Szantay v. Beech Aircraft Corp., 349 F.2d 60 (4th Cir. 1965)
United States Court of Appeals Fourth Circuit.
Marie L. SZANTAY, ancillary administratrix
c.t.a. of the Estate of Elmer D.
Szantay, Appellee,
v.
BEECH AIRCRAFT CORPORATION, Appellant.
Ova N. WEIGER, Mother of S. Wayne Weiger, Deceased, for
her use and benefit and
for the use and benefit of Merle Weiger, brother of the Deceased
S. Wayne Weiger,
Ruby C. Weiger Ewing and Winona W. Weiger Sausser,
sisters of the Deceased S.
Wayne Weiger, Appellee,
v.
BEECH AIRCRAFT CORPORATION, Appellant.
Margaret CLEMENS, Surviving Widow of James J. Clemens, Deceased,
for her use and
benefit and for the use and benefit of John R. Clemens, James B.
Clemens, Brian P.
Clemens, and Margaret M. Clemens, surviving minor children
of James J. Clemens,
Deceased, Appellee,
v.
BEECH AIRCRAFT CORPORATION, Appellant.
Nos. 9927-9929.
Argued May 31, 1965.
Decided July 1, 1965.
Action against airplane manufacturer for death of occupants of airplane
which
crashed in Tennessee. The United States District Court for the
Eastern District
of South Carolina, at Columbia, Robert W. Hemphill, Chief Judge, 237
F.Supp. 393,
denied defendant manufacturer's motion to quash service on ground of
want of
jurisdiction, and the manufacturer took interlocutory appeals.
The Court of
Appeals, Sobeloff, Circuit Judge, held that South Carolina
'doorclosing' statute
providing that action against corporation created under law of another
state may
be brought in South Carolina by nonresident when cause of action shall
have arisen
or subject of action shall be situated within state did not restrict
jurisdiction
of South Carolina federal district court over Delaware airplane
manufacturing
corporation, which was sued in diversity action by residents of
Illinois on theory
of negligent manufacture and design for death of occupants of aircraft
which was
serviced in South Carolina and crashed in Tennessee.
Affirmed.
Before SOBELOFF and J. SPENCER BELL, Circuit Judges, and BARKSDALE,
District
Judge.
SOBELOFF, Circuit Judge.
These are interlocutory appeals, pursuant to 28 U.S.C.A. s
1292(b). Beech
Aircraft Corporation appeals from the denial of its motion to quash the
service of
process made upon it and to dismiss the complaints for want of
jurisdiction.
The complaints alleged that Elmer Szantay purchased a Beech aircraft in
Nebraska
and flew it to Miami, Florida, and thence to Columbia, South Carolina,
where he
arrived on the evening of March 31, 1962. During the stopover the
plane was
serviced by the Dixie Aviation Co., a South Carolina corporation.
Szantay and his
passengers left Columbia the next morning bound for Chicago but the
plane
travelled only as far as Tennessee where it crashed, killing all of its
occupants.
Companion wrongful death actions were brought by the personal
representatives of
the victims, all citizens of Illinois, against Dixie and Beech in the
United
States District Court for the Eastern District of South Carolina.
The complaints
charged that the deaths were caused by Beech's negligent manufacture
and design of
the aircraft, and Dixie's negligent servicing.
Beech is incorporated under the laws of Delaware and has its principal
place
of business in Kansas. The District Judge found that Beech had
sufficient
contacts with South Carolina through its local dealer to permit service
on it
under South Carolina law pursuant to Rule 4(d)(7), Fed.R.Civ.P.
The evidence
amply justifies the ruling.
Service of process was undertaken pursuant to section 10-423, Code of
Laws of
South Carolina (1962), which provides that effective service may be
obtained on a
foreign corporation by serving '* * * any * * * agent thereof' in South
Carolina.
We affirm the District Court's holding, 237 F.Supp. 393, that the
extensive
control and supervision exercised by Beech over its dealer, by reason
of which
Beech is deemed to have had sufficient contacts with South Carolina, is
sufficient
to constitute that dealer the agent of Beech for service of process.
