Worcester Felt Pad Corp. v. Tucson Airport Authority, 14462.

• Decision Date: 03 May 1956
• Docket Number: No. 14462.,14462.
• Parties: WORCESTER FELT PAD CORPORATION, Appellant, v. TUCSON AIRPORT AUTHORITY, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

233 F.2d 44 (1956)

WORCESTER FELT PAD CORPORATION, Appellant, v. TUCSON AIRPORT AUTHORITY, Appellee.

No. 14462.

United States Court of Appeals Ninth Circuit.

February 23, 1956.

As Amended on Denial of Rehearing May 3, 1956.

COPYRIGHT MATERIAL OMITTED

A. S. Cutler, New York City, C. Wayne Clampitt, Tucson, Ariz., for appellant.

Boyle, Bilby, Thompson & Shoenhair, James P. Boyle, B. G. Thompson, Richard B. Evans, Tucson, Ariz., for appellees.

Before POPE and FEE, Circuit Judges, and JAMES M. CARTER, District Judge.

JAMES M. CARTER, District Judge.

The questions presented by this appeal are: (1) Whether a foreign corporation, organized to do a manufacturing business, may lawfully lease property in Arizona without first complying with the laws of Arizona imposing certain conditions, requirements and restrictions upon foreign corporations "before entering upon, doing, or transacting any business, enterprise or occupation" in the state; and (2) Whether at the trial there was introduced sufficient evidence of fraud to present a question for the jury.

Appellant, Worcester Felt Pad Corporation, hereafter referred to as Worcester, is a Massachusetts corporation organized for the purpose of manufacturing household items. Appellee, Tucson Airport Authority, hereafter referred to as Tucson, is an Arizona corporation. The case arises under the diversity jurisdiction of the district court.

In March of 1949, Worcester and Tucson entered into a lease, wherein Tucson agreed to lease certain airport premises to Worcester for three years at a rental of $100 per month, with an option in Worcester "to extend this lease for a further period of three years upon the same terms" and a further option to extend the same for two subsequent three year periods, provided the preceding options were exercised. The lease, furthermore included a right of Worcester to sublet; and a right of recapture or termination by either party in the event of federal, state or local government action during national emergency "depriving either the lessee or lessor of normal enjoyment" of the property. The evidence is in conflict as to whether at the time the lease was executed, Worcester intended to operate a branch plant at the Tucson location, or to sub-lease the premises to its subsidiary or others.

In the latter part of March 1949, Worcester began moving machinery to the Tucson Airport and shortly thereafter manufacturing household items at the Tucson location. Such operation continued until October 1951, at which time Worcester received a letter from Schmidt, General Manager of Tucson, dated October 18, 1951. The letter expressly directed attention to the recapture clause of the lease and informed Worcester that Tucson had been advised "* * * by the Officer-In-Charge, Air Force Plant Office, Grand Central Aircraft Company, Glendale Region, Western Air Procurement District, that the Federal Government requires the use * * *" of the space then being occupied by Worcester; and further stated that the "* * * request has been verified by the Chief, Airport Division, Civil Aeronautics Administration, Los Angeles, by a communication dated October 9, 1951, as an action consistent with the demands of the national emergency and one which constitutes an exercise of proper authority for the use of said space." Allegedly, in belief that the lease was being validly terminated under the recapture clause, aforementioned, Worcester vacated the premises.

In April 1952, Worcester filed suit in the district court against Tucson, alleging that Tucson had fraudulently terminated the lease; that in truth and in fact the Federal Government had not required the leased premises which Tucson well knew, but that the premises were to be leased to a civilian private concern, Grand Central Aircraft Company, at an increased rental, as Tucson well knew.

During the course of the trial, before a jury, Tucson was allowed to amend its answer to assert that Worcester had not complied with the laws of Arizona pertaining to foreign corporations doing business within the state, and that the lease was therefore void. Tucson then offered proof of noncompliance by Worcester with such laws.

At the close of the case, after both sides had completed the presentation of their evidence, Tucson moved for a directed verdict on the grounds, (1) that Worcester had failed to prove fraud, (2) that no constructive eviction had been proved, and (3) that Worcester had never qualified to do business under the Arizona statutes, and that therefore the lease was void. The motion for a directed verdict was granted on the last ground stated. The court instructed a verdict for Tucson. It was returned by the jury and judgment entered thereon.

Was the Lease Void under the Arizona Statutes?

