Coyle, William F.

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Villanova University School of Law: Digital Repository

Volume 7 Issue 1 Article 4 1961 Civil Procedure - Federal Jurisidiction - Federal Test of Doing Business Determines Corporate Amenability to Service of Process in Federal Cause of Action William F. Coyle Follow this and additional works at: https://digitalcommons.law.villanova.edu/vlr  Part of the Civil Procedure Commons, and the Jurisdiction Commons Recommended Citation William F. Coyle, Civil Procedure - Federal Jurisidiction - Federal Test of Doing Business Determines Corporate Amenability to Service of Process in Federal Cause of Action, 7 Vill. L. Rev. 117 (1961). Available at: https://digitalcommons.law.villanova.edu/vlr/vol7/iss1/4 This Note is brought to you for free and open access by Villanova University Charles Widger School of Law Digital Repository. It has been accepted for inclusion in Villanova Law Review by an authorized editor of Villanova University Charles Widger School of Law Digital Repository. FALL 1961]CASE NOTESCIVIL PROCEDURE-FEDERAL JURISDICTION-FEDERAL TEST OF"DOING BUSINESS" DETERMINES CORPORATE AMENABILITYTO SERVICE OF PROCESS IN FEDERAL CAUSE OF ACTION.Goldberg v. Mutual Readers League, Inc. (E.D. Pa. 1961).Defendants, Mutual Readers League, Incorporated and Saul Schenker,were charged with violating certain provisions of the Fair Labor Stand-ards Act.' Jurisdiction over the subject matter of this action is conferredupon the United States District Courts by Section 17 of the Act.2 Con-tending that as a foreign corporation it was not subject to the jurisdictionof the district court, defendant corporation moved to dismiss the govern-ment's complaint. Defendant corporation, although operating principally inDes Moines, Iowa, was incorporated in the state of Delaware. It wasengaged in the business of selling subscriptions to various magazinesthrough "contract-dealers" in numerous states. Defendant Schenkerrepresented the corporation as contract-dealer in Pennsylvania under anagreement designating him as "independent contractor." In spite of thisdescription, the court found that the defendant corporation exercised ahigh degree of control over Schenker and his employees. 3 The governmentcontended that defendant Schenker was defendant corporation's agent,that the former activities constituted "doing business" in Pennsylvania,and that therefore defendant corporation was subject to the personaljurisdiction of the federal district court. The United States District Courtfor the Eastern District of Pennsylvania, in denying defendant corpora-tion's motion to dismiss, held that defendant corporation's contacts in thatdistrict were sufficient to subject it to the jurisdiction of the court.Goldberg v. Mutual Readers League, Inc., 195 F. Supp. 778 (E.D. Pa.1961).There are neither rules nor statutes to which the federal district courtsmay resort to determine when foreign corporations are amenable to serviceof process so that in personam jurisdiction may be had over them ineither diversity or non-diversity suits. 4 In the instant case, violation1. 29 U.S.C. §§ 201 to 219 (1958).2. 29 U.S.C. § 217 (1958).3. The court found that Schenker could deal only in those magazines representedby the defendant corporation. The corporation, moreover, had the right to setterms and conditions of sale and to inspect Schenker's books at any time. Schnekeralso had to meet -certain sales quotas and to remit forty per cent of his proceedsto the corporation three times weekly. Goldberg v. Mutual Readers League, Inc.,195 F. Supp. 778 (E.D. Pa. 1961).4. Individuals and corporations within the geographic boundaries of the statein which the district court sits are amenable to service of process. FPD. R. Crv.(117)1Coyle: Civil Procedure - Federal Jurisidiction - Federal Test of Doing BPublished by Villanova University Charles Widger School of Law Digital Repository, 1961VILLANOVA LAW REVIEWof a federal statute was the basis of the litigation, and the Fair LaborStandards Act granted the federal district court jurisdiction over thesubject matter of the case. 5 This was not a diversity situation. In thosecases which arise in the federal courts solely on the basis of diversity ofcitizenship, state law has been applied by some courts to determine thevalidity of the federal court's jurisdiction over the person of the foreigncorporate defendant.6 However, it is interesting to note that the circuitcourts of appeals are not in harmony on the issue of whether state lawshould be determinative of a federal court's jurisdiction even in diversitycases.' The doctrine of Erie R.R. v. Tompkinss is the basis of the rationaleemployed by those courts which use state law to establish whether, indiversity situations, a corporation may be subjected to the jurisdiction ofa particular federal district court. Accordingly, those tribunals applythe state test to see if the corporation was "doing business" so as to renderit amenable to service of process within the state. A United StatesDistrict Court sitting in Michigan in diversity formulated the view thatfederal law should be applied to determine whether a foreign corporation isdoing business in the district so as to be subject to service of process,when a federally-created right is asserted in a federal court. The samecourt maintained that state law governs when a state-created right isasserted in a federal court whose jurisdiction over the parties is based ondiversity of citizenship. 