Lakeside Bridge & Steel Co. v. Mountain State Const. Co., Inc.

• Decision Date: 08 June 1979
• Docket Number: No. 78-1614,78-1614
• Parties: LAKESIDE BRIDGE & STEEL CO., Plaintiff-Appellee, v. MOUNTAIN STATE CONSTRUCTION CO., INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 596

597 F.2d 596

LAKESIDE BRIDGE & STEEL CO., Plaintiff-Appellee, v. MOUNTAIN STATE CONSTRUCTION CO., INC., Defendant-Appellant.

No. 78-1614.

United States Court of Appeals Seventh Circuit.

Argued Jan. 26, 1979.

Decided April 30, 1979.

Rehearing Denied June 8, 1979.

Charles W. Yeager, Charleston, W. Va., for defendant-appellant.

Peter C. Karegeannes, Quarles & Brady, Milwaukee, Wis., for plaintiff-appellee.

Before PELL and TONE, Circuit Judges, and LEIGHTON, District Judge. ^*

TONE, Circuit Judge.

The issue we find decisive in this contract case is whether the due process clause of the Fourteenth Amendment allows Wisconsin to assert personal jurisdiction over a nonresident corporation that has conducted no activities in Wisconsin. We hold that Wisconsin lacks jurisdiction and reverse the judgment entered in favor of plaintiff by the district court.

Plaintiff, Lakeside Bridge & Steel Company, is a Wisconsin corporation with its principal place of business in Milwaukee. Defendant, Mountain State Construction Company, is a West Virginia corporation with its principal place of business in Charleston in that state. Mountain State has no place of business, property, bank deposits, telephone, or telephone listing in Wisconsin and has never sent any officer, agent, or employee to that state; nor has it had any other kind of contact with Wisconsin except for the events that gave rise to this action.

The contacts between the parties all occurred outside Wisconsin or by interstate mail or telephone. The contract in question called for Lakeside to furnish structural assemblies to Mountain State for use in constructing the outlet works for the Gathright Dam and Reservoir in Virginia. While Mountain State was preparing to bid on that project, it was visited in its offices in West Virginia by Lakeside's agents, who solicited the subcontract for the structural assemblies and left a proposal. After Mountain State had been awarded the contract for the construction of the outlet works, it accepted the proposal by preparing and mailing a purchase order addressed to Lakeside in Milwaukee. Lakeside made a change in the purchase order and returned it to Mountain State, which did not approve the change formally but did so by treating the modified purchase order as effective. Between the initial visit by Lakeside's agents and the return of the purchase order, and presumably afterward, there were telephone conversations between Lakeside in Wisconsin and Mountain State in West Virginia, some placed by Mountain State, and there was correspondence between the parties, some mailed by Mountain State.

The Lakeside proposal, incorporated by reference in the purchase order, provided that the goods were to be supplied by Lakeside "F.O.B. SELLERS PLANT MILWAUKEE, WISCONSIN with freight allowed to rail siding nearest project site." (The words in capitals were printed; the rest was typewritten.) Nothing was said otherwise about where the goods were to be manufactured.

Lakeside proceeded to manufacture the goods at its plant in Wisconsin and ship them to a siding near the project site in Virginia, where they were received by Mountain State and incorporated into the construction project. Subsequently Mountain State, asserting that the goods had been found to be defective in certain respects, withheld payment of a part of the purchase price.

Lakeside then filed this action in a Wisconsin state court to recover the unpaid balance under the contract, alleging that the court had personal jurisdiction over Mountain State under the Wisconsin long-arm statute, Wis.Stat. §§ 801.05, 801.11. Mountain State removed the action to the United States District Court for the Eastern District of Wisconsin and there filed a motion to dismiss for lack of personal jurisdiction or, in the alternative, to transfer the case to either the Southern District of West Virginia or the Western District of Virginia. The court denied the motion, and Mountain State filed an answer and counterclaim alleging breaches of the contract by Lakeside. After calling the case for trial and selecting a jury, the court declared a mistrial and ordered a continuance. Thereafter the court held an evidentiary hearing concerning only the admissibility of certain parol evidence, found the evidence inadmissible, and entered summary judgment in favor of Lakeside. This appeal followed. Although the parties argue both jurisdiction and the merits of the summary judgment, we reach only the issue of jurisdiction.