The plaintiffs being citizens of Illinois, the defendant Beech being a
corporation
of Delaware and Dixie of South Carolina, and the amount in controversy
exceeding
$10,000, all the prerequisites of federal diversity jurisdiction
specified in the
Constitution and implementing legislation are satisfied. It
is conceded that
all federal venue requirements are satisfied.
Beech, however, moved for dismissal on the ground that a federal
diversity court
sitting in South Carolina lacks jurisdiction over Beech because of South
Carolina's 'door-closing' statute, section 10-214, Code of Laws of
South Carolina
(1962). That statute provides that:
'An action against a corporation created by or under the laws of any
other state,
government or country may be brought in the circuit court: (1) By any
resident of
this State for any cause of action; or (2) By a plaintiff not a
resident of this
State when the cause of action shall have arisen or the subject of the
action
shall be situated within this State.'
It is conceded that South Carolina state courts do not have
jurisdiction over
a suit brought by a nonresident against a foreign corporation on a
foreign cause
of action. The principal question posed is whether this state
rule restricts the
jurisdiction of the federal courts in South Carolina in diversity cases.
For many years it was generally understood that federal jurisdiction
was not
affected by state statutes limiting the jurisdiction of their own
courts. In
recent years, however, this absolute approach has been modified.
The change may
be said to have begun with Erie R. Co. v. Tompkins, 304 U.S. 64, 58
S.Ct 817, 82
L.Ed. 1188 (1938), when the Supreme Court decided that in diversity
cases federal
courts must apply state substantive law, decisional as well as
statutory, in the
adjudication of statecreated rights. This doctrine was later
expanded when the
Court held that state law must be applied whenever such application
would give
rise to a different result, the so-called 'outcome-determinative'
rule.Guaranty
Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079
(1945). The
formulation of this test was shortly followed by two cases of
particular relevance
to the issue before us.
In 1947 the Court held that a Virginia plaintiff could not sue a North
Carolina
defendant for a deficiency judgment in a North Carolina federal court
because of
North Carolina's express statutory policy against such actions.Angel v.
Bullington, 330 U.S. 183, 67 S.Ct. 657, 91 L.Ed. 832 (1947). Two
years later it
held that a Tennessee corporate plaintiff could not sue a Mississippi
defendant on
a Mississippi cause of action in a Mississippi federal court when that
state would
not allow the corporation to sue in its courts because of its failure
to register
as a foreign corporation doing business there.Woods v. Interstate
Realty Co., 337
U.S. 535, 69 S.Ct. 1235, 93 L.Ed. 1524 (1949). The opinion
declared that a
federal court cannot enforce a statecreated created right when that
state provides
no remedy.
A decade later in a case arising in this circuit, the Supreme Court
reconsidered the meaning of Erie and refined the
'outcome-determinative' test.
The Court was called upon to decide the effect to be given to a South
Carolina
procedural requirement that the judge, rather than the jury, shall
determine
whether a defendant employer is entitled to the immunity from suit
conferred by
the South Carolina Workmen's Compensation Act. Such a procedure was in
conflict
with the federal practice allocating the function of determining such
issues to
the jury. The Court held that a state procedural rule must be
followed if it is
bound up with the state-created rights and obligations; but if it is a
mere form
or mode of enforcing rights its application by a federal diversity
court will
hinge on a broader inquiry. The federal court should conform in
such cases, 'as
near as may be- in the absence of other considerations- to state rules'
when they
may substantially affect the outcome of the litigation.Byrd v. Blue
Ridge
Cooperative, 356 U.S. 525, 536, 78 S.Ct. 893, 2 L.Ed.2d 953
(1958). The spirit of
these decisions makes it appropriate for a court attempting to resolve a
federalstate conflict in a diversity case to undertake the following
analysis:
1. If the state provision, whether legislatively adopted or
judicially declared,
is the substantive right or obligation at issue, it is constitutionally
controlling.
2. If the state provision is a procedure intimately bound up with
the state right
or obligation, it is likewise constitutionally controlling.*
*Such was the case in Cohen v.
Beneficial Industrial Loan Corp., 337
U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528
(1949); Ragan v. Merchants Transfer &
Warehouse Co., 337 U.S. 530, 69 S.Ct.
1233, 93 L.Ed. 1520 (1949); and
Guaranty Trust Co. v. York, 326 U.S. 99,
65 S.Ct. 1464, 89 L.Ed. 2079
(1945).