9 In the latter case, the additional problem offourteenth amendment due process restrictions must be dealt with, whereasfederal rules on territorial reach of service of process are subject only tocongressional policy.10P. 4 (F). Since a corporation has not the physical properties of a natural person,certain criteria have had to be developed in order to determine whether thecorporation is within these boundaries.5. 29 U.S.C. § 217 (1958).6. Pulson v. Am. Rolling Mill Co., 170 F.2d 193 (1st Cir. 1948); Nichols v.Cowles Magazines, Inc., 103 F. Supp. 864 (D. Mass. 1952).7. For a state test: Partin v. Michael Art Bronze Co., 202 F.2d 541 (3d Cir.1953); Benjamin v. Robbins Air Rifle Co., 209 F.2d 173 (5th Cir. 1954); CanvasFabricators v. Wm. E. Hoopes Sons Co., 199 F.2d 485 (7th Cir. 1952). For afederal test: Franch v. Gibbs Corp., 189 F.2d 787 (2d Cir. 1951) ; Lasky v.Norfolk W. Ry., 157 F.2d 674 (6th Cir. 1946).8. 304 U.S. 64, 58 S. Ct. 817 (1938). In determining whether the federaldistrict court sitting in a diversity action should apply the substantive law ofPennsylvania, the court looked to the very purpose of diversity of citizenshipjurisdiction, that is, the prevention of discrimination in state courts against thosewho are not citizens of the state. The idea that the federal district court in diversityis an adjunct state court has pervaded the atmosphere of a long line of diversitycases since Erie. In Guaranty Trust Co. v. York, 326 U.S. 99, 65 S. Ct. 1464(1945), the court held that Erie stressed the intention to insure that, in diversity ofcitizenship jurisdiction cases, the outcome of the litigation in the federal court shouldbe the same, so far as legal rules are determinative of the outcome, as it would beif tried in a state court.9. Singleton v. Atlantic Coast Line R.R., 20 F. R. D. 15 (E.D. Mich. 1956).See Federal and State Precedents on Doing Business: Jurisdiction over ForeignCorporations Under Erie, 67 YALx L.J. 1094 (1958).10. Jaftex v. Randolph Mills, 282 F.2d 508 (2d Cir. 1960). But congressionalaction must conform to the due process requirements of the Fifth Amendment.[VOL. 72Villanova Law Review, Vol. 7, Iss. 1 [1961], Art. 4https://digitalcommons.law.villanova.edu/vlr/vol7/iss1/4CASE NOTESCases decided by federal courts holding that foreign corporationswere or were not "doing business" under a state test, do not furnishany "federal law" on the issue of a federal court's jurisdiction overa foreign corporation in a suit arising under a federal statute. Tech-nically, International Shoe Co. v. Washington" and McGee v. Inter-national Life Ins. Co.,' 2 leading cases in the area of state jurisdictionyield no federal jurisdictional law relative to what constitutes "doing busi-ness". They established the limits to which a state might go in exercisingjurisdiction over foreign corporations and yet stop short of violating thedue process clause of the fourteenth amendment. Limitations on thejurisdiction of federal district courts over foreign corporations in non-diversity cases have never been clearly defined. Apparently these cases mustbe decided by looking to an undefined corpus of "federal law". Despite theshadows of doubt which shroud the applicability of the International Shoerule to federal jurisdictional problems, one federal court applied thatformula in a case in which the jurisdiction of the federal court wasfounded upon federal law. 13 In another action in a federal court, foundednot on diversity but on trademark infringement,' 4 the court looked toInternational Shoe and said ". . . the rule as the Supreme Court has de-fined it, seems clear that the defendant must have certain minimumcontacts within the territory of the forum of such character that the maint e-nance of the suit does not offend traditional ideas of fair play and sub-stantial justice."' 5The phrase "doing business" in the federal venue statute 6 has beena source of great consternation in determining jurisdiction over non-resident corporations. The confusion stems from the failure of thecourts to distinguish between jurisdiction over the corporation and venue.' 7However, those courts sensitive to the distinction often assume that "doingbusiness" for jurisdictional purposes is no different than "doing business"for venue. 8 As one possible solution to the dilemma, one writer suggeststhe use of federal "doing business" precedents for jurisdiction in order tocircumvent possible confusion created by one uniform federal venue11. 