Lewis Manufacturing Co. v. Superior Court

Petition for writ of prohibition, based upon alleged invalidity of service of summons on a foreign partnership (service under Corp. Code, § 15700).

The petition alleges: That petitioner, Lewis Manufacturing Company, is a copartnership which was created by written agreement on June 1, 1952, by C. T. Lewis, Maurine Lewis, Charles Lewis, and Mary Lewis, who reside in Oklahoma, and no one of whom has lived in California. Prior to organizing such partnership, C. T. Lewis, as sole owner, conducted the business under the name of “Lewis Manufacturing Co.,” in

The answer to the petition, by the real parties in interest (plaintiffs in the action for damages), alleges that “petitioner co-partnership” was not created on June 1, 1952 but was created, at least as to Charles T. and Maurine Lewis, in 1949, and that said persons have been copartners doing business under the name of Lewis Manufacturing Company from 1949 to the present time. Petitioner, as a copartnership, was doing business in California within the meaning of section 15700 of the Corporations Code since 1949. The order granting the first motion to quash service of summons, referred to in the petition herein, was granted upon stipulation of the parties. Ed W. Plaugher, doing business under the name of Ed W. Plaugher and Associates, has been the authorized representative of petitioner in California for at least the past five years. As such representative he has solicited supply houses to purchase petitioner’s products and has carried on a continuous program of solicitations and sales talks in California on behalf of petitioner. He has listed himself on his business card as a manufacturer’s representative for several firms, one of which is petitioner. He has occasionally received orders from buyers of petitioner’s products and he has forwarded the orders to petitioner for direct delivery to the buyer. He is not a jobber as alleged in the petition, and he does not buy direct from petitioner for resale to his own customers. He has kept on hand, in California, a small supply of petitioner’s products which are treated by him as a consignment belonging to petitioner. He keeps said supply on hand for delivery to California purchasers in case of emergency. He, on behalf of petitioner, has taken dimensions for canvas engine houses, sold by petitioner, when the same have been ordered by California purchasers, and he has forwarded the orders to petitioner for delivery to the purchasers. After such delivery Plaugher supervises the erection of said houses. In return for his services on behalf of petitioner, he has received a commission of 10 per cent on all sales of petitioner’s products in California. For the year 1953 petitioner’s receipts from the sale of its products in California amounted to approximately $6,000.

In the affidavit of C. T. Lewis, filed in support of the motion to quash service of summons, it is stated: that for approximately 18 years he has been in the business of selling oil field supplies and equipment; he has traded under the name of Lewis Manufacturing Company since he started in business; said company’s office and warehouse are located in Oklahoma and it has no other office or warehouse; its sales are limited to wholesale and retail dealers; most of its sales in California are handled by Edward W. Plaugher; he (C. T. Lewis) started dealing with Plaugher about 1949; he and Plaugher made an informal oral arrangement whereby Lewis was to pay Plaugher a commission on sales in California of Lewis’ products; all orders of the products are subject to acceptance by the company in Oklahoma; Plaugher is and has been at all times an independent contractor; Lewis Manufacturing Company and Lewis have no control over Plaugher’s business activities and no financial interest in his business; there was nothing in their agreement to prevent Plaugher from dealing with any other manufacturer even if the products were in competition with Lewis Manufacturing Company ; Plaugher does not carry a full supply of the products of Lewis Manufacturing Company; he keeps only a few pieces to fill emergency orders and use as samples, and the value of said stock is less than $20; Lewis Manufacturing Company does not maintain any stock of materials in California; it has never had a salesman residing or employed in California; it has never done any manufacturing, selling or purchasing in California; it has never had a bank account, a mailing address, or telephone or directory listing, in California; it owns no property, has never rented property and pays no taxes in California; it has done no advertising in California and does not attempt to solicit business therein other than to mail its catalogue and price lists to firms who have purchased its products; the total volume of its sales in California is less than one per cent of its total sales; during the fiscal year ending May 31, 1954, its total sales in California amounted to $3,216.68, or 1.051 per cent of its total sales; during the fiscal year ending May 31, 1955, its total sales in California amounted to $2,975.85, or 0.924 per cent of its total sales; and

