Continental Oil Company v. Atwood & Morrill Company

• Decision Date: 27 February 1967
• Docket Number: Civ. No. 608.
• Citation: 265 F. Supp. 692
• Parties: CONTINENTAL OIL COMPANY, a corporation, Stearns-Roger Corporation, a corporation, and National Fire Insurance Company of Connecticut, a corporation, Plaintiffs, v. ATWOOD & MORRILL COMPANY, a corporation, Defendant.
• Court: U.S. District Court — District of Montana

265 F. Supp. 692

CONTINENTAL OIL COMPANY, a corporation, Stearns-Roger Corporation, a corporation, and National Fire Insurance Company of Connecticut, a corporation, Plaintiffs, v. ATWOOD & MORRILL COMPANY, a corporation, Defendant.

Civ. No. 608.

United States District Court D. Montana, Billings Division.

February 27, 1967.

Crowley, Kilbourne, Haughey, Hanson & Gallagher, Billings, Mont., for plaintiffs.

Anderson, Symmes, Forbes, Peete & Brown, Billings, Mont., for defendant.

ORDER AND MEMORANDUM OPINION

JAMESON, Chief Judge.

The defendant has moved to quash service of summons and dismiss for want of jurisdiction, or alternatively, for a change of venue. Defendant, a Massachusetts corporation, was served with summons and complaint at its principal place of business, in Salem, Massachusetts, pursuant to Rules 4(d) (7) and 4(d) (3) F.R.Civ.P. and Rules 4, subd. D(3) and 4, subd. D(2) (e) Mont.R. Civ.P. Defendant contends that the exercise of jurisdiction by this court would be in violation of the due process clause of the Fourteenth Amendment.¹

By stipulation of counsel various documents have been submitted to the court. From these documents, together with the pleadings and affidavits on file, the pertinent facts may be summarized as follows:

An addition to the plaintiff Continental Oil Company's refinery in Billings was under construction. Plaintiff Stearns-Roger Corporation had a contract for the installation of a newly constructed turbine driven reformer compressor, which was part of a condensate unit. Graham Manufacturing Company, a subcontractor on the job, ordered an "atmospheric relief valve" from the defendant, Atwood & Morrill Company, a corporation engaged primarily in manufacturing machine valves and valve components, which are shipped to customers either pursuant to direct orders, or through orders submitted via Atwood & Morrill agents in various parts of the country.

Graham Manufacturing Company is a New York Corporation, with its office in Batavia, New York. On June 20, 1963, it submitted the order for the valve to "Atwood & Morrill Company, % Bass Industrial Equipment Company" (an agent of defendant) Buffalo, New York. The order recited that "shipping instructions will be issued at a later date". Attached to the order form is a sheet of specifications, which reads:

On September 9, 1963, Graham notified defendant through its Buffalo agent, Bass Industrial Equipment, to ship the order to "Stearns-Roger Corporation, c/o Continental Oil Co. Refinery, Billings, Montana" via rail, prepaid. On October 7, 1963, the defendant sent the valve by rail as requested, and it was subsequently installed in the refinery addition.

Plaintiffs contend that the valve which Atwood & Morrill manufactured, and sent in response to the purchase order, did not comply with the specifications, was not capable of performing the job required, and its failure in that regard was the cause of an explosion and resulting damages. Defendant contends that "no deviation from the specifications for the standard valve contained in the catalog was required to fill the order".

The defendant does not maintain a place of business in Montana, has not qualified to do business in the state, and does not have any property located in the state. Although defendant has agents in various parts of the United States whose exclusive territory covers practically every state, no agent has been assigned to the State of Montana; nor has any agent solicited business in the state, through advertising literature or otherwise. Except for the valve in question, it does not appear that any shipment of Atwood & Morrill products has been made by the company into Montana.

It is clear that at the time of shipment defendant knew the valve was being sent to Montana. There is nothing in the record to show that it had this knowledge prior to receiving the shipping instructions from Graham.

It is clear also that the valve was ordered by Graham on specifications. It is uncertain whether a special manufacture was required or the defendant had valves in stock, as advertised in its catalog, which met these specifications.

All parties knew that the valve would become an integral part of machinery and equipment used in the manufacture and processing of gasoline. Obviously negligent manufacture could result in great hazard and constitute an instrumentality dangerous to life and property, if defectively constructed.

