Suing Out-of-State (Foreign) Corporations
Suing Out-of-State (Foreign) Corporations.—A curious aspect of American law is that a corporation has no legal existence outside the boundaries of the State chartering it.835 Thus, the basis for state court jurisdiction over an out-of-state ("foreign") corporation has been even more uncertain than that with respect to individuals. Before the case of International Shoe Co. v. Washington,836 it was asserted that inasmuch as a corporation could not carry on business in a State without the State's permission, the State could condition its permission upon the corporation's consent to submit to the jurisdiction of the State's courts, either by appointment of someone to receive process or in the absence of such designation, by accepting service upon corporate agents authorized to operate within the State.837 Further, by doing business in a State, the corporation was deemed to be present there and thus subject to service of process and suit.838 This theoretical corporate presence conflicted with the idea of corporations having no existence outside their State of incorporation, but it was nonetheless accepted that a corporation "doing business" in a State to a sufficient degree was "present" for service of process upon its agents in the State who carried out that business.839
Such presence did not, however, expose a corporation to all manner of suits. Under the reasoning of these early cases, even continuous activity of some sort by a foreign corporation within a State would not suffice to render it amenable to suits therein unrelated to that activity. Without the protection of such a rule, it was maintained, foreign corporations would be exposed to the manifest hardship and inconvenience of defending, in any State in which they happened to be carrying on business, suits for torts wherever committed and claims on contracts wherever made.840 And if the corporation stopped doing business in the forum State before suit against it was commenced, it might well escape jurisdiction altogether.841 The issue of the degree of activity required, in particular the degree of solicitation necessary to constitute doing business by a foreign corporation, was much disputed and led to very particularistic holdings.842 In the absence of enough activity to constitute doing business, the mere presence within its territorial limits of an agent, officer, or stockholder, upon whom service might readily be had, was not effective to enable a State to acquire jurisdiction over the foreign corporation.843
836 326 U.S. 310 (1945).
837 Lafayette Ins. Co. v. French, 59 U.S. (18 How.) 404 (1855); St. Clair v. Cox, 196 U.S. 350 (1882); Commercial Mutual Accident Co. v. Davis, 213 U.S. 245 (1909); Simon v. Southern Ry., 236 U.S. 115 (1915); Pennsylvania Fire Ins. Co. v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917).
838 Presence was first independently used to sustain jurisdiction in International Harvester Co. v. Kentucky, 234 U.S. 579 (1914), although the possibility was suggested as early as St. Clair v. Cox, 106 U.S. 350 (1882). See also Philadelphia & Reading Ry. v. McKibbin, 243 U.S. 264, 265 (1917) (Justice Brandeis for Court).
839 E.g., Pennsylvania Fire Ins. Co. v. Gold Issue Mining & Milling Co., 243 U.S.
93 (1917); St. Louis S. W. Ry. v. Alexander, 227 U.S. 218 (1913).
840 E.g., Old Wayne Life Ass'n v. McDonough, 204 U.S. 8 (1907); Simon v. Southern Railway, 236 U.S. 115, 129-130 (1915); Green v. Chicago, B. & Q. Ry., 205 U.S. 530 (1907); Rosenberg Co. v. Curtis Brown Co., 260 U.S. 516 (1923); Davis v. Farmers Co-operative Co., 262 U.S. 312 (1923); Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408 (1984). Continuous operations were sometimes sufficiently substantial and of a nature to warrant assertions of jurisdiction. St. Louis S. W. Ry. v. Alexander, 227 U.S. 218 (1913).
841 Robert Mitchell Furn. Co. v. Selden Breck Constr. Co., 257 U.S. 213 (1921): Chipman, Ltd. v. Thomas B. Jeffery Co., 251 U.S. 373, 379 (1920). On a consent theory, jurisdiction would continue. Washington ex rel. Bond & Goodwin & Tucker v. Superior Court, 289 U.S. 361, 364 (1933).
842 Solicitation of business alone was inadequate to constitute "doing business," Green v. Chicago, B. & Q. Ry., 205 U.S. 530 (1907), but when connected with other activities would suffice to confer jurisdiction. International Harvester Co. v. Kentucky, 234 U.S. 579 (1914). See the survey of cases by Judge Hand in Hutchinson v. Chase and Gilbert, 45 F.2d 139, 141-42 (2d Cir. 1930).
