Green v. US Chewing Gum Mfg. Co.

• Decision Date: 15 July 1955
• Docket Number: No. 15293.,15293.
• Parties: Earl W. GREEN, Appellant, v. U. S. CHEWING GUM MFG. CO., and H. L. Wilkinson, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

224 F.2d 369 (1955)

Earl W. GREEN, Appellant, v. U. S. CHEWING GUM MFG. CO., and H. L. Wilkinson, Appellees.

No. 15293.

United States Court of Appeals Fifth Circuit.

July 15, 1955.

Sam B. Spence, Steve Latham, Dugger & Latham, Wichita Falls, Tex., for appellant.

Lee Sellers, Nelson, Montgomery, Robertson & Sellers, Wichita Falls, Tex., for appellees.

Before RIVES, Circuit Judge, and DAWKINS and DE VANE, District Judges.

RIVES, Circuit Judge.

The question to be decided is whether, within the venue section of the Clayton Act,¹ a corporation "transacts business" in a judicial district when the corporation located outside the district receives orders by mail sent from within the district, and in filling such orders delivers a substantial amount of its product into the district, but does no soliciting there except by mail and performs no other substantial activity there.

The plaintiff was engaged in the business of selling ball chewing gum both wholesale and through retail vending machines, and had been so engaged for about twenty years. In May, 1949, the defendant, U. S. Chewing Gum Mfg. Co., solicited the plaintiff to purchase all of his merchandise from said defendant, promising to supply all of his needs at that time and in the future. Accordingly, the plaintiff did purchase all of his ball chewing gum from said defendant until on or about August 3, 1950, at which time, for the reasons hereinafter stated, said defendant refused to sell him its products direct, and notified him that, from such date forward, he would be required to purchase such products through his competitor, the defendant H. L. Wilkinson, at an increase in price of three cents per pound plus freight.² Said defendant's "Star" brand ball gum was used by most of the ball chewing gum operators in Texas.

An association of such operators, known as the Texas Operators, was organized in 1946, of which the defendant H. L. Wilkinson was a member. The members of that association

"met and agreed that they would divide the State of Texas into various territories and that each member thereof would have the right to operate in such territory to the exclusion of any other member. It was further agreed and decided that the association would join together and by collective bargaining force the manufacturers of ball chewing gum to sell only to members of the association. That it was understood and agreed by the members of such association that the defendant H. L. Wilkinson was to have as his territory the same areas in which the plaintiff was conducting his business."

Further, the complaint read:

"Plaintiff alleges that the purpose of the defendant H. L. Wilkinson and the other operators of the Texas Operators Association was to eliminate the plaintiff as a competitor of the defendant, H. L. Wilkinson, and that the defendant, U. S. Chewing Gum Mfg. Co., well knowing of such purpose, complied with the demand of the defendant H. L. Wilkinson and other operators of such association by refusing to sell its products to the plaintiff. Plaintiff alleges that as a result of such acts on the part of the defendants he has suffered the damages hereinafter set out."

The defendant, U. S. Chewing Gum Mfg. Co., moved to dismiss the complaint for lack of jurisdiction over it or improper venue, supporting its motion by an affidavit of its President to the effect, in part, that:

"The sole connection of the defendant U. S. Chewing Gum Mfg. Co. with the Northern District of Texas, in which this suit is pending, at the time of filing this affidavit, as well as at the time it was served with process herein, is that such defendant fills orders at its Oakland, California plant from two regular customers within such district, one such customer being located at Vernon, Texas, and the other at Crosbyton, Texas. That such orders are received irregularly, by mail, and are filled by such defendant by shipping the merchandise via motor freight truck from Oakland, California to Vernon and Crosbyton, respectively.

That both such customers remit payment for such shipments by mail. I am away from my office and business records at this time, and hence cannot say exactly what percentage of the gross business of U. S. Chewing Gum Mfg. Co. is represented by shipments to these two customers, but I know it is a very small part of the total business of my company. To my knowledge, U. S. Chewing Gum Mfg. Co. has no other business in or connection with anyone or firm in the Northern District of Texas."

In opposition to such motion to dismiss, the plaintiff filed his affidavit to the effect, in part, that:

"At the present time the U. S. Chewing Gum Mfg. Co. sells its products to John Horn, Abilene, Texas, H. L. Wilkinson, Vernon, Texas, G. O. Paudler, Crosbyton, Texas, Everett Graff, Dallas, Texas, William Davies, Dallas, Texas, and Ben Rauch, Forth Worth, Texas, all residing and doing business in this district. These distributors own a total of about ten thousand four hundred (10,400) chewing gum distributing machines. They purchase from the defendant U. S. Chewing Gum Mfg. Co. a total of approximately six thousand (6,000) pounds of chewing gum per month. Up until August, 1950, I purchased from the company between one and two thousand pounds of chewing gum per month.

"I have been in the chewing gum vending business for about twenty years. During this time I have purchased gum from many companies. I have ordered my gum by mail from all of these companies. None of the companies have ever had a regular salesman in this district. The gum has always been shipped directly from the factory to my place of business. In this type of business there is no reason for chewing gum manufacturing companies to have a regular salesman, representative or warehouse in this district because the business can be conducted more efficiently and economically by mailing orders directly to the factory and having the gum shipped by freight. This is particularly true at the present time with respect to the defendant U. S. Chewing Gum Mfg. Co. since its sales are to the above named operators only and it is not soliciting business in this district."³

The district court sustained the motion to dismiss, and dismissed the complaint as to the defendant, U. S. Chewing Gum Mfg. Co., without prejudice, and this appeal ensued. The district court did not find that the deliveries into the judicial district were not "substantial," but stated simply:

"I do not believe, gentlemen, that a citizen of California who receives orders by mail and then forwards the merchandise ordered in interstate commerce to the customer who has ordered by mail is amenable to suit filed against him in the place of the purchasers\' residence."

Upon said defendant's admission of two regular customers within the district, and the plaintiff's affidavit that the said defendant delivered within the district approximately six thousand (6,000) pounds of chewing gum per month, and the calculation of such sales in terms of dollars per year at slightly more than $25,000.00 per annum, it must be held that the deliveries within the district were substantial.

It will not do to deny substantially by replying, as said defendant does in its President's affidavit, that "* * * the gross business of U. S. Chewing Gum Mfg. Co. * * * represented by shipments to these two customers * * * is a very small part of the total business of my company," for if that were the rule, we would have different tests of substantiality applying to different corporations according to their size; a large corporation could, with impunity, engage in the same acts which would subject a smaller corporation to jurisdiction and venue. We agree with Judge Allan K. Grim of the Eastern District of Pennsylvania that the test is rather, "whether or not the sales would appear to be substantial from the average businessman's point of view." Sunbury Wire Rope Manufacturing Company v. United States Steel Corporation, D.C.E.D.Pa., 129 F.Supp. 425, 427.

In considering the suability of foreign corporations as affected by the due process clause of the Fourteenth Amendment, the Supreme Court in 1945, in International Shoe Co. v. State of Washington, Office of Unemployment Compensation and Placement, 326 U.S. 310, 317, 318, 319, 66 S.Ct. 154, 158, 90 L.Ed. 95, rejected the "presence" test as begging "the question to be decided. * * * the terms `present' or `presence'", according to Chief Justice Stone, "are used merely to symbolize those activities of the corporation's agent within the state which courts will deem to be sufficient to satisfy the demands of due process. * * * Those demands may be met by such contacts of the corporation with the state of the forum as make it reasonable, in the...