Will the exercise of in personam jurisdiction under these facts offend the "traditional notions of fair play and substantial justice" embodied in the "minimum contacts" test of International Shoe Company v. State of Washington, 1943, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95?

In McGee v. International Life Ins. Co., 1957, 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223, it was held that a single transaction may be sufficient to satisfy the requirements of "minimum contacts". The Court, after reviewing the historical development in this area stated: "Looking back over this long history of litigation a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents." (355 U.S. at 222, 78 S.Ct. at 201).

The sweeping effect of McGee was limited somewhat the following year by Hanson v. Denckla, 1958, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283, where the Court said, "But it is a mistake to assume that this trend heralds the eventual demise of all restrictions on the personal jurisdiction of state courts. * * *" The Court held further that the application of the minimum contact rule "will vary with the quality and nature of the defendant's activity, but 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 foreign State, thus invoking the benefits and protections of its laws". (357 U.S. at 251, 253, 78 S.Ct. at 1238, 1240.)

In L. D. Reeder Contractors of Arizona v. Higgins Industries, Inc., 9 Cir. 1959, 265 F.2d 768, the court quotes with approval "three rules which can be drawn from a combined reading of International Shoe, McGee and Hanson against which all future litigation of a like nature may be tested", as follows:

"(1) The nonresident defendant must do some act or consummate some transaction within the forum. It is not necessary that defendant's agent be physically within the forum, for this act or transaction may be by mail only. A single event will suffice if its effects within the state are substantial enough to qualify under Rule Three.

"(2) The cause of action must be one which arises out of, or results from, the activities of the defendant within the forum. It is conceivable that the actual cause of action might come to fruition in another state, but because of the activities of defendant in the forum state there would still be a `substantial minimum contact.'

"(3) Having established by Rules One and Two a minimum contact between the defendant and the state, the assumption of jurisdiction based upon such contact must be consonant with the due process tenets of `fair play' and `substantial justice.' If this test is fulfilled, there exists a `substantial minimum contact' between the forum and the defendant. The reasonableness of subjecting the defendant to jurisdiction under this rule is frequently tested by standards analogous to those of forum non conveniens." (265 F.2d at 773-774).²

The effect of International Shoe, McGee, Hanson and other cases in this area was considered by Mr. Justice Goldberg in an opinion denying stay pending appeal in Rosenblatt v. American Cyanamid Company, 1965, 86 S.Ct. 1, 15 L.Ed.2d 39, 43, where the alleged tortious act occurred in New York, the forum state. Mr. Justice Goldberg said in part: "* * * In cases under these (long arm) statutes in state and federal courts, jurisdiction on the basis of a single tort has been uniformly upheld:

`Indeed, the constitutionality of this assertion of jurisdiction, today, could only be doubted by those determined to oppose the clear trend of the decisions. This situation is exactly that of the nonresident-motorist statutes, which were long ago upheld, except that the highways are not directly involved. It is now clear, if it was ever in doubt, that the nonresident motorist cases were not really based on "consent" but on the interest of the forum State and the fairness of trial there to the defendant.' Currie, The Growth of the Long Arm, 1963, U.Ill.Law Forum 515, 540.

`* * * Currie has interpreted and generalized the Hanson test as a requirement "that the defendant must have taken voluntary action calculated to have an effect in the forum state".' Currie, op. cit, at 549." (86 S.Ct. at 3, 4, 15 L.Ed.2d at 43, 44).

Are the facts that (1) the defendant manufactured products for a national and interstate market; (2) the valve was ordered by specifications; (3) the defendant knew at the time of shipment that it would be used in Montana; (4) any defect in its negligent manufacture might constitute a serious hazard; and (5) the explosion allegedly resulting from a defective valve occurred in Montana sufficient to meet the "minimum contact" test as developed in the foregoing decisions?

In an article on "Personal Jurisdiction over nonresidents and Montana's New Rule 4B," 24 Mont.L.Rev. 3, 20, the author, Thomas E. Towe, states:

"If the defendant sends goods into the state which cause injury within the state because of their defective manufacturing or packaging, he should be subject to that state's jurisdiction, whether the injured party dealt with the defendant directly or whether he purchased the defendant's goods through an independent contractor. Further, it has been held that if the defendant anticipated and expected his goods to be delivered into and used within the forum state, that state had jurisdiction over him for causes of action resulting from the negligent manufacture of those goods."

While there...