Article Author: William E. Jepsen
When you have trouble falling asleep at night because you are contemplating “stream of commerce jurisdiction”, you must tell yourself, “I need a vacation!” However, with several trials scheduled later this month, the vacation will have to wait. Perhaps reducing the thoughts to writing will free the mind for sleep and preserve thoughts for use by others.
The Minnesota Supreme Court and Court of Appeals have issued a series of recent opinions concerning “longarm jurisdiction”. In Rostad v. On Deck, Inc., 354 N.W.2d 95 (Minn. App. 1984) and Rostad v. On Deck, Inc., (Sup. Ct., Finance and Commerce, August 16, 1985) and Helten v. Sunshine Scientific Instruments, (Minn. App., Finance and Commerce, August 9 1985), the Minnesota Courts sustained jurisdiction over non-resident defendants. In Waite v. Waite, (1985 Minn. App.) 359 N.W.2d 585, jurisdiction over non-residents was denied.
The distinctions between these cases are important to the practicing lawyer and will show that the legal issues that relate to “longarm jurisdiction” center more on the factual situation than on esoteric discussions of due process.
In Rostad, supra., the defendant On Deck, Inc. had no offices in Minnesota, owned no property in Minnesota, had no agent appointed in Minnesota and was no licensed to do business in Minnesota. On Deck, Inc. was corporation established to manufacture a donut shaped weight that slips over the handle of a baseball bat and lodges itself on the bat’s barrel. It is used by a batter for warming up. In this particular instance, the bat’s barrel was not quite big enough to restrain the donut shaped weight. As the warming batter swung the bat, the weight slipped off the end and, as if guided by divine providence, struck the umpire, Dean Rostad, in the head. On Deck, Inc. had contracted with Sportcraft Company to distribute the weights throughout the “Continent of North America”. Service of process was accomplished pursuant to Minn. Stat. § 543.19, Subd. 1(d) which allows jurisdiction over a defendant if that defendant “commits any act outside Minnesota causing injury or property damage to Minnesota.” [emphasis added]
The Minnesota Court of Appeals reversed the trial court’s dismissal for lack of jurisdiction. The Minnesota Supreme Court affirmed the Court of Appeal’s finding that jurisdiction was constitutionally justified. In doing so, the two courts reviewed the principle established in International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) that due process requires that a defendant have certain “minimum contacts” with a jurisdiction before being required to defend against a lawsuit in that jurisdiction. Both courts went on to discuss the application of that principle in World-Wide Volkswagon Corp. v. Woodsen, 444 U.S. 289, 100 S. Ct. 559 (1990) where the United States Supreme Court denied the Oklahoma court’s authority to exercise jurisdiction over an automobile retailer and a wholesaler who were New York corporations, and, at most, distributed the type of automobile involved in New York, New Jersey and Connecticut. The jurisdiction of the Oklahoma courts over the manufacturer and its importer was not questioned. The United States Supreme Court in World-Wide stated:
“The forum state does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum state. 444U.S. at 567.”
Thus, jurisdiction over the manufacturer and importer was sustained because they were attempting to distribute the automobile throughout the United States. However, jurisdiction over the local distributor and retailer was denied because they were attempting only to distribute the automobile in a confined area. The fact that the automobile was a mobile product was of no concern. The court focused its analysis upon the intention and scope of the particular parties’ distribution efforts. This was an analysis of the particular facts presented by the plaintiff’s attorney, not an esoteric discussion of due process.
Based upon World-Wide Volkswagon, the Minnesota Court of Appeals and Supreme Court found that due process was afforded On Deck, Inc. because On Deck, as the manufacturer, had obtained a distributor to distribute its products nationwide. The plaintiff’s attorney had developed and presented sufficient facts to convince the Court of Appeals and Supreme Court that due process had been afforded the defendant.
Likewise, in Helten v. Sunshine Scientific Instruments, Inc., supra., the Court of Appeals sustained jurisdiction on the “stream of commerce” theory. The product involved in Helten was a splicing machine that was manufactured by the Arthur J. Evers Corporation which incorporated a control manufactured by Sunshine. The control was ordered by the owner of the Minnesota plant. The actual device was delivered to the Philadelphia office where the control was presumably incorporated in the machine and the machine was ultimately installed in the Minnesota plant. The Court of Appeals again reviewed the principles of International Shoe and World-Wide Volkswagon and concluded as follows:
“This case is stronger than the typical ‘stream-of-commerce’ case wherein a manufacturer sells its product to a third party manufacturer which in turn sells its own product in the forum state. In the present case, Sunshine not only sold its product to International’s other plants around the country, thereby placing their product into the ‘stream-of-commerce’, but also accepted International’s order for five control devices which it voluntarily placed on the Minnesota market.”
The court in Helton distinguished a prevous decision in Maiers Lumber and Supply, Inc. v. Chancey Trailers, 354 N.W.2d 585(Minn. App. 1984) where the contacts were found insufficient to compel a foreign corporation to defend a suit in Minnesota. The substance of the claim in Maiers was not an injury. Instead, the plaintiff was making claim for breach of contract, specifically, breach of express warranties and resulting contract damages. The contract had been negotiated over the phone and the defendant Florida Corporation had no other contact with Minnesota other than this isolated sale, the delivery of the product in Minnesota and a collection of the payment in Minnesota. In Maiers, the court concluded that the plaintiff must sue the defendant where it resides, in Florida.
The court in Helton distinguished Maiers stating:
“In Maiers, this court was not confronted with the ‘stream-of-commerce’ theory of jurisdiction. The Florida corporation was sued for breach of express and implied warranties, on an isolated, direct sale. This was not a products liability claim, the product did not cause the injury to Minnesota.”
