Federal Ins. Co. v. Lake Shore Inc.

• Decision Date: 20 September 1989
• Docket Number: No. 89-1404,89-1404
• Citation: 886 F.2d 654
• Parties: The FEDERAL INSURANCE COMPANY, Plaintiff-Appellant, v. LAKE SHORE INC.; Peterson Builders, Incorporated, Defendants-Appellees. and American Ship Management, Incorporated, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 654

886 F.2d 654

1993 A.M.C. 194

The FEDERAL INSURANCE COMPANY, Plaintiff-Appellant, v. LAKE SHORE INC.; Peterson Builders, Incorporated,

Defendants-Appellees.

and

American Ship Management, Incorporated, Defendant.

No. 89-1404.

United States Court of Appeals, Fourth Circuit.

Argued July 11, 1989.

Decided Sept. 20, 1989.

Elizabeth Thomas Anderson (G. Dana Sinkler, Sinkler & Boyd on brief) for plaintiff-appellant.

Timothy William Bouch (Stephen P. Groves, Young, Clement, Rivers & Tisdale on brief), Warren William Ariail (David C. Norton, Holmes & Thomson on brief), for defendants-appellees.

Before ERVIN, Chief Judge, and PHILLIPS and WILKINSON, Circuit Judges.

WILKINSON, Circuit Judge:

The question on appeal is whether the exercise of personal jurisdiction would offend the " 'traditional notions of fair play and substantial justice' " embodied in the constitutional principles of due process. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945), quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940). We hold that defendants lack "minimum contacts" with South Carolina and are thus not subject to suit in a South Carolina forum. In the absence of such contacts, neither the unique nature of ocean-going vessels nor a general stream of commerce theory will support the exercise of personal jurisdiction in this case.

In so holding, we affirm the judgment of the district court.

I.

In April of 1985, General Electric Company shipped a turbine accessory base aboard the vessel known as the M.V. PAUL BUNYON. While the turbine accessory base was being loaded aboard the vessel, a cargo winch allegedly malfunctioned causing the accessory base to fall and become damaged. The incident took place while the vessel was docked in Charleston, South Carolina. Pursuant to their contract of insurance, Federal Insurance Company paid GE $322,543.46 for the damage to the turbine accessory base. Federal, a New Jersey corporation, is thus the subrogated insurer of GE.

The M.V. PAUL BUNYON was designed and manufactured by Peterson Builders, Incorporated, a Wisconsin corporation with its principal place of business in Sturgeon Bay, Wisconsin. Peterson is engaged in the design and manufacture of ocean going vessels. Lake Shore, Incorporated is a Michigan corporation. Its principal place of business is Iron Mountain, Michigan and it is engaged in the design, manufacture, and sale of cargo winches. A Lake Shore cargo winch was installed on the vessel manufactured by Peterson.

In March of 1988, Federal filed suit against Peterson and Lake Shore in the United States District Court for the District of South Carolina. Federal invoked the admiralty and maritime jurisdiction of the district court; alleged causes of action for negligence, strict liability, and breach of express and implied warranties; and sought to recover the $322,543.46 paid to its insured, plus interest and costs. Peterson and Lake Shore entered special appearances and moved to dismiss the action for lack of in personam jurisdiction. See Fed.R.Civ.P. 12(b)(2). The district court granted defendants' motions on November 17, 1988.

Federal now appeals. ¹

II.

A.

Federal contends that Lake Shore and Peterson are subject to the personal jurisdiction of the district court. We disagree. The exercise of personal jurisdiction over Lake Shore and Peterson would exceed the limits of due process and is therefore constitutionally impermissible. ²

Due process protects individual defendants from being bound in personam by judgments of a forum with which they lack meaningful relations, see Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72, 105 S.Ct. 2174, 2181, 85 L.Ed.2d 528 (1985), and requires that individuals have "fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign." Shaffer v. Heitner, 433 U.S. 186, 218, 97 S.Ct. 2569, 2587, 53 L.Ed.2d 683 (1977) (Stewart, J., concurring in the judgment). The "fair warning" requirement affords a degree of predictability to the legal system and permits potential defendants to structure their conduct "with some minimum assurance as to where that conduct will and will not render them liable to suit." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980). See also Burger King, 471 U.S. at 472, 105 S.Ct. at 2181. In determining whether the exercise of personal jurisdiction comports with due process, "the constitutional touchstone remains whether the defendant purposefully established 'minimum contacts' in the forum," Burger King, 471 U.S. at 474, 105 S.Ct. at 2183, "such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940). Here, defendants' contacts with South Carolina suggest an absence of purposefulness, see Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958), and are constitutionally insufficient to establish personal jurisdiction.

