772 F.2d 1358 (7th Cir. 1985), 84-2524, Afram Export Corp. v. Metallurgiki Halyps, S.A.

Docket Nº:84-2524, 84-2601.
Citation:772 F.2d 1358
Party Name:AFRAM EXPORT CORPORATION, a Wisconsin corporation, Plaintiff-Appellee, v. METALLURGIKI HALYPS, S.A., a foreign corporation, Defendant-Appellant.
Case Date:September 05, 1985
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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772 F.2d 1358 (7th Cir. 1985)

AFRAM EXPORT CORPORATION, a Wisconsin corporation, Plaintiff-Appellee,


METALLURGIKI HALYPS, S.A., a foreign corporation, Defendant-Appellant.

Nos. 84-2524, 84-2601.

United States Court of Appeals, Seventh Circuit

September 5, 1985

Argued April 19, 1985.

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Milton Shinken, Shinken & Shinken, Milwaukee, Wis., for plaintiff-appellee.

John H. Gross, Anderson, Russell, Kill & Olick, P.C., New York City, for defendant-appellant.

Before ESCHBACH and POSNER, Circuit Judges, and SWYGERT, Senior Circuit Judge.

POSNER, Circuit Judge.

The appeal and cross-appeal in this diversity breach of contract suit raise a variety of interesting issues, in particular of personal jurisdiction and contract damages.

Afram Export Corporation, the plaintiff, is a Wisconsin corporation that exports scrap metal. Metallurgiki Halyps, S.A., the defendant, is a Greek corporation that makes steel. In 1979, after a series of trans-Atlantic telephone and telex communications, the parties made a contract through an exchange of telex messages for the purchase by Metallurgiki of 15,000 tons of clean shredded scrap, at $135 per ton, F.O.B. Milwaukee, delivery to be made by the end of April. Metallurgiki apparently intended to use the scrap to make steel for shipment to Egypt, pursuant to a contract with an Egyptian buyer. Afram agreed to pay the expenses of an agent of Metallurgiki--Shields--to inspect the scrap for cleanliness before it was shipped.

The scrap for the contract was prepared, in Milwaukee, by Afram Metal Processing Company. Both Afram Metal Processing and the plaintiff Afram Export are wholly owned subsidiaries of Afram Brothers. All three are Wisconsin corporations, and have the same officers and directors. Unless otherwise indicated, when we say "Afram" we mean "Afram Export."

Shields arrived to inspect the scrap on April 12. He told Afram that the scrap was clean but that Metallurgiki would not accept it, because the price of scrap had fallen. Sure enough, Metallurgiki refused to accept it. Afram brought this suit after selling the scrap to other buyers. Metallurgiki unsuccessfully challenged the court's jurisdiction over it, then filed a counterclaim alleging that Afram had broken the contract and had thereby made it impossible for Metallurgiki to fulfill its contract with the Egyptian purchaser.

After a bench trial, the district judge gave judgment, for Afram for $425,149 and dismissed the counterclaim. 592 F.Supp. 446 (D.Wis. 1984), Metallurgiki has appealed from the judgment for Afram, and

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Afram has cross-appealed, contending that the judge should have given it the full damages it sought based on the difference between the contract price and the cover price--$483,750--plus incidental damages of $40,665, prejudgment interest, the costs of a so-called public sale, and attorney's fees for defending against the counterclaim.

The first question we take up is whether Wisconsin's long-arm statute (Wis.Stat. Secs. 801.05(5)(c), (d)) can be used, consistently with the due process clause of the Fourteenth Amendment, to haul Metallurgiki before a federal court in Wisconsin. That clause of course places no direct limitation on the powers of a federal court; it constrains only state action. But a federal district court's extraterritorial reach, so far as is relevant to this case, depends on the long-arm statute of the state where the court sits. See Fed.R.Civ.P. 4(e), (f); Advisory Committee's Note on 1963 Amendment. Hence the limitations that the Fourteenth Amendment places on the state's application of its long-arm statute are equally limitations on the district court's power. See, e.g., Southwire Co. v. Trans-World Metals & Co., 735 F.2d 440, 442, 445 (11th Cir.1984); Brown v. Flowers Industries, Inc., 688 F.2d 328, 331-32 (5th Cir.1982). This may seem rather mechanical reasoning but its result can be defended in diversity cases by reference to the undesirability of creating new incentives to invoke the diversity jurisdiction.

