Madison Consulting Group v. State of S.C.

• Citation: 752 F.2d 1193
• Decision Date: 04 January 1985
• Docket Number: No. 84-1160,84-1160
• Parties: MADISON CONSULTING GROUP, a general partnership, Plaintiff-Appellant, v. The STATE OF SOUTH CAROLINA; Santee Cooper, South Carolina Public Service Authority owned as an asset by the State of South Carolina; William C. Mescher, individually and as President and Chief Officer of Santee Cooper; Clarence S. Gramling, individually and as Senior Vice President--Systems Operations of Santee Cooper; and James M. Wooten, individually and as Supervisor--Dam Maintenance of Santee Cooper, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1193

752 F.2d 1193

53 USLW 2358

MADISON CONSULTING GROUP, a general partnership, Plaintiff-Appellant, v. The STATE OF SOUTH CAROLINA; Santee Cooper, South Carolina Public Service Authority owned as an asset by the State of South Carolina; William C. Mescher, individually and as President and Chief Officer of Santee Cooper; Clarence S Gramling, individually and as Senior Vice President--Systems Operations of Santee Cooper; and James M. Wooten individually and as Supervisor--Dam Maintenance of Santee Cooper, Defendants-Appellees.

No. 84-1160.

United States Court of Appeals Seventh Circuit.

Argued Sept. 13, 1984.

Decided Jan. 4, 1985.

Timothy J. Casper, McBurney, Wyngaard & Wilson, Madison, Wis., for plaintiff-appellant.

John A. Hansen, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for defendants-appellees.

Before FLAUM, Circuit Judge, and SWYGERT and FAIRCHILD, Senior Circuit Judges.

FLAUM, Circuit Judge.

The sole question presented by this appeal is whether the Fourteenth Amendment permits Wisconsin to assert personal jurisdiction over defendants-appellees in this diversity case arising from a contract dispute. The court below held that it does not, finding the case to be controlled by Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 597 F.2d 596 (7th Cir.1979), cert. denied, 445 U.S. 907, 100 S.Ct. 1087, 63 L.Ed.2d 325 (1980). For the reasons set forth below, we reverse and remand.

I. FACTS

This case represents another chapter in the continuing saga of the constitutionality of personal jurisdiction based exclusively on a nonresident defendant's contractual contacts with a forum plaintiff. The plaintiff-appellant in this case is Madison Consulting Group ("MCG"), a three-partner general partnership in the business of economic consulting, with its only office located in Madison, Wisconsin. Defendants-appellees are the State of South Carolina; Santee Cooper (the common name for the South Carolina Public Service Authority), a corporation owned as an asset by the State of South Carolina and involved in developing the resources of several rivers in that state; and several individual defendants who are officers of Santee Cooper. The defendants have no jurisdictionally significant contacts with Wisconsin save those arising from the contract at issue in this case.

Santee Cooper initiated the negotiations leading to this contract through its Washington, D.C. counsel, Joseph Swidler. Swidler had recommended that his client hire MCG to prepare a study and report for the Federal Energy Regulatory Commission on various economic issues concerning the North Dam on the Santee River in South Carolina. In September 1982, Swidler therefore placed a phone call from Washington, D.C. to MCG partner Charles Cicchetti in Madison, Wisconsin, inviting Cicchetti to meet in Washington with Santee Cooper representatives to discuss the project. Cicchetti accepted the invitation, and traveled to Washington at Santee Cooper's expense. On September 14, 1982, Cicchetti met in Washington and discussed the project with Swidler, another attorney for Santee Cooper, and defendant James Wooten. ¹ The parties' discussions culminated in Cicchetti's preparation of a written proposal, which he sent to Wooten in South Carolina on September 23, 1982. Defendant Mescher accepted this proposal five days later, and mailed a copy of the executed contract back to MCG in Wisconsin. The agreement required MCG to complete the study and report for Santee Cooper very quickly--by November 1982. Although the contract did not expressly dictate the place of performance, Santee Cooper understood that MCG would perform most of the work at its offices in Madison, Wisconsin. Madison Consulting Group v. State of South Carolina, No. 83-C-905-S, slip op. at 3 (W.D.Wis.1983) ("Memorandum Opinion").

MCG in fact completed 85% of its performance in Wisconsin, and the balance in South Carolina. A dispute later developed over the amount of fees that Santee Cooper owed to MCG, and MCG then sued defendants in the Circuit Court of Dane County, Wisconsin. Defendants removed the suit to the United States District Court of the Western District of Wisconsin on the basis of diversity, and then moved to dismiss on various grounds, including lack of personal jurisdiction.

