Clover Leaf Freight Lines v. Pacific Coast Wholesalers Ass'n

• Citation: 166 F.2d 626
• Decision Date: 19 April 1948
• Docket Number: No. 9310.,9310.
• Parties: CLOVER LEAF FREIGHT LINES, Inc., v. PACIFIC COAST WHOLESALERS ASS'N
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

166 F.2d 626 (1948)

CLOVER LEAF FREIGHT LINES, Inc., v. PACIFIC COAST WHOLESALERS ASS'N

No. 9310.

Circuit Court of Appeals, Seventh Circuit.

January 14, 1948.

Rehearing Denied April 19, 1948.

Paul J. Maguire, of Chicago, Ill., for appellants.

Samuel M. Kane, Meyer J. Myer, and Edward E. Kane, all of Chicago, Ill., for appellee.

Before EVANS, MAJOR, and MINTON, Circuit Judges.

EVANS, Circuit Judge.

The validity and effectiveness of the service of process on an individual in Chicago, in a suit against a California corporation, determine the correctness of the District Court's order vacating a default judgment against defendant, and quashing the service on it.

The defendant, the Pacific Coast Association, is a nonprofit corporation, organized in California. Plaintiffs assert its transaction of business in Chicago by having had freight consigned to it in care of the Transport Terminal Company, Chicago. The Transport Company, pursuant to a contract which it had with the defendant, assembled such freight into carload lots and handled its shipment to defendant or its members on the west coast. The individual upon whom the summons and complaint were served was one Al Davis, president of the Transport Terminal Company.

The plaintiffs are four shippers who carried freight consigned to defendant, to Chicago. They had regular tariffs filed with the I.C.C. setting forth their freight charges. However, Transport Company revised and reduced the bills which the plaintiffs submitted, and made what plaintiffs claim were under payments. It is because of these alleged under payments that plaintiffs brought this suit.¹ Transport Company was reimbursed by defendant for sums which it advanced, as well as for its stipulated service charge for assembling and forwarding the freight.

The U. S. Marshal's return on service read as follows:

"Served this writ together with copy of Complaint on the within named Pacific Coast Wholesalers Association, a corporation, by delivering copies thereof to Al Davis, an agent of said corporation, this 3rd day of June, A. D., 1946. The President of said corporation not found in my district. * * *" (Italics ours.)

Motion supported by affidavit, for default judgment was made, and the court entered a default judgment for the amounts claimed, and interest and costs, on July 1, 1946. Executions were issued and returned unsatisfied.

On August 6, the defendant, Pacific Coast Wholesalers Assn., appeared by counsel and moved to vacate the default judgment, the motion reciting:

"appearing specially * * * moves that all of the judgments * * * by default * * * be vacated and that this suit be dimissed on the ground that the suit has been brought in the wrong district of the United States because as appears from the Complaint, this suit arises under a law regulating commerce, to-wit: U.S.C.A., Title 49, Section 317, Paragraph (b), and the defendant is not an inhabitant of the Northern District of Illinois, wherein this suit is brought, within the meaning of Section 51 of the Judicial Code 28 U.S.C.A. § 112 * * *."

In its amended motion to dismiss, defendant gave as further ground:

"this Court lacks jurisdiction over the person of this defendant and that the service of process is insufficient and the return thereof should be quashed, for the reasons that:

"(1) The said Al Davis, upon whom the summons and complaint were served, was not an officer, agent or employee of the defendant, nor was he authorized to receive service of process for it, and

"(2) The defendant is a corporation organized under the laws of and residing in the State of California; that it was not doing business in the State of Illinois, nor was it licensed to do business there; that it did not consent to be sued or served with process in the State of Illinois; and that it was not present in the State of Illinois so that process could not there be served upon it."

This motion to vacate was supported by an affidavit of the secretary of defendant, and by another affidavit by an employee of the Transport Terminal Company. The secretary's affidavit was to negative any inference of defendant's "doing business" in Illinois so as to be subject to suit in said state.

The affidavit of defendant's secretary is set forth below.²

The affidavit of Transport Company's employee gave the details of its methods of handling of defendant's freight.³

The amended motion was supported by the affidavit of the executive secretary of the defendant, which affidavit stated that Al Davis "is neither an employee nor an agent" of defendant and was not "authorized to accept service".

