Petition for a Writ of Certiorari — Schmidt v. Reader's Digest Ass'n

Supreme Court brief1954

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IN THE

Supreme Court of the United States

Ocroszer Term, 1953.

No.

GEORGE SCHMIDT,

Petitioner,

vs.

THE READER’S DIGEST ASSOCIATION, INC.

Respondents.

PETITION FOR WRIT OF CERTIORARI

to the United States Court of Appeals

for the Seventh Circuit.

Jay E. Dagtrncton

306 Hammond Building

Hammond, Indiana

Attorney for Petitioner

UNITED STATES LAW PRINTING CO., CHICAGO 16, ILL., LA KEVIEW 5-65861

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Questions presented for review 2

Statutes Involved ...... 3

Statute under which summons was served ............ 3

Related Statute ............. 5

_ Statement of the facts 6

Complaint ...... 6

Motion to Dismiss 7

Plaintiff’s Counter-Affidavit 8

On the spot contracts in defendant’s name ............ 9

Servicing Subscribers 13

Instructions and control of agent by defendant ...... 15

H District court’s opinion 16

i Argument ....... , 18

The factual situation 18

H ; Defendant’s secretiveness and failure to produce

F CE since 21

Failure to apply Indiana statute,—no basis for

striking down this Indiana process. ...................- 22

P Neot Peas amet ier he

Sinisa? LARUL Se

PAGE

CASES CITED.

Cannon v. Time, Inc., (4 Cir. 1940) 115 F. 2d 423 ......20, 21 |

Henderson v. Richards & Co. (4 Cir. 1928) 25 F. 2d

225 22

Industrial Research Corporation v. General Motors

Corporation (D.C. N.D. Ohio 1928) 29 F. 2d 623, 626,

627 22

International Shoe Company v. State of Washington,

(1945) 326 U. S. 310, 313-314, 66 S. Ct. 154, 157 18, 20, 23

Keppel v. E. W. Wiggins Airways, (D.C. Mass. 1952)

103 F. Supp. 911-912 19

Real Silk Hosiery Mills v. Philadelphia ete. Co. (3

Re ls I TP siteciecmietndansceconincicieitcnainstiomnicoesene 20

Travelers Health Association v. Commonwealth of Vir-

ginia (1950), 339 U. S. 643, 647-648, 70 S. Ct. 927,

929-930 18

Section 25-316, Burns 1948 Replacement ........................ 22

Section 25-306, Burns 1948 Replacement 22

IN THE

Supreme Court of the United States

Ocrosper Term, 1953.

No.

GEORGE SCHMIDT,

Petitioner,

vs.

THE READER’S DIGEST ASSOCIATION, INC.

Respondents.

PETITION FOR WRIT OF CERTIORARI

to the United States Court of Appeals

for the Seventh Circuit.

REPORT OF OPINIONS.

A combined opinion of the Court of Appeals covers this

case and its two companion cases.

Schmidt v. Esquire, Inc.

Schmidt v. Reader’s Digest Association, Inc.

Schmidt v. Crowell-Collier Publishing Company

210 tF8: 908, 914, R. 75.

Fae

JURISDICTION.

Judgment in this civil case was entered in the Court of

Appeals February 24, 1954. (R. 87). Jurisdiction is based

on 28 U.S.C.A. 1254 and 2101.

QUESTIONS PRESENTED FOR REVIEW.

This and the other two companion cases above cited were

decided in one opinion of the Court of Appeals and these

three petitions are presented together. The Crowell-Col-

lier petition is treated as the major petition, with this

Reader’s Digest petition and the Esquire petition in shorter

form and covering only the questions peculiar to them.

Diversity jurisdiction is not involved in this Reader’s

Digest case, however, and there is no motion to remand,

because, unlike Crowell-Collier and Esquire which are

Delaware corporations, the same as Tucker Corporation,—

Reader’s Digest is a New York corporation. Accordingly,

aligning Tucker Corporation on the plaintiff’s side where

it belongs, still leaves diversity with the parties aligned:

Schmidt, an Illinois citizen, and Tucker Corporation, a —

Delaware corporation, vs. Reader’s Digest, a New York

corporation.

The question presented is:

(1) Defendant having been sued in the Indiana state

court and served with summons on the secretary of state

as its statutory agent, moved for and obtained dismissal on

the ground that it was not amenable to the process. Plain-

tiff’s appeal from that judgment raises:

(a) The sufficiency of the factual showing made

by defendant to support this motion, consisting of its

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one affidavit (R. 46) opposed by plaintiff’s lengthy

counter-affidavit and exhibits (R. 47-62).

(b) The total failure of the Court of Appeals to

construe the Indiana statute governing this summons

and to test the validity of the process by the statute. It

expressly struck the process down solely on the doc-

trine of a Fourth Circuit decision involving doing

business in Virginia, Cannon v. Time, Inc. (1940) 115

F. 2d 423.

precedents to these facts, so far as not controlled by

the statute.

STATUTES INVOLVED.

Statute under which Summons was Served.

‘*Service of process on corporations not admitted to

do business.—The engaging in any transaction or the

doing of any business in this state by any foreign cor-

poration, not licensed nor admitted to do business in

this state under any existing act or any act hereafter

enacted shall be deemed equivalent to an appointment

by such foreign corporation of the secretary of state,

or his successor in office, to be the true and lawful

attorney and agent of such foreign corporation upon

whom may be served all lawful processes, writs, no-

tices, or orders in amy action or proceeding against

such foreign corporation arising or growing out of,

directly or indirectly, any act or thing done by such

corporation within the state of Indiana. The engag-

ing in any transaction or the dowmg of any business in

this state by any foreign corporation not licensed nor

admitted to do business in this state under any exist-

ing act or any act hereafter enacted shali be significant

of the agreement of such foreign corporation that any

such process, writ, notice, or order against it, which

is so served, shall be of the same iegal force and effect

as if served upon a designated resident agent of such

foreign corporation. Service of any such process,

writ, notice, or order shall be made by leaving duplicate

copies thereof, with a fee of one dollar ($1.00), with

the secretary of state, or in his office, and such service

shall be sufficient service upon such foreign corpora- {

tion. * * *’’? (Our emphasis). (Acts 1939, ch. 60, sec. 1)

Section 25-316, Burns 1948 Replacement

ase Ds ee

Note: Omitted last part of above section deals only ’

with mechanics whereby the Secretary of State sends _

a copy of the process by registered mail with return |

receipt to the corporation’s principal office designated |

in its articles of incorporation, and upon return

of the receipt or showing a refusal of accept-

ance, the Secretary of State attaches same to the copy

of process retained by him and mails same to the

clerk of the court who files same as a part of the

record.

The following are companion sections of the same Act:

‘‘Nothing herein contained shall be construed as

preventing any party adverse to any such foreign cor-

poration in any such action or proceeding from rely-

ing upon or resorting to any other process, remedy or

security provided by law. (Acts 1939, ch. 60 § 4, p.

407).’? (Our emphasis).

Section 25-319, Burns 1948 Replacement

“‘This act (§§ 25-316-25-323) shall apply to all ac |

tions or proceedings now pending in this state or which |

may hereafter be commenced or instituted. (Acts 1939, _

ch. 60, § 5, p. 407).’’ (Our emphasis.)

Section 25-320, Burns 1948 Replacement

‘‘Any action or proceeding against any foreign cor-

poration doimg busmess in Indiana and not licensed ©

nor admitted to do business in the state of Indiana

may be instituted or commenced im any county within

the state of Indiana. (Acts 1939, ch. 60, § 6, p. 407).”’

(Our emphasis).

Section 25-321, Burns 1948 Replacement

eed eS

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He,

‘*The provisions of this act (§$§ 25-316-25-323) are

imtended to supplement the existing statutes of this

state and shall in no respect be considered a repeal

thereof. (Acts 1939, ch. 60, § 7, p. 407).’’ (Our empha-

sis. )

Section 25-322, Burns 1948 Replacement.

“If any part, subdivision or section of this act

($§ 25-316-25-323) shall be deemed unconstitutional,

the validity of the remaining provisions shall not be

affected thereby. (Acts 1939, ch. 60, § 8, p. 407).”’

(Our emphasis. )

Section 25-323, Burns 1948 Replacement

Related Statute.

The phrase ‘‘as if served upon a designated resident

agent of such foreign corporation’’ in the latter part of

Section 25-316 supra, refers to the following statute on

that subject:

‘*Kach foreign corporation admitted to do business

in this state, shall keep constantly on file in the office

of the secretary of state an affidavit of its president or

a vice-president and its secretary or an assistaut sec-

retary, setting forth the location of its principal office

in this state, and the name of some person who may

be found at such office as its agent or representative

on whom service of legal process may be had in all

suits and actions that may be commenced against it. For

the purposes of this section the application for admis-

sion filed by a foreign corporation shall be deemed to

be such an affidavit. * * *’’ (Acts 1929, ch. 215, § 61,

p. 725; 1941, ch. 26, § 8, p. 729; 1949, ch. 194, § 16, p.

