Mary Scanapico v. Richmond, Fredericksburg & Potomac Railroad Company, and Seaboard Air Line Railroad Company and Atlantic Coast Line Railroad Company

This is an appeal from an order of the United States District Court for the Eastern District of New York denying defendant's motion to quash the service of summons. It is here by permission of this court, granted upon the statement of the district judge under 28 U. S.C. § 1292(b) (1964) that the order

"[i]nvolves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation. * * *"

Appellee sued for injuries sustained when a suitcase fell on her from an overhead rack in a railroad car in which she was a passenger traveling from Florida to New York. Appellee is a resident of New York. The injury occurred when the train was traveling over the tracks of appellant railroad between Washington and Richmond.

Appellant moved to quash the service on it of the summons and complaint on the ground that its activities in New York were insufficient, under the due process clause of the Federal Constitution and under New York law, to provide a basis for the exercise over it of personal jurisdiction and on the further ground that such an assertion of jurisdiction would constitute an undue burden on interstate commerce. It is from the order denying this motion that defendant appeals.

The parties are agreed, and the district court found, that the activities of the appellant in New York consisted of:

(1) freight solicitation by two employees, one of whom resided in New York;

(2) sale and issuance by connecting railroads of coupon tickets and through bills of lading good, in part, for carriage over appellant's Richmond-Washington tracks, for which appellant received a share of the payment;

(3) daily presence in New York of appellant's freight cars in interstate trains operated by connecting railroads.

Under recent opinions of the Supreme Court the older mysteries of corporate presence are no longer determinative of issues of personal jurisdiction over corporations. The question in each case is not whether the corporation is in some metaphysical sense "present" in the state but whether the corporation's contacts with the state are sufficient to justify the exercise of jurisdiction without offending "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), citing Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940). With increasing nationalization of commerce "a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other non-residents." McGee v. International Life Insurance Co., 355 U.S. 220, 222, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957).

"[I]t is a mistake to assume that this trend heralds the eventual demise of all restrictions on the personal jurisdiction of state courts. See Vanderbilt v. Vanderbilt, 354 U.S. 416, 418. [77 S.Ct. 1360, 1362, 1 L.Ed.2d 1456.] Those restrictions are more than a guarantee of immunity from incomvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States. However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has had the `minimal contacts' with that State that are a prerequisite to its exercise of power over him." Hanson v. Denckla, 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283 (1958).

Whether the "assertion of jurisdiction contravenes a constitutional guarantee" is, of course, a question of federal law. See Arrowsmith v. United Press Internat'l, 320 F.2d 219, 223 (2d Cir. 1963).

In the present case, it appears that the appellant employed a resident of Syracuse, New York, to solicit freight traffic throughout the State except for the area immediately around New York City, where another employee of appellant solicited such freight. At all times freight cars belonging to appellant were to be found in New York. Tickets and bills of lading for carriage over appellant's tracks were sold by persons acting, for this purpose, as appellant's representatives. We hold that these activities of appellant in the State constitute sufficient "minimum contacts" to permit, within constitutional limitations, the exercise of personal jurisdiction. McGee v. International Life Insurance Co., supra; Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S.Ct. 413, 96 L.Ed. 485 (1952); International Shoe Co. v. Washington, supra; Curtis Publishing Co. v. Golino, 383 F.2d 586 (5th Cir. 1967); Volkswagen Interamericana, S.A. v. Rohlsen, 360 F.2d 437 (1st Cir.) cert. denied, 385 U.S. 919, 87 S.Ct. 230, 17 L.Ed.2d 143 (1966); Scholnik v. National Airlines, 219 F.2d 115 (6th Cir.) cert. denied, 349 U.S. 956, 75 S.Ct. 882, 99 L.Ed. 1280 (1955).

