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Florio v. Powder Power Tool Corp.

decided: September 12, 1957; As Amended October 30, 1957.


Author: Biggs

Before BIGGS, Chief Judge, and GOODRICH and KALODNER, Circuit Judges.

BIGGS, Chief Judge.

The suit at bar, based on diversity and jurisdictional amount, was brought by the minor plaintiff, Mario Florio, by his parents as his next friends, against the appellee Powder Power Tool Corp. (Powder Power), an Oregon corporation. On December 4, 1954 Florio, while employed as a carpenter on a construction project, was seriously injured when a tool powered by powder, manufactured by Powder Power, used by one of Florio's fellow workers, misfired, causing a steel stud to ricochet from a steel beam and imbed itself in Florio's brain. Florio in his complaint alleges that Powder Power was negligent in the design and manufacture of the tool causing it to be "dangerous, unsafe, and defective." Service was made upon Powder Power by serving the Secretary of the Commonwealth of Pennsylvania as required by the Pennsylvania Business Corporation Law and Rule 4(d)(7), F.R.Civ.Proc., 28 U.S.C., validating service of process on a foreign corporation made in accordance with a State statute. Powder Power moved to dismiss, alleging that it was not doing business in Pennsylvania and therefore could not lawfully be served with process. The court below granted Powder Power's motion, 1956, 148 F.Supp. 843, and the appeal at bar followed.*fn1

The case involves the two questions referred to in our decision in Partin v. Michaels Art Bronze Co., Inc., 1953, 202 F.2d 541, 542.*fn2 The first question is: Were the activities of Powder Power in Pennsylvania such as to fall within the purview of the Pennsylvania statute set out below? The second question, assuming the first to be answered in the affirmative, is whether the assertion of jurisdiction under such circumstances is permissible under Article 1, Section 8, Clause 3, the Commerce Clause, or in view of the Fourteenth Amendment of the Constitution of the United States?

We must look here to State law because of Rule 4(d)(7), F.R.Civ.Proc., 28 U.S.C.*fn3 There is no applicable federal statute. The Pennsylvania Act of September 26, 1951, P.L. 1457, § 22, 15 P.S.Pa. § 2852-1011, as amended,*fn4 in pertinent part provides: "B. Any foreign business corporation which shall have done any business in this Commonwealth, without procuring a certificate of authority to do so from the Department of State, shall be conclusively presumed to have designated the Secretary of the Commonwealth as its true and lawful attorney authorized to accept, on its behalf, service of process in any action arising out of acts or omissions of such corporation within this Commonwealth. [and] C. * * * the entry of any corporation into this Commonwealth for the doing of a series of similar acts for the purpose of thereby realizing pecuniary benefits or otherwise accomplishing an object, or doing a single act in this Commonwealth for such purpose with the intention of thereby initiating a series of such acts, shall constitute 'doing business.'"*fn5

We have been able to find but two cases in which Pennsylvania courts have dealt directly with these amended sections. One of these was a decision by the Court of Common Pleas of Washington County; the other, a decision by the County Court of Allegheny County. While not binding on this court or the court below, Eckman v. Baker, 3 Cir., 1955, 224 F.2d 954, 956, they are none-theless indicative of what the law of Pennsylvania may be. In Ramey v. Donora Southern R.R. Co., 1956, 37 Wash.Co.R., Pa., 70, a foreign corporation claimed that mere solicitation of business did not constitute the doing of business under Pennsylvania law as enunciated in Shambe v. Delaware Hudson Railroad Co., 1927, 288 Pa. 240, 135 A. 755 and in Lutz v. Foster and Kester Company, Inc., 1951, 367 Pa. 125, 79 A.2d 222. The Lutz decision held that the corporation must have an agent in the Commonwealth who had authority "to bind" the corporation to contracts or other engagements as contrasted with the mere solicitation of contracts or engagements. This is frequently called the "solicitation plus" doctrine; sometimes, the "other activities" standard. The Court of Common Pleas of Washington County made it clear that since both of these cases were decided under the Act of 1851, P.L. 353, 12 P.S.Pa. § 1310, the rule of the two decisions cited was not applicable since the public policy of Pennsylvania had been changed by the 1951 amendments to the Pennsylvania Corporation Law. The Court stated: "It is clear * * * that the amendment of 1951 was a proper declaration of public policy on the part of our Legislature and was enacted to overcome the effect of the rules laid down in the case of Shambe v. Delaware Hudson Railroad Co. [and Lutz v. Foster and Kester Company, Inc.]."

