Lone Star Motor Import, Inc. v. Citroen Cars Corp.

• Decision Date: 02 March 1961
• Docket Number: No. 18546.,18546.
• Citation: 288 F.2d 69
• Parties: LONE STAR MOTOR IMPORT, INC., Appellant, v. CITROEN CARS CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

288 F.2d 69 (1961)

LONE STAR MOTOR IMPORT, INC., Appellant, v. CITROEN CARS CORPORATION, Appellee.

No. 18546.

United States Court of Appeals Fifth Circuit.

March 2, 1961.

COPYRIGHT MATERIAL OMITTED

Winston R. Ellis, Hirsch & Westheimer, Houston, Tex., for appellant Lone Star Motor Import, Inc.

W. N. Arnold, Jr., Olan Lowrey, Houston, Tex. (Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel), for appellee.

Before TUTTLE, Chief Judge, and JONES and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This case presents the question of validity of service of process on a nonresident corporate defendant effected by service on the Secretary of State pursuant to a recent Texas statute declaring that the entering into of a contract with a resident of Texas for partial performance there constitutes the requisite doing of, or engaging in, business. The District Court held that if applied literally to the making of the single contract (the breach of which was the subject of this suit) it would be a denial of due process under the Fourteenth Amendment.¹ Service of process was therefore declared invalid and the suit ordered dismissed. The Court declined to permit the filing of a proposed amendment alleging a number of detailed activities showing an actual course of dealings by the nonresident corporate defendant within the State of Texas.

The suit was filed in the Texas State Court by Lone Star Motor Import, Inc., a resident of Texas. The defendant was Citroen Cars Corporation, a foreign corporation. Citroen removed the case to the Federal Court. The State Court petition reflected that Citroen was a foreign corporation which had not been admitted to do business in Texas, nor had it appointed an agent for process. It was alleged, however, that Citroen "does business in the State of Texas" and that "this suit arises out of business done by Citroen in this state." The petition did not undertake to describe the acts constituting such "doing business" except to allege that Lone Star and Citroen "entered into a written contract" for the exclusive distribution of Citroen cars in Texas. A copy of the contract was annexed to the petition as an exhibit. Breach of this contract by Citroen after substantial performance by Lone Star within the State of Texas was the subject of the suit for damages.

The "doing of business" was, on this showing, therefore confined to the making of the single contract. This brought into play Art. 2031b Tex.Civ.Stat. which expressly provides that without further showing "entering into contract by mail or otherwise" by a "foreign corporation" with "a resident of Texas" which is "to be performed in whole or in part by either party" in Texas "shall be deemed doing business in" Texas.²

The precision of this statute and the pleaded claim eliminated one of the two inquiries ordinarily presented in this situation. "In determining the sufficiency and validity of service of process on a foreign corporation under laws of the forum state, the problem divides itself along lines of state and national interest. The first part is to ascertain whether the state law means to encompass the challenged service. This question — at least to diversity cases which this one is — is wholly a matter of state law, Lone Star Package Car Co. v. Baltimore & Ohio R. Co., 5 Cir., 1954, 212 F.2d 147, 153 * * *. The second is conditioned on an affirmative answer to the first, and then presents the problem whether the state law as thus applied offends the Federal Constitution." Stanga v. McCormick Shipping Corporation, 5 Cir., 1959, 268 F.2d 544, 548.

Here there can be no controversy as to the first — the area claimed by the state law. Indeed, it seems highly likely that, as is true for similar legislation in many other states, see e. g., Stanga v. McCormick Shipping Corporation, supra, 268 F.2d at page 550; Bluff Creek Oil Co. v. Green, 5 Cir., 1958, 257 F.2d 83, the Texas purpose was to exploit to the maximum the fullest permissible reach under federal constitutional restraints.³ It was also, as it has been for other states, a means of avoiding the troublesome difficulties of tying amendability of service of process to taxability of a foreign corporation, or denying it access to the courts and related problems of the regulation of the right to do business.

But this left sharply posed the second problem — compliance with federal constitutional requirements. On this the District Court held the statute constitutionally invalid. As the parties in briefs and the District Court in its opinion developed the question is seemed to center around McGee v. International Life Ins. Co., 1957, 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223, and what that decision had done to the notions epitomized in Pennoyer v. Neff, 1877, 95 U.S. 714, 24 L. Ed. 565. And the consideration of this led inescapably to the further one as to what Hanson v. Denckla, 1958, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283, did to McGee. This has likewise been the center of the arguments before us. But because of other factors we do not reach these intriguing questions.

