McAvoy v. Texas Eastern Transmission Corporation, Civ. No. 861.

• Citation: 185 F. Supp. 784
• Decision Date: 29 June 1960
• Docket Number: Civ. No. 861.
• Parties: Ralph McAVOY, Plaintiff, v. TEXAS EASTERN TRANSMISSION CORPORATION, H. C. Price Corporation, and Brown and Root, Inc., Defendants. Fidelity and Casualty Company of New York, Intervenor.
• Court: U.S. District Court — Western District of Arkansas

185 F. Supp. 784

Ralph McAVOY, Plaintiff, v. TEXAS EASTERN TRANSMISSION CORPORATION, H. C. Price Corporation, and Brown and Root, Inc., Defendants.

Fidelity and Casualty Company of New York, Intervenor.

Civ. No. 861.

United States District Court W. D. Arkansas, El Dorado Division.

June 29, 1960.

McMath, Leatherman, Woods & Youngdahl, Little Rock, Ark., for plaintiff.

Mehaffy, Smith & Williams, Wright, Harrison, Lindsey & Upton, Little Rock, Ark., Shackleford & Shackleford, El Dorado, Ark., for defendants.

Spencer & Spencer, El Dorado, Ark., for Intervenor.

HENLEY, District Judge.

On motion of third-party defendant to dismiss third-party complaint, which motion has been submitted upon depositions and written briefs.

This is a personal injury suit filed originally in this Court by Ralph McAvoy, a citizen of Arkansas, against three foreign corporate defendants, including Texas Eastern Transmission Corporation, hereinafter called "Texas Eastern," to recover for personal injuries sustained by the plaintiff as a result of a pipeline explosion which occurred in Kentucky.

The complaint alleges that plaintiff's injuries and damage were due in part to a defective valve furnished by Texas Eastern, and in part to other alleged negligent acts or omissions of Texas Eastern and its fellow defendants. The valve in question was manufactured by Rockwell Manufacturing Company, a Pennsylvania corporation, hereinafter called "Rockwell," and was sold by Rockwell to Texas Eastern in Louisiana.

After motions to dismiss filed by the original defendants had been overruled by the Court, Texas Eastern filed a third-party complaint against Rockwell alleging in substance that, if Texas Eastern should be adjudged liable to plaintiff, Rockwell would be liable over to Texas Eastern for all or part of plaintiff's claim. Rule 14, F.R.Civ.P., 28 U.S.C.A.

Rockwell has never qualified to do business in Arkansas and has never designated any agent for service here. Since the valve was neither manufactured nor sold in Arkansas, and since the accident out of which the principal suit arose occurred in Kentucky, Texas Eastern made no effort to subject Rockwell to the jurisdiction of this Court by substituted service on the Arkansas Secretary of State under the provisions of Act 347 of 1947, Ark.Stats.1947, § 27-340.¹ Rather, Texas Eastern caused a third-party summons to be served on J. E. B. Lundy, an employee of Rockwell who is stationed in Little Rock, Arkansas, and who works out of Rockwell's district office in Tulsa, Oklahoma. The statutory basis for this service was Ark.Stats. 1947, § 27-350, which provides that where the defendant is a foreign corporation having an agent in this State, service may be had upon such agent.

Subsequently, Rockwell filed a motion to dismiss the third-party complaint on the ground that it is a foreign corporation which maintains no office in Arkansas and does no business in this State and is not amenable to the jurisdiction of the courts of Arkansas, including the Arkansas federal courts. It is further asserted that Mr. Lundy was not an officer or agent of Rockwell authorized to accept service of process.

To sustain jurisdiction, Texas Eastern contends that Rockwell has, or has had, such contacts with Arkansas as makes Rockwell amenable to suit here under the principles stated in International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95; Travelers Health Ass'n v. Commonwealth of Virginia, 339 U.S. 643, 70 S.Ct. 927, 94 L.Ed. 1154; and Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485.

The depositions before the Court are those of Mr. Lundy, who has been mentioned, and Mr. Paul C. Kreuch, who is one of the vice presidents of Rockwell. From those depositions the Court finds the following facts:²

Rockwell is engaged in the manufacture and sale of valves, meters, and power tools, together with accessory equipment and supplies. Its sales organization consists of a number of "divisions," four of which sell products in Arkansas. Principal among those four divisions is the Meter and Valve Division, which, as its name implies, sells meters and valves, except that water meters are sold to municipally owned water plants by the Municipal and Utility Division. The Delta Division and the Walker-Turner Division sell power tools. From the standpoint of territorial organization, the divisions above mentioned operate through regional and district offices, none of which is located in Arkansas. It appears that district office employees are responsible to the regional offices, and that regional employees are under control of the main office at Pittsburgh.

