Davidson v. Henry L. Doherty & Co.

Henry L. Doherty is an individual and a resident of New York. He conducted business in this state under the trade name and style of Henry L. Doherty Company. No question of a corporation or a partnership is involved in this case.

Appellant Henry L. Doherty had an office or agency in Des Moines, Polk County, Iowa, for the sale of shares of stock. It is alleged that on or about September 2, 1929, the appellant's agent in charge of said office or agency sold to the appellee certain shares of stock through said office or agency in Des Moines.

In this action the appellee seeks a personal judgment against appellant Henry L. Doherty for damages growing out of said sale of said shares of stock. On December 13, 1929, service of an original notice in proper form, duly addressed to appellant, was served on the said agent of appellant in Des Moines, Polk County, Iowa, which agent was then in charge of the said office or agency through which the business involved in this litigation was transacted. Appellant entered a special appearance alleging that Henry L. Doherty is an individual and a non-resident of Iowa, and challenging the jurisdiction of the court over said appellant in this action in personam. The lower court held that it had jurisdiction of appellant in said action and entered an order accordingly.

I. Code section 11079 is as follows:

"When a corporation, company, or individual has, for the transaction of any business, an office or agency in any county other than that in which the principal resides, service may be made on any agent or clerk employed in such office or agency, in all actions growing out of or connected with the business of that office or agency."

Service was made in this case in full compliance with this statute and under its express provisions.

It is contended that this statute is strictly a local statute, applicable only to residents of a county in this state who may be sued in some other county of the state under the circumstances set forth in the statute. In other words, it is contended that said statute is a venue statute applicable only to residents of Iowa. It is argued that not all non-residents of the state are residents of "any other county," as, for example, they may be residents of the District of Columbia or residents of Louisiana, where there are no counties. That question is, however, not involved in this appeal. Appellant did have an office or agency in another county than the one in which he resides. He comes within the very terms of the statute.

A similar contention was made in the early case of Gross v. Nichols, Shepard Co., 72 Iowa 239, where service on a foreign corporation having an office or agency in this state was involved. We said:

"The defendant contends, however, that the statute does not apply to a foreign corporation, but to a corporation residing in some other county of Iowa. This, it is contended, is implied from the words, `any county other than that in which the principal resides.' But we do not think that the defendant's position can be sustained. There is nothing in the words used to prevent us from construing the section as meaning that service upon the principal may be made by service upon the agent, when the principal resides elsewhere than in the county of the agency. The courts, we think, have invariably put this construction upon the section, and we see no good reason to think it is not correct."

By its terms, and under our holding, the statute is applicable to residents of "any other county" than that in which the principal resides, whether such county be situated in Iowa or in some other state. In other words, the statute does apply to non-residents of Iowa who come within its terms and provisions, as well as to residents. Our construction of the statute has stood since 1887. We are not disposed to depart from it.

II. Does the statute apply to non-resident individuals?

This statute had its origin in the Code of 1851, and in substantially the same language has been the law of the state ever since. We have repeatedly held that jurisdiction can be obtained of foreign corporations maintaining an office or agency in this state, by service in the manner provided by this statute. Locke v. Chicago Chronicle Co., 107 Iowa 390; Moffitt v. Chicago Chronicle Co., 107 Iowa 407; Bradshaw v. Des Moines Ins. Co.,154 Iowa 101; Little v. Threshing Mch. Co., 166 Iowa 651; Bell Jones Co. v. Erie R.R. Co., 168 Iowa 96, 97; Morey v. Standard Sep. Co., 174 Iowa 530; Pugh v. Bothne Co., 178 Iowa 601; Duhigg v. Waterloo Gasoline Engine Co., 189 Iowa 547; American Asphalt Roof Corp. v. Shankland, 205 Iowa 862.

A somewhat similar statute when applied to a foreign corporation doing business within a state has been upheld by the Supreme Court of the United States. See International Harvester Company of America v. Commonwealth of Kentucky, 234 U.S. 579, 58 L. Ed. 1484.

By the very terms of the statute it is made applicable to individuals the same as to corporations. The legislative intent to make it so applicable is obvious. Such has been our construction of the statute. See Gross v. Nichols, Shepard Co., supra, and Murphy v. Development Co., 169 Iowa 542.

We adhere to our former holdings that the statute is applicable to individual non-residents who come within its express terms and provisions.

