Dragor Shipping Corporation v. Union Tank Car Company

• Decision Date: 24 May 1966
• Docket Number: No. 20416.,20416.
• Citation: 361 F.2d 43
• Parties: DRAGOR SHIPPING CORPORATION, a corporation, formerly Ward Industries Corporation, Appellant, v. UNION TANK CAR COMPANY, a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

361 F.2d 43 (1966)

DRAGOR SHIPPING CORPORATION, a corporation, formerly Ward Industries Corporation, Appellant, v. UNION TANK CAR COMPANY, a corporation, Appellee.

No. 20416.

United States Court of Appeals Ninth Circuit.

April 7, 1966.

Rehearing Denied May 24, 1966.

Hull, Terry & Ford, Tucson, Ariz., Joseph Lotterman of Lotterman & Weiser, New York City, for appellant.

Thomas C. McConnell, Chicago, Ill., Boyle, Bilby, Thompson & Shoenhair, Tucson, Ariz., for appellee.

Before HAMLEY, MERRILL and BROWNING, Circuit Judges.

HAMLEY, Circuit Judge:

Union Tank Car Company (Union) brought this action against Dragor Shipping Corporation, formerly Ward Industries Corporation, in the United States District Court for the District of Arizona.¹ Plaintiff sought a judgment in the sum of $1,000,000, with interest from January 1, 1964. Such relief was claimed on the basis of an allegation that Dragor had failed to fulfill its obligations, under a settlement agreement dated October 3, 1963, to pay that amount, and under a promissory note in that amount given to Union by Dragor under the terms of the agreement.

District court jurisdiction was asserted on the basis of diversity of citizenship. Union is a New Jersey corporation having its principal place of business in Illinois. Dragor is a Delaware corporation having its principal place of business in New York.

Service was made upon Dragor by delivering copies of the summons and complaint to the Director of Incorporation of the Corporation Commission of the State of Arizona, and to the assistant secretary of Dragor's purported statutory agent, C. T. Corporation. Dragor appeared specially and moved for an order quashing, vacating and annulling the service of process as invalid, and dismissing the summons and complaint, on the ground that the court did not obtain jurisdiction over the person of Dragor or the subject matter of the action.

The motion to quash and dismiss was denied. The district court thereafter denied Dragor's motion to amend the order to add recitals thereto which would have permitted an interlocutory appeal pursuant to 28 U.S.C. § 1292(b) (1964). Dragor then moved in this court for leave to file a petition for a writ of prohibition restraining the district court from proceeding with the action in that court. We denied leave to file the petition.

Dragor then filed its answer in which it denied the essential allegations of the complaint, and raised the defenses of lack of jurisdiction, insufficiency of process and improper venue. As a part of its answer, Dragor asserted a counterclaim in which it was alleged that Union had breached the settlement agreement and a separately executed covenant not to sue. Dragor sought dismissal of the complaint and judgment against Union in the sum of not less than $1,000,000.²

Union, proceeding under Rule 12 (c), Federal Rules of Civil Procedure, responded with a motion for judgment in its favor on the complaint on the ground that Dragor's answer failed to state a legal defense.³ At the same time, Union moved for dismissal of the counterclaim pursuant to Rule 12(b) (6), Federal Rules of Civil Procedure (failure to state a claim upon which relief can be granted). The motion for judgment on the complaint was granted and the motion to dismiss the cross complaint was denied.⁴ Pursuant to Rule 54(b), Federal Rules of Civil Procedure, the court made an express determination that there was no just reason for delay and directed the entry of judgment on the complaint in the sum of $1,037,500. A judgment in this sum was entered on June 1, 1965. Dragor then took this appeal from the judgment and also from the earlier order denying its motion to quash, vacate and annul the service of process.

Dragor's sole contention on the appeal is that the Arizona District Court's assumption of jurisdiction over the person of Dragor and thereby over the subject matter of this action deprived Dragor of due process, and is therefore unconstitutional.⁵

The principle Dragor seeks to invoke is that due process requires that in order to subject a defendant to a judgment in personam, if he is not present within the territory of the forum, he must have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. See International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95.⁶

The established facts necessary to be considered in determining whether Dragor had the minimum contacts with Arizona sufficient to satisfy this due process requirement, are set out below.

