700 F.2d 1026 (5th Cir. 1983), 82-1123, Hydrokinetics, Inc. v. Alaska Mechanical, Inc.

• Citation: 700 F.2d 1026
• Party Name: HYDROKINETICS, INC., Plaintiff-Appellant, v. ALASKA MECHANICAL, INC., Defendant-Appellee.
• Case Date: March 21, 1983
• Court: United States Courts of Appeals, U.S. Court of Appeals — Fifth Circuit

Page 1026

700 F.2d 1026 (5th Cir. 1983)

HYDROKINETICS, INC., Plaintiff-Appellant,

v.

ALASKA MECHANICAL, INC., Defendant-Appellee.

No. 82-1123.

United States Court of Appeals, Fifth Circuit

March 21, 1983

Hudson, Keltner, Smith, Cunningham & Payne, Donald E. Herrmann, Fort Worth, Tex., for plaintiff-appellant.

Godfrey, Decker, McMackin, Shipman, McClane & Bourland, John B. McClane, Fort Worth, Tex., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before WISDOM, REAVLEY and TATE, Circuit Judges.

WISDOM, Circuit Judge:

The question we are asked to decide in this case is whether the exercise of jurisdiction over the person of the defendant under Texas law comports with the basic due process requirements of the United States Constitution. We conclude that it does not, and affirm.

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I.

The appellant in this contract dispute, Hydrokinetics, Inc. is a manufacturing concern organized and existing under the laws of the state of Texas. The appellee, Alaska Mechanical, Inc., is an Alaska corporation engaged in the business of construction contracting. It specializes in the mechanical area, and works exclusively on projects within the state of Alaska. Alaska Mechanical is not licensed to do business in Texas, and has no offices, agents, or employees there.

Alaska Mechanical bid on, and was later awarded, a mechanical subcontract for the United States Navy at Adak, Alaska, which called for it to furnish and install certain waste heat recovery silencer units. Alaska Winter, a manufacturer's representative in Alaska soliciting orders for Hydrokinetics's products, communicated to Alaska Mechanical that Hydrokinetics was interested in supplying these units. Alaska Winter initially brokered all communications between the parties, but the actual contract negotiations were conducted directly between Alaska Mechanical, in Alaska, and Hydrokinetics, in Texas, by telex, telephone and letter. While negotiations were underway, two officers of Alaska Mechanical visited Hydrokinetics's plant to inspect the equipment and facilities. ¹ The parties later entered into a final agreement which provided that Hydrokinetics would manufacture and deliver to Alaska Mechanical five waste heat recover silencer units. This agreement took the form of an Alaska Mechanical purchase order, with attached provisions, executed by both parties. The contract stipulated that it was to be governed and construed according to the laws of the state of Alaska.

The waste heat recovery silencer units manufactured by Hydrokinetics were shipped to Seattle, Washington, and later transported to the United States Navy facility at Adak, Alaska. Alaska Mechanical notified Hydrokinetics that in its opinion the goods were unsuitable, and that it was rejecting them. Hydrokinetics sued Alaska Mechanical in federal district court in Texas for breach of contract. Subject matter jurisdiction was based on diversity of citizenship. Hydrokinetics contended that the goods were suitable and had been accepted by Alaska Mechanical.

The district court found that while Hydrokinetics did make a prima facie showing on the facts of jurisdiction, ²

when this Court's attention turned to the constitutional considerations of fair play and substantial justice, International Shoe Co. v. Washington, 326 U.S. 310 [66 S.Ct. 154, 90 L.Ed. 95] (1945), it is determined it would not be fair and reasonable to require Alaska Mechanical, Inc., as Defendant, to come into Texas and defend this action considering the lack of purposeful activity by the Defendant to avail itself of the privilege of conducting activities within Texas, and to invoke the benefits and protections of its laws. See Alchemie Intern, Inc. v. Metal World, Inc., 523 F.Supp. 1029 [1039] (D.N.J.1981); Communication Equip v. Municipality of Anchorage, 498 F.Supp. 632 (M.D.Ala.N.D.1980).

Concluding that "the Defendant never made any calculated effort to engage in or solicit business in Texas with a Texas company nor had any expectation of extracting

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profits" ³ the court granted Alaska Mechanical's motion to dismiss. Our review is limited to the propriety of the district court's finding that it lacked jurisdiction over the person of the defendant.

II.