843 E.g., Goldey v. Morning News, 156 U.S. 518 (1895); Conley v. Mathieson Alkali Works, 190 U.S. 406 (1903); Riverside Mills v. Menefee, 237 U.S. 189, 195 (1915). But see Connecticut Mutual Life Ins. Co. v. Spratley, 172 U.S. 602 (1899).
The rationales and premises of these cases were swept away in International Shoe Co. v. Washington,844 although the results in many of them would stand on the basis of the case's "minimum contacts" analysis. International Shoe, an out-of-state corporation, had not been issued a license to do business in Washington State, but it systematically and continuously employed a sales force of Washington residents to solicit therein, and thus was held amenable to suit in Washington for unpaid unemployment compensation contributions for such salesmen. A notice of assessment was served personally upon one of the local sales solicitors, and a copy of the assessment was sent by registered mail to the corporation's principal office in Missouri, and this was deemed sufficient to ap-prize the corporation of the proceeding.
To reach this conclusion the Court not only overturned prior holdings to the effect that mere solicitation of business does not constitute a sufficient contact to subject a foreign corporation to a State's jurisdiction,845 but also rejected the "presence" test as begging the question to be decided. "The terms 'present' or 'presence,"' according to Chief Justice Stone, "are used merely to symbolize those activities of the corporation's agent within the State which courts will deem to be sufficient to satisfy the demands of due process… Those demands may be met by such contacts of the corporation with the State of the forum as make it reasonable, in the context of our federal system . . . , to require the corporation to defend the particular suit which is brought there; [and] . . . that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice'… An 'estimate of the inconveniences' which would result to the corporation from a trial away from its 'home' or principal place of business is relevant in this connection."846 As to the scope of application to be accorded this "fair play and substantial justice" doctrine, the Court concluded that "so far as . . . [corporate] obligations arise out of or are connected with activities within the State, a procedure which requires the corporation to respond to a suit brought to enforce them can, in most instances, hardly be said to be undue."847
844 326 U.S. 310 (1945).
845 This departure was recognized by Justice Rutledge subsequently in Nippert v. City of Richmond, 327 U.S. 416, 422 (1946). Inasmuch as International Shoe, in addition to having its agents solicit orders, also permitted them to rent quarters for the display of merchandise, the Court could have utilized International Harvester Co. v. Kentucky, 234 U.S. 579 (1914), to find it was "present" in the State.
847 326 U.S. at 319
Extending this logic, a majority of the Court ruled that an outof-state association selling mail order insurance had developed sufficient contacts and ties with Virginia residents so that the State could institute enforcement proceedings under its Blue Sky Law by forwarding notice to the company by registered mail, notwithstanding that the Association solicited business in Virginia solely through recommendations of existing members and was represented therein by no agents whatsoever.848 The due process clause was declared not to "forbid a State to protect its citizens from such injustice" of having to file suits on their claims at a far distant home office of such company, especially in view of the fact that such suits could be more conveniently tried in Virginia where claims of loss could be investigated.849
848 Travelers Health Ass'n v. Virginia ex rel. State Corp. Comm'n, 339 U.S. 643 (1950). The decision was 5-to-4 with one of the majority Justices also contributing a concurring opinion. Id. at 651 (Justice Douglas). The possible significance of the concurrence is that it appears to disagree with the implication of the majority opinion, id. at 647-48, that a State's legislative jurisdiction and its judicial jurisdiction are coextensive. d. at 652-53 (distinguishing between the use of the State's judicial power to enforce its legislative powers and the judicial jurisdiction when a private party is suing). See id. at 659 (dissent).
849 339 U.S. at 647-49. The holding in Minnesota Commercial Men's Ass'n v. Benn, 261 U.S. 140 (1923), that a similar mail order insurance company could not be viewed as doing business in the forum State and that the circumstances under which its contracts with forum State citizens, executed and to be performed in its State of incorporation, were consummated could not support an implication that the foreign company had consented to be sued in the forum State, was distinguished rather than formally overruled. 339 U.S. at 647. In any event, Benn, although unmentioned in the opinion, could not survive McGee v. International Life Ins. Co., 355 U.S. 220 (1957).
