Diversacon Industries, Inc. v. National Bank of Commerce of Mississippi

• Decision Date: 03 November 1980
• Docket Number: No. 78-3420,78-3420
• Citation: 629 F.2d 1030
• Parties: DIVERSACON INDUSTRIES, INC., Plaintiff-Appellant, v. NATIONAL BANK OF COMMERCE OF MISSISSIPPI, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1030

629 F.2d 1030

DIVERSACON INDUSTRIES, INC., Plaintiff-Appellant, v. NATIONAL BANK OF COMMERCE OF MISSISSIPPI, Defendant-Appellee.

No. 78-3420.

United States Court of Appeals Fifth Circuit.

Nov. 3, 1980.

Thomas W. Prewitt, Alan W. Perry, George H. Butler, Fred Krutz, III, Jackson, Miss., for plaintiff-appellant.

Gholson, Hicks & Nichols, Hunter M. Gholson, Ralph E. Rood, Columbus, Miss. for defendant-appellee.

Appeal from the United States District Court for the Northern District of Mississippi.

Before BROWN, AINSWORTH and FRANK M. JOHNSON, Jr., Circuit Judges.

JOHN R. BROWN, Circuit Judge:

A Florida corporation, Diversacon Industries, Inc., (Diversacon) commenced a diversity action in the Federal District Court for the Northern District of Mississippi, seeking to recover a construction contract debt from the surety, National Bank of Commerce of Mississippi (Bank). The District Court granted the Bank's motion for dismissal on the grounds that Diversacon had engaged in intrastate commerce without qualifying to do so as required by Mississippi law, and thus, was precluded from maintaining an action in any Mississippi State or Federal Court. We find the Court erred in its characterization of Diversacon's activities as substantially intrastate in nature. Diversacon's Mississippi activities were, in fact, in furtherance of a unitary interstate transaction-the construction of a Louisiana highway system. To affirm the District Court's finding by enforcing the Mississippi door-closing statute would impermissibly burden interstate commerce and wholly deny Diversacon a forum in which to litigate its cause. Accordingly, we reverse.

The Corporate Components

The basic facts on appeal are uncontroverted. Diversacon, a Florida Corporation with its principal place of business in that state is one of many wholly owned subsidiaries of United States Industries, Inc. (USI), a Delaware Corporation. USI maintains an administrative office in Jackson, Mississippi at the headquarters of Con-Plex, one of its subdivisions. In 1972, USI administrative employees in Jackson traveled to Baton Rouge, Louisiana to bid on the construction of a portion of interstate highway system to be built there. ¹ The bid was submitted in the name of Diversacon, listing Con-Plex's post office address and telephone in Jackson. Diversacon was awarded the contract. Subsequently, all administrative support necessary to the Louisiana construction project was handled out of the Con-Plex office in Jackson by USI personnel including the negotiation of a sub-contract with Central Builders, Inc. in Mississippi. As a part of this contract, Diversacon obtained a surety agreement with the First National Bank of Monroe County, Mississippi, Bank's predecessor, by which Bank was to reimburse it for funds expended on the sub-contractor's behalf. ² When the sub-contractor defaulted and abandoned the Louisiana project in 1975, the Bank refused to honor its obligation for over $600,000 which Diversacon spent to complete the construction. Diversacon's suit and the Federal District Court's door-slamming dismissal followed.

Is the Door Closed?

The Mississippi Federal District Court found Diversacon's activities to constitute "doing business" in that state, which required it to qualify as a foreign corporation under Mississippi law in order to have access to its courts. In reaching this conclusion, the Court considered all of the evidence before it, including pleadings, depositions and affidavits. Appropriately, therefore, we proceed to review the Court's dismissal under the "clearly erroneous" standard of F.R.Civ.P. 52(a). The door-closing statute at issue here provides:

No foreign corporation transacting business in this state without a certificate of authority shall be permitted to maintain any action, suit or proceeding in any court in this state.

Miss. Code Ann. § 79-3-247 (1972). ³

The Court rejected the application of a companion statute § 79-3-211 (1972) which exempts a foreign corporation from qualifying if they are transacting any business in interstate commerce. ⁴ The Court reasoned that Diversacon did not fall within the exemption because the sub-contract work around which the controversy arose, was to be performed wholly within the State of Louisiana-thus lacking an "interstate" nature.

