McFaddin v. National Executive Search, Inc.

• Decision Date: 07 February 1973
• Docket Number: Civ. No. B-500.
• Citation: 354 F. Supp. 1166
• Court: U.S. District Court — District of Connecticut
• Parties: Lawrence B. McFADDIN v. NATIONAL EXECUTIVE SEARCH, INC.

354 F. Supp. 1166

Lawrence B. McFADDIN v. NATIONAL EXECUTIVE SEARCH, INC.

Civ. No. B-500.

United States District Court, D. Connecticut.

February 7, 1973.

Richard Allyn Shaffer, Westport, Conn., for plaintiff.

Philip Hawley Smith, Bridgeport, Conn., for defendant.

MEMORANDUM OF DECISION ON DEFENDANT'S MOTION TO DISMISS

NEWMAN, District Judge.

This is a motion by defendant, National Executive Search, Inc., a District of Columbia corporation, to dismiss for lack of in personam jurisdiction a diversity action claiming damages for tort and breach of contract. The plaintiff, Lawrence B. McFaddin, rests his claim for personal jurisdiction on Connecticut's corporation long-arm statute, Conn.Gen.Stat. § 33-411(b) and (c).¹

The case presents a complex factual situation, with many issues still in dispute. To summarize briefly: the defendant, which is not registered to do business in Connecticut, is engaged as a franchisor in an interstate and international business of locating and placing executive talent. Defendant provides training and materials for its franchisees, advertises its services, and retains veto power over the transfer of any franchise. Though there is some dispute as to who bears advertising costs, there is agreement that the defendant's services to prospective employers and employees were advertised weekly in the Sunday New York Times and the Tuesday Wall Street Journal, with the name of its Greenwich, Conn., franchisee appearing on a list of suggested contacts. Further, and most relevant to the instant case, defendant also advertised in the Wall Street Journal to prospective franchisees the availability of franchises.

Plaintiff McFaddin alleges that in response to such a franchise advertisement in June, 1971, he contacted the defendant and was in turn placed in touch with a Wisconsin resident, Camp Van Dyke, whose Delaware corporation owned the United Kingdom franchise of National Executive Search, Inc.² The plaintiff negotiated the purchase of the United Kingdom franchise from Van Dyke and subsequently negotiated approval of the transfer with the defendant. The defendant does not contest its role in bringing McFaddin and Van Dyke together and in supplying McFaddin with various printed materials attesting to the company's experience in placing executives.

It is well settled that a federal district court in a diversity suit must look to state law to determine if there is jurisdiction over a foreign corporation. Arrowsmith v. United Press Int'l, 320 F.2d 219, 222 (2d Cir. 1963). This requires a two-tiered consideration of (1) whether the appropriate state statute reaches the foreign corporation and (2) whether such statutory reach exceeds the constitutional "minimum contacts" test required by due process. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945); Buckley v. New York Post Corp., 373 F.2d 175 (2d Cir. 1967); Scher v. HMH Publishing Co., 289 F. Supp. 917 (D.Conn.1968). Cf. Haynes v. James H. Carr, Inc., 427 F.2d 700, 703 (4th Cir.), cert. denied, 400 U.S. 942, 91 S.Ct. 238, 27 L.Ed.2d 245 (1970).

Section 33-411(c) extends jurisdiction beyond the traditional "transacting business" category of § 33-411(b)³ to a foreign corporation "whether or not it is transacting or has transacted business in this state" if the corporation is a defendant in a cause of action "arising out of" any of the activities enumerated in subsections (c)(1)-(4). See Gardner v. Braniff International, 312 F.Supp. 844 (D.Conn.1970) (applying the "arising out of" requirement to subsection (c)(2)).

Plaintiff's principal jurisdictional claim is based upon subsection (c)(2), which allows suit on any cause of action "arising . . . out of any business solicited in this state by mail or otherwise if the corporation has repeatedly so solicited business, whether the orders or offers relating thereto were accepted within or without the state . . . ." Plaintiff alleges that the availability of the United Kingdom franchise came to his attention from an advertisement of defendant in the Wall Street Journal circulated in Connecticut. Even if this ad did not contain the specific statements plaintiff alleges are false, it nonetheless constitutes a solicitation of customers for a franchise. Since plaintiff's tort and contract claims both concern franchise acquisition, he has pleaded causes of action "arising out of" business solicited in this state within the meaning of subsection (c)(2).