In Blount v. Peerless Chemicals Inc., 316 F.2d 695 (2nd Cir.), cert. denied sub nom. Colbert v. Peerless Chemicals Inc., 375 U.S. 831, 84 S.Ct. 76, 11 L.Ed.2d 62 (1963), where we held the activities within the state of New York of a foreign corporation insufficient to provide a basis for the exercise of jurisdiction, we pointed out that the corporation involved in that case did not solicit business in New York and had no employees here. In contrasting the present case with Blount we might add that in Blount the corporation did not have representatives in New York who sold its services and did not have property in New York.1

In this case where federal jurisdiction is based upon diversity of citizenship we must also determine whether personal jurisdiction is properly asserted under New York law. Arrowsmith v. United Press Internat'l, supra. The applicable New York statute is Section 301 of the New York Civil Practice Law and Rules (McKinney's 1963). In Frummer v. Hilton Hotels Internat'l, Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851 (1967), the Court of Appeals, interpreting Section 301, held that a plaintiff who alleged that he was injured in the Hilton Hotel in London could establish personal jurisdiction in New York over the British corporation which operated the London Hilton. New York's highest court, reasserting its familiar rule that solicitation of business in the state without more is insufficient to provide a basis for personal jurisdiction, found the necessary additional activities in the corporation's use of a New York representative to make reservations at the London Hilton and to do "public relations and publicity work." 19 N.Y.2d at 537, 281 N.Y.S.2d at 44, 227 N.E.2d at 853.

In Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116 (2d Cir. 1967), cert. denied, 390 U.S. 996, 88 S.Ct. 1198, 20 L.Ed.2d 95 (1968), this court was called upon to apply the New York law with respect to the exercise of personal jurisdiction over a foreign corporation. Plaintiffs brought suit in the United States District Court for the Eastern District of New York against two California corporations and a Nevada corporation, alleging that plaintiffs sustained injuries while traveling on a bus in Arizona. The district court granted defendants' motion to set aside the service of summons and plaintiffs appealed. The district court's decision antedated the decision of the New York Court of Appeals in the Frummer case. Relying largely on Frummer which had been decided in the meantime, we reversed the determination of the district court and held that plaintiffs had acquired personal jurisdiction over defendants. In an opinion by Chief Judge Lumbard, this court said:

"In our view, the decisive test is that upon which the court in Frummer relied, `the [reservation] Service does all the business which [defendant corporation] could do were it here by its own officials.' 281 N.Y.S.2d at 44, 227 N.E.2d at 854. In the context of the Frummer case, we take this to mean that a foreign corporation is doing business in New York `in the traditional sense' when its New York representative provides services beyond `mere solicitation' and these services are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services." Gelfand v. Tanner Motor Tours, Ltd., supra, at 120-121.

In the Gelfand case, a representative of defendant corporations confirmed reservations for bus tours on defendants' lines and promoted travel over those lines.

In the present case not only did appellant's solicitation of business in New York provide a much more acceptable basis for establishing personal jurisdiction than the "mere solicitation" referred to in the New York cases, since the solicitation was carried on by appellant's own employees, one of whom resided in Syracuse, but the additional factors seem to us to be at least as extensive as those found to be sufficient in Frummer and Gelfand. These additional factors include, as we have pointed out, sale by representatives within the state of passage over appellant's tracks and the day-to-day presence within the state of appellant's freight cars from the use of which the appellant was deriving revenue.

Appellant also contends that the assertion of jurisdiction over it in New York imposes an undue burden on interstate commerce. The cases which appellant cites hark back to earlier days and reflect a far less fully developed stage of our national economy. In McGee v. International Life Insurance Co., supra, the Court said, 355 U.S. at p. 223, 78 S. Ct. at p. 201:

"* * * modern transportation and communication have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity."2

In the Frummer case the New York Court of Appeals said:

"We are not unmindful that litigation in a foreign jurisdiction is a burdensome inconvenience for any company. However, it is part of the price which may properly be demanded of those who extensively engage in [interstate] trade. When their activities * * * either directly or through an agent, become as widespread and energetic as the activities in New York conducted by [defendant], they receive considerable benefits from such * * * business and may not be heard to complain about the burdens." Frummer v. Hilton Hotels Internat'l, Inc., 19 N.Y.2d at 538, 281 N.Y.S.2d at 45, 227 N.E.2d at 854.