The other decision is Motch & Merry-weather Machinery Company v. Pittsburgh School District, emanating from the County Court of Allegheny County, 1952, No. A-1305, (not reported for publication). The decision involved a Pennsylvania statute permitting local taxation of dealers and vendors. The court directed its attention solely to the issue of whether the taxpayer was doing business in Pittsburgh. The court refused to apply the 1951 amendments with which we are concerned because it was of the view that these amendments were intended by the legislature to apply only to cases involving service of process. The court said: "It is well to point out that the service of process act deals with procedural limitations, whereas tax statutes deal with substantive rights, and Pennsylvania has a higher requirement for doing business when applied to a tax statute as compared to doing business by a foreign corporation for the purpose of service of process." Having thus determined the inapplicability of the 1951 amendments to tax statutes, the court made its determination under the "solicitation plus" rule as laid down in the Lutz and Shambe cases. On appeal, without commenting on the applicability of the 1951 amendments, the Supreme Court of Pennsylvania affirmed the decision of the county court of Allegheny County, holding that under the "Lutz doctrine" the defendant corporation was not doing business. Motch & Merry-weather Machinery Co. v. Pittsburgh School District, 1955, 381 Pa. 619, 116 A.2d 733.

Other decisions by Courts of Common Pleas of Pennsylvania are not really helpful though they suggest that the 1951 amendments may have modified the prior case law. The courts decided these cases under the restrictive Lutz doctrine of "solicitation plus," and did not apply the 1951 amendments. Creval v. Duquesne Motor Coach Lines, 1955, 103 Pittsb.Leg.J., Pa., 124; Cieri v. Dante Importing Company, 1955, 54 Lack.Jur., Pa., 33. Since there has been no direct determination by the appellate tribunals of Pennsylvania as to the scope of the 1951 amendments, that issue must be determined here. Cf. the decision of the Supreme Court of Pennsylvania in Motch & Merryweather Machine Co. v. Pittsburgh School District, supra.

There is no pertinent legislative history to aid us in this task. Of necessity therefore our determination must depend in part at least on the economic background and other pertinent circumstances which caused the Pennsylvania Legislature to enact these amendments to the Pennsylvania Corporation Law. We may take judicial notice that scientific and economic developments, coupled with vastly increased facilities for travel and communication, have so enlarged corporate activity that State lines have been largely effaced for many purposes. Obviously the law must grow with the economic developments of the country which it seeks to serve and extensions of jurisdiction have been effected both by judicial decision and by legislative enactment. The primary issue, in respect to which State authorities are not controlling, is whether a State statute's definition as to what constitutes doing business in the State meets reasonably the criteria of "fair play and substantial justice" as stated by Mr. Chief Justice Stone in International Shoe Company v. State of Washington, 1945, 326 U.S. 310, 66 S. Ct. 154, 160, 90 L. Ed. 95. The Supreme Court of the United States had held earlier in Green v. Chicago, Burlington & Quincy R. Co., 1907, 205 U.S. 530, 27 S. Ct. 595, 51 L. Ed. 916, that solicitation alone was not sufficient to constitute doing business. In International Shoe Company it was stated that each case must be decided on its own facts and that there is jurisdiction if the corporation is carrying on business in such a sense as to manifest its presence to a substantial degree in the State.

