Scott Paper Company v. Scott's Liquid Gold, Inc.
| Decision Date | 16 April 1974 |
| Docket Number | Civ. A. No. 4766. |
| Citation | 374 F. Supp. 184 |
| Court | U.S. District Court — District of Delaware |
| Parties | SCOTT PAPER COMPANY, Plaintiff, v. SCOTT'S LIQUID GOLD, INC., Defendant. |
Rudolf E. Hutz, of Connolly, Bove & Lodge, Wilmington, Del., Alfred T. Lee of Weil, Lee & Bergin, New York City, for plaintiff.
Richard F. Corroon and James F. Burnett of Potter, Anderson & Corroon, Wilmington, Del., Bruce G. Klaas of Edwards, Spangler, Wymore & Klaas, Denver, Colo., for defendant.
Scott Paper Company, a Pennsylvania corporation, has brought this action against Scott's Liquid Gold, Inc., a corporation of the State of Colorado, for trademark infringement and unfair competition. Jurisdiction is alleged under 28 U.S.C. § 1338(a),(b). Service of the complaint and summons was effected pursuant to Rule 4(d)(7) of the Federal Rules of Civil Procedure and a Delaware long arm statute, 8 Del.C. § 382.
I consider here three motions made by the defendant: (1) that the suit be dismissed for lack of personal jurisdiction; (2) that the suit be dismissed for improper venue; and (3) in the alternative, that the suit be transferred to the District of Colorado under the provisions of either 28 U.S.C. § 1406(a) or § 1404.
Defendant's attack upon this Court's jurisdiction involves two questions: first, whether defendant was "transacting business" in the State of Delaware so as to be amenable to substituted service under the language of Section 382 of Title 8 of the Delaware Code, and second, whether defendant's connections with Delaware are such as to permit this Court to exercise in personam jurisdiction over it consistent with the Constitution.
Crucial to determination of these issues is an understanding of the nature and scope of defendant's connections with Delaware.
Defendant has no office, warehouse or manufacturing facility in the State of Delaware. Its principal place of business is located in Denver, Colorado, where it manufactures and directs the marketing of its home cleaning products. Each of these products is marketed under the name "Scott's Liquid Gold." Defendant markets its products nationally, both through its employees who solicit orders from national chain stores and through commission brokers who solicit orders from smaller, independent retailers. Through these marketing channels defendant's products are made readily available to consumers throughout Delaware.
No employee of defendant has entered Delaware to solicit sales. However, as a result of employees' sales to large retailers defendant has shipped its products directly into this state. In addition, during the three years preceding the filing of the complaint, at least five of defendant's brokers have regularly and successfully solicited orders for Scott's Liquid Gold in Delaware from numerous retail establishments. Under their practice, after an order is obtained from a local retail store, it is sent to defendant's Colorado office where a judgment is made whether to extend credit to the retailer. If the sale is approved the product is shipped, via common carrier, directly to the Delaware retailer from a warehouse facility located in either Denver or Baltimore.
In order to stimulate a demand for its products in Delaware and elsewhere, defendant has advertised its Scott's Liquid Gold products extensively. This advertising program includes advertisements on national television, in magazines of national circulation and in newspapers with a substantial Delaware circulation. It is undisputed that many thousands of these commercial messages were intended to be and were received in Delaware.1 Finally, defendant has caused an advertisement to appear in a Philadelphia newspaper with a wide circulation in Delaware. That advertisement contained a coupon which entitled its holder to a $.20 discount on a retail purchase of Scott's Liquid Gold and which made an offer to retail stores of consideration for accepting the coupon.2
Defendant contends that because none of its employees has personally solicited sales within Delaware, because the solicitations that have occurred were done by "independent" agents, because the "sale" of its products occurs in Colorado, and because the advertisements were largely national in scope and were in no case directed solely at a Delaware market, there is an insufficient relationship between the defendant and the forum state either to permit the conclusion that the defendant is "transacting business" in Delaware or to permit it to be sued in this Court consistent with the requirements of the Fifth Amendment.
The first issue we face is defendant's amenability to service of process under the Delaware statute. Even though this action arises under the laws of the United States, since service was effected under Rule 4(d)(7) of the Civil Rules, amenability to service presents a question of state law. Gkiafis v. Steamship Yiosonas, 342 F.2d 546 (4th Cir. 1965).3
The defendant is a foreign corporation which has not qualified to do business in Delaware. 8 Del.C. § 382 provides a mechanism for service of process upon such corporations under certain circumstances. It provides in pertinent part:
This statute requires that two conditions be met before it can properly be invoked. First the corporate defendant must be transacting business generally in Delaware and, second, the suit must arise from business transacted in the state. Simpson v. Thiele, Inc., 344 F.Supp. 7, 8 (D.Del.1972); LaChemise Lacoste v. General Mills, Inc., 53 F.R.D. 596, 603 (D.Del.1971). I think the answer to the first part of our inquiry under the statute is relatively clear. The statute provides that "the transaction of business . . . shall mean the course or practice of carrying on business activities in this state, including . . . the solicitation of business or orders in this State." Delaware courts have held that a "liberal definition should govern the application of the current Delaware long arm statute." Nacci v. Volkswagen of America, Inc., 297 A. 2d 638, 641 (Del.Super.1972); County Plumbing & Heating Co. v. Strine, 272 A.2d 340 (Del.Super.1970). Under such an approach this Court is confident that defendant is "carrying on business activities within this state."
It well may be, as defendant urges, that the sponsor of a national advertising campaign does not necessarily transact business generally in Delaware within the meaning of this statute. I need not decide that question since defendant's Delaware advertising is but one part of an integrated marketing program which has other significant contacts with this state. That advertising is intended to and apparently does generate a consumer demand in Delaware for defendant's products. That demand, in turn, generates corresponding demand among Delaware retailers. The benefit from that demand is reaped, in part, through the solicitation of orders in Delaware by defendant's commission brokers. The end result of that solicitation and defendant's systematic cultivation of the Delaware market is a continuous flow of its products into this state.
The argument that the defendant's brokers are "independent contractors" and that their actions, accordingly, cannot be considered in determining whether defendant is "transacting business" in Delaware, is unpersuasive. It is clearly defendant's business objective to sell its products on a regular and continuing basis to Delaware retailers. It has conscientiously pursued that objective by utilizing commission brokers over a substantial period of time to solicit orders in Delaware. Clearly it would be carrying on business activities in Delaware if this same function had been performed by its employees. The fact that it has elected to pay for these services through commissions rather than salaries does not alter the business reality of the matter. As Judge Wright has stated in a closely analogous case:
It is persuasive that inasmuch as (the defendant) retains the right to reject or accept all orders, ships directly from the factory to the customer and is compensated directly by the customer, (its) products could not find their way to Delaware customers without (the broker). It cannot be controlling that (the broker) is compensated by commission rather than salary.
Gentry v. Wilmington Trust Co., 321 F. Supp. 1379, 1382 (D.Del.1970). Cf. County Plumbing & Heating Co. v. Strine, supra; King & Hatch, Inc. v. Southern Pipe & Supply Co., 435 F.2d 43 (5th Cir. 1970).
The second pre-condition for the proper employment of the Delaware statute is that the claim sued upon arises or grows out of business activities of defendant in the state. This action arises under federal law. It is grounded in part upon 15 U.S.C. § 1114 which, as relevant, provides:
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