Neirbo Co. v. Bethlehem Shipbuilding Corp.

308 U.S. 165, 60 S. Ct. 153, 84 L. Ed. 167, 1939 U.S. LEXIS 77, 128 A.L.R. 1437

Opinions

Me. Justice Frankfurter

delivered the opinion of the Court.

The case is here to review the affirmance by the Circuit Court of Appeals for the Second Circuit of an order of the District Court for the Southern District of New York setting aside service of process upon Bethlehem Shipbuilding Corporation, Ltd. (hereafter called Bethlehem) and dismissing as to it petitioners’ bill, 103 F. 2d 765. The suit was based on diversity of citizenship and was not brought “in the district of the residence of either the plaintiff or the defendant.” (§ 51 of the Judicial Code, Act of March 3, 1887, 24 Stat. 552, as corrected by Act of August 13, 1888, 25 Stat. 433, 28 U. S. C. § 112.¹) We took the case, 307 U. S. 619, because of the uncertainties in application of-§ 51, emphasized by conflict between the views belów and those of the Circuit Court of Appeals for the Tenth Circuit. Oklahoma Packing Co. v. Oklahoma Gas & Elec. Co., 100 F. 2d 770. The sole question in the case is whether § 51 is satisfied by the designation by a foreign corporation of an agent for service of process, in conformity with the law of a state in which suit is brought against it in one of the federal courts for that state.

The jurisdiction of the federal courts — their power to adjudicate — is a grant of authority to them by Congress and thus beyond the scope of litigants to confer. But the locality of a law suit — the place where judicial authority may be exercised — though defined by legislation relates to the convenience of litigants and as such is subject tp their disposition. This basic difference between the court’s power and the litigant’s convenience is historic in the federal courts. After a period of confusing deviation it was firmly reestablished in General Investment Co. v. Lake Shore Ry. Co., 260 U. S. 261, and Lee v. Chesapeake & Ohio Ry. Co., ibid. 653, over-ruling Ex parte Wisner, 203 U. S. 449, and qualifying In re Moore, 209 U. S. 490. All the parties may be non-residents of the district where suit is brought. Lee v. Chesapeake & Ohio Ry. Co., supra. Section 51 “merely accords to the defendant a .personal privilege respecting the venue, or place of suit, which he may assert, or may waive, at his election.” Commercial Ins. Co. v. Stone Co., 278 U. S 177, 179.

• Being a privilege, it may be lost. It may be lost by failure to assert it seasonably, by formal submission in a cause, or by submission through conduct. Commercial Ins. Co. v. Stone Co., supra. Whether such surrender of a personal immunity be conceived negatively as a waiver or positively as a consent to be sued, is merely an expression of literary preference. ' The essence of the matter is that courts affix to conduct consequences as to place of suit consistent with the policy behind § 51, which is “to save defendants from inconveniences to which they might be subjected if they could be compelled to answer in any district, or wherever found.” General Investment Co. v. Lake Shore Ry. Co., supra, at 275.

When the litigants are natural persons the conceptions underlying venue present relatively few problems in application. But in the case of corporate litigants these procedural problems are enmeshed in the wider intricacies touching the status of a corporation in our law. The corporate device is one form of associated enterprise, and what the law in effect has done is to enforce rights and duties appropriate for collective activity. Cf. United Mine Workers v. Coronado Coal Co., 259 U. S. 344; Puerto Rico v. Russell & Co., 288 U. S. 476. It has done so largely by assimilating corporations to natural persons. The long, tortuous evolution of the methods whereby foreign corporations gained access to courts or could be brought there, is the history of judicial groping for a reconciliation between the practical position achieved by the corporation in society and a natural desire to confine the powers of these artificial creations.²

