Southern Machine Company v. Mohasco Industries, Inc.

• Decision Date: 20 September 1968
• Docket Number: No. 17959.,17959.
• Citation: 401 F.2d 374
• Parties: SOUTHERN MACHINE COMPANY, Inc., Plaintiff-Appellant, v. MOHASCO INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

401 F.2d 374 (1968)

SOUTHERN MACHINE COMPANY, Inc., Plaintiff-Appellant, v. MOHASCO INDUSTRIES, INC., Defendant-Appellee.

No. 17959.

United States Court of Appeals Sixth Circuit.

September 20, 1968.

COPYRIGHT MATERIAL OMITTED

Paul W. Sorrick, Jr., Chattanooga, Tenn., for appellant.

Lowry F. Kline, Chattanooga, Tenn., Jere T. Tipton, Chattanooga, Tenn., on brief; Miller, Martin, Hitching, Tipton & Lenihan, Chattanooga, Tenn., of counsel, for appellee.

Before O'SULLIVAN, CELEBREZZE and COMBS, Circuit Judges.

CELEBREZZE, Circuit Judge.

This declaratory judgment action arose out of a licensing agreement between Southern Machine Company, Inc., (hereinafter "Southern Machine") Plaintiff-Appellant, and Mohasco Industries, Inc., (hereinafter "Mohasco") Defendant-Appellee. Southern Machine brought the action in the United States District Court for the Eastern District of Tennessee pursuant to 28 U.S.C. § 2201 joining as parties defendant Mohasco and Louisa Carpet Mills, Inc., (hereinafter "Louisa"). Upon the motion of Mohasco, the District Court quashed service of process and dismissed the action as to it for lack of in personam jurisdiction. Since jurisdiction over Mohasco is indispensable for the full declaratory relief sought, Southern Machine has appealed the granting of Mohasco's motion. We reverse.

Service of process was made on Mohasco outside the State of Tennessee through the Secretary of State of Tennessee; but no question is raised concerning the adequacy of the notice or the opportunity to be heard¹ or the compliance with the service provisions of the applicable statute, T.C.A. § 20-236. The questions raised by this appeal relate solely to the power of a Tennessee court² to bind Mohasco by a judgment in personam: (1) Has the Tennessee legislature extended the jurisdictional reach of its courts to non-resident defendants in the position of Mohasco?³ (2) Can the jurisdictional reach of Tennessee courts, consistently with due process, be extended to non-residents in the position of Mohasco? The two questions merge into one if the Tennessee legislature has authorized Tennessee courts to reach to the full constitutional limits in pursuit of non-resident defendants.

In 1965 the Tennessee legislature enacted a "long arm" statute, which, among other provisions, purports to give Tennessee courts jurisdiction over nonresidents who engage in the transaction of any business in Tennessee as to "any action or claim for relief" arising out of that business transaction. T.C.A. § 20-235(a).⁴ In considering this Act, we can put to one side cases where the activities of a corporation are sufficient to justify the assumption of jurisdiction even for causes of action arising outside the forum state. Cf. Perkins v. Benquet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485 (1952). The Tennessee Long Arm Statute is a "single act" statute by which the State only purports to assume jurisdiction over causes of action arising out of the defendant's activities in the State. Since the old "doing business" statute, T.C.A. § 20-220, contains the same limitation, however, some question has been raised whether the "transaction of any business" provision of the "long arm" statute extended the jurisdiction of Tennessee courts any further than the former Act; no authoritative Tennessee State court has yet interpreted the "long arm" statute. We think it is clear that for causes of action arising out of a non-resident defendant's business activities in the State, the Tennessee legislature intended to extend the jurisdiction of Tennessee courts over a non-resident to the full extent permitted by the Fourteenth Amendment.

First, the federal district courts that have interpreted the statute have unanimously found that the statute comprehends the full jurisdiction allowable under the Fourteenth Amendment. Hamilton National Bank of Chattanooga v. Russell, 261 F.Supp. 145 (E.D.Tenn. 1966); Temco, Inc. v. General Screw Products, Inc., 261 F.Supp. 793 (M.D. Tenn.1966); Tate v. Renault, Inc., 278 F.Supp. 457 (E.D.Tenn.1967); But Cf. Fayette v. Volkswagen of America, Inc., 273 F.Supp. 323 (W.D.Tenn.1967).⁵ Second, the Tennessee Act is substantially the same as the Illinois Long Arm Statute, Ill.Rev.Stat. c. 110, § 17, which had been interpreted as extending jurisdiction to the constitutional limits long before enactment of the Tennessee statute. See Nelson v. Miller, 11 Ill.2d 378, 143 N.E.2d 673 (1957); see also Consolidated Laboratories, Inc. v. Shandon Scientific Company, Ltd., 384 F.2d 797, 800-801 (7th Cir. 1967). Third, as was well noted in Temco, Inc. v. General Screw Products, Inc., 261 F.Supp. 793 (M.D.Tenn. 1966) supra, "* * * a new statute would not have been needed had not an expanded interpretation been desired." 261 F.Supp. at 797. Finally, the Tennessee legislature specifically provided that the "long arm" statute was remedial legislation and was to be liberally construed. T.C.A. § 20-240.