III. The question then arises as to whether or not said statute, when applied to non-resident individuals, violates the provisions of the Constitution of the United States.

It is fundamental that a state has no power to arbitrarily exclude an individual citizen of the United States from doing business within the state. Article IV, Section 2, of the United States Constitution provides that "the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states," and the XIV Amendment of said Constitution provides that "no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States."

Even though a state may not exclude a citizen of another state from doing business therein, the Constitution does not prohibit a state from imposing reasonable conditions upon the citizen of a foreign state who seeks to do business within its borders, and this is especially so when like conditions are imposed upon its own citizens.

The statute in question does not in any manner abridge the privileges or immunities of citizens of the several states. It treats residents of Iowa exactly as it treats residents of all other states. The citizens of each state of the United States are, under this statute, entitled to all the privileges and immunities accorded citizens of this state.

The justice of such a statute is obvious. It places no greater or different burden upon the non-resident than upon the resident of this state. If a corporation, company, or individual resident in one county of this state maintains an office or agency in another county of the state, such corporation, company, or individual may be sued under this statute in the latter county in actions in personam that come within the terms of the statute. No good reason can be urged against the justice of a rule that makes such a statute applicable to the non-resident as well as the resident of the state. The latter may, under this statute, be compelled to defend a personal action in another county very far removed from the county of his residence. Why should not the resident who may live merely across a boundary line be equally required to defend in an action in personam in a county of this state where such non-resident maintains an office or agency as to matters growing out of such office or agency where proper service is had on the agent? A non-resident who gets all the benefit of the protection of the laws of this state with regard to the office or agency and the business so transacted ought to be amenable to the laws of the state as to transactions growing out of such business upon the same basis and conditions as govern residents of this State.

As is said by the Supreme Court of the United States in Hess v. Pawloski, 274 U.S. 352, 71 L. Ed. 1091, referring to the state statute there under consideration:

"It makes no hostile discrimination against non-residents, but tends to put them on the same footing as residents."

The opinion in Kane v. New Jersey, 61 L. Ed. 222, is pertinent to the question involved here. Kane was convicted of violating the statute of New Jersey which required all persons operating automobiles on the public highways of that state to have a license to do so, and to appoint the secretary of state as an authority upon whom processes may be served "in any action or legal proceeding caused by the operation of his registered motor vehicle within the state, against such owner." Kane was a non-resident. The Supreme Court of the United States held the statute to be valid and affirmed the conviction, and among other things said:

"It is not a discrimination against non-residents denying them equal protection of the law. On the contrary, it puts non-resident owners upon an equality with resident owners."

That is exactly what the statute under consideration does.

We hold that the statute does not abridge the privileges or immunities of the citizens of the United States, or deny to non-residents of Iowa equal protection of the law.

IV. Does the statute contravene the due process clause of the 14th Amendment to the Constitution of the United States?

The phrase "due process of law" has been construed by almost innumerable decisions, many of which may be found in Words and Phrases, first, second, and third series, under the caption, "Due process of law."

In Simon v. Craft, 45 L. Ed. 1165, the Supreme Court of the United States said:

"The essential elements of due process of law are notice and opportunity to defend. In determining whether such rights were denied we are governed by the substance of things and not by mere form."

The court also said:

"But the due process clause of the 14th Amendment does not necessitate that the proceedings in a state court should be by a particular mode, but only that there shall be a regular course of proceedings in which notice is given of the claim asserted, and an opportunity afforded to defend against it. Louisville N.R. Co. v. Schmidt, 44 L. Ed. 747, * * * and cases cited."

See, also, Dohany v. Rogers, 281 U.S. 362, 74 L. Ed. 904; Earle v. McVeigh, 91 U.S. 503, 23 L. Ed. 398; McDonald v. Mabee,243 U.S. 90, 61 L. Ed. 608.

We have repeatedly recognized this general rule. State v. Miller, 132 Iowa 587, 591; Beebe v. Magoun, 122 Iowa 94; Kimball v. Board of Supervisors, 190 Iowa 783, 793; State v. Height,117 Iowa 650; Jones v. Mould, 151 Iowa 599; Bennett v. Chicago Lbr. Coal Co., 201 Iowa 770, 775; Brenton v. Lewiston, 204 Iowa 892, 895.

