Sanders Associates, Inc. v. Galion Iron Works & Mfg. Co., 5980.

• Citation: 304 F.2d 915
• Decision Date: 18 July 1962
• Docket Number: No. 5980.,5980.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Parties: SANDERS ASSOCIATES, INC., Plaintiff, Appellant, v. The GALION IRON WORKS & MANUFACTURING COMPANY, Defendant, Appellee.

304 F.2d 915 (1962)

SANDERS ASSOCIATES, INC., Plaintiff, Appellant, v. The GALION IRON WORKS & MANUFACTURING COMPANY, Defendant, Appellee.

No. 5980.

United States Court of Appeals First Circuit.

July 18, 1962.

Robert B. Hamblett, Nashua, N. H., with whom Hamblett, Kerrigan & Hamblett, Nashua, N. H., was on brief, for appellant.

Samuel H. Porter, Columbus, Ohio, with whom Lawrence D. Stanley, Columbus, Ohio, Irving H. Soden, Concord, N. H., Porter, Stanley, Treffinger & Platt, Columbus, Ohio, and Sulloway, Hollis, Godfrey & Soden, Concord, N. H., were on brief, for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

HARTIGAN, Circuit Judge.

This is an appeal from an order of the United States District Court for the District of New Hampshire dismissing for lack of jurisdiction plaintiff's action for breach of contract against the defendant foreign corporation on the ground that defendant's activities in New Hampshire did not establish a sufficient nexus with that state to render it amenable to suit by plaintiff.

This proceeding involves three principal parties. Plaintiff-appellant, Sanders Associates, Inc., (hereinafter called "Sanders") is a Delaware corporation with its principal place of business in Nashua, New Hampshire. Plaintiff is engaged in the invention, design and manufacture of electronic and hydraulic devices for a wide variety of uses.

Defendant-appellee, the Galion Iron Works & Manufacturing Company (hereinafter called "Galion"), is an Ohio corporation with its principal place of business in Galion, Ohio. Defendant is engaged in the manufacturing and sale of motor graders and road rollers.

R. G. Hazelton Company, Inc. (hereinafter called "Hazelton") is the exclusive distributor for Galion in New Hampshire. Its activities on behalf of Galion are governed by an extensive working agreement, some of the details of which will be discussed below.

Plaintiff's action for breach of contract stemmed from the following events. Following two preliminary conferences held at Nashua, New Hampshire, on May 9, 1957 and June 12, 1957 an agreement was executed on July 22, 1957 under the terms of which Galion placed an order with Sanders for development of a grader attachment (attachable to the regular Galion grader) by which the slope of the grader blade would adjust automatically to compensate for variations in the terrain under construction. Galion wanted a control system that would automatically sense true vertical and control the grader blade to maintain a preset level or grade, even over irregular terrain. Such an attachment would simplify the operator's job and give a more accurate finish.

On November 26, 1957 a second agreement denominated as "supplemental" was executed. Under the terms of this instrument Sanders agreed to construct two "preproduction" models which were to be field tested by Galion to insure that they conformed with the specifications which Sanders had prepared. Upon the completion of five hundred hours of satisfactory testing by Galion, Sanders was to receive payment.

The research and developmental nature of this project required extensive liaison between Galion and Sanders. In the words of the district court:

"The nature of the agreement 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." 203 F.Supp. 522 at 524.

Galion's contacts with Sanders in New Hampshire stemmed from the foregoing implementation of this agreement and, as noted, the instant action arose from an alleged breach of the contract.

Galion's other contacts with the State of New Hampshire arose from its dealings with Hazelton. Hazelton is one of the largest distributors of heavy construction equipment in New Hampshire, marketing the products and machinery of approximately fifteen manufacturers.

In 1955 Hazelton became Galion's exclusive New Hampshire distributor and has continued in that capacity down through the date of the present action. During this period, 1955-1961, Hazelton sold about $500,000 worth of Galion's products in New Hampshire and supplied an estimated 20 to 25 per cent of the New Hampshire grader market and about 25 per cent of the New Hampshire roller market. All of Galion's products reaching New Hampshire were sold to Hazelton, f. o. b. Galion, Ohio.