It took half a century of litigation in this Court finally • to confer on a corporation, through the use. of a fiction,³ citizenship in the chartering state for jurisdictional purposes. Compare Lafayette Ins. Co. v. French, 18 How. 404 with Hope Ins. Co. v. Boardman, 5 Cranch 57. Throughout, the mode of thought was metaphorical. The classic doctrine was that a corporation “must dwell in the place of its creation, and cannot migrate to another sovereignty.” Bank of Augusta v. Earle, 13 Pet. 519, 588. Logically applied, this theory of non-migration prevented suit in a non-chartering state, for the corporation could not be there.⁴ And such was the practice of the circuit courts⁵ until the opinion of Chief Justice Waite in Ex parte Schollenberger, 96 U. S. 369, displaced metaphor with common sense. The essential difference between the practice which Mr. Justice Nelson⁶ initiated at circuit and the decision in Schollenberger’s case was not a matter of technical legal construction, but a way of looking at corporations. Men’s minds had become habituated to corporate activities which crossed state lines. The fact that corporations did do business outside their originating bounds made, intolerable their immunity from suit in the states of their activities. And so they were required by legislatures to designate agents for service of process in return for the privilege of doing local business. That service upon such an agent, in conformity with a valid state statute^ constituted consent to be sued in the federal court and thereby supplanted the immunity as to venue, was the rationale of Schollenberger’s case.

To be sure, that case arose under the Judiciary Act of 1875, 18 Stat. 470, the language of which differed from the Act of 1887, now. § 51 of the Judicial Code. The earlier provision was as follows: “And no civil suit shall be brought before either of said courts against any person by any original process or proceeding in any other district than that whereof he is an inhabitant/or in which he shall be found . . .” The Act of 1887 omitted the words “in which he shall be found.” But, of course, the Phoenix and the Clinton Insurance Company in Ex parte Schollenberger, supra, were not geographically “found” in Pennsylvania, and Chief Justice Waite so recognized. They were “found” in the Eastern District of Pennsylvania only in a metaphorical sense, because they had consented to be sued there by complying with the Pennsylvania law for designating an agent to accept service. Not less than three times does the opinion point out that the corporation gave “consent” to be sued; and because of this consent the Chief Justice added that the corporation was “found” there. But the crux of tie decision is its reliance upon two earlier cases, Railroad Company v. Harris, 12 Wall. 65 and Lafayette Ins. Co. v. French, 18 How. 404, recognizing that “consent” may-give “venue.” The Phoenix and the Clinton Insurance Company consented not to be “found” but to be sued. Since the corporation had consented to be sued in the courts of the state, this Court held that the consent extended to the federal courts sitting in that state. As to diversity cases, Congress has given the federal courts “cognizance, concurrent with the courts of the several States.” The consent, therefore, extends to any court sitting in the state which applies the laws of the state.⁷

The notion that the 1887 amendment, by eliminating the right to sue a defendant in the district “in which he shall be found,” was meant to affect the implications of a consent to be sued — implications which were the basis of the Schollenberger decision — derives from a misapplication of the purpose of Congress to contract diversity jurisdiction, based upon a misunderstanding of the legislative history of the 1887 amendment.⁸ The deletion of “in which he shall be found” was not directed toward any change in the status of a corporate litigant. The restriction was designed to shut the door against service of process upon a natural person in any place where he might be caught. It confined suability, except with the defendant’s consent, to the district of his physical habitation. Insofar as the 1887 legislation sheds any light upon the status of a corporate litigant in diversity suits, its significance lies outside the omission of the “he shall be found” clause. The form in which that Act passed the .House of Representatives contained a provision, wholly distinct from the general venue section, restricting the growing volume of litigation dfawn to the federal courts by the fiction of corporate citizenship.⁹ It prohibited resort to the federal courts by foreign corporations authorized to do a local business. The Senate rejected, as it had done-upon three previous occasions, this House proposal.¹⁰ But the bill, as it left the House, also contained the venue provision, with its omission of the “found” clause. It would be strange indeed if the House in § 1 had dealt with the “venue” of suits against corporate litigants who, like those involved , in the Bchollen-berger case, by § 3 of the same bill were completely barred from the federal courts. It would be stranger still if, after passing a drastic measure curtailing resort by foreign corporations to the federal courts, the House had only succeeded in giving discriminatory freedom to foreign corporations — discriminatory in that, by nullifying the significance of consent through obedience to state law to be sued in the federal courts, it would allow a foreign corporate defendant freedom either to remain in the state courts or to remove to a federal court.

