Mead Corp. v. Allendale Mut. Ins. Co., C75-1035.

Citation465 F. Supp. 355
Decision Date03 January 1979
Docket NumberNo. C75-1035.,C75-1035.
PartiesThe MEAD CORPORATION, Plaintiff, v. ALLENDALE MUTUAL INSURANCE COMPANY et al., Defendants.
CourtUnited States District Courts. 6th Circuit. United States District Court of Northern District of Ohio

COPYRIGHT MATERIAL OMITTED

Marvin L. Karp, Cleveland, Ohio, for plaintiff.

Lawrence Zelle, Minneapolis, Minn., David Davies, Arter & Hadden, Cleveland, Ohio, for defendant Allendale.

Selvin Seidel, Hale, Russell, Gray, Seaman & Birkett, New York, New York, Daniel W. Hammer, Thompson, Hine & Flory, Cleveland, Ohio, for defendants ASEA and Stal-Laval.

MEMORANDUM OF OPINION AND ORDER

MANOS, District Judge.

The plaintiff, Mead Corporation (hereinafter "Mead"), was organized under the laws of Ohio and has its principal place of business in Ohio. Mead has brought this action against four defendants, Allendale Mutual Insurance Co. (hereinafter "Allendale"), Allmanna Suenska Elektriska Aktiebolaget Inc. (hereinafter "ASEA Inc."), Stal-Laval Turbine AB (hereinafter "Stal-Laval"), and Allmanna Suenska Elektriska Aktiebolaget AB (hereinafter "ASEA AB"). Two of the four defendants are citizens of the United States and two are citizens of Sweden. Allendale was organized under the laws of Rhode Island and has its principal place of business in Rhode Island, and ASEA Inc. was organized under the laws of New York and has its principal place of business in New York. Both Stal-Laval and ASEA AB are Swedish companies with headquarters and principal plant facilities in Sweden.

This action arose in March of 1974 when a generator Mead bought from ASEA Inc. broke down. Jurisdiction is based upon 28 U.S.C. § 1332 (1976) and the matter is before the court on defendants ASEA Inc., Stal-Laval, and ASEA AB's motions for summary judgment. Fed.R.Civ.P. 56.

I. FACTUAL BACKGROUND1

Although they are separate legal entities, ASEA Inc., Stal-Laval, and ASEA AB are closely related. ASEA AB is the parent corporation of both ASEA Inc. and Stal-Laval. ASEA AB manufactures the generators that Stal-Laval uses in its manufacture of steam turbines, and ASEA Inc. distributes and services these turbines in the United States.

In 1965 Mead was in need of a steam turbine for its Chillicothe, Ohio facility and it entered into negotiations with ASEA Inc. The negotiations between Mead and ASEA Inc. were long and involved. Mead knew that the turbine it was purchasing would be manufactured by Stal-Laval and that many of the component parts would be manufactured by ASEA AB. In fact, in September of 1965 Mead sent its technicians to Sweden for meetings with officials of both Stal-Laval and ASEA AB.

Upon conclusion of the sales negotiations Mead agreed to purchase a turbine for $635,681.00. A provision of the contract limited ASEA Inc.'s liability to repair or replacement of defective parts for 12 months from delivery date.2 The provision made this remedy the exclusive remedy for a breach of warranty and it specifically excluded liability for consequential damages.

The turbine Mead purchased was delivered in late 1966 and was known as the # 12 turbine at Mead's Chillicothe, Ohio facility. The # 12 turbine contained two generators and within each of these generators there was a rotor, which consisted of coils of copper.

In August of 1967 the # 12 turbine suffered an outage (i.e. breakdown). Upon examination, it was determined that the copper coils within the rotors of the generators would have to be completely rewound. Since this outage occurred within the one-year warranty period, ASEA Inc. arranged to have the rotors sent to ASEA AB in Sweden. A Mead technician accompanied the rotors to Sweden and oversaw ASEA AB's repair work.

The method ASEA AB employed to rewind the rotors involved, in part, the use of braying material and "butt joints" to join pieces of the coils together. By November of 1967 the rewound rotors were returned to Mead and the # 12 turbine was in operation. In accordance with the contract,3 Mead was not charged for the repair of the rotors and Mead did not claim any consequential damages resulting from the outage.

With the exception of a minor outage in 19734 the # 12 turbine operated smoothly until March 25, 1974. On that date the turbine suffered the outage that is the subject of this suit. According to Mead, the March, 1974 outage was caused by the faulty copper coils within the rotors of the generators.

