International Shoe v. Washington

The Supreme Court had previously established (in Pennoyer v. Neff) that a defendant had to be physically present in a state in order to be subject to the in personam (personal) jurisdiction of that state's courts. The International Shoe decision established a standard where a person had to have "minimum contacts" with a state in order to be subject to that state's courts.

Facts of the case

International Shoe was a company that manufactured shoes and sold them to retailers across the United States. It was a Delaware corporation with headquarters in St. Louis, Missouri. The company sold its shoes through salesmen located in different states.

Between 1937 and 1941, International Shoe employed around twelve salesmen in the state of Washington. Over this four-year period, the salesmen drew a total of over $130,000 in commissions. They operated under the direction of a regional sales manager based in St. Louis. International Shoe had no office in Washington, so the salesmen paid for hotel rooms and other temporary space to showcase their products, and the company would reimburse them for their expenses. When they received orders, they would send the orders to St. Louis, and International Shoe would then ship the products from St. Louis to the dealer in Washington.

Late in 1941, Washington realized that International Shoe owed the state government over $3,000 in unpaid unemployment taxes. In October, the state unemployment commission sent International Shoe an assessment for the back taxes it owed. State law at the time provided that "notice of assessment shall be served upon the delinquent employer in the manner prescribed for the service of summons in a civil action, except that if the employer cannot be found within the state, said notice will be deemed served when mailed to the delinquent employer at his last known address by registered mail." There was also a statute dealing with service of process, which stated that "if the suit be against a foreign corporation doing business within this state, the summons shall be served by delivery of a copy thereof to any agent, cashier, or secretary thereof."

In keeping with these statutes, the commission served process on one of International Shoe's salesmen in Washington, and also sent a copy by registered mail to headquarters in St. Louis.

The litigation begins

International Shoe refused to pay the money it owed the state, making three arguments: that service upon one of its salesmen was inadequate, that it was not "doing business" in Washington, and that it was not "employing" people in Washington. After a hearing, the unemployment commission decided that International Shoe's arguments were insubstantial, and ordered them to pay up. The unemployment commissioner agreed with this ruling.

The company then took the state to court. In November of 1943, the Superior Court in King County (the county around Seattle) affirmed the commission's decision, and agreed that International Shoe had to pay up.

Rather than pay up, International Shoe appealed to the Supreme Court of Washington. In a 7-2 decision in January of 1945, the court affirmed what everyone else had already said: the company owed the state, and it had to pay.

"Doing business," the majority said, could be tested in two ways. The traditional "consent theory" stated that, by entering a state, a corporation was implicitly consenting to be sued under that state's laws. Another, more recent theory, called the "corporate presence theory," held that a corporation had to be doing enough business in the state as to warrant the finding that it was physically "present" there.

Soliciting business in a state was not enough to make a corporation "present" in that state, according to the Washington court. Something more substantial was needed. Weighing a number of precedents from different states, the court concluded that "the regular and systematic solicitation of orders in this state by appellant's agents, resulting in a continuous flow of appellant's product into this state by means of interstate carrier, is sufficient to constitute doing business in this state so as to make appellant amenable to process of the courts of this state."

On the question of who would be an "agent" of the company, the court adopted one of its earlier cases, which held that "they may not include a day laborer or an employee who has no authority to represent the corporation in any way other than to discharge his daily task, but they must be held to include all such agents as represent the corporation in either a general or a limited capacity." Salesmen, reasoned the court, were representing the corporation and could therefore be considered as agents.

Beaten in all of Washington's courts, but refusing to concede defeat, International Shoe petitioned the United States Supreme Court for a writ of certiorari. They argued their case on November 14, 1945.

The Supremes weigh in

Chief Justice Harlan Stone wrote the opinion of the court. It was agreed to by an almost-unanimous majority of 8-0. (Justice Robert Jackson did not participate in the hearing of the case.)

In the Supreme Court, International Shoe made two arguments against the assessment, both based on the due process clause of Amendment XIV. The first was that the due process clause forbade Washington from making a foreign corporation appear in Washington court. The second was that the due process clause also forbade the state from extracting the money from a foreign corporation.