3. If the state procedural provision is not intimately bound up
with the
right being enforced but its application would substantially affect the
outcome of
the litigation, the federal diversity court must still apply it unless
there are
affirmative countervailing federal considerations. This is not
deemed a
constitutional requirement but one dictated by comity.
A like test was recently applied in Arrowsmith v. United Press
International, 320
F.2d 219 (2d Cir. 1963). There the court was concerned with the
extent to which
state or federal rules should control in the service of process on
foreign
corporations in diversity cases. The Second Circuit, speaking
through Judge
Friendly, decided first that the state service of process statute was
not
substantive, nor was it a procedure intimately bound up with the state
right being
enforced. The decision implied that this exhausted the constitutionally
compulsive
aspects of the Erie doctrine. The court then ruled that state
procedure should be
adopted in that case because there were no affirmative countervailing
federal
considerations. Judge Clark agreed that the constitutionally
compulsive aspects
of Erie were not there controlling but he dissented upon his view that a
countervailing federal policy did exist.
In the case before us the parties are in agreement that the South
Carolina
'door-closing' statute is procedural. And, as the right asserted
is one arising
under the laws of Tennessee, it cannot be contended that the South
Carolina rule
is intimately bound up with that right. It follows from this that
the
constitutional compulsions of the Erie doctrine are not applicable here.
The conclusion is fortified by the recent decision in Hanna v. Plumer,
380 U.S.
460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (April 26, 1965). There it is
pointed out that
the 'outcome-determinative' and 'forum-shopping' concepts are intended
to prevent
an 'inequitable administration of the laws' working unfair
discrimination against
citizens of the forum state. Since the citizen is limited to the
law as applied
by the state court when he sues another citizen of his state or when he
is sued by
a citizen of another state in the state court, it is reasoned that when
a citizen
of a foreign state sues in the federal court of the defendant's state,
state law
should likewise normally be applied. Here no contention is made
that rejection of
the 'door-closing' statute will result in a discrimination against
South Carolina
citizens. South Carolina plaintiffs will remain jurisdictionally
free to assert a
foreign cause of action against a foreign defendant in either a state
or federal
court in South Carolina regardless of the decision in this case.
At the heart
of Erie was the intention to prevent different legal treatment of
parties merely
because of a variation in the residence of their opponent. See
Note, 56 Yale L.J.
1037, 1045 (1947). The adoption in this case of the South
Carolina 'door-closing'
statute would result in just such a variation because the relief
available in the
federal court to the foreign residents, in this case the Illinois
plaintiffs,
would then turn on the state of incorporation of the defendant.
As above indicated, however, this analysis does not exhaust the
question. It is
necessary to go on and inquire whether the South Carolina rule embodies
important
policies that would be frustrated by the application of a different
federal
jurisdictional rule and, if so, is this policy to be overridden because
of a
stronger federal policy?
We are inhibited in our search for the state policy underlying the South
Carolina 'door-closing' statute by the unavailability of any
legislative history.
Furthermore, no South Carolina state court has, to our knowledge, shed
any light
on the problem. The language of the statute could support several
possible
explanations. It could be regarded as a statutory formulation of
the doctrine of
forum non conveniens. If so, the restriction would not be binding
on the federal
court since federal cognizance of the case would in no way frustrate
state
policy. A related consideration, to be treated in the same
manner, is the
suggested possibility that the statute was designed to relieve docket
congestion,
though there is nothing to indicate that this was a problem in 1870
when the
statute was passed.
Beech tenders the hypothesis that the legislation was designed to
encourage
foreign corporations to do business in South Carolina. This explanation
is
attenuated by the fact that the same session of the legislature
provided, as
heretofore noted, that any South Carolina agent of a foreign
corporation was to be
considered an agent for the service of process no matter where the
cause of action
arose and irrespective of the plaintiff's residence. See section
10-423, Code of
Laws of South Carolina (1962). Furthermore, South Carolina
qualification laws
indicate that foreign corporations are to be given a status generally
comparable
to that of domestic corporations. See section 12-705, Code of
Laws of South
Carolina (1962). The most that can be said for Beech's argument
is that it
demonstrates that the state's reason for enacting its 'door-closing'
statute is
uncertain.
