Dahlberg Company v. American Sound Products, Inc.

• Decision Date: 18 September 1959
• Docket Number: No. 4-59 Civ. 35.,4-59 Civ. 35.
• Citation: 179 F. Supp. 928
• Parties: DAHLBERG COMPANY, a Minnesota corporation, Plaintiff, v. AMERICAN SOUND PRODUCTS, INC., an Illinois corporation, and Dahlberg Western Company, Inc., an Oregon corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

179 F. Supp. 928

DAHLBERG COMPANY, a Minnesota corporation, Plaintiff, v. AMERICAN SOUND PRODUCTS, INC., an Illinois corporation, and Dahlberg Western Company, Inc., an Oregon corporation, Defendants.

No. 4-59 Civ. 35.

United States District Court D. Minnesota, Fourth Division.

September 18, 1959.

COPYRIGHT MATERIAL OMITTED

Harold D. Field, Jr., of Leonard, Street & Deinard, Minneapolis, Minn., for moving defendant in support of motion.

John M. Palmer, of Levitt, Palmer & Rogers, Minneapolis, Minn., for plaintiff, in opposition.

NORDBYE, District Judge.

This action is before the Court on a motion by defendant American Sound Products, Inc., to set aside service of process and dismiss the complaint against it for lack of jurisdiction over its "person."

The Dahlberg Company, a Minnesota corporation, with its principal offices and place of business in Golden Valley, Minnesota, commenced this action by having the complaint and summons served upon the Secretary of the State of Minnesota. Dahlberg Western Company, Inc., and American Sound Products, Inc., foreign corporations and defendants herein, were never personally served in Minnesota. American Sound Products makes this motion to dismiss the complaint under Rule 12(b) (2), Federal Rules of Civil Procedure, 28 U.S.C.A. There is no such motion before the Court by Dahlberg Western Company, Inc., the other defendant in this action.

The plaintiff, in its complaint, alleges substantially as follows: It is engaged in the business of manufacturing and selling hearing aids and related products. Dahlberg Western Company, Inc., is an Oregon corporation which had entered into an agreement with plaintiff on October 1, 1958, whereby Dahlberg Western became the exclusive distributor of plaintiff's products in certain areas of Oregon, Washington, and British Columbia. Dahlberg Western agreed to use its best efforts to sell and promote the sale of plaintiff's products and not to make representations or advertise adversely to plaintiff's business interests. Until February 1, 1959, both parties to the agreement performed according to their contract. Such performance resulted in frequent attendance of Harold S. Jones, president of Dahlberg Western, at sales meetings and conferences in plaintiff's offices in Minnesota. At these meetings, business policies were discussed. There also was frequent correspondence between Dahlberg Western and plaintiff relating to their business.

On February 1, 1959, or thereabouts, Jones attended a conference called by plaintiff at its Golden Valley office, which is adjacent to Minneapolis. At that conference, Jones requested plaintiff to disclose secret information concerning the new line of hearing aids and prices to be charged therefor which plaintiff planned to release two months later. Jones represented that the disclosure of the information would enable Dahlberg Western to improve their business and that such information would be kept confidential. Relying upon these representations, plaintiff disclosed to Jones the prices and new lines of hearing aids which it planned to release on April 1st.

Jones then went to Robert S. Lubin, president of American Sound Products, Inc., an Illinois corporation, in his office in Chicago and disclosed the information received from plaintiff. American Sound Products also produces hearing aids and related products and is a competitor of plaintiff. Following immediately upon the disclosure of the confidential information to Lubin, American Sound Products and Dahlberg Western collaborated, without plaintiff's knowledge, in a course of action designed to cause plaintiff's dealers and distributors on the West Coast to terminate their business relationships with plaintiff. The defendants, American Sound Products and Dahlberg Western, undertook to persuade these dealers and distributors to become dealers in "Cleartone" hearing aids, a product of American Sound Products, on the strength of showing that better prices and models would be available from American Sound Products when compared with those contemplated by plaintiff.

At some time not made evident by the complaint herein, Jones, president of Dahlberg Western, also entered the employ of American Sound Products at a substantial salary and commission while he was also obligated to plaintiff under the agreement mentioned above. So that he could take advantage of his confidential relationship with plaintiff to obtain and deliver information gained thereby to American Sound Products, Jones did not terminate his contract with plaintiff. He also agreed to repudiate the contract with plaintiff and become the exclusive distributor of "Cleartone" hearing aids in the Pacific Northwest when plaintiff's business in that area would be effectively destroyed. Accordingly, plaintiff seeks substantial damages, an accounting, and injunctions restraining defendants from using their ill-gained knowledge and otherwise acting to the detriment of plaintiff.

The following facts appear from the affidavits on file: Defendant American Sound Products never has been qualified or authorized to do business in Minnesota. It sells "Cleartone" hearing aids for resale purposes to a drug store in each of the cities of Faribault, Windom, Long Prairie, and Worthington, Minnesota. Where such sales have been made, the purchase orders and payments were submitted by mail and the merchandise was sent into Minnesota by mail. The volume of these transactions was less than $2,500 during 1958. These drug store dealers are retail outlets where the products of many different manufacturers are sold. Attendants at these drug stores, by following an instruction pamphlet issued by American Sound Products, test a customer's hearing loss on "audiometer" equipment, fit a hearing aid, and provide the earmold to fit in the ear, as well as soliciting and taking orders for Cleartone hearing aids. American Sound Products supplies the equipment for such hearing loss testing and point-of-sale advertising matter to promote the sale of the hearing aids as well as inventories from which sales can be made. Although Mr. Lubin states that no representative of American Sound Products traveled in Minnesota for any business reason in the past six or seven years, Manuel von Rabenau, an employee of plaintiff, asserts that he went to American Sound Products' dealer in Worthington and was there told that an employee of American Sound Products visited "at intervals" and took charge of testing, demonstrating and fitting hearing aid spectacles for the benefit of customers.

When a sale of a Cleartone hearing aid is made, the purchaser fills out a postcard form and sends it to American Sound Products which sends back a printed form warranting the performance of that particular product for one year. If repairs are needed, the customer sends the hearing aid either directly to the Chicago plant or gives it to the drug store dealer, who sends it there. In either case, the hearing aid may be accompanied by instructions noted on forms supplied by American Sound Products to its drug store dealers.

American Sound Products has no business contacts in Minnesota other than those mentioned above. It has no warehouses or other storage facilities, booths or display rooms, offices, vehicles, or bank accounts in Minnesota. It does not make deliveries nor has it advertised or held directors' meetings in Minnesota. It does not have its name on office doors, vehicles, or in telephone directories in Minnesota.

The plaintiff contends that this Court has jurisdiction over the "person" of American Sound Products by virtue of service of process on the Secretary of the State of Minnesota pursuant to M.S.A. § 303.13, subd. 1, which provides:

"A foreign corporation shall be subject to service of process as follows:

* * * * * *

"(3) If a foreign corporation makes a contract with a resident of Minnesota to be performed in whole or in part by either party in Minnesota, or if such foreign corporation commits a tort in whole or in part in Minnesota against a resident of Minnesota, such acts shall be deemed to be doing business in Minnesota by the foreign corporation and shall be deemed equivalent to the appointment by the foreign corporation of the secretary of the State of Minnesota and his successors to be its true and lawful attorney upon whom may be served all lawful process in any actions or proceedings against the foreign corporation arising from or growing out of such contract or tort. Such

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