The district court granted the motion to dismiss for lack of personal jurisdiction. Memorandum Opinion at 13. Since the personal jurisdiction of a federal court sitting in diversity is determined by the long-arm statutes of the state in which the court is sitting, Lakeside, 597 F.2d at 598, the court began by assessing whether Wisconsin's long-arm statute authorized jurisdiction over defendants. The court found that one subsection of the Wisconsin statute appeared to authorize jurisdiction over defendants, and assumed arguendo that another subsection also provided for jurisdiction. Memorandum Opinion at 5. The bulk of the district court's analysis was devoted to the question of whether personal jurisdiction over defendants was constitutionally permissible. ² The court replied in the negative, almost exclusively on the authority of this court's decision in Lakeside.

II. THE Lakeside DECISION

In Lakeside, this court held that a nonresident defendant's ordering of goods from a Wisconsin plaintiff, coupled with defendant's knowledge that the goods would be manufactured in and shipped from Wisconsin, were constitutionally insufficient to allow personal jurisdiction over the defendant in Wisconsin. Like the present case, Lakeside arose from a contract dispute between the parties. Unlike the present case, however, the contract at issue was solicited by the plaintiff, Lakeside Bridge & Steel Company, rather than by the defendant, Mountain State Construction Company. See Lakeside, 597 F.2d at 598. Lakeside agents traveled from Wisconsin to Mountain State's offices in West Virginia to offer Lakeside's services in manufacturing some structural steel assemblies for use in a construction project on which Mountain State was preparing to bid. When Mountain State was awarded the main contract for the project, it accepted Lakeside's offer by mailing a purchase order to Wisconsin.

After receiving the order, Lakeside modified it by adding a provision that the goods were to be shipped "F.O.B. SELLERS PLANT MILWAUKEE, WISCONSIN," and then sent the modified order to Mountain State, which implicitly approved the new term by treating the order as effective. Lakeside manufactured the assemblies at its plant in Wisconsin, and then shipped them to the construction site in Virginia. Other than the events described above, along with assorted letters and telephone calls exchanged by the parties, Mountain State had no contacts upon which to base personal jurisdiction in Wisconsin.

In a carefully reasoned opinion by Judge Tone, the court held that the defendant lacked the "minimum contacts" with the forum state required for personal jurisdiction under the Fourteenth Amendment. See id. at 600; International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). In order to determine the meaning of the "minimum contacts" requirement in the context of the case, the court in Lakeside reviewed the major Supreme Court decisions on the issue. The court took "little guidance" from McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), ³ a decision that authorized personal jurisdiction based on relatively limited contacts between the defendant and the forum state. See Lakeside, 597 F.2d at 600. Rather, the court observed that McGee "was based in substantial part on the nature of the business of insurance and must be read in conjunction with the subsequent decision in Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)." Lakeside, 597 F.2d at 600.

The court in Lakeside relied heavily on Hanson for its analytical approach, quoting this key passage from the Supreme Court opinion:

The unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with the forum State. The application of that rule will vary with the quality and nature of the defendant's activity, but it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.

Hanson v. Denckla, 357 U.S. at 253, 78 S.Ct. at 1239-40. See Lakeside, 597 F.2d at 600. Noting that the Supreme Court had recently reaffirmed Hanson 's "purposeful availment" test in Shaffer v. Heitner, 433 U.S. 186, 216, 97 S.Ct. 2569, 2586, 53 L.Ed.2d 683 (1977), ⁴ the court in Lakeside proceeded to apply it as the governing constitutional standard.

On the facts in Lakeside, the court found that the defendant had committed no act connected with Wisconsin sufficient to constitute purposeful availment, reasoning that:

Although Mountain State in a sense caused the activity in Wisconsin by placing the order, the contract between the parties left Lakeside in absolute control over where it would conduct that activity, and it made this decision and conducted the activity unilaterally. Mountain State's belief, which we may assume existed, that Lakeside would choose to perform its contractual obligations in Wisconsin does not constitute an invocation of the benefits and protections of Wisconsin's laws.

597 F.2d at 603. ⁵ In a footnote to this discussion, however, the court limited the potential sweep of its holding by stating:

We express no opinion on whether the result would be different if the contract required the plaintiff to perform in the forum state or if the nature of the plaintiff's contractual obligations made performance in the forum state necessary.

Id. at 603 n. 13.

The court similarly stressed the unique facts of Lakeside in the process of distinguishing a Wisconsin Supreme Court...