Old Hickory Products Co., Ltd. v. Hickory Specialties, Inc.

• Decision Date: 21 November 1973
• Docket Number: Civ. A. No. 17045.
• Citation: 366 F. Supp. 913
• Parties: OLD HICKORY PRODUCTS CO., LTD. v. HICKORY SPECIALTIES, INC. and Don E. Crace, Individually and as President of Hickory Specialties, Inc., Defendants and Third-Party Plaintiffs, v. HARTFORD ACCIDENT & INDEMNITY COMPANY, Third-Party Defendant.
• Court: U.S. District Court — Northern District of Georgia

366 F. Supp. 913

OLD HICKORY PRODUCTS CO., LTD. v. HICKORY SPECIALTIES, INC. and Don E. Crace, Individually and as President of Hickory Specialties, Inc., Defendants and Third-Party Plaintiffs, v. HARTFORD ACCIDENT & INDEMNITY COMPANY, Third-Party Defendant.

Civ. A. No. 17045.

United States District Court, N. D. Georgia, Atlanta Division.

November 21, 1973.

Troutman, Sanders, Lockerman & Ashmore, Atlanta, Ga., for plaintiffs.

Swift, Currie, McGhee & Hiers, Atlanta, Ga., for defendants.

N. Forrest Montet, Atlanta, Ga., for Hartford.

ORDER

EDENFIELD, District Judge.

Hickory Specialties, Inc. and its president, Don E. Crace, were sued by Old Hickory Products Company, Ltd. for wrongful appropriation of its trade secrets, interference with contractual relations with one of its employees, and, particularly relevant to the issues to be decided here, for unfair advertising and marketing which confused customers and the public as to the identity of the goods being sold. Hartford Accident and Indemnity Company was obliged under its contract of insurance to defend Hickory Specialties against any suit alleging certain acts, as defined and limited in its policy, even if such suit were groundless, false or fraudulent. Demand was made on Hartford to defend the present suit by Old Hickory but Hartford refused on the grounds, inter alia, that the acts complained of did not fall within the policy's coverage. Hickory Specialties then employed its own counsel to defend it in the main action and filed a third-party complaint against Hartford for any and all sums on which it might be found liable. The main dispute between Old Hickory and Hickory Specialties has now been settled, and the action is presently before the court on respective motions for summary judgment on the third-party complaint. For simplicity, third-party plaintiffs Hickory Specialties, Inc. and Crace will hereafter be collectively referred to as "Hickory" or "plaintiff", and third-party defendant, Hartford Accident and Indemnity Company, will hereafter be referred to as "Hartford" or "defendant." The court has independent jurisdiction of the third-party complaint under 28 U.S.C. § 1332, as well as ancillary jurisdiction

The parties have submitted a copy of the Hartford Accident and Indemnity Company policy and have stipulated to its authenticity and correctness. They stipulate also that the contract was entered into and delivered in the State of Florida, and agree that under Georgia law the construction of a contract is governed by the law of the place of its making; in this instance, the State of Florida.

Defendant argues for summary judgment on the grounds that under Florida law the obligation of an insurer to defend an action against the insured is measured by the allegations in the plaintiff's pleadings, and the original plaintiff's pleadings in the instant case alleged conduct by Hickory which is excluded from coverage under the policy. Plaintiff maintains that while Florida law governs the construction of the contract, this court under Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and Klaxon Co. v. Stentor Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), must apply the interpretation that the courts of Georgia would give to Florida law. Under that interpretation, plaintiff argues, defendant had a duty to defend, regardless of the pleaded allegations, where the true facts of the complaint afforded coverage to the plaintiff and were known or reasonably ascertainable by Hartford. Tennessee Corp. v. Hartford Accident & Indemnity Co., 463 F.2d 548, 550-551 (5th Cir. 1972); Associated Petroleum Carriers v. Pan American Fire & Casualty Co., 117 Ga. App. 714, 161 S.E.2d 411 (1968); State Farm Mutual Automobile Insurance Co. v. Keene, 111 Ga.App. 480, 142 S.E.2d 90 (1965); Loftin v. United States Fire Insurance Co., 106 Ga.App. 287, 127 S. E.2d 53, 57-58 (1962).

Whether the court must apply the law of Florida, or Georgia's interpretation of Florida law, will not make a great deal of difference to the ultimate rights and liabilities of the parties. Recent Florida cases have refused to find that an insurer's obligation to defend is to be determined solely on the basis of pleaded allegations. The court is bound, however, to decide which law will govern the case at bar, and in so doing must examine a curious body of judicial presumptions dating from at least the Georgia Supreme Court of 1866. These presumptions are today at variance with reason and operate in the total absence of the administrative necessity by which they may have once been justified.

