Mallory Engineering, Inc. v. Ted R. Brown & Associates, Inc., s. 15530

• Decision Date: 06 March 1980
• Docket Number: Nos. 15530,15544,s. 15530
• Citation: 618 P.2d 1004
• Parties: MALLORY ENGINEERING, INC., Plaintiff and Respondent, v. TED R. BROWN & ASSOCIATES, INC., Defendant, Crossclaimant, Respondent Defendant to Valad's Counterclaim and Appellant, and Valad Electric Heating Corp., Defendant, Cross-Defendant, Counterclaimant and Appellant.
• Court: Utah Supreme Court

Page 1004

618 P.2d 1004

MALLORY ENGINEERING, INC., Plaintiff and Respondent, v. TED R. BROWN & ASSOCIATES, INC., Defendant, Crossclaimant, Respondent Defendant to Valad's Counterclaim and Appellant, and Valad Electric Heating Corp., Defendant, Cross-Defendant,

Counterclaimant and Appellant.

Nos. 15530, 15544.

Supreme Court of Utah.

March 6, 1980.

Allen H. Tibbals, Salt Lake City, for Brown.

Robert B. Sykes, Salt Lake City, Godfrey P. Schmidt, New York City, for Valad.

Quentin L. R. Alston and William J. Cayias, Salt Lake City, for Mallory.

MAUGHAN, Justice:

This appeal is brought from a judgment of the Third District Court of Salt Lake County, which awarded damages to the plaintiff for a manufacturer's breach of a contract to supply goods within the State. The district court also awarded the plaintiff damages against a third party supplier, but granted the supplier a judgment against the manufacturer to indemnify his liability to the plaintiff and cover the supplier's losses resulting from the manufacturer's breach. We affirm. All statutory references are to Utah Code Ann., 1953, as amended. Costs awarded to Mallory Engineering, Inc., and Ted R. Brown & Associates, Inc., against Valad Electric Heating Corp.

This case concerns a series of bifurcated commercial transactions involving plaintiff, Mallory Engineering, Inc. (hereafter Mallory), and defendants, Ted R. Brown & Associates, Inc. (hereafter Brown) and Valad Electric Heating Corp. (hereafter Valad). In the latter part of 1972 and the early part of 1973, Mallory, which is a Utah corporation with its principal place of business in Salt Lake City, Utah, had certain contract commitments to manufacture for the United States government some specially designed environmental units. Following preliminary negotiations, Mallory contracted with Brown, a Utah corporation, with its principal place of business in Salt Lake City, Utah, for the supply of certain heating units of precise and exacting specification for use in the environmental units. Thereafter Brown entered into an agreement with Valad, a New York corporation, with its principal place of business in Tarrytown, New York, for the manufacture and subsequent delivery to Mallory of the requisite heating units. As the manufacturer, Valad issued to Mallory, on March 13, 1973, a Certificate of Certification for two of the several heating models. The heating units manufactured by Valad and supplied by Brown were found by Mallory to be defective. While Valad furnished replacements for one model which Mallory employed in its production, the remaining defective models were not replaced. Also, some ordered models were never received by Mallory.

The district court found, concerning the defective units that were not replaced and the nondelivered heating units, Brown breached its agreement with Mallory and Valad breached its agreement with Brown. The district court granted Mallory judgment against Brown and Valad. The court also awarded to Brown judgment against Valad.

The crucial issue presented by this appeal involves the amenability of Valad, a nonresident defendant, to the jurisdiction of the Utah state courts. The Utah "Long Arm Statute." § 78-27-24 provides:

Any person ¹ . . . whether or not a citizen or resident of this state, who in person or through an agent does any of the following enumerated acts, submits himself, and if an individual, his personal representative, to the jurisdiction of the courts of this state as to any claim arising from:

(2) Contracting to supply services or goods in this state;

The broad dictate of this legislative grant of jurisdiction is explained in the legislative statement of the purpose of the act as found in § 78-27-22:

It is declared, as a matter of legislative determination, that the public interest demands the state provide its citizens with an effective means of redress against nonresident persons, who through certain significant minimal contacts with this state, incur obligations to citizens entitled to the state's protection. . . .