Before coming to the principal question to be decided, we mention two preliminary matters. First, although Congress could, if it chose, extend the jurisdiction of federal courts in any kind of case subject to the federal judicial power to persons found anywhere within the United States, it has not done so. A federal court has jurisdiction over a diversity case, such as the one at bar, only if a court of the state in which the federal court is sitting would have jurisdiction. Fed.R.Civ.P. 4(e) and 4(d)(7). See 2 Moore's Federal Practice, PP 4.41-1(1) and 4.32(2) (1978); 4 Wright & Miller, Federal Practice and Procedure: Civil § 1075 (1969). Thus the jurisdictional issue in the case at bar is the same as it would have been if the case had remained in the state court from which it was removed.

The second preliminary matter concerns our role in interpreting the Wisconsin statute. Ordinarily we would be required to accept the interpretation given a state statute by the state's highest court. Here, however, the statute was intended by the state legislature to reach only so far as permitted by the due process clause of the Fourteenth Amendment to the United States Constitution and no further. ¹ Flambeau Plastics Corp. v. King Bee Mfg. Co., 24 Wis.2d 459, 464, 129 N.W.2d 237, 240 (1964). In these circumstances we are interpreting the statute, not ruling on its constitutionality, when we decide the due process question; yet we are of course not bound by the Wisconsin Supreme Court's determination of that federal question. See Zerbel v. Federman & Co., 48 Wis.2d 54, 60, 179 N.W.2d 872, 875 (1970).

We have considered, with respect for that court's views on the federal due process question, the scholarly opinion for the court in Zerbel v. Federman & Co., supra, 48 Wis.2d 54, 179 N.W.2d 872, in which the effect of the contract in Wisconsin was the plaintiff's performance in that state of professional services which the out-of-state defendant knew would be performed there. The court, with one justice dissenting, upheld jurisdiction, adopting a flexible due process test which was said to be based on five enumerated factors ² but which, in the end, turned on reasonableness and fairness. That case is distinguishable from this one on several grounds: There, on two or three prior occasions, similar contracts had been entered into and performed by the parties. The defendant had initiated the negotiations. The holding as to jurisdiction was based on the personal service provision of the Wisconsin long-arm statute, Wis.Stat. § 801.05(5)(a), ³ and some of the important evidence, relating to the nature and value of the services, would have to come from plaintiff and his Wisconsin records. The latter fact, if no other, makes a contract for services different from a contract for the sale of goods from the standpoint of what the Wisconsin court called the "balancing of inconveniences," See 48 Wis.2d at 67, 179 N.W.2d at 879. Notwithstanding all this, we recognize the possibility, if not the likelihood, that that court would reach the same conclusion in a case such as the one before us. ⁴ It is our duty, in any event, to decide the due process issue for ourselves.

Lakeside relies upon the following provisions of the Wisconsin long-arm statute, Wis.Stat. § 801.05:

A Court of this state having jurisdiction of the subject matter has jurisdiction over a person served in an action pursuant to § 801.11 under any of the following circumstances . . .

(5) . . . In any action which:

(a) Arises out of a promise, made anywhere to the plaintiff or to some 3rd party for the plaintiff's benefit, by the defendant to perform services within this state or to pay for services to be performed in this state by the plaintiff; or

(b) Arises out of services actually performed for the plaintiff by the defendant within this state, or services actually performed for the defendant by the plaintiff within this state if such performance within this state was authorized or ratified by the defendant; or

(d) Relates to goods, documents of title, or other things of value shipped from this state by the plaintiff to the defendant on his order or direction; . . .

Subsections (a) and (b) are obviously inapplicable because they deal with services. In the case at bar the contract was for the sale of goods, not the rendering of services. Subsection (d), on its face, covers this case, but is subject to the due process limitation, as noted earlier.

The out-of-state defendant's contact with Wisconsin urged to be sufficient to satisfy the due process "minimum contacts" test of International Shoe v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), is the ordering of goods from a Wisconsin company with knowledge that they were likely to be manufactured in Wisconsin and shipped from there. Also mentioned but less emphasized is Mountain State's use of the mail and telephone to communicate with Lakeside in Wisconsin during the negotiation and performance of the contract, and the alleged acceptance in Wisconsin of the purchase order, which Lakeside in fact modified and returned to Mountain State in West Virginia.

International Shoe, supra, 326 U.S. at 316, 66 S.Ct. at 158, holding that due process requires only that the defendant have such "minimum contacts" with the forum state as will make the assertion of jurisdiction over him consistent with "traditional notions of fair play and substantial justice," provides the relevant...