Charles Gendler & Co., Inc. v. Nippon Elec. Co., Ltd.

• Decision Date: 05 March 1985
• Citation: 199 N.J.Super. 227,488 A.2d 1091
• Parties: CHARLES GENDLER & CO., INC., Plaintiff-Appellant, v. NIPPON ELECTRIC CO., LTD., Defendant-Respondent, and Telecom Equipment Corporation, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 227

199 N.J.Super. 227

488 A.2d 1091

CHARLES GENDLER & CO., INC., Plaintiff-Appellant, v. NIPPON ELECTRIC CO., LTD., Defendant-Respondent and Telecom Equipment Corporation, Defendant.

Superior Court of New Jersey,

Appellate Division.

Argued Jan. 21, 1985.

Decided March 5, 1985.

Stephen W. Gruhin, Belleville, for plaintiff-appellant (Gruhin & Gruhin, Belleville, attorneys).

Paul J. Linker, Short Hills, for defendant-respondent Nippon Electric Co., Ltd. (Robinson, Wayne, Levin, Riccio & LaSala, Newark, attorneys; Paul J. Linker and Joseph F. Lagrotteria, Newark, on the brief).

Before Judges KING, DEIGHAN and BILDER.

The opinion of the court was delivered by

DEIGHAN, J.A.D.

Plaintiff appeals from an order dismissing its complaint and quashing service of process against Nippon Electric Co., Ltd., a Japanese corporation, (Nippon) on the ground that New Jersey lacks in personam jurisdiction. Nippon is a Japanese manufacturer of telephone equipment and markets its products through two wholly-owned subsidiaries which conduct business in the United States. Nippon owns all of the stock of NEC America, Inc. (NEC America), which in turn owns all of the stock of NEC Telephones, Inc. (NEC Telephones). Both subsidiaries are New York corporations which obviously serve the Northeastern United States market. NEC America is the importer or distributor and sold the telephone system to NEC Telephone who sold the system to defendant Telecom Equipment Corporation (Telecom). Telecom in turn sold and installed the telephone system in plaintiff's business establishment in Belleville, New Jersey. Plaintiff served the summons and complaint on Nippon by certified mail addressed to Nippon's subsidiary, NEC Telephones, in Melville, New York. Nippon moved to dismiss the complaint for lack of in personam jurisdiction based on a certification by Hiroshi Shigehara, general manager of Nippon's First North American Division.

The system was manufactured by Nippon. According to the certification, Nippon is a Japanese corporation with its headquarters and principal place of business in Tokyo, Japan. Nippon manufactures telephone equipment "for sale to companies throughout the world." Nippon has never been authorized to do business in New Jersey. It has no offices, agents, representatives, distributors or subsidiaries in New Jersey. It does not directly receive an income in New Jersey and it does not solicit business here "through sales representative, advertisements or mailings." Nippon never had any contact with plaintiff. Nippon does business in this country solely through the two wholly-owned subsidiaries. Both subsidiaries "maintain their own books and records, file their own tax returns in the United States and manage their financial affairs and day-to-day operations." The subsidiaries are the merchandising tools, if not the tentacles of their commercial parent.

The trial court held that Nippon lacked sufficient contacts with New Jersey to permit our courts to assert in personam jurisdiction over it. Plaintiff submitted no proof to establish that NEC America or NEC Telephone were anything other than separate and independent wholly-owned subsidiaries. The only facts established were that Nippon manufactured telephone systems for world-wide distribution and distribution in the United States through two wholly-owned subsidiaries which facts, in the trial court's view, were insufficient upon which to base jurisdiction.

In April of 1979 plaintiff purchased the telephone system manufactured by Nippon from Telecom. Telecom finished installing the system in late June 1979 and was paid at that time. Plaintiff contends that the telephone system was defective from the time it was installed. It alleges that some of the telephone components and ancillary equipment became totally inoperable. In light of the improper performance of the system, Telecom extended the one-year post installation warranty. Despite this, plaintiff avers that many attempts by Telecom to rectify the defects in the system have been unsuccessful. Count two of the complaint seeks damages from Nippon on the ground that the equipment "was from the time of its manufacture and remains to the present wholly defective, unmerchantable and unfit for the ordinary purposes and uses for which it was intended." ¹

We are confronted with two questions: (1) whether the courts of New Jersey have in personam jurisdiction over Nippon under the given facts because it introduced the equipment into the stream of commerce, and (2) whether the summons and complaint served on Nippon's subsidiary should be upheld, notwithstanding plaintiff's noncompliance with R.4:4-4(c)(1). We hold that the Courts of New Jersey have jurisdiction but that the service of process is invalid.

