Legion Ins. Co. v. Garner Ins. Agency, Inc.

• Decision Date: 12 September 1997
• Docket Number: No. 96-D-1564-S.,96-D-1564-S.
• Citation: 991 F.Supp. 1326
• Parties: LEGION INSURANCE COMPANY, Plaintiff, v. GARNER INSURANCE AGENCY, INC., Quentin P. (Garner) Umphrey, Ray Wadkins and Jack Jeffcoat, Defendants.
• Court: U.S. District Court — Middle District of Alabama

991 F.Supp. 1326

LEGION INSURANCE COMPANY, Plaintiff, v. GARNER INSURANCE AGENCY, INC., Quentin P. (Garner) Umphrey, Ray Wadkins and Jack Jeffcoat, Defendants.

No. 96-D-1564-S.

United States District Court, M.D. Alabama, Southern Division.

September 12, 1997.

Wade B. Baxley, Dothan, AL, Charles M. Crook, Montgomery, AL, Paul W. Burke, Atlanta, GA, for Plaintiff.

Matthew C. Lamere, Dothan, AL, for Defendants.

MEMORANDUM OPINION AND ORDER

DE MENT, District Judge.

Before the court is Defendant Ray Wadkins' Motion To Dismiss filed November 27, 1996. Plaintiff filed a response on December 20, 1996. Wadkins filed a brief in support of his motion on January 17, 1997, to which Plaintiff filed a response on February 3, 1997. Wadkins filed a reply to Plaintiff's response on February 12, 1997.

JURISDICTION

The court properly exercises subject matter jurisdiction pursuant to 28 U.S.C. § 1332 (diversity). The parties do not contest personal jurisdiction or venue.

OVERVIEW

Plaintiff Legion Insurance company ("Legion") entered into a "Brokerage Agreement" with Defendant Garner Insurance Agency, Inc. ("Garner") on or about June 1, 1994. Pl.'s Compl. ¶ 6; Wadkins' Answer at ¶ 6. Defendant Ray Wadkins ("Wadkins") was the vice-president of Garner during the times material to Legion's complaint. Wadkins' Answer ¶ 2. The Brokerage Agreement required Garner to remit all premiums due on Legion insurance sold by Garner regardless of whether the premiums were actually collected or not. Id. ¶ 6. Legion alleges that the Defendants have failed to remit and pay over certain insurance premiums as required by the Brokerage Agreement. Moreover, Legion alleges that in some cases, Garner has in fact received and collected insurance premiums from the insureds, but has nevertheless failed to remit these premiums. Id. at 7.

In his Answer and Motion To Dismiss, Wadkins alleges that Legion fails to state a claim upon which relief can be granted. Wadkins contends that under § 10-2A-247, Alabama Code 1975, all contracts entered into in Alabama by foreign corporations operating without a certificate of authority from the Secretary of State are void if the foreign corporation brings an action to enforce the contract.¹ Wadkins' Mot. To Dismiss ¶ 3. Wadkins argues that at the time the Brokerage Agreement was made, Legion did not possess a Certificate of Authority from the Secretary of State to conduct business as a foreign corporation in Alabama. Wadkins' Answer ¶¶ 9, 11. In support of this allegation, Wadkins offers a certificate, signed by the Alabama Secretary of State on November 15, 1996, stating that there is no record of a corporation by the name of Legion Insurance Company in the foreign or domestic corporation records on file.² Wadkins' Mot. To Dismiss, Exhibit B. Therefore, Wadkins argues, because Legion was not authorized to do business in Alabama, the Brokerage Agreement was void and unenforceable. Id. ¶ 11.

Legion responds by pointing out that for § 10-2A-247 to be applicable, a foreign corporation must be engaged in the transaction of business within the state. Pl.'s Resp. To Wadkins' Mot. To Dismiss ¶ 1. Legion contends that when a foreign corporation conducts activities that are interstate in nature and not intrastate, the Commerce Clause of the United States Constitution protects its business activities in Alabama and § 10-2A-247 is inapplicable. Id. ¶ 3. Legion states that at the time this action accrued, it "was not doing or transacting the real business of the corporation, but was merely embarking upon an incidental preliminary step toward transacting the real business of the corporation." Id. ¶ 2. Therefore, Legion concludes that § 10-2A-247 does not void its contract with Wadkins.

STANDARD OF REVIEW

When ruling on a motion to dismiss for failure to state a claim, the court must assume that the factual allegations in the complaint are true. Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989); Fed.R.Civ.P. 12(b)(6). Assuming that the facts are true, a complaint may be dismissed under Federal Rule of Civil Procedure 12(b)(6) only "if it is clear that no relief could be granted" under any set of facts that could be proved consistent with the allegations. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).

