Kerry Steel, Inc. v. Paragon Industries, Inc.

• Decision Date: 07 February 1997
• Docket Number: No. 95-1334,95-1334
• Parties: KERRY STEEL, INC., Plaintiff-Appellant, v. PARAGON INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 147

106 F.3d 147

36 Fed.R.Serv.3d 813

KERRY STEEL, INC., Plaintiff-Appellant, v. PARAGON INDUSTRIES, INC., Defendant-Appellee.

No. 95-1334.

United States Court of Appeals Sixth Circuit.

Argued May 10, 1996.

Decided Feb. 7, 1997.

Steven Z. Cohen, Kenneth Lee Rosen (argued and briefed), Bloomfield Hills, MI, for plaintiff-appellant.

Christopher G. Manolis (argued and briefed), Daniel C. Symonds, Blake, Kirchner, Symonds, MacFarlane, Larson & Smith, Detroit, MI, for defendant-appellee.

Before: MARTIN, Chief Judge; JONES and NELSON, Circuit Judges.

DAVID A. NELSON, Circuit Judge.

This is an appeal from the dismissal of a contract action for lack of in personam jurisdiction.

The plaintiff, a Michigan steel service center, approached the defendant, an Oklahoma pipe fabricator, with an offer to sell it approximately $300,000 worth of steel coils. The defendant accepted the offer by telephone, following negotiations conducted via telephone and facsimile machine. Purchase orders for the coils were sent to the plaintiff in Michigan. After taking possession of the goods at a warehouse in Illinois, the defendant refused to pay the full purchase price because of alleged nonconformity with agreed quality standards.

The plaintiff brought suit in a Michigan court for money claimed to be due and owing. After removing the action to federal court on diversity grounds, the defendant, a corporation not qualified to do business in Michigan, moved to dismiss under Rule 12(b)(2), Fed.R.Civ.P. The district court (Duggan, J.) granted the motion, concluding that the plaintiff had failed to make a prima facie showing that the court had jurisdiction over the defendant's person. A motion for reconsideration was subsequently denied.

The plaintiff argues on appeal that it did make a prima facie showing of jurisdiction and that the court erred in considering controverted facts, in failing to give proper effect to the defendant's admissions, and in failing to require additional discovery or an evidentiary hearing. We disagree. The district court proceeded properly, in our view, and reached the only conclusion permissible on the record presented. The order granting the motion to dismiss for lack of in personam jurisdiction will be affirmed.

I

A federal court sitting in diversity may exercise personal jurisdiction over an out-of-state defendant only to the extent that a court of the forum state could do so. CompuServe, Inc. v. Patterson, 89 F.3d 1257 1262 (6th Cir.1996). "[T]he defendant must be amenable to suit under the forum state's long-arm statute and the due process requirements of the Constitution must be met." Id., quoting Reynolds v. International Amateur Athletic Fed'n, 23 F.3d 1110, 1115 (6th Cir.), cert. denied, 513 U.S. 962, 115 S.Ct. 423, 130 L.Ed.2d 338 (1994).

Personal jurisdiction comes in two flavors: "general" jurisdiction, which depends on a showing that the defendant has continuous and systematic contacts with the forum state sufficient to justify the state's exercise of judicial power with respect to any and all claims the plaintiff may have against the defendant, and "specific" jurisdiction, which exposes the defendant to suit in the forum state only on claims that "arise out of or relate to" a defendant's contacts with the forum. Helicopteros Nacionales de Colombia S.A., v. Hall, 466 U.S. 408, 414-415 & nn. 8-10, 104 S.Ct. 1868, 1872 & nn. 8-10, 80 L.Ed.2d 404 (1984); Third Nat'l Bank in Nashville v. WEDGE Group, Inc., 882 F.2d 1087, 1089 (6th Cir.1989), cert. denied, 493 U.S. 1058, 110 S.Ct. 870, 107 L.Ed.2d 953 (1990). The appeal in the case at bar turns primarily on the question whether the plaintiff made a showing of specific jurisdiction over the person of the defendant.

The district court did not conduct an evidentiary hearing, granting the motion to dismiss on the basis of the parties' pleadings and affidavits and the briefs and oral arguments of counsel. To avoid dismissal where there has been no evidentiary hearing, a plaintiff need only present a prima facie case for jurisdiction. Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir.1991); see also CompuServe, 89 F.3d at 1262. "Dismissal in this procedural posture is proper only if all the specific facts which the plaintiff ... alleges collectively fail to state a prima facie case for jurisdiction." Id. (emphasis added). We thus turn to the plaintiff's complaint and affidavits to determine whether a prima facie case was presented here.

