Szantay v. Beech Aircraft Corporation

• Decision Date: 01 July 1965
• Docket Number: No. 9927-9929.,9927-9929.
• Citation: 349 F.2d 60
• Parties: Marie L. SZANTAY, ancillary administratrix c.t.a. of the Estate of Elmer D. Szantay, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant. Ova N. WEIGER, Mother of S. Wayne Weiger, Deceased, for her use and benefit and for the use and benefit of Merle Weiger, brother of the Deceased S. Wayne Weiger, Ruby C. Weiger Ewing and Winona W. Weiger Sausser, sisters of the Deceased S. Wayne Weiger, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant. Margaret CLEMENS, Surviving Widow of James J. Clemens, Deceased, for her use and benefit and for the use and benefit of John R. Clemens, James B. Clemens, Brian P. Clemens, and Margaret M. Clemens, surviving minor children of James J. Clemens, Deceased, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

349 F.2d 60 (1965)

Marie L. SZANTAY, ancillary administratrix c.t.a. of the Estate of Elmer D. Szantay, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant.

Ova N. WEIGER, Mother of S. Wayne Weiger, Deceased, for her use and benefit and for the use and benefit of Merle Weiger, brother of the Deceased S. Wayne Weiger, Ruby C. Weiger Ewing and Winona W. Weiger Sausser, sisters of the Deceased S. Wayne Weiger, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant.

Margaret CLEMENS, Surviving Widow of James J. Clemens, Deceased, for her use and benefit and for the use and benefit of John R. Clemens, James B. Clemens, Brian P. Clemens, and Margaret M. Clemens, surviving minor children of James J. Clemens, Deceased, Appellee, v. BEECH AIRCRAFT CORPORATION, Appellant.

Nos. 9927-9929.

United States Court of Appeals Fourth Circuit.

Argued May 31, 1965.

Decided July 1, 1965.

COPYRIGHT MATERIAL OMITTED

E. W. Mullins, Columbia, S. C. (Nelson, Mullins, Grier & Scarborough, Columbia, S. C., on the brief), for appellant.

David W. Robinson, II, Columbia, S. C. (Robinson, McFadden & Moore, and Henry Hammer, Columbia, S. C., on the brief), for appellees.

Before SOBELOFF and J. SPENCER BELL, Circuit Judges, and BARKSDALE, District Judge.

SOBELOFF, Circuit Judge.

These are interlocutory appeals, pursuant to 28 U.S.C.A. § 1292(b). Beech Aircraft Corporation appeals from the denial of its motion to quash the service of process made upon it and to dismiss the complaints for want of jurisdiction.

The complaints alleged that Elmer Szantay purchased a Beech aircraft in Nebraska and flew it to Miami, Florida, and thence to Columbia, South Carolina, where he arrived on the evening of March 31, 1962. During the stopover the plane was serviced by the Dixie Aviation Co., a South Carolina corporation. Szantay and his passengers left Columbia the next morning bound for Chicago but the plane travelled only as far as Tennessee where it crashed, killing all of its occupants.

Companion wrongful death actions were brought by the personal representatives of the victims, all citizens of Illinois, against Dixie and Beech in the United States District Court for the Eastern District of South Carolina. The complaints charged that the deaths were caused by Beech's negligent manufacture and design of the aircraft, and Dixie's negligent servicing.

Beech is incorporated under the laws of Delaware and has its principal place of business in Kansas. The District Judge found that Beech had sufficient contacts with South Carolina through its local dealer to permit service on it under South Carolina law pursuant to Rule 4(d) (7), Fed.R.Civ.P. The evidence amply justifies the ruling.

Service of process was undertaken pursuant to section 10-423, Code of Laws of South Carolina (1962), which provides that effective service may be obtained on a foreign corporation by serving "* * * any * * * agent thereof" in South Carolina. We affirm the District Court's holding, 237 F.Supp. 393, that the extensive control and supervision exercised by Beech over its dealer, by reason of which Beech is deemed to have had sufficient contacts with South Carolina, is sufficient to constitute that dealer the agent of Beech for service of process.¹

The plaintiffs being citizens of Illinois, the defendant Beech being a corporation of Delaware and Dixie of South Carolina, and the amount in controversy exceeding $10,000, all the prerequisites of federal diversity jurisdiction specified in the Constitution and implementing legislation² are satisfied. It is conceded that all federal venue requirements are satisfied.³

Beech, however, moved for dismissal on the ground that a federal diversity court sitting in South Carolina lacks jurisdiction over Beech because of South Carolina's "door-closing" statute, section 10-214, Code of Laws of South Carolina (1962). That statute provides that:

"An action against a corporation created by or under the laws of any other state, government or country may be brought in the circuit court: (1) By any resident of this State for any cause of action; or (2) By a plaintiff not a resident of this State when the cause of action shall have arisen or the subject of the action shall be situated within this State."

