as completed until late October, 1974. Thornton assessed liquidated damages against Yount for the additional delay. When Yount refused to pay Capco $71,518.98, and Yount became insolvent in September, 1974, Capco sought payment from Hartford. Hartford now may assert any defenses available to Yount.

I

The central issue in this appeal is whether Capco's business activities in Colorado required it to comply with Colo.Rev.Stat. § 7-9-103. That statute would bar a foreign corporation from bringing an action in the Colorado courts if it has not obtained a certificate of authority to do business in the state. But a foreign corporation may not be compelled to qualify under these statutes if it is engaged solely in interstate commerce. Eli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276, 278, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1961). Colorado courts have recognized this limitation when construing § 7-9-103 and its predecessors. E. g., Savage v. Central Elec. Co., 59 Colo. 66, 148 P. 254 (1915); Herman Bros. Co. v. Nasiacos, 46 Colo. 208, 103 P. 301 (1909). Argument on appeal has focused upon whether the Colorado statute intends to require qualification in all cases where it is constitutionally permissible, or whether it draws a line at less than constitutional limits. Certainly the Colorado cases have discussed the problem in terms of the federal constitutional limits, which prevent the state statute from requiring that all foreign corporations whose business touches the state obtain a certificate of authority. Since we do not perceive that the cases have shifted from the constitutional lines drawn by the Supreme Court at the time those Colorado cases were determined, we assume the Colorado statute is intended to require every foreign corporation to qualify if it may do so constitutionally.

The trial court held Capco's business in Colorado was not sufficiently intrastate to bring it within the scope of § 7-9-103. We agree with that characterization. Capco's contacts with the state of Colorado were through three individuals or groups.

First, there are the authorized dealers, local independent construction supply companies, who can order pipe in their own names and accounts, or in the names of their customers, by mail or telephone, to be accepted in Alabama or Arkansas and shipped f. o. b. those manufacturing plants to the job site or, occasionally, to the dealer. The dealer receives a larger discount ordering in its own name as purchaser than when ordering for billing directly to a client, where Capco has the burden of collection. It has long been recognized that use of local soliciting agents of this sort does not involve sufficient contacts with the state to require qualification under the statutes. Real Silk Hosiery Mills v. City of Portland, 268 U.S. 325, 45 S.Ct. 525, 69 L.Ed. 982 (1925); Butler Bros. Shoe Co. v. United States Rubber Co., 156 F. 1 (8th Cir. 1907) (involving Colorado statute).

Second, Capco has contacts with Colorado through James, its sales representative and promoter. James lives in that state, but is sales representative in several other states and a portion of Canada. Only about 30% Of his time is spent in Colorado. James carries Capco's promotional materials, catalogs, etc., and uses an extra bedroom in his apartment as an office. He does no collection work on Capco accounts. Orders that he solicits are accepted in the Birmingham office, all payments are made directly to that office, and all shipments are made f. o. b. from plants outside of Colorado.

It is well recognized that merely having a traveling salesman within the state, even one who is a resident of that state, is not sufficient contact to require a foreign corporation to qualify to do business in the state as a prerequisite to its use of the courts as plaintiff. Crenshaw v. Arkansas, 227 U.S. 389, 33 S.Ct. 294, 57 L.Ed. 565 (1913); Robbins v. Taxing Dist. of Shelby County, 120 U.S. 489, 7 S.Ct. 592, 30 L.Ed. 694 (1887); Savage v. Central Elec. Co., supra ; International Trust Co. v. A. Leschen & Sons Rope Co., 41 Colo. 299, 92 P. 727 (1907). The only additional facts which could differentiate this from the traditional "drummer" cases are that Capco pays for a WATS line, a leased car, and an answering service where James' number is listed under "Capco." We do not consider these significant departures from the sales representative cases. Cf. International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). This is not Eli Lilly & Co. v. Sav-On-Drugs, Inc., supra, where there was a permanent office paid for by the company, a district manager, a full-time secretary and 18 other salaried employees working out of the office.

The third source of contacts Capco has with Colorado is that it employs two "troubleshooters" who are not residents of Colorado. These men are sent out to job sites which are using Capco products, apparently upon request of the contractor attempting to install the pipe. They are primarily used if the buyer has no previous experience with Capco products, and only occasionally, apparently, have they visited job sites in Colorado. It has been held that furnishing a specialist to assist in the assemblage and erection of machinery as part of the work of installation is an appropriate incident to an interstate sale and does not justify the courts of the state in forcing the corporation to obtain a license to do business therein. York Mfg. Co. v. Colley, 247 U.S. 21, 38 S.Ct. 430, 62 L.Ed. 963 (1918). Cf. Puritan...