Although we disagree with the District Court's final determination, we consider the Court's interpretation of the applicable rules to be sound. First, the Court recognized the need for a strict construction of the statute because of its penal nature. Val-U-King Homes, Inc. v. Taylor, 301 So.2d 857, 859 (Miss.1974); Davis-Wood Lumber Co. v. Ladner, 50 So.2d 615, 620-21 (Miss.1951). Then, it adopted the test set out in Newell Contracting Co. v. State Highway Commission, 15 So.2d 700 (Miss.1943) for "doing business" within the meaning of the statutes as ". . . whether or not it is doing such acts as are within the function of its corporate powers, and whether the business so performed is substantial in scope." Id., at 703. Because the test escapes uniform application, the Court with ample precedent made its final determination upon an ad hoc basis. S&A Realty Co. v. Hilburn, 249 So.2d 379, 381 (Miss.1971). See, e.g., Republic-Transcon, Inc. v. Templeton, 253 Miss. 132, 175 So.2d 185 (1965); Davis-Wood Lumber Co. v. Ladner, 50 So.2d 615 (Miss.1951); Wiley Electric Co. v. Electric Storage Battery Co., 167 Miss. 842, 147 So. 773 (1933).

Both the District Court and the Bank have relied on certain facts to demonstrate Diversacon's "intrastate" status. USI administrative offices housed at the Con-Plex offices in Jackson, performed book-keeping services for Diversacon. For purposes of the Louisiana project, Diversacon used both Con-Plex's mailing address and phone number. In particular, receipts of Diversacon's payment of Central Builder's weekly payroll expenses mailed to the Bank for reimbursement carried Con-Plex's return address. ⁵ In, essence, the Court concluded that Diversacon's activity was geographically confined to Jackson, Mississippi.

Finding the Key-Intrastate or Interstate?

A determination of whether or not the District Court correctly applied its door-closing statutes to the facts of this case hinges on whether Diversacon's activities were intrastate or substantially interstate. In construing the same statute now before us, the United States Supreme Court in Allenburg Cotton Co. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (1974), distinguished between a situation where a corporation has "localized" its business and one where a corporation enters the state "to contribute to or to conclude a unitary interstate transaction." 419 U.S. at 32-33, 95 S.Ct. at 267, 42 L.Ed.2d at 205. In Allenburg, the Court found that where the degree of a foreign corporation's business activity is limited to contracts, arranged through independent brokers, to purchase cotton from local farmers, and where the cotton is temporarily stored in local warehouses for classification purposes, then the foreign corporation's activities are not sufficiently intrastate to require a foreign corporation to qualify to do business. ⁶

Essentially, the Court included in a federal definition of interstate commerce any activity of an intrastate nature which was an integral part of an overall interstate pattern or transaction. See e.g., Union Brokerage v. Jensen, 322 U.S. 202, 64 S.Ct. 967, 88 L.Ed.2d 1227 (1944); Ralli-Coney, Inc. v. Gates, 528 F.2d 572 (5th Cir.1976). ⁷

The Bank erroneously relies on cases which involve foreign corporations conducting thriving intrastate businesses in the forum state. Eli Lilly & Co. v. Sav-On-Drugs, 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1969) (intrastate drug sales); Barbee v. United Dollar Stores, Inc., 337 So.2d 1277 (Miss.1976) (intrastate sales through local franchise dealers). The holdings of Eli Lilly and Barbee, while sound, provide little or no support for the Bank's position in view of the particular facts and circumstances underlying the present controversy.

Clearly, Eli Lilly is manifestly distinguishable from the present case not only in the nature and quantity of activity ⁸ by the foreign corporation, but also by the fact that the suit here involved a contract which was "entirely separable from any particular interstate sale." 366 U.S. at 287, 81 S.Ct. at 1320, 6 L.Ed.2d at 294. Here, the agreement upon which Diversacon is suing the Bank is clearly the single business transaction to which all of Diversacon's activities related-the construction of the Louisiana highway. Furthermore, unlike Diversacon, the foreign corporations in Eli Lilly and Barbee had established a "continuing presence" in the state for the purpose of "doing business" within the state. 366 U.S. at 284 n.1, 81 S.Ct. at 1321 n.1; 377 So.2d at 1279. ⁹ There is nothing in the record before this Court which suggests that Diversacon undertook any activity whatsoever in Mississippi except activities which related to the Louisiana project.

In determining whether Diversacon could maintain its action under § 79-3-211, the District Court failed to consider the Allenburg standard. We agree with the view expressed in Cone Mills Corp. v. Hurdle, 369 F.Supp. 426 (N.D.Miss.1974) that it would be unrealistic to conclude that the ". . . interstate commerce exception was enacted as a voluntary exercise of legislative grace." 369 F.Supp. at 432. Rather, the enactment of the exemption was obviously a recognition of a constraint imposed upon state power by the Commerce Clause. ¹⁰ "Therefore, a Mississippi Court, when determining what activities constitute interstate commerce within the contemplation of the exemption statute, would consider itself bound by the express language of § 79-3-289 ¹¹ of the Mississippi Code to apply the federal standard . . . ." Id. If the District Court had applied state decisions in light of this federal standard, undoubtedly, it would have been...