The provisions of this act, to ensure maximum protection to citizens of this state, should be applied so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution.

Although early decisions concerning the scope of this legislation applied a restrictive interpretation, ² this Court's most recent decisions recognize the expansive grant of jurisdictional power which the legislation embodies. As we explained in Abbott G. M. Diesel, Inc. v. Piper Aircraft: ³

Because our Legislature in 1969 declared in clear, specific and mandatory terms that the scope of that personal jurisdiction should be enlarged "to the fullest extent permitted by the due process clause of the Fourteenth Amendment", this Court herein acknowledges that this state's jurisdictional standard should not be more restrictive than those allowed by federal due process limitations. ⁴

The definition of these due process limitations on personal jurisdiction was initially addressed by the United States Supreme Court in International Shoe Company v. Washington. ⁵ The Court explained:

Due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."

This abstract notion of "fair play and substantial justice" must be viewed as encompassing the fundamental requirements of procedural due process, i. e., notice and an opportunity to be heard. This relationship was recognized by the Supreme Court in Milliken v. Meyer, ⁶ where the Court explained:

Its adequacy so far as due process is concerned is dependent on whether or not the form of substituted service (or long arm jurisdiction) provided for such cases and employed is reasonably calculated to give (the defendant) actual notice of the proceedings and an opportunity to be heard. If it is, the traditional notions of fair play and substantial justice (McDonald v. Mabee, supra) ⁷ implicit in due process are satisfied.

These fundamental underpinnings of procedural due process ⁸ are implicitly recognized by the International Shoe delineation of the "minimal contact" standard. Explaining the requirements of the standard, the Court stated:

Whether due process is satisfied must depend rather (than upon the mechanical or quantitative test of the extent of the nonresident's contacts in the state) upon the quality and nature of the activity in relation to the fair and orderly administration of the laws which it was the purpose of the due process clause to insure. That clause does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations. ⁹

The resultant standard for determining a nonresident's amenability to the jurisdiction of the state courts is not whether the nonresident is "present" in the state, ¹⁰ but rather whether the nonresident has such contacts with the "state of the forum as make it reasonable, in the context of our federal system of government, to require the (nonresident) to defend the particular suit which is brought." ¹¹ (Emphasis added.) This reasonableness standard, incorporating the requirements of fair play and substantial justice, looks to the quality and nature of the nonresident's contacts with the forum state. Therefore, the central concern of the inquiry into personal jurisdiction is the relationship of the defendant, the forum, and the litigation, to each other. ¹²

To determine the validity of the jurisdiction of the Utah courts, the facts of the present case must be analyzed under this "minimum contacts" standard. ¹³ Valad is a corporation organized and existing under the laws of the State of New York. While its general offices and production plant are located in the State of New York, Valad employs representatives in other states and supplies merchandise to buyers outside the State of New York. Valad has no offices in the State of Utah, owns no property here, and employs no representatives in the State. Valad contends it did not solicit business in Utah, advertise in Utah, or circulate catalogs or other sales material in the state. However, it did engage in negotiations with Brown, a Utah corporation with its principal place of business in Utah, commencing on April 18, 1972, and resulting in an agreement to manufacture for Brown and supply to Mallory, a Utah corporation, at its principal place of business in Salt Lake City, Utah, certain specific heating units. The heating units were required by Brown and Mallory and certified by Valad to meet specified requirements which involved modifications by Valad of its basic catalog models.

By contracting to supply goods in the State of Utah, Valad falls within the purview of § 78-27-23. By its modification of general heating models and their shipment to Utah in fulfillment of this contract, Valad has "purposefully avail(ed) itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." ¹⁴ Thus, Valad's conduct in relation to the state establishes the requisite minimum factual nexus required by the statute and the applicable case law. ¹⁵

This renders Valad amenable to suit in Utah if the quality and nature of the defendant's activity is such that it is reasonable and fair to require him to conduct his defense in this state. ¹⁶ As previously stated, this determination depends on the relationship between the defendant, the forum, and the litigation. Reduced to more practical terms, the remaining inquiry involved in ascertaining the restrictions presented by the requirements of fair play and substantial justice concerns; (1) Whether the...