On July 29, 1947, Dragor obtained a certificate of authority from the Arizona Corporation Commission authorizing that company to transact business within Arizona. This was done in conformity with the requirements of Ariz. R.S. § 10-481. In obtaining that authority Dragor, among other things, complied with the requirement of section 10-481(A) (2) which provides that a foreign corporation must:

"* * * file with the corporation commission, in the form prescribed by the commission, an irrevocable consent to service of pleadings or process which shall become effective upon the revocation, annulment or voluntary withdrawal of the license of the corporation to do business in this state, and which shall provide that actions arising out of or involving business done or transactions arising in this state may be commenced against the corporation in any court of competent jurisdiction within this state, by the service of pleadings or process upon the commission."

While licensed to transact business in Arizona, Dragor formed a joint venture with Idaho-Maryland Industries, Inc., (IMI), a California construction company. On October 23, 1961, that joint venture entered into a second-tier subcontract with Union for the construction of facilities in California and Arizona. The Arizona construction consisted of Titan II missile launch facilities at the Davis-Monthon Air Force Base, Tucson, Arizona. During the performance of this work, IMI filed a petition under Chapter 11 of the Bankruptcy Act in the United States District Court for the Southern District of California. Certain proceedings between Dragor and IMI ensued, resulting in a compromise agreement between them under which Dragor took an assignment of all of IMI's rights under the contract between the joint venture and Union.

In May, 1962, asserting that the joint venture was unable to complete the Arizona work, Union filed a diversity action against Dragor in the United States District Court for the Northern District of Illinois, to recover losses alleged to have been sustained by reason of the asserted default. Dragor entered a general appearance in the action and moved to transfer it to the United States District Court for the District of Arizona on the ground that all matters involved in the action originated in Arizona. The case was thereupon transferred to the United States District Court for the District of Arizona, at Tucson, where it was docketed as Union Tank Car Company v. Ward Industries Corporation, Civ. 1482 — Tuc. While this case was being transferred to Arizona, Dragor instituted a separate action against Union in the same Arizona court, seeking rescission of the subcontract with Union and money damages. This case was docketed as Ward Industries Corporation v. Union Tank Car Company, Civ. 1478 — Tuc.⁷

Extensive pretrial proceedings were subsequently conducted. However, on October 3, 1963, just prior to the trial date of these actions, the parties entered into an agreement of settlement. Under the terms of this agreement Union and Dragor mutually released each other from any and all actions and claims, with certain exceptions.⁸ It was provided that stipulations of dismissal with prejudice would be delivered by the parties in the two Arizona actions referred to above.

With regard to the Mosher Steel Company action referred to in note 8, or any other action which might result from a claim asserted by Mosher Steel Company against Union or Dragor, Union and Dragor separately covenanted not to assert any claim against the other. This covenant not to sue was executed at the same time as the settlement agreement.

Under the settlement contract Dragor agreed to pay Union, on or before September 30, 1964, the sum of $1,000,000, with interest at the rate of five percent per annum, commencing from January 1, 1964, such sum to be evidenced by a non-negotiable promissory note of Dragor drawn to the order of Union. The settlement agreement further provided that Dragor would assign to William B. Browder all claims of the joint venture against Union, The Fluor Corporation, Ltd., or the United States arising out of construction of facilities at the Davis-Monthon Air Force Base, Tucson, under the contract referred to above. It was provided that sums actually received by Union from the Fluor Corporation, Ltd., the United States or otherwise, after September 30, 1963, as a result of that contract, would be used to reduce the sum and obligation set forth in the note, according to a prescribed schedule.⁹

The settlement agreement, promissory note and covenant not to sue were executed and delivered between Union and Dragor in New York. The stipulations dismissing the two Arizona suits, called for by the settlement agreement, were executed in New York and thereafter filed in Arizona. Several months after this had been done, on April 30, 1964, Dragor deposited in the office of the Arizona Corporation Commission a "withdrawal" from Arizona. The Commission's certificate to this effect states that Dragor had completed all requirements necessary to permit the filing of the withdrawal "* * * and thereupon said corporation ceased to exist, except as to creditors."

Dragor did not pay to Union on the appointed day of September 30, 1964, the $1,000,000 called for by the settlement agreement and promissory note. Accordingly, on December 1, 1964,...