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MAGNAFLUX CORPORATION v. FOERSTER

October 18, 1963

MAGNAFLUX CORPORATION, A DELAWARE CORPORATION, PLAINTIFF,
v.
FRIEDRICH FOERSTER, ETC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Decker, District Judge.

This case involves a lawsuit by Magnaflux Corporation, a Delaware corporation licensed to do business and with its principal place of business in the State of Illinois, (hereinafter referred to as Magnaflux). Magnaflux sues Dr. Friedrich Foerster (hereinafter referred to as Foerster) for breach of a contract executed November 5, 1954, and subsequently amended July 14, 1961.

Foerster is a citizen of the Federal Republic of Germany, and he maintains his residence in the City of Reutlingen in West Germany.

Also joined as defendants in the one count complaint are three other parties alleged to have entered into a conspiracy to induce Foerster to breach his contract with Magnaflux. The three other parties are: Hoover Ball and Bearing Company, a Michigan corporation with its principal place of business in Michigan (hereinafter referred to as Hoover Ball); Forster/Hoover Electronics, Inc., a Michigan corporation with its principal place of business in Michigan (hereinafter referred to as Forster/Hoover); and Rudolph G. Hentschel, a citizen of the State of Michigan, residing in Ann Arbor (hereinafter referred to as Hentschel).

The complaint is founded on the diversity jurisdiction of this Court. Equitable relief is sought against all four defendants, including a declaratory judgment that the contract between Foerster and Magnaflux prevents Foerster from selling his products to Forster/Hoover, an injunction of Foerster from making any further sales to Forster/Hoover, an injunction of Hoover Ball and Forster/Hoover and Hentschel from further inducing Foerster to further breach the contract, and for an accounting for damages against all of the defendants.

This matter has come on for decision on the following motions:

(1) A motion filed by the defendants Foerster, Forster/Hoover and Hentschel to dismiss the action pursuant to Federal Rule 12 on the ground that the Court lacks jurisdiction over the person of these defendants.

(2) A motion filed by Hoover Ball to dismiss the action or in the alternative to quash the return of the service of summons on the ground that the Court lacks jurisdiction over the person of the defendant.

(3) All four defendants also moved to dismiss on the ground that the complaint fails to state a claim on which relief can be granted.

The motions to dismiss for want of jurisdiction over the persons of the defendants will be discussed first. The defendants have filed a number of affidavits in support of their motions to dismiss for want of jurisdiction. Plaintiff has filed counter-affidavits in opposition to the same motions. Depositions have been taken by the plaintiff and by the defendants, and references have been made by both plaintiff and defendants to statements contained therein relating to the issue of jurisdiction.

Disposition of these motions requires individual treatment of the service of summons on each of the four defendants, and accordingly, because of the complex facts surrounding the service, each will be dealt with individually.

Foerster

Foerster was served, by special order of court under Federal Rule 4(e), personally at his home in Germany. Foerster's service is sought to be upheld under Section 17(1)(a) of the Illinois Civil Practice Act (Illinois Revised Statutes, Chapter 110, § 17(1)(a)). Service was effected on Foerster by one Roland Willmitzer, who was specially appointed by this Court to serve the summons.

Foerster argues that to subject him to service of process pursuant to the Illinois statute would: (1) Violate Rule 4(f) which prohibited service of process out of the forum state, which in this case is Illinois, unless a statute of the United States so provided; and (2) would be improper even under the Illinois statute, since he had not "transacted any business" in Illinois, and to subject him to extra-territorial service of process without his having had more substantial minimal contacts with the State of Illinois would violate both the due process and the commerce clauses of the United States Constitution.

Foerster's contacts with the State of Illinois are as follows:

(1) Prior to April 24, 1952, Foerster did maintain office facilities in Illinois to market his own products by himself. Subsequent to that date, he removed all of his own facilities pursuant to the contract with plaintiff Magnaflux, whereby it was given the exclusive distribution rights in the United States to Foerster's products.

(2) Foerster executed and personally delivered in Illinois the contract in suit on November 5, 1954. This contract was also to be performed in Illinois, and it is being performed here, at least in part, presently.

(3) Paragraph 22 of this contract, which is attached as Exhibit B to the complaint, and which remains unamended, reads:

  "This agreement shall be construed in accordance with
  the laws of the State of Illinois."