Plaintiff contends that New Jersey has jurisdiction over Nippon because it manufactured the telephone equipment and placed it into the stream of commerce. It argues that the "stream of commerce" theory finds strong support in dictum in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), and has been applied in subsequent cases. Nippon argues that its contacts with New Jersey were insufficient and that it never purposely availed itself of the privileges and protection of New Jersey law. Rather, it operates through independent wholly-owned subsidiaries which are amenable to service of process. It stresses that it was not involved in the sale between plaintiff and Telecom and that it had no contact whatsoever with New Jersey.

Pursuant to R.4:4-4(c)(1) if personal service cannot be made upon a foreign corporation then, "[c]onsistent with due process of law, service may be made by mailing, by registered or certified mail, return receipt requested, a copy of the summons and complaint to a registered agent for service, or its principal place of business, or its registered office." Under this rule foreign corporations are subject to suit in New Jersey as long as due process is satisfied. New Jersey courts are vested with jurisdiction over foreign corporations to the outer limits permitted by due process. Avdel Corporation v. Mecure, 58 N.J. 264, 268, 277 A.2d 207 (1971); Kislak v. Trumbull Shopping Park, 150 N.J.Super. 96, 374 A.2d 1246 (App.Div.1977).

Under the Fourteenth Amendment of the United States Constitution, the extent to which federal due process limits state jurisdiction over nonresidents and foreign corporations is a question of federal law governed primarily by decisions of the United States Supreme Court. Annotation, "Construction and Application of State Statutes or Rules of Court Predicating In Personam Jurisdiction Over Nonresidents or Foreign Corporations on Making or Performing a Contract within the State," 23 A.L.R.3d 551, 562 (1969). In the landmark case of Pennoyer v. Neff, 95 U.S. (5 Otto) 714, 24 L.Ed. 565 (1878), the United States Supreme Court established that the due process clause of the Fourteenth Amendment is violated where a court renders a personal judgment against a nonresident individual defendant without having jurisdiction over that defendant. As a matter of due process, a State cannot acquire personal jurisdiction merely by serving process upon the defendant outside the forum or by publication.

State jurisdiction over nonresidents was substantially advanced in 1945 in the leading case of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), which held that a foreign corporation which systematically and continuously employed a force of salesmen, residents in the State of the forum, to canvas orders in the State may, consistent with due process, be sued in the State to recover contributions to the State Unemployment Compensation Fund respecting the salesmen. Id. at 320, 66 S.Ct. at 160. A new test was laid down to the effect that a state court may acquire personal jurisdiction over a nonresident as long as there exist "minimum contacts" between the defendant and the forum state. Id. at 316, 66 S.Ct. at 158. The protection against inconvenient litigation is described in terms of "reasonableness" or "fairness." Defendant's contacts with the forum State must be such that maintenance of the suit "does not offend 'traditional notions of fair play and substantial justice.' " Ibid. quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940). The relationship between the defendant and the forum must be such that it is "reasonable ... to require the corporation to defend the particular suit which is brought there." International Shoe at 317, 66 S.Ct. at 158.

After International Shoe there developed a trend toward expanding the permissible scope of state jurisdiction over foreign corporations, in part attributable to the increasing volume of multi-state transactions and developments in communication and transportation which made it easier for a foreign corporation to defend itself in the forum State. See Magee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957). However, the Court later cautioned that "... it is a mistake to assume that this trend heralds the eventual demise of all restrictions on the personal jurisdiction of State court." Hanson v. Denckla, 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283 (1958).

As indicated in World-Wide Volkswagen Corp., supra, the question is whether the product finds its way into the State by virtue of an isolated sale, or whether the foreign defendant makes efforts to directly serve a market in the forum State, thereby purposefully availing itself of the privilege of conducting business within that State. 444 U.S. at 297, 100 S.Ct. at 567. In World-Wide Volkswagen Corp., plaintiffs, New York residents, purchased an automobile from a New York dealer, who in turn had acquired the car from a regional distributor servicing New York, New Jersey and Connecticut. In the process of moving to Arizona, plaintiffs passed...