Shuler v. Wood

• Decision Date: 24 October 1961
• Docket Number: Civ. A. No. 4243.
• Citation: 198 F. Supp. 801
• Parties: Elwood SHULER v. William WOOD, d/b/a Central Illinois Tower Maintenance Company, Stainless, Inc., and Stainless Construction Company.
• Court: U.S. District Court — Eastern District of Tennessee

198 F. Supp. 801

Elwood SHULER v. William WOOD, d/b/a Central Illinois Tower Maintenance Company, Stainless, Inc., and Stainless Construction Company.

Civ. A. No. 4243.

United States District Court E. D. Tennessee, N. D.

October 24, 1961.

Thearon F. Chandler, Joseph W. Rogers, Knoxville, Tenn., for plaintiff.

Ben F. McAuley, Knoxville, Tenn., for defendants.

ROBERT L. TAYLOR, Chief Judge.

This matter is before the Court on the motion of the defendants, Stainless, Inc. and Stainless Construction Company, to quash process and to dismiss the action on the ground that these defendants are Pennsylvania corporations and not subject to service of process in Tennessee. There is a motion also by plaintiff for a hearing on the motion to dismiss.

The motion is supported by the affidavit of Ben F. McAuley, counsel for defendants, and discloses the following facts: Defendant, Stainless, Inc., with principal offices at New Wales, Pennsylvania, was a subcontractor of H. K. Ferguson Company, an Ohio corporation, which held a prime contract with the Atomic Energy Commission dated August 12, 1955 to do certain construction work at Oak Ridge, Tennessee. The subcontract was entered into on February 1, 1961 for the fabrication, installation and erection of three steel towers 150 feet high in the Oak Ridge National Laboratory area, Oak Ridge, Tennessee.

The affidavit further declares that Stainless, Inc., fabricated the towers and thereafter sublet to its wholly owned subsidiary, Stainless Construction Company, also a defendant and a Pennsylvania corporation with principal offices at North Wales, Pennsylvania, that portion of the subcontract relating to the erection of the towers. Thereafter, on February 17, 1961, Stainless Construction Company purported to sublet to defendant William Wood, d/b/a Central Illinois Tower Maintenance Company of Monticello, Illinois, the erection portion of the subcontract, this work to start February 4, 1961.

Plaintiff, an iron worker, was employed by said Wood to assist in the erection of one of the towers and was injured when the tower collapsed as the result of alleged negligence of Wood while the latter was allegedly acting as the agent of defendants, Stainless, Inc. and/or Stainless Construction Company.

The motion to dismiss raises two questions: (1) Whether the two corporate defendants (or one of them) was "doing business" in Tennessee so as to subject themselves to service upon the Secretary of State under Section 48-923 of T.C. and (2) whether Wood was an agent of either of the corporate defendants.

In reaching an answer to the first question, it should be borne in mind that jurisdiction of the Federal Court to entertain the action is dependent upon the legality of the service upon the Secretary of State pursuant to the Tennessee Statute (Sec. 48-923.) This statute states in part:

"Any foreign corporation who shall do business in Tennessee without designating an agent upon whom process may be served in suits brought against such corporation in the courts of this state as required by law, and who shall make use of the privilege extended by law to foreign corporations to do business in this state upon domestication, shall be deemed thereby to constitute the secretary of state * * * as its agent, for the acceptance of * * process in any civil action brought by any person * * * against such undomesticated foreign corporation, arising out of such unauthorized business done in this state * * *." (Emphasis added.)

It is obvious that for such service to be valid the foreign corporation must have been "doing business" in the state. And for an interpretation of the clause "do business", under Erie v. Tompkins, this Court must look first to interpretation of the Tennessee Courts. In other words, whether this Court has, or doesn't have, jurisdiction would seem to depend upon the observance or nonobservance of the statute, as construed by the Tennessee courts. However, there is eminent authority to the contrary, namely, that validity of service may depend upon federal law. Jaftex Corporation v. Randolph Mills, Inc., 2 Cir., 282 F.2d 508 (opinion by Clark). But see to the contrary Trippe Mfg. Co. v. Spencer Gifts, Inc., 7 Cir., 270 F.2d 821 and Abel v. Albina Engine & Machine Works, 10 Cir., 284 F.2d 510.

There are two cases on the general subject by our Court of Appeals, WSAZ, Inc. v. Lyons, 6 Cir., 254 F.2d 242, 246 and Scholnik v. National Airlines, 6 Cir., 219 F.2d 115. Although the first was a removal case and could be distinguished on that ground from one (like this case) where suit originated in the Federal Court, the basic problem of jurisdiction would seem to be the same. Of course, there may not have been any Kentucky decisions construing the statute. The Court made no mention of this fact and proceeded to make its own construction of the Kentucky statute, nor is any mention made of the Ohio statute in the Scholnik case. In other words, our Court of Appeals would seem to be allied with the majority in the Jaftex case that validity of service under the state statute is a matter of federal law.

We, of course, know that the trend is "toward expanding the permissible scope of state jurisdiction over foreign corporations * * *." See Memorandum Opinion of this Court dated January 20, 1961 in Smith v. Lancer Pools Corporation 200 F.Supp. 199. But this Court did not in that case consider whether its determination should rest upon its own or state court interpretation of the "doing business" statute. It does not appear that the Supreme Court of the United States has considered the precise question and conceivably such question would arise only where the state and federal constructions of the substituted service statute were at odds. In this connection, it should be noted that in the Jaftex case Judge Friendly concurred in the result while rejecting the court's decision that construction was a matter for the federal courts.

It is the view of this Court that Judge Friendly probably has the better of the argument. Certainly this Court's decision would be greatly buttressed, if it were in line with the Tennessee courts' construction of the substituted service statute. Unfortunately, since Section 48-923 of T.C. was enacted in 1955, there has been no reported construction by any of the Tennessee courts of this statute. However, this Court may, in passing on this motion, derive support from previous interpretations by the Tennessee courts of the concept of "doing business".

There have been a full half dozen earlier Tennessee cases which throw light on the type of problem here presented by the motion. In Milan Milling, etc. Co. v. Gorten, 93 Tenn. 590, 27 S.W. 971, 972, 26 L.R.A. 135, an Indiana corporation agreed to "manufacture, deliver, and put in position" at Milan, Tennessee, certain milling machinery. This was done, and the purchaser paid in cash and notes, the latter secured by a first mortgage. The notes were discounted and the purchaser defaulted in payment. The trustee advertised the property for sale. The purchaser sought to enjoin the sale on the ground the installation was faulty and manufacturer had breached its contract. The Chancellor denied the foreclosure holding that the bank and manufacturer were foreign corporations, had not complied with the laws of Tennessee and could not bring suit. The Supreme Court reversed, holding that the manufacturer in manufacturing, and later adjusting the machinery in position in the state, was not carrying on business in the state but was engaged in interstate commerce.

Davis & Rankin Bldg. & Mfg. Co. v. Caigle, 53 S.W. 240, 242, Court of Chancery Appeals, is almost identical. Suit was brought by an Illinois corporation in Tennessee against a subscriber to stock in a proposed company which contracted with plaintiff for manufacture of a butter and...