(4) On July 14, 1961, the 1954 contract was amended (the execution and delivery of this amendment took place entirely in Germany).

Foerster now contends that the 1954 contract was cancelled and superseded by the 1961 contract. However, paragraph U. of the 1961 amendment reads:

  "Except as specifically amended by the foregoing
  paragraphs A. through T. inclusive, said agreement of
  November 5, 1954, shall remain unchanged and, as thus
  amended, shall be and remain in full force and effect
  between the parties hereto."

The Court finds that the 1954 contract was not cancelled, as Foerster contends, but rather it was amended.*fn1

(5) Performance of this amended contract has continued, at least in part, in Illinois down to the present.

(6) Negotiations for the 1954 agreement took place at plaintiff's place of business in Illinois, with Foerster personally present and actively engaged in the negotiations from October 27, 1954, through November 5, 1954.

(7) As a part of the immediate performance of this 1954 contract, plaintiff delivered to Foerster a check for $22, 000.00, which Foerster cashed on November 6, 1954, in Chicago, by endorsing it to The First National Bank of Chicago.

(8) During the period from 1951 to 1962, Foerster spent a total of approximately 54 days at the plaintiff's plant in Illinois. These 54 days were divided among thirteen separate visits, at all of which Foerster discussed problems of manufacture and sale of Foerster equipment with plaintiff's engineers in furtherance of the 1954 agreement, as amended in 1961, and under which the plaintiff now sues. The last of these visits was on March 15 and 16, 1962, when Foerster discussed performance of the contract with Magnaflux and with some of the other defendants.

Opinion

(1) As for Foerster's contention that Rule 4(f) prohibits reference to the law of Illinois in order to sustain service of process made extra-territorially, reference to the amendments to the Rules of Federal Procedure which became effective July 1, 1963, should suffice.

Rule 4(f) has now been clarified to specifically authorize the service of process on an out-of-state individual or corporation, "* * * in the manner prescribed by the law of the state in which the district court is held * * *," as outlined in Rule 4(d)(7).

The Supreme Court Advisory Committee on Civil Rules in a comment states that this clarification did not change the prior law, but rather more explicitly stated and adopted "the salutary results" of those cases which sustained out-of-state service pursuant to statute such as Section 17 of the Illinois Civil Practice Act*fn2 by "reading paragraph (7) as not limited by subdivision (f)."

It is also interesting to notice in the comments of the Supreme Court Advisory Committee on Civil Rules relating to paragraphs (e), (f) and (i) of Rule 4, it is stated that "the Party seeking to make the service may proceed under the Federal or the State law, at his option." Further, regarding service on a defendant in a foreign country, specifically referring to the Illinois Civil Practice Act, the Supreme Court Advisory Committee expressly commends the manner in which service was made on Foerster here:

  "Foreign service by personal delivery on individuals
  and corporations, partnerships and associations,
  provides for a manner of service that is not only
  traditionally preferred, but also is most likely to
  lead to actual notice."

And, as regards the order of this Court specifically appointing Willmitzer to make service in Germany, the Supreme Court says:

  "* * * by permitting the court by order to tailor the
  manner of service to fit the necessities of a
  particular case or the peculiar requirements of the
  law of the country in which the service is to be
  made * * this alternative increases the possibility
  that the plaintiff will be able to find a process
  server who can proceed unimpeded in the foreign
  country * * *."*fn3

Therefore, I hold that Rule 4(d)(7) prior to the July 1, 1963, amendment, rather than Rule 4(f), establishes the mode of effecting service on a defendant outside the state in which this Court sits. Therefore, we must look to the law of Illinois to determine whether service of process on Foerster was sufficient to give this Court jurisdiction over his person.

(2) In regard to Foerster's contention that even if Section 17 of the Illinois Civil Practice Act does apply, its requirements have not been satisfied, I think the law is to the contrary. There have been numerous Illinois and Seventh Circuit cases on this question, all of which I believe establish beyond any doubt that Foerster's contacts with Illinois are substantial enough to subject him to service of process consistent with due process.

