S & S Screw Mach. Co. v. Cosa Corp.

• Decision Date: 17 October 1986
• Docket Number: No. 2-85-0036.,2-85-0036.
• Citation: 647 F. Supp. 600
• Parties: S & S SCREW MACHINE COMPANY, Plaintiff, v. COSA CORPORATION and Gildemeister, AG, Defendants. COSA CORPORATION, Third-Party Plaintiff, v. LITTON INDUSTRIES, INC. (NEW BRITAIN MACHINE DIVISION), Third-Party Defendant.
• Court: U.S. District Court — Middle District of Tennessee

647 F. Supp. 600

S & S SCREW MACHINE COMPANY, Plaintiff, v. COSA CORPORATION and Gildemeister, AG, Defendants.

COSA CORPORATION, Third-Party Plaintiff, v. LITTON INDUSTRIES, INC. (NEW BRITAIN MACHINE DIVISION), Third-Party Defendant.

No. 2-85-0036.

United States District Court, M.D. Tennessee, Northeastern Division.

October 17, 1986.

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Lin S. Howard, Jeffrey A. Greene, Harwell Barr Martin & Stegall, Nashville, Tenn., for plaintiff.

Sive, Paget & Riesel, P.C., Eric Bregman, New York City, John P. Branham, Eugene J. Honea, Howell Fisher Branham & North, Nashville, Tenn., Thomas P. Kanaday, Jr., Farris, Warfield & Kanaday, Nashville, Tenn., Stephen K. Rush, for Cosa Corp.

Ward DeWitt, Jr., Andree K. Blumstein, Trabue, Sturdivant & DeWitt, Nashville, Tenn., for Gildemeister.

MEMORANDUM

WISEMAN, Chief Judge.

I. Introduction

This is a civil action brought pursuant to diversity jurisdiction, 28 U.S.C. § 1332. Plaintiff S & S Screw Machine Co. (hereinafter S & S) claims breach of warranties and intentional misrepresentations by defendants Cosa Corp. (Cosa) and Gildemeister Aktiengesellschaft (Gildemeister). In essence, S & S claims that it failed to receive what it bargained for on the purchase of some $338,443.00 worth of industrial equipment manufactured by Gildemeister and sold to S & S by Cosa. Defendant Cosa, while denying liability to S & S, has crossclaimed for recovery from Gildemeister in the event Cosa is held liable to S & S.¹

Gildemeister, which is incorporated under the laws of the Federal Republic of Germany and maintains principal offices there, has neither offices nor permanent employees in the United States. Pursuant to rules 33 and 34 of the Federal Rules of Civil Procedure, S & S has propounded to Gildemeister some 21 interrogatories and 17 requests for production of documents.² Pending are two motions by Gildemeister that the Court (1) dismiss this action against it on the grounds that the court lacks in personam jurisdiction, and (2) frame a rule 26(c) protective order directing that the instant discovery and all discovery "relating to foreign nationals and entities in this case" conform to the procedures specified in the Hague Evidence Convention.³

For the reasons stated below, the Court holds that:

(1) Gildemeister is subject to in personam jurisdiction within the limits of Fourteenth Amendment due process as permitted by the Tennessee long-arm statute; and

(2) S & S, as a first resort, must direct its interrogatories and requests for production pursuant to the terms of the Hague Evidence Convention.

II. In Personam Jurisdiction

A. Factual Background

The record before this Court⁴ indicates the following: In 1982, management of S & S, a Cookeville, Tennessee company, decided to obtain automated production equipment of the type manufactured by Gildemeister and sold by Cosa.⁵ In late 1982, S & S officials attended a trade fair in Chicago at which Gildemeister products were demonstrated by representatives of Gildemeister and Cosa. Thereafter, upon invitation of Gildemeister and Cosa, S & S representatives visited the Gildemeister factory in Germany. Gildemeister partially subsidized this trip. Gildemeister products were sold to S & S by Cosa in 1983 and 1984. During 1982, 1983, and 1984, Gildemeister representatives made visits to the S & S offices in Tennessee. The parties dispute the exact nature of representations made or services delivered by Gildemeister on these various occasions.

Between 1974 and 1984, Gildemeister and Cosa were parties to an "Exclusive Agency Agreement." The agreement granted to Cosa exclusive rights to sell certain Gildemeister products and to "secure and enlarge the market share" for Gildemeister. Although the agreement recited that Cosa would act as an "independent agent," buying and reselling "in his own name and on his own account," the agreement also called for close cooperation between the two companies, including:

(1) sharing of marketing data;

(2) a coordinated approach to national advertising;

(3) "the absolute necessity" for Cosa to "insure information on and discussion of sales prices" with Gildemeister;

(4) sharing the cost of participation in trade shows;

(5) reimbursement by Gildemeister for certain services performed by Cosa under warranty;

(6) employment by Cosa of three specified Gildemeister sales and service personnel;

(7) a provision that, upon termination of the agreement, Gildemeister "shall be prepared to come to an understanding with (Cosa) as to accepting return of all products" unsold.

