Snelling & Snelling, Inc. v. Watson

• Decision Date: 15 May 1979
• Docket Number: No. 7818SC496,7818SC496
• Citation: 254 S.E.2d 785,41 N.C.App. 193
• Court: North Carolina Court of Appeals
• Parties: SNELLING & SNELLING, INC. v. Joy W. WATSON, Individually, Snelling & Snelling of High Point, Inc., Partime Tested Temporaries, Inc., Jobs One of Winston-Salem, Inc., Snelling & Snelling of Thomasville, Inc., and Eric Boyd Scheipers.

Page 785

254 S.E.2d 785

41 N.C.App. 193

SNELLING & SNELLING, INC. v. Joy W. WATSON, Individually, Snelling & Snelling of High Point, Inc., Partime Tested Temporaries, Inc., Jobs One of Winston-Salem, Inc., Snelling & Snelling of Thomasville Inc., and Eric Boyd Scheipers.

No. 7818SC496.

Court of Appeals of North Carolina.

May 15, 1979.

Whiting, Horton & Hendrick by P. B. Whiting, Winston-Salem, for defendant appellees.

CLARK, Judge.

Plaintiff assigns as error the court's dismissal of the complaint pursuant to G.S. 55-154(a), for failure to obtain a Certificate of Authority as required by G.S. 55-131. Plaintiff contends that it was not transacting business in North Carolina within the meaning of G.S. 55-131(a) since its business activities were solely interstate in nature. Therefore, plaintiff was not required to procure a Certificate of Authority and it was error to deny plaintiff access to the courts of North Carolina. In addition, plaintiff contends that if the statutory provisions of G.S. 55-131 and G.S. 55-154 are applicable to the plaintiff, then the statutes place an unreasonable burden on interstate commerce in violation of the commerce clause of the Constitution of the United States. U.S.Const., art. I, § 8, cl. 3.

G.S. 55-131 provides in pertinent part as follows "(a) A foreign corporation shall procure a certificate of authority from the Secretary of State before it shall transact business in this State. . . .

(b) (A) foreign corporation shall not be considered to be transacting business in this State, for the purpose of this Chapter, by reason of carrying on in this State any one or more of the following activities:

* * * * * *

(8) Transacting business in interstate commerce."

The initial inquiry, then, is whether the plaintiff was transacting business within this State as defined by G.S. 55-131. The statutory provisions clearly provide that the State may not require a foreign corporation to obtain a Certificate of Authority by reason of its transacting Interstate business.

Defendant contends that several North Carolina cases have held that activity similar to plaintiff's constituted "transacting business" within North Carolina pursuant to G.S. 55-144 and are controlling in this case. G.S. 55-144 provides that:

"Suits against foreign corporations transacting business in the State without authorization. Whenever a foreign corporation shall transact business in this State without first procuring a certificate of authority so to do from the Secretary of State or after its certificate of authority shall have been withdrawn, suspended, or revoked, then the Secretary of State shall be an agent of such corporation upon whom any process, notice or demand in any suit upon a cause of action arising out of such business may be served."

In Dumas v. Chesapeake and Ohio Ry., 253 N.C. 501, 117 S.E.2d 426 (1960), the North Carolina Supreme Court held that the definition of "transacting business" as set forth in G.S. 55-131 was applicable to G.S. 55-144. In Dumas, the defendant was a foreign corporation which had sent agents into this State to procure orders for freight and passenger traffic. The agent, in addition to processing orders, telephoned the defendant's passenger department in Virginia and ordered tickets. The bills of lading for freight traffic were signed in North Carolina. The court held that G.S. 55-131(b)(5), which provides that soliciting orders which are accepted outside of this State does not constitute transacting business in North Carolina, was applicable to G.S. 55-144. The court found, however, that defendant corporation engaged in more activity in this State than the mere solicitation of orders and therefore was not exempted from procuring a Certificate of Authority and was amenable to service of process pursuant to G.S. 55-144.

In Schnur and Cohan, Inc. v. McDonald, 220 F.Supp. 9 (M.D.N.C.1963), Appeal dismissed, 328 F.2d 103 (4th Cir. 1964), the court held that service of process on the defendant foreign corporation pursuant to G.S. 55-144 was invalid because, according to G.S. 55-131(b)(5), defendant was not transacting business within North Carolina merely by soliciting orders in North Carolina. See Crabtree v. Coats & Burchard Co., 7 N.C.App. 624, 173 S.E.2d 473 (1970).

The definition of "transacting business" set forth in G.S. 55-131 is, therefore, applicable to G.S. 55-144, and any cases determined under the latter statute are relevant in considering the applicability of G.S. 55-131.