617)

Section 25-306, Burns 1953 Cumulative Pocket Sup-

plement

STATEMENT OF THE FACTS.

The lower court sustained (R. 63-65) defendant’s mo-

tion to dismiss the action for lack of jurisdiction over its

person (R. 29), from which plaintiff appealed. The Court

of Appeals affirmed. (R. 87).

The derivative stockholder’s complaint on behalf of

Tucker Corporation for defendant’s alleged libel of the

corporation in this case (R. 14) is an exact replica of the

complaint in the companion Crowell-Collier case, filed the

same day in the same Circuit Court of Lake County,

Indiana, (R. 14) except that the libel was in defendant’s

‘‘Readers Digest’’ magazine. Emphasizing the close sim-

ilarity of the two torts, is the fact that this article was

‘“Condensed from Colliers’? (R. 21), being a condensed

version of the article sued on in the Crowell-Collier ease.

But diversity admittedly exists in this case and the

removal was proper, because, unlike Esquire, Inc. and

Crowell-Collier which are corporations of the same state

as Tucker Corporation (Delaware), this defendant is a

New York corporation (R. 3, par. 5). Accordingly, align-

ment of Tucker Corporation on the plaintiff’s side where

it belongs, leaves the beneficial plaintiff a Delaware Corpo-

ration versus the defendant, a New York corporation.

So there was no motion to remand.

Complaint.

So far as pertinent to process and jurisdiction of de-

fendant’s person, the complaint alleges that defendant

is a foreign corporation, and—

‘62. Said defendant is and at all times mentioned

in this complaint has been im fact engaging in business

in the State of Indiana, but it is not and has not been

licensed nor admitted to do business in this state

under any statute.’’

R. 14

Summons issued out of the state court for the defend-

ant and was served on the Secretary of State of Indiana

as its statutory agent for process (R. 10-12).

Motion to Dismiss.

After removal, defendant filed a motion to dismiss

(R. 29) on two grounds:

I. Lack of jurisdiction of its person, for which it asks

the Court ‘‘to dismiss the action or in lieu thereof to

quash and set aside the summons”’ (R. 29) served through

the Secretary of State as aforesaid. It states that ‘‘in

support of this motion’’ it attaches the affidavit of its

treasurer, Abbott, which it says shows (1) it is a New

York corporation, (2) it ‘‘has not qualified to do business

in the State of Indiana’’ and ‘‘has never consented to

be sued”’ in the state, (3) not at the present time or any

other time mentioned in the complaint ‘‘has it ever en-

gaged in any transaction in the State of Indiana or has

it ever done any business in the State of Indiana’’. (R.

30)

Abbott’s affidavit (R. 46), about half a page in length,

states that defendant ‘‘has never qualified’’ or ‘‘consented

to be sued’’ in Indiana. Its magazine is published monthly

by the defendant at Pleasantville, New York, is printed

outside of Indiana (place not specified), and—that the said

Reader’s Digest is sent from the places of printing by

United States mail directly to each subscriber residing in

the State of Indiana; that the newsstands and stores in

Indiana which handle Reader’s Digest do not purchase

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their copies from The Reader’s Digest Association, Inc.,

but purchase them from local wholesalers of magazines

who in turn have purchased their copies from a magazine

wholesaling corporation of the State of New York to which

The Reader’s Digest Association, Inc. sells the entire

United States edition except office copies and the copies

mailed direct to subscribers as aforesaid; that The Read-

er’s Digest Association, Inc. maintains no office in the

State of Indiana for editorial purposes, for the solicita-

tion of or collection upon subscriptions, for distribution,

or for any other purpose, and does no business, and en-

gages in no transactions whatever in said State.

(R. 46-47).

II. ‘‘In the event the court should overrule’’ the above

motion I, defendant moves ‘‘to dismiss the action on the

ground that the complaint fails to state a claim against

this defendant upon which relief can be granted.’’ (R. 30).

Supporting this motion are six specifications which are

exact replicas of the six specifications of the similar mo-

tion to dismiss the complaint in the Crowell-Collier case.

To those specifications is added No. 3, that the action

is barred by a section of the Indiana statute of limitations

which, defendant claims, imports into Indiana for its bene-

fit the New York one-year libel limitation (as against

the regular two-year Indiana limitations on libel). (R.

31, par. 3).

Plaintiff’s Counter-Affidavit.

Plaintiff, protesting the insufficiency of defendant’s fac-

tual showing, filed a counter-affidavit, prefaced by the

following statement of his position:

“*The plaintiff, without conceding defendant’s right

to seek dismissal by means of an affidavit of extraneous

facts which directly contradict the jurisdictional fact

allegations of rhetorical paragraph 2 of the complaint,

and without conceding the legal sufficiency of the affi-

davit to make such contradiction if permissible, files

this counter-affidavit to be considered by the court

only in the event both of the above questions are

resolved against the plaintiff, to-wit:’’

(R. 47).

The affidavit which follows the above, alleges facts and

sets out exhibits to show that defendant’s activities in the

state, in the light of the nature of its business, suffice to

subject it to process,—consisting of having agents in the

state who sign and deliver in its name binding subscrip-

tion contracts on the spot with Indiana subscribers, collect-

ing the price, deducting their commissions and remitting

the balance to defendant, plus having the agents service

and adjust complaints of defendant’s subscribers on the

spot. (R. 48-50). Grouping and summarizing these for

convenience :

(1)

On the Spot Contracts in Defendant’s Name.

Defendant launches the agent with a kit of working

materials, a ready-made sales talk and instructions (re-

peated) to mail out locally the preparatory sales material

it gives him. (Exhibit C, R. 53-55).

The most important part of his kit to him (and to us)

is the order book defendant gives him (Exhibit F, R. 61)

with its name on the top cover and the following instruc-

tions printed on the inside of the cover (our italics) :

How To Use Tuts Orper Book.

Here is the most important ‘‘tool’’ in your whole

kit of Reader’s Digest supplies—your order book!

Always carry it with you. It will serve not only as |

your authority to represent The Reader’s Digest, |

but as a handy aid in ‘‘signing up’’ subscribers —

wherever you may be. Note how your order book ~

has been designed to do a three-fold job:

1) Subscription Order Form

All the information required for correct, speedy

entry of your subscriptions should be plainly printed

here. Space is purposely provided for Donor on

every order form, because The Reader’s Digest is

one of the most popular gifts throughout the year.

Note that beautiful Gift Cards will be mailed for

special occasions—a good talking point. If you have

a rubber stamp, you can save time by stamping your ©

Name and Address on all your order forms in ad-

vance.

BIE fo WL an Rk OSE Ty lage tS a re

2) Subscriber’s Receipts

This convenient form makes it unnecessary for you

to carry a separate book of receipts. You can now

fill out a receipt stub and hand it to the subscriber

whenever you take an order.

3) Copy of Each Subscription

Underneath each order form is a duplicate copy |

for your file. By placing carbon paper under the |

order form, you will obtain a complete, permanent |

record of each subscription. File these records by

date, and be sure to go after the renewals at least _

two months before the subscription expires. Addition- |

al suggestions for good service are listed on the in- —

side cover of this order book.

See Subscription Rates On Back Cover.

All Subscriptions Must be Sold at Authorized Rates. —

Exhibit F, R. 61. -

pl BR ERG i 7 os spian Dees ee

Within the above cover is a sheaf of order blank forms

whereby the agent writes up the order on the spot, collects

the money and hands the subscriber a stub ‘‘Receipt’’,

in payment for’’ a specified subscription, signed with the

defendant’s printed name ‘‘by’’ the agent who is called

defendant’s ‘‘Representative’’ on the receipt. Though

short, it is a complete written contract binding defendant

to deliver, not subject to home office acceptance, and not

subject to be cancelled by defendant.

On the order blank which goes in to the defendant,

with the agent keeping a copy, he is called ‘‘Agent’’.

The following is as nearly as this order blank and

stub receipt can be printed (our bold face for ease in

locating parts we have described) :

CRRA

Subscription Order Form

Sh GEG Pc ME Uneaten

Agent: M Date : Subscriber’s

Address: Receipt

P SE ceomainacn

Check Term : Received from:

Subscriber: M Two :

Address: Years ....... :

One : the amount of:

BO seticsien : in payment for:

Months :

If Gift Subscription. print b siaibosiais years of

donor’s name and address READER’S

below DIGEST

Donor: M Two

Address: Years ....... Signed

Se a

{| tS : asesamabapiidianinediientens

Months : Representative

Check Gift Card to be sent

Subscriber, to arrive on

Birthday

Graduation

Wedding

General

errr

Check above

only if Donor

includes Own

subscription.

