Fehl v. SWC CORP.

• Decision Date: 07 June 1977
• Docket Number: Civ. A. No. 76-335.
• Citation: 433 F. Supp. 939
• Parties: David A. FEHL, Plaintiff, v. S. W. C. CORPORATION, a New York Corporation, W. B. McGuire Co., Inc., a New York Corporation, and J. D. Handling Systems, Inc., a New York Corporation, Defendants.
• Court: U.S. District Court — District of Delaware

433 F. Supp. 939

David A. FEHL, Plaintiff, v. S. W. C. CORPORATION, a New York Corporation, W. B. McGuire Co., Inc., a New York Corporation, and J. D. Handling Systems, Inc., a New York Corporation, Defendants.

Civ. A. No. 76-335.

United States District Court, D. Delaware.

June 7, 1977.

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Arthur Inden and Frederick W. Iobst, Young, Conaway, Stargatt & Taylor, Wilmington, Del., for plaintiff.

John J. Schmittinger, Schmittinger & Rodriguez, Dover, Del., for defendant, W. B. McGuire Co., Inc.

CALEB M. WRIGHT, Senior District Judge.

W. B. McGuire & Co., Inc. ("McGuire"), one of three corporate defendants in this diversity personal injury action, has brought a motion to dismiss for lack of personal jurisdiction on the ground that substituted service of process under 8 Del.C. § 382 was improper and ineffective. The pertinent facts are these. Plaintiff was injured in June, 1975, while operating a Gifford-Wood Model "C" ice-cubing machine. That machine was sold to plaintiff's employer, Diamond Ice and Coal Co. of Wilmington, Delaware, by the Gifford-Wood Company in 1946. McGuire, a New York corporation, was not incorporated until 1959. In 1971, McGuire purchased from Columbia Precision Instruments, Inc., a Maryland corporation, all assets relating to Columbia Precision Corporation's ice product line, including land and buildings, inventory, work in process, sales orders, patents, patent applications, trademarks and trademark applications. Included among those assets was the right to manufacture and sell a Model "370" ice-cubing machine and various ice handling tools, and the right to use the Gifford-Wood name on those products transferred by the agreement, with the reasonable consent of the seller, for a period of five years. Plaintiff alleges that the Model "370" ice-cuber is, in fact, a Gifford-Wood "CB" ice-cuber, which is claimed to be the same or very similar to the Gifford-Wood Model "C" ice-cuber involved in the accident, although McGuire itself has never held out the model as a Gifford-Wood model. In February, 1975, approximately four months prior to the accident, McGuire sold all of its assets relating to the ice product line, including the rights to the "370" model and ice-handling equipment to a third corporation, J. D. Handling, Inc., of New York.¹ From 1972 until February 1975, McGuire supplied Diamond Ice and Coal with certain new replacement parts for use in an ice-cubing machine pursuant to requests from Diamond Ice and Coal.² Plaintiff filed a diversity action in this Court against McGuire and three other defendants,³ alleging strict liability and negligence in the design, manufacture, testing, and inspection of the machine, and in failing to warn the ultimate users of the machine of its allegedly dangerous conditional and operational characteristics.

Substituted service was made on McGuire under 8 Del.C. § 382, which provides that:

Any foreign corporation which shall transact business is this State . . . shall be deemed to have thereby appointed and constituted the Secretary of State of this State, its agent for the acceptance of legal process in any civil action, suit or proceeding against it in any state or federal court in this State arising or growing out of any business transacted by it within this State. . . .

Courts have construed § 382 to require both that the corporation "transact business" in Delaware and that the cause of action "arise or grow out of" specific business transacted in Delaware. Simpson v. Thiele, Inc., 344 F.Supp. 7 (D.Del.1972).

Although McGuire contended in its opening brief that it was not transacting business in Delaware, it has now conceded that it was.⁴ The only question left, therefore, is a discrete one: under what circumstances, if any, may personal jurisdiction be assumed under § 382 over a successor corporation based on specific business transacted by its predecessor.⁵

The question appears to be one of first impression.⁶ In those Delaware cases construing the "arising out of" requirement, there has been no dispute that the corporation itself transacted some business out of which the cause of action arose. The question faced by the courts has been whether the business out of which the cause of action arose was transacted in Delaware or elsewhere. For example, in La Chemise LaCoste v. General Mills, Inc., 53 F.R.D. 596 (D.Del.1971), the Court determined that, while the defendant apparently sold or solicited orders for the sale of apparel to stores in Delaware (and therefore was transacting business), it had never sold in Delaware toiletries, soaps, or bags using the marks which were the subject of the action. Defendant's motion to dismiss was granted. In Simpson v. Thiele, supra, a personal injury action, the Court granted defendant's motion to dismiss for lack of personal jurisdiction on the ground that the machine had been manufactured, sold, and delivered in Pennsylvania, and that plaintiff therefore failed to sustain the burden of proving that the injury sued upon arose or grew out of any business which defendant transacted in Delaware.