326 U.S. 310, 66 S. Ct. 154 (1945). There the corporation maintained nooffice in the state, nor did it have any stock of merchandise there, but the courtfound that the solicitation of orders by the corporation's salesmen in the state, andthe shipping of the goods into the state were so regular and systematic as to con-stitute doing business in the state.12. 355 U.S. 220, 78 S. Ct. 199 (1957). A single insurance contract mailedinto the state of California by the foreign corporation established a substantialconnection with the state sufficient to confer jurisdiction on the state's courts.13. Lone Star Package Car Co. v. Baltimore O.R., 212 F.2d 147 (5th Cir. 1954).The court stated that the broad policy statements of the International Shoe particu-larly extend to cases in which the jurisdiction of the federal court is dependent uponfederal law.14. Consolidated Cosmetics v. D. A. Publishing Co., 186 F.2d 906 (7th Cir.1951).15. Id. at 907.16. 28 U.S.C. § 1391(c) (1952).17. Cooke v. Kilgore Mfg. Co., 105 F. Supp. 733 (N.D. Ohio 1952).18. Ronson Art Metal Works, Inc. v. Brown & Bigelow, Inc., 104 F. Supp. 716,724 (S.D.N.Y. 1952).FALL 1961 ]3Coyle: Civil Procedure - Federal Jurisidiction - Federal Test of Doing BPublished by Villanova University Charles Widger School of Law Digital Repository, 1961VILLANOVA LAW REVIEWdefinition of "doing business" and varying jurisdictional definitions of"doing business" of the fifty states.'Despite the obvious lack of uniformity among the courts in determininga foreign corporation's amenability to service of process in federal questioncases, there can be seen a trend to shield these cases from the influencesof the states so that federal courts may, without any qualms, disregardstate standards and fourteenth amendment due process, when determiningwhether personal jurisdiction may be had over the person of the corpo-rate defendant.2 0By the authority of a federal statute "a corporation may be sued inany judicial district in which it is incorporated or licensed to do businessor is doing business. '21 One might infer from this that the federal courtsare to determine what Congress meant by "doing business" as set out inthis statute. However, this statute is concerned with venue rather thanwith jurisdiction over the person of the defendant. The Federal Rules ofCivil Procedure also are barren of any indication that the federal courtsare to formulate their own criteria for subjecting a foreign corporationto the jurisdiction of a particular district court. Service of process maybe made "upon a domestic or foreign corporation" in a particular mannerunder Rule 4 (D) (3),22 but Rule 4 (D) (7)28 provides that service ofprocess may also be made "in the manner prescribed by the law of thestate in which the service is made for the service of summons or other likeprocess upon any such defendant in an action brought in the courts ofgeneral jurisdiction of that state." Rule 4 (D) (3) sets forth the mannerin which service of process is to be made upon the subject corporation,but it makes no mention of when the corporation is so subject. The con-clusion that must be reached is unavoidable. Congress has not yet setforth a federal test to determine when, in a case based on federal law,a foreign corporation is subject to the in personam jurisdiction of thefederal district court. Where then are the federal district courts to look?The case at bar held that resort must be made to federal rather than tostate law. However, after observing that the court in doing so reliedchiefly on the rationale of Lone Star Package Car Co. v. Baltimore &0. R.,24 one may seriously question the "distinction" between federal andstate criteria in this area,2 5 since that case relied in the main on the19. Barrett, Venue and Service of Process in the Federal Courts - Suggestionfor Reform, 7 VAND. L. Rnv. 608, 619 (1954).20. Bar's Leaks Western, Inc. v. Pollock, 148 F. Supp. 710 (N.D. Cal. 1957).Due process limitations imposed by the Fifth Amendment, however, may not bedisregarded.21. 28 U.S.C. 1391(c) (1958).22. Fed. R. Civ. P. 4(D) (3).23. Fed. R. Civ. P. 4(D) (7).24. 212 F.2d 147 (5th Cir. 1954).25. One circuit judge put it so well when he commented upon service underNew York and federal law, and he observed that "Neither in our decisions nor inthose of the New York Court of Appeals is there an admitted or defined distinction;this has to be found in the nuances of meaning between the lines of judicial opinions."Jaftex v. Randolph Mills, 282 F.2d 508, 509 (2d Cir. 1960).[VOL. 74Villanova Law Review, Vol. 7, Iss. 1 [1961], Art. 4https://digitalcommons.law.villanova.edu/vlr/vol7/iss1/4

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Civil Procedure - Federal Jurisidiction - Federal Test of Doing Business Determines Corporate Amenability to Service of Process in Federal Cause of Action

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