The deposition of Ed W. Plaugher, filed in the superior court in opposition to the motion to quash service of summons, states that Plaugher’s first discussion regarding the products of the Lewis Manufacturing Company was in 1948 or 1949 with E. L. Oliver, who was a salesman for that company; Oliver asked Plaugher if he would like to look after the belts in California and see if he could get certain companies interested; after that conversation Plaugher began calling on oil equipment supply houses in California; Plaugher first met C. T. Lewis in 1948 or 1949 and at that time Plaugher was already solicting business for him in California; they entered into an oral arrangement whereby Plaugher was to receive a commission of 10 per cent on the gross sales of any goods which Lewis sold and shipped into California, regardless of whether Plaugher got the account or whether it was an account that Lewis had prior to the time Plaugher tried to sell the goods; in accordance with that agreement Plaugher has continued to solicit business ' for the Lewis Manufacturing Company; after Plaugher began to solicit business in California for the Lewis Company, Lewis sent him commissions on anything that was sold and shipped into California, regardless of whether the order came directly from Plaugher or was a direct order from a supply house in California to Lewis in Oklahoma; that arrangement has continued from 1948 or 1949 to the present time; in 1953 he received $600 as commissions; in 1954 he received $71.45 as commissions; in 1955 (from April to time of taking deposition in September) he received $260; on occasions he received orders for the Lewis Company products from supply houses, and he forwarded them to the company; he never collected any money due to the company; all the billing is done by the company; his activities on behalf of Lewis have been to solicit orders and stimulate business in California; he would call on supply companies and ask them to put in the Lewis line of belts or other products; and he would explain the features of the belt; he (Plaugher) has three employees in his organization; he and his employees have solicited and obtained orders for canvas engine houses that Lewis manufactures; in taking the orders for the engine houses, he made the measurements and sent them with the order, and after the houses had been shipped here he would see that they were erected properly;

The evidence shows that the representative of the Lewis Manufacturing Company, by agreement with the coinpany, solicited, stimulated and obtained business in California for the company; that the company obtained a substantial amount of business through such representative; that the representation was not carried on occasionally or casually but was carried on with “permanence and continuity”; that the representative had some responsibility for the conduct of local transactions of the company, namely, fitting the canvas engine houses over engines; and that the agent was paid substantial commissions for his services. Under the evidence herein the business activities of petitioner in California constituted doing business in this state within the meaning of section 15700 of the Corporations Code. As stated in Kneeland v. Ethicon Suture Laboratories, supra, 118 Cal.App.2d 211 , 228 [ 257 P.2d 727 ], the activities constituted doing business in this state, “to the extent that assumption of jurisdiction over it is consistent with due process; and that there is afforded to both parties a greater amount .of justice by allowing suit in this state rather than requiring it elsewhere. ’ ’

Petitioner contends that, in order to secure service on a foreign partnership under the provisions of said section 15700, the cause of action must arise out of business done in this state; and that the claim, in the action referred to herein, is not connected with any business the petitioner did here. Petitioner argues that the burden is upon the plaintiffs in said action to show that petitioner was doing business in California, and that the cause of action arose out of the business petitioner was doing in California. This contention pertains to an issue which may arise if and when petitioner answers the complaint. The issues presented upon petitioner’s motion to quash service of summons do not require a determination of the merits of the action on the subject of negligence. The evidence upon the motion to quash service was sufficient to warrant the trial court in finding, prelimi

Petitioner contends further that if section 15700 of the Corporations Code is construed to authorize service on a partnership domiciled outside the state the section is unconstitutional. It argues that a foreign partnership has the right to do business in this state or any state and that such partnership, unlike a corporation, is not required to obtain the consent of a state to do business therein; that since a state cannot prohibit a foreign partnership from doing business in that state, it cannot make the foreign partnership subject to civil process in that state (in which the partnership is not domiciled). Petitioner relies upon Flexner v. Farson (1919), 248 U.S. 289 [ 39 S.Ct. 97 , 63 L.Ed. 250 ], and asserts that said case settles the question and holds that a foreign partnership is not subject to civil process in a state in which the partnership is not domiciled. That case, which is factually distinguishable from the present one, is not to be regarded as holding that a foreign partnership is not subject to civil process in a state in which it is not domiciled. In that case an action was brought in Illinois upon a judgment which had been rendered in Kentucky. The Illinois complaint alleged: that the transaction which was the basis for the Kentucky judgment took place in Kentucky where the defendants were doing business as partners through W. Flexner who was their agent; that the defendants were nonresidents of Kentucky and that service of summons in the Kentucky action was made upon W. Flexner, in accordance with a Kentucky statute authorizing service to be made in that way. In the Illinois action, the answer alleged: that the defendants named in the Kentucky action did not reside in Kentucky, were not served with process, and did not appear; that W. Flexner (upon whom summons was served in Kentucky) was not the agent of defendants at the time of service of summons upon him; that the Kentucky statute was unconstitutional; the Kentucky court had no jurisdiction and its judgment was void. In the Illinois action, the plaintiff demurred to the answer. After the demurrer was overruled, the plaintiff stood upon the demurrer, and judgment was entered for defendants. The Supreme Court of Illinois affirmed the judgment. In the United States Supreme Court, upon review of the Illinois judgment, it was argued that the answer (in

