Sanders Associates, Inc. v. Galion Iron Works & Mfg. Co.

• Decision Date: 30 October 1961
• Docket Number: Civ. A. No. 2156.
• Citation: 203 F. Supp. 522
• Parties: SANDERS ASSOCIATES, INC. v. The GALION IRON WORKS & MANUFACTURING COMPANY.
• Court: U.S. District Court — District of New Hampshire

203 F. Supp. 522

SANDERS ASSOCIATES, INC. v. The GALION IRON WORKS & MANUFACTURING COMPANY.

Civ. A. No. 2156.

United States District Court D. New Hampshire.

October 30, 1961.

Hamblett, Kerrigan & Hamblett, Robert B. Hamblett, Nashua, N. H., for plaintiff.

Sulloway, Hollis, Godfrey & Soden, Irving H. Soden, Concord, N. H., Porter, Stanley, Treffinger & Platt, Raymond H. Treffinger, Columbus, Ohio, for defendant.

CONNOR, District Judge.

The plaintiff, hereinafter referred to as "Sanders," a Delaware corporation with its principal place of business in Nashua, New Hampshire, has brought an action for breach of contract against defendant, hereinafter referred to as "Galion," an Ohio corporation with its principal place of business in Galion, Ohio. Service of process was made pursuant to Rule 4(d) (7) of the Federal Rules of Civil Procedure, 28 U.S.C.A., in accordance with the applicable state statute, N.H. RSA 300:11.

The defendant has filed a motion to dismiss and to quash service of process raising questions of jurisdiction, venue, and insufficiency of process. The defendant has also registered objection to certain affidavits submitted by the plaintiff on grounds that they are irrelevant to the issues raised in the motion and that they contain legal conclusions. Aside from any legal conclusions or material relevant only to the merits of the action which they may contain, they have been given consideration as well as that offered by the defendant. From the pleadings, depositions, exhibits, and affidavits, the following appear to be the pertinent facts.

Plaintiff's business is essentially the designing, engineering, and manufacturing of certain electronic and hydraulic devices. Defendant manufactures and sells motor or road graders and road rollers largely to users of such equipment in Ohio as well as to distributors both in and out of Ohio.

R. C. Hazelton Company, Inc., hereinafter referred to as "Hazelton" serves, per contract, as defendant's sole distributor in New Hampshire. All of defendant's products reaching New Hampshire were sold to Hazelton, f. o. b., Galion, Ohio.

On May 9 and again on June 12, 1957, certain of defendant's representatives came to New Hampshire to engage in discussions and negotiations looking toward the conclusion of a development contract, the purpose of which would be to design and produce a device to automatically control the slope of the blade or bulldozer attachment on Galion's road graders.

Shortly thereafter following oral authorization from defendant's vice-president to proceed with the initial steps of the program, the parties entered into a contract dated July 22, 1957, which contract was evidently sent to Galion by Sanders and signed by Galion in Ohio. By it, Galion agreed concurrently or within a short period of time to place an order for the development of two experimental "breadboard" models of the "blade slope control attachment"; Sanders agreed to make application for Letters Patent covering any patentable improvement directly resulting from the experimental work and to grant Galion an exclusive license to manufacture, use, and sell the device in the field of road graders.

On November 26, 1957, a second agreement styled as "supplemental" to the first was entered into which apparently was sent from Galion to Sanders and finally executed by Sanders in New Hampshire. By it, Sanders undertook to construct two "preproduction" models which were to be field tested by Galion in order to ascertain whether they performed in accordance with certain specifications drawn up by Sanders. Payment to Sanders was conditioned upon such performance after five hundred hours of testing.

Numerous other provisions are contained in the agreements which do not require mention in this brief description.

The nature of the agreements was such as to require frequent consultation between the parties and such consultation was largely carried out in New Hampshire. The majority of the meetings were engineering conferences generally between Galion's project engineer and employees of Sanders at Nashua. At other times, several officials of Galion came into the state to confer and witness demonstrations of the device, mounted on a Galion grader. It appears that such a grader was located in New Hampshire from August, 1957, until June, 1958.

Galion's only other New Hampshire contacts concerned its authorized distributor Hazelton. It, upon receipt of an order from a customer, purchased the required equipment from Galion, f. o. b., Galion, Ohio.

