Federated Rural Elec. Ins. Corp. v. Inland Power and Light Co.

• Decision Date: 25 February 1994
• Docket Number: No. 93-2336,93-2336
• Citation: 18 F.3d 389
• Parties: FEDERATED RURAL ELECTRIC INSURANCE CORP., Plaintiff-Appellant, v. INLAND POWER AND LIGHT CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 389

18 F.3d 389

FEDERATED RURAL ELECTRIC INSURANCE CORP., Plaintiff-Appellant, v. INLAND POWER AND LIGHT CO., Defendant-Appellee.

No. 93-2336.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 11, 1994.

Decided Feb. 25, 1994.

William J. Toman, Quarles & Brady, Madison, WI, John F. Runkel, Jr. (argued), Dale E. Fredericks, Bruce D. Celebrezze, David R. Mandelbrot, Sheppard, Mullin, Richter & Hampton, San Francisco, CA, for plaintiff-appellant.

Jeffrey Kassel, Lafollette & Sinykin, Madison, WI, Peter J. Grabicki, Robert T. Carter, Laurel H. Siddoway (argued), Randall & Danskin, Spokane, WA, for defendant-appellee.

Before CUDAHY and FLAUM, Circuit Judges, and SHARP, Chief District Judge. ^*

FLAUM, Circuit Judge.

In this case, Federated Rural Electric Insurance Corporation ("Plaintiff"), an insurer of electric cooperatives, alleged that Inland Power and Light Company ("Defendant"), along with other electric cooperatives located in the Pacific Northwest, engaged in fraud and misrepresentation when it purchased additional insurance and increased the limits on its existing insurance with Plaintiff. Defendant moved the district court to dismiss Plaintiff's suit for lack of personal jurisdiction. The court granted Defendant's motion. Plaintiff now appeals and we affirm, adopting the judgment and reasoning of the district court.

I. Background

Plaintiff, a Wisconsin corporation (until 1982 when it relocated to Kansas), specialized in providing property and casualty insurance to rural electric cooperatives. Defendant is one of several Pacific Northwest electric cooperatives which purchased directors, officers and managers ("DOM") insurance from Plaintiff in the late 1970's and early 1980's. The instant suit arose from a 1976 transaction in which Defendant was one of 88 parties which executed an agreement to pay a percentage share of the budget of the Washington Public Power Supply System ("WPPSS"), an entity that issued public bonds worth 2.25 billion dollars for the construction of nuclear power plants in Washington. WPPSS ultimately defaulted on these bonds leading to massive litigation by bondholders against Defendant (and others) for fraud and illegal "cost-sharing." Plaintiff claims that Defendant knew that such litigation was imminent when it purchased or increased its DOM insurance from Plaintiff, and Defendant failed to disclose to Plaintiff that the litigation was a virtual certainty. Plaintiff hopes to rescind these policies on the grounds of intentional or negligent fraud and misrepresentation and seeks a declaratory judgment that it is not responsible for any coverage.

On May 17, 1991, Plaintiff filed suit against Defendant and others in the federal district court of Kansas. On January 13, 1993, the District of Kansas dismissed all of Plaintiff's claims against Defendant for lack of personal jurisdiction. On January 25, 1993, Plaintiff filed a single action against the Defendant and others in the Western District of Wisconsin. Defendant, among others, moved to dismiss for lack of personal jurisdiction. The district court granted the motion.

The court noted that although Defendant had purchased insurance from Plaintiff, Defendant was not licensed to do business in Wisconsin, it had no officers or directors in Wisconsin, it did not own property in Wisconsin, and never even solicited any business in Wisconsin. ¹ The district court also noted that all of Defendant's insurance contracts with Plaintiff were executed in the Pacific Northwest, either at Defendant's own offices or at the office of Plaintiff's local representative in the Pacific Northwest. ²

II. Analysis

Plaintiff argues that personal jurisdiction over Defendant in Wisconsin is consistent with the applicable provisions of both (A) the State's long-arm statute, and (B) the Fourteenth Amendment's due process principles. While we shall address these arguments serially, we note that the district court's decision must be affirmed unless personal jurisdiction is proper under both Wisconsin's long-arm statute and the Due Process clause of the Constitution.

A. Wisconsin's Long-Arm Statute

Ordinarily, under Fed.R.Civ.P. 4(e), a federal court sitting in diversity begins its personal jurisdiction analysis by determining whether the forum state's long-arm statute confers personal jurisdiction over the defendant. Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97, 105, 108 S.Ct. 404, 410, 98 L.Ed.2d 415 (1987). The Wisconsin Supreme Court has determined that its long-arm statute is to be liberally construed in favor of the exercise of jurisdiction, Schroeder v. Raich, 89 Wis.2d 588, 593, 278 N.W.2d 871 (1979); International Placement & Recruiting v. Reagan Equip. Co., 592 F.Supp. 1252, 1254 (E.D.Wis.1984); see also Capitol Fixture v. Woodma Distrib., 147 Wis.2d 157, 432 N.W.2d 647, 649 (Ct.App.1988). In this case, Plaintiff argues that personal jurisdiction may be obtained over Defendant under either the (1) tort, or (2) contract provisions of the State's long-arm statute. See Wis.Stat. Sec. 801.05(3) & (5)(a) (1991).

