Fayette v. Volkswagen of America, Inc.

• Decision Date: 18 August 1967
• Docket Number: 66-82.,Civ. No. C 65-225
• Citation: 273 F. Supp. 323
• Parties: Mrs. Rhoda L. FAYETTE v. VOLKSWAGEN OF AMERICA, INC., Volkswagenwerk Aktiengesellschaft, and Jimmy Payne Motors, Inc. Leon V. FAYETTE v. VOLKSWAGEN OF AMERICA, INC., Volkswagenwerk Aktiengesellschaft, and Jimmy Payne Motors, Inc.
• Court: U.S. District Court — Western District of Tennessee

273 F. Supp. 323

Mrs. Rhoda L. FAYETTE v. VOLKSWAGEN OF AMERICA, INC., Volkswagenwerk Aktiengesellschaft, and Jimmy Payne Motors, Inc.

Leon V. FAYETTE v. VOLKSWAGEN OF AMERICA, INC., Volkswagenwerk Aktiengesellschaft, and Jimmy Payne Motors, Inc.

Civ. Nos. C 65-225, 66-82.

United States District Court W. D. Tennessee, W. D.

August 18, 1967.

Jake Green, Caruthers Ewing, Memphis, Tenn., for plaintiffs.

Cooper Turner, Jr., Canada, Russell & Turner, Memphis, Tenn., for Volkswagen of America, Inc. and Volkswagenwerk Aktiengesellschaft.

John S. Porter, Burch, Porter & Johnson, Memphis, Tenn., for Jimmy Payne Motors, Inc.

MEMORANDUM DECISION

BAILEY BROWN, District Judge.

These causes came on for hearing on August 4, 1967 on motions of plaintiffs to rescind and vacate our decisions and orders of June 10 and July 6, 1966 granting the motion to quash service of process and to dismiss filed by defendant Volkswagen of America, Inc. (VOA) and granting such motion filed by Volkswagenwerk Aktiengesellschaft (VWAG) with respect to some theories of plaintiffs' claim. It is because of the particular provisions of the new Tennessee "long arm" statute that we could and did, with respect to VWAG, quash service as to some theories of claim and not quash as to another theory of claim. We also at the same time heard the motion of VWAG for summary judgment, which goes to the merits of the remaining claim against it, and the motion of VWAG to strike parts of the amended complaints. All of these motions were heard upon argument of counsel and upon the entire and now augmented record.

Defendants concede that the Court has jurisdiction to grant the relief sought by plaintiffs, that is, that the rulings of June 10 and July 6, 1966 are within our control and may be vacated. Rule 54(b).

It is clearly the law, without the necessity of citing authority, that jurisdiction is not presumed and, when challenged, must be shown.

VWAG is a West German corporation which in Germany manufactures Volkswagen automobiles. VOA, a wholly owned subsidiary of VWAG, is a New Jersey corporation with principal place of business at Englewood Cliffs, N. J., which under a franchise contract, purchases Volkswagen automobiles and parts from VWAG for resale to regional distributors (wholesalers) throughout the United States. The regional distributors sell the automobiles and parts to local dealers, which sell to ultimate consumers. The regional distributor for the Memphis area is International Auto Sales and Services, Inc. at New Orleans (International). Neither VWAG nor VOA has any stock interest in or common directors or officers with International. VICO, an Arkansas corporation, is an insurance company which sells liability and other automobile insurance through Volkswagen dealers, but neither VWAG nor VOA own any stock in VICO, though VOA and VICO have some common directors and VOA has the right to exercise some control over VICO's overall business policies. VICO is qualified to and does do business in Tennessee. Volkswagen dealers are selected by International in its region with approval of VOA; VOA has the obligation to VWAG to perform some supervisory services with respect to dealers and on occasion VOA employees have come into Tennessee on VOA business, though it is not shown when and to what extent. VOA also has contracted for and obtained substantial advertising through national magazines and television and radio networks, which are distributed, seen or heard in Tennessee. Warranty claims are satisfied by dealers, which bill the regional distributor, which bills VOA, which, though not affirmatively shown, apparently bills VWAG, since warranties are the latter's ultimate responsibility. VWAG places a service booklet, which contains a warranty binding only VWAG, with each automobile when shipped from Germany, and the booklet is delivered with the automobile to the purchaser by the local dealer. From April, 1964 to March, 1965 (suit was filed on August 12, 1965) 5,340 new Volkswagens were registered in Tennessee and parts of retail value of $100,000 to $200,000 were sold in Tennessee. The automobile in question was purchased and imported by VOA, sold to International, and then sold to a Memphis dealer, Jimmy Payne Motors, Inc., now a co-defendant, which sold to plaintiffs. The warranty was delivered to plaintiffs with the automobile.

