Noel v. S. S. Kresge Co.

• Decision Date: 08 February 1982
• Docket Number: Nos. 80-3557,80-3723,K-M,s. 80-3557
• Citation: 669 F.2d 1150
• Parties: Marvin NOEL, Plaintiff-Appellee, v. S. S. KRESGE COMPANY andart Corporation, Defendants and Third-Party Plaintiffs-Appellees (80-3557), Appellants (80-3723), and Greenhill Kato & Company, Ltd., Third-Party Defendant-Appellant (80-3557).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1150

669 F.2d 1150

Marvin NOEL, Plaintiff-Appellee, v. S. S. KRESGE COMPANY and K-Mart Corporation, Defendants and

Third-Party Plaintiffs-Appellees (80-3557),

Appellants (80-3723),

and

Greenhill Kato & Company, Ltd., Third-Party

Defendant-Appellant (80-3557).

Nos. 80-3557, 80-3723.

United States Court of Appeals, Sixth Circuit.

Argued Dec. 7, 1981.

Decided Feb. 8, 1982.

John M. Adams, Porter, Wright, Morris & Arthur, Columbus, Ohio, for appellant in case no. 80-3557.

Charles E. Taylor, Theodore D. Sawyer, Crabbe, Brown, Jones, Potts & Schmidt, Columbus, Ohio, for Noel.

Theodore Sawyer, Crabbe, Brown, Jones, Potts & Schmidt, Columbus, Ohio, for appellants in case no. 80-3723.

Before WEICK ^* and LIVELY, Circuit Judges, and GUY, ^** district judge.

LIVELY, Circuit Judge.

The appeal in No. 80-3557 challenges the personal jurisdiction of the district court over the third-party defendant, a Japanese trading company. The appeal of the defendant, S. S. Kresge Company, in No. 80-3723, takes issue with various trial and post-trial rulings of the district court. The appeals were consolidated for oral argument in this court.

I.

A.

Many of the facts are undisputed. S. S. Kresge Company (hereafter K-Mart), a Michigan corporation, purchased 11,982 dozen six-inch "long-nose" pliers from Greenhill Kato & Co., Ltd. of Osaka, Japan (hereafter Greenhill). The pliers were manufactured by an unrelated company in Korea, and Greenhill was paid a 5% "agent's fee" by K-Mart. The purchase was made by a K-Mart buyer at Greenhill's place of business in Osaka. The sale of the pliers was evidenced by two documents-an "Import Order" which is a printed form of K-Mart and a "Sales Note" which is a printed form of Greenhill. The pliers were purchased as a "Dollar Day Item" and were delivered mounted on cards which identified them as such and stated that they had been manufactured in Korea for K-Mart. The F.O.B. price of the pliers was 48 cents each and their total cost to K-Mart, when delivered to a retail store, was 65 cents each.

The plaintiff Marvin Noel, a resident of Ohio, was seriously injured on March 26, 1977 when a pair of the Korean pliers broke while he was using them in attempting to re-attach a brake spring on his son's automobile. The pliers belonged to Noel's brother-in-law who had purchased them from a K-Mart store in Westerville, Ohio. The injury occurred at Johnstown, Ohio.

B.

Noel filed a products liability action against K-Mart in the district court on December 20, 1977, claiming the pliers were sold in a defective condition which was not observable by the user. In its answer K-Mart admitted that the pliers which broke while being used by the plaintiff were manufactured in Korea for distribution and sale by K-Mart. It also admitted that it expected the pliers to be sold to the public "as a tool." K-Mart denied that the pliers were sold in a defective condition and asserted affirmative defenses of assumption of risk and misuse of the tool by Noel.

K-Mart filed a third-party complaint against Greenhill seeking indemnification for any recovery which Noel might have from K-Mart. The claim for indemnification was based on the following language, which appeared in the first numbered paragraph of the terms and conditions printed on the reverse side of the Import Order:

Seller agrees to protect, hold harmless, defend (if requested by buyer S. S. Kresge Company or its subsidiaries) and indemnify buyer against all liability, loss and expense, including attorney fees, arising from any proceeding brought by any party or governmental agency because of seller's failure to comply with any laws, regulations, or rulings; from any claim of infringement of any patent, trademark, or copyright; from any claim of unfair trade or competition with respect to the merchandise or any part thereof delivered hereunder, or from bodily injury, property or other damage arising out of any use, possession, consumption or sale of said merchandise.