In the course of the opinion the District Judge pointed out that the position taken by the plaintiff, Lone Star, was unique. Perhaps more than that, for he almost implied that the position was one of calculated boldness. At least it seems bold because Lone Star rested jurisdiction solely on the basis of the making of the single contract and did not undertake to allege that either under such contract or otherwise Citroen, the defendant, was actually engaged in manifold activities in Texas.⁴ The Trial Court's opinion holding the statute invalid was announced June 2, 1960. Almost immediately (on June 8) Lone Star filed a motion for leave to amend its complaint by adding proposed specific allegations covering the phases omitted and commented upon by the Court, note 4, supra. Up to that time no order or judgment had been submitted for entry⁵ or entered by the Court. On June 17, Citroen made a perfunctory reply in opposition⁶ and proffered a formal order as directed⁷ which the Court entered six days later on June 23.⁸

If analysis demonstrates that (1) on the facts alleged in the proposed amendment jurisdiction would exist over the person of the defendant, and that (2) the Court should have afforded the plaintiff an opportunity to establish them, it is perfectly obvious that a decision is not actually required as to the initial question of the constitutional validity of a statutory "doing business" based solely on the making of a single contract. Whatever may be the temptations — or the inability to resist them — in adjudicating ordinary matters either of fact or statutory construction courts are especially cautioned against the determination of constitutional questions not inescapably presented where some other basis less profound is actually available as a ground of disposition. Clay v. Sun Insurance Office, Ltd., 1960, 363 U.S. 207, 80 S.Ct. 1222, 4 L.Ed.2d 1170; Barr v. Matteo, 1957, 355 U.S. 171, 78 S.Ct. 204, 2 L.Ed.2d 179; Harmon v. Brucker, 1958, 355 U.S. 579, 78 S.Ct. 433, 2 L.Ed.2d 503.

As to (1) it is beyond argument that the factual allegations of the proposed amendment showed ample actual activity of the corporate defendant within Texas. A brief synopsis will suffice. In April 1958 Citroen's executive vice president together with its manager came to Texas to negotiate a contract. The parties reached an understanding which was substantially incorporated thereafter in the written contract. At that time Lone Star gave, and Citroen accepted, in Texas an order for the first shipment of cars to be delivered in Texas. Thereafter Citroen shipped over 200 cars into Texas. During the contract period Citroen maintained a warehouse in Houston where it stored cars as contemplated in a written supplement to the main contract.⁹ Lone Star, as required by the contract, maintained "in a conspicuous place" at its showrooms in Texas "signs bearing the Citroen trademark." During the pendency of the contract Citroen sent three service representatives into Texas where they instructed dealers (appointed previously by Lone Star pursuant to the contract) in the proper servicing and repair of these foreign cars. Similarly, Citroen's manager and other top officials came to Texas to stimulate sales by Lone Star through its dealers.

These acts, if established, reflect far more than the mere making of a single contract or the solicitation of orders. They are more than adequate to show the minimal contracts with Texas to satisfy the "traditional notions of fair play and substantial justice," International Shoe Co. v. State of Washington, 1945, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95. Much less was deemed sufficient by us in Acme Engineers, Inc. v. Foster Engineering Co., 5 Cir., 1958, 254 F.2d 259.

That brings us then to question (2) whether the Trial Court ought to have allowed the amendment in order to afford Lone Star the opportunity of establishing the truth of the allegations which — we have held above — would have been sufficient. We phrase it this way rather than in the terms of the ultimate test — i. e., abuse of discretion — because we think this approach demonstrates that no reason existed or was offered why leave to file the amendment should be denied. The absence of any substantial reason satisfies the test.

First, F.R.Civ.P. 15(a) declares an affirmative policy in emphatic terms. Requiring that after the first amendment subsequent amendments may be made only by leave of court or by written consent of the adverse party, it states that "leave shall be freely given when justice so requires." Of course, that is not a mechanical absolute and the circumstances and terms upon which such leave is to be "freely given" is committed to the informed, careful judgment and discretion of the Trial Judge as he superintends the development of a cause toward its ultimate disposition. That...