In Product Promotions, Inc. v. Cousteau, 5 Cir.1974, 495 F.2d 483, 489, this Court held that "[t]he power of a federal court entertaining a suit based on diversity of citizenship to exercise jurisdiction over the persons of non-resident defendants turns on two independent considerations. The law of the state in which the federal court sits must confer jurisdiction over the persons of the defendant, and if it does, the exercise of jurisdiction under state law must comport with basic due process requirements of the United States Constitution". This appeal involves only the latter consideration. ⁴ In determining whether constitutional due process requirements have been met when a state exercises jurisdiction over the person of a nonresident defendant, we apply a two-pronged test. The "[d]efendant must have some minimum contacts with the state resulting from an affirmative act or acts on its part, and it must not be unfair or unreasonable to require the nonresident defendant to defend the suit in the forum." Southwest Offset, Inc. v. Hudco Publishing Co., Inc., 5 Cir.1980, 622 F.2d 149, 152 (citing Product Promotions, 495 F.2d at 494).

Although jurisdiction over the person of a defendant may be predicated on a single purposeful act of the defendant, ⁵ "in the determination of whether a foreign corporation should be required to defend itself in a suit in Texas arising out of a contract between it and a Texas corporation, each case must be decided on its own facts." Southwest Offset, Inc. v. Hudco Publishing Co., Inc., 622 F.2d at 151. The number of contacts with the forum state is not, by itself, determinative. "What is more significant is whether the contacts suggest that the nonresident defendant purposefully availed himself of the benefits of the forum state." Brown v. Flowers Industries, Inc., 5 Cir.1982, 688 F.2d 328, 333 (citing Quasha v. Shale Dev. Corp., 5 Cir.1982, 667 F.2d 483, 488). "Considerations such as the quality, nature, and extent of the activity in the forum, the foreseeability of consequences within the forum from activities outside it, and the relationship between the cause of action and the contacts, relate to whether it can be said that the defendant's actions constitute 'purposeful availment. [']" Prejean v. Sonatrach, Inc., 5 Cir.1981, 652 F.2d 1260, 1268. "The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State." Hanson v. Denckla, 1958, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283, 1297. "The second prong, or 'fairness' factor, requires the court to consider, among other things, the interest of the state in providing a forum for the suit, the relative conveniences and inconveniences to the parties, and the basic equities." Southwest Offset, Inc. v. Hudco Publishing Co., Inc., 622 F.2d at 152.

Hydrokinetics does not contest Alaska Mechanical's general lack of contact with the state of Texas; it focuses instead on the facts surrounding the formation of the contract at issue in this case. In support of its contention that Alaska Mechanical purposefully availed itself of the benefits and protections of Texas laws, Hydrokinetics points to the following: (1) Alaska Mechanical agreed to purchase specific goods to be manufactured in Texas; (2) payment for these goods was to be made in Texas; (3) before any written agreement

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was signed, extensive communications occurred between the parties, originating in Texas and Alaska; (4) officers of Alaska Mechanical traveled to Texas to "close" the deal; and (5) the contract was formally created in Texas because that was the place of the acceptance of Alaska Mechanical's offer by Hydrokinetics.

Several other facts, however, are relevant to an analysis of Alaska Mechanical's activities in this case. Alaska Mechanical does not regularly engage in business in Texas or in any state other than Alaska. Its sole contact with the state of Texas is the single, isolated transaction involved in this case, and that transaction was initiated by and substantially negotiated with the seller's representative in Alaska. The agreement entered into by Alaska Mechanical expressly provided that it was to be governed and construed according to Alaska law. The waste heat recovery silencer units were delivered by Hydrokinetics to Alaska Mechanical in Seattle, Washington.

We agree with the district court's conclusion that Alaska Mechanical did not purposefully avail itself of the privilege of conducting business within Texas or invoke the benefits and protections of Texas law. Although it did agree to purchase goods which it knew were to be manufactured by Hydrokinetics in Texas, no performance by Alaska Mechanical was to take place in Texas, other than perhaps the payment for the goods. We do not believe that the unilateral activity of Hydrokinetics in Texas satisfies the requirement of contact between Alaska Mechanical and the state of Texas. See Hanson v. Denckla, supra. ⁶ Nor do we weigh heavily the fact that Alaska Mechanical may have mailed payment checks into the forum state in exchange for the goods. See U-Anchor Advertising, Inc. v. Burt, Tex.1977, 553 S.W.2d 760, 762, cert. denied 434 U.S. 1063, 98 S.Ct. 1235, 55 L.Ed.2d 763 (1978). Yet we do consider significant that only a single transaction is involved in this case, governed by Alaska law, which is the defendant's sole contact with the forum state. The only performance in Texas was that of the plaintiff, with delivery by Hydrokinetics taking place in the state of Washington. As for the exchange of communications between Texas and Alaska in the...