In this case, it is assumed that the 1946 sale and/or delivery of the machine took place in Delaware. See n. 4, supra. It is not disputed that McGuire was not in corporate existence in 1946 and that McGuire neither manufactured nor sold the machine involved in the injury. The question remaining, therefore, is whether the "arising out of" requirement is satisfied by the acquisition by McGuire of certain assets which were once held by the corporation that manufactured and sold the machine. The question is really one of fairness and equity. Under what circumstances, if any, would it be consonant with notions of fairness and justice to ascribe business transacted by a predecessor corporation to its successor corporation?

Two alternative theories can be advanced in support of personal jurisdiction over McGuire. For convenience, these theories will be labeled the "corporate" and the "tort" theory.⁷ The basis of the "corporate theory" is that, by acquiring substantially all the assets of the ice product line which originally belonged to the Gifford-Wood Company and taking over the ice product manufacturing operation, McGuire in effect became the present-day embodiment of the Gifford-Wood Company and therefore is amenable to service of process under § 382. The "tort theory" would impose jurisdiction over McGuire based on its own acts. Under certain circumstances,⁸ the successor corporation may have a duty to warn of defects existing in products sold by the predecessor corporation. If a nexus exists between business conducted by the successor corporation within the state and a failure to fulfill that duty, the "arising out of" requirement may be satisfied.

Sitting in diversity, this Court is bound by the construction placed on § 382 by the Delaware courts. Pioneer National Title Insurance Co. v. Sabo, 432 F.Supp. 76 (D.Del.1977). Since this particular issue has never been presented in this jurisdiction, the Court must determine how the Delaware courts would interpret the reach of § 382.

The "arising out of" requirement of § 382 is a legislatively imposed limitation on the constitutionally permissible breadth of long-arm jurisdiction. The due process clause does not require that the cause of action arise out of particular business transacted within the state. If the corporation has carried on continuous and systematic activities in the state, it is consonant with notions of due process to require the corporation to defend a suit based on an act committed outside the state, unrelated to business activities within the state. See, Ratliff v. Cooper Labs., Inc., 444 F.2d 745 (4th Cir. 1971); Erving v. Virginia Squires Basketball Club, 349 F.Supp. 709 (E.D.N.Y. 1972); Taisho Fire and Marine v. Vessel Montana, 335 F.Supp. 1238 (N.D.Cal.1971). The Delaware legislature has chosen not to expand the long-arm jurisdiction of the courts to that extent, but rather to restrict the reach of the long-arm statute to causes of action "arising or growing out of any business transacted by it within this State." Consequently, the "arising out of" requirement should be construed narrowly in order to implement the intention of the legislature. See, Eastman Kodak Co. v. Studiengesellschaft Kohle, 392 F.Supp. 1152 (D.Del.1975). In contrast, the "transacting business" prong of the test has been construed liberally by the Delaware courts. See, e. g., Gentry v. Wilmington Trust Co., 321 F.Supp. 1379 (D.Del.1970); Crowell Corporation v. Topkis Construction Co., 267 A.2d 613 (Del.Super.1970); Nacci v. Volkswagen of America, Inc., 297 A.2d 638 (Del. Super.1972).

I. CORPORATE THEORY

This is not a motion for summary judgment. The Court therefore makes no determination as to the merits of plaintiff's cause of action against this defendant.⁹ Certain principles of the substantive law with respect to the assumption by successor corporations of products liability are relevant to this jurisdictional question, however. Common to the scope of both jurisdiction and liability is the fairness of making a corporation which enjoys the benefit of business within the state answerable in that jurisdiction for wrongdoing associated with that business. See, Shannon v. Samuel Langston Co., 379 F.Supp. 797 (W.D. Mich.1974), and Note, "Assumption of Products Liability in Corporate Acquisitions," supra, at no. 5 (discussions of the policy behind imposing substantive liability on certain successor corporations). That consideration has been enunciated by the Delaware courts. In Sinwellan Corp. v. Farmers Bank of Delaware, 345 A.2d 430, 432 (Del. Super.1975), the court stated that:

This broad definition of "doing business" in § 382 has been adopted as a protective measure to ensure that wrongdoing corporations cannot escape liability when their ties with the residents of a state are sufficient to cause an injury by claiming

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