And so, after the Act of 1887 and despite its elimination of “in which he shall be found” from the Act of 1875, lower federal courts continued to apply the doctrine of Scholleriberger’s case by considering the designation of an agent for service of process an effective consent to be sued in the federal courts.¹¹ This practice in the Tower federal courts continued until 1892, when Southern Pacific Co. v. Denton, 146 U. S. 202, was decided. But that case involved an entirely different situation. The Court was there concerned with a Texas statute which not merely regulated procedure for suit but sought to- deny foreign corporations access to the federal courts. This Court held the act unconstitutional, as the Texas court had in fact already done.¹² Inasmuch as the Texas act was found to be void, it “could give no validity or effect to any agreement or action of the corporation in obedience to its provisions.” ¹³ To be sure, the Court went on. to interpret the agreement “if valid”¹⁴ and to suggest, that had it been valid the agreement might have sub-' jected the corporation to jurisdiction “s.o long as tEe Judiciary Acts of the United States allowed it to be sued in the district in which it was ‘found/ ”¹⁵ Such, as we have seen, was not the true basis. of the decision in Schollenberger’s ease. As decisions, the two cases. are wholly consistent. But, disregarding the situation before the Court in the Denton case — the absence of any valid consent to be sued because of the invalidity of the statute by which the alleged “consent” was obtained— several of the lower courts have taken language from the Denton opinion and have made it govern situations where valid consent did exist because given in conformity with the provisions of a valid statute.¹⁶ Other courts have adhered to the practice established by Schollenber-ger’s case.¹⁷ We deem this practice sound, and it controls the present case.

In conformity with what is now § 210 of the General .Corporation Law of New York,¹⁸ Bethlehem designated “William J. Brown as the person upon whom a summons may be served within the State of New York.” The.' scope and meaning of such a designation as part of the’ bargain by which Bethlehem enjoys the business freedom of the State of New York, have been authoritatively determined by the Court of Appeals, speaking through Judge Cardozo: “The stipulation is, therefore, a true contract. The person designated is a true agent. The consent that he shall represent the corporation is a real consent. He is made the person ‘upon whom process against the corporation may be served,’. . . . The contract deals with jurisdiction of the person. It does not enlarge or diminish jurisdiction of the subject-matter. It means that whenever jurisdictien of the subject-matter is present, service on the agent shall give jurisdiction of the person.” Bagdon v. Philadelphia & Reading C. & I. Co., 217 N. Y. 432, 436-7. A statute calling for such a designation is constitutional, and the designation of the ¿gent “a voluntary act.” Pennsylvania Fire Ins. Co. v. Gold Issue Mining Co., 243 U. S. 93.

In finding an actual consent by Bethlehem to be sued in the courts of New York, federal as well as state,' we are not subjecting federal procedure to the requirements of New York law. We are recognizing that “state legislation and consent of parties may bring about a state of facts which will authorize the courts of the United States to take cognizance of a case.” Ex parte Schollenberger, supra, at 377. The judgment below is

Reversed.

1 Section 112 reads as follows: “Except as provided in sections 113 to 117 of this title, no person shall be arrested in one district for trial in another in any civil action before a district court; and, except as provided in sections 113 to Í18 of this title, no civil suit shall be brought in any district court against any person by any original process or proceeding in any other district than that whereof he is an inhabitant; but where the jurisdiction is founded only on the fact that the action' is between citizens of different States, suit shall be brought only in the district of the residence of either the plaintiff or the defendant.”

2 See Henderson, “The Position of Foreign Corporations in American Constitutional Law,” passim, and especially the illuminating analysis, pp. 163-194.

3 See Gray, “The Nature and Sources of the Law,” 184, and Henderson, op. cit. supra, note 2, pp. 50-76.

4 See St. Clair v. Cox, 106 U. S. 350, 355.

5 “We are aware that the practice in the circuit courts generally has been to decline jurisdiction in this class of suits.” 96 U. S. 369, 378.

6 Day v. Newark India-Rubber Mfg. Co., 1 Blatch. 628; Fed. Cas. No. 3,685; Pomeroy v. New York, N. H. & H. R. Co., 4 Blatch. 120; Fed. Cas. No. 11,261. Both these cases were decided by Mr. Justice Nelson, on circuit.

