Graham and Ross Mercantile Co. v. Sprout, Waldron & Co.

• Decision Date: 04 June 1959
• Docket Number: Civ. No. 2013.
• Citation: 174 F. Supp. 551
• Parties: GRAHAM AND ROSS MERCANTILE COMPANY, a corporation, Plaintiff, v. SPROUT, WALDRON & COMPANY, Inc., a corporation, Defendant.
• Court: U.S. District Court — District of Montana

174 F. Supp. 551

GRAHAM AND ROSS MERCANTILE COMPANY, a corporation, Plaintiff, v. SPROUT, WALDRON & COMPANY, Inc., a corporation, Defendant.

Civ. No. 2013.

United States District Court D. Montana, Great Falls Division.

June 4, 1959.

Swanberg, Swanberg & Koby, Great Falls, Mont., for plaintiff.

Hall, Alexander & Kuenning, Great Falls, Mont., for defendant.

JAMESON, District Judge.

This is a diversity case removed from state court. Plaintiff is a Montana corporation and defendant a Pennsylvania corporation. The defendant has filed a motion to quash service of summons. Able and exhaustive briefs have been filed by both parties.

Service was made on defendant by delivering to the Secretary of State a copy of the summons and complaint pursuant to R.C.M.1947, § 93-3008, as amended by c. 122, L. 1951, which permits such service on a "corporation organized under the laws of any other state or country that is actually doing business within the state of Montana or that was actually doing business within this state at the time the said action arose even though such corporation has not filed a copy of its charter in the office of the secretary of state of Montana and has not qualified to do business in this state * * *" Was the defendant "actually doing business within this state" at the time the alleged cause of action arose? An answer to this question is determinative of defendant's motion. Facts pertinent to a determination of this question as set forth in comprehensive affidavits filed by both parties, with correspondence and other documents thereto attached, may be summarized as follows:

In 1955 plaintiff was seeking expert advice on how to remodel its feed mill. It wrote "Feed Age", a business magazine for feed manufacturers. "Feed Age" suggested, among others, defendant Sprout, Waldron & Co., Inc.

Defandant's ad in "Feed Age" stated in part: "You get many plus values when you deal with your Sprout-Waldron Man. He has America's most complete line of feed milling equipment. * * *

"You also get on-the-spot guidance in the selection of the exact equipment to fit your needs.

"Your Sprout-Waldron Man is thoroughly trained to solve your problems. He's practical, sincere, and anxious to help you increase your profits year after year. And, being one of a team, he has access to the accumulated experience of the entire Sprout-Waldron sales and engineering staff."

A later ad contained the following: "Sprout-Waldron's Big Plus assures you of expert engineering guidance on installation plus finest workmanship and service * * * plus 100% reliability * * * at no extra cost."

In a letter to defendant dated December 30, 1955, plaintiff inquired about designers or engineers to remodel its mill. Defendant referred plaintiff to its sales representative in plaintiff's territory, Vern S. Behan of Denver, Colo. In a letter to plaintiff dated January 9, 1956, Behan stated in part that defendant "can engineer and design a feed mill of any size or type * * *.

"Your problem * * * is quite similar to many others we have been called upon to correct * * *.

"The writer plans to be in Montana some time in the not too far distant future and I look forward to discussing your requirements in more detail at that time."

In the first part of March, 1956, plaintiff contacted defendant's sales representative at Portland, Oregon, Leonard E. Thompson, whom plaintiff prevailed upon to come to Great Falls to inspect plaintiff's mill, although Montana was outside of Thompson's sales area. As an incentive plaintiff agreed to pay Thompson's expenses if the services of defendant were not further required. Thompson inspected plaintiff's feed mill on April 19, 1956.

The affidavit of John D. Ross, Jr., vice-president of plaintiff, states that Thompson offered plaintiff the engineering services of defendant and "in the event defendant was engaged by plaintiff to prepare plans for the contemplated feed mill improvement and supervise the installation of the same, defendant was to receive a sum equivalent to 3% of the total amount of the construction contract awarded for the installation of the feed mill improvements", but if the contract was awarded to Ken Ward Construction Co., "no isolated or specific charge would be made by defendant for its engineering and supervisory services, as far as plaintiff was concerned".