Likewise, the Court reviewed a California statute which subjected foreign mail order insurance companies engaged in contracts with California residents to suit in California courts, and which had authorized the petitioner to serve a Texas insurer by registered mail only.850 The contract between the company and the insured specified that Austin, Texas, was the place of "making" and the place where liability should be deemed to arise. The company mailed premium notices to the insured in California, and he mailed his premium payments to the company in Texas. Acknowledging that the connection of the company with California was tenuous— it had no office or agents in the State and no evidence had been presented that it had solicited anyone other than the insured for business—the Court sustained jurisdiction on the basis that the suit was on a contract which had a substantial connection with California. "The contract was delivered in California, the premiums were mailed there and the insured was a resident of that State when he died. It cannot be denied that California has a manifest interest in providing effective means of redress for its residents when their insurers refuse to pay claims."851
In making this decision, the Court noted that "[l]ooking back over the long history of litigation a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents."852 However, in Hanson v. Denckla, decided during the same Term, the Court found in personam jurisdiction lacking for the first time since International Shoe Co. v. Washington, pronouncing firm due process limitations. In Hanson,853 the issue was whether a Florida court considering a contested will obtained jurisdiction over corporate trustees of disputed property through use of ordinary mail and publication. The will had been entered into and probated in Florida, the claimants were resident in Florida and had been personally served, but the trustees, who were indispensable parties, were resident in Delaware. Noting the trend in enlarging the ability of the States to obtain in personam jurisdiction over absent defendants, the Court denied the exercise of nationwide in personam jurisdiction by States, saying "it would be a mistake to assume that th[e] trend [to expand the reach of state courts] heralds the eventual demise of all restrictions on the personal jurisdiction of state courts."854
850 McGee v. International Life Ins. Co., 355 U.S. 220 (1957).
851 355 U.S. at 223 The Court also noticed the proposition that the insured could not bear the cost of litigation away from home as well as the insurer. See also Perkins v. Benguet Consolidating Mining Co., 342 U.S. 437 (1952), a case too atypical on its facts to permit much generalization but which does appear to verify the implication of International Shoe that in personam jurisdiction may attach to a corporation even where the cause of action does not arise out of the business done by defendant in the forum State, as well as to state, in dictum, that the mere presence of a corporate official within the State on business of the corporation would suffice to create jurisdiction if the claim arose out of that business and service were made on him within the State. 342 U.S. at 444-45. The Court held that the State could, but was not required to, assert jurisdiction over a corporation owning gold and silver mines in the Philippines but temporarily (because of the Japanese occupation) carrying on a part of its general business in the forum State, including directors' meetings, business correspondence, banking, and the like, although it owned no mining properties in the State.
852 McGee v. International Life Ins. Co., 355 U.S. 220, 222 (1957). An exception exists with respect to in personam jurisdiction in domestic relations cases, at least in some instances. E.g., Vanderbilt v. Vanderbilt, 354 U.S. 416 (1957) (holding that sufficient contacts afforded Nevada in personam jurisdiction over a New York resident wife for purposes of dissolving the marriage but Nevada did not have jurisdiction to terminate the wife's claims for support).
853 357 U.S. 235 (1958). The decision was 5-to-4. See 357 U.S. at 256 (Justice Black dissenting), 262 (Justice Douglas dissenting).
854 357 U.S. at 251 In dissent, Justice Black observed that "of course we have not reached the point where state boundaries are without significance and I do not mean to suggest such a view here." 357 U.S. at 260.
The Court recognized in Hanson that Florida law was the most appropriate law to be applied in determining the validity of the will and that the corporate defendants might be little inconvenienced by having to appear in Florida courts, but it denied that either circumstance satisfied the due process clause. The Court noted that due process restrictions do more than guarantee immunity from inconvenient or distant litigation, in that "[these restrictions] are consequences of territorial limitations on the power of the respective States. However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has the 'minimum contacts' with that State that are a prerequisite to its exercise of power over him." The only contacts the corporate defendants had in Florida consisted of a relationship with the individual defendants. "The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the quality and nature of the defendant's activity, but it is essential in each case that there be some act by which the defendant purposefully avails himself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws… The settlor's execution in Florida of her power of appointment cannot remedy the absence of such an act in this case."855
855 357 U.S. at 251, 253-54. Justice Black argued that the relationship of the nonresident defendants, of the subject of the litigation to the forum State, upon an analogy of choice of law and forum non conveniens, made Florida the natural and constitutional basis for asserting jurisdiction. 357 U.S. at 251, 258-59 The Court has numerous times asserted that contacts sufficient for the purpose of designating a particular State's law as appropriate may be insufficient for the purpose of asserting jurisdiction. See Shaffer v. Heitner, 433 U.S. 186, 215 (1977); Kulko v. Superior Court, 436 U.S. 84, 98 (1978); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 294-95 (1980). On the due process limits on choice of law decisions, see Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981).