(Exhibit F, R. 61).

Following is an excerpt from defendant’s list of rates

which it furnishes him, telling him how much ‘‘you keep’’

(about one-third) and how much ‘‘you send’’:

You You You

Collect Send Keep

Single One-Year subscription $2.75 $1.80 $.95

Single Two-Year subscription 5.00 3.60 1.40

Exhibit D, R. 57

(2)

Servicing Subscribers.

The agent’s services, both to the defendant and its

subscribers, do not end with making the above contract.

Defendant, probably in line with its ‘‘personal contact’

policy with subscribers, but more especially to save a lot

of work and expense at its home office in servicing

customers,—furnishes in the agent’s kit the following

‘‘Representative’s Correction Form’’ which he uses to take

care of missing copies, expirations, extending subscrip-

tions, changing addresses, transferring subscriptions from

one subscriber to another, etc. At the bottom, the de-

fendant promises that it will comply with ‘‘your instruc-

tions for adjustments’’. Following ‘is the form (our

italics) :

Representative’s Correction Form

The Reader’s Digest Association, Pleasantville, N. Y.

Please PRINT all Important: To speed service

instructions clearly, to your customers, use this

to insure accuracy. form for the complaint of only

one subscriber. Use a Separ-

ate form for Every Subscriber

complaint.

Subscriber’s Name

Subscriber’s Address

Donor’s Name

Donor’s Address

eres

Please Correct as Checked Below

setcoaiol Expiration notices received ........Send missing

Copy

ee Duplicate copies for ............_ -.......Extend

received. subscription

seca General

aaeee Copy for subscription

not received Reason

onan No copies received since ......-.T'ransfer

‘elite Change Address Subscription

ape bo serra rN Se Rent Tee ee

TAREE RRR eR ARERR Renee eRe EOE EERE SEES S EOE EERE ES SHORE eee nee ee eee e Eee ten ea eee eee ee eeaseeneeeccceceecee

To save your time and ours, we do not acknowl-

edge your instructions for adjustments, changes

of address, etc. So even though you do not hear

from us, you may assume your wishes have been

complied with.

Representative’s Name ...............---..---s.ssssesseseseees

Representative’s Address ....................-s-s-s-0-0-000++

PTT TTT TTT TTT TTT eee re rr rer

Please Print Clearly

Exhibit H. R. 60.

ee it NI CPL A Lely i EEL A SONAL he ASI

(3)

Instructions and Control of Agent by Defendant.

As already shown under (1) supra, defendant gives the

agent written instructions on what to do and at least

one restriction on what he cannot do—cut prices on what

he sells below defendants ‘‘authorized rate’’.

And he has the customary book work of a selling agent

to do for the defendant also. With each day’s orders (and

money) he is required to fill out a summary sheet cover-

ing the sales, apparently for use in defendant’s home office

accounting. The heading (only) of the sheet reads:

SumMMarRY.

Please fill out and mail with each days orders.

The Reader’s Digest

Pleasantville, N. Y.

Exhibit G, R. 59

The counter-affidavit closes with the following:

‘‘The number, names and locations of said repre-

sentatives in Indiana is unknown to affiant and un-

obtainable by him except through the secret records

of the defendant, as is also the names and locations

of the subscribers obtained by them. * * * But it is

apparent upon the face of said exhibits, and based

thereon affiant has good ground to believe and does

verily believe and accordingly states, that at the time

of service of summons herein and prior and subse-

quent thereto defendant did in the manner and by

the means aforesaid have such representatives in

Indiana who did on its behalf and in its name engage

in transactions and do business for it in the manner

and by the forms of instruments above exhibited.”’

(R. 51.)

No further affidavit or response was made by defendant

to the above counter-affidavit. The court heard no evi-

dence, but heard oral arguments and received briefs on the

above record. (R. 47).

District Court’s Opinion.

Based solely on the aforesaid record (complaint, mo-

tions to dismiss, and one affidavit on each side) the Court

entered an order that defendant’s ‘‘motion to dismiss

the action * * * is granted.’’ (R. 63).

The order is accompanied by a memorandum opinion

which, in a single paragraph, recites that ‘‘The perti-

nent facts on jurisdiction are: * * *’’ (R. 64).

This is followed by a single paragraph reciting that

‘Upon these facts it is concluded that the defendant is

not ‘present’ within the State of Indiana for the pur-

pose of giving the court jurisdiction over it by service

of process on the Secretary of State under Section 25-

316 Burns Ind. Sts. 1948 Repl.’’ The supporting opinion

predicates the decision solely on Cannon v. Time, Inc. 115

F. 2d 423, saying defendant’s representatives in Indiana,

whether few or many are independent contractors, as there.

(R. 65).

Relative to the merits, the opinion closes with the state-

ment:

‘‘While the ruling on this jurisdictional question

disposes of the action, nevertheless it must be pointed

out that the motion to dismiss would otherwise have to

be granted for the reasons stated in Schmidt v. Crowell-

Collier, Hammond Civil No. 1265.’’ (R. 65)

ARGUMENT.

The Factual Situation.

Factually, it seems to us that the opinion does not give |

adequate importance to the function which these Indiana |

‘‘representatives” and their activities in the state play in |

defendant’s business, nor adequate consideration to the |

nature of the ‘‘subscriber’s receipt’’ issued and delivered |

by the representative on the spot which, though small, in |

line with the small and simple transaction, nevertheless |

made a complete binding contract, signed and paid for in :

Indiana, between defendant’s representative and the pur-

chaser,—a transaction more complete than was held suffi-

cient in International Shoe Company v. State of Wash-

ington, (1945) 326 U. S. 310, 313-314, 66 S. Ct. 154, 157.

While lacking the security feature, these transactions some-

what resemble, and far exceed in local nature, the selling

of health insurance by mail which was held sufficient in

Travelers Health Association v. Commonwealth of Virginia

(1950), 339 U. S. 648, 647-648, 70 S. Ct. 927, 929-930.

Added to this is the fact that these agents service the

subscribers’ needs after the contract is made, taking care

of their complaints, changes of address, transferring sub-

scriptions from one person to another, cancellations, ete.

(R. 48, 60). Again, while small and simple like the trans-

action itself, these acts, done at the direction of and in

co-operation with defendant’s home office, are obviously

to save the home office an enormous amount of work which

would normally belong to it, and they also serve to create

and maintain good will for the defendant and its product

in Indiana in addition to the subscriber’s contract com-

pleted months or years in the past. This again exceeds the

activities in the International Shoe Company and Travelers

Health Association cases, supra. It constitutes ‘‘pro-

motional work and investigation of complaints’? which

was held sufficient to bring a corporation within the state

for process, in Keppel v. E. W. Wiggins Airways, (D. C.

Mass. 1952) 103 F. Supp. 911-912. —

The point is not the size, and certainly not whether

they work part or full time, but whether, collectively,

they serve a substantial function in defendant’s business.

Clearly they do. Circulation (subscribers) is the life

blood of every magazine, and they spend vast sums to

get it. ‘‘Obtaining subscribers’? has rightly been called

one of the ‘‘essential factors’’ in a magazine publisher’s

business:

‘‘The functions of a magazine publishing company,

obviously, include gathering material to be printed,

obtaining advertisers and subscribers, printing, selling

and delivering the magazines for sale. Each of these,

we think. constitutes an essential factor of the maga-

zine publication business. Consequently, if a non-

resident corporation sees fit to perform any one of

those essential functions in a given jurisdiction, it

necessarily follows that it is conducting its activities

in such a manner as to be subject to jurisdiction. * * *”’’

Consolidated Cosmetics v. D-A Publishing Co. (7

Cir.) 186 F. 2d 906.

Contrary to the impression of irresponsible freedom

which the opinion implies, the defendant gave the agent

definite instructions as to how to do his work, and placed

restrictions and duties on him, including adhering to de-

fendant’s specified price, keeping a record of his customers’

renewals, and turning in daily summary sheets to the home

office with his orders and remittances,—all these things

being characteristic features of an agent of the commission

selling type. This is remote from the ‘‘independent con-

tractor’’ consisting of a nation-wide news servicing corpo- }

ration which was the ‘‘independent contractor’? between :

the publisher and its subscribers in Cannon v. Time, Ine., |}

(4 Cir. 1940) 115 F. 2d, 423 which is the sole authority

on which both the opinion of the District Court (R. 65)

and the opinion of the Court of Appeals are predicated

(R. 85, 210 F. 2d 916),—both courts saying ‘‘we can see |

little difference’’ between this defendant’s ‘‘representa- |

tives’? who make direct personal contacts and contracts

for this publisher in the state, as compared with the great

independent corporate contractor in the Time case.