Rockwell maintains no stocks of products or warehouses in Arkansas and has no office here. It does no advertising in Arkansas publications, although it does advertise in trade journals some of which doubtless circulate in this State. In 1959 Rockwell's gross sales of products in Arkansas accounted for 6/10ths of one per cent of its total sales throughout the country.

Orders from Arkansas customers are procured through the solicitation of employees of the various divisions. Although such employees hold various titles,³ they are essentially traveling salesmen. The salesmen do not sell directly to customers; they merely solicit orders which are transmitted to higher authority for acceptance or rejection. The salesmen have no authority to accept orders, vary prices, arrange credit, or make collections. At times they carry with them on their rounds literature which they may distribute to customers or prospective customers. From time to time a salesman may be accompanied on a trip by one of his superiors. Naturally, the salesmen try to promote the business and goodwill of the company. They receive customer complaints, and within the limits of their capabilities, try to remedy them. If a complaint or problem cannot be handled by a salesman, he refers the matter to his superiors.

The sales of the Valve and Meter Division and of the Municipal and Utility Division are made directly to the ultimate purchasers. Sales of the Delta Division and of the Walker-Turner Division are made to distributors or wholesalers, who purchase outright from Rockwell for re-sale. No Rockwell products are placed on consignment in Arkansas. Rockwell products are sold with a one-year warranty against defective materials or workmanship, and occasionally it is necessary for an employee of Rockwell to come into the State to make some repairs called for by the warranty. Mr. Kreuch stated, however, that he knew of no repairs that have been made in Arkansas during the past two years.

Products sold to Arkansas customers, except gas meters, are delivered to the purchasers by common carriers and are installed by the purchasers. Gas meters, because of their rather delicate construction, are shipped in trucks belonging to Rockwell, and are delivered directly to the customers for installation. None of the Rockwell trucks is garaged in Arkansas, and the trucks come into the State only in the course of making interstate deliveries.

Mr. Kreuch deposed that Rockwell does not send any demonstrators into Arkansas to demonstrate Rockwell products. Mr. Lundy stated, however, that when Rockwell makes a large initial sale to a single customer, it may conduct a "school" for the customer's employees to familiarize them with the product purchased. Lundy also stated that when the Southwest Water Works Convention is held in Little Rock, Rockwell's Municipal and Utility Division sets up a display of its wares. These activities described by Lundy are infrequent and irregular.

Lundy is the only employee of Rockwell who lives in Arkansas. His territory covers the northern two-thirds of Arkansas and part of Eastern Oklahoma. Another "sales engineer" representing the Valve and Meter Division who works out of the Shreveport, Louisiana, district office covers the southern third of Arkansas. The Municipal and Utility Division has one salesman who covers Arkansas from headquarters in another State. The Delta Division has two salesmen who operate in Arkansas, and the Walker-Turner Division has one. On occasions, according to Lundy, a service employee of Rockwell may come into Arkansas to supervise the installation of a large purchase.

Mr. Lundy works out of his home in Little Rock where he has a desk and typewriter belonging to Rockwell. Rockwell furnishes him an unmarked, rented car, the expenses of which are ultimately borne by Rockwell and by the rental service which owns the vehicle. Lundy pays his own telephone bill, except that he is reimbursed for long distance calls made on company business. Mr. Lundy's business cards reflect that he is a "sales engineer" for the Meter and Valve Division of Rockwell Manufacturing Company, P.O. Box 1807, 3130 Sand Springs Road, Tulsa, Oklahoma. In the upper left-hand corner the cards reflect that Lundy's home address is 112 Dickson Drive, Little Rock, Arkansas, and that his home telephone number is Mohawk 6-7218. The Court might add that the current Little Rock telephone directory lists Mr. Lundy's name and telephone number as shown above. The directory has no listing for Rockwell Manufacturing Company.

In summary, the Court feels that Rockwell's Arkansas operations are properly characterized essentially as interstate sales of manufactured products based upon solicitations made in Arkansas, the sales and solicitations being accompanied by incidental promotional, service, and repair activities. While Rockwell's Arkansas sales in 1959 amounted to about $500,000, nevertheless, as stated, such sales represent only 6/10ths of one per cent of Rockwell's total volume, a very minor fraction.

Where in a diversity case there arises a problem of jurisdiction over a foreign corporation which, like Rockwell, has not qualified to do business within the State of the forum and has designated no agent for service there, two questions are...