Federal contends, for example, that Lake Shore and Peterson are subject to the jurisdiction of the district court because they placed defective products in the "stream of commerce" which allegedly caused injury in South Carolina. According to Federal, the district court may exercise jurisdiction over defendants because it was "inevitable" that the M.V. PAUL BUNYON would dock in various ports, including Charleston, South Carolina.

Foreseeability alone, however, "has never been a sufficient benchmark for personal jurisdiction under the Due Process Clause." World-Wide Volkswagen, 444 U.S. at 295, 100 S.Ct. at 566. If it were, a "seller of chattels would in effect appoint the chattel his agent for service of process" and his "amenability to suit would travel with the chattel." Id. at 296, 100 S.Ct. at 566. See also DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 284-85 (3d Cir.1981). What "is critical to due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather it is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there." World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567, citing Kulko v. California Superior Court, 436 U.S. 84, 97-98, 98 S.Ct. 1690, 1699-1700, 56 L.Ed.2d 132 (1978); Shaffer v. Heitner, 433 U.S. 186, 216, 97 S.Ct. 2569, 2586, 53 L.Ed.2d 683 (1977). Jurisdiction is therefore proper only where the defendant's contacts create a "substantial connection" with the forum. Burger King, 471 U.S. at 475, 105 S.Ct. at 2183. Although the Supreme Court has stated that a forum may assert personal jurisdiction "over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum," World-Wide Volkswagen, 444 U.S. at 297-98, 100 S.Ct. at 567, "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws." Hanson, 357 U.S. at 253, 78 S.Ct. at 1239.

A "stream of commerce" theory of personal jurisdiction, therefore, cannot supplant the requirement that a defendant in some way purposefully avail itself of forum law. Here, Federal has failed to demonstrate that Lake Shore and Peterson have "purposefully availed" themselves of the privilege of conducting business in South Carolina. It is undisputed, for example, that Lake Shore and Peterson do not maintain offices in South Carolina and are not licensed to do business in the state. Neither Lake Shore nor Peterson have agents, employees, or subsidiaries in South Carolina, and neither defendant maintains a bank account or owns real or personal property in the state. Although the record indicates that Lake Shore has made sales to South Carolina residents subsequent to the accrual of Federal's cause of action, all such sales have been initiated by the customer; they are not the result of sales efforts by Lake Shore in South Carolina. In addition, all products and materials sold to South Carolina residents have been shipped F.O.B. Michigan, and we agree with the district court that, cumulatively, Lake Shore's sales do not represent "significant activities" within the state. See Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984). Lake Shore and Peterson also do not directly advertise or solicit customers in South Carolina. Although Lake Shore is listed in the Thomas Register, a nationally distributed trade journal, such a listing, standing alone, does not confer personal jurisdiction. See Cancun Adventure Tours, Inc. v. Underwater Designer Co., 862 F.2d 1044, 1046 (4th Cir.1988).

Subsequent to the accrual of Federal's cause of action in April of 1985, Peterson has sent employees to South Carolina to perform warranty work on a United States naval vessel stationed in Charleston and has executed a one-year contract with a South Carolina shipyard to provide support services for that warranty work. These contacts, however, are insufficient to justify the assertion of general jurisdiction over Peterson. All work is scheduled at the request of the Navy, and the arrangements between Peterson and the Navy and Peterson and the shipyard are of limited duration. In short, Peterson has not engaged in "significant activities" in South Carolina, cf. Keeton, 465 U.S. 770, 104 S.Ct. 1473, and has not created "continuing obligations" between itself and residents of the forum. Cf. Travellers Health Ass'n v. Virginia, 339 U.S. 643, 648, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950). See also Burger King, 471 U.S. at 475-76, 105 S.Ct. at 2183-84. We agree with the...