Actually, there is no similarity between these represen-

tatives and that corporate contractor, but a close similarity

between their activities and the functions they perform in

the defendant’s method of business compared to the Inter.

national Shoe Company case, 326 U. S. 310 supra, and

Real Silk Hosiery Mills v. Philadelphia etc. Co. (3 Cir.

1930) 46 F. 2d, 25, except that in those cases the agents had

to forward the orders for acceptance to the home office,

whereas here they complete the contract and bind the de-

fendant on the spot, and afterward serve the defendant in

servicing its customers. Incidentally, this marks another

wide departure from Cannon v. Time, supra, where the

publisher took great pains, as is usually done, to specify

that the order be accepted and completed at the home

office:

**No one has authority to accept subscriptions ex-

cept the head office of Time, Inc., in Chicago, and

no subscription can constitute a binding agree-

ment until it is so accepted.’’

Cannon v. Time, Inc., (4 Cir. 1940) 115 F. 2d

423, 424, bottom.

Defendant’s Secretiveness and Failure to Produce Facts.

While the above facts, all dug up and produced by

the plaintiff, should suffice in any event to show the

defendant ‘‘present’’ in the state, this is further em-

phasized by the secretive position taken by the defendant

throughout this case, namely:

Confronted by a complaint which alleged it was doing

business in Indiana (R. 14, par. 2) and summons regularly

issued and served under the Indiana statute applicable to

the complaint (R. 3, par. 7), (R. 10-12) which creates a

prima facie rebuttable presumption of valid service (20

C. J. S., Corporations, sec. 1948, page 221) and places the

burden on the defendant to support its motion by sufficient

prima facie proof, and by a preponderance of the proof

if opposed, (20 C. J. S., Corporations, see. 1949, page 222),

—the defendant presented no factual support in the first

instance except the affidavit of its treasurer, Abbott, (R.

46), which is half a page long and contains nothing bet

his conclusion that it is not doing business in Indiana, plus

a few factual statements not bearing on the activities of

its agents but telling of its sales to newsstands, apparently

to bring it within the doctrine of Cannon v. Time, 115 F. 2d

423.

This affidavit of its treasurer who had full knowledge,

concealed the activities of these agents (and whatever other

business the defendant may do in the state not yet dis-

covered by the plaintiff).

Confronted by plaintiff’s detailed and documented coun-

ter-affidavit, defendant then remained silent, offering no

proof as to the number and extent of activity of these agents

in the state. This, under established doctrines, raises «

Wis Tae

St Ok ee ek ee ere Pe, ei ee Or eee -

strong factual presumption that the disclosure would be

unfavorable to the defendant, and justifies overruling its

motion, (Industrial Research Corporation v. General

Motors Corporation (D. C. N. D. Ohio 1928) 29 F. 2d 623,

626, 627, points 5 and 10). This is particularly true in

view of the comparative ability of the parties to produce

the facts (Henderson v. Richards & Co. (4 Cir. 1928) 25

F. 2d 225, points 5-8.

Total Failure to Construe and Apply the Indiana

Process Statute.

Confronted by this Indiana statute, which is obviously

remedial and plainly makes a studied attempt to go as far

as the legislature’s constitutional powers would permit,

the Court of Appeals totally failed to test this summons

by the Indiana statute, but struck it down arbitrarily on

the sole authority of an inapplicable case involving doing

business in Virginia, Cannon v. Time, (4 Cir. 1940) 115 F.

2d 423.

First, in quoting the statute (R. 83) the opinion inad-

vertently leaves off what we think is the significant further

provision that such transactions and business shall signify

the corporation’s agreement that the served process—

‘*shall be of the same legal force and effect as tf

served upon a designated resident agent of such foreign

corporation.’’

Section 25-316, Burns 1948 Replacement.

The last quoted language refers to the following section

which provides that the resident agent shall be one—

‘‘on whom service of legal process may be had in all

suits and actions that may be commenced against it.”’

Section 25-306, Burns 1948 Replacement.

The purpose of this provision of Section 25-316, tying in

with Section 25-306, is to see to it that non-complying

6 RA coke

err, fra

foreign corporations shall fare no better than the ones

who comply (which is a recognized legitimate object).

It has the further effect of repelling any contention that

the cause of action sued upon must arise out of an Indiana

transaction. However, the complaint does allege that

part of this nation-wide tort occurred in Indiana because

Tucker Corporation’s injured business and good will was

nation-wide (R. 14, par. 4), so part of the injury occurred

in Indiana, and the publication was nation-wide ‘‘including

at least 100,000 copies in the State of Indiana and all

counties thereof.’’ (R. 15, par. 6).

An unusual feature of the part of the Reader’s Digest

opinion dealing with the Indiana statute is that it starts

to construe the statute and then backs away and leaves the

question in mid air, as also did the Crowell-Collier part

of the opinion. This seems to indicate inability to find,

or to agree upon, a ground for the decision. (R. 84-85).

It takes up International Shoe Company v. State of

Washington, 326 U.S. 310 and then lays it aside for the

announced purpose of construing the statute to determine

if it is as broad as the International Shoe case permits.

It seems about to give it a narrow construction based on

an old, inapplicable Indiana case, contrary to the statute’s

plain purpose. But then it backs away and announces:

‘*However, we do not think it necessary to decide

whether or not the Indiana statute is as broad as the

International Shoe doctrine would permit. Whether

the question is one of due process, or state law, we

think the District Court correctly decided the question

on the principles announced in Cannon v, Time, 4 Cir.,

115 F. 2d 423.’’ (Our emphasis).

R. 85, 210 F. 2d at p. 916,

OF aha Rp AE

RI trae eo wD any

But what is there in Cannon v. Time, a case from another

circuit involving doing business in Virginia, which relieves

the Court from construing this Indiana statute to determine

its real scope and then measure this state of facts and [

this process by the statute? F

If the Court had held the statute to be as broad as per- |

mitted by the International Shoe case and then applied ;

that yardstick, the opinion would be logical and under- |

standable. Or if it had construed the statute to be of some |

lesser scope and then applied that yardstick, it would be

understandable. k

But it ignores the International Shoe case, and throws

up the attempt to determine the scope of the statute, and

applies the Cannon v. Time yardstick as the sole and con-

clusive basis for striking down this Indiana statutory

process. Besides being contrary in its facts, as already

shown, that case cannot lawfully furnish a test for this ©

Indiana process.

The net result, on the face of the opinion, is that there

was no lawful basis for this decision striking down this

Indiana process. It was not stricken down as not au-

thorized by the Indiana statute, or as going beyond the [|

limits authorized by the Supreme Court, but as being con-

trary to Cannon v. Time.

R. 84-85, 210 F. 2d 915-916.

Wherefore, petitioner prays that this Honorable Court :

may issue its writ of certiorari to bring up and review this |

case, and for all other just and proper relief. :

Jay E. Darurneton,

Attorney for Petitioner.

FILED

JUN 1 7 1954

HAROLD B. WILLEY, Ci

IN THE

Supreme Court of the United States

Ocroser TERM, 1953.

No.ee = uv 3

GEORGE SCHMIDT,

Petitioner,

vs.

THE READER’S DIGEST ASSOCIATION, INC.,

Respondent.

ANSWER TO PETITION FOR WRIT OF CERTIORARI.

Tomas L. MarsHat,

135 South La Salle Street,

Chicago 3, Illinois,

Attorney for Respondent.

5 orig _—— —_ SMe TREE SpNaNaRE

tse ta ae MERI Se Sis

INDEX.

PAGE

Petitioner raises only a moot point.................. 1

Inadequacy of service of process...............005 3

Petitioner’s contentions respecting service of process. 6

Petitioner’s futile effort to avoid construction of Sec.

SOEiG, tie Teen wtetete ns 6c. cscs cnc cekscesies 8

ene ee Peer ere Te 10

The ‘‘community representatives’’.................. 14

ee ee IN GOI os h-p x svc ann iciwasscodeivees 18

I aa ocethcne dae ke eed chandnadnd 14a a ebaeae 21

TABLE OF CASES.

mean vy: Aim, BOR Os Te BOB s ook ci ciccscesicciee’s 2

Cannon v. Time, Inc., 115 F. (2d) 423 (C. A. 4)...... 16

Chicago Title & Trust Co. v. Newman, 187 Fed. 573

RE RL es ee Ce ee eRe ees eT eee 2

Coakley v. Frank A. Munsey Co., 50 F. Supp. 83...... 13

Consolidated Cosmetics v. D-A. Pub. Co., 186 F. (2d)

Se Ne Me Pe esas ess oicede AA Nh a RAO 20

General American Life Ins. Co. v. Carter, 222 Ind.

