Westcott-Alexander, Incorporated v. Dailey

• Decision Date: 11 March 1959
• Docket Number: No. 7788.,7788.
• Parties: WESTCOTT-ALEXANDER, INCORPORATED, also known as Percoflash Manufacturing Corporation, Appellant and Cross-Appellee, v. Robert J. DAILEY, Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

264 F.2d 853 (1959)

WESTCOTT-ALEXANDER, INCORPORATED, also known as Percoflash Manufacturing Corporation, Appellant and Cross-Appellee, v. Robert J. DAILEY, Appellee and Cross-Appellant.

No. 7788.

United States Court of Appeals Fourth Circuit.

Argued January 21, 1959.

Decided March 11, 1959.

COPYRIGHT MATERIAL OMITTED

Edward E. Lane, Richmond, Va. (Lane, Rogers & Paul, Richmond, Va., on brief), for appellee and cross-appellant.

Robert Cantor, Richmond, Va. (Cantor, McMullan & Cantor, Richmond, Va., on brief), for appellant and cross-appellee.

Before SOBELOFF, Chief Judge, HAYNSWORTH, Circuit Judge, and PAUL, District Judge.

HAYNSWORTH, Circuit Judge.

The defendant, a New Jersey corporation having its principal office and plants in that state and never having been domesticated in Virginia, challenges the jurisdiction of the District Court to render judgment in personam against it. Since the controversy arose out of the defendant's substantial and continuous activity in Virginia, we think the assertion of jurisdiction was neither unconstitutional nor beyond the reach of the governing laws of Virginia.

The defendant, Westcott-Alexander, Incorporated, manufactures and sells boilers, radiators and auxiliary equipment for heating houses and buildings. It had maintained an agent in Richmond, one Mark Carmen, whose primary duty was the solicitation of business. He was paid $50.00 per week, classified by Westcott-Alexander as an expense allowance from which it made none of the deductions generally required to be made from wages, but which was sometimes described in the testimony as a salary. He also received a commission upon all of Westcott-Alexander's sales to purchasers in Virginia. No stock of goods was maintained in Virginia, and Carmen operated out of his home. He was supplied by Westcott-Alexander with business cards, bearing the trade-mark of that company, upon which appeared Carmen's name, the address of his home and his residential telephone number.

Central heating systems must be planned and designed for each different application, and Westcott-Alexander offered its prospective customers its service in the development of layouts, specifications and plans. When time permitted, Carmen would send architectural drawings, or other data, to Westcott-Alexander in New Jersey, where an engineering staff would make the necessary heat-loss computations, develop specifications and prepare drawings for the heating system which would be returned through Carmen to the prospective customer. When haste was required, Carmen, himself, made the heat-loss computations, developed specifications, and, upon occasion, procured drafting assistance in Virginia to complete working drawings.

Apparently Carmen was not authorized to approve credits, and Westcott-Alexander says he was not authorized to make contracts. It is clear that he was required to consult the home office before making a special price upon large orders, but, inferentially, in his employment letter, he appears to have been authorized to make firm bids on Westcott-Alexander's established terms.

The circumstances out of which the controversy arose are important to the resolution of the question.

Carmen called upon the plaintiff, Dailey, a housebuilder, urging him to use Westcott-Alexander's equipment and their hot water system instead of the hot air system previously contemplated for fifteen new houses Dailey was then constructing. Dailey was interested, but unfamiliar with the installation and operation of hot water systems for heating residences and providing domestic hot water. Carmen gave him a price quotation which was competitive and introduced to him a plumber, Walker, who was experienced in the installation of Westcott-Alexander's heating systems. Dailey wanted the houses approved for financing through the Veterans' Administration and was in haste to apply for such approval. Since heating diagrams and specifications were a requisite part of the application, Carmen undertook promptly to supply them. From sets of plans of the houses, Carmen took off the data to make the necessary calculations of heat loss, determine the requisite radiation for each room, boiler capacity and other detail, and, with the assistance of a friend employing draftsman,¹ produced drawings which Dailey used in his application to the Veterans' Administration for approval of the construction plans. The heating plans were subsequently submitted to the engineering staff of Westcott-Alexander at its home office; with inconsequential changes, they approved the plans.