It is frequently stated as a general proposition that the processes of a state court do not extend beyond its borders and that a state can not in general obtain jurisdiction of a non-resident in an action in personam unless the defendant is served within the state or appears to the action. To this broad and general statement of the rule there are exceptions, as, for example, where "there is a waiver or a contract to the contrary." Brenton v. Lewiston, supra; McConnell v. Poor, 113 Iowa 133.

Another exception, or more properly speaking, a rule as to what constitutes due notice, is illustrated by the cases upholding statutes where a non-resident of a state, by carrying on certain lines of business or doing certain acts, as dealing in securities or driving an automobile on the public highways, is required, or presumed, to designate an officer or agent in said state upon whom service of notice may be made in actions in said state growing out of the business or acts done. Kane v. New Jersey, supra; Hess v. Pawloski, 71 L. Ed. 1091.

Similarly, there are statutes such as the one under consideration, where a non-resident voluntarily comes within the state and establishes an office or agency and transacts business, and the service of summons is made by substituted service upon the agent of the defendant, and the action is one growing out of that office or agency.

Does such a statute meet the requirement of "notice and opportunity to defend?"

If notice on a public officer, such as a registrar or secretary of state, is sufficient in an action in personam against a non-resident, no good reason is apparent why a notice by like substituted service on a party's own agent in charge of his business, in actions growing out of said business, should not be equally valid.

We considered this statute in the case of Thornburg v. Bennett Co., 206 Iowa 1187. In that case suit was brought in an actionin personam against a partnership doing business in this state, by service on a purported agent of the partnership. We did not pass upon the constitutionality of the statute, but on the sufficiency of the return to show that the party upon whom service was made was "employed in the office or agency out of which the action grew or with which it was connected." In the discussion of the case we said:

"* * * the statute attacked is not discriminatory, as was the case of the statutes in the decisions relied upon by defendants, Flexner v. Farson, 268 Ill. 435 (109 N.E. 327); affirmed248 U.S. 289 (63 L. Ed. 250); Caldwell v. Armour, 1 Penn. (Del.) 545 (43 A. 517); Moredock v. Kirby, 118 Fed. 180; Andrews Bros. v. McClanahan, 220 Ky. 504 (295 S.W. 457); Cabanne v. Graf,87 Minn. 510 (92 N.W. 461)."

We quoted Section 11079, and said:

"Four things are, under this statute, essential to the validity of such service. 1. The defendant must have an office or agency in the county. 2. It must be a county other than that in which he resides. 3. The action must grow out of or be connected with the business of that office or agency. 4. The agent or clerk upon whom service is made must be employed in such office or agency. Barnabee v. Holmes, 115 Iowa 581. As the service was not upon the partners, or any of them personally, and is substituted service, all of the elements essential under the statute to the authorization of such service must be shown." (Writer's italics.)

In the attack upon this statute reliance is placed upon the decision of the Supreme Court of the United States in Pennoyer v. Neff, 24 L. Ed. 565. That case involved consideration of a personal judgment obtained against a non-resident on service solely by publication. It was not a case of substituted service upon an agent as in the case at bar. In the Pennoyer case, the court, however, said:

"Neither do we mean to assert that a State may not require a non-resident entering into a partnership or association within its limits, or making contracts enforceable there, to appoint an agent or representative in the State to receive service of process and notice in legal proceedings instituted with respect to such partnership, association, or contracts, or to designate a place where such service may be made and notice given, and provide, upon their failure, to make such appointment or to designate such place that service may be made upon a public officer designated for that purpose, or in some other prescribed way, and that judgments rendered upon such service may not be binding upon the non-residents both within and without the state. As was said by the Court of Exchequer in Vallee v. Dumergue, 4 Exch., 290, `It is not contrary to natural justice that a man who has agreed to receive a particular mode of notification of legal proceedings should be bound by a judgment in which that particular mode of notification has been followed, even though he may not have actual notice of them.'"

That is exactly what the statute under consideration does. It provides that a non-resident (as well as a resident), doing business in this state through an office or agency, is subject to actions in personam in this state as to such transactions only as grow out of said office or agency, and then only where substituted service is made on such agent. When a non-resident defendant establishes an office or agency for the transaction of business in any county in this state under this statute, he thereby voluntarily appoints his own agent, in charge of said office or agency, as one upon whom substituted service in actionsin personam, growing out of that office or agency, may be made. Service of summons upon such duly appointed agent as to transactions growing out of such agency meets every essential requirement of due process of law.