557, 54 N. E. (2d) 944, app. dismissed, 323 U.S. 676.. 11

Green v. C. B. & Q. R. R. Co., 205 U. S. 530........... 10

Gulf Oil Corporation v. Gilbert, 330 U. S. 501........ 20

Helvering v. Gowran, 302 U. S. 238................. 2

Hutchinson v. Chase & Gilbert, 45 F. (2d) 139........ 19

International Shoe Co. v. Washington, 326 U. S. 310

REL a POI La eV Le hy ae en Ge ee 7, 8, 18, 19

Koster v. Lumberman’s Mutual Co., 330 U. S. 518.... 20

Oe ak oe

IN THE

Supreme Court of the United States

OcrosEer TERM, 1953.

No. 786.

GEORGE SCHMIDT,

Petitioner,

vs.

THE READER’S DIGEST ASSOCIATION, INC.,

Respondent.

ANSWER TO PETITION FOR WRIT OF CERTIORARI.

Petitioner Raises Only a Moot Point.

Our motion to dismiss (Rec. 29) relied both upon lack

of jurisdiction over the person (Rules of Civil Procedure,

12 b 2) and upon failure of the complaint to state a claim

upon which relief can be granted (Rule 12 b 6).

The order of dismissal was in general terms (Rec. 63).

The District Court sustained both bases for the motion.

We quote the first and last paragraphs of the opinion

(Rec. 64-5):

‘“‘The Defendant, The Reader’s Digest Association,

Inc., moves to dismiss the action on the ground that

it is not amenable to suit in Indiana. Another ground

for dismissal is that the complaint fails to state a

claim against this defendant.

* * *

‘‘While the ruling on this jurisdictional question

[validity of service] disposes of the action, neverthe-

PSY Sit TREMOR ON

less it must be pointed out that the motion to dismiss

would otherwise have to be granted for the reasons

stated in Schmidt v. Crowell-Collier, Hammond Civil

1265.’’ [Crowell-Collier record, No. 785, page 69.]

Irrespective of any review of the finding of inadequate

service, the insufficiency of the complaint upon its face dis-

poses of the case and that ruling is not challenged.

In Brown v. Allen, 344 U. S. 443, the court said (459) :

‘‘In the review of judicial proceedings the rule is

settled that if the decision below is correct, it must be

affirmed, although the lower court relied upon a wrong

ground or gave a wrong reason.’’

Other similar cases are: Riley Investment Co. v. Com-

missioner, 311 U. S. 55, 59; Helvering v. Gowran, 302 U. S.

238, 245; Linde Air Products v. Morse Dry Dock & Repair

Co., 246 Fed. 834, 837 (C. A. 2); United States v. Porter

Fuel Co., 247 Fed. 769, 771 (C. A. 8).

The same rule applies to orders sustaining demurrer or

motion to dismiss. In Chicago Title & Trust Co. v. New-

man, 187 Fed. 573, 577 (C. A. 7), the court said:

‘*The court also had power to sustain a demurrer

for want of equity, as it did; and it is of no conse-

quence, especially upon this appeal by the receiver,

whether or not it assigned a wrong reason for doing

so.’’

To the same effect is Posey v. Tennessee Valley Au-

thority, 93 F. (2d) 726, at 727 (C. A. 5).

Wherefore, we respectfully contend that the petition for

certiorari presents only a moot point.

For discussion of the point that the complaint states no

cause of action upon which relief can be granted, we refer

to the District Court opinion in the Crowell-Collier record,

page 69; to the Court of Appeals opinion, 210 F. (2d) 908;

to the opinion in the Illinois case, 349 Ill. App. 229, 110

N. E. (2d) 464, leave to app. den. 414 Ill. 626; and to our

answer in No. 785 herein.

Inadequacy of Service of Process.

The service of process was upon the Indiana Secretary

of State, pursuant to Sec. 25-316, Burns Indiana Statutes,

1948 Repl., the pertinent portion of which reads:

‘‘The engaging in any transaction or the doing of

any business in this state by any foreign corporation

not licensed nor admitted to do business in this state

under any existing act or any act hereafter enacted

shall be deemed equivalent to an appointment by such

foreign corporation of the secretary of state, or his

successor in office, to be the true and lawful attorney

and agent of such foreign corporation upon whom may

be served all lawful processes, writs, notices, or orders

in any action or proceeding against such foreign cor-

poration arising or growing out of, directly or indi-

rectly, any act or thing done by such corporation with-

in the State of Indiana. * * *’’ (Italics ours.)

The affidavit of the treasurer of The Reader’s Digest

Association, Inc. (Rec. 46-7):

‘‘Roy C. Assorr, being first duly sworn, deposes and

says that he is a resident of the State of New York

and is the Treasurer of THe Reaper’s Dicest Assocta-

Tron, Inc., a New York corporation; that said corpo-

ration. has never qualified to do business in the State

of Indiana and has never consented to be sued in said

State and is not engaging in any transaction or the

doing of any business in the State of Indiana; that the

Reader’s Digest published each month in the United

States is published by said corporation at Pleasant-

ville, New York, and is printed outside the State of

Indiana; that the said Reader’s Digest is sent from the

places of printing by United States mail directly to

each subscriber residing in the State of Indiana; that

the newsstands and stores in Indiana which handle

Reader’s Digest do not purchase their copies from The

Reader’s Digest Association, Inc., but purchase them

from local wholesalers of magazines who in turn have

purchased their copies from a magazine wholesaling

corporation of the State of New York to which The

SAIS NS

PROT BY Pe PM SSN AUR ge RTI I tor

Reader’s Digest Association, Inc. sells the entire United

States edition except office copies and the copies mailed

direct to subscribers as aforesaid; that The Reader’s

Digest Association, Inc. maintains no office in the

State of Indiana for editorial purposes, for the solici-

tation of or collection upon subscriptions, for distribu-

tion, or for any other purpose, and does no business

and engages in no transactions whatever in said State.”’

Petitioner’s counter-affidavit was supplied by his counsel

who before Christmas of 1952 wrote a letter to the circu-

lation department of Reader’s Digest, as anyone was in-

vited to do by the advertising in the Reader’s Digest, and

obtained the packet and papers and forms and purported

to become one of what is known in the trade as ‘‘pin money

boys and girls’’ (Rec. 51-62). Whoever applied by mail

received the packet and could get subscriptions, deduct their

commission, and remit. Every detail of the packet is de-

scribed in the petition.

Petitioner at page 6 quotes from his complaint (Rec. 14)

that defendant ‘‘has been in fact engaging in business in

the State of Indiana.’’ That conclusion in the unsworn

complaint is contradicted by the affidavits.

We quote from the District Court’s opinion (Ree. 64):

‘*The defendant is a New York corporation. It has

not qualified to do business in Indiana. The Reader’s

Digest magazine is published in the State of New

York and is not printed in Indiana. The magazine is

sent to its Indiana subscribers by mail. The news-

stands and stores in Indiana handling Reader’s Digest

purchase their copies from magazine wholesalers, who

in turn buy these copies from a wholesale magazine

concern doing business in the State of New York, to

which concern the defendant sells its entire newsstand

and store-outlet supply of magazines. The defendant

maintains no office in Indiana. However the defend-

ant, through its magazine, does solicit ‘Community

Representatives’ in Indiana. To the person answer-

ing the solicitation the defendant furnishes supplies to

rece Sabrina rca

aid him in obtaining subscriptions to the Reader’s

Digest. The subscription price is collected by this

person, who then sends the amount collected less his

commission to the defendant in New York. A sub-

scription order book is furnished which includes a

form designated ‘Subscriber’s Receipt’ indicating the

subscriber’s name, the amount paid for the subscription

and a place for the solicitor to sign as ‘Representative.’

A ‘Correction Form’ for ‘entering any complaints or

changes of address’ is also furnished.

‘*Upon these facts it is concluded that the defendant

is not ‘present’ within the State of Indiana for the

purpose of giving the court jurisdiction over it by serv-

ice of process on the Secretary of State under Section

25-316 Burns Ind. Stat. Ann. 1948 Repl. Parenthe-

tically, it should be noted that this statute relates to

constituting the Secretary of State the statutory agent

upon whom process may be served under certain cir-

cumstances in suits against foreign corporations; it is

collateral to the due process question whether by rea-

son of the foregoing activities the defendant has sub-

jected itself to the jurisdiction of the Indiana courts.

The number of solicitors the defendant has in Indiana

or the extent of their activity is not shown. But this

is not important because these solicitors, if one or

many, are not employees of the defendant. Although

they may be defendant’s representatives, they are

independent contractors no less than the Richmond

News Company which was held to be an independent

contractor in Cannon v. Time, Inc., 115 F. 2d 423, and

whose activity in accepting and collecting subscriptions

for Time magazine in Virginia was held not to be a

business activity of Time, Inc., in that State.’’

| The Court of Appeals reached the same conclusion. We

quote from the opinion, 210 F. (2d) 908, at 915-6:

‘‘Tt is not contended that Reader’s Digest was doing

business in Indiana through the store and newsstand

sales of its magazine, nor through the mailing of its

magazine to Indiana subscribers. It is only the activity

of the so-called community representatives which, it

LA ROHR ER

is said, constitutes such ‘doing business’ as to make

Reader’s Digest amenable to service of process in

Indiana.

