Henry Heide, Inc. v. WRH Products Co., Inc., s. 84-5341

• Decision Date: 23 July 1985
• Docket Number: 84-5353,Nos. 84-5341,s. 84-5341
• Citation: 766 F.2d 105
• Parties: 41 UCC Rep.Serv. 419 HENRY HEIDE, INC., Appellant, v. WRH PRODUCTS CO., INC., Cross-Appellant. Appeal of STERILITE CORPORATION and the Dow Chemical Company.
• Court: U.S. Court of Appeals — Third Circuit

Page 105

766 F.2d 105

41 UCC Rep.Serv. 419

HENRY HEIDE, INC., Appellant, v. WRH PRODUCTS CO., INC., Cross-Appellant Appeal of STERILITE CORPORATION and the Dow Chemical Company.

Nos. 84-5341, 84-5353.

United States Court of Appeals Third Circuit.

Argued March 19, 1985.

Decided June 27, 1985.

As Amended July 17, 1985.

Rehearing Denied July 23, 1985.

Edward J. Gilhooly [argued], Edwards & Antholis, Morristown, N.J., Peter Aron, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for appellant.

Clarkson S. Fisher, Jr. [argued], John P. Croake, Evans, Koelzer, Osborne & Kreizman, Red Bank, N.J., for cross-appellant.

Richard J. Shackleton [argued], Shackleton, Hazeltine & Buczynski, Ship Bottom, N.J., for appellee, cross-appellee Dow Chemical Co.

Stephen H. Oleskey [argued], Hale & Dorr, Boston, Mass., for appellee, cross-appellee Sterilite Corp.

Before SEITZ and HIGGINBOTHAM, Circuit Judges, and GILES, District Judge ^*.

OPINION OF THE COURT

SEITZ, Circuit Judge.

The plaintiff, Henry Heide, Inc. ("Heide"), appeals from an order of the district court granting a summary judgment dismissing its claims against defendants Sterilite Corporation ("Sterilite") and Dow Chemical Company ("Dow"). This order was made final pursuant to Federal Rule of Civil Procedure 54(b). Another defendant, WRH Products Co., Inc. ("WRH"), appeals from an order of the district court granting a summary judgment dismissing its cross-claims against Sterilite and Dow. This order was also made final pursuant to Rule 54(b). This court has appellate jurisdiction under 28 U.S.C. Sec. 1291 (1982).

I.

The following facts are stipulated or undisputed. In 1973, Heide bought some 23,000 plastic trays from WRH. WRH designed the trays, but had contracted their manufacture to Sterilite. Sterilite purchased the plastic used in the trays from Dow.

Heide, a New Jersey candy manufacturer, used the trays in its manufacturing process which included drying the candy on the trays at relatively high heat. Prior to contracting to purchase the trays, Heide received from WRH at different times two sets of sample trays which it tested. The first set warped, possibly from the heat in the drying stage. Approximately one month later, WRH delivered a second set of samples. Heide tested this set and found them acceptable. Heide then contracted with WRH to purchase some 23,000 trays. Within two to four weeks following the initial use of the trays, Heide noticed that the trays were warping. Eventually, the trays proved unusable for Heide's process and were taken out of service.

After negotiations failed, Heide commenced this action against WRH, Sterilite and Dow alleging claims based on breach of warranty, negligence, and strict liability. WRH cross-claimed against Sterilite and Dow for indemnity and contribution. After extensive discovery, the case reached the summary judgment stage. The district court dismissed all of Heide's claims except for a single claim against WRH for breach of warranty by sample. The district court later dismissed all of WRH's cross-claims against Sterilite and Dow. These appeals then followed.

On a review of a summary judgment, we do as the district court was required to do: we determine whether the record as it stands reveals any disputed issue of material fact, assume the resolution of any such issue in favor of the non-movant, and then determine whether the movant is then entitled to judgment as a matter of law. First Jersey National Bank v. Dome Petroleum Limited, 723 F.2d 335, 338 (1983). It is uncontested that New Jersey law applies to this diversity action.

II. Personal Jurisdiction Over Sterilite

As a preliminary matter, Sterilite claims, as it did in the district court, that the district court lacked in personam jurisdiction over it. Assuming that Sterilite may advance this issue on this appeal without cross-appealing, we hold that the district correctly determined that jurisdiction existed.