Tucson contended, and the court held the lease to be void for Worcester's failure to comply with Sections 53-801 and 53-802, Arizona Code Annotated 1939 A.R.S. §§ 10-481, 10-482, providing:

Sec. 53-801, "Any foreign corporation, before entering upon, doing, or transacting any business, enterprise, or occupation, in this state shall; * * *" file a copy of its articles with the corporation commission, publish its articles, appoint a statutory agent in counties in which it intends to do business, pay a license fee "and obtain from said corporation commission a license to do business in this state. * * *"

Sec. 53-802, "No foreign corporation shall transact any business in this state until it has complied with the requirements of the preceding section, and every act done by said corporation prior thereto shall be void."

Worcester contends that the act of entering the lease was incidental, or at most preliminary to "entering upon, doing, or transacting" business in the state, and not an act covered by the statute. Conversely Tucson contends that Section 53-802 of Arizona Code Ann. 1939 is unequivocal in declaring "every act" done by a foreign corporation before complying with Section 53-801 of Arizona Code Ann.1939, is void.

In a diversity action, as here, the Federal court sits as "another court of the State," Guaranty Trust Co. of N. Y. v. York, 1945, 326 U.S. 99, 108, 65 S. Ct. 1464, 1469, 89 L.Ed. 2079, and the validity of the lease is governed by the Arizona statute as construed by the courts of Arizona. Metropolitan Life Ins. Co. v. Kane, 7 Cir., 1941, 117 F.2d 398, 133 A.L.R. 1163; Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188.

The "doing business" statute first appeared in the Arizona Code of 1901. It was amended by the Code of 1913. There have been seven instances in which these statutes were considered by the Arizona courts. One other case arose under the Code of 1939.

McKee v. Stewart Land & Livestock Co., 1925, 28 Ariz. 511, 238 P. 326, at page 327, summarized the holdings to the date of that case,

"* * * We have held in four different cases `that to come within the statute a corporation must be engaged in an enterprise of some permanence and durability and must transact within the state some substantial part of its ordinary business, and not merely a single act.\' Monaghan & Murphy Bank v. Davis 1925, 27 Ariz. 532 234 P. 818; Nicolai v. Sugarman Iron & Metal Co. 1922 23 Ariz. 230, 202 P. 1075; Martin v. Bankers\' Trust Co. 1916 18 Ariz. 55, 156 P. 87, Ann.Cas.1918E, 1240; Babbitt v. Field, 1890 6 Ariz. 6, 52 P. 775. * * * Of the cases cited, two were decided under the Code of 1901 and two under the Code of 1913. We do not feel that the amendment, which consisted merely of adding to the words `carry on\' the words `do or transact,\' changes the law so as to prohibit a single act. All of the words quoted are governed by the words `business, enterprise or occupation.\'"

Woodward v. Fox West Coast Theaters, 1930, 36 Ariz. 251, 284 P. 350, indicated no contrary view and National Union Indemnity Co. v. Bruce Bros., 1934, 44 Ariz. 454, 38 P.2d 648, at page 651, reiterated the substance of the statement from McKee v. Stewart Land & Livestock Co., supra. In Jamison v. Franklin Life Ins. Co., 1943, 60 Ariz. 308, 136 P.2d 265, there was involved the statute with amendments as it stood in 1949, the date of the inception of the case at bar. The court relied on the Woodward v. Fox West Coast Theaters case, supra, decided under the provisions of the Arizona Code of 1913.

We have examined the statute from the Arizona Code of 1939, Secs. 53-801 and 53-802, above quoted and find only a recasting of language and no substantial change in meaning from the provisions of the Arizona Code of 1913.¹

As McKee v. Stewart Land & Livestock Co., supra, said of the words "carry on," "`do or transact'" from the earlier statutes, "all the words quoted are governed by the words `business, enterprise or occupation'", 238 P. at page 327, so the words "entering upon, doing, or transacting" from the 1939 Code are governed by the same words, "business, enterprise, or occupation."

It will be noted that Sec. 53-801 Arizona Code Annotated 1939, provides that the foreign corporation "before entering upon, doing, or transacting any business, enterprise, or occupation, in this state shall * * * obtain from said corporation commission a license to do business in this state." The words "any business, enterprise, or occupation" do not refer to single act, but instead to a plurality of acts. The license requirement would indicate that the intent of the legislature was directed toward "doing business." A close reading of Sec. 53-802 Arizona Code Annotated, 1939, indicates the same intent. Further support is found in Monaghan & Murphy Bank v. Davis, 1925, 27 Ariz. 532, 234 P. 818. There the plaintiff, a foreign corporation, did the single act of loaning money in Arizona and the court said, 234 P. at page 819, "defendant was therefore required to prove a general course of loaning money by plaintiff in Arizona * * *" to sustain a defense under the statute.

The power of a state to impose terms upon which a foreign...