‘«“* * * The Reader’s Digest community represen-

tatives are under no supervision, direction or control,

they conform to no pre-arranged schedule or routine,

they may solicit or not as it suits their opportunity or

inclination. Certainly, they are not agents of Reader’s

Digest within the meaning of all that term implies.

They are urged by the defendant to work in their spare

time, for their own account, to supplement their income.

We think it is inescapable that they be considered as

occupying the position of independent contractors.”’

Petitioner’s Contentions Respecting Service of Process.

Petition (page 3) asserts there was a failure to con-

strue the Indiana statute. Completely to refute that state-

ment it is necessary only to quote from the opinion of the

District Court for the Northern District of Indiana, as

follows (Ree. 64):

‘‘Upon these facts it is concluded that the defend.

ant is not ‘present’ within the State of Indiana for

the purpose of giving the court jurisdiction over it

by service of process on the Secretary of State under

Section 25-316 Burns Ind. Stat. Ann. 1948 Repl.

Parenthetically, it should be noted that this statute

relates to constituting the Secretary of State the

statutory agent upon whom process may be served

under certain circumstances in suits against foreign

corporations; it is collateral to the due process ques-

tion whether by reason of the foregoing activities the

defendant has subjected itself to the jurisdiction of

the Indiana courts.’’ (Italics ours.)

The District Court for the Northern District of Indians

construed the Indiana statute. Under a later heading we

will discuss that statute at some length, citing Indiana am!

other decisions.

We referred hereinbefore to the fact that the petitioner

al AL kd ee ee a eh oe

charges error by the District Court in its ruling respect

ing the service, without even any suggestion of « charge

of error respecting the District Court's further ruling

that the complaint failed to state a cause of section epee

which relief can be granted. Now, the attack apen service

is similarly inconclusive. The argument ix confined te

International Shoe Company +. Washington, 326 U.S. T10

and similar cases, and the petitioner attempts te aveid

any consideration of the construction which the Dictriet

Court for the Northern District of Indiana correctly gave

to the Indiana statute.

Petition (page 24) refers to the opinien of the Court

of Appeals as follows:

broad as permitted by the /efermeficsal Shee case

and then applied that yardstick, the epinies woul?

be logical and understandable."*

We respectfully submit that the petitioner ie confuced

in his reliance upon the /nternetional Shee case The eur

here is not how far Indiana could go by «@ sfatute ot

ing to reach foreign corporations eper causes of action

between non-residents and arising elsewhere The iene

is how far Indiana had goue im See. T3164 Coder «

later heading we shail cite applicable deeiione.

Petition (page 23) criticizes the Court of Appeal: opie

ion as follows:

**[The Court of Appeals) seeme aheut fe give

[See. 25-316] a narrow construction based on

The issue, after briefs and oral argument, had been

narrowed to the ‘‘community representatives,’’ (Court of

Appeals opinion, 210 F. (2d) 908, 915):

“It is not contended that Reader’s Digest was

doing business in Indiana through the store and news-

stand sales of its magazine, nor through the mailing

of its magazine to Indiana subscribers. It is only

the activity of the so-called community representa-

tives which, it is said, constitutes such ‘doing of busi-

ness’ as to make Reader’s Digest amenable to serv-

ice of process in Indiana.’

The District Court for the Northern District of Indiana

had held that such activity in Indiana as was shown by

the affidavits did not bring the defendant under Sec.

25-316, and that such conclusion was collateral to any

Due Process point.

The Court of Appeals specifically held that ‘‘ whether

the question is one of due process, or State law’’ the Dis-

trict Court for the Northern District of Indiana was right.

Cannon v. Time, Inc., was cited because there, as here,

the subscription activities were deemed to be by independ-

ent contractors.

Petitioner's Futile Effort to Avoid Construction of Sec.

25-316.

Petitioner seeks to dispose of Sec. 25-316 by ignoring it.

Petitioner cites and relies upon International Shoe Com-

pany ©. Washington, 326 U. S. 310, and later cases, which

under facts there involved denied to foreign corporations

relief under the Fourteenth Amendment from local

process. In each of those cases the process was effective

and valid under the local law. In the present case, the

process was not valid under Indiana law, as the District

Court for the Northern District of Indiana held (Rec.

64).

9°

The Court of Appeals said, 210 F. (2d) 908, at 915:

access to its courts against foreign corporations as

amply as it has power to do under the Constitution.’ ”’

In Partin v. Michaels Bronze Co., 202 F. (2d) 541

(C. A. 3), a Kentucky corporation selling parking meters

in Pennsylvania was sued for libel in Pennsylvania. The

Court said (544):

‘“‘But despite plaintiff’s reliance upon the Jnterna-

tional Shoe case, we do not reach that question here.

An examination of Pennsylvania * * * decisions * * °

shows us pretty clearly that the Pennsylvania courts

would not regard this defendant corporation as sub-

ject to their jurisdiction. We do not, therefore, get

to the question of how far Pennsylvania could go if

it eared to exercise all the power it constitutionally

had.”’

In Rosenthal v. Frankfort Distillers Corp., 193 F. (2d)

137 (C. A. 5), the Court said (141):

‘‘Appellant’s insistence, that the later decisions of

the Supreme Court of the United States have made

inapplicable the decisions cited and relied upon by

appellee and the district judge, misconceives the pri-

mary question at issue. This is not, as appellant seems

to think, what permissable reach, within the federal

constitution, that court would, under the facts, give

to a construction by the state court of the Taxes

Statutes governing the doing of business in the state

by, and the service of process upon, foreign corpora-

tions. It is what construction the courts of Texas

have actually given to the statutes.’’

Petitioner, of course, can base no argument of duc

process upon the failure of Indiana to provide for serv-

ice upon foreign corporations in a ease such as he brought.

In Perkins v. Benguet Mining Co., 342 U. 8. 487, the Court

said (440):

‘« «Provisions for making foreign corporations sub-

ject to service in the State is a matter of legislative

NETS SRE

discretion, and a failure to provide for such service

is not a denial of due process. Still less is it incum-

bent upon a State in furnishing such process to make

the jurisdiction over the foreign corporation wide

enough to include the adjudication of transitory ac-

tions not arising in the State.’ ’’

We respectfully submit that the petitioner does not

avoid construction of Sec. 25-316 by merely discussing the

Due Process cases.

It being a matter of Indiana law, and the District Court

for the Northern District of Indiana having applied what

it considered to be Indiana law, with affirmance by the

Court of Appeals, and the petitioner citing no Indiana

authority whatever and presenting no argument respect-

ing such construction of Indiana law, we fail to see what,

if anything, is now presented to this Court.

The Indiana Statute.

The Indiana statute provides for service of process

upon foreign corporations under certain circumstances by

serving the Indiana Secretary of State. In 1939, when the

statute was enacted (Petition, page 4), it was the law

that mere solicitation of business within the State did not

subject the foreign corporation to local jurisdiction. Green

v. Chicago, B. d Q. R. Co., 205 U. S. 530; Philadelphia &

Reading R. Co. v. McKibben, 243 U. S. 264.

In 1939, furthermore, it was the law that a State stat-

ute could not legally provide for service of a foreign cor. b

poration by serving the Secretary of State upon a cause

of action arising elsewhere and between non-residents.

Simon v. Southern Ry., 236 U. S. 115, 130; Old Wayne

Life Ass’n v. McDonough, 204 U. S. 8, 22.

We are not concerned here with the extent to which those _

four Supreme Court cases can be directly relied upon today.

Those decisions were respected in 1939 when Sec. 25-316

REE EAE NIE NTL EE A ENO IESE OB INE. SA AE PRION ANNE CRY BNE NC nS Bata PREIS See Ie a _—

was enacted. And those cases tend to explain the limita-

tions prescribed by the Indiana statute to service upon a

foreign corporation and the meaning of those limitations.

Sec. 25-316, providing for service upon foreign corpo-

rations by serving the Secretary of State, actually had two

express limitations. One was that the foreign corpora-

tions be ‘‘engaging in any transaction or the doing of any

business in this state.’’ The other limitation was that the

action arise or grow out of, ‘‘directly or indirectly, any act

or thing done by such corporation within the State of

Indiana.’’

Bearing upon the statute, in addition to the foregoing

four cases, are the following Indiana decisions. In Mutual

Mfg. Co. v. Alspaugh, 174 Ind. 381, 91 N. E. 504, the Su-

preme Court of Indiana had held that the mere solicitation

of business by a foreign corporation in Indiana, even by

sending its full time employees into the State, did not

constitute the doing of business in Indiana within the mean-

ing of its service of process statutes. The citator shows

that that case has not been departed from.

