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Klein v. Sunbeam Corp.

Supreme Court of Delaware

December 31, 1952


Page 386

[47 Del. 527] John Van Brunt, Jr., and David Snellenberg, II (of Killoran & Van Brunt), Wilmington, for appellant.

Page 387

David F. Anderson and James L. Latchum (of Berl, Potter & Anderson), Wilmington, for appellee.

WOLCOTT and TUNNELL, JJ., and BRAMHALL, Vice-Chancellor, sitting.

WOLCOTT, Justice.

The appellant (hereinafter called plaintiff), a retail store operator, sued the appellee (hereinafter called defendant), an Illinois corporation, for the publication of an alleged libelous statement. The complaint alleges in substance that the defendant sent to all of its distributors in the United States a letter which, in particular, was received by four such distributors in the State of Delaware; that the letter in question was understood by the four Delaware distributors to refer to the plaintiff; that the defendant intended the letter to refer to the plaintiff, and that the statement in the letter referring to the plaintiff was untrue, false and defamatory.

Attached to the complaint as an exhibit is the letter in question. The allegedly libelous portion of the letter is as follows:

'We [defendant] ourselves have been seriously embarrassed in two current Fair Trade suits in two different cities when the defendants submitted affidavits purporting to show that Sunbeam distributors themselves violated our Fair Trade Contract by selling at dealers' cost prices to 'people coming in off the street'. Prompt investigation revealed that the defendants obtained such affidavits in a tricky manner by apparently inducing employees of bona fide dealers (who are on a cash basis) to make cash purchases from the distributors presumably for their employers--but then stating in affidavits that the purchases were made by them as individuals, thus inferring that the distributors would sell at such prices for cash to anyone of the general public.'

In order to connect the plaintiff to the allegedly libelous portion of the letter, it is alleged that at and prior to the date the letter was mailed, the plaintiff was named as a defendant in a civil action instituted in the Court of Chancery of this state in which action the defendant was the plaintiff.

[47 Del. 529] After the filing of the complaint the defendant appeared specially and moved to quash the service which had been made upon an officer of the defendant temporarily within the State of Delaware. The question raised by the motion to quash was whether or not the defendant was 'doing business' within the State of Delaware to an extent justifying the service of process upon an agent of a foreign corporation pursuant to the provisions of 1935 Code, § 4589. The court below denied the motion to quash.

Thereupon, the defendant filed, pursuant to Rule 12(b)(6) of the Rules of the Superior Court, a motion to dismiss the complaint for failure to state a claim upon which relief can be granted, on the ground that no libelous matter was contained in the letter sent by the defendant to its Delaware distributors. The court below dismissed the complaint upon the authority of Zanker v. Lackey, 2 W.W.Harr. 588, 128 A. 373, a 1924 decision of the Superior Court sustaining a demurrer to a declaration in an action on the case for libel.

From the order dismissing the complaint the plaintiff has taken this appeal. In the brief filed by the defendant, the question of the jurisdiction of the Superior Court over the defendant has again been raised. Thus, this appeal presents for our decision two questions, viz., (1) Does the Superior Court have jurisdiction in this cause over the defendant?, and (2) Does the complaint state a cause of action for libel upon which relief can be granted?

(1) Does the Superior Court have jurisdiction in this cause over the defendant?

The jurisdiction of the Superior Court over the defendant in this cause was raised below by the defendant's motion to quash the service of process upon it. The defendant, an Illinois corporation, is not registered under 1935 Code, § 2247 and has not designated an authorized agent in this state to receive service of process. The service of process in the instant cause was made upon a Vice-President of the defendant who was temporarily in [47 Del. 530] Delaware and was purportedly

Page 388

The court below denied the motion to quash the service and treated the question as one to be decided solely under the Fourteenth Amendment of the Federal Constitution. Under the rules announced by the United States Supreme Court, a foreign corporation becomes subject to suit in personam within a state other than that of its incorporation when its business activities within that state are such as to justify the inference that it is present there. Philadelphia & Reading Ry. Co. v. McKibbin, 243 U.S. 264, 37 S.Ct. 280, 61 L.Ed. 710. This is the so-called 'doing business' rule.

The question of what constitutes 'doing business' in a state other than that of incorporation has been passed upon repeatedly by the federal courts. The process of judicial decision has culminated in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, which laid down the rule that a foreign corporation is doing business in a state sufficiently to constitute corporate presence in that state when the business done amounts to solicitation of business with some additional evidence of business activity within the confines of the state. Largely upon the authority of the International Shoe Co. case, the court below denied the defendant's motion to quash the service of process.

The business activities of the defendant in Delaware consisted of, first, the active solicitation of business through non-resident salesmen and otherwise over a number of years; second, a continuous course of supervision and policing of the defendant's wholesalers and retailers in connection with the maintenance of a price structure for its products pursuant to its Fair [47 Del. 531] Trade Contracts with Delaware distributors; third, on one occasion, in connection with a sales promotion program, the warehousing in Delaware of a large inventory of electrical appliances from which orders to Delaware retailers were filled; fourth, the institution against the present plaintiff of a suit to enforce its Fair Trade Contract prices; and, fifth, generally speaking, the promotion, advertising and display of its products in Delaware.

The court below found the recited instances of business activities of the defendant as facts. These findings are supported by the record and indeed are not challenged by the defendant. Recognizing that each fact standing alone would probably not justify a finding of corporate presence, the court below held that in the aggregate the activities of the defendant amounted to more than mere solicitation of business and thus warranted a finding of corporate presence in Delaware. The court attached particular significance to the storage of an inventory of products in Delaware from which deliveries were made to Delaware retailers and to the defendant's efforts by supervision and policing to maintain its established price structure for its products, since, upon analysis, those efforts were nothing more than direct attempts in Delaware by the defendant to protect its property interest in its trade names and the good will built up for them. Such matters may be said to be a manifestation of corporate presence. Cf. La Porte Heinekamp Motor Co. v. Ford Motor Co., D.C., 24 F.2d 861.

On this showing, the court below ruled that the defendant was present in Delaware within the meaning of the due process requirements of the Fourteenth Amendment to the Federal Constitution. We agree. However, the defendant makes an argument not based upon the Fourteenth Amendment, presumably also made to the court below, although certainly not with the same degree of emphasis now placed upon it by the defendant. This argument is that 1935 Code, § 2247, requiring the registration and certification of agents for the acceptance of service of process by foreign corporations seeking to do business in this state, also defines for all other purposes what shall constitute the [47 Del. 532] 'DOING OF BUSINESS' BY A FOREIGN CORPORAtion within

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the state of Delaware. The argument is based upon the following language appearing in the statute:

'* * *; provided, however, that no corporation created by the laws of any other State, or the laws of the United States, shall be deemed to be doing business in this State (nor shall such corporation be required to comply with the provisions of ...

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