It is conceded that South Carolina state courts do not have jurisdiction over a suit brought by a nonresident against a foreign corporation on a foreign cause of action. The principal question posed is whether this state rule restricts the jurisdiction of the federal courts in South Carolina in diversity cases.

For many years it was generally understood that federal jurisdiction was not affected by state statutes limiting the jurisdiction of their own courts.⁴ In recent years, however, this absolute approach has been modified. The change may be said to have begun with Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), when the Supreme Court decided that in diversity cases federal courts must apply state substantive law, decisional as well as statutory, in the adjudication of state-created rights. This doctrine was later expanded when the Court held that state law must be applied whenever such application would give rise to a different result, the so-called "outcome-determinative" rule. Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). The formulation of this test was shortly followed by two cases of particular relevance to the issue before us.

In 1947 the Court held that a Virginia plaintiff could not sue a North Carolina defendant for a deficiency judgment in a North Carolina federal court because of North Carolina's express statutory policy against such actions. Angel v. Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832 (1947). Two years later it held that a Tennessee corporate plaintiff could not sue a Mississippi defendant on a Mississippi cause of action in a Mississippi federal court when that state would not allow the corporation to sue in its courts because of its failure to register as a foreign corporation doing business there. Woods v. Interstate Realty Co., 337 U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524 (1949). The opinion declared that a federal court cannot enforce a state-created right when that state provides no remedy.

A decade later in a case arising in this circuit, the Supreme Court reconsidered the meaning of Erie and refined the "outcome-determinative" test. The Court was called upon to decide the effect to be given to a South Carolina procedural requirement that the judge, rather than the jury, shall determine whether a defendant employer is entitled to the immunity from suit conferred by the South Carolina Workmen's Compensation Act. Such a procedure was in conflict with the federal practice allocating the function of determining such issues to the jury. The Court held that a state procedural rule must be followed if it is bound up with the state-created rights and obligations; but if it is a mere form or mode of enforcing rights its application by a federal diversity court will hinge on a broader inquiry. The federal court should conform in such cases, "as near as may be — in the absence of other considerations — to state rules" when they may substantially affect the outcome of the litigation. Byrd v. Blue Ridge Cooperative, 356 U.S. 525, 536, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958). The spirit of these decisions makes it appropriate for a court attempting to resolve a federal-state conflict in a diversity case to undertake the following analysis:

1. If the state provision, whether legislatively adopted or judicially declared, is the substantive right or obligation at issue, it is constitutionally controlling.

2. If the state provision is a procedure intimately bound up with the state right or obligation, it is likewise constitutionally controlling.⁵

3. If the state procedural provision is not intimately bound up with the right being enforced but its application would substantially affect the outcome of the litigation, the federal diversity court must still apply it unless there are affirmative countervailing federal considerations. This is not deemed a constitutional requirement but one dictated by comity.

A like test was recently applied in Arrowsmith v. United Press International, 320 F.2d 219 (2d Cir. 1963). There the court was concerned with the extent to which state or federal rules should control in the service of process on foreign corporations in diversity cases. The Second Circuit, speaking through Judge Friendly, decided first that the state service of process statute was not substantive, nor was it a procedure intimately bound up with the state right being enforced. The decision implied that this exhausted the constitutionally compulsive aspects of the Erie doctrine. The court then ruled that state procedure should be adopted in that case because there were no affirmative countervailing federal considerations. Judge Clark agreed that the constitutionally compulsive aspects of Erie were not there controlling but he dissented upon his view that a countervailing federal policy did exist. Supra, 320 F.2d at 242.

In the case before us the parties are in agreement that the South Carolina "door-closing" statute is procedural. And, as the right asserted is one arising under the laws of Tennessee, it cannot be contended that the South Carolina rule is intimately bound up with that right. It follows from this that the constitutional compulsions of the Erie doctrine are not applicable here.

The conclusion is fortified by the recent decision in Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (April 26, 1965). There it is pointed out that the "outcome-determinative" and "forum-shopping" concepts are intended to prevent an "inequitable administration of the laws" working unfair discrimination against citizens of the forum state. Since the citizen is limited to the law as applied by the state court when he sues another citizen of his state or when he is sued by...