Commodities World Intern. Corp. v. Royal Milc, Inc., Civ. No. 77-59.

• Decision Date: 29 November 1977
• Docket Number: Civ. No. 77-59.
• Parties: COMMODITIES WORLD INTERNATIONAL CORPORATION, Plaintiff, v. ROYAL MILC, INC., the Fidelity and Casualty Company of New York, and Puerto Rico Maritime Shipping Authority, Defendants.
• Court: U.S. District Court — District of Puerto Rico

440 F. Supp. 1373

COMMODITIES WORLD INTERNATIONAL CORPORATION, Plaintiff, v. ROYAL MILC, INC., the Fidelity and Casualty Company of New York, and Puerto Rico Maritime Shipping Authority, Defendants.

Civ. No. 77-59.

United States District Court, Puerto Rico.

November 29, 1977.

Antonio Moreda Toledo, San Juan, P.R., for plaintiff.

Jiménez & Fusté, San Juan, P.R., for P.R. Maritime Shipping Authority.

Fiddler, González & Rodríguez, San Juan, P.R., for Royal Milc, Inc.

Jorge Bermúdez Torregrosa, Hartzell, Ydrach, Mellado, Santiago, Perez & Novas, San Juan, P.R., for Fidelity & Cas. Co.

OPINION AND ORDER

TOLEDO, Chief Judge.

This case is now before this Court upon a motion to dismiss for lack of in personam jurisdiction with respect to codefendant Royal Milc, Inc. Plaintiff and Royal Milc have submitted affidavits and legal memoranda in support of their respective positions and in rebuttal. The other codefendants have answered the complaint and thus do not question this Court's in personam jurisdiction with respect to themselves.

Subject matter jurisdiction of this Court is claimed under Title 28, United States Code, Section 1332 for reasons of diversity of citizenship and plaintiff's claim in excess of $10,000.00. Plaintiff requested and obtained permission of this Court to serve process on codefendant Royal Milc pursuant to Rule 4(e) of the Federal Rules of Civil Procedure which authorizes service, in this instance, under the long-arm statute of the Commonwealth of Puerto Rico as set forth in Rule 4.7 of Civil Procedure. The record indicates that the procedural requirements of service under said Rule 4.7 were properly satisfied including notice by registered mail addressed to Royal Milc at its principal place of business in Minnesota. Whereupon Royal Milc, expressly without submitting itself to the jurisdiction of this Court, moved for dismissal of the complaint with respect to itself for lack of in personam jurisdiction.

By this action plaintiff seeks to recover from codefendants the value of certain goods purchased from Royal Milc plus damages resulting from alleged loss of business and injury to its reputation. We do not, of course, reach the merits of the controversy at this time. We merely determine whether codefendant Royal Milc is amenable to suit in this jurisdiction, following the established doctrines which govern the reach of state long-arm statutes.

From the allegations and affidavits the following facts emerge essentially uncontroverted at this stage of the proceedings.

Plaintiff, a Florida corporation with its principal place of business in that State, purchased 1,800 bags of animal feed from Royal Milc, Inc., a Minnesota Corporation with its principal place of business in that State, and allegedly the manufacturer¹ of the said product. Royal Milc was to place the bags of animal feed so purchased in a sealed container van to be delivered to the port of embarcation at Baltimore, Maryland, consigned to a freight forwarder at said port.² At Baltimore the container was placed aboard a vessel owned or operated by codefendant Puerto Rico Maritime Shipping Authority, a Puerto Rico public corporation, for shipment to San Juan, Puerto Rico. The shipment was at least partially insured under an insurance policy issued by codefendant the Fidelity and Casualty Company of New York, an insurance company licensed by New York. The animal feed arrived at San Juan, Puerto Rico, in a condition determined to be unfit for consumption as intended.

Prior to the transaction described, plaintiff had procured and obtained from the Department of Agriculture of the Commonwealth of Puerto Rico a license or permit to introduce the particular animal feed here involved into the Puerto Rican market. The said license or permit number appears printed in the upper portion of the labels, printed in the Spanish language, supplied by plaintiff to Royal Milc to be affixed to each bag of animal feed.³

Royal Milc is not licensed or otherwise authorized to do business in Puerto Rico. Royal Milc conducts no business in Puerto Rico either directly or through any appointed agent. It maintains no office or mailing address in Puerto Rico, nor any employees, agents, representatives or inventories, and it does not own or have any beneficial interest, directly or indirectly, in any real property located in Puerto Rico. The business transactions between plaintiff and Royal Milc, insofar as they relate to the present controversy, all were conducted and effected outside of Puerto Rico.

