McNeely v. CLAYTON AND LAMBERT MANUFACTURING CO., No. 3-68 Civ. 159

• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota
• Writing for the Court: Faegre & Benson, by W. James Fitzmaurice, Minneapolis, Minn., for defendant Clayton & Lambert
• Citation: 292 F. Supp. 232
• Parties: Ray McNEELY et ux., Plaintiffs, v. CLAYTON AND LAMBERT MANUFACTURING CO., a Delaware corporation, Defendant. Bernard ULRICH and Ann Ulrich, Plaintiffs, v. LINDSAY BROS. CO., a Minnesota corporation and Clayton and Lambert Manufacturing Co., a Delaware corporation, Defendants.
• Docket Number: 3-67 Civ. 72.,No. 3-68 Civ. 159
• Decision Date: 08 November 1968

292 F. Supp. 232

Ray McNEELY et ux., Plaintiffs,
v.
CLAYTON AND LAMBERT MANUFACTURING CO., a Delaware corporation, Defendant.
Bernard ULRICH and Ann Ulrich, Plaintiffs,
v.
LINDSAY BROS. CO., a Minnesota corporation and Clayton and Lambert Manufacturing Co., a Delaware corporation, Defendants.

Nos. 3-68 Civ. 159, 3-67 Civ. 72.

United States District Court D. Minnesota, Third Division.

November 8, 1968.

292 F. Supp. 233

COPYRIGHT MATERIAL OMITTED

292 F. Supp. 234

Cochrane, Thomson & Bresnahan, by John A. Cochrane, St. Paul, Minn., for plaintiffs

Faegre & Benson, by W. James Fitzmaurice, Minneapolis, Minn., for defendant Clayton & Lambert.

Johnson & Sands, by Maurice C. Lizee, Minneapolis, Minn., for defendant Lindsay Bros. Co.

NEVILLE, District Judge.

In two different actions, the defendant Clayton and Lambert Manufacturing Company (Clayton & Lambert) has moved to quash service of process upon it and to dismiss the complaints for want of personal jurisdiction. In McNeely v. Clayton & Lambert Mfg. Co., 3-68 Civ. 159, defendant alternatively has moved, if the motion to dismiss not be granted, to transfer the venue of that case pursuant to 28 U.S.C. § 1404(a) to the United States District Court for the Western District of Wisconsin. Jurisdiction over the subject matter as to both cases is based on diversity of citizenship and the requisite jurisdictional amount.

The dispute in McNeely arises out of the purchase by plaintiff McNeely in June 1965 of a Herd King Silo. McNeely is a resident of Wisconsin and the silo was erected there. The silo was purchased in Wisconsin from a distributor, Lindsay Bros. Company of Milwaukee, a Wisconsin corporation with its principal place of business at Milwaukee. The silo was manufactured by defendant Clayton & Lambert, a Delaware corporation with its principal place of business at Buckner, Kentucky and sold by it to Lindsay Bros. Company of Milwaukee, Wisconsin. The complaint charges, among other things, negligence in the manufacture of the silo, misrepresentation and the breach of various warranties. Service of process was made upon Hugh Lindsay, president of Lindsay Bros. Company of Minnesota, a Minnesota corporation with its principal place of business in Minneapolis, Minnesota. This latter corporation is entirely distinct as a corporate entity from Lindsay Bros. Company of Milwaukee, Wisconsin.

Pending in this court also is Ulrich v. Lindsay Bros. Co., No. 3-67 Civ. 72, transferred to this particular judge for the limited purpose of ruling on the present jurisdictional motion. Ulrich involves a similar complaint. However in Ulrich the silo in question was purchased from Lindsay Bros. Co. of Minnesota. Service of process was made initially on Mr. Johndrea, vice-president of Lindsay Bros. of Minnesota. Service of process was then made upon the secretary of state of the State of Minnesota pursuant to Minn.Stat. § 303.13 (1967 Supp.), a "long arm" statute. Subsequently, plaintiffs Ulrich also served Clayton & Lambert in Louisville, Kentucky pursuant to Minn.Stat. § 543.19 (1967 Supp.) and upon authorization of this court permitting service to be made by some one other than the U. S. Marshal. The court's order stated, however, that such service was "without prejudice to any claims of defendants to jurisdiction or validity of service."

Plaintiffs in both cases argue that the earlier trial by this court of a case similar to both of these, i. e., Brown v. Lindsay Bros. Co. and Clayton & Lambert Mfg. Co., 3-67 Civ. 94, conclusively shows that Lindsay Bros. of Minnesota was the "managing agent" of Clayton & Lambert within Minnesota for the purposes of service of process.