In its answer Greenhill asserted that the district court lacked in personam jurisdiction. It admitted the sale of the pliers, but denied that the sale was made pursuant to the Import Order. Instead, it alleged, the pliers were purchased "pursuant to a Sales Note" issued by Greenhill. One of the terms included among the "General Understanding and Conditions" which appeared on the reverse side on the Sales Note provided:

15) Arbitration In case of dispute arising the case will be settled in Osaka. The dispute should be settled as amicably as possible, failing which the dispute will be referred to The Japan Commercial Arbitration Association in Osaka or Tokyo.

On the basis of this language Greenhill maintained that the dispute involved in the third-party action was subject to arbitration in Japan and that suit could be brought only in Osaka.

C.

The district court held that it had jurisdiction over all the parties and the case was tried before a jury, which returned a verdict for the plaintiff against K-Mart. The district court did not submit the indemnification claim to the jury, but directed a verdict for K-Mart on that claim. Though it was stipulated that Greenhill had no agents or employees in Ohio and had never directly transacted business there, the district court found that due process was not offended by permitting Greenhill to be sued in Ohio. The court found that a foreign distributor who sells to K-Mart could not reasonably fail to anticipate that the goods would be sold in Ohio which is among K-Mart's "major markets." This finding followed a discussion of recent Supreme Court decisions dealing with the due process standards which determine whether a court may exercise jurisdiction over a non-resident. The district court emphasized the particular language from the Supreme Court's most recent decision on the subject, World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), where the Court held that jurisdiction may be validly exercised over a non-resident corporation "that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." Id. at 297-98, 100 S.Ct. at 567-68 (citations omitted).

Noting an apparent inconsistency in the two documents respecting arbitration (K-Mart's Import Order provided for arbitration at Detroit), the district court nevertheless concluded that the arbitration provision contained in the Sales Note had no application to the indemnification claim. The court found that this arbitration clause referred to commercial disputes, e.g., controversies over the quality or quantity of goods shipped, but did not specify the forum for a claim of indemnification. The district court found that nothing in the Sales Note qualified in any way K-Mart's right under the Import Order to be indemnified against any claim for bodily injury arising from the use of the pliers.

II.

Greenhill does not contest the district court's conclusion that it was properly served under Ohio's "long arm" statute, assuming the exercise of jurisdiction was constitutionally permissible. Ohio exercises personal jurisdiction over foreign sellers of goods even though there have been no direct sales in Ohio so long as the seller receives a substantial amount of revenue from goods used in Ohio and the seller might reasonably have expected the goods to be used there. See Ross v. Spiegel, Inc., 53 Ohio App.2d 297, 303, 373 N.W.2d 1288 (1977). The district court found that the due process formula "exactly parallels" the Ohio test set forth in Spiegel. The issue presented on appeal is whether the district court properly applied the constitutional test for in personam jurisdiction over a non-resident.

Both K-Mart and Greenhill place principal reliance upon the recent Supreme Court decision in World-Wide Volkswagen Corp. v. Woodson, supra. The majority opinion in World-Wide Volkswagen defined more precisely than before the requirement that a state have "minimum contacts" with a commercial transaction which is claimed to provide the basis for personal jurisdiction over a foreign corporation or other non-resident. In International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), the Court articulated the minimum contacts concept and concluded that its proper application would assure the maintenance of "traditional motions of fair play and substantial justice." International Shoe, supra, 326 U.S. at 316, 66 S.Ct. at 158, quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940). In McGee the Court recognized a trend "toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents." 355 U.S. at 222, 78 S.Ct. at 200. This trend was responsive to the needs of a national economy which had become increasingly dependent upon business which is conducted across state lines. Fundamental fair play and substantial justice were not impinged by this expansion because those who conduct business outside their states of residence should reasonably expect to be required to defend claims by persons in such states who claim injury from the acts or omissions of the nonresident. In cases where the nonresident has not been engaged in ordinary commercial transactions, a less expansive treatment has been given, though the same basic test has been applied. See, e.g., Kulko v. California Superior Court, 436 U.S. 84, 98 S.Ct. 1690, 56 L.Ed.2d 132 (1978); Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958).

We conclude that the district court applied World-Wide Volkswagen correctly. In that case the Supreme Court stated that the only connection between the nonresident defendants, a New York wholesale distributor and a New York retailer of automobiles, and the forum state, Oklahoma, was "the fact that an automobile sold in New...