It will be observed that the law is being developed to meet the needs of changing economic and commercial conditions and that less attention is being paid to semantics and more to business realities. Judge Lord has ably traced this development in Kulicke v. Rollway Bearing Co., D.C.E.D.Pa.1955, 131 F.Supp. 572. See also Frene v. Louisville Cement Co., 1943, 77 U.S.App.D.C. 129, 134 F.2d 511, 514, 146 A.L.R. 926*fn6; 34 California Law Rev. 351, and 16 U. of Chi.L.Rev. 523. Cf. Woodworkers Tool Works v. Byrne, 9 Cir., 1951, 191 F.2d 667. In our opinion the 1951 amendments to the Pennsylvania Corporation Law are a clear exercise by the Commonwealth of Pennsylvania of its power to declare what comprises the "doing of business" within Pennsylvania and was intended to divorce the Commonwealth from the "solicitation plus" doctrine of the Lutz decision and to bring its law into line with the general trend of a wider assertion of power by a State over nonresidents and foreign corporations. Sunbury Wire Rope Manufacturing Company v. United States Steel Corporation, 3 Cir., 1956, 230 F.2d 511*fn7; Kulicke v. Rollway Bearing Company, Inc., supra; and Solt v. Interstate Folding Box Co., D.C.E.D.Pa.1955, 133 F.Supp. 7.

Having determined the intent of the 1951 amendments it is necessary next to determine whether the operative facts of the case at bar are such as to compel a determination that Powder Power's operations or activities in Pennsylvania were of such a nature that it was doing business within the purview of the Pennsylvania Corporation Law as amended.

As we have stated, Powder Power was incorporated under the laws of Oregon. At no time has it been licensed to do business in Pennsylvania, nor has it appointed an agent for the service of process in Pennsylvania. It has no office within the State; nor does it maintain any records or bank accounts within the State. In May of 1949 Powder Power entered into an exclusive territorial contract to be operative in Pennsylvania under which General Equipment Co. was to be the sole distributor of Powder Power tools in the area. This contract continued into 1955, when Powder Power entered into a substantially similar contract with Pennsylvania Equipment and Tool Company. These territorial contracts were rigidly restrictive in nature. By their terms the respective distributors agreed to make sales and render services according to the recommendations of Powder Power and to make such sales only within the prescribed territory.

The distributors were restricted from manufacturing, selling, or dealing in other similar tools and were required to purchase all additional necessary parts from Powder Power. All prices and discounts were strictly governed by Powder Power and all orders for products which Powder Power received from the respective distributors were subject to approval and acceptance of Powder Power. The distributors were required to maintain amounts of unimpaired working capital as Powder Power in its discretion deemed proper. Powder Power also had the right to demand additional capital investment within its discretion. The distributors were required to provide themselves with liability insurance for protection against property damage and bodily injury caused by defects in Powder Power's products distributed by them. Powder Power completed its coercive pattern by stipulating for itself a unilateral right to terminate the contracts with the distributors if they did not promote business to the satisfaction of Powder Power or failed to meet the sales quotas which it at its will had an absolute right to establish or alter.

There is more. A series of acts for the purpose of realizing pecuniary benefit were conducted in Pennsylvania by Powder Power. A regional representative directly employed by Powder Power came into the Commonwealth with such regularity that his activities therein were considered by the President of Powder Power to constitute a "continuing process." While in Pennsylvania Powder Power's representative instructed the distributors and their respective personnels in the sale and distribution of Powder Power's products. The representative also made adjustments and repairs of equipment for the distributors and for purchasers from the distributors. These services were considered a necessary part of the representative's duties. It is obvious that the regional representative's activities were conducted for one purpose - to encourage the use and stimulate the sales of Powder Power's tools. Such activity was, at least, a part of a systematic scheme of sales promotion and as such clearly fell within the statutory requirements of a series of acts for pecuniary benefit. See ...

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