General Foods Corp. v. Haines and Co., Inc.

• Decision Date: 18 October 1978
• Docket Number: Civ. A. No. 78-245.
• Parties: GENERAL FOODS CORPORATION, a Delaware Corporation, Plaintiff, v. HAINES AND COMPANY, INC., a Foreign Corporation, Defendant.
• Court: U.S. District Court — District of Delaware

458 F. Supp. 1167

GENERAL FOODS CORPORATION, a Delaware Corporation, Plaintiff, v. HAINES AND COMPANY, INC., a Foreign Corporation, Defendant.

Civ. A. No. 78-245.

United States District Court, D. Delaware.

October 18, 1978.

William J. Wier, Jr., and Thomas S. Neuberger, of Bader, Dorsey & Kreshtool, Wilmington, Del., for plaintiff.

Howard L. Williams, of Morris, James, Hitchens & Williams, Wilmington, Del., and Frederick R. Reed, of Vorys, Sater, Seymour & Pease, Columbus, Ohio, of counsel, for defendant.

OPINION

STEEL, Senior District Judge:

General Foods Corporation ("General Foods"), a Delaware corporation, brought this action against Haines and Company, Inc. ("Haines"), an Ohio corporation, to recover on a written agreement executed by Haines to General Foods which guaranteed the payment of all purchases made by Haines' wholly-owned subsidiary, P. S. Truesdell Company ("Truesdell"), from General Foods. According to the affidavit of Joseph Prowe (Doc. No. 8), the credit manager for the Dover, Delaware plant of General Foods, General Foods made six deliveries of its product to Truesdell between October 29, 1976, and December 10, 1976.¹ All but two of these deliveries were made F.O.B. General Foods' plant located in Dover, Delaware.² The affidavit of William K. Haines, Sr. (Doc. No. 11), president of Haines, indicates that these deliveries were made pursuant to Truesdell's telephone or purchase orders for products of the Baker's division of General Foods in Dover, Delaware. Haines admits that Truesdell failed to make payment in the amount of $133,847 on the six deliveries.

Subject matter jurisdiction is based upon diversity of citizenship and a controversy involving in excess of $10,000. 28 U.S.C. § 1332 (1970).

Haines has moved to quash the service of process and dismiss the complaint on the ground that this court lacks personal jurisdiction over it.³ Haines is a foreign corporation that has never qualified to do business in Delaware as it might have done under 8 Del.C. § 371. Service was purportedly made upon Haines by serving the Secretary of State under 8 Del.C. § 382, which authorizes service upon non-qualified foreign corporations under limited circumstances. It states in pertinent part:

(a) Any foreign corporation which shall transact business in this State without having qualified to do business under Section 371 of this title shall be deemed to have thereby appointed and constituted the Secretary of State of this State, its agent for the acceptance of legal process in any civil action, suit or proceeding against it in any state or federal court in this State arising or growing out of any business transacted by it in this State. The transaction of business in this State by such corporation shall be a signification of the agreement of such corporation that any such process when so served shall be of the same legal force and validity as if served upon an authorized officer or agent personally within this State.

(b) . . . "The transaction of business" or "business transacted in this State," by any such foreign corporation, whenever those words are used in this section, shall mean the course or practice of carrying on any business activities in this State, including, without limiting the generality of the foregoing, the solicitation of business or orders in this State.

Haines argues that the service upon it through the Secretary of State was a nullity since it has not engaged in business activities in Delaware within the meaning of 8 Del.C. § 382. Whether or not it has must be determined by Delaware law.⁴

I. Jurisdiction over Haines

Two conditions must be met before section 382 can properly be invoked to authorize service on a non-qualified foreign corporation by service on the Secretary of State. First, the corporate defendant must be transacting business generally in Delaware. Second, the suit must arise or grow out of a particular business transaction that occurred in Delaware. See Simpson v. Thiele, Inc., 344 F.Supp. 7, 8 (D.Del.1972); Capshaw v. Smith Estates, Inc., 69 F.R.D. 598, 601 (D.Del.1976); Scott Paper Co. v. Scott's Liquid Gold, Inc., 374 F.Supp. 184, 187 (D.Del.1974); Perry v. American Motors Corp., 353 A.2d 589, 592 (Del.Super.1976).

The second prong of this test is clearly satisfied with respect to Haines' activities in Delaware as this suit had its genesis in a business transaction initiated in Delaware. The affidavit of Joseph Prowe, the credit manager for the Dover, Delaware plant of General Foods, states that an officer of Haines traveled to Delaware to discuss with him the financial status of Truesdell and to assert Haines' willingness to guarantee payment to General Foods of any account incurred with Truesdell. Shortly after these negotiations in Delaware, an agreement was executed in Ohio.

The issue here is whether Haines' activity "constitutes a transaction of business, the course or practice of carrying on any business activities or the solicitation of business or orders in the State of Delaware." Nacci v. Volkswagen of America, 297 A.2d 638, 641 (Del.Super.1972). To meet the statutory standard of transacting business, "something more is required than a finding that the transaction which gave rise to the lawsuit occurred in Delaware . . .. Unless this is so, one or the other of the dual requirements of section 382 . . . is superfluous." Delaware Lead Constr. Co. v. Young Industries, Inc., 360 F.Supp. 1244, 1246 (D.Del.1973). Haines' only contact with the State of Delaware was to send a representative to negotiate the guarantee agreement with General Foods. This isolated transaction is insufficient to amount to a course or practice of doing business, a necessary condition to bring Haines within the scope of the Delaware "long-arm" statute.

No personal jurisdiction over Haines was validly obtained.

This, however, does not end the matter. The guarantee agreement between General Foods and Haines provides that "no defense which would not be available to customer Truesdell in the event of any default by it shall be available to undersigned Haines." Accordingly, Haines cannot assert the defense that jurisdiction was lacking over it unless that identical defense is also available to Truesdell. Thus, the question arises whether Truesdell could have validly asserted the defense of lack of personal jurisdiction if it had been served in Delaware under section 382.

II. Jurisdiction over Truesdell

Like Haines, Truesdell's activities in Delaware satisfy the Delaware "long-arm" statute's requirement that the suit arise out of a particular business transaction which occurred in the State. The obligation owed by Truesdell, which is the basis of this action, represents the purchase price of goods that Truesdell acquired from General Foods by sending purchase orders or making telephone calls to the General Foods plant in Dover, Delaware. In addition, four of these shipments were delivered to Truesdell F.O.B. General Foods' plant in Dover, Delaware.

The crucial determination then is whether Truesdell's purchases of Baker's products from General Foods' Dover plant brings Truesdell within the statutory requirement of transacting business. The approach adopted by the Delaware courts in evaluating the concept of "transacting business" is to measure "the quantity and quality of the contact between the foreign corporation and the state." Perry v. American Motors Corp., 353 A.2d 589, 592 (Del.Super.1976); see Scott Paper Co. v. Scott's Liquid Gold, Inc., ...