There exists a controversy as to whether Royal Milc had prior knowledge as to the ultimate destination of the goods sold to plaintiff. Plaintiff alleges that Royal Milc knew the goods in question were destined for use in the Puerto Rican market.⁴ Royal Milc denies any such knowledge.⁵ At this stage of the proceedings it is reasonable to infer, and we so do, that Royal Milc did have, or at least should have had constructive knowledge as to the ultimate destination of the goods purchased by plaintiff.

Business relationships do not exist in a vacuum. Certainly Royal Milc knew enough about plaintiff to recognize the basic nature of plaintiff's business as a middleman or intermediary between the manufacturer and the ultimate consumer. The shipping arrangements alone would put a reasonable person on notice as to the nature of the transaction. Surely there must have been some known purpose to the business relationship between the parties and it is eminently reasonable to assume that there existed between them certain mutual undertakings as to the nature and quality of the product, volume of business and markets to be serviced. The orderly conduct of a business demands no less.

But in the case at bar there is more. Plaintiff's petition for a license or permit from the Department of Agriculture of the Commonwealth of Puerto Rico could not, or at least should not, have gone unnoticed by Royal Milc. Undoubtedly said petition must have relied at least in part on information about and derived from the purported manufacturer, Royal Milc. It would seem at least imprudent for Royal Milc to have no knowledge whatsoever as to the contents or significance of the label required to be affixed to each bag of animal feed. Apart from reasonable and normal curiosity as to the label affixed to one's product, minimal diligence in the conduct of a business would seem to require that the manufacturer ascertain that the labels affixed to its products do not express falsehoods and that in all material aspects there is compliance with the law.

We cannot accept the contention that Royal Milc blindly affixed particular labels to its products, selling and shipping these with no knowledge as to their ultimate destination and use. A contrary conclusion would require a finding of the utmost carelessness in the conduct of the vendor's business or of a purposeful and deceitful withholding of information by the intermediary buyer. There is not a scintilla of evidence in the record to support either finding.

Thus we come face to face with the ultimate reach of the Commonwealth of Puerto Rico's long-arm statute and, particularly, in circumstances such as we have in the instant case. No claim of lack of notice is made, but rather that in the given circumstances Royal Milc lies beyond the reach of Puerto Rico's long-arm statute thus precluding this Court from acquiring in personam jurisdiction over said defendant.

Puerto Rico's long-arm statute permits the exercise of jurisdiction to the fullest extent of constitutional authority whose limits are ultimately set by our traditional conception of fair play and substantial justice. Vencedor Manufacturing Co. v. Gougler Industries, Inc., 557 F.2d 886 (1st Cir., 1977); Birriel Correa v. Chrysler Corporation, D.C.P.R. Civil No. 76-770, August 1, 1977; Medina v. Tribunal, 104 D.P.R. 346 (1975); A. H. Thomas Co. v. Superior Court, 98 P.R.R. 864 (1970); Integrated Ind., Inc. v. Continental Mill Co., 385 F.Supp. 883 (D.C.P.R., 1974); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). See also Legislature of Puerto Rico, Journal of Proceedings, 1784 (1965). It has been claimed that Puerto Rico's long-arm statute was taken from the law of New York, before it was amended, and that therefore it should be interpreted as the Supreme Court of New York has held that its law was not intended to go as far as the United States Constitution allows. But the New York statute in turn was based on the Illinois long-arm statute which has been interpreted to extend jurisdiction to the maximum limits permitted by the Constitution. Birriel Correa v. Chrysler Corporation, supra; Gray v. American Radiator & Standard Sanitary Corporation, 22 Ill.2d 432, 176 N.E.2d 761 (1961). Gray held that jurisdiction extends, under the tortious act provision of the Illinois long-arm statute, virtually identical to Puerto Rico's law, to a manufacturer whose only contact with the forum state was that a defective component part which it manufactured was included in a water heater which was sold in Illinois where it exploded causing injuries to the plaintiff in Illinois. The tortious act was said to have been committed in Illinois because the injury was sustained there. The Gray doctrine has been adopted by most of the jurisdictions with a similar long-arm statute. Fulton v. Chicago Rock Island & Pacific Railroad Co., 481 F.2d 326, 331 (8th Cir., 1973); Duple Motor Bodies, Ltd. v. Hollingsworth, 417 F.2d 231 (9th Cir., 1969); Consolidated Laboratories, Inc. v. Shandon Scientific Co., 384 F.2d 797 (7th Cir., 1967); Hitt v. Nissan Motor Co., Ltd., 399 F.Supp. 838 (S.D.Fla., 1975); Kroger Co. v. Adkins Transfer Co., 284 F.Supp. 371 (M.D.Tenn., 1968); Hiersche v. Seamless Rubber Co., 225 F.Supp. 682 (D.C.Or., 1963). The Gray doctrine focuses primarily on actions in tort and particularly on product liability claims.

The parties in this controversy have...