1. Tort Provision

In its argument before the district court the Plaintiff claimed personal jurisdiction existed under either Secs. 801.05(3) or 801.05(4) of Wisconsin's long-arm statute.

The tort provision of Wisconsin's long-arm statute grants jurisdiction "[i]n any action claiming injury to person or property within or without this state arising out of an act or omission within this state by defendant." Wis.Stat. Sec. 801.05(3). Plaintiff contends that Defendant's failure to disclose to Plaintiff the substantial likelihood of litigation at the time Defendant purchased or increased its insurance coverage constitutes an act or omission in Wisconsin sufficient to assert jurisdiction under the statute. In response to Plaintiff's argument, Defendant asserts that any act or omission took place in the Pacific Northwest in face-to-face negotiations with Plaintiff's local agent.

Defendant relies heavily on Lincoln v. Seawright, 104 Wis.2d 4, 310 N.W.2d 596, 600 (1981). In Lincoln, a Wisconsin plaintiff purchased a dog from a New Mexico defendant. The defendant shipped the dog from New Mexico to Wisconsin and wired money to Wisconsin to pay air freight charges. The defendant neglected to warn the plaintiff that the dog was dangerous and had a history of biting children. When the dog arrived in Wisconsin, it bit the plaintiff who then sued the defendant in Wisconsin. The court dismissed the suit and held that neither the wiring of money nor the failure to warn occurred "within this state" for purposes of Sec. 801.05(3). Id., 310 N.W.2d at 601. Thus, in Lincoln, the Wisconsin Court held that acts or omissions occurring outside Wisconsin but having consequences that are felt within Wisconsin do not fit within the tort provisions of Sec. 801.05(3). Plaintiff attempts to distinguish Lincoln by contending that Lincoln merely involved a failure to warn of a physical risk within the forum, whereas the case here involves a defendant who allegedly misrepresented and breached his duty of good faith.

Despite Plaintiff's efforts, we share the district court's view that the differences Plaintiff attempts to draw between Lincoln and this case are illusory. The defendant in Lincoln had a continuing duty to provide the plaintiff with information concerning dangers and problems associated with the dog for the entire time the dog would be under the control of the plaintiff. Thus, we see no reason why the financial injury here, caused by an act or omission, should receive more protection than the physical injury experienced in Lincoln. Indeed, case law reveals the opposite to be true. See Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 597 F.2d 596, 602 n. 11 (7th Cir.1979), cert. denied, 445 U.S. 907, 100 S.Ct. 1087, 63 L.Ed.2d 325 (1980) (declining to exercise jurisdiction over the defendant and stating that Wisconsin courts have a lesser interest in protecting Wisconsin residents in disputes not involving dangers to persons or things within the state's borders). Therefore, we agree with the district court that the tort provision of Wisconsin's long-arm statute, Sec. 801.05(3), does not extend sufficiently far to reach Defendant's conduct.

Plaintiff also contends that Sec. 801.05(4) authorizes personal jurisdiction over Defendant in Wisconsin. Section 801.05(4) of Wisconsin's long arm statute provides that a State court has personal jurisdiction over a defendant if:

[i]n any action claiming injury to person or property within this state arising out of an act or omission outside this state by the defendant, provided in addition that at the time of the injury, either:

(a) Solicitation or service activities were carried on within this state or on behalf of the defendant; or

(b) Products, material or things processed, serviced or manufactured by the defendants were used or consumed within this state in the ordinary course of trade.

Plaintiff argues that because Defendant allegedly engaged in solicitation within the State, Sec. 801.05. (4)(a) provides jurisdiction over Defendant. This alleged solicitation occurred, according to Plaintiff, through Defendant's general manager, Mr. Slatt, who also concurrently served as the manager of Northwest Rural Electric Cooperatives ("Northwest Rural"), an informal trade group consisting of various rural electrical cooperatives located in Idaho, Oregon and Washington. Plaintiff argues that when Slatt asked Plaintiff's CEO to attend a meeting sponsored by Northwest Rural, ³ Slatt in effect solicited services on behalf of Defendant, and thus triggered Sec. 801.05(4)(a).

According to Wisconsin law, before a solicitation triggers Sec. 801.05(4)(a) it must be made by the defendant to the plaintiff, and the defendant must expect some financial benefit. Pavlic v. Woodrum, 169 Wis.2d 585, 486 N.W.2d 533, 535 (Wis.App.1992), Fields v. Peyer, 75 Wis.2d 644, 250 N.W.2d 311, 316 (Wis.1977). Thus...