Gordonsville Industries v. American Artos Corp., 79-0075(C).

• Citation: 549 F. Supp. 200
• Decision Date: 30 September 1982
• Docket Number: No. 79-0075(C).,79-0075(C).
• Parties: GORDONSVILLE INDUSTRIES, INC., Plaintiff, v. AMERICAN ARTOS CORPORATION and Industrial Boiler Co., Inc., Defendants. AMERICAN ARTOS CORPORATION, Third Party Plaintiff, v. GEA LUFTKUHLERGESELLSCHAFT, Third Party Defendant.
• Court: U.S. District Court — Western District of Virginia

549 F. Supp. 200

GORDONSVILLE INDUSTRIES, INC., Plaintiff, v. AMERICAN ARTOS CORPORATION and Industrial Boiler Co., Inc., Defendants.

AMERICAN ARTOS CORPORATION, Third Party Plaintiff, v. GEA LUFTKUHLERGESELLSCHAFT, Third Party Defendant.

No. 79-0075(C).

United States District Court, W.D. Virginia, Charlottesville Division.

September 30, 1982.

David G. Sutton, Andrew Perkins, Charlottesville, Va., Leesburg, Va., George Coakley, Cleveland, Ohio, for plaintiff.

Jay T. Swett, Charlottesville, Va., Philip B. Morris, William R. Allcott, Jr., Richmond, Va., for defendants.

TURK, Chief Judge.

Plaintiff, Gordonsville Industries, Inc., a Virginia corporation, instituted this action alleging defective design, negligence, and breach of warranty and breach of contract against the defendants, American Artos Corporation, a North Carolina corporation, and Industrial Boiler Co., Inc., a Georgia corporation. Subject matter jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332(a)(1). American Artos (Artos) filed a third party complaint, essentially seeking indemnification, against a German corporation, GEA Luftkuhlergesellschaft (GEA), on March 25, 1981. The third party complaint and summons was reissued on July 31, 1981.

Personal jurisdiction over the non-resident third party defendant, GEA, is asserted under the Virginia long arm statute, Va.Code Ann. § 8.01-328.1, with process served in compliance with the requirements of the Hague Convention. This matter is before the court on GEA's motions to dismiss for lack of personal jurisdiction. GEA, the third party defendant, contends that no proper basis has been shown to establish personal jurisdiction against it. Third party plaintiff, Artos, has served two sets of jurisdictional interrogatories upon and received answers from GEA. The court has reviewed all of the documents filed in this case and has determined that it is now ripe for a resolution of the issue.

This case arises out of plaintiff's (Gordonsville Industries, Inc.) efforts to acquire an industrial heater and tenter system to dry textiles manufactured at its plant. To acquire this system, plaintiff entered into a contract with American Artos Corporation, one of the defendants in this case, for the design, construction and installation of a gas-fired oil circulation heater and tenter system. Artos, in turn, contracted with GEA, the third party defendant, for the design of the hot oil boiler, an allegedly integral part of the textile drying system. GEA subcontracted the actual construction of the boiler to Industrial Boiler Company, a Georgia corporation, also a defendant in the original complaint.

Third party defendant, GEA, asserts two grounds in support of its motion to dismiss the third party complaint: 1) that this court lacks in personam jurisdiction over GEA and 2) that the court should give deference to the forum selection clause of the contract entered between Artos and GEA.

JURISDICTION OVER THE PERSON

GEA challenges Artos's ability to invoke the jurisdiction of this court pursuant to the Virginia long arm statute. "The issue before the court is the scope of that statute: 1) whether asserting in personam jurisdiction over the defendants is contemplated by the statute, and 2) if so, whether to assert jurisdiction would violate the due process clause of the Fourteenth Amendment." Viers v. Mounts, 466 F.Supp. 187, 189-90 (W.D.Va.1979). The particular sections of the long arm statute asserted as providing the basis for in personam jurisdiction over GEA are Va. Code § 8.01-328.1(A)(4) and (5) (Repl. Vol. 1977). Those sections state, in pertinent part:

§ 8.01-328.1 When personal jurisdiction over person may be exercised. — A. A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's:

4. Causing tortious injury in this Commonwealth by an act or omission outside this Commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in this Commonwealth;

5. Causing injury in this Commonwealth to any person by breach of warranty expressly or impliedly made in the sale of goods outside this Commonwealth when he might reasonably have expected such person to use, consume or be affected by the goods in this Commonwealth, provided that he also regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this Commonwealth.

