Thomas v. Hudson Sales Corp.

Collins, J., delivered the opinion of the Court. This is an appeal from an order granting the motion of the appellee, Hudson Sales Corporation, (Hudson Sales), a Michigan Corporation, to quash a writ of attachment. The short note case was filed against Hudson Motor Car Company, (Hudson Motor), also a Michigan Corporation, to recover an alleged debt of $66,000.00 which the plaintiff, appellant, Graydon Thomas, claims is due and owing him by Hudson Motor for the delivery at Pittsburgh, Pennsylvania, of 12,000 net tons of steel ingots. The writ of summons was issued against Hudson Motor and returned non est.

A writ of attachment was then served upon the appellee, Hudson Sales, by service upon the Maryland State Tax Commission. The appellee, Hudson Sales, the garnishee, in the attachment case, moved to quash the writ of attachment. From an order ⁴⁵⁴ by the trial judge granting that motion on the ground that Hudson Sales was not “doing business” in Maryland the appellant appeals. For the purposes of this case the facts follow.

The appellant, Graydon Thomas, is a resident of the State of Maryland. Hudson Motor is a non-resident corporation and has no place of business in Maryland. Hudson Sales is also a non-resident corporation and claims it has no warehouse, factory, shop, plant, building, or office in this State and maintains no books, records, bank accounts, stocks of goods, automobiles, automobile parts, or merchandise within this State and does no business here. Hudson Motor produces automobiles and parts in Detroit, Michigan.

These automobiles and parts are distributed through Hudson Sales with its main office in Detroit, Michigan. Hudson Sales has twenty zone offices throughout the United States and Hudson Motor automobiles, automobile parts and related products are distributed wholesale to authorized Hudson dealers through its twenty offices. The nearest zone office to Maryland is located in Alexandria, Virginia. Sales of new Hudson automobiles and automobile parts and the rendering of specialized Hudson service is done only through authorized Hudson dealers.

Hudson Sales claims that it delivers Hudson automobiles, parts and products to dealers in Maryland by delivery to common carriers in Detroit for the account of the dealer and at the dealer’s risk. Occasionally automobiles or parts are delivered to Maryland dealers at the zone office in Alexandria. Hudson Sales also claims that payment for deliveries by sales to Maryland dealers is made either in Detroit or in Alexandria. There have been occasions when automobiles have been shipped to Baltimore and paid for in Baltimore through Associates Discount Corporation.

Mr. Frank Burnham, who has been residing in Baltimore County, Maryland, for twenty-five years, has been the District Manager for Hudson Sales for three years. He makes inquiries to determine whether or not an ⁴⁵⁵ existing automobile dealer might be interested in becoming a Hudson franchise dealer. He is the only person who solicits franchises in his territory. When applications for franchises are accepted by Mr. Burnham from the prospective dealers, they are sent to the home office for approval or rejection.

If approved, they are signed by Mr. C. W. Margetts, Zone Manager, who lives in Virginia. Mr. Burnham explains to the prospective dealers what Hudson requires in the way of buildings and equipment. He states that he had no authority to formally accept a franchise or contract. However, he does not recall any incident where his recommendation for the acceptance of a dealership has been denied.

These franchises are usually on a yearly basis with a renewal clause but can be terminated for certain reasons at any time. These franchises require the dealers to promote the sale and service of Hudson products and require them to purchase from Hudson Sales. Hudson Sales extends credit to the dealers as an inducement to enter into a franchise contract. The dealers are required to keep on hand certain parts and a definite number of new Hudson automobiles and a definite number of demonstrators.

Eighteen Maryland counties, all of Baltimore City and four or five counties in West Virginia comprise Mr. Burnham’s territory. Frequently Hudson dealers contact him at his home in Baltimore County by telephone. The dealers call him whenever the occasion arises. His general duties are to solicit sales of new Hudson automobiles to the dealers and to advise and assist them for the purpose of improving their business and profits.