I. THE GEORGIA PRESUMPTIONS

In the first instance, there is no question that the general choice-of-law rule announced by the Georgia courts is that the construction of a contract is to be governed by the law of the place of its making, unless it shall appear that the writings or contracts are intended to have effect principally within the State of Georgia. Beck & Gregg Hardware Co. v. Southern Surety Co., 44 Ga.App. 518, 162 S.E. 405 (1931); Ga.Code Ann. § 102-108. There is no dispute that under this rule Florida law governs the present case. Passing this threshold question with little difficulty, however, the court is confronted by an array of Georgia state court decisions which elaborate an intriguing doctrine. These decisions hold that in order for a foreign statute to be considered by a Georgia court, it must be pleaded and proved in the same manner as any other fact. The case law of a foreign state may then be consulted when it is interpretative of that statute. But where, as in this case, no foreign statute exists relative to the disputed issue, and none is therefore pleaded, the Georgia courts will presume that "the common law" prevails in that state, and the courts of Georgia will not be bound "by the interpretation of the common law made by the courts of a foreign state, but will decide what is the common law." Gorman v. Griffin, 70 Ga.App. 585, 589, 28 S.E.2d 897, 899 (1944); Jesse Parker Williams Hospital v. Nisbet, 189 Ga. 807, 811, 7 S.E.2d 737 (1940) hereinafter "Hospital"; Record Truck Line, Inc. v. Harrison, 109 Ga.App. 653, 137 S.E.2d 65 (1964); Budget Rent-A-Car Corp. v. Fein, 342 F. 2d 509 (5th Cir. 1965).¹ In the present action, then, while paying lip-service to the notion that Florida law should govern the construction of a contract made in Florida, under the cases cited above the Georgia courts would apply Georgia's interpretation of "the common law", or more simply, Georgia law.²

II. THE GEORGIA PRESUMPTIONS DO NOT CONTROL THE CASE AT BAR

For two reasons, the court finds that it is not bound by the decisional doctrine outlined above, and that it is therefore Florida law which governs Hartford's obligation to defend on its insurance policy with Hickory.

A. The federal court may take judicial notice of foreign law regardless of state court practice.

First, this court cannot be bound by the self-imposed inability of the Georgia courts to judicially notice the law of her sister states. As stated by the Supreme Court in Lamar v. Micou, 114 U.S. 218, 223, 5 S.Ct. 857, 859, 29 L.Ed. 94 (1885), "The law of any State of the Union, whether depending upon statutes or upon judicial opinions, is a matter of which the courts of the United States are bound to take judicial notice, without plea or proof." (Emphasis supplied.) See Owings v. Hull, 34 U.S. 607, 9 Pet. 607, 9 L.Ed. 246 (1835); Covington Drawbridge Co. v. Shepherd, 61 U.S. 227, 232, 20 How. 227, 15 L.Ed. 896 (1857); Hanley v. Donoghue, 116 U.S. 1, 6, 6 S.Ct. 242, 29 L.Ed. 535 (1885); Schultz v. Tecumseh Products, 310 F.2d 426 (6th Cir. 1962). This rule announced by the Supreme Court has not been obviated by the decision in Erie R. R. v. Tompkins. Rather, the decisions of the federal courts subsequent to Erie "have been virtually unanimous in sanctioning a federal court's continued application of the practice of taking judicial notice of the law of all the states without pleading or proof, regardless of the forum state's rule on the subject." Miller, Federal Rule 44.1 and the Fact Approach to Determining Foreign Law: Death Knell for a Die-Hard Doctrine, 65 Mich.L.Rev. 615, 732-733 (1967) hereinafter cited as "Miller". "In Erie, itself, the Supreme Court remanded the case for the application of Pennsylvania law, although at that time New York, the forum state, did not judicially notice the law of sister states." Miller, supra n. 424. And as explained by Judge Kloeb in Baltimore & O. R. R. v. Reaux, 59 F.Supp. 969, 975 (N.D. Ohio 1945), "The doctrine of judicial notice is not a conflict of laws rule. In discussing this same question the court, in Petersen v. Chicago, Great Western Ry. . . . called it a `rule of pleading and evidence rather than of substantive law . . .' A concise and well-reasoned statement on this question is that of Judge Goodrich in Gallup v. Caldwell . . .: `This rule as to judicial notice is not affected by Erie R. R. v. Tompkins . . . . That case dealt with the question of the application of the substantive law of a given state, not how such substantive law is brought to the attention of a federal court . . . citations omitted.'"

In support of its argument that Georgia law must govern the issue in question, plaintiff has cited Budget Rent-A-Car Corp. v. Fein, supra hereinafter "Budget", in which the Fifth Circuit Court of Appeals applied Georgia common law where the applicable Georgia statute indicated that North Carolina law should govern. Aside from being very much in the minority, see, e. g., Professor Moore's discussion and cases cited in 1A Moore's Federal Practice and Procedure, ¶ 0.316 4, the court's application of Georgia law in Budget was done without discussion of the strong authority compelling federal courts to take judicial notice of state law when confronted by a forum state presumption against recognizing the laws of sister states. The complete...