Rock-Ola Manufacturing Corporation v. Wertz, 7496.

• Decision Date: 12 November 1957
• Docket Number: No. 7496.,7496.
• Parties: ROCK-OLA MANUFACTURING CORPORATION, a Delaware corporation, Appellant, v. Dan M. WERTZ and Ernest C. Wetzel, individually and as partners doing business as Wertz Music Supply Company, Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

249 F.2d 813 (1957)

ROCK-OLA MANUFACTURING CORPORATION, a Delaware corporation, Appellant, v. Dan M. WERTZ and Ernest C. Wetzel, individually and as partners doing business as Wertz Music Supply Company, Appellees.

No. 7496.

United States Court of Appeals Fourth Circuit.

Argued October 16, 1957.

Decided November 12, 1957.

John S. Davenport, III, Richmond, Va. (Claude D. Minor, Richmond, Va., Louis M. Mantynband, and Henry J. Shames, Chicago, Ill., Denny, Valentine & Davenport, Richmond, Va., and Arvey, Hodes & Mantynband, Chicago, Ill., on the brief), for appellant.

Wilbur M. Kessler, Richmond, Va. (John A. Cutchins and Cutchins, Wallinger, Wallace & Kessler, Richmond, Va., on the brief), for appellees.

Before PARKER, Chief Judge, and SOPER and SOBELOFF, Circuit Judges.

SOBELOFF, Circuit Judge.

This litigation was begun in the District Court for the Eastern District of Virginia by a foreign corporation to recover a balance of $38,296.98 claimed to be due for merchandise. The defendants filed a preliminary motion to dismiss on the ground that the plaintiff, Rock-Ola Manufacturing Corporation, a Delaware corporation with plant and offices in Chicago, had failed to obtain a certificate of authority to transact business in Virginia, and that, as provided by the law of that State,¹ the action could not be maintained.

After taking evidence as to the relation between the parties and the nature and extent of the plaintiff's activity in Virginia, the District Judge, being of the opinion that the plaintiff was "doing business" there and was amenable to the statutory bar, granted the defendants' motion and entered judgment accordingly. The propriety of the dismissal is the sole question on the present appeal.

In Woods v. Interstate Realty Co., 1949, 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524, the Supreme Court put to rest all doubt as to the effect of qualification requirements upon the jurisdiction of Federal courts in diversity cases. If the doors of a State's courts are properly shut to a foreign corporation, it is now settled that the corporation is likewise barred from suing, on the basis of diversity of citizenship, in a Federal court sitting in that state. We turn, therefore, to a consideration of the business transactions between the parties, to determine whether it was the intent of the Virginia legislature to keep a plaintiff from its courts for failure to qualify in the circumstances of this case.

Plaintiff, Rock-Ola, manufactures and sells coin-operated phonographs, sometimes called "juke-boxes," and accessories. Throughout the United States, it has engaged forty distributors of its equipment, entering into annual written agreements appointing them to exclusive geographical territories. At one time, it had, in addition to such distributors, regional sales managers, among whom was one of the defendants, Dan M. Wertz, stationed in Virginia. This practice of maintaining managers has long since been abandoned, however, and Rock-Ola has no office in Virginia, no employees there, and no telephone in Virginia listed in its name. It owns no real property and maintains no warehouse in that State.

In 1940, the Virginia distributor was discharged for violation of his agreement and Wertz replaced him. From then until January, 1955, Rock-Ola and Wertz entered into annual distributor's agreements, and in June, 1955, when Wertz and Ernest C. Wetzel became partners, under the trade name Wertz Music Supply Company, they executed another such agreement with Rock-Ola.

In these agreements, Wertz Music Supply Company promised to maintain a clean and attractive showroom at its own expense. The Wertz firm hired its own employees and provided its own office and storeroom.

Rock-Ola furnished it with business cards and truck decals to be used as advertising matter, but the Wertz partnership was specifically directed not to use "Rock-Ola" as part of its trade name, or to employ any advertising matter with the Rock-Ola name unless approved by the plaintiff.

The Wertz Company promised to service all Rock-Ola machines in its territory, whether sold by it or the predecessor distributor, and to maintain, at its own expense, at least one competent repairman. On several occasions, usually at Wertz' request, Rock-Ola would send a field engineer to Virginia to instruct Wertz' repairmen in the repair of new Rock-Ola models.

The agreement further provided that the sales prices of all machines bought by Wertz Music Supply would be F.O.B. Chicago and that all parts sold to Wertz would be on C.O.D. terms. No parts were ever shipped C.O.D., however, and as Wertz testified, most of the machines and parts shipped to his company were immediately charged to its account, while Rock-Ola reserved the right, which it occasionally exercised, of sending goods on consignment.

Following a customary practice, Wertz sold the juke boxes to operators on conditional sales agreements, and after taking the buyers' promissory notes, would assign them to Rock-Ola. The latter accepted the assignments and credited the account of the partners, who remained secondarily liable as assignors. If an operator's account became overdue, he would be notified by the Wertz firm on Rock-Ola forms, of the obligation, and would be directed to remit thereafter to the manufacturer. On several occasions, when delinquencies accumulated, Rock-Ola's representatives visited the operators in an effort to bring about a reduction in their debts.

Some of the machines, purchased on account but not sold, were placed in Wertz' own "locations" as a competing operator. Other unsold machines Wertz leased to customer operators, and in such instances Wertz, as owner of the machine, would execute his own conditional sales contract and promissory note to Rock-Ola to secure his debt to it. At times Wertz would be asked to come to Chicago to discuss his indebtedness to Rock-Ola or to view new models which it was about to produce.

Rock-Ola fixed resale prices, although the distributor, having control over trade-ins, in effect set its own prices by allowing larger or smaller trade-ins. The Wertz Company paid its own expenses, bore its losses, and retained its profits.

Business may be done by a foreign corporation in one of two ways. It may engage the services of a local agent, whose acts may constitute the doing of business by the principal, though the act of appointing the agent is itself not sufficient to constitute doing business. People's Pittsburg Trust Co. v. Diebolt, 1932, 52 Idaho 208, 13 P.2d 656; 17 Fletcher, Cyclopedia of Corporations (1933), Sec. 8475, p. 496. Or, the foreign corporation may do such acts on its own part as amount to doing business.

The trial court's decision was based upon the conclusion that Wertz Music Supply was the agent of Rock-Ola and that it was "doing business" in Virginia through that agent.

No case bearing a close factual resemblance to ours deals directly with the amount and character of corporate activity that will require qualification to do business in Virginia. There is, however, a case, Carnegie v. Art Metal Construction Co., 1950, 191 Va. 136, 60 S.E.2d 17, strikingly similar to the one before us, in which the corporation's activity in Virginia was held insufficient to subject it to suit and service of process in the state.

Art Metal, a Massachusetts corporation with its principal office and factory in New York, had in Virginia no...