DISCUSSION

Section 10-2A-247 bars foreign corporations not qualified to do business in Alabama from enforcing their contracts in Alabama courts.³ Ala.Code. § 10-2A-247 (1975); Stewart Mach. and Eng'g Co., Inc. v. Checkers Drive In Restaurants of N. Am., 575 So.2d 1072, 1074 (Ala.1991). Application of the statute is limited to those cases in which the action is ex contracts as opposed to ex delicto. Burnett v. National Stonehenge Corp., 694 So.2d 1276, 1279 (Ala.1997); Freeman Webb Invs., Inc. v. Hale, 536 So.2d 30, 31 (Ala.1988); First Bank of Russell County v. Wells, 358 So.2d 435, 437 (Ala.1978) (quoting Jones v. Americar, Inc., 283 Ala. 638, 219 So.2d 893, 896 (1969)). In other words, the statute only bars the claims of an unqualified foreign corporation seeking to enforce rights derived directly from its contract where the actions complained of entailed the failure to perform a contractual obligation. Al Sarena Mines, Inc. v. SouthTrust Bank of Mobile, 548 So.2d 1356 (Ala.1989); Hale, 536 So.2d 30 (Ala.1988). But, businesses engaged in interstate commerce are protected by the Commerce Clause of the United States Constitution, and are immune from the "harsh" effects of § 10-2A-247. Stewart Mach., 575 So.2d at 1074; Johnson v. MPL Leasing Corp., 441 So.2d 904 (Ala.1983). Courts must look to the facts of each case to determine whether the contract involves inter or intrastate commerce. Stewart Mach., 575 So.2d at 1074; Green Tree Acceptance, Inc. v. Blalock, 525 So.2d 1366, 1370 (Ala.1988). However, the statute is penal in nature and in derogation of the common law and thus is to be strictly construed. Aim Leasing, 687 F.2d at 358; Wells, 358 So.2d at 437.

"Alabama courts will not enforce a foreign corporation's contract if (1) at the time the contract was entered into, the foreign corporation had not been qualified by the secretary of state to do business in Alabama, and (2) the foreign corporation was doing business of an intrastate nature in Alabama pursuant to the contract." S & H Contractors, 906 F.2d at 1510 (citing Sanwa Business Credit Corp. v. G.B. "Boots" Smith Corp., 548 So.2d 1336, 1337 (Ala.1989)). It is undisputed that Legion was not qualified to do business in Alabama at the time the contract was entered into. Therefore, the court must determine whether Legion was (1) doing business, (2) of an intrastate nature in Alabama pursuant to the Brokerage Agreement.

I. Legion Was "Doing Business" in Alabama

In Vines v. Romar Beach, Inc., 670 So.2d 901 (Ala.1995), the Supreme Court of Alabama distinguished between acts undertaken in performance of ordinary corporate business and incidental acts not part of that business. It noted that "[t]he doing of a single act of business, if it be in the exercise of a corporate function, is prohibited." Id. (citations omitted). Citing to Friedlander Bros. v. Deal, 218 Ala. 245, 118 So. 508 (1928), the Vines Court defined "exercise of a corporate function" as "the exercise of the function or business it was organized to do, and not a purely incidental and preparatory act." Vines, 670 So.2d at 903. The test was:

[I]s the corporation engaged in the transaction of business, or any part thereof, it was created and organized to transact[?] If it be, it "does business" within the meaning of the Constitution. If it be not — if the act it is doing, or has done, is not within its general powers and franchises — it is not the business to which the constitutional requirement is directed.⁴

Vines, 670 So.2d at 903 (citations omitted).

Legion argues that it is in the business of providing insurance coverage and that by entering into the Brokerage Agreement with Garner it was merely taking an incidental step toward doing business. Pl.'s Br. In Supp. Of Its Resp. To Wadkins' Mot. To Dismiss at 5; Pl.'s Br. In Resp. To Wadkins' Br. In Supp. Of His Mot. To Dismiss at 4. However, Wadkins contends that Legion sold a program of workmen's compensation insurance to Choice Systems, Inc., through Garner, at least two months prior to the finalization of the Brokerage Agreement. Wadkins' Br. In Supp. Of His Not. To Dismiss at 3. Wadkins also contends that Legion received and deposited two checks totaling $71,094.17 as payment for premiums on the insurance sold to Choice Systems. Id. at 1-2.

What vitiates Legion's arguments is that it admits, and the evidence shows that it entered into the Brokerage Agreement with Garner, see Legion's Compl. ¶ 6; Legion's Br. In Resp. To Wadkins' Br. In Supp. Of His Mot. To Dismiss at 4, and nowhere in it's pleading does it address the checks issued by Garner which it deposited. It's only argument is that execution of the Brokerage Agreement was not an exercise of its corporate function but mere incidental activity. Legions' Br. In Supp. Of Its Resp. To Wadkin's Mot. To Dismiss at 5; Legion's Br. In Resp. To Wadkins' Br. In Supp. Of His Mot. To Dismiss at 4.

The Brokerage Agreement and Addendum were both executed on August 8, 1994 by Legion and on August 17, 1994 by Garner. This contract formalized Legion's agreement with Garner effective June 1, 1994. See Wadkins' Br. In Supp. Of His Not. To Dismiss, Exhibit C. In fact, an August 8, 1994, letter on Legion's letterhead, addressed to Mr. Umphrey at Garner, references "Master Brokerage Agreement and Addendum A-1 Choice Systems (6/1/94 - 6/1/95)." The letter goes on to state that "[i]n order to formalize Legion's agreement with Garner Insurance Agency, Inc., enclosed are two (2) original copies of the Master Brokerage Agreement and Addendum A-1 covering the above-mentioned program. Please review the Agreement and have both copies signed on behalf of Garner...."...