We reject appellant's contention that subjecting it to personal jurisdiction in New York imposes an undue burden on interstate commerce.

For the reasons given we affirm the determination of the district court.

I dissent.

The result of the majority opinion would be to permit suits in the New York federal courts regarding injuries suffered on the tracks of almost every railroad operating in the United States, and occurring almost anywhere in the United States.

Mary Scanapico, a resident of New York, alleges that she was injured when a suitcase fell on her from an overhead luggage rack during a train trip from Miami to New York City while she was riding over the tracks of the Richmond, Fredericksburg & Potomac Railroad (RF&P) somewhere between Washington and Richmond. The RF&P was served with process in Richmond and moved to quash service on the grounds that it violated due process and imposed an unconstitutional burden on commerce. The district court found that RF&P had but three contacts with the State of New York: (1) New York freight solicitation, in part by a New York resident; (2) sale and/or issuance in New York by connecting rail carriers of coupon tickets and through bills of lading good, in part, for carriage over defendant's Richmond-Washington tracks, for which defendant receives appropriate payment; and (3) daily presence in New York of defendant's freight cars in interstate trains operated by connecting carriers. The majority finds that these factors alone are sufficient to constitute "doing business" under New York C.P. L.R. § 301 and constitute sufficient contacts with the state so that no undue burden on interstate commerce results. I respectfully disagree.

RF&P operates a railroad between Washington, D. C. and Richmond, Virginia, controlling no railroad operations beyond those points. None of its operating employees works north of Washington or south of Richmond. Aside from its employee in Syracuse, who solicits freight traffic in upstate New York, RF&P has none of the traditional indicia of corporate presence in New York. It has no New York office, address, telephone listing, bank account, tangible or intangible property.

The standards for obtaining personal jurisdiction over non-residents have moved from the rigid rule of Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565 (1877) to the more flexible standard of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). These developments, however, have not heralded the ultimate demise of all restrictions on the personal jurisdiction of the courts. As Chief Justice Warren stated in Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958):

"Those restrictions are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States. However minimal the burden of defending in a foreign tribunal, a defendant may not be called upon to do so unless he has had the `minimal contacts' with that State that are a prerequisite to its exercise of power over him. * * *" 357 U.S. at 250-251, 78 S.Ct. at 1238.

The Court also indicated that one test to be applied was whether there was "some act by which the defendant purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefit and protections of its laws." 357 U.S. at 253, 78 S.Ct. at 1240.

In determining whether RF&P has the requisite "minimal contact" with New York, the majority opinion and the district court indicated that the classic indicia of corporate presence, must yield to the realities of significant and purposeful economic presence in the State. Even accepting this formulation, I am unable to discover the "significant and purposeful" economic presence which the district court and the majority opinion find to exist here.

In Blount v. Peerless Chemicals Inc., 316 F.2d 696 (2 Cir.), cert. denied, sub nom. Colbert v. Peerless Chemicals Inc., 375 U.S. 831, 84 S.Ct. 76, 11 L.Ed.2d 62 (1963) we formulated a test for determining the propriety of jurisdiction, concluding that

"[t]he two fundamental factors determinative of the propriety of personal jurisdiction appear to be the nature and extent of the business activities conducted by and on behalf of the foreign corporation in the forum state, and the relationship to that state and those activities to the cause of action. Thus, a corporation which expends money, time, and effort extensively within a state, thereby exercising the privilege of dealing with its residents, may receive considerable economic benefit; * * *" 316 F.2d at 697.

RF&P certainly does not spend extensive money, time or effort in New York State by virtue of the three factors relied upon by the majority.