However, the Court, in Maiers, did make specific reference to World-Wide Volkswagon, the opinion most widely referred to for the “stream-of-commerce” theory. In both Helton and Maiers, the statutory basis for jurisdiction was Minn. Stat. § 543.19, Subd. 1 which allows jurisdiction over a non-resident individual or foreign corporation who, as in Helton, commits as act outside of Minnesota causing injury or property damage in Minnesota, or as in Maiers “transacts any business within the state”. This author believes that the Maiers decision is a bad decision. There are two possible ways to distinguish Maiers. First, one could emphasize that longarm jurisdiction places great emphasis on the facts of each individual case and that Maiers lost on the individual facts of that particular case which did not persuade the particular court hearing the facts that they were sufficient to afford the defendant due process. Second, ask the court to disavow the soundness of its decision in Maiers.
In Waite v. Waite, (Minn. App. 1985) 359 N.W.2d 752, the Court of Appeals was again reviewing a jurisdictional issue. This time, the plaintiff was a North Dakota resident who was injured in a North Dakota motor vehicle accident involving the defendant who was also a North Dakota resident. The plaintiff obtained service of process over the defendant while the defendant was actually in Minnesota. MS § 543.19, Subd. 2 allows for service of process outside the state on a non-resident defendant. In Waite, the defendant was served within Minnesota. Service of a Summons within the State of Minnesota is governed by Rule 4.03 of the Minnesota Rules of Civil Procedure. The court seems to be giving MS §543.19 general application to service of process over non-resident defendants, whether the service be within or without Minnesota. The court distinguishes a previous Minnesota Supreme Court decision in Nielsen v. Braland, 264 Minn. 481, 119 N.W.2d 737 (1963). In Nielsen, the plaintiff was a Minnesota resident and the defendant was an Iowa resident. The claim arose from injuries in an automobile collision that occurred in Iowa. Service of Process was obtained over the defendant while he was in Minnesota pursuant to Rule 4.03 of the Minnesota Rules of Civil Procedure. In Nielsen, the court upheld the exercise of jurisdiction over the Iowa resident for a claim arising over an accident that occurred in Iowa. The court, in Waite, distinguishes Nielsen by stating that the plaintiff was a Minnesota resident. This author has seen no decision which places emphasis on the residence of the plaintiff in determining whether or not an exercise of jurisdiction over a non-resident defendant is constitutional. Again, the court’s distinction of Nielsen seems unsound.
The court in Waite is not only requiring strict compliance with the provisions of MS §543.19, Subd. 3, which requires that only the acts enumerated in Subd. 1 can be asserted against a defendasnt by service of process pursuant to MS §543.19. This is sound reasoning. However, Subd. 4 indicates:
“Nothing contained in this section shall limit or affect the right to serve any process in any other manner now or hereafter provided by law or the Minnesota Rules of Civil Procedure.”
The Court in Waite seems to be applying the constraints of MS §543.19, Subd. 3 to service of process pursuant to Rule 4.03. This seems to conflict with Subd. 4 quoted above and the Minnesota Supreme Court’s decision in Nielsen v. Braland. It would appear that the court in Waite should have concluded that the exercise of jurisdiction was constitutionally sound, but that it should not be exercised because of the principles of “forum non-conveniens”. Certainly, the courts of this state have little interest in resolving disputes between North Dakota residents arising out of torts committed in North Dakota. The result in Waite is sound, but the court’s decision leaves unanswered the exact scope and application of the constraints of MS §543.19.
Waite should be interpreted as not applying MS §543.19 as an additional constraint upon Minnesota Rules of Civil Procedure 4.03. The court in Waite makes reference to a previous decision in Dent-Air, Inc., 332 N.W.2d 904. The court in Dent-Air was adopting a five-factor test also referred to in Aftanase v. Economy Baler Co., 343 F.2d 187 (8th Cir. 1965). The five factors are as follows:
1. The quantity of contacts,
2. The nature and quality of contacts,
3. The source and connection of those contacts to the cause of action,
4. The interest of the forum state, and
5. The convenience of the parties.
The Waite opinion is confusing because it makes reference to the particular requirements of MS §543.19 and also the five-factor test adopted in Dent-Air. The court does not make it clear which of the two factors it is specifically relying upon. The Waite opinion is a sound opinion when it denies jurisdiction because the five-factor test which when applied to the particular facts of the Waite case lead to the conclusion that the litigation should be handled in North Dakota. This is basically a forum non-conveniens decision.
To what does al of this thought, discussion and criticism lead? One might conclude that it leads to the end of my Appellate practice. However, I know and trust that our Judges openly accept criticism. These decisions do lead to the conclusion that the trial practitioner seeking to enforce the jurisdiction of Minnesota courts over non-resident defendants must develop facts. It is the facts of the particular defendant’s relationship to Minnesota that must leave the Trial Judge concluding that (1) there has been strict compliance with the statutory or Rule authorizing the service of process, and (2) the facts of this particular case justify the exercise of jurisdiction over a non-resident defendant.
The facts to be looked for and developed by plaintiff’s counsel are facts that will lead to positive findings on each of the five factors identified in the Dent-Air decision. The search for facts should begin in the particular transaction that lead to the tort, but they must go beyond the fats to look at the defendant’s general business operations, their intent in terms of distribution of products and where the defendant might reasonably believe their products will eventually reach. The trial practitioner must fully realize that the exercise of longarm jurisdiction will not rise or fall on theoretical discussions of due process. A valid exercise of jurisdiction will be sustained by the trial lawyer who develops the facts justifying the exercise of jurisdiction.