Rather than summarize all of these cases, I will refer to the latest Illinois authority, which exhaustively reviews all of the previous authorities. The case is Kropp Forge Co. v. Jawitz, 37 Ill. App.2d 475, 186 N.E.2d 76 (1962). Briefly, there the plaintiff and the defendant conducted negotiations by correspondence by mail between New York and Chicago; on January 15, 1958, defendant came from New York to plaintiff's plant in Chicago, where he spent one morning conversing with plaintiff's employees, inspecting plaintiff's plant facilities, and measuring the equipment which was the subject of the contract under negotiation. The Court concluded that by his acts in the plaintiff's plant on that one morning, the defendant accepted plaintiff's offer and a contract was consummated. On the strength of these "contacts" with Illinois, the Court held that the United States Supreme Court test, as set forth in Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958), was satisfied, and that service was properly made on defendant in New York pursuant to Sections 16 and 17 of the Illinois Civil Practice Act. The test, as quoted in Kropp Forge, is:

  "`* * * it is essential in each case that there be
  some act by which the defendant purposefully avails
  itself of the privilege of conducting activities
  within the forum State, thus invoking the benefits
  and protections of its laws.'" (At p. 479, 37
  Ill.App.2d, at p. 78, 186 N.E.2d.)

The defendant in that case argued that one visit alone to Illinois does not satisfy the "minimum contacts" test for jurisdiction. The Court distinguished all previous cases which held that "contracting from outside the State" was not transacting business in Illinois sufficient to give an Illinois court jurisdiction over the person of the defendant.

The Court held that the performance of one of the four jurisdictional acts set out in Section 17 by a non-resident or by his agent, "while physically present in Illinois," is essential. The one morning visit to the plaintiff's plant by the defendant at which, it was held, defendant by his conduct accepted plaintiff's offer and formed a contract, was further held sufficient by the Illinois Court to satisfy the test of the "transaction of any business within this State" as set out in Section 17(1)(a) of the Illinois Civil Practice Act.

Certainly, considering the findings set out above regarding Foerster's contacts with Illinois, service of process on Foerster in Germany pursuant to the Illinois statute should be upheld under the Kropp Forge case.

Hoover Ball

Hoover Ball is a Michigan corporation which is not licensed to do business in the State of Illinois, but which does maintain a sales office for soliciting orders for its products in Illinois. No contracts are made at this office and all orders are forwarded to Michigan where they are accepted or rejected. Hoover Ball's business can be best described by quoting from an advertising pamphlet published by it, which is attached as an exhibit to the "Diller Affidavit" filed by Magnaflux:

  "Hoover Ball and Bearing Company serves more than
  5,000 customers with a wide variety of industrial and
  consumer products. The company is a well-known
  producer of precision metal balls, ball and roller
  bearings, cold drawn steel and wire, automotive and
  furniture seat springs, blowmolded plastic
  containers, bulk material handling systems and metal
  containers, electric motor commutators, plumbing and
  automotive die castings and special machine tools."

Hoover Ball was served at this office which it maintains at 8581 South Chicago Ave., Chicago, Illinois. Plaintiff Magnaflux contends that by having this office in Chicago, Hoover Ball was "doing business" in Illinois and therefore subject to service at that office. Plaintiff Magnaflux also argues that Hoover Ball "transacted business" under Section 17 of the Illinois Civil Practice Act, which would alternatively make it subject to service of process.

Hoover Ball moves to dismiss the complaint or to quash service of summons on the grounds that:

(1) The Chicago office is used merely for soliciting orders for acceptance at its home office in Michigan, and that no orders solicited in Illinois are accepted in the Chicago office;

(2) All of the products so ordered and accepted are delivered in Illinois by shipment from Michigan or Tennessee in interstate commerce only, f.o.b. the points of shipment;

(3) No discussions or transaction of any kind relating to Foerster, Hentschel or Forster/Hoover have occurred in the Chicago office which Hoover Ball maintains;

(4) None of the salesmen nor the office girl who use Hoover Ball's Chicago office have ever had any contact with Foerster or the other defendants; and

(5) Hoover Ball is not qualified as a foreign corporation to do business in Illinois.

The contacts of Hoover Ball with Illinois are as follows:

(1) It maintains an office in Chicago.

(2) It staffs this office with one office girl, Miss Killeen, who acts as a secretary-receptionist, and with the Sales Manager of the Central Zone of the United States, Mr. McGregor, and several other salesmen who have intermittently used the office (Messrs. Merren, Lawrence and Maschek). The Central Zone encompasses eleven midwestern states, including Illinois.

(3) In addition to working as salesmen, the employees at the Chicago office perform the additional activities of furnishing engineering services for customers, handling complaints of customers regarding the performance of Hoover ...


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