Having found that the Tennessee courts are authorized to reach as far as the Constitution will permit, our sole problem is determining the limits that the Fourteenth Amendment⁶ places upon a state's extraterritorial exercise of in personam jurisdiction. In approaching that problem, a pedantic quibbling with the wording of the statute is inappropriate. The language is general and was intended to cover any business activity that has a substantial enough contact with the state to satisfy constitutional requirements.

With the issue thus narrowed, we turn to the facts of the instant case. In May, 1962, Mohasco and Southern Machine entered into a license agreement by which Southern Machine was authorized to manufacture and sell various tufting machine attachments on which Mohasco held the patent or licensing rights. The agreement contains the usual patent licensing provisions, disavowing any representation by Mohasco as to the validity and enforceability of the patents and prohibiting Southern Machine from attacking the validity of the patents, and also contains some provisions peculiar to Mohasco's licensing plan. For example, Southern Machine is not required to pay a royalty or fee for attachments made and sold in the United States; but attachments can be sold there only to parties whom Mohasco has licensed to use the attachments.⁷ On the other hand, a foreign-use royalty must be paid on attachments sold outside the United States and the Mohasco Foreign Patent Area.⁸

By the terms of the agreement, Southern Machine is required to submit comprehensive quarterly reports to Mohasco. In addition, records must be kept relating to any sale, lease or loan of attachments, and the records are to be open to inspection by Mohasco for the purpose of verifying the accuracy of Southern Machine's reports and foreign-use royalty payments. The agreement also requires Southern Machine to obtain certain covenants from any purchaser, lessee or borrower of an attachment and requires that a specific notification plate be affixed to every attachment that is manufactured by Southern Machine. The agreement is to remain in force until January 2, 1978, unless sooner terminated.

Affidavits submitted by officers of the two corporations are in conflict concerning the nature of the negotiations leading to the execution of the agreement. But the assertion is uncontested that at the time the agreement was executed Southern Machine, a Tennessee corporation, had only one manufacturing plant, which was located in Chattanooga, Tennessee. Southern Machine says that the negotiations were primarily by long distance telephone between Tennessee and New York, while Mohasco contends that the negotiations occurred at its office in Amsterdam, New York in March, 1962. In any event, the agreement provides that it is to be construed as having been made in New York and in accordance with the law of New York; and both parties acknowledge that the agreement was drawn up by Mohasco, signed by Southern Machine in Chattanooga, and then finally executed by Mohasco in New York.

The record is not very well developed concerning the extent of performance under the contract by either party. What expenses Southern Machine incurred in altering its machinery and production schedules to produce the tufting machine attachments and what expenses it has incurred in marketing the attachments are not indicated in the record. Southern Machine asserts, however, that two Mohasco representatives came to Chattanooga to inspect the plant facilities and to explain how the attachments were to be built; but Mohasco denies that any of its agents have been in Tennessee on any matter relating to the licensing agreement. The record does show, however, that E'Con Carpet Mills, Inc, a Tennessee corporation located in Chattanooga, has been licensed by Mohasco to use an attachment produced by Southern Machine under this licensing agreement and that the Singer Company, Cobble Division, which is located in Chattanooga, is also manufacturing tufting machine attachments under some arrangement with Mohasco.

Although Mohasco is a New York corporation with its principal offices in Amsterdam, New York, it has divisions located in other states. Nevertheless, Mohasco has no office and neither owns nor leases any property in Tennessee. Nor has Mohasco qualified to do business in Tennessee or appointed the Secretary of State of Tennessee or any other person as agent for the service of process in that State. On the other hand, Mohasco has apparently managed to derive a profit from the commerce of Tennessee. A regional sales representative calls about six times a year on an independent Memphis distributor of Mohawk products. Also three salesmen, one of whom is a resident of Tennessee, solicit orders from retailers in the State; and one of Mohasco's divisions solicits orders by mail in the State. All orders from Tennessee, however, from whatever source, are mailed to the New York office for acceptance or rejection there,...