Metallurgiki does not argue that international law or the due process clause of the Fifth Amendment places limitations on the district court's power to assert jurisdiction over Metallurgiki beyond those in the due process clause of the Fourteenth Amendment, while Afram does not argue that Metallurgiki, as an alien, has fewer rights to challenge the long-arm statute than a nonresident American firm would have. Countless cases assume that foreign companies have all the rights of U.S. citizens to object to extraterritorial assertions of personal jurisdiction. See, e.g., Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1316 (9th Cir.1985); Southwire Co. v. Trans-World Metals & Co., supra; Dotterweich v. Yamaha Int'l Corp., 416 F.Supp. 542, 544 (D.Minn.1976). The assumption has never to our knowledge actually been examined, but it probably is too solidly entrenched to be questioned at this late date, and in any event it has not been made an issue in this case.

In arguing against extraterritorial jurisdiction, Metallurgiki points out that it has no office, employees, or assets in Wisconsin and that all the dealings between the parties (apart from Shields' visit of inspection) were conducted by international telephone and telex communications and by face-to-face discussions in New York. Shields, the only representative of Metallurgiki who set foot in Wisconsin, although an agent and former employee of Metallurgiki, was in April 1979 an independent contractor, and he spent only five hours in Wisconsin on the inspection trip and only 20 or 40 minutes (the record is unclear which) in the actual inspection. It is also unclear who initiated the negotiations that led up to the making of the contract.

A state cannot force a nonresident to litigate in its courts unless there is "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958). In other words, the defendant must derive some benefit from the state to balance the cost of exposure to suit in what is likely to be an inconvenient, perhaps even an unfriendly, forum.

By this criterion, a contract between a resident of a state and a nonresident is not enough by itself to give the courts of the resident's state jurisdiction over the nonresident in the resident's suit for breach of the contract. See Burger King Corp. v. Rudzewicz, --- U.S. ----, 105 S.Ct. 2174, 2185, 85 L.Ed.2d 528 (1985); Bond Leather Co. v. Q.T. Shoe Mfg. Co., 764 F.2d 928, 934-35 and n. 4 (1st Cir.1985). Imagine

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that a bank in Atlanta, in response to an advertisement in an Atlanta newspaper, ordered office equipment by mail from a company in California, and the seller arranged for the delivery of the equipment at the bank's office in Atlanta. The bank would be justifiably surprised to find that by doing this it had exposed itself to suit in California should a dispute arise over the sale. What benefit had California conferred on it? No doubt California provided some of the services that enabled the seller to produce and sell the office equipment, but the benefit thereby conferred on the distant buyer is too attenuated to require him to bear the expense of involuntarily litigating in so remote a forum. This would be even clearer if the buyer were an individual rather than a firm and the seller were trying to sue the buyer in a small-claims court in the seller's state, though these factors are not essential to the conclusion that the seller's effort to obtain extraterritorial jurisdiction over the buyer would fail. See, e.g., Kleinfeld v. Link, 9 Ohio App.3d 29, 457 N.E.2d 1187 (1983); Tube Turns Division of Chemetron Corp. v. Patterson Co., 562 S.W.2d 99 (Ky.App.1978); Scoles & Hay, Conflict of Laws 304-05 (1982); Currie, The Growth of the Long Arm: Eight Years of Extended Jurisdiction in Illinois, 1963 U.Ill.L.Forum 533, 576-77; cf. Spiegel, Inc. v. FTC, 540 F.2d 287, 292 (7th Cir.1976).

Since the dispute must be litigated somewhere, there is perhaps implicit in the foregoing analysis the idea that the seller can sue more easily in the buyer's jurisdiction than the buyer can defend in the seller's. The seller in our example presumably sells office equipment all over the country and can without much difficulty arrange for local counsel wherever disputes with its buyers arise, while the buyer buys office equipment rarely and may be somewhat at a loss to arrange for an effective defense on the seller's home ground. This is one of several factors that distinguish our case from the hypothetical example. Putting aside the adventitious circumstance that Metallurgiki has an office in New York City and at oral argument (but not before then) expressed willingness to entertain the possibility of being suable in New York, the argument against extraterritorial jurisdiction here amounts to saying that if a foreign company negotiates by phone a large purchase of industrial raw materials from an American company for delivery in America, the American company still must go abroad in order to sue for breach of the contract. Since the buyer's role is not passive as in our mail-order hypothetical, since the buyer is not a one-time or infrequent purchaser of the product in question but a recurrent purchaser of what is a basic raw material used in his business, since performance is technically complete in the United States, and since the alternative forum may represent a substantial...

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