Under Rule 4(e) of the Federal Rules of Civil Procedure, the district court had jurisdiction over Sterilite if a New Jersey state court would have had jurisdiction. In New Jersey, the state courts have jurisdiction over all foreign corporations to the extent consistent with due process of law. N.J.Civ.Prac.R. 4:4-4.

Due process requirements are satisfied if Sterilite has "certain minimum contacts with [the forum] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940)). When the controversy is specifically related to a defendant's contacts with a forum, there is sufficient due process contact if "the defendant has 'purposefully directed' his activities at residents of the forum and the litigation results from alleged injuries that 'arise out of or relate to' those activities." Burger King Corp. v. Rudzewicz, --- U.S. ----, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (citations omitted).

In this case, the litigation is specifically related to Sterilite's contacts with New Jersey. Sterilite knew that Heide was the ultimate purchaser of the trays. It shipped the trays directly from its factory in Massachusetts to Heide's plant in New Jersey. Sterilite's president and chief engineer traveled to New Jersey and met with Heide's representatives in connection with this sale, and was aware of the problems that Heide had with the trays. It was clearly foreseeable that if there was litigation over the trays, it would occur in New Jersey. Sterilite's "conduct and connection with the forum State are such that [it] should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980). Insofar as this litigation is related to Sterilite's purposeful conduct directed at New Jersey and its residents, we hold that there were sufficient contacts for in personam jurisdiction. We therefore affirm the district court on this matter.

III. Heide's Claims Against Sterilite and Dow in Strict Liability and Negligence

Heide asserts that it may sue Sterilite, the manufacturer of the tray, and Dow, the supplier of the plastic resin, under theories of strict liability and negligence. The district court held that New Jersey law would not permit a buyer, who suffered only economic injury, to sue a seller or manufacturer in negligence or strict liability.

Subsequent to the commencement of this appeal, the New Jersey Supreme Court rendered an opinion on these issues. It stated:

We hold that a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods may recover from an immediate seller and a remote supplier in a distribution chain for breach of warranty under the U.C.C., but not in strict liability or negligence. We hold also that the buyer need not establish privity with the remote supplier to maintain an action for breach of express or implied warranties.

Spring Motors Distributors, Inc. v. Ford Motor Company, 98 N.J. 555, 489 A.2d 660, 663 (1985). The bases for its holding were the differences between the public policies that underlay tort law and the Uniform Commercial Code ("U.C.C."). Under, tort law, there is a forced allocation of the risk of loss. For noncommercial entities, such as consumers, there is often no private allocation of the risk of loss, and if there were, it would be unfair to place the risk of loss on the consumer rather than the manufacturer given the unequal resources and bargaining positions of the parties. Thus, in those circumstances, public policy will allocate the risk of loss to the better riskbearer through the doctrines of strict liability and negligence. When commercial parties of equal bargaining power allocate the risk of loss by contract, however, there is a strong public policy to give effect to the private allocation. Under the U.C.C., commercial parties can allocate the risk of loss from defects through warranties, disclaimers and limitations on warranties. "In sum, the U.C.C. represents a comprehensive statutory scheme that satisfies the needs of the world of commerce, and courts should pause before extending judicial doctrines that might dislocate the legislative structure." 489 A.2d at 671.

As a federal court exercising diversity jurisdiction we are bound to follow the law of the forum state as expressed by the highest court of that state. The facts of this case fall squarely within the holding of Spring Motors. Heide's claimed injuries are economic losses caused by a defective product. Heide, WRH, Sterilite, and Dow are all commercial entities that the record clearly shows were able to bargain on equal footing. Accordingly, Heide's claims against Dow and Sterilite in negligence and strict liability were correctly dismissed.

Heide, however, maintains that it still may assert claims for misrepresentation against Sterilite. The only misrepresentation claim that Heide asserted in the district court was a claim for negligent misrepresentation, not fraud. Heide, therefore, on this appeal may only contest the dismissal of the claim for negligent misrepresentation.

The basic rationale of Spring Motors is that the U.C.C. provides an adequate and integrated set of rights and remedies for disappointed commercial buyers of goods. 489 A.2d at 673-74. The court stated:

[T]he U.C.C. "is generally regarded as the exclusive source for ascertaining when a seller is subject to liability for damages if the claim is based on intangible economic loss not attributable to physical injury to person or harm to a tangible thing other than the defective product itself."

489 A.2d at 673 (quoting W. Prosser & W. Keeton, Handbook of the Law of Torts Sec. 95A at 680 (5th ed. 1984) (emphasis in original). We believe that based on Spring Motors, the New Jersey Supreme Court would...