In World-Wide Volkswagen Corp. v. Woodson,856 the Court applied its "minimum contacts" test to preclude the assertion of jurisdiction over two foreign corporations that did no business in the forum State. Plaintiffs had sustained personal injuries in Oklahoma in an accident involving an alleged defect in their automobile. The car had been purchased the previous year in New York, while the plaintiffs were New York residents, and the accident had occurred while they were driving through Oklahoma on their way to a new residence in Arizona. Defendants were the automobile retailer and its wholesaler, both New York corporations that did no business in Oklahoma. The Court found no circumstances justifying assertion by Oklahoma courts of jurisdiction over defendants. The Court found that the defendants (1) carried on no activity in Oklahoma, (2) closed no sales and performed no services there, (3) availed themselves of none of the benefits of the State's laws, (4) solicited no business there either through salespersons or through advertising reasonably calculated to reach the State, and (5) sold no cars to Oklahoma residents or indirectly served or sought to serve the Oklahoma market. The unilateral action of the purchasers in driving the car to Oklahoma was insufficient to create the kinds of requisite contacts.
While it might have been foreseeable that the automobile would travel to Oklahoma, foreseeability was held to be relevant only insofar as "the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there."857 Further, whatever marginal revenues petitioners may receive by virtue of the fact that their products are capable of use in Oklahoma is far too attenuated a contact to justify that State's exercise of in personam jurisdiction over them.858 Thus, a defendant must, as the Court said in Denckla, " purposefully [avail] itself of the privilege of conducting activities within the forum State,"859 if not by carrying on business there within the constitutional sense, at least by delivering "its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State."860
856 444 U.S. 286 (1980).
857 444 U.S. at 297
858 444 U.S. at 299.
860 444 U.S. at 298. Of the three dissenters, Justice Brennan argued that the "minimum contacts" test was obsolete and that jurisdiction should be predicated upon the balancing of the interests of the forum State and plaintiffs against the actual burden imposed on defendant, 444 U.S. at 299, while Justices Marshall and Blackmun applied the test and found jurisdiction because of the foreseeability of defendants that a defective product of theirs might cause injury in a distant State and because the defendants had entered into an interstate economic network. 444 U.S. at 313. The balancing of interests test was applied in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), holding unreasonable exercise of jurisdiction by a California court over an indemnity action by a Taiwan tire manufacturer against a Japanese manufacturer of tire valves, the underlying damage action by a California motorist having been settled.
The Court has had to decide how to apply International Shoe principles in several more situations. Thus, circulation of a magazine in a state is an adequate basis for that state to exercise jurisdiction over an out-of-state corporate magazine publisher in a libel action. The fact that the plaintiff did not have "minimum contacts" with the forum state was not dispositive since the relevant inquiry is the relations among the defendant, the forum, and the litigation.861 Or, damage done to the plaintiff's reputation in his home state caused by circulation of a defamatory magazine article there may justify assertion of jurisdiction over the out-of-state authors of such article, despite the lack of minimum contact between the authors (as opposed to the publishers) and the state.862 Further, while there is no per se rule that a contract with an out-of-state party automatically establishes jurisdiction to enforce the contract in the other party's forum, a franchisee who has entered into a franchise contract with an out-of-state corporation may be subject to suit in the corporation's home state where the overall circumstances (contract terms themselves, course of dealings) demonstrate a deliberate reaching out to establish contacts with the franchisor in the franchisor's home state.863
861 Keeton v. Hustler Magazine, 465 U.S. 770 (1984) (holding as well that the forum state may apply "single publication rule" making defendant liable for nationwide damages).
862 Calder v. Jones, 465 U.S. 783 (1984) (jurisdiction over reporter and editor responsible for defamatory article which they knew would be circulated in subject's home state).
863 Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985). But cf. Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408 (1984) (purchases and training within state, both unrelated to cause of action, are insufficient to justify general in personam jurisdiction).