The countervailing federal considerations, however, are explicit, and
they
are numerous. The most fundamental is that expressed in the
constitutional
extension of subject-matter jurisdiction to the federal courts in suits
between
citizens of different states.U.S.Const. Art. III, s 2. The
purpose of this
jurisdictional grant was to avoid discrimination against
nonresidents. See The
Federalist No. 80 (Hamilton); Martin v. Hunter's Lessee, 14 U.S. (1
Wheat. 304)
304, 347, 4 L.Ed. 97 (1816). The South Carolina 'door-closing'
statute permits
its residents to sue foreign corporations on foreign causes of action
yet denies
this privilege to nonresidents. While such discrimination may not
be
unconstitutional, it is the role of diversity jurisdiction, as pointed
out for
this court by Judge Haynsworth, to make certain that:
'(a) nonresident litigant in resorting to the federal diversity
jurisdiction
should obtain the same relief a resident litigant asserting the same
cause of
action would receive in the state courts.'Markham v. City of Newport
News, 292
F.2d 711, 718 (4th Cir. 1961).
A further federal consideration, likewise expressed in the Constitution
itself, is that underlying the Full Faith and Credit Clause.U.S.Const.
Art. IV, s
1. That clause expresses a national interest 'looking toward
maximum enforcement
in each state of the obligations or rights created or recognized by the
statutes
of sister states.'Hughes v. Fetter, 341 U.S. 609, 612, 71 S.Ct. 980,
982, 95 L.Ed.
1212 (1951). While the South Carolina 'door-closing' statute may
not directly
violate the demands of this constitutional principle, it is
contrary to
its implicit policy in that it prevents enforcement of the Tennessee
Wrongful
Death Action in the South Carolina state courts.
The plaintiffs' choice of a South Carolina forum was not
frivolous. One
of the defendants, Dixie, could be served only in that state. It
is a federal
policy to encourage efficient joinder in multi-party actions, and
at least
one commentator has suggested that this federal interest is sufficient
to override
an explicit conflicting state policy. Note, 77 Harv.L.Rev. 559
(1964).
Furthermore, if the plaintiffs had brought suit against Beech alone in
the federal
forum where the accident occurred, the District Judge there would have
been free
to transfer the case to a South Carolina District Court pursuant to the
federal
doctrine of forum non conveniens, 28 U.S.C.A. s 1404(a), even though
South
Carolina law denies the plaintiffs access to its state courts.Van Dusen
v.
Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964).
Our case is not controlled by Angel v. Bullington, 330 U.S. 183, 67
S.Ct. 657, 91
L.Ed. 832 (1947), or Woods v. Interstate Realty Co., 337 U.S. 535, 69
S.Ct. 1235,
93 L.Ed. 1524 (1949), referred to above. Each of these decisions
paid deference
to a clear state policy that would have been frustrated by permitting
suit in a
federal court. In Angel North Carolina forbade any deficiency
judgments, thereby
expressing a clear policy in favor of debtors and against enforcement
by anyone of
such causes of action. In Woods Mississippi's clear purpose was
to encourage
foreign corporations doing business in Mississippi to register.
Furthermore, the
cause of action sued on in Woods was created by the forum state, so the
measure of
it was to be found in the law of the state. See Ragan v. Merchants
Transfer &
Warehouse Co., 337 U.S. 530, 533, 69 S.Ct. 1233, 93 L.Ed. 1520 (1949).
Neither
case involved discrimination against nonresidents, nor were there
multiple
defendants who could be sued only in the contested forum.
South Carolina has no policy against the particular plaintiffs, as
Mississippi had
against nonregistered foreign corporations in Woods; nor does it
discourage the
type of action, as North Carolina did in respect to deficiency
judgments in Angel.
The superficiality of the South Carolina policy is demonstrated in this
case by
the fact that the plaintiffs could have gained access to a South
Carolina court by
simply qualifying as administrators under South Carolina law.
Therefore we hold that the conflict here between federal and state
policies,
if in fact one exists, is to be resolved in favor of the federal
interest in
providing a convenient forum for the adjudication of the plaintiffs'
actions.
Affirmed.