Al Davis also made an affidavit setting forth the facts of his presidency of Transport Terminal Company and also stating that the Transport Company is not a subsidiary of or affiliated with the defendant and none of its stock is owned by defendant, and there was no organizational connection between the two companies. Transport Company was engaged in the business of consolidating, distributing and forwarding freight for various shippers and associations of shippers. Transport Company has had a contract with defendant for four years, dealing with the handling of defendant's freight. The substance of the contract, as stated in Davis' affidavit, is set forth in the margin.⁴

The trial court did not specifically state the reasons for its ruling in setting aside the default judgment and quashing service, but it is easy to see the contest is over the query — Was defendant doing business in Illinois so as to be subject to suit?

The plaintiffs contend:

(1) defendant waived any defect of venue by failing to challenge it before entry of default judgment;

(2) defendant's activities in Illinois estopped its asserting improper venue;

(3) defendant's activities in Illinois, through Transport Terminal Co. were sufficient to constitute its presence here for service of process;

(4) personal service upon Davis, president of Transport Co., was binding upon defendant.

Defendant, on the other hand, denies that (1) its activities in Illinois constituted consent by it to be sued here, nor was it doing business here so as to be subject to service; (2) service upon Davis could not bind it because he was neither its agent, officer nor employee.

Our guide is the opinion of the late Chief Justice Stone, rendered in the case of International Shoe Co. v. Washington, 326 U. S. 310, 316, 319, 320, 66 S.Ct. 154, 158, 90 L.Ed. 95, 161 A.L.R. 1057. In the light of the opinion in that case, we have little doubt that the defendant was "doing business" in the State of Illinois in this case so as to be subject to suit here.

The facts necessitating such a conclusion are:

(1) Transport Terminal Co. was an agent of defendant.

(2) Defendant's business was the handling of freight, a very vital part of that business, i. e., the handling of freight, routed to Chicago for reassembly into carload lots, for final shipment to defendant or its members.

(3) Such activity in Illinois was substantial — it had continued for four years and its volume of business was substantial (the fact that the alleged under payments alone amounted to just under seven thousand dollars is evidence of the volume of its business).

(1) Defendant stresses the independence of Terminal Transport Company of the defendant. True, there is evidence that they are separate corporations. Equally clear is the proof to show Terminal Co. was a valued agent of defendant. "Nearly one-half of the freight tonnage handled by Transport Co. consists of freight consigned to Pacific Coast Association". The only inference we can draw from the sworn statement of the Terminal's president is that well-nigh one-half of Terminal's business was for defendant. It was paid by defendant for such service, and its compensation was a percentage of defendant's business.

While there seems to have been no corporate relationship between the two, the vice-president of Transport Co. was general manager of defendant, a fact not to be ignored for it suggests possibility of control which defendant might have had in determining Transport's policy and operation.

Defendant's and Transport Co.'s own appellation of the relationship was that of agency, in several instances when they were not conscious of or troubled with the instant controversy.

The affidavit of Transport Co.'s employee, submitted by defendant as basis for the motion to vacate stated

"Such shipments moved daily under uniform standard bills of lading * * * to the aforesaid receiving station of Transport Terminal Co., and receipts were issued thereon reading, `Transport Terminal Co., Agent for Pacific Coast Wholesalers Association.'"

(2) Defendant's business was described by the Interstate Commission as follows:

"* * * (defendant) is an association of shippers engaged in consolidating and distributing freight for its members on a non-profit basis, for the purpose of securing the benefit of carload, truckload, or other volume rates * * *."

It can thus be seen how extremely important a part of defendant's business was being done in Chicago by the Transport Co. It was an important cog in effectively accomplishing the economic and efficient transportation of products going to defendant and its constituent members in California from points beyond Chicago. If such freight had been shipped directly to defendant in California in the less than carload lots, the freight cost would have been much greater. Transport Co.'s activity eliminated any necessity for a formal "branch" of defendant being in Chicago.

(3) Not only was the volume of defendant's business carried on by Transport Co. very substantial and long continued, but there were the more formal indicia of presence of defendant in Illinois, manifested (1) by a sign bearing the legend "Pacific Coast Wholesalers Association" appearing directly over the receiving facilities of Transport Terminal Company; (2) defendant's name was also carried in the Chicago telephone...