In Travis v. Fuqua, 121 Ind. App. 440, 97 N. E. (2d)

867, the Appellate Court of Indiana in 1951 construed

Sec. 2-703, Ind. Stat., Burns 1947 Repl., providing that

service may be upon a corporation where it has an office

for transaction of business. Because the bus tickets had

been bought in Evansville, Indiana, the bus passenger of

the foreign corporation, a Kentucky bus company, sought

to sue in Indiana on account of injuries sustained in his

ride in Kentucky. The sale of tickets by the connecting

line in Evansville was held not to bring the foreign cor-

poration within the statute. The International Shoe case

was distinguished.

In General American Life Ins. Co. v. Carter, 222 Ind. 557,

54 N. E. (2d) 944, app. dismissed, 323 U. S. 676, the Su-

——— LOT LN RATED HY RPL EIN NOE RHI EGE

GEFEN IE CIEL REIS BASED SRE NR ia :

preme Court of Indiana construed an Indiana statute re-

specting service of process upon insurance companies by

serving the Insurance Commissioner. The foreign insur-

ance corporation by qualification in Indiana had consented

thereto. However, since the plaintiff was a resident of

Mississippi and since the policy was not purchased in

Indiana, the Court reversed a judgment for the plaintiff,

saying (947):

‘c* * * It must be assumed that the statute was

enacted with the purpose of serving some interest of

the state or its inhabitants. There could be no possible

interest in the importation of actions entered into in

other jurisdictions between the insurance company and

non-residents of the state. It is reasonable to conclude

that the intent and design was to bring the insurance

company within the jurisdiction of the courts of the

state for the purpose of actions arising out of contracts

made within the state or with residents of the state.

Since this seems the obvious purpose of the statute, it

‘ought not to be construed to impose upon the courts

of the State the duty, or to give them power, to take

cases arising out of transactions so foreign to its

interests.’ ”’

When such a statute is thus construed not to relate to

transitory causes of action arising in other jurisdictions

between non-residents, it seems clear that Sec. 25-316 is not

applicable in the present case when even there was no

qualification and no consent, when the plaintiff, a citizen and

resident of Illinois (Rec. 3) sued in Indiana the defendant

corporations of other States upon a cause of action arising

outside of Indiana, and when Sec. 25-316 expressly limits

its application to causes of action ‘‘arising or growing out

of, directly or indirectly, any act or thing done by such

corporation within the State of Indiana.’’

The purpose and interpretation of such statutes provid-

ing for service upon foreign corporations by service upon

the Secretary of State are stated by Judge Parker in his

aa.

opinion in Knott Corporation v. Furman, 163 F. (2d) 199

(C. A. 4) wherein he quoted from 23 American Jurispru-

dence, page 512, as follows (203) :

‘‘Upon the theory of implied consent, by entering

the state and engaging in business therein without first

qualifying under the valid local laws, which provide

for service on a statutory agent, or complying with a

lawful requirement that it designate some person of

its own selection or a prescribed state official as its

agent to receive service of process in suits against if,

such a corporation may be deemed to have consented

that jurisdiction of the local courts over it while thus

engaged may be acquired through service upon its

agent in charge of such business, whom it is deemed to

have designated for the purpose, or upon the prescribed

state official as the case may be, in all suits arising out

of such business, although not in suits on foreign

transitory causes of action unconnected with the cor-

poration’s business in the state, where jurisdiction is

sought to be rested on service made upon a state officer

or other person whose authority to receive process 1s

derived exclusively from statute, unaided by any rep-

resentative relation to the corporation.’’ (Italics ours.)

We respectfully contend that the Indiana statute (Sec.

95-316) and the Indiana decisions clearly indicate that

foreign transitory causes of action unconnected with any

business done in Indiana are not covered by said statute.

As we have pointed out, the petitioner has cited no Indiana

decision to the contrary.

In Coakley v. Frank A. Munsey Co., 50 F. Supp. 83,

Judge Wyzanski considered a statute of Massachusetts

(Mass. Gen. Laws, Ter. Ed., ce. 181, Sec. 3A), which pro-

vided (85) :

«* * * a foreign ‘corporation which does busi-

ness in this commonwealth * * * shall * * * be

deemed and held, in relation to any cause of action or

proceeding arising out of such business, to have ap-

pointed the commissioner * * * to be its attorney,

RM ORO eM

and any process in such action or proceeding against

it served upon the commissioner * * * shall be of

the same legal force and validity as if served’.’’

Judge Wyzanski said (85): |

“* * * it is transparent that the cause of action

[for libel] did not arise out of defendant’s Massachu-

setts business. It arose out of defendant’s activities

such as its editorial work, its printing and its con-

tracts for distribution of periodicals, all of which oc-

curred outside of Massachusetts. In this state defend-

ant did nothing but solicit and receive offers for

advertising contracts. Since the present cause of ac-

tion has nothing whatsoever to do with such advertis-

ing business, the service of process upon the Commis- |

sioner was not authorized by the terms of Mass. G. L.

(Ter. Ed.) C. 181, See. 3A.’’

Whether one examines the first few lines of Sec. 25-316

of the Indiana statute, the ‘‘engaging in any transaction

or the doing of any business in this state,’’ or the lines

further along in the section, ‘‘arising or growing out of,

directly or indirectly, any act or thing done by such cor-

poration within the State of Indiana,’’ in neither event did

the statute contemplate service upon The Reader’s Digest

Association, Inc. under the circumstances of this case.

Petitioner’s failure to meet the construction of See. 25-

316 and his failure to cite a single Indiana decision or any

decision relating to that statute or to similar statutes

amount to an implied concession of the correctness of the

order of dismissal.

The Community Representatives.

210 F. (2d) 908, 915:

“It is not contended that Reader’s Digest was doing

business in Indiana through the store and newsstand

sales of its magazine, nor through the mailing of its

magazine to Indiana subscribers. It is only the ac-

tivity ofthe so-called community representatives which,

anna se a ww ’ tg ae nempcagéd . PAN TRNER LT rah ree SON Feet —n

it is said, constitutes such ‘doing business’ as to make

Reader’s Digest amenable to service of process in

Indiana.”’

The petition is devoted to argument upon the packet

and papers of the ‘‘pin money boys and girls,’’? which

packet the plaintiff’s attorney wrote for and of course

obtained, when advertised before Christmas of 1952.

The advertising shows that it was primarily for

the period of Christmas, 1952, and made the same offer

to everyone whomsoever. There was not the slightest

selection of personnel. Anyone who could sign his name

and remember his address got the material and became

a so-called ‘‘representative,’’ who could take subscrip-

tions. Everyone has had the experience of door-bell ring-

ing by boys and girls seeking subscriptions to magazines.

He would collect the subscription price, deduct his

own share, and transmit the balance to Reader’s Digest

Association, Inc. It was within his power to get cut rates

for himself and his friends. No one supervised anything.

There was no employee of Reader’s Digest Asso-

ciation, Inc., who selected him, there was no employee who

helped him, who ever saw him, or who gave him any

directions.

The foregoing merely adopted the general form of cir-

culation device which has been followed by national mag-

azines for many years, through local stores and dis-

tributors, through clubbing combinations of magazines,

or other means.

With no selection, with no supervision and direction,

and with no pay, these representatives were not agents in

any actual sense but were independent contractors. Cer-

tainly no one would contend that Reader’s Digest would be

liable for social security, for personal injuries caused by

them or to them, for expenses incurred or for supplies

bought.

No Indiana authority and no authority anywhere is cited

to show that any court has held a foreign publishing com-

pany to be doing business in the sense of such a service of

process statute, in conducting such circulation activity.

In each of the following cases there was an issue upon

some phase of process statutes as to what activities con-

stituted the doing of business.

Whitaker v. MacFadden Publications, Inc., 105 F. (2d)

44 (C. A. D. C.). In that case, a boss and a sales crew

went into the District of Columbia as paid employees to

supervise and to promote sales by the publishing com-

pany’s vendees in the District. Service was made by serv-

ing the boss of the crew. It wasn’t good, under District

of Columbia law. In that case, however, it wasn’t the ‘‘pin

money boys and girls’’ who were involved but actual paid

employees of the circulation department.

Cannon v. Time, Inc., 115 F. (2d) 423 (CA 4). The for-

eign corporation, Time, Inc., sold to a local news company,

which in turn sold to local newsstands and stores and

supervised collection of subscriptions. The Court, by

Judge Parker, said (425):

‘‘Eiven if the News Company be considered the agent

of defendants in accepting and collecting for subscrip-

tions, it does not follow that the defendant should be

held present and doing business within the State.

Mere solicitation of business by an agent does not con-

stitute such a doing of business as to subject a foreign ~

corporation to the local jurisdiction; and the situation |

is not changed by the fact that the agent may collect

some money in connection with the business solicited.

