Jetco Electronic Industries, Inc. v. Gardiner

• Decision Date: 21 March 1973
• Docket Number: No. 72-2061.,72-2061.
• Citation: 473 F.2d 1228
• Parties: JETCO ELECTRONIC INDUSTRIES, INC., and Thomas H. Doss, Plaintiffs-Appellants, v. Robert F. GARDINER, Individually and d/b/a Gardiner Electronics Company and Engineers Testing Laboratories, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

473 F.2d 1228 (1973)

JETCO ELECTRONIC INDUSTRIES, INC., and Thomas H. Doss, Plaintiffs-Appellants, v. Robert F. GARDINER, Individually and d/b/a Gardiner Electronics Company and Engineers Testing Laboratories, Inc., Defendants-Appellees.

No. 72-2061.

United States Court of Appeals, Fifth Circuit.

February 8, 1973.

Rehearing and Rehearing Denied March 21, 1973.

W. R. Malone, Huntsville, Tex., C. Donald Gunn, Houston, Tex., for plaintiffs-appellants.

Louis T. Pirkey, Karl C. Hoppess, Houston, Tex., Riney B. Salmon, II, Phoenix, Ariz., for Gardiner.

James Greenwood, III, Houston, Tex., for Engineers Testing.

Before JOHN R. BROWN, Chief Judge, and THORNBERRY and MORGAN, Circuit Judges.

Rehearing and Rehearing En Banc Denied March 21, 1973.

THORNBERRY, Circuit Judge:

This appeal from the district court's order dismissing appellants' cause of action against one of several defendants,¹ presents, inter alia, an interesting question concerning the limits imposed by due process upon the exercise of personal jurisdiction by a federal court sitting in a diversity case. After a careful review of the policies and controlling precedents in this area of law, we reverse the judgment below.

Appellee Engineers Testing Laboratories, Inc. (ETL) is an Arizona corporation, with its principal place of business in Arizona. It has no office in Texas nor does it have any employees, agents or servants in Texas on a regular basis. It is not qualified to do business in Texas nor has it sought to so qualify. It has had only two jobs in Texas within the past five years. Both jobs involved soil investigation for building foundations in El Paso during the summer of 1970. Neither job was connected with this suit. The fees for these two jobs totalled about $2,500, less than two-tenths of one percent of ETL's 1970 gross receipts. Appellants Jetco Electronic Industries, Inc. and Thomas H. Doss are Texas residents engaged in the business of manufacturing and selling treasure hunting devices under the trade names "Jetco" and "Relco." Robert F. Gardiner, a defendant below but not a party to this appeal, is an Arizona resident doing business as Gardiner Electronics Company, which manufactures and sells a competitive treasure hunting device. In December 1969 or January 1970, Gardiner purchased treasure hunting devices from a number of his competitors, including Jetco and Doss, and conducted a test to compare the performance of his device with that of his competitors'. The test consisted of burying an object some measured distance under the ground and operating each device over the object to see whether it would detect the object. He then paid ETL $85.00 to duplicate this test and "authenticate" the results already obtained. An ETL employee conducted the test in March 1970, employing the same techniques Gardiner used in his test. ETL prepared a report of the test procedures and results and sent it to Gardiner. The report stated that a Gardiner device would detect a penny buried as deep as five and one-half inches, but that a Jetco device with a six-inch search coil would detect a penny to a depth of only two inches and that a Jetco with a twelve-inch search coil showed no response to a penny buried deeper than one-half inch. The report claimed that the Relco devices were likewise inferior to Gardiner's devices.

Gardiner advertised his treasure hunting devices in several magazines of widespread circulation. Some of these advertisements invited the reader to send for a free catalog containing "comparison tests of different makes." Some twenty thousand persons are said to have responded to these advertisements, and Gardiner sent each of them a catalog which incorporated ETL's report of the test procedures and results—complete with brand names of the devices tested—and which contained a conclusion extracted from an earlier ETL report to Gardiner.² ETL had nothing to do with the preparation or dissemination of this catalog.