There are two cases decided pursuant to G.S. 55-144, which are cited by the defendant in support of his contention that the plaintiff was transacting business within this State. In Abney Mills v. Tri-State Motor Co., 265 N.C. 61, 143 S.E.2d 235 (1965), the defendant was a foreign corporation which purchased a controlling interest in a domestic corporation. The defendant sent officers and agents to North Carolina to control and manage the internal affairs of a domestic corporation. Thereafter, plaintiff brought suit in North Carolina, issuing a summons for service on defendant pursuant to G.S. 55-144. The court noted that, although mere ownership of a domestic corporation does not constitute doing business in this State, the activity of a foreign corporation in controlling the internal affairs of a domestic corporation would constitute transacting business in this State, within the meaning of G.S. 55-144. The court remanded for further findings of fact.

In Throwing Corp. v. Deering Millikin Research Corp., 302 F.Supp. 487 (M.D.N.C.1969), the defendant was a foreign corporation which had granted licenses for its yarn manufacturing process to 23 North Carolina residents. Defendant sent auditors into North Carolina to inspect the records and books of the local licensees. The defendant had also received royalties from its local licensees. The court held that the defendant was "transacting business" within this State pursuant to G.S. 55-144 as well as G.S. 55-145(a)(1) and upheld the exercise of In personam jurisdiction over the defendant. Neither of these cases, however, considered whether the activity of the foreign corporation was "transacting business in interstate commerce" and was therefore excluded from the requirement of obtaining a Certificate of Authority pursuant to G.S. 55-131(b)(8). These cases, therefore, are not controlling on the issue of whether the plaintiff's activity constituted "interstate commerce" within the meaning of G.S. 55-131(b)(8).

We must, therefore, determine whether the activities of Snelling & Snelling, Inc. within the State of North Carolina constituted "transacting business in interstate commerce," or were intrastate activities which subjected the plaintiff to the requirements of G.S. 55-131(a). The activities of Snelling & Snelling fall into the following general categories: (1) soliciting franchise agreements and promoting the sales of its business forms, (2) the training and instruction of franchisees and the inspection of the licensees' books and records, and (3) the control exercised by Snelling & Snelling over the business methods of its licensees. We will consider each of these activities separately, since if any one of these is deemed to be Intrastate activity, the statutory exemption would not apply and plaintiff would be required to obtain a Certificate of Authority.

We note at the outset that "all interstate commerce is not sales of goods. Importation into one state from another is the indispensible element, the test, of interstate commerce; and every negotiation, contract, trade and dealing between citizens of different states, which contemplates and causes such importation, whether it be of goods, persons or information, is a transaction of interstate commerce." Butler Brothers Shoe Co. v. United States Rubber Co., 156 F. 1, 17 (8th Cir. 1907), Cert. denied, 212 U.S. 577, 29 S.Ct. 86, 53 L.Ed. 658 (1908); International Textbook Co. v. Pigg, 217 U.S. 91, 54 L.Ed. 678, 30 S.Ct. 481 (1909). Therefore, the sale of services can constitute Interstate commerce.

The plaintiff's activity included the solicitation of licensing agreements with North Carolina residents and the solicitation of sales of its products such as business forms. In the landmark decision of Eli Lilly & Co. v. Sav-on-Drugs, Inc., 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288, Reh. denied, 366 U.S. 978, 81 S.Ct. 1913, 6 L.Ed.2d 1268 (1961), the Supreme Court considered what type of business solicitation would constitute intrastate business. In Eli Lilly, the plaintiff, a foreign corporation, contracted with New Jersey wholesalers for the distribution of plaintiff's products. Plaintiff maintained an office in New Jersey, was listed in the telephone directory and maintained a staff of 18 salesmen in New Jersey. The salesmen visited retailers to encourage sales between New Jersey wholesalers and retailers, and often placed orders with wholesalers on behalf of the retailers. The Supreme Court held that the plaintiff was engaged in intrastate commerce and could be required to procure a Certificate of Authority. The holding was based upon the fact that plaintiff's salesmen were promoting dealings Between the wholesalers and retailers who were all residents of New Jersey. See Robbins v. Shelby County, 120 U.S. 489, 7 S.Ct. 592, 30 L.Ed. 694 (1887); Champion Spark Plug Co. v. T. G. Stores, Inc., 356 F.2d 462 (4th Cir. 1966); and Materials Research Corp. v. Metron, Inc., 64 N.J. 74, 312 A.2d 147 (1973).

In the case Sub judice, the plaintiff maintained no offices in this State and its salesmen solicited sales between plaintiff, a foreign corporation, and North Carolina residents. There is no evidence that plaintiff engaged in or promoted any dealings between North Carolina residents and its North Carolina franchisees. The plaintiff's solicitation of business, therefore, was interstate in nature and plaintiff cannot be required to procure a Certificate of Authority by reason of this...