The statutory issue is whether defendant has advertised in Connecticut for prospective franchisees with sufficient regularity so that the franchise ad giving rise to plaintiff's causes of action can be considered part of a campaign to solicit franchise business "repeatedly" within the meaning of subsection (c)(2).⁴ The repeated solicitation requirement of subsection (c)(2) has rarely been construed. Compare Connecticut Tool and Manufacturing Co. v. Bowsteel Distributors, Inc., 24 Conn.Sup. 290, 302, 190 A.2d 236 (1963), with Gardner v. Braniff International, 312 F.Supp. 844, 845 (D.Conn.1970). The facts here disclose that defendant advertised the United Kingdom franchise in the Wall Street Journal approximately once a month for four months, and on at least two other occasions ran similar ads for other available franchises. The placing of at least six franchise ads over a six-month period in a newspaper whose circulation clearly includes Connecticut, cf. Buckley v. New York Post Corp., supra, demonstrates a sufficiently repetitious pattern to satisfy subsection (c)(2).

The remaining issue is whether application of subsection (c)(2) to all the relevant facts of this case exceeds the requirements of due process.⁵ Several cases have held mere solicitation insufficient to establish the constitutionally required minimal contacts. Scheidt v. Young, 389 F.2d 58 (3d Cir. 1968); Beal v. Caldwell, 322 F.Supp. 1151 (E. D.Tenn.1970); Deloro Smelting and Refining Company v. Engelhard Minerals and Chemicals Corporation, 313 F.Supp. 470 (D.N.J.1970); Oswalt Industries, Inc. v. Gilmore, 297 F.Supp. 307 (D. Kan.1969). However, none of these cases involved a specific solicitation statute such as Connecticut's subsection (c)(2).⁶ Rather, all were general "transacting business" cases, more relevant to a determination of the constitutional reach of § 33-411(b) than of § 33-411(c). Even these cases do not doubt that solicitation is relevant in assessing minimum contacts.⁷ More significantly, none of these cases involved the extent of contacts other than solicitation present in this case. Here, the newspaper solicitation was not a "peripheral occurrence," Scheidt v. Young, supra, 389 F.2d at 58, nor is there need to fear that Connecticut's long-arm statute is being applied "towards the four corners of the United States, and indeed the world," Oswalt Industries, Inc. v. Gilmore, 297 F.Supp. at 313. This defendant maintained general business connections with Connecticut, as evidenced by the location of one of its franchisees within Connecticut and its twice-weekly bid for Connecticut customers, as well as the specific facts of its relations with this plaintiff, including the Connecticut situs of plaintiff's initial interest in and negotiation for purchase of the United Kingdom franchise. Further the agreement between plaintiff and defendant approving the franchise transfer was prepared and negotiated at least in part in Connecticut. This is relevant in assessing minimum contacts, Michael Schiavone & Sons v. Galland-Henning Mfg. Co., 263 F.Supp. 261, 263 (D.Conn.1967), even though these activities do not establish that the contract was "made" in Connecticut so as to support jurisdiction under subsection (c)(1).⁸ It does not violate "traditional notions of fair play and substantial justice," International Shoe Co. v. Washington, supra, 326 U.S. at 316, 66 S.Ct. at 158, to hold that in this case the defendant "purposefully availed itself of the privilege of conducting activities within the forum State," Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958).

That a long-arm jurisdictional basis which relies upon solicitation is within the International Shoe test has been reiterated by the Supreme Court in several mail solicitation cases. Travelers Health Association v. Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 94 L.Ed. 1154 (1950); McGee v. International Life Insurance Co., 355 U.S. 220, 223, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957). The Second Circuit in Buckley had no difficulty in expanding McGee beyond its unique insurance circumstances, and it would not be logical to allow a state to predicate jurisdiction on mail or personal solicitation but not on printed communications.⁹ Whatever First Amendment objections conceivably might arise have been adequately dealt with in Buckley. Accordingly, sufficient statutory authority exists for plaintiff to obtain jurisdiction over the defendant under subsection (c)(2), and this exercise of jurisdiction does not offend any constitutional requirement.

Plaintiff also relies on subsection (c)(4) extending jurisdiction to a cause of action arising out of "tortious conduct in this state." See Buckley v. New York Post Corp., supra.

The issue in the instant case, accepting plaintiff's allegations as true for purposes of this motion to dismiss, is whether the alleged misrepresentations by the defendant, acting as agent for Van Dyke, are distinguishable from the Buckley libel, or whether they constitute an adequate basis for jurisdiction over plaintiff's tort claim alone, or both it and his contract claim.

While there is no Connecticut case determining whether false representation entering the state by phone, mail or newspaper is sufficiently analogous to libel to satisfy subsection (c)(4), such misrepresentation certainly would, if proved, constitute "tortious conduct." The First Circuit recently relied on Buckley in determining that a New York advertising agency came within...