The Supreme Court threw out the second argument immediately, because there was a federal statute (26 U.S.C. § 1606) providing that "no person required under a State law to make payments to an unemployment fund shall be relieved from compliance therewith on the ground that he is engaged in interstate or foreign commerce, or that the State law does not distinguish between employees engaged in interstate or foreign commerce and those engaged in intrastate commerce." This was enough, in the Court's judgment, to moot that half of International Shoe's claim.

Focusing on the first argument, Stone noted that the Pennoyer days, in which a defendant had to physically be within the jurisdiction of the court, were over. "Due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice."

Like the Washington Supreme Court, the U.S. Supreme Court went through a score of different cases dealing with jurisdiction over foreign corporations. "'Presence' in the state in this sense has never been doubted when the activities of the corporation there have not only been continuous and systematic, but also give rise to the liabilities sued on, even though no consent to be sued or authorization to an agent to accept service of process has been given. Conversely it has been generally recognized that the casual presence of the corporate agent or even his conduct of single or isolated items of activities in a state in the corporation's behalf are not enough to subject it to suit on causes of action unconnected with the activities there."

So there was a definite balancing test to be made here. If International Shoe had a warehouse in Washington, it would clearly have presence there. On the other hand, if one of its salesmen took a train ride through Washington on his way to Alaska, that would not establish a corporate presence in Washington. So did International Shoe's salesmen fall on the warehouse side, or the train side?

"The activities carried on in behalf of appellant in the State of Washington were neither irregular nor casual," Stone wrote. "They were systematic and continuous throughout the years in question. They resulted in a large volume of interstate business, in the course of which appellant received the benefits and protection of the laws of the state, including the right to resort to the courts for the enforcement of its rights. The obligation which is here sued upon arose out of those very activities."

By its systematic and continuous business activity in Washington, International Shoe had availed itself of Washington's legal protection, and by receiving benefits, it also received obligations under the laws of Washington. These obligations included paying state unemployment taxes and responding to process served under state law.

Legacy

International Shoe doesn't exist any more. In 1966, after purchasing several other companies in the clothing industry, it renamed itself "Interco." Interco grew like crazy through the 1980's, and then filed for Chapter 11 bankruptcy protection after it ran out of money. It later divested itself of its clothing brands and focused on the furniture business; now, it's known as Furniture Brands.

Even though International Shoe is gone, the case is still one of the best-known in the area of civil procedure, and its "minimum contacts" test still forms the basis for deciding who can be sued where.

Although the case is commonly seen as a watershed in the history of personal jurisdiction, it was really a case that was decades in the making. Pennoyer, the old standard, was decided in the late 1800s. Legal scholars already knew that Pennoyer was unworkable as far back as World War I. Keeping suits within state lines made sense when transportation and communications were slow and costly, but with the increasing efficiency of telegraphs, telephones, and railroads, it was becoming less logical to adhere to state lines in deciding personal jurisdiction.

International Shoe also reflected the New Deal era. By the time the case was decided, most of the Supreme Court's justices were appointees of President Franklin Roosevelt, and shared a mistrust of big industry. Under Pennoyer, corporations could often escape state court jurisdiction by claiming that jurisdiction would interfere with the federal government's powers over interstate commerce.

In addition to this anti-corporate ideology, the Court of 1945 was also adopting more notions of sociological jurisprudence, a school of legal thought which developed around the First World War and gained great currency in law schools by the mid-1920s. Many of FDR's appointees were products of this era in legal education, and they were more willing to look at the social effects of the law, rather than follow the traditional standards established by decades of precedent.

Whatever its motivation, International Shoe set the stage for interstate law through the end of the twentieth century. If a company wanted to do any substantial business in a state, they had to accept that state's jurisdiction over them. This basic idea has since been affirmed, over and over, by case after case in the Supreme Court.

It also gave rise to one of my favorite quotes from law school so far: "Our professor is so boring, we might as well replace him with the International Shoe."

Sources

• International Shoe Co. v. Washington, 326 U.S. 310 (1945)
• International Shoe Co. v. State, 22 Wn.2d 146, 154 P.2d 801 (1945)
• Sawyer, Jurisdiction, Jurisprudence, and Legal Change: Sociological Jurisprudence and the Road to International Shoe, 10 Geo. Mason L. Rev. 59 (2001)