** * The custom of magazines to offer premiums and

other compensation to persons procuring paid subscrip-

tions for them is one of long standing; and it has never

been supposed that the obtaining of subscriptions in

this way brought the magazines within the jurisdiction

of the State any more than the obtaining of such sub-

scriptions through the mails.’’

If one looks at what was actually done here, no differ-

ence will be seen between the independent contractor re-

lationship in that case and in the relationship here. The

present arrangement was even devoid of anything what-

ever that was personal. As for sending ‘‘contracts’’ to the

home office ‘‘for acceptance,’’ that is an attempted distine-

tion without any difference, for it may be presumed that

exceedingly extraordinary conditions would exist if ever

a magazine publishing company refused a subscription

when the money was attached.

In Street & Smith Publications v. Spikes, 120 F. (2d)

895 (C. A. 5), the magazine publisher sold its maga-

zine to a local distributor in Texas who resold to stores

and to stands. The contract required the distributor to

keep the periodicals moving, copies returned to the dis-

tributor to be destroyed, contract to be terminated unless

distributor did a satisfactory job. The court held that it

did not constitute the doing of business in the local juris-

diction by the magazine publisher.

In Kriger v. MacFadden Publications, 38 F. Supp. 472

(Distr. Md.), the publishers shipped magazines to a

news company in Baltimore which gave office space to paid

employees of the publisher who were engaged in sales pro-

motion. It was held not to constitute the doing of busi-

ness so as to subject the publisher to service of process

in Maryland.

We doubt that the petitioner would actually contend that

every national magazine is doing business for purposes

of service of process in each of the 48 States, and that the

Illinois plaintiff could bring his libel suit in any or in all.

And yet, carried to its logical conclusion, such would seem

to be the result of appellant’s argument.

ete

The Due Process Cases.

The Court of Appeals concluded (210 F. (2d) 908, 916):

‘*Whether the question is one of due process, or state |

law, we think the District Court correctly decided the

question on the principles announced in Cannon y.

Time, Inc., 4 Cir. 115 F. (2d) 423.”’ |

As we have pointed out, that is slightly different from

the decision by the District Court for the Northern District

of Indiana, wherein Judge Swygert made it clear the ques-

tion being decided by him was ‘‘collateral to the due process

question’’ (R. 64). |

Judge Swygert’s decision was upon Indiana law. The |

Court of Appeals made its decision both upon Indiana law |

and upon Due Process, considering that the only issue

was with respect to the community representatives and that |

they were independent contractors. |

Inasmuch as there are two clear points in the present

case, prior to reaching the Due Process point, we refer to

it only briefly.

In International Shoe Co. v. Washington, 326 U. S. 310,

the holding was that the Delaware corporation had brought

itself within the statutes of Washington providing for serv-

ice of process, in a suit to collect payments due to the

Washington Unemployment fund, because of the fact that

the corporation’s employees on account of whom the pay-

ments were sought had been sent to Washington and re-

sided there. The result was held not to violate due

process.

A distinction, in addition to the fact that the statute is

substantially different from the Indiana statute, is that

there were regular employees of the Shoe Company in

Washington and that such activities were ‘‘continuous and

systematic.’’ There were no employees of Reader’s Digest

in Indiana. -

Furthermore, the Shoe Company opinion gives weight to

principle of forum non conveniens. In the present case,

no reason is suggested why the case should have been

brought in Indiana.

Relative to forum non conveniens we quote from the opin-

ion in the Shoe Company case (316) :

««* * * the terms ‘present’ or ‘presence’ are used

merely to symbolize those activities of the corpora-

tion’s agent within the state which courts will deem to

be sufficient to satisfy the demands of due process.

L. Hand, J. in Hutchinson v. Chase & Gilbert, 45 F. 2d

139, 141. Those demands may be met by such contacts

of the corporation with the state of the forum as make

it reasonable, in the context of our federal system of

government, to require the corporation to defend the

particular suit which is brought there. An ‘estimate of

the inconveniences’ which would result to the corpora-

tion from a trial away from its ‘home’ or principal

place of business is relevant in this connection. Hutch-

imson v. Chase ¢ Gilbert, supra, 141.”’

Judge Learned Hand’s later exposition in Latimer v.

S/A Industrias, 175 F. (2d) 184 (C. A. 2) is interesting

(185-6) :

‘“In Hutchinson v. Chase & Gilbert, we had occasion

to consider the meaning of the word ‘presence’, * * *

[it] demands more than that the local activities shall

be continuous and not sporadic; it includes as a second

factor an ‘estimate of the inconveniences which would

result from requiring’ the corporation ‘to defend,

where it has been sued.’ * * * In International Shoe

Company v. Washington, the Supreme Court adopted

this approach; it said that * * * ‘An ‘‘estimate of the

inconveniences’’ which would result to the corporation

* * * is relevant in this connection.’ This language

meant that constitutionally it was not enough to hold

a corporation that it did some continuous business

within the state of the forum; the injustice might be

too great, if it were compelled to stand trial there

merely on that account, and regardless of all attending

b Nidal a Si oa haleg

‘inconveniences’. This was what we have called the

second factor in ‘presence’, and in Kilpatrick v. Texas

é& Pacific Ry. Co., we said that the issues involved in

this second factor, so far as we could see, were indie

tinguishable from those which determined a plea, forum

non conveniens * * * whatever will support the ples

will excuse the corporation from defending the suit.”

Why was this suit brought in Indiana’ The plaintiff

resided in Illinois (Ree. 3). The Reader's Digest Associa

tion, Inc. was a New York corporation with no office in

Indiana. Tucker Corporation was a Delaware corporation

with no office anywhere at that time. It had tried to mane

facture automobiles in Illinois and was in bankruptey re

organization in Illinois. The magazine was not published,

printed, or mailed in Indiana. Under the doctrine of fore

non conveniens the action would scarcely have been main

tainable there. Gulf Oil Corporation +. Gilbert, 330 U. &

501; Koster v. Lumberman's Mutual Co., 390 U. S. 518

As a matter of fact, the plaintiff had actually sued the same

defendants upon the same cause of action, in Illinois

Schmidt v. The Reader's Digest Association, Ine. 49 Th

App. 252.

Petitioner relies upon Consolidated Coemetics ¥. DA.

Pub. Co., 186 F. (2d) 906 (CA 7) which was also presented

as a due process case. The service was in accordance with

an Illinois statute (Ch. 110, See. 141) which did net com

tain the limitations to be found in the Indiana statute. The

only issue was whether the service in accordance with the

Illinois statute violated the Fourteenth Amendment. As

the Court said (908):

‘*Here the New York corporation had made Mount

Morris, Illinois its place of publication in order t

qualify with the postal department for mailing second

class matter. It stored merchandise with its contractor,

Kable, in Illinois, including paper and other material:

to be used in printing the magazines. It sent to Kable

drawings, reading matter, photographs and engrer-

ings, and employed Kable and thereby authorized it te

Hale

does not comply with the lew of Mnciane

Petitioner cites Real GfR Bacwry Wille ¢ Pihedelylen

ete. Co, 46 FP. (28) GH (CAD). The Ceete i Ge Moet OF

women. whe themeelves were nef emgaeed on eecunl on

form letter, as here cometitates Me deerme ef errr Ser

purposes of cervwe statutes

Coneinmen .

1. Wholly irrespective of “petitiener’s qamument of

adequacy of cerviwe the ah Re getoeen he

Dretriet Court wae clemely corraet lemme Me cvrrepetinr eet

failed to state 2 cane of aetrem epen wie cofle® om Se

granted, and the Dietriet Cwwet ce Geen Bete te

Petitioner charges me error om Meet cere levee

——

2. Irrespective of any question of Due Process of Law,

the dismissal of the action by the District Court w

clearly correct because Sec. 25-316 was expressly limited t

foreign corporations engaging in any transactions or t

doing of any business in Indiana, and because under Indi-

ana law the ‘‘community representatives’’ did not consti-

tute such transaction or business. Furthermore, the dis-

miseal was clearly correct because Sec. 25-316 was ex-

presely limited to actions arising or growing out of, di-

rectly or indirectly, any act or thing done by such corpo-

ration within the State of Indiana, and because under

Indiana law this cause of action did not arise or grow out

of, directly or indirectly, any act or thing done within the

State of Indiana

3. Furthermore, that if The Reader's Digest Associa-

tien, Inc. hed been held to be reached by Sec. 25-316, in

such event the ‘‘community representatives’’ would not

have constituted sufficient contact, under the Fourteenth

Amendment, particularly in a cause of action between non-

residents which arose elsewhere.

Warerronn, it is reepectfally submitted that the order of

dismissal was clearly correct.

Respectfully submitted,

Tuomas L. Manenmats,

135 South La Salle Street,

Chicago 3, Illinois,

Attorney for Respondent.

t. F. MAM

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.