292 F. Supp. 235

The court is willing to take judicial notice of the files and records in the Brown case.¹ Yet, contrary to plaintiffs' contention, the Brown case in the court's opinion does not establish for purposes of these motions that Lindsay Bros. of Minnesota was the "managing agent" of Clayton and Lambert. The plaintiffs bear the burden of proof as to jurisdictional facts and they have not reproduced or pointed out any portion of the transcript which would indicate that Lindsay Bros. was such a "managing agent."

Instead, pursuant to Rule 43(e) of the Federal Rules of Civil Procedure, the court will base its decision on this motion on the various depositions taken in Ulrich and on the affidavits submitted in McNeely.²

The first question presented is whether Clayton & Lambert is subject to suit in Minnesota at all by anyone, residents or non-residents of Minnesota. Effective service of process is first conditioned on the power of the court properly to acquire personal jurisdiction over a defendant.

In deciding jurisdictional questions, a federal court in a diversity case must look to state law to determine a foreign corporation's amenability to suit within the state and thus in federal courts. A state may choose not to exercise its full constitutional power in this area and it may impose limitations beyond those of due process.³ A federal court in a diversity case must abide these limitations. Thus, in a diversity case, if a foreign corporation is not amenable to suit in the state court, it is not amenable to suit in a federal court sitting within the state.⁴ This problem was discussed in some length in Arrowsmith v. United Press International, 320 F.2d 219, 226, (2nd Cir. 1963):

"We find no federal policy that should lead federal courts in diversity cases to override valid state laws as to the subjection of foreign corporations to suit, in the absence of direction by federal statute or rule. State statutes determining what foreign corporations may be sued, for what, and by whom, are not mere whimsy; like most legislation they represent a balancing of various considerations—for example, affording a forum for wrongs connected with the state and conveniencing resident plaintiffs, while avoiding the discouragement of activity within the state by foreign corporations."

The court's first inquiry thus is whether Clayton & Lambert was amenable to suit in the state courts of Minnesota either by plaintiffs Ulrich or McNeely or both. This is a question to begin with of personal jurisdiction, not the manner of service or the question of the person served.⁵

It long has been the law of Minnesota that a foreign corporation conducting a regular and systematic solicitation of business within Minnesota resulting in a continuous flow of products into the State is "present" and doing business within the State so as to be amenable to

292 F. Supp. 236

suit by those who have come in contact with it or have done business with it.⁶

Prior to 1957, Minnesota did not have a general jurisdictional statute exclusively pertaining to subjecting foreign corporations to suit as defendants.⁷ Service of process was effectuated under Minn.Stat. § 543.08 and its predecessors providing for service on a foreign corporation by "delivering a copy of the summons and complaint to any of its officers or agents within the state." Minnesota courts consistently held that for such service to be valid the foreign corporation had to be amenable to in personam jurisdiction, i. e., the foreign corporation had to be "present" and doing business within the state.⁸ Minn.Stat. § 543.08 has now been replaced by Rule 4.03(c) of the Minnesota Rules of Civil Procedure—District Courts, about which more will be said later herein. In 1957, no doubt in response to McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), the Minnesota Legislature enacted Minn. Stat. § 303.13 subd. 1(3) (1967 Supp.). This statute provides for service on a foreign corporation by service on the secretary of state of the State of Minnesota in circumstances where the "foreign corporation makes a contract with a resident of Minnesota" or "commits a tort * * * against a resident of Minnesota." The Minnesota Supreme Court in construing this statute has indicated it will assert maximum jurisdiction consistent with the due process clause.⁹ It is important to note that Minn.Stat. § 303.13 cannot be classified as the exclusive jurisdictional provision as Minnesota courts had for years been sustaining jurisdiction where the foreign corporation was continuously and systematically

292 F. Supp. 237

engaged in business activities within the State. The evident purpose of § 303.13 subd. 1(3) was to assert jurisdiction and specify the manner of service in the limited number of instances where the foreign corporation had limited its activities to a so-called "single act" involving by its terms a resident of Minnesota. In the court's view, however, it does not need to reach the question whether jurisdiction could have been asserted under § 303.13 by plaintiffs here who are Wisconsin residents

The amenability to suit under state law is the threshold question to be decided by a federal court in a diversity suit. An attempt by the state must not violate the due process clause of the Fourteenth Amendment.¹⁰ Three landmark decisions guide our way here. The first is International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) where the court emphasized that due process requires only "* * * certain minimum contacts" to subject a foreign corporation to suit "* * * such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" The second case, McGee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed. 2d 223 (1957), recognized the legitimate interest a state might have in providing a local forum to its residents injured or damaged by a foreign corporation even though the foreign corporation had committed only a "single act" within the state. The Court said "it is sufficient for purposes of due process that the suit was based on a contract which had substantial connection with that State." The third case, Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct....