Meunerie Sawyervillle, Inc. v. Birt

MEUNERIE_SAWYERVILLE_INC_V_BIRT.93-029; 161 Vt. 280; 637 A.2d 1082

[Filed 14-Jan-1994]

 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                                 No. 93-029


 Meunerie Sawyerville, Inc.                   Supreme Court

                                              On Appeal from
      v.                                      Essex Superior Court

 Richard and Christine Birt                   June Term, 1993



 Walter M. Morris. Jr., J.

 David C. Drew, Lyndonville, for plaintiff-appellant

 Peter J. Morrissette, St. Johnsbury, for defendants-appellees

 Jeffrey L. Amestoy, Attorney General, and William H. Rice, Assistant
 Attorney General, Montpelier, for amicus State of Vermont



 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



      JOHNSON, J.     The issue before the Court is whether 11 V.S.A. {
 2120(a) requires a foreign corporation engaging in interstate and intrastate
 commerce to register to do business in this state as a prerequisite to
 filing suit on a contract in this state's courts.  We hold that where the
 corporation's intrastate activities are incidental to the interstate
 activities, the transaction is one in interstate commerce and thus the
 Commerce Clause of the United States Constitution protects the foreign
 corporation from application of 11 V.S.A. { 2120(a).  Consequently, we

 

 reverse the judgment of the trial court granting defendants' motion to
 dismiss the plaintiff's action for the unpaid balance on feed sales.
        Plaintiff is a Canadian corporation.  The trial court found that
 plaintiff's business dealings in Vermont began with a visit by its
 president to defendants' farm to solicit an agreement to provide defendants
 with cattle feed "from time to time upon their request."  Most of the orders
 thereafter were placed by telephone to plaintiff in the Quebec.  Some orders
 were placed with plaintiff's drivers when feed orders were delivered.  An
 agent of plaintiff visited with farmers in Vermont and New Hampshire
 "generating sales and providing forage analyses and nutrition consultation
 on behalf of Plaintiff relating to prospective and existing customers."  The
 feed sold to defendants was produced entirely in Quebec and transported to
 Vermont by plaintiff's drivers.
      The trial court found that the contract was made in Vermont because the
 sale of grain was initiated and consummated here, and the expectation and
 agreement was that there would be an ongoing relationship for the purchase
 of grain.  It concluded that plaintiff "was transacting or doing business in
 the State and did not have a Certificate of Authority from the Secretary of
 State."  Because 11 V.S.A. { 2120(a) bars an unregistered foreign
 corporation from maintaining an action in state court on a contract made in
 Vermont, the trial court then analyzed the constitutionality of that
 statute under the Commerce Clause, U.S. Const. art. I, { 8, cl. 3.  The
 court concluded that the registration statute did not unreasonably burden
 interstate commerce.  Consequently, the trial court dismissed the action and
 the present appeal followed.

 

      Plaintiff argues that the court erred in holding that the contract was
 made in Vermont, because the last act essential to the completion of the
 various grain sales was the seller's acceptance, which occurred, for the
 most part, in Canada.  It further argues that, even if the contract was made
 in Vermont and it was "doing business" in Vermont, the international sale
 and delivery of goods is a transaction in interstate commerce, excepted from
 state registration statutes under the Commerce Clause of the United States
 Constitution.
      The question of the locus of the contract is one of fact.  See West-
 Nesbitt v. Randall, 126 Vt. 481, 484, 236 A.2d 676, 678 (1967).  There was
 sufficient evidence in the record to support the trial court's finding that
 the contract was made in Vermont and this finding is not clearly erroneous.
 See V.R.C.P. 52(a)(2).  But, plaintiff is correct that the locus of the
 contract is not the end of the inquiry.  The fact that the contract was made
 in Vermont merely invokes the application of 11 V.S.A. { 2120(a), it does
 not resolve the Commerce Clause question -- whether 11 V.S.A. { 2120(a) can
 constitutionally bar plaintiff's suit.(FN1)
      The Commerce Clause limits a state's power to enforce "door-closing"
 statutes such as 11 V.S.A. { 2120(a).(FN2) 11 V.S.A. { 2215; Aetna Chem. Co. v.

 

 Spaulding & Kimball Co., 98 Vt. 51, 66, 126 A. 582, 588 (1924); Kinnear &
 Gager Mfg. Co. v. Miner, 89 Vt. 572, 574, 96 A. 333, 334 (1916); Livingston
 Mfg. Co. v. Rizzi Bros., 86 Vt. 419, 424, 85 A. 912, 914 (1913).
 Specifically, the United States Supreme Court has held on numerous occasions
 that state licensing statutes unduly burden interstate commerce when applied
 to foreign corporations engaged in wholly interstate or foreign commerce.(FN3)
 See, e.g., Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 33-34 (1974); Eli
 Lilly & Co. v. Sav-On-Drugs, 366 U.S. 276, 283-84 (1961); Dahnke-Walker
 Milling Co. v. Bondurant, 257 U.S. 282, 291 (1921).
      In a series of decisions known as the "drummer" cases, the Supreme
 Court held that foreign corporations sending salespersons into a state to
 "drum up" business were not subject to state licensing requirements.  The
 intrastate "drumming" was considered so incidental to interstate sales that
 such activities were treated as wholly interstate.  See, e.g., International
 Textbook Co. v. Pigg, 217 U.S. 91, 105-06 (1910).
      The drummer cases were decided in the early 1900s, but the Supreme
 Court reaffirmed the holding of those cases in Eli Lilly & Co. v. Sav-On-
 Drugs.  The Court held that Lilly was "doing business" in New Jersey, and
 therefore subject to its licensing statute, where the corporation maintained

 

 an office in Newark staffed by a district manager who supervised eighteen
 employees.  Eli Lilly & Co., 366 U.S.  at 283-84.  The employees travelled
 the state promoting Lilly's pharmaceutical products to retailers,
 physicians, and hospitals, who then purchased Lilly products through local
 warehouses.  Id. at 280-81.  Thus, the promotional activity of the
 employees resulted in intrastate purchases from local warehouses, rather
 than interstate sales.  Id. at 281.  In rejecting Lilly's claim that its
 activities were protected from state regulation by the Commerce Clause, the
 Court distinguished Lilly's indirect marketing program from the classic
 drummer cases.  Id. at 281-83.  The Court made clear that if Lilly's
 salespeople were directly soliciting interstate sales within New Jersey, it
 could not be required to register under state law.  Id. at 278-79.
      Our own state precedent is consistent with the drummer cases.  In
 Kinnear & Gager Mfg. Co. v. Miner, 89 Vt. at 573-74, 96 A.  at 333, we stated
 the rule governing such cases:
      Where a foreign corporation is engaged in transactions which are
      in character partly interstate commerce and partly purely local,
      and the latter element can be separated from the former, state
      statutes apply.

        . . . .

        If, on the other hand, the local element of the transaction is
      merely incidental to the element of interstate commerce, the whole
      is protected from state laws.

 Our precedent is also consistent with the practice of other states.  See
 North Alabama Marine, Inc. v. Sea Ray Boats, 533 So. 2d 598, 601-02 (Ala.
 1988) (advertising and maintenance of place of business for sales and
 service of products through agent was incidental to the transaction of
 interstate business, and thus insufficient to subject manufacturer of
 products to Alabama registration statute); Dickson v. Delhi Seed Co., 760 S.W.2d 382, 387 (Ark. Ct. App. 1988) (Commerce Clause would have precluded
 application of state registration statute where ordinary business of
 corporation was to buy rough grain, process it in another state, and sell it
 throughout South where corporation's contact with forum was to buy only ten
 percent of rough product in Arkansas and sell only five percent of finished
 product there); Sierra Glass & Mirror v. Viking Indus., Inc., 808 P.2d 512,
 514-15 (Nev. 1991) (although plaintiff did substantial volume of business in
 Nevada, its employment of one sales representative, who personally solicited
 and placed orders, and telephone listing were not sufficient to find that
 its activities were so localized as to rise to an "intrastate quality"); see
 also cases collected at Annotation, What Constitutes Doing Business Within
 State for Purposes of State "Closed-Door" Statute Barring Unqualified or
 Unregistered Foreign Corporation From Local Courts -- Modern Cases, 88
 A.L.R.4th 466 (1991); see generally Note, Corporate Registration: A
 Functional Analysis of "Doing Business", 71 Yale L.J. 575 (1962); Note, A
 Proposed Minimum Threshold Analysis for the Imposition of State Door-Closing
 Statutes, 51 Fordham L. Rev. 1360 (1983).
      Thus, the focus of the inquiry in this narrow class of Commerce Clause
 cases is whether a foreign corporation's intrastate activities have become
 sufficiently localized and independent from its interstate enterprise to
 warrant compliance with registration requirements.  Accordingly, the
 question is not, as the trial court held, whether the registration statute
 in the abstract discriminates against foreign corporations or burdens
 interstate commerce.  That facial attack on registration statutes has
 already been decided by the Supreme Court.  See Allenberg Cotton Co., 419
 U.S. at 33-34; Eli Lilly & Co., 366 U.S.  at 279.  Consequently, the trial

 

 court should have made findings on whether plaintiff's activities are so
 localized within Vermont as to require it to register to do business.
      The evidence and findings focused on where the contract was made.  The
 trial court found that the contract was made in Vermont, but defendants had
 the further burden of showing that the intrastate activities were separate
 from the interstate ones.  Defendants' evidence showed only that plaintiff
 came to their farm to solicit the sale of feed, offering and providing the
 ongoing services of an agent as a nutrition specialist/consultant for the
 company.  Forage and nutrition analyses were done in Canada, the feed was
 produced in Canada and delivered here by plaintiff's trucks.  Further orders
 were taken primarily over the telephone to plaintiff in Canada.  The court
 did not find, and the evidence does not suggest, that plaintiff established
 any legal, proprietary, or permanent physical presence in Vermont.  Under
 these circumstances, the initial solicitation and nutritional analyses were
 incidental to the main purpose of the transaction, the interstate sale of
 feed.  Therefore, applying the Kinnear rule to these facts, we conclude that
 plaintiff's suit is not barred by 11 V.S.A. { 2120(a) because plaintiff's
 business activities in Vermont were incidental to an interstate purpose.
      Defendants argue that our recent decision in Pennconn, barring an
 unregistered foreign corporation from suit on a contract involving a
 condominium project in southern Vermont, compels a different conclusion.
 The difference between Pennconn and this case is that there was nothing
 foreign about Pennconn's activities except the state of its incorporation.
 Pennconn did not involve sales in interstate commerce.  Its business was to
 develop land within Vermont.  In pursuit of that business, it entered into
 contracts for the purchase of real estate, it applied for permits, hired an

 

 engineering firm to prepare plans for submission to the state, and hired a
 Vermont lawyer.  It received a town sewer permit for the project.  Pennconn,
 148 Vt. 604-06, 538 A.2d  at 674-75.  The entire purpose and nature of its
 activities were wholly intrastate.
      Nevertheless, defendants argue that Pennconn applies because the grain
 sales here were not sales in interstate commerce.  It reasons that, because
 the grain was sold for end use in Vermont, it was not put into the stream of
 commerce like the grain in Allenberg Cotton Co. or Dahnke-Walker.
 Defendants' apparent distinction is that, in those cases, the objects of the
 contract enforcement actions were commodities (cotton and wheat) to be
 raised in the defendants' states and sold to the plaintiffs, located in
 different states, with the likelihood of further interstate resale by
 plaintiffs in each case.  Defendants cite no authority supporting the
 proposition that a sale commencing in state or foreign country A and
 terminating in state B is not an interstate sale.  This is, in fact, the
 definition of an interstate sale.  See Olan Mills, Inc. v. City of Barre,
 123 Vt. 478, 482, 194 A.2d 385, 387 (1963); Trade Mark Cases, 100 U.S.  at
 96.
      Defendants also place reliance on Brogdon v. Exterior Design, 781 F. Supp. 1396 (W.D. Ark. 1992), and  S & H Contractors, Inc. v. A.J. Taft Coal
 Co., 906 F.2d 1507 (11th Cir. 1990) cert. denied, 498 U.S. 1026 (1991).  In
 Brogdon, a foreign plaintiff's construction work on a house in the forum
 state evidenced that its business was localized and subject to its
 registration statute.  Brogdon, 781 F. Supp.  at 1399.  In S & H Contractors,
 a contract solely for the assembly of machinery in the forum state was not
 one in interstate commerce and was unenforceable in the forum state.  S & H