Again, reliance is placed upon the decision of the Supreme Court of the United States in Flexner v. Farson, 248 U.S. 289, 63 L. Ed. 250, as announcing a different rule than the one we have indicated. It is important that we consider the facts in that case. The action was brought in the courts of Illinois upon a judgment obtained in the courts of Kentucky. The validity of the Kentucky judgment was involved. In the first place, it is to be noticed that Flexner v. Farson involved a partnership. It was sought to obtain judgment against the individual partners who were non-residents of the state, by service upon a purported agent of said partnership. It also appeared that the only person so served was not the agent of the partnership at the time ofservice. This was admitted by a demurrer. Furthermore, the statute involved applied only to non-residents of the state and not equally to residents. The case is not decisive of the case at bar.

In Thornburg v. Bennett Co., supra, we said:

"To constitute due process, the agent on whom service is made must be such at the time of the service; for if he is not, he is under no duty to communicate notice to his principal, and there is no presumption that he would communicate it."

In 1927, the Supreme Court of the United States decided Hess v. Pawloski, 71 L. Ed. 1091. This was a civil action for damages growing out of an automobile collision. The defendant was a resident of Pennsylvania. The injury occurred in Massachusetts. The court said:

"No personal service was made on him (defendant) and no property belonging to him was attached."

The service was made under a statute which expressly provided in effect that the use of the public highways by operating an automobile thereon by a non-resident shall of itself be deemed equivalent to the appointment by such non-resident of the registrar as his attorney, upon whom all lawful processes in any action growing out of any accident or collision might be made. The defendant appeared specially and moved to dismiss on the ground that the service on the registrar did not give jurisdiction over him for a judgment in personam, and that if the jurisdiction was sustained it would deprive him of his propertywithout due process of law. The case was affirmed in the Supreme Judicial Court of Massachusetts in an able opinion by Chief Justice Rugg. See 250 Mass. 22, 144 N.E. 760. After trial below the case was again appealed to the Supreme Judicial Court of Massachusetts, and the second opinion appears in149 N.E. 122. The Supreme Court of the United States said the question for their determination was "whether (this statute) * * * contravenes the due process clause of the Fourteenth Amendment."

The court recognizes the rule that:

"* * * a state may not withhold from non-resident individuals the right of doing business therein. The privileges and immunities clause of the Constitution, sec. 2, art. 4, safeguards to the citizens of one state the right `to pass through, or to reside in any other state for purposes of trade, agriculture, professional pursuits, or otherwise.' And it prohibits state legislation discriminating against citizens of other states."

The Supreme Court of the United States turned the decision of the case, not on any question of police power, nor on the privileges and immunities clause of the Federal Constitution, but squarely on the "due process" clause of the 14th Amendment. The case was a civil action for damages growing out of the operation of an automobile. Substituted service was had upon a designated officer who was, by virtue of the statute, made the agent of the defendant.

The court said:

"The measure in question operates to require a non-resident to answer for his conduct in the state where arise causes of action alleged against him, as well as to provide for a claimant a convenient method by which he may sue to enforce his rights. Under the statute the implied consent is limited to proceedings growing out of accidents or collisions on a highway in which the non-resident may be involved. It is required that he shall actually receive and receipt for notice of the service and a copy of the process. And it contemplates such continuances as may be found necessary to give reasonable time and opportunity for defense. It makes no hostile discrimination against nonresidents, but tends to put them on the same footing as residents."

Exactly so in the case at bar. To paraphrase from the opinion of the Supreme Court of the United States: Under our statute, the implied consent to be sued in this state is limited to proceedings growing out of the business transacted through the office or agency in this state. It is required that the agent shall actually receive a copy of the notice of suit and that it shall be read to him. (Code, 11060). And it contemplates such continuances as may be found necessary to give reasonable time and opportunity for defense. (Code, 11442, 11443, and 11059). It makes no hostile discrimination against non-residents, but actually puts them on the same footing as residents.

What difference is there, under the due process clause of the Federal Constitution, between an action for damages for personal injury and an action for damages for fraud in the sale of stock? Both are strictly actions in personam and arise at common law. If jurisdiction can be obtained in one by substituted service on an agent, certainly it can be in the other. If such service is due process of law in one instance it can not be anything else in the other. There is no question of police power in either case. It is strictly and solely a question of "due process of law."

