Schoel v. Sikes Corp.

• Decision Date: 17 June 1976
• Docket Number: No. 75-1772,75-1772
• Citation: 533 F.2d 930
• Parties: Jerry W. SCHOEL, Trustee in Bankruptcy of Carpenter, Inc., Plaintiff-Appellant, v. SIKES CORPORATION, etc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 930

533 F.2d 930

Jerry W. SCHOEL, Trustee in Bankruptcy of Carpenter, Inc., Plaintiff-Appellant, v. SIKES CORPORATION, etc., Defendant-Appellee.

No. 75-1772.

United States Court of Appeals, Fifth Circuit.

June 17, 1976.

W. B. Hairston, Jr., Silberman, Silberman & Loeb, Wilbur G. Silberman, Birmingham, Ala., for plaintiff-appellant.

James C. Barton, Jerome K. Lanning, Gilbert E. Johnston, Jr., Birmingham, Ala., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before THORNBERRY and AINSWORTH, Circuit Judges, and HOFFMAN ^*, District Judge.

AINSWORTH, Circuit Judge:

Plaintiff Jerry W. Schoel, Trustee in Bankruptcy of Carpenter, Inc. (Carpenter), an Alabama corporation, appeals from the order of the District Court granting the motion of defendant Sikes Corporation (Sikes) to quash service and dismiss the complaint on grounds that the activities of Sikes, a Florida corporation, not qualified to do business within the State of Alabama, were insufficient to support service of process under the long-arm statute of Alabama.

The questions at issue are whether the Alabama long-arm statute authorizes the exercise of jurisdiction over the nonresident defendant, and if so, whether the exercise of that jurisdiction would violate the due process clause of the Fourteenth Amendment. We conclude that the statute is applicable and that there is no constitutional infirmity. We therefore reverse and remand.

The Alabama statute, in pertinent part, provides that:

Any nonresident person, firm, partnership, general or limited, or any corporation not qualified under the Constitution and laws of this state as to doing business herein, who shall do any business or perform any character of work or service in this state shall, by the doing of such business or the performing of such work, or services, be deemed to have appointed the secretary of state, or his successor or successors in office, to be the true and lawful attorney or agent of such nonresident, upon whom process may be served in any action accrued, accruing, or resulting from the doing of such business, or the performing of such work or service, or relating to or as an incident thereof, by any such nonresident, or his, its or their agent, servant or employee. And such service shall be valid whether or not the acts done in Alabama shall of and within themselves constitute a complete cause of action.

Title 7, § 199(1), Code of Alabama. Sikes is a manufacturer of floor covering which sells its products wholesale through distributors located in southeast United States, including Birmingham, Mobile, Montgomery and Muscle Shoals, Alabama. Until 1962, Carpenter operated a carpet and tile distributorship in Birmingham, Mobile and Montgomery, Alabama. In 1965, Carpenter started doing business with Sikes (then operating as Florida Tile Industries, Inc.) and thereafter regularly distributed Sikes' products in the State of Alabama until 1972. ¹ During the year 1971 Carpenter suffered severe financial reverses. On March 16, 1972, as a condition of extending further credit to Carpenter, Sikes obtained from Carpenter a Security Agreement to secure the obligations owed Sikes by Carpenter, which then amounted to a sum in excess of $490,000. ² On December 6, 1972, Sikes foreclosed, took physical possession of the inventory of Carpenter, and so informed Carpenter's customers on December 8, inviting them to contact Sikes if they desired further information. On December 15, 1972, Sikes conducted a public sale pursuant to the terms of the Security Agreement, and as the sole bidder, purchased the inventory of Carpenter. On the same day Sikes formed a wholly owned Alabama subsidiary, Sikes Distributors of Alabama, Inc., to which Sikes conveyed the inventory. The new corporation thereafter took over the collection of accounts receivable of Carpenter covered by the Security Agreement, using the same bank account as Sikes, ³ and credited the amounts collected against the indebtedness due Sikes from Carpenter. On August 3, 1973, Carpenter was adjudicated a bankrupt by involuntary petition.

On October 1, 1974, plaintiff, as Trustee of the bankrupt Carpenter, filed a complaint against Sikes seeking damages for the unlawful taking and disposing of the assets of Carpenter, alleging that Sikes failed to comply with the laws of Alabama in the creation of its security interest, and in the takeover and liquidation of the Carpenter assets. Sikes was served with process through the Secretary of State of Alabama, pursuant to Title 7, § 199(1), Code of Alabama, supra.

In granting the motion of Sikes to quash service and dismiss, the District Court held that the contacts by Sikes with Alabama were "all related or associated with the acquisition and subsequent liquidation of a security interest by defendant," and as so limited were insufficient to support service of process.

We disagree with the District Court's conclusion. The validity of the mode and method of such acquisition and liquidation is the essence of the Trustee's cause of action as stated in his complaint. Necessarily, in order to utilize substituted service under the terms of Alabama's long-arm statute, the cause of action asserted must accrue or result from the activities of the nonresident in the state, and perforce those activities must be "related or associated" with the cause of action asserted.

Sikes' principal contention is that the only significant contact it had with Alabama was the acquisition and liquidation of the security interest and that no occurrence subsequent to the adjudication of bankruptcy on August 3, 1973 has any relevance to this action or Sikes' amenability to service of process therein. The facts of this case do not support Sikes' contention. By answers to interrogatories submitted by the Trustee, regarding the activities of Sikes in Alabama during the year 1972, Sikes admitted the following occurrences:

Various employees of Sikes were present in Alabama from time to time on its behalf. Sales representatives visited its distributors in Alabama; these representatives would occasionally accompany the independent distributors' employees when they were visiting prospective customers. Commissions were paid Sikes' employees based on interstate sales pursuant to orders from Alabama customers. Sikes paid a consultant to render assistance to Carpenter in merchandising and other managerial problems.

On January 1, 1973, Gilbert M. Carpenter, Sr., president and sole owner of Carpenter, Inc., was also employed by Sikes as a consultant. Sikes acquired all the shares of common stock of Sikes Distributors of Alabama, Inc. on the date of its incorporation on December 5, 1972 and the officers of both corporations are identical.

By deposition, Phillip B. Anderson, director, secretary and counsel for Sikes since its organization in 1954, testified to the following activities of Sikes:

The Security Agreement previously referred to was mailed from Florida to Birmingham, Alabama for Gilbert Carpenter's signature. ⁴ As a result of Gilbert Carpenter's substantial loss in 1971, Sikes attempted to help him by instructing him in customer treatment and branch operation. In 1972, Sikes volunteered "distributor assistance" payments to Carpenter, which payments are usually made in response to Sikes' request that a distributor "do some additional things to try to increase his ability to market (Sikes) products." Sikes worked diligently with problem distributors and Carpenter's account was the largest of all problem distributors in the country.

The criteria to determine the "presence" of a corporation in the state for the purpose of...