 

 Contractors, 906 F.2d  at 1510-11.  Defendants argue that the activities of
 plaintiff were similar to the plaintiffs in Brogdon and S & H Contractors
 because the agreement here provided for the services of the nutritionist, as
 well as sales.  There is no evidence that the nutritionist's efforts were
 the object of the contract between the parties, as the construction work was
 in both Brogdon and S & H Contractors.  The nutritionist's task was to help
 the customer select the proper product and was integral to the sales effort.
 The trial court did not find that the nutritionist was retained to perform
 nutrition analysis work independent of plaintiff's sales efforts, nor is
 there any evidence that plaintiff established an independent office or
 laboratory that offered nutrition analysis services in Vermont.  To the
 contrary, the evidence showed that the forage analyses were performed in
 Canada.
      In sum, the court's findings supported its conclusion that the
 contract between the parties was made in Vermont and that plaintiff was
 doing business in Vermont, but the court erred in basing its decision under
 { 2120(a) on these limited findings.  Plaintiff was engaged in interstate
 commerce, and on the basis of the court's findings and the record in this
 case, plaintiff's activities in Vermont were not so localized as to require
 it to register with the Secretary of State to do business in Vermont or
 subject it to the door-closing penalty in 11 V.S.A. { 2120(a) for failure to
 do so.  Thus, the complaint should not have been dismissed.
      Reversed and remanded.
                                    FOR THE COURT:



                                    _______________________________
                                    Associate Justice


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                                 Footnotes


FN1.  This case does not implicate the State's authority to tax a foreign
 corporation's local business activity, nor does it involve the State's
 authority to subject foreign corporations to service of process under long
 arm jurisdiction statutes such as 12 V.S.A. { 855.  It concerns only the
 State's authority to require foreign corporations engaged in interstate
 commerce to register with the Secretary of State and bar them from suit in
 its courts upon failure to do so.  See Eli Lilly & Co. v. Sav-On-Drugs,
 Inc., 366 U.S. 276, 289 (1961) (Douglas, J., dissenting).

FN2.  The Commerce Clause gives Congress the power "[t]o regulate Commerce
 with foreign Nations, and among the several States, and with the Indian
 Tribes."  U.S. Const. art. I, { 8, cl. 3.

FN3.  "[C]ommerce with foreign nations means commerce between citizens of
 the United States and citizens and subjects of foreign nations, and
 commerce among the States means commerce between the individual citizens of
 different States . . . ."  Trade-Mark Cases, 100 U.S. 82, 96 (1879).
 Nonetheless, when resolving cases involving the scope of burdens on foreign
 commerce, courts have used the same analysis that is used in interstate
 commerce cases and used the term "interstate commerce" to include foreign
 commerce.  See, e.g. American Trucking Ass'ns, Inc. v. Scheiner, 483 U.S. 266 (1987); Allenberg Cotton Co., 419 U.S. 20 (1974); Upper Lakes Shipping,
 Ltd. v. Seafarers' Internat'l Union of Canada, 119 N.W.2d 426 (Wis. 1963).
 Because the issues are substantially similar, we also include foreign or
 international commerce within the meaning of any reference to "interstate 
 commerce."