Jetco and Doss sued ETL, Gardiner and Gardiner Electronics in the Southern District of Texas, alleging that publication of the catalog containing ETL's test results caused appellants to lose sales. Appellants' cause of action against ETL was based on three theories: first, that ETL negligently tested the devices and proximately caused appellants' loss of sales; second, that ETL and Gardiner jointly libeled appellants; third, that ETL and Gardiner jointly committed the common law tort of disparagement of property by preparing and circulating the test results. Because the trial court's subject matter jurisdiction rested on the diverse citizenship of the parties, obtaining in personam jurisdiction over the Arizona defendants required compliance with the Texas "long arm" jurisdiction statute, Article 2031b, Vernon's Tex.Rev.Civ.Stat.Ann.³ On March 10, 1972, the trial court granted ETL's motion to dismiss appellants' cause of action against it for failure to state a cause of action and for failure to comply with the Texas long arm statute. The instant appeal was taken from that order. Several months later, the trial court entered an agreed judgment disposing of appellants' claims against the other two defendants, Gardiner and Gardiner Electronics. On this appeal ETL argues that the dismissal was proper, because appellants did not prove facts sufficient to invoke the Texas long arm statute and because the exercise of long arm jurisdiction over ETL would offend due process.

I

Before reaching the merits of this controversy, we must decide whether the district court's March 10, 1972, order dismissing appellants' suit against ETL is appealable. With several exceptions not relevant here, this Court's appellate jurisdiction extends only to final orders. 28 U.S.C. § 1291. In a multiparty lawsuit such as this one, an order is final only if it meets one or the other of two conditions: (1) it must adjudicate the claims or the rights and liabilities of all the parties, or (2) it must expressly determine that there is no just reason for delay and expressly direct the entry of judgment. Rule 54(b), F.R. Civ.P. The March order dismissing appellants' suit against ETL meets neither of these conditions: It said nothing about appellants' rights as against the other two defendants, Gardiner and Gardiner Electronics; and it contained nothing faintly resembling a Rule 54(b) certificate. That order is thus not a final judgment under Rule 54(b). Johnson v. Hendrickson, 5th Cir. 1972, 469 F.2d 694. Nor was the later order entering an agreed judgment disposing of appellants' claim against Gardiner and Gardiner Electronics a final judgment under Rule 54(b)—it contained no certificate, and it did not adjudicate appellants' rights as against ETL. Nevertheless, these two orders, considered together, terminated this litigation just as effectively as would have been the case had the district judge gone through the motions of entering a single order formally reciting the substance of the earlier two orders. Mindful of the Supreme Court's command that practical, not technical, considerations are to govern the application of principles of finality, Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L. Ed.2d 199 (1964); Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), we decline appellee's invitation to exalt form over substance by dismissing this appeal. We hold that the March order dismissing appellants' suit against ETL is, under the circumstances of this case, within our appellate jurisdiction. Therefore, we turn to the merits.

II

In deciding whether a state jurisdictional statute confers jurisdiction over a nonresident defendant in a federal diversity suit, two avenues of inquiry must be followed. First, it must be determined that the defendant is in fact amenable to service under the state statute; state law of the forum controls this question. Barrett v. Browning Arms Co., 5th Cir. 1970, 433 F.2d 141; Tetco Metal Products, Inc. v. Langham, 5th Cir. 1968, 387 F.2d 721. If the state statute has been complied with, then federal law must be applied to determine whether assertion of jurisdiction over the defendant comports with due process. Barrett, supra; Tetco, supra; Arrowsmith v. United Press International, 2nd Cir. 1963, 320 F.2d 219. Plaintiff has the burden of proving that defendant is amenable to process under the forum state's jurisdiction statute. Tetco, supra; 5 Wright & Miller, Federal Practice and Procedure § 1351 at 565. Under many state long arm statutes, like that of Texas, amenability to service turns on whether defendant has "done business" or "committed a tort" in the forum; thus the threshold jurisdictional question often puts in issue the facts alleged as a basis for relief. Plaintiff is not, however, required to prove his case by a preponderance of the evidence in order to show that the forum's jurisdictional statute is satisfied. Rather, plaintiff meets his burden by establishing merely a prima facie cause of action. O'Hare International Bank v. Hampton, 7th Cir. 1971, 437 F.2d 1173; United States v. Montreal Trust Co., 2nd Cir., 358 F.2d 239, cert. denied 384 U.S. 919, 86 S.Ct. 1366, 16 L.Ed.2d 440 (1966); 4 Wright & Miller, Federal Practice and Procedure § 1068 at 250.⁴ Imposing any greater burden on plaintiff at this early stage would lead to premature and unnecessary adjudications having no res judicata effect on the merits. Thomas v. Furness (Pacific) Ltd., 9th Cir. 1948, 171 F.2d 434, cert. denied, 337 U.S. 960, 69 S.Ct. 1522, 93 L.Ed. 1759 (1949).

The Texas long arm statute provides that one who "does business" in the state is amenable to process in suits arising from such business. "Doing business" includes entering into a contract to be performed in whole or in part within the state, and the commission of a tort "in whole or in part" within the state. Since this suit arises out of neither of ETL's contractual contacts with Texas (the two soil testing jobs in...