The daily presence in New York of freight cars belonging to RF&P is given great weight by the majority. However, the fortuity of when an RF&P car is in New York is hardly sufficient basis to find that it is engaging in some "purposeful" activity in the State. RF&P has no choice but to allow its freight cars to be brought into New York by other carriers and lines. This free interchanging of cars was not always the case for

"In the early days of railroading in this country no railroad allowed its freight cars to leave its rails. Through freight to be transported over more than one line was unloaded and reloaded at junction points. With the development of more efficient transportation methods following the Civil War this wasteful and time-consuming practice of transferring cargo was gradually abandoned and for a charge the railroads began to permit their loaded cars to move off their tracks onto the tracks of connecting carriers. * * *" Boston and Maine RR v. United States, 162 F. Supp. 289, 291 (D.Mass. 1958), affirmed 358 U.S. 68, 79 S.Ct. 107, 3 L. Ed.2d 34 (1958).

The Interstate Commerce Act § 3(4) requires that

"All carriers subject to the provisions of this chapter shall, according to their respective powers, afford all reasonable, proper, and equal facilities for the interchange of traffic between their respective lines and connecting lines, and for the receiving, forwarding, and delivering of passengers or property to and from connecting lines; and shall not discriminate in their rates, fares, and charges between connecting lines, or unduly prejudice any connecting line in the distribution of traffic that is not specifically routed by the shipper." 49 U.S.C. § 3(4) (1964).

A decision of the Commission in 1911 described the obligations of the railroads more fully:

"Reading these provisions together, there can be no doubt as to the intent of Congress. Our railroads are called upon to so unite themselves that they will constitute one national system; they must establish through routes, keep these routes open and in operation, furnish the necessary facilities for transportation, make reasonable and proper rules of practice as between themselves and the shippers, and as between each other. The full burden of this great obligation is in the first instance cast upon the carriers themselves. In compliance with these recognized requirements of the law the carriers have undertaken to establish a body of rules and by cooperation in their enforcement insure the fulfillment of the law's demands. The duty of the initial carrier to furnish equipment for a shipment which moves on to other lines is universally recognized, and in cases where that is impracticable or deemed unwise the carriers assume to bear the burden of the transfer from the equipment of one line to that of the other. * * *" Missouri & Illinois Coal v. I.C.R.R. Co., 22 ICC 39, 46-47 (1911).

As a result of these regulations, all railroads are required to establish reasonable through routes, and to accept, interchange, and transport all freight cars tendered to them in good operating condition. A company will often lose control of its car immediately upon delivery to an interchange for through transportation. After a car leaves the owning road's possession in the interchange, it may, as a result of shippers' orders made while enroute, be diverted to a new destination, entirely different from that to which it was originally directed, and outside the car owner's knowledge. After the car has been unloaded at its final destination, it may properly be reloaded by the destination railroad for further transportation elsewhere. This subsequent reloading and transportation is done without the owning road's knowledge, pursuant to the statutory requirement that all roads must facilitate transportation in the national public interest. The result is that the car owning road loses control of its car once it passes from its own line and it generally has neither knowledge of nor control over the car's location or destination.1

Each railroad is required to pay a regulated fee for its use of another road's cars. This fee, a "per diem," is prescribed by the Railway Accounting Rules, Rule 7. See generally Baltimore & Ohio R. Co. v. New York, New Haven and Hartford R.R., 196 F.Supp. 724 (S. D.N.Y. 1961); Palmer v. United States, 75 F.Supp. 63 (D.D.C. 1947). Forty days after a car has been used by another line, the owner learns two facts about his cars — which railroad used the car and how many days it was used. The owner does not discover, however, where and in what states the car has been used. For example, although a road may learn by May 10th that one of its cars was used for 14 days in March by the Penn Central Railroad, it has no way of knowing whether the car was used in New York, Connecticut or Ohio.