In Wuchter v. Pizzutti, 72 L. Ed. 446, a suit was brought to recover for personal injuries caused by a non-resident defendant. Substituted service was made only on the registrar who, under the statute, was the legal officer upon whom service could be made. The due process clause was again invoked against the statute authorizing such substituted service. In sustaining the validity of the statute, Mr. Chief Justice Taft, after citing authorities, said:

"These cases and others indicate a general trend of authority toward sustaining the validity of service of process, if the statutory provisions in themselves indicate that there is reasonable probability that if the statutes are complied with, the defendant will receive actual notice, and that is the principle that we think should apply here."

Applying this test, the statute in question must be upheld as complying with the due process clause of the United States Constitution. The service is made on the agent then in actual charge of the agency. The action must grow out of the business of that very agency. Ample time is given the defendant to appear and defend; there is not only "reasonable probability" but practical moral certainty that the defendant will receive actual notice of the pendency of the action.

It may be conceded that there are cases apparently holding to the contrary. Some of these arose under statutes very different from ours. In some the statutes did not apply equally to residents and non-residents. Such cases do not assist us here. Neither are cases from state courts which were decided prior to the pronouncements of the Supreme Court of the United States in Hess v. Pawloski, supra, and Wuchter v. Pizzutti, supra, of persuasive force.

We deem it proper to cite a few of the cases that recognize that such a statute meets the requirement of "due process of law."

In Rauber v. Whitney, 25 N.E. (Ind.) 186, the Supreme Court of Indiana considered a statute almost identical in language (and clearly so in effect) with ours. The defendants were non-residents. Substituted service was made on their agent in an action growing out of the agency. The court said:

"It appears by the answer to the plea in abatement that the appellees had a store in the town of Tipton, in Tipton county, in this state, where the action was commenced; that the cause of action grew out of and was connected with the business of the appellees in that county; and that process was served upon the agents of the appellees in that county in charge of their said business. This conferred jurisdiction on the circuit court of Tipton county, and for that reason the ruling of the circuit court was erroneous."

The trial court had denied jurisdiction.

See, also, Edwards v. Van Cleave, 94 N.E. (Ind.) 596; Ft. Wayne Ins. Co. v. Irwin, 54 N.E. (Ind.) 817; Conkey v. Conder, 37 N.E. (Ind.) 132.

In Guenther v. American Steel Hoop Co., 76 S.W. (Ky.) 419, the Court of Appeals of Kentucky pointed out the distinction betweenconstructive service of process and substituted service such as we have in this case. The court said:

"The general rule is that substituted service of process is equivalent to personal service, and warrants a personal judgment, if made in the manner pointed out by the statute, on the ground that the defendant is presumed to have received the notice."

See, also, Green v. Snyder, 84 S.W. 808 (Tenn.); Moore v. Payne, 35 F.2d 232; Cohen v. Plutschak, 40 F.2d 727; Rubin v. Goldberg, 154 A. 535 (N.J.); Shushereba v. Ames,255 N.Y. 490, 175 N.E. 187; Schilling v. Odlebak, 177 Minn. 90,224 N.W. 694; Seitz v. Claybourne, 231 N.W. 714 (Minn.); Yarborough v. N.C. Park Com'n., 145 S.E. 563 (N.C.).

The true rule in cases of the kind is laid down by the American Law Institute, in the Restatement of the Conflict of Laws, section 90, as follows:

"A state can exercise through its courts jurisdiction over an individual who has done an act or caused an event within the state, as to a cause of action arising out of such act or event, if by the law of the state at the time when the act was done a person by doing the act or causing the event subjects himself to the jurisdiction of the state as to such cause of action."

The statute in question comes squarely within the provisions of this rule. It does not conflict with any provision of the Federal Constitution. Under the record in this case the court obtained jurisdiction over the appellant in the precise manner pointed out by the statute. The statute does not (1) deny to the defendant any rights or immunities granted to citizens of this state; (2) it does not deny to the defendant the equal protection of the law, because it applies equally to residents and nonresidents; (3) it does not deny to the defendant due process of law, because it provides for a substituted service upon the existing agent of the defendant in charge of the defendant's office or agency, and is limited to matters growing out of that agency, and there is "every reasonable probability" that such notice so served will necessarily be brought to the attention of the defendant and afford him ample opportunity to defend. Therefore the statute does not contravene any of the provisions of the Federal Constitution.

It follows that the order of the trial court must be — Affirmed.

EVANS, STEVENS, De GRAFF, and ALBERT, JJ., concur.