Thompson drew up "preliminary drawings" and submitted them to plaintiff on May 12, 1956. These plans were "single line" drawings which do not include details of installation for construction purposes, but which illustrate to the customer the planning and layout of a processing line and show the processes to be followed and the general application of equipment. In transmitting the drawings, Thompson stated they involved considerable work. In his affidavit Thompson states that single line drawings are "furnished by salesmen gratuitously to be accepted, rejected or modified by the customer as a part of the sales promotion program of the company."

During May, 1956, Thompson forwarded to plaintiff the bid of Ken Ward Construction Co. The bid was for an amount greater than plaintiff wished to spend. Thompson then revised the plans, outlining them to plaintiff in a letter dated June 1, 1956, thereby reducing the cost. Ward submitted a new bid in accordance with the revised plans. On June 13, 1956, Ward, Thompson and Ross met in Great Falls.

Plaintiff and Ken Ward Construction Co. entered into a contract dated June 27, 1956, for the construction of the feed mill improvements in accordance with defendant's preliminary plans, as revised. Ward purchased machinery and equipment from defendant to use in plaintiff's plant. Thompson agreed with Ward to adjust the machinery and equipment when installed.

After the contract between plaintiff and Ward was signed, Thompson made three trips to Great Falls (August, 1956, November, 1956, and March, 1957) to adjust and start the machinery, making "gratuitous" recommendations to plaintiff concerning the operation of the equipment. Plaintiff contends and defendant denies that representatives of Ward telephoned Thompson frequently for advice during the construction of the machinery.

On November 5, 1956, A. E. Rankin, a service representative of defendant, inspected the mill after complaints to Thompson concerning its operation. In his affidavit, Rankin stated that the difficulty was caused by a belt supplied by Goodyear Rubber and Belting Co., and that his services and advice were rendered gratuitously.

In March, 1957, Frank Allen, district sales manager for defendant, spent two days inspecting the mill and conferring with Thompson concerning its operation. Allen suggested to plaintiff that defendant was not responsible for the trouble and that the difficulties were caused by equipment other than that manufactured by defendant and engineering services other than those rendered by defendant.

An affidavit of defendant's treasurer recites that defendant has never debited or charged plaintiff for any amount for any purpose and has never received any payment from plaintiff. There was a written agreement between Ward and plaintiff, but none between plaintiff and defendant. Ward, not plaintiff, purchased from defendant the machinery and equipment used in plaintiff's mill.

The foregoing is the extent of defendant's activity in Montana as related in the briefs and affidavits. It is plaintiff's position that defendant failed to "fulfill its agreement to properly design, engineer and supervise the construction of certain improvements to plaintiff's feed mill." Plaintiff does not contend that its action is for sale of defective machinery or faulty construction.

Defendant contends that defendant did not render engineering or supervisory services for plaintiff or for Ward, but rather its sales representative merely inspected plaintiff's plant, made suggestions as to how it could best be modernized and recommended a construction company to complete the final plans.

A determination of what constitutes doing business within a state depends primarily upon state law. Kansas City Structural Steel Co. v. State of Arkansas, for Use and Benefit of Ashley County, 1925, 269 U.S. 148, 150, 46 S.Ct. 59, 60, 70 L.Ed. 204.¹ It is only when it is determined that the service is valid under state law, that the question of the state's power under the Constitution becomes important.² As hereinafter set forth, the "enclave" of power of the states has been enlarged by recent decisions of the United States Supreme Court. "(I)t must be kept in mind, however, that, although the U. S. Supreme Court is the final arbiter of the state's constitutional authority, state law applies and many states have not yet fully occupied their newly opened `enclave' of power. Federal courts, too, must follow the state law, except as to federal venue." Ehrenzweig, Conflict of Laws, p. 112, § 33 (1959).

Counsel have cited three Montana cases. In General Fire Extinguisher Co. v. Northwestern Auto Supply Co., 1922, 65 Mont. 371, 211 P. 308, plaintiff, a foreign corporation, sent its agent to Montana to secure a contract for the installation of fire-extinguishing apparatus fabricated by plaintiff outside of Montana, shipped to Billings, and installed in defendant's building under the direction of plaintiff's employee. Plaintiff had no office or place of business in Montana and did not manufacture any of its apparatus within the state. Plaintiff had installed similar equipment in one other building in Montana. Defendant contended that plaintiff's suit was barred by the statute providing that any corporation commencing or attempting to do business in the state without complying with the law shall be without remedy to enforce its contracts. The court held that plaintiff was not doing business within the state in violation of the statute, stating: "We entertain the view that isolated transactions, whereby a foreign corporation sells goods or other manufactured...