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CRS Annotated Constitution

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[p.1710]

Suability of Foreign Corporations.—Because of the curious status of corporations in American law,110 the basis of the assertion of jurisdiction of the courts of a State over a foreign corporation has been even more uncertain than that with respect to individuals, although the terms have been common. First, 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.111 Second, the corporation by doing business in a State was deemed to be present there and thus subject to service of process and suit because it was present.112 Presence conflicted with the prevailing idea of corporations as having no existence outside their State of incorporation, but the theory 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.113 Generally, with rare exceptions, even continuous activity of some sort by a foreign corporation within a State did 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.114 And if the corporation stopped doing business in the forum State before suit against it was commenced, it might well escape jurisdiction alto[p.1711]gether.115 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.116 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.117

The rationales and premises of these cases were swept away in International Shoe Co. v. Washington,118 although, of course, the results in many of them would stand on the basis of the “minimum contacts” analysis there adopted. International Shoe, a foreign corporation, had not been issued a license to do business in the State, but it systematically and continuously employed a force of salesmen, residents thereof, to canvass for orders therein, and was held suable in Washington for unpaid unemployment compensation contributions in respect to such salesmen. Service of the notice of assessment personally upon one of its local sales solicitors plus the forwarding of a copy thereof by registered mail to the corporation’s principal office in Missouri was deemed sufficient to apprise the corporation of the proceeding.

To reach this conclusion the Court not only overturned prior holdings to the effect that mere solicitation of patronage does not constitute doing of business in a state sufficient to subject a foreign corporation to the jurisdiction thereof,119 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[p.1712]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.”120 As to the scope of application to be accorded this “fair play and substantial justice” doctrine, the Court, at least verbally, 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.”121 Read literally, these statements coupled with the terms of the new doctrine lead to a reversal of former decisions which: (1) nullified the exercise of jurisdiction by the forum State over actions arising outside the State and brought by a resident plaintiff against a foreign corporation doing business therein without having been legally admitted and without having consented to service of process of a resident agent; and (2) exempted a foreign corporation, which has been licensed by the forum State to do business therein and has consented to the appointment of a local agent to accept process, from suit on an action not arising in the forum State and not related to activities pursued therein.

By an extended application of the logic of the position, a majority of the Court ruled that, notwithstanding that it solicited business in Virginia solely through recommendations of existing members and was represented therein by no agents whatsoever, a foreign mail order insurance company had through its policies developed such contacts and ties with Virginia residents that the State, by forwarding notice to the company by registered mail only, could institute enforcement proceedings under its Blue Sky Law leading to a decree ordering cessation of business pending compliance with that act.122 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,[p.1713]especially in view of the fact that such suits could be more conveniently tried in Virginia where claims of loss could be investigated.123 Likewise, under a California statute, subjecting foreign mail order insurance companies to suit in California on insurance contracts with residents thereof, petitioner was enabled to obtain a valid judgment in a California court against a Texas insurer served only by registered mail.124 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, no evidence had been presented that it had solicited anyone other than this 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.”125

“Looking back over the long history of litigation a trend is clearly discernible toward expanding the permissible scope of state[p.1714]jurisdiction over foreign corporations and other nonresidents.”126 However, during the same Term, the Court found in personam jurisdiction lacking for the first time since International Shoe, and after a long period of declining to review the exercise of state court jurisdiction the Court pronounced firm due process limitations. Thus, in Hanson v. Denckla,127 the issue was whether Florida courts obtained through use of ordinary mail and publication jurisdiction over corporate trustees of property the subject of a contest over a will; the will had been entered into and probated in Florida, the trustees were resident in Delaware and were indispensable parties with claimants who were resident in Florida and who had been personally served. Noting the trend in enlarging the ability of the States to obtain in personam jurisdiction over absent defendants, the Court denied that the States could exercise nationwide in personam jurisdiction and said that “it would be a mistake to assume that this trend heralds the eventual demise of all restrictions on the personal jurisdiction of state courts.”128 The Court recognized 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 due process restrictions did more than guarantee immunity from inconvenient or distant litigation. “They 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[p.1715]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.”129

In World–Wide Volkswagen Corp. v. Woodson,130 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 sustained personal injuries in Oklahoma in an accident involving an alleged defect in their automobile, which they had purchased the previous year in New York, while they were New York residents, and which they were driving through Oklahoma on their way to a new residence in Arizona. Defendants were the automobile retailer and its wholesaler, New York corporations that did no business in Oklahoma. The Court found no circumstances justifying assertion by Oklahoma courts of jurisdiction over defendants. They (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 is 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.”131 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.”132 Thus, a defendant must, as the Court said in Denckla, “purposefully [avail] itself of the privilege of conducting activities within the[p.1716]forum State,”133 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.”134

The Court has applied International Shoe principles in several more situations. Circulation of a magazine in the forum state is an adequate basis for jurisdiction over the corporate magazine publisher in a libel action; the fact that the plaintiff has no contact with the forum state is not dispositive since the inquiry focuses on the relations among the defendant, the forum, and the litigation.135 On the other hand, 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 that would otherwise be absent.136 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.137


Footnotes

110 Cf. Bank of Augusta v. Earle, 38 U.S. (13 Pet.) 519, 588 (1839) (corporation has no legal existence outside the boundaries of the State chartering it).
111 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) .
112 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).
113 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) .
114 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) .
115 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) .
116 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).
117 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) .
118 326 U.S. 310 (1945) .
119 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.
120 International Shoe Co. v. Washington, 326 U.S. 310, 316–17 (1945) .
121 Id. at 319.
122 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. Id. 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).
123 Id. 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. 339U.S. at 647 339U.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) .
124 McGee v. International Life Ins. Co., 355 U.S. 220 (1957) .
125 Id. 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. Id. 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.
126 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).
127 357 U.S. 235 (1958) . The decision was 5–to–4. See id. at 256 (Justice Black dissenting), 262 (Justice Douglas dissenting).
128 Id. 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.” Id. at 260.
129 Id. 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. Id. at 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 Insurance Co. v. Hague, 449 U.S. 302 (1981) .
130 444 U.S. 286 (1980) .
131 Id. at 297.
132 Id. at 299.
133 Hanson v. Denckla, 357 U.S. 235, 253 (1985) , quoted in World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) .
134 Id. 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, id. 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. Id. 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.
135 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).
136 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).
137 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).
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