7 “While the Circuit Court may not be technically a court of the Commonwealth, it is a court within it; and that, as we think, is all the legislature intended to provide for.” 96 U. S. 369, 377. See Madisonville Traction Co. v. Mining Co., 196 U. S. 239, 255-56. Cf. Louisville & N. R. Co. v. Chatters, 279 U. S. 320, 329.

8 A cognate misconception as to the purpose of the Act of 1887-88 in contracting the jurisdiction of the circuit courts underlay the decision in Ex parte Wisner, 203 U. S. 449, overruled in Lee v. Chesapeake & Ohio Ry. Co., 260 U. S. 653, 659.

9 The Culberson Bill, which passed the House in 1887, was H: R. 2441, 49th Cong., 1st Sess. It provided in its original form that the lower federal courts should" not take “cognizance of any suit” between-“a corporation created or organized by or under the laws of any State and a citizen of any State in which such corporation at the time the cause of action accrued may have been carrying on any business authorized by the law creating it. . . .” There were likewise provisions forbidding removal of such suits to the lower federal courts. See 18 Cong. Rec. 613; H. Rep. No. 1078, 49th Cong., 1st Sess.

10 Cong. Rec. 1304-1305; 14 Cong. Rec. 1270; 15 Cong. Rec. 4909.

11 Riddle v. New York, L. E. & W. R. Co., 39 F. 290 (C. C., W. D. Pa., 1889); Consolidated Store-Service Co. v. Lamson Consol. Store-Service Co., 41 F. 833 (C. C. Mass., 1890) approvingly cited in Haight & Freese Co. v. Weiss, 156 F. 328 (C. C. A. 1st, 1907).

12 Texas Land & Mortgage Co. v. Worsham, 76 Tex. 556.

13 146 U. S. at 207.

¹⁴

15 146 U. S. at 207. The Denton case was based on Shaw v. Quincy Mining Co., 145 U. S. 444, in which there was no consent derivable from the designation of an agent for service. Both opinions were written by Mr. Justice Gray, who later accurately delimited the scope - of the holdings in both the Shaw and the Denton cases. In re Keasbey & Mattison Co., 160 U. S. 221, 229. The decisive difference ber tween the present case and In re Keasbey & Mattison Co., is that in the latter case the designation under state law which is the basis of consent had in fact not been made. But the requirement of “residence” in the Act of 1887 is as much satisfied by a consent to be sued as was the requirement “to be found” in the 1875 Act satisfied by such a consent.

16 Platt v. Massachusetts Real Estate Co., 103 F. 705 (C. C. Mass., 1900); Hagstoz v. Mutual Life Ins. Co., 179 F. 569 (C. C. E. D. Pa., 1910); Beech-Nut Packing Co. v. P. Lorillard Co., 287 F. 271 (S. D. N. Y., 1921); Jones v. Consol. Wagon Co., 31 F. 2d 383, 384 (D. Idaho, 1929); Kerfoot & Co. v. United Drug Co., 38 F. 2d 671 (D. Del., 1930); Standard Stoker Co. v. Lower, 46 F. 2d 678 (D. Md., 1931); McLean v. Mississippi, 96 F. 2d 741 (C. C. A. 5th, 1938); Gray v. Reliance Ins. Co., 24 F. Supp. 144 (W. D. La., 1938); Hamilton Watch Co. v. George W. Borg Co., 27 F. Supp. 215 (N. D. Ill., 1939); Toulmin v. James Mfg. Co., 27 F. Supp. 512 (W. D. N. Y., 1939). Cf. Heine Chimney Co. v. Rust Engineering Co., 12 F. 2d 596 (C. C. A. 2nd, 1926).

17 Shainwald v. Davids, 69 F. 704 (N. D. Cal., 1895); Dodfre Mfg. Co. v. Patten, 23 F. 2d 852 (D. Ind., 1928), aff’d 60 F. 2d 676 (C. C. A. 7th, 1932); Oklahoma Packing Co. v. Oklahoma Gas & Elec. Co., 100 F. 2d 770 (C. C. A. 10th, 1938).

18 Originally enacted as c. 687, Laws of 1892, pp. 1805-1806.