In an annotation in 94 Law. Edition it is said at page 1176 : “Upon its face the decision in the Flexner Case (U.S.) supra, would seem to be conclusive against a state’s power to authorize substituted service upon nonresident individuals, even though they do business within the state. However, there are various reasons supporting the belief that the decision can be given no such effect. The state statute involved failed to limit the actions in which process may be served to those arising out of transactions within the state. Moreover, it was admitted that the person served was not in fact the agent of the partnership. Finally, the decision is inconsistent with the basic legal theories expressed in more recent decisions of the Supreme Court. Thus, in International Shoe Co. v. Washington (1945) 326 U.S. 310 , 90 L.ed. 95, 66 S.Ct. 154 , 161 A.L.R. 1057 , the court stated that ‘due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contracts [contacts] with it such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” ’ While the proposition so stated is, as regards jurisdiction over individuals, only a dictum, it has been pointed out that there seems no reason that a continuous course of business conducted by the agents of a nonresident individual should not be considered the equivalent of such ‘minimum contacts.’ It has

“In accord with the more recent view is Henry L. Doherty & Co. v. Goodman (1935) 294 U.S. 623 , 79 L.ed. 1097, 55 S.Ct. 553 , involving an action for damages based upon an alleged illegal sale of securities, where it was held that the constitutional rights of a nonresident defendant, who had a local office in the state for the sale of such securities—a business subjected in the state to special regulation—were not violated by service of process, under a state statute permitting such service, on an agent or clerk employed in his office. The case of Flexner v. Farson (1919) 248 U.S. 289 , 63 L.ed. 250, 39 S.Ct. 97 , supra, was distinguished on the ground that in the latter case the service was made upon one not then an agent for the defendant.”

In Davidson v. Henry L. Doherty & Co., 214 Iowa 739 [ 241 N.W. 700 , 91 A.L.R. 1308 ], in distinguishing the Flexner ease, it was said (pp. 747 and 748) : “It is important that we consider the facts in that case. ... It was sought [therein] to obtain judgment against the individual partners who were non-residents of the state, by service upon a purported agent of said partnership. It also appeared that the only person so served was not the agent of the partnership at the time of service. ” The defendant, in the Davidson case, was a resident of New York and conducted business therein as an individual under a trade name. He also had an office in Iowa (for the sale of shares of stock). Service of process was made upon defendant’s agent in Iowa pursuant to a statute of that state which provided that when a corporation, company or individual has an office for the transaction of business in any county other than that in which the principal resides, service may be made on any agent or clerk employed in said office in actions growing out of or connected with business of that office. It was held therein that such statute was applicable to individual nonresidents and that it was constitutional.

The case of Henry L. Doherty & Co. v. Goodman, supra, was referred to in 23 California Law Review 482 in an article by

In Restatement of the Law of Judgments it is said at page 114, section 24: “A court in a State in which a partnership or other unincorporated association is subject to be sued in the firm or common name acquires by proper service of process jurisdiction over it as to causes of action arising out of business done by the association in the State.” It was also said therein at page 115: “Even though the partnership or association does business within the State, the courts of the State acquire jurisdiction over it only as to causes of action arising out of the business done in the State. ... A court cannot exercise jurisdiction over a partnership or association unless there is such service of process as is reasonably calculated to give it notice of the action and an opportunity to be heard. . . . Service upon one of the partners or upon an agent in charge of the business is sufficient. ... A judgment rendered against a partnership ... in accordance with the rule stated in this Section is a binding adjudication as to the liability of the partnership or association with respect to its

Section 388 of the Code of Civil Procedure provides: “When two or more persons, associated in any business, transact such business under a common name . . . the associates may be sued by such common name, the summons in such cases being served on one or more of the associates; and the judgment in the action shall bind the joint property of all the associates, and the individual property of the party or parties served with process, in the same manner as if all had been named defendants and had been sued upon their joint liability.” It thus appears that in California a partnership may be sued in the partnership or firm name and that judgment may be rendered against the partnership in the partnership name. Section 15700 of the Corporations Code refers to service of process on the partnership only and does not contemplate service as a basis for personal liability of the partners.

It could be inferred from the deposition of Plaugher that, pursuant to safety regulations of the state of California, the safety belts of petitioner were approved by the state. He testified that “for quite some period of time I did not solicit belts, safety belts for the simple reason that they were not at that time supposed to be State approved and no store would want to stock them.” Safety belts used in California in connection with work on derricks must be of a type approved by the Division of Industrial Safety of California. (Cal. Admin. Code, § 6580, subd. (b), tit. 8.)

Section 15700 of the Corporations Code is based upon section 2472 of the Civil Code which was enacted in 1909. In other words, the substance of said section 15700 has been a statutory provision since 1909. Service of summons under the provisions of section 15700 of the Corporations Code did not deprive petitioner of due process of law. Petitioner was doing business in this state within the meaning of said section. The "evidence was sufficient to warrant a preliminary finding, for the purposes of the motion, that the cause of action arose out of business done in this state. The portion of the business, pertaining to safety belts for use in California, was subject to regulation by California, in that, the approval of the belts by the state was required. Petitioner had “contacts” with this state to the extent that, as stated in International Shoe Co. v. Washington, 326 U.S. 310 , 316 [ 66 S.Ct.

The petition for a writ of prohibition is denied. The alternative writ of prohibition is discharged.

Shinn, P. J., and Vallée, J., concurred.