Galion furnished Hazelton a list of prices and available discounts. It reserved the right to sell direct to each state highway department of the several states and to the United States. Richard Hazelton, treasurer of Hazelton, knew of no such direct sales to the New Hampshire Highway Department.

Hazelton was permitted to solicit only its particular territory and this provision was apparently enforced. Galion's district representative, one Gillespie, stated in his affidavit that he did not exercise any general supervision over the performance of the agreement between the parties nor to his knowledge did any other representative of Galion.

Hazelton was obligated to keep on hand three motor graders and two road rollers of Galion's as floor stock, but Richard Hazelton indicated that they did not do so except for a brief period following the initial association of the parties. Hazelton was not permitted to sell any new motor graders or road rollers other than those of Galion. They carried other equipment of other companies, but nothing that competed with Galion products.

Hazelton was obligated to furnish Galion a monthly sales report showing sales for the preceding thirty days, inventory, unfilled orders, and estimates of future sales. Gillespie stated that he received monthly reports from Galion concerning Hazelton's sales showing numbers of dollars in rollers, graders, and parts.

Hazelton contributed to Galion advertisements along with other distributors and dealers, which advertisements appeared in trade journals which may have circulated in New Hampshire. Galion agreed to and apparently did supply advertising material to Hazelton, f. o. b., Galion, Ohio. Hazelton also purchased a motion picture film from Galion depicting the latter's equipment in operation.

Galion gave a six months warranty against defective material or workmanship. Hazelton serviced any complaints and apparently bore the labor costs involved.

Hazelton had the right, at its own expense, to request Galion to furnish a demonstrator or serviceman, but Richard Hazelton said they did not do so and maintained their own department furnished with parts acquired from Galion and maintained in stock as per the agreement. Under certain specified conditions, Galion agreed to repurchase, upon termination of the agreement, all new, current, unused, and salable service parts.

Upon request and at least partial reimbursement, Galion would make its plane available to distributors for the purpose of bringing customers or potential customers to Galion, Ohio, to witness demonstrations of Galion products.

Hazelton maintained its own credit arrangements with its customers which Galion did not oversee. Under its distributor agreement, Hazelton was obligated to provide inspection service for its vendees and to train employees of such vendee to "operate, lubricate and maintain such equipment correctly."

Inspection of the record discloses no reason to discount the following statement from defendant's memorandum in support of its motion to dismiss and quash service of process.

"Defendant maintains no bank account in New Hampshire, office, telephone listing, number and/or telephone. It has not advertised in New Hampshire through newspapers, radio or television or other media except to the extent that trade publications may be circulated in New Hampshire as well as many other states and except to the extent that it has sold promotional material to the distributor. None of defendant's officers or directors are residents of New Hampshire nor to its knowledge are any of its employees.

"Defendant has never made recourse to a New Hampshire court, New Hampshire law enforcement officer or threatened to do so. Defendant has never registered any of its products, trade marks or copyrights with the State of New Hampshire nor has it ever acquired vehicle registration plates in New Hampshire.

"Defendant is not licensed to do business in New Hampshire nor does it pay any New Hampshire taxes."

Galion's representative, Gillespie, who is paid by salary and by commission amounting to one-fourth of one per cent of sales to distributors in his territory plus a bonus arrangement proportionate to total sales of Galion in the United States, came into New Hampshire to deal with Hazelton's affairs on several occasions, sometimes alone and on other occasions accompanied by other Galion employees.

Upon the above facts, there is presented the frequently troublesome question of assessing whether a foreign corporation has so far extended its operation into the forum state so as to have rendered itself subject to the jurisdiction of the courts of that state. The question is initially one of state law, the pertinent inquiry being whether the local statute as judicially construed is broad enough to encompass the situation. See Pulson et al. v. American Rolling Mill Co., 1st Cir., 1948, 170 F.2d 193. In the most recent New Hampshire case, there appears the following language: "We shall continue to follow the rule laid down in LaBonte both in the spirit as well as the letter to the fullest extent permitted by due process and statutory requirements." Benson v. Brattleboro Retreat, 1960, 103 N.H. 28, 164 A.2d 560. In the case referred to, LaBonte v. American Mercury Magazine, Inc., & a., 1953, 98 N.H. 163, at page 166, 96 A. 2d 200, at page 202, 38 A.L.R.2d 742, the court said: "Today in determining whether a foreign corporation shall be...