The dealers usually follow Mr. Burnham’s recommendations. Most of his time is spent in Maryland. He contacts the dealers in the Maryland counties about once a month and those in Baltimore City perhaps once a week. Sometimes the dealers call Mr. Burnham at his home and ask him to “pick up” certain particular automobiles for the dealers, which he does.

Occasionally, automobiles and parts are delivered directly to Maryland dealers at the Alexandria office. ⁴⁵⁶ Mr. Andy Miller has been Service Manager for Hudson Sales in the Maryland district for a year and is also a resident of Baltimore County. As the parts serviceman, his duties are to call on the dealers regularly to see that they maintain and stock replacements of spare parts. He sometimes instructs the dealers in the use of new equipment. Also, if the dealers have any service problems, he helps them with those problems at their place of business.

The total amount of business done by Hudson Sales in Maryland is not shown, but one dealer stated that he purchased 750 automobiles yearly at a cost of from $2,500.00 to $2,800.00 each, or at a total cost of approximately two million dollars. Hudson automobiles are advertised extensively in the Baltimore newspapers. Each dealer is required to pay a certain amount into an advertising fund which is kept by Hudson Sales as a separate and distinct account. This money is handled by Hudson Sales, which must approve the spending of the money for advertising paid out of that fund.

It sometimes refuses requests of the dealers to spend money for advertising. The dealers to some extent have control over this advertising, but Hudson Sales has the final decision. Certain other features of advertising, Hudson Sales alone takes care of. The participation of Hudson dealers in the annual automobile show held in Baltimore is paid in part by Hudson Sales out of its bank account.

About twelve times during the year sales promotion meetings are held in the Belvedere Hotel in Baltimore. The dealers and managers attend these meetings which are conducted by Hudson Sales and the cost of the meetings is paid for by it. The dealers are told what the production schedules are, how many automobiles they can anticipate in future shipments, just what Hudson Sales would like them to sell in order to take care of production, what employees of Hudson Sales are available, and what equipment can be had and used. These meetings are attended by the dealers, Mr. Burnham, and Mr. Margetts, the Zone ⁴⁵⁷ Manager, who comes to Maryland three or four times a year.

Mr. Vanderzee, a vice-president of Hudson Sales, has attended these meetings on occasions. Essentially, attachment and garnishment is an action by the defendant against the garnishee for the use of the plaintiff. Therefore the rights of the plaintiff can never rise above those of the defendant. If the defendant cannot sue the garnishee in the courts of the state in which the attachment is filed, the plaintiff cannot do so. 2 Shinn on Attachment and Garnishment, Sec. 516, page 893; Hodge & McLane, Attachments, Sec. 148; Myer v. Liverpool, London & Globe Ins., Co., (1874), 40 Md. 595 ; Cole v. Randall Park Holding Co., (1953), 201 Md. 616, 623-624 , 95 A. 2d 273, 277 .

The defendant, Hudson Motor, being a non-resident, the appellant, plaintiff below, Graydon Thomas, here is treated as a nonresident. The cause of action as above stated did not arise out of business in this State. Therefore the parts of Article 23, Section 88, 1951 Code, applicable here are “* * * (b) Every foreign corporation doing intrastate or interstate or foreign business in this State shall be subject to suit in this State by a non-resident of this State. * * * (2) provided that the bringing of such suit in this State is not an undue burden upon the defendant or upon interstate or foreign commerce, on any cause of action arising outside of this State.” The first question presented is: Should we consider Hudson Sales as “doing business” in Maryland within the meaning of Section 88(b), supra, and, if so, is the nature of its business in Maryland such as to sustain the suit in Maryland against the constitutional objection that such suit violates the due process clause of the Constitution of the United States? The Maryland cases are not helpful under the facts in the instant case.

Central of Ga. R. R. Co. v. Eichberg, (1908), 107 Md. 363 ; State v. Penn. Steel Co., (1914), 123 Md. 212 ; Hieston v. Nat’l. City Bk. of Chicago, (1918), 132 Md. 389 ; Baden v. Washington Loan & T. Co., (1919), 133 Md. 602 ; Lime Co. v. Wolfenden, (1937), ⁴⁵⁸ 171 Md. 299 ; Bank v. Meyers & Co., (1948), 182 Md. 556 ; Davidson Transfer Co. v. Christian, (1951), 197 Md. 392 .