During the progress of the work, Carmen stopped by on frequent occasions, not, he said, to supervise the work, but to show his appreciation for Dailey's order. On, at least one occasion, however, he did point out a fault in the installation and suggested its correction. The heating installation was done by Walker, whom Carmen had introduced to Dailey, and everything seems to have been happy until the onset of cold weather.

In November, the purchasers of the first houses completed began to complain, and Dailey complained to Westcott-Alexander, that the designed system was inadequate to provide the required heat differential or a sufficient supply of domestic hot water. Westcott-Alexander, on successive occasions, sent its officers and others to inspect the systems, found fault with the installation and the controls and undertook to correct the deficiencies. There was abundant testimony, however, that the shortcomings in performance were attributable to the fact that the boilers specified and supplied were of insufficient capacity, that Westcott-Alexander's modifications of the installation failed to improve performance and that substitution of boilers of larger capacity remedied the deficiency.

This action for damages for breach of warranty was commenced by Dailey in the state court. Substituted service was had by service upon the Secretary of the Commonwealth of Virginia. The case was removed to the District Court for the Eastern District of Virginia. A motion to dismiss which questioned the jurisdiction and the sufficiency of the service was overruled, and judgment was entered in favor of Dailey for the direct cost incurred by him in changing the heating systems. Claimed items of indirect expense were disallowed.

We have travelled far since Mr. Chief Justice Taney delivered his famous dictum that "a corporation can have no legal existence out of the boundaries of the sovereignty by which it is created," and found it necessary to resort to principles of comity in order to sustain its right to enforce a foreign bill of exchange it had purchased.² As the nation grew and new and swifter methods of communication came into use, business increasingly overlapped state boundaries, and corporate forms of organization became increasingly appropriate for business. Recognition of new, more appropriate, legal concepts traditionally lags behind lay acceptance of economic innovation, but legislatures and courts soon evolved means to legalize the corporate conduct of multi-state businesses, and to subject a corporation to process in each state in which it did business. See St. Clair v. Cox, 106 U.S. 350, 1 S.Ct. 354, 27 L.Ed. 222. The consent, sometimes fictional, by means of which a corporation organized under the laws of one state was held amenable to process in another³ gave way to an indefinite concept of presence, comparable, but far from identical, to the presence of an individual defendant which was the traditional basis of the exertion of the power of the state. That notion, too, has been supplanted in the application of the limitations of the United States Constitution by a more direct and immediate approach to the question of fairness, which arises under the Fourteenth Amendment and which, alone, seems relevant and material. International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95.

The earlier use of legal fictions, however, inevitably tortured thought and bred confusion. Consideration of the jurisdictional question was further complicated by the fact that many of the state statutes defined the limits of jurisdictional power in terms of corporations "doing business" within the state while other statutes of the same state imposed requirements of domestication, taxes, restraints and penalties in the same, or similar, language. Not unnaturally, such similarity of language provoked the thought, now, happily, largely exploded, that the dissimilar statutes were conterminous. Judge Learned Hand, who long ago saw the problem in what has since become the perspective of modern thought, was moved in 1930 to say sadly his frequently quoted words, "It is quite impossible to establish any rule from the decided cases; we must step from tuft to tuft across the morass."⁴

Still the confusion persists, and that spawned by Green v. Chicago, Burlington, & Quincy Railway Co., 205 U.S. 530, 27 S.Ct. 595, 51 L.Ed. 916, still leads to contentions, such as here asserted, that the commerce clause of the United States Constitution⁵ grants a privilege to foreign corporations to enter a state and there continuously and extensively solicit orders for shipment of goods from other states with immunity from local accountability in causes of action growing out of the sales activity within that state. What the commerce clause has to do with the question of procedural due process is not elucidated,⁶ but reference is made to countless cases in which it is declared that "mere solicitation" of orders, without more, is insufficient to subject a foreign corporation to process in the state where the solicitation occurs. The distinction between solicitation and other, frequently far less important, activity may have validity in the context of questions of the extent of the power of the state to tax, regulate and penalize,⁷ but if it bears upon the question of jurisdiction to hold the corporation answerable in causes of action...