The terms of the exclusive distributorship agreement signed by Hazelton provided, inter alia, as follows: Hazelton was granted the exclusive right to market Galion's equipment in New Hampshire territory subject to two important exceptions. Galion reserved the right to sell its equipment directly to the United States and State Highways Departments. The agreement also contained an express reservation to other distributors of the right to sell to companies having a place of business in another distributor's territory, notwithstanding "the fact that the equipment is to be delivered into and initially used in" Hazelton's territory. Hazelton was prohibited from soliciting outside the State of New Hampshire or from accepting orders from outside its territory without the other distributor's consent and the consent of Galion. There was a similar proscription on all export orders. Finally, under the terms of the agreement, Hazelton could not engage directly or indirectly in the marketing and sale or procurement of sales of any new motor graders or road rollers other than those made by Galion. As found by the district court, Hazelton could handle no other new equipment "that competed with Galion products." 203 F.Supp. 522 at 524.

Galion furnished Hazelton a list of prices and available discounts. Under the agreement Hazelton consented to the insertion of prices in orders received by Galion and agreed that Hazelton would be bound "thereby as if such details, prices, etc. had been contained in the order at the time he signed it."

Under paragraph 6 of the agreement Hazelton agreed to keep on hand not less than three graders and two rollers as well as a complete supply of replacement parts; to use "its best efforts in the promotion and sale in its territory and diligently canvass and regularly circularize with literature supplied by Galion, the town, city, county and contractor trade in such territory;" to provide adequate sales, storage and service facilities; to maintain in good condition, in conspicuous and appropriate location inside and outside of its place of business, signs identifying Hazelton as a distributor of Galion's equipment; to engage, train and maintain sales, service, parts, handling and accountant personnel sufficient to obtain a reasonable share of the sales possibilities for motor graders and road rollers in the territory; to promptly and efficiently service the equipment in its territory and to maintain proper and adequate accounting records; and to comply with Galion's policies in effect from time to time concerning delivery service and on service after delivery on the equipment embraced by the agreement.

Under paragraph 7 of the agreement Hazelton was obliged to "assume complete responsibility for the proper inspection and assembly of the equipment and deliver the same to its vendee in good operating condition; train the operators and mechanics of its vendee to operate, lubricate and maintain such equipment correctly; inspect the equipment free of charge thirty (30) days (as nearly as practicable) after delivery to its vendee; again inspect the equipment free of charge five (5) months (as nearly as practicable) after delivery to its vendee; and furnish to the Company a delivery report, 30-day inspection report and 5-month inspection report on forms furnished by the Company, signed by the Distributor and an authorized representative of its vendee. * * *"

Galion gave a six months warranty against defective material or workmanship and, as found by the district court, "Hazelton serviced any complaints and apparently bore the labor costs involved." 203 F.Supp. 522 at 524.

Hazelton was required to furnish Galion a monthly sales report indicting sales for the preceding thirty days, inventory, unfilled orders, and projections of future sales. Hazelton contributed to advertising programs of Galion appearing in trade journals circulated in New Hampshire. Upon the termination of the agreement and under specified conditions, Galion agreed to repurchase from Hazelton all new, current, unused and salable service parts.

There was continuing assistance and personal contact between Galion and Hazelton. Galion furnished training services for Hazelton's salesmen and made available to Hazelton a Galion airplane by which prospective New Hampshire customers could be flown to Galion's plant in Ohio.

One David Gillespie, Galion's "district representative," was in periodic personal contact in New Hampshire with Hazelton and, as noted, monitored its monthly sales performance. His function was to insure that "Galion has its share of the New Hampshire market," and his liaison with Hazelton was aimed at fostering this objective.

On these facts the issue is raised whether the Galion corporation could be subjected to suit in the State of New Hampshire and accordingly, in a United States district court where, as here, there exists diversity of citizenship. As the trial judge correctly noted, in this class of case two questions must be anwered.

In Pulson v. American Rolling Mill Co., 170 F.2d 193, 194 (1 Cir.1948), this court indicated the scope of that dual inquiry thusly:

"There are two parts to the question whether a foreign corporation can be held subject to a suit within a

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