Plaintiffs, Mr. and Mrs. Fayette, make claim for damages for personal injuries to Mrs. Fayette alleged to have resulted from a dangerous defect in the seat of their Volkswagen which was sold by VWAG to VOA and by VOA to International.

The defense asserted in these diversity actions that this court has not acquired in personam jurisdiction makes necessary two inquiries. The first is whether service of process is authorized by state law. Velandra v. Regie Nationale Des Usines Renault et al., 336 F.2d 292, 294 (6th Cir. 1964); Smartt v. Coca-Cola Bottling Corp., 318 F.2d 447 (6th Cir. 1963). If this question is answered affirmatively, then it must be determined whether the invocation of in personam jurisdiction is consistent with the due process clause of the Fourteenth Amendment.

It would be well, however, at the outset to outline briefly what due process at the present time requires. In International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), it was held that "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.'" With this decision, the traditional test of "doing business" within the state was no longer the sole standard for determining whether a foreign corporation, which was not otherwise amenable to the jurisdiction of the state, was subject to the invocation of in personam jurisdiction. In McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), where the cause of action against the defendant foreign corporation arose out of a transaction occurring within the state, this single transaction was held to be a sufficient predicate for in personam jurisdiction. See also: Elkhart Engineering Corp. v. Dornier Werke, 343 F.2d 861 (5th Cir. 1965); Gkiafis v. Steamship Yiosonas, 342 F.2d 546 (4th Cir. 1965); Eck v. United Arab Airlines, Inc., 360 F.2d 804 (2nd Cir. 1966); Buckley v. New York Post Corp., 373 F.2d 175 (2nd Cir. 1967); 2 Moore, Sec. 4.41-11. On the other hand, where the cause of action arises outside the state, more contact, quantitatively or qualitatively, by a defendant foreign corporation must be shown to satisfy due process. Hanson v. Denckla, 357 U.S. 235 (1958), 78 S.Ct. 1228, 2 L.Ed.2d 1283; Velandra, supra, 336 F.2d 292 (6th Cir. 1964).

Plaintiffs first rely on T.C.A. § 48-923¹ which provides that when a foreign corporation does "do business" in Tennessee and does not appoint an agent for service of process, service may be had through the Secretary of the State in any civil action "arising out of such unauthorized business done in this state * * *." Since this statute is limited in application to causes of action arising within this state, it could, consistent with due process, be invoked in any situation to which it is applicable even though the foreign corporation did not have such contacts with Tennessee that would allow suit for a cause of action arising outside Tennessee. However, the cases which deal with T.C.A. § 48-923 construe this provision to require that the foreign corporation have such "minimum contacts" with Tennessee as would allow maintenance of a cause of action which arose outside of Tennessee. Smartt v. Coca-Cola Bottling Corp., 318 F.2d 447 (6th Cir. 1963), on further appeal by intervening plaintiffs 337 F.2d 950 (6th Cir. 1964); Shuler v. Wood, 198 F.Supp. 801 (E.D.Tenn.1961); Trussell v. Bear Manufacturing Co., 215 F. Supp. 802 (E.D.Tenn.1963).

Plaintiffs also rely, in support of service of process here, on T.C.A. § 20-235 et seq., the new "long arm" statute, enacted in 1965. This statute provides that, with respect to claims for relief arising from specifically described transactions or occurrences taking place within Tennessee, service may be had through the Secretary of State. When applicable, as has been seen, this statute is consistent with present due process standards. (This was so held by a Chancery Court in Tennessee, but the appeal of this ruling was dismissed as premature. Arthur H. DuGrenier, Inc. v. Stone, Tenn., 415 S.W.2d 883 (decided May 22, 1967).)

At this point it would be well to set out plaintiffs' theories. In determining what theories of claim plaintiffs have pleaded against VWAG and VOA, we must give the amended complaints every intendment. Moreover, as will be seen later in this opinion, we should not at this stage, when we are testing jurisdiction, determine whether on the merits plaintiffs can maintain such theories of claim. The first theory is in tort for negligent manufacture by VWAG. The remaining theories are various species of strict liability. The second, against VWAG and VOA, is in tort for innocent misrepresentation (see: Ford Motor Co. v. Lonon, Tenn., 398 S.W.2d 240 (1966) and Restatement of Torts (2nd) § 402 B). The third, in tort, against VWAG and VOA, is that they sold an automobile in defective condition that...