Va. Code Ann. § 8.01-328.1(A)(4-5) (Repl. Vol. 1977).

Artos contends that personal jurisdiction is appropriately established under Va. Code § 8.01-328.1(A)(4). This provision provides for personal jurisdiction over non-resident defendants who have caused "tortious injury in this State by an act or omission outside this State." Third party plaintiff, Artos, alleges that GEA's affirmative acts outside of Virginia contributed to Gordonsville's losses in 1977 and 1978. Section 8.01-328.1(A)(4), however, only authorizes personal jurisdiction over a non-resident tortfeasor if such tortfeasor "regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this State." Plaintiff has presented no evidence to satisfy two of these alternative statutory requirements.

Artos contends that GEA's activity in the present case satisfies the third alternative requirement in subsection (A)(4) that the out-of-state corporation "derives substantial revenues from goods used or consumed or services rendered" in the Commonwealth. As the Fourth Circuit has observed, "it is difficult to identify an absolute amount which ipso facto must be deemed `substantial.'" Ajax Realty Corporation v. J.F. Zook, Inc., 493 F.2d 818, 822 (4th Cir. 1972). In Ajax, the leading case construing the substantial revenue provision of the Virginia Long Arm Statute, a Washington state corporation, Durell, manufactured and sold window frames to a Colorado corporation. Ajax sustained property damage due to the leaking frames. Durell contested the court's jurisdiction. Durell had never been domesticated in Virginia nor had it ever maintained any manufacturing, sales, storage or other business facility. Moreover, that out-of-state corporation had never advertised, solicited, or contracted for any sales in Virginia nor distributed any of its products in this state. The only contacts that Durell had with the State of Virginia were 1) it had shipped the manufactured frames directly to Ajax in Virginia, 2) after the frames leaked, it sent a representative to examine them in an attempt to alleviate the problem and 3) it derived $37,000 in revenue from its sale of the frames to C & S (the Colorado corporation). C & S then sold the frames to Ajax. Id. at 820. The Ajax court found that the $37,000 contract price constituted sufficiently substantial revenue to subject it to Virginia's jurisdiction under § (A)(5).¹

GEA received approximately $13,955.00 for services it performed pursuant to the contract it entered with Artos to design and manufacture the hot oil boiler. Since there is no "absolute amount which ipso facto must be deemed `substantial.'", this court must ascertain whether the revenue received by the third party defendant, GEA, rises to the level the Virginia General Assembly envisioned as substantial and whether that amount of revenue conjoined with other facts of this case provide the requisite "minimum contacts" with the forum state to comport with due process. Certain factors of the "substantial revenue" tests have been established: 1) that revenue derived from sales, and not profits, must be substantial, 2) that the revenue may be derived from a single transaction; and 3) that the sale itself need not take place in Virginia so long as the goods are used or consumed in this state. Obtaining Jurisdiction Over Corporations In Virginia, 12 U. of Richmond L.Rev. 369, 386 (1978). One fact that may be considered is the percentage of total sales of the non-resident corporation which occur in Virginia.² See Ajax Realty Corp. v. J.F. Zook, Inc., 493 F.2d 818 (1972).

In both Ajax and Jackson, the amounts constituting substantial revenue were $37,000.00 and $25,000.00 respectively. Those amounts are significantly greater than the $13,955.00 contract price agreed by GEA and Artos. While most aspects of the "substantial revenue" test are met, this court is not convinced that the revenue received by GEA evidenced the regularity, persistency, or substantiality of contact which would adequately satisfy the alternative requirements of subsections (4) and (5) of the above Virginia long arm statute.

Moreover, this court believes that the exercise of in personam jurisdiction over GEA would violate due process requirements. While both Ajax and Jackson withstood due process analysis, the additional contacts with Virginia attendant in those cases are not present here. In Ajax, the Fourth Circuit found that the defendant corporation had directly shipped the window frames to Virginia, sent a representative to Virginia to inspect the alleged defects and clearly evidenced a reasonable expectation that the frames would be used in Virginia. The non-resident defendant in Jackson had numerous direct sales to Virginia customers as well as indirect sales to independent companies who resold the defendant's product to in-state consumers. Quite clearly, those defendants had purposefully availed themselves "of the privilege of conducting activities within the forum State." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958). Artos, on the other hand, has failed to show how GEA has comparably availed itself of the privilege of conducting activities in Virginia. Artos has only shown that GEA derived...