An affidavit executed by the president of plaintiff Kerry Steel, Inc., explained that Kerry Steel customarily contacts prospective purchasers by telephone and that negotiations often occur by telephone and fax. This affidavit did not refer specifically to the transaction with the defendant, Paragon Industries, Inc.

Gerald Gallant, vice president of finance for Kerry Steel, attested that Paragon made partial payments to Kerry Steel totaling about $108,000; that "some of [the payments] were sent to Kerry Steel's post office box in Illinois and some directly to Kerry Steel at its offices in Southfield[, Michigan]"; that after Paragon failed to pay the full purchase price, negotiations with Paragon "took place by telephone and facsimile transmission;" that many of these communications were initiated by Paragon; and that Paragon had previously purchased steel products from Advance Steel Company in Detroit, a company that had extended a $100,000 line of credit to Paragon.

Edward Potts, a Kerry Steel salesperson, related in his affidavit that an independent sales representative acting on behalf of Kerry Steel initially contacted Paragon in regard to a possible sale of steel products early in 1994; that negotiations by telephone and fax ensued, with some of the communications being initiated by Paragon; that Paragon "mailed and/or faxed purchase orders" to Kerry in Michigan; and that Kerry, pursuant to Paragon's request, "directed" that the coils purchased by Paragon be shipped to a public warehouse in Illinois.

The affidavits went into substantially more detail than the complaint, and we find nothing in the complaint that calls for discussion here.

II

At the time of the adoption of the Fourteenth Amendment, it was widely understood that the nature of our federal system implied significant limits on the authority of state courts to exercise jurisdiction over out-of-state defendants. If the judicial power of a state were to be invoked against a foreign defendant, it was believed, the defendant had to appear before the court voluntarily or had to be present in the forum state so as to be amenable to service of process there. Burnham v. Superior Court of California, 495 U.S. 604, 616, 110 S.Ct. 2105, 2113, 109 L.Ed.2d 631 (1990). Nineteenth Century courts understood the Fourteenth Amendment as "embod[ying]" these ideas. Id.; see Pennoyer v. Neff, 95 U.S. 714, 732, 24 L.Ed. 565 (1878).

In succeeding years, the requirement of consent or presence was eroded in a line of decisions that culminated in the landmark case of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Burnham, 495 U.S. at 616-618, 110 S.Ct. at 2113-2115. International Shoe explicitly replaced the traditional requirement of consent or presence with a requirement that the defendant "have certain minimum contacts" with the forum state, such that the exercise of personal jurisdiction "does not offend 'traditional notions of fair play and substantial justice.' " 326 U.S. at 316, 66 S.Ct. at 158.

The requirement of such contacts, we are told, serves two important purposes: "It protects the defendant against the burdens of litigating in a distant or inconvenient forum," World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980), and it protects the defendant against attempts by states to "reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system." Id.; see also Insurance Corp. of Ireland, Ltd., v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 n. 10, 102 S.Ct. 2099, 2104 n. 10, 72 L.Ed.2d 492 (1982).

In 1968 our court surveyed the caselaw on the "contacts" doctrine and identified three prerequisites for the exercise of personal jurisdiction:

"First, the defendant must purposely avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable." Southern Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir.1968).

Although not the last word on personal jurisdiction, the Mohasco test continues to provide a useful starting point for analyzing jurisdictional questions of the sort presented here. See, e.g., CompuServe, 89 F.3d at 1263; LAK, Inc. v. Deer Creek Enter., 885 F.2d 1293, 1300 (6th Cir.1989), cert. denied, 494 U.S. 1056, 110 S.Ct. 1525, 108 L.Ed.2d 764 (1990).

A

The Mohasco court called purposeful availment the "sine qua non for in personam jurisdiction." 401 F.2d at 381-82. Subsequent Supreme Court decisions have reinforced the centrality of this factor. To be subject to in personam jurisdiction, the Supreme Court has said in a formulation somewhat more precise than that used in Mohasco, a defendant must "purposefully avail[ ] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 2183-84, 85 L.Ed.2d 528 (1985), quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-40, 2 L.Ed.2d 1283 (1958). In a sense, it may be said, the purposeful availment requirement is the contemporary analogue of the older concept of jurisdiction based on consent.

As ...