RF&P may indeed have freight cars present in New York every day and, if so, it would eventually receive a fee for the use of such cars, but I fail to see how RF&P is purposefully and significantly engaging in economic activity in this state when it has no knowledge of the fact that its cars are or were present in New York, and it cannot under the law possibly prevent the use of its cars in any state whatsoever.

The second "purposeful" activity relied upon by the majority and the district court is the fact that passengers may purchase coupon tickets in New York from connecting carriers covering passage on RF&P's tracks and for which RF&P is eventually reimbursed. The issuance or purchase of a through ticket in New York does not indicate any purposeful activity in New York by RF&P. It is required of RF&P, and of all railroads, that they publish a tariff schedule and abide by the rates listed therein. The ticketing carrier in New York, by combining the local rates, arrives at a sum for the entire journey. Consequently the passenger pays only once rather than having to purchase a separate ticket for each portion of the trip. The ticketing carrier subsequently pays the local carrier the appropriate amount. The local carrier, in this case RF&P, plays a passive role in the process and does not engage in such activities in New York as to subject to it personal jurisdiction.

In this case the district court found that RF&P did not affirmatively solicit passenger traffic from the public nor do other railroads do so on its behalf. The ticketing arrangement described in the majority opinion is not unusual, and the district court acknowledges that RF&P tickets can be bought not only in New York but at any rail ticket office in the country. If the mere fact that RF&P (and presumably every railroad in the country) allows through tickets to be sold at ticket offices across the country is sufficient to support a finding that RF&P is engaging in significant and purposeful economic activity in New York of such a nature as to subject it to full in personam jurisdiction, then under the prevailing opinion virtually every railroad in the country is subject to personal jurisdiction in New York.

I also disagree with the majority that personal jurisdiction is properly asserted under New York law. In my view, neither Frummer v. Hilton Hotels Int'l Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851 (1967) nor Gelfand v. Tanner Motor Tours Ltd., 385 F.2d 116 (2nd Cir. 1967), cert. denied, 390 U.S. 996, 88 S.Ct. 1198, 20 L.Ed.2d 95 (1968) is controlling. In both Gelfand and Frummer there was extensive purposeful activity in New York by representatives of the foreign corporation. In both cases the representatives were voluntarily assigned to New York in a conscious effort by the parties to tap the large New York market. The purpose of Credit Corporation's operations in New York in Frummer, supra, was to generate business for the Hilton chain. RF&P, however, has made no such affirmative efforts to do passenger business in New York; its only "presence" is one New York resident soliciting freight. See Miller v. Surf Properties, Inc., 4 N.Y.2d 475, 176 N.Y.S.2d 318, 151 N.E.2d 874 (1958). Unlike Gelfand and Frummer, RF&P has not employed agents to solicit passenger business in New York. RF&P's activities are the minimum required by statute, no more. Under these circumstances, I do not believe that RF&P has engaged in purposeful activity in New York.

In sum, the majority holds that one New York resident soliciting freight business is sufficient activity to subject RF&P to in personam jurisdiction to answer a claim arising out of its passenger business. There are simply no other affirmative or purposeful acts by RF&P in this jurisdiction. RF&P's contacts in New York are not extensive and do not result in the expenditure of money, time or effort within the state, see Blount, supra. Neither the presence of freight cars nor the sale of through tickets, both without affirmative participation by RF&P, is sufficient to constitute the minimal contacts necessary to sustain jurisdiction.

I would reverse the orders of the district court with directions to dismiss the complaint against RF&P.

Before LUMBARD, Chief Judge, WATERMAN, Senior Circuit Judge,* and MOORE, FRIENDLY, SMITH, KAUFMAN, HAYS, ANDERSON and FEINBERG, Circuit Judges.

FRIENDLY, Circuit Judge (with whom WATERMAN, MOORE, SMITH, and ANDERSON, Circuit Judges, join):

We granted rehearing in banc on the basis of a petition wherein defendant asserted that the panel decision affirming the district court's refusal to quash the service of