It has been repeatedly held that the mere soliciting and obtaining of orders within a state by an agent of a foreign corporation for goods to be shipped into such state to the purchaser, does not amount to “doing business” within the state, such as to render the corporation subject to service of process therein. People’s Tobacco Co. v. American Tobacco Co., 246 U. S. 79 , 38 S. Ct. 233, 235 , 62 L. Ed. 587 ; Bruner v. Kansas Moline Plow Co., (C.C.A.), 168 F. 218 ; Id., 7 Ind. T. 506 , 104 S. W. 816 ; Lime Co. v. Wolfenden, 171 Md. supra. It appears that manufacturers of automobiles and other manufacturers who have followed more or less the following pattern in foreign states have been held not to be “doing business” in those foreign states.

A foreign corporation which has its principal business in another state, sells its products to distributors outside of that state, and the products are shipped f.o.b. with drafts attached. A district superintendent is employed whose territory includes foreign states. He visits distributors and dealers and advises them how to sell the products, how to keep up their stock of goods, and selects new dealers subject to the approval of the company. All contracts are executed by an officer of the corporation outside of the foreign state, the district superintendent having no authority to finally ratify any contracts.

Among cases so holding are Holzer v. Dodge Bros., (1922), 233 N. Y. 216 , 135 N. E. 268 ; Zimmers v. Dodge Bros., (Dist. Ct., Northern Dist., Illinois, 1927), 21 F. 2d 152 ; Hinchcliffe Motors, Inc. v. Willys-Overland Motors, Inc., (Dist. Ct., Mass., 1939), 30 F. Supp. 580 ; Johns v. Bay State Abrasive Products Co., (1950), 89 F. Supp. 654 ; Harrison, et al. v. Robb Mfg. Co., (1953), 110 F. Supp. 848 .

However, where corporations have gone beyond that pattern the cases have held that they were “doing business” in the foreign state and that suit there did not ⁴⁵⁹ violate the due process clause. In International Shoe Co. v. State of Washington, (1945), 326 U. S. 310 , 66 S. Ct. 154 , 90 L. Ed. 95 , 161 A. L. R. 1057, International Shoe, a Delaware corporation, with its principal place of business in St. Louis, Missouri, and engaged in the manufacture of footwear, was sued by the State of Washington for Unemployment Compensation contributions on thirteen salesmen residing in the State of Washington and who were paid by commissions based upon the amount of sales. They were under the direct supervision and control of sales managers located in St. Louis. The corporation had no office in the State of Washington and made no contracts either for sale or purchase of merchandise there.

It supplied its salesmen with a line of samples which they displayed to prospective purchasers. On occasion they rented permanent sample rooms for exhibiting samples in business buildings or rented rooms in hotels for that purpose. The cost of such renting was paid by the corporation. The salesmen who solicited the orders forwarded them to St. Louis for acceptance or rejection.

When accepted the merchandise was shipped f.o.b. from points outside Washington State to the purchasers within the State and invoiced at the place of shipment from which collection was made. The salesmen had no authority to enter into contracts or to make collections. The Supreme Court of the State of Washington had held that the regular and systematic solicitation of orders resulting in a continuous flow of products into the State, plus the additional activities of the displays in display rooms and the residence of salesmen within the State continuing over a period of years, constituted “doing business” in that State and rendered the corporation amenable to suit there. In affirming the Supreme Court of Washington, Mr. Chief Justice Stone said, among other things: “* * * 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 contacts with it such that the maintenance of the suit does not offend ⁴⁶⁰ ‘traditional notions of fair play and substantial justice’. * * * Finally, although the commission of some single or occasional acts of the corporate agent in a state sufficient to impose an obligation or liability on the corporation has not been thought to confer upon the state authority to enforce it, Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U. S. 516 , 67 L. Ed. 372 , 43 S. Ct. 170 , other such acts, because of their nature and quality and the circumstances of their commission, may be