Exclusive Agency Agreement, Exhibit A to Affidavit of William Jacobson, Cosa sales manager.

Gildemeister has submitted an affidavit of one of its board members asserting that the firm's only relationship with Cosa is contractual. Gildemeister asserts that it solicits no business in Tennessee; targets no advertising here; and has no employees, agents, representatives, offices, corporate records, or contracts here. Gildemeister further asserts that it "is not qualified to do business in Tennessee, does not do business in Tennessee, and does not sell products or perform services in Tennessee." Affidavit of Hermann Reinold. Another Gildemeister affidavit asserts that the German firm "was not asked to and did not deliver parts and/or services to S & S." Affidavit of Klaus Wenker, regional sales manager.

Despite these general statements, Gildemeister has not disavowed the specific record assertions of both S & S and Cosa that named Gildemeister employees visited S & S on several occasions, nor the assertions that Gildemeister invited and partially paid for the S & S trip to West Germany. Juxtaposing the general nature of Gildemeister's denials with the specific nature of the assertions made by S & S and Cosa, the Court concludes that these assertions of Gildemeister's activities are more than naked allegations; what conflict exists between the parties' versions of events is more one of legal interpretation than of factual disparity.

B. Due Process Limits

1. Procedural Standards

In determining whether a defendant is subject to personal jurisdiction, the stage of the litigation affects the standard but not the burden of proof. Throughout, plaintiff bears the burden of persuasion. Welsh v. Gibbs, 631 F.2d 436, 438 (6th Cir.1980), cert. denied, 450 U.S. 981, 101 S.Ct. 1517, 67 L.Ed.2d 816 (1981).

Fed.R.Civ.P. 12(d) enables defendant to raise a jurisdictional challenge and a court to rule on the motion before a trial on the merits. A district court may decide⁶ whether to rule on the jurisdictional issue upon a full trial record, after an evidentiary hearing, or merely on the basis of a written record. At trial on the merits, plaintiff ultimately must prove facts that establish jurisdiction by a preponderance of the evidence. The same standard holds when plaintiff is put to his proof at a full evidentiary hearing. Welsh v. Gibbs, 631 F.2d at 438-39; Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1284-86 (9th Cir.1977). When a court seeks to decide the issue on the basis of affidavits alone, however, plaintiff need only make a prima facie case of jurisdiction. To survive a motion to dismiss, thus, plaintiff need only "demonstrate facts which support a finding of jurisdiction." Welsh v. Gibbs, 631 F.2d at 438 (quoting Data Disc, Inc., 557 F.2d at 1285).

In a diversity case, a federal court's in personam jurisdictional reach is determined by the law of the state in which the court is located. Pickens v. Hess, 573 F.2d 380, 385 (6th Cir.1978). When a state's long-arm statute has been interpreted by its courts to be as broad as the limits of due process allow, the issue of how far the forum state intends to reach merges into the inquiry of whether the jurisdiction sought comports with the requirements of due process. First National Bank of Louisville v. J.W. Brewer Tire Co., 680 F.2d 1123 (6th Cir.1982). The Tennessee Supreme Court has said that its long-arm statute,⁷ Tenn.Code Ann. § 20-2-214, extends "to the full limit allowed by due process." Masada Investment Corp. v. Allen, 697 S.W.2d 332 (Tenn.1985).

In Masada, supra, the Tennessee Supreme Court analyzed the limits of due process in light of two recent leading cases of the Supreme Court: Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985); and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). The Masada court also implied that the three-pronged approach used by the Sixth Circuit in Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 381 (6th Cir.1968) was "now too restrictive." The Masada court appeared also to base its analysis of minimum contacts on a five-factor test that was utilized by the Tennessee Court of Appeals in Shelby Mutual Insurance Co. v. Moore, 645 S.W.2d 242, 245 (Tenn.App.1981) and that is ultimately traceable⁸ to an opinion by then-Judge Blackmun in Aftanase v. Economy Baler Co., 343 F.2d 187, 195-97 (8th Cir.1965).

The square holding of Masada, however, was that legislative passage in 1972 of Tenn.Code Ann. § 20-2-214(a)(6) "expanded the jurisdiction of Tennessee courts to the full limit allowed by due process." 697 S.W.2d at 334. Determining the full reach of jurisdiction consistent with due process notions of fundamental fairness, this Court observes, necessitates weighing the facts of each case and precludes the use of "clear-cut jurisdictional rules" and "talismanic jurisdictional formulas." Burger King, 471 U.S. at 486 and n. 29, 105 S.Ct. 2174, 2189 and n. 29, 85 L.Ed.2d at 549 and n. 29. To the extent that a formula might result in a jurisdictional reach less extensive⁹ than that permitted by the due process clause, its use is inconsistent with the square holding of the Tennessee Supreme Court. To the extent that a formula might produce a jurisdictional reach greater than that permitted by Burger King...