Mead claims that the heavy sulfur concentration around the # 12 turbine caused the corrosion of the phosphorous in the braying material used by ASEA AB in 1967. Mead claims the corrosion weakened the joints in the coils and ultimately caused the joints to separate, which caused the outage. Mead claims further that ASEA AB used too many joints in its 1967 repair of the rotors and that the butt joints used by ASEA AB in 1967 were poorly designed.

Since ASEA Inc.'s contractual warranty had long since lapsed, Mead sent the rotors to a Columbus, Ohio firm for repair, and on July 24, 1974 the # 12 turbine was again in operation.

Mead claimed its damages for the 1974 outage totaled $1,760,000.5 Mead was insured by two companies, Westbury Enterprises Ltd. and Allendale. Westbury determined that its policy covered the damages that were due to the 1974 outage and it paid Mead $500,000. Allendale, however, contended that its policy did not cover the extra $1,260,000 loss that Mead suffered.

In December of 1975 Mead filed this action. In its complaint Mead originally named only Allendale, ASEA Inc., and Stal-Laval. In March of 1977, however, Mead amended its complaint to add ASEA AB as a defendant. Mead is suing Allendale for the amount it claims it has forthcoming under its insurance policy, and it is suing ASEA Inc., Stal-Laval, and ASEA AB for negligence and breach of implied warranties in tort. Allendale, in turn, has cross-claimed against ASEA Inc., Stal-Laval, and ASEA AB alleging that if it is liable to Mead under the insurance policy, then it is subrogated to Mead's claims against ASEA Inc., Stal-Laval, and ASEA AB.

In March of 1978 ASEA Inc., Stal-Laval, and ASEA AB moved for summary judgment on Mead's claims against them. In its response to these defendants' motions for summary judgment, Mead indicated that it stands ready to drop its claims against ASEA Inc. Therefore, the only questions before the court now are whether Stal-Laval and ASEA AB should be granted summary judgment on Mead's negligence and implied warranty in tort claims.

II. PRELIMINARY ISSUES
Personal Jurisdiction

In a diversity matter a federal court must look to the law of the forum state to determine the extent of its in personam jurisdiction. In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 224 (6th Cir. 1972); Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374, 396 n. 2 (6th Cir. 1968). In Ohio the extent of a court's personal jurisdiction over a foreign corporation is determined by reference to Ohio's "long-arm" statute, Ohio Rev.Code Ann. § 2307.382 (Page Supp.1977). Mead asserts that the following subsections of section 2307.382 provide this court with in personam jurisdiction over both Stal-Laval and ASEA AB:

(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:
(1) Transacting any business in this state;
. . .
(4) Causing tortious injury in this state by an act or omission outside this state 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 state;
(5) Causing injury in this state to any person by breach of warranty expressly or impliedly made in the sale of goods outside this state when he might reasonably have expected such person to use, consume, or be affected by the goods in this state, 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 state . . ..

If Stal-Laval and ASEA AB come within the purview of any one of the above subsections this court has personal jurisdiction over them. In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 224 (6th Cir. 1972).

The court holds that the defendants' actions give this court personal jurisdiction under section 2307.382(A)(5). The first requirement of this subsection is that the injury occur in Ohio. This requirement has clearly been met. All the injuries Mead alleges occurred at Mead's Chillicothe, Ohio facility. The second requirement is that the injury be caused by a breach of warranty in the sale of goods outside Ohio when the defendant could reasonably expect that the plaintiff would use, consume, or be affected by those goods in Ohio. This requirement has also been fulfilled. Mead has alleged a breach of an implied warranty in tort in connection with the out-of-state6 sale of a turbine and two generators, and since the defendants were involved in the sales negotiations with Mead they obviously knew Mead would use the machinery in Ohio.7

The final requirement of section 2307.382(A)(5) is stated in the alternative: the defendants must regularly solicit or do business in Ohio, or engage in any other persistent course of conduct in Ohio, or derive substantial revenue from goods used or services rendered in Ohio. The last of these three alternatives—derivation of substantial revenue from goods used in Ohio— has been fulfilled by the defendants. Through their distributor, ASEA Inc., the defendants have received roughly four to five million dollars worth of revenue from sales of their products in Ohio during the last ten years.8 "Substantial revenue" is a flexible term and a trial court necessarily has some latitude in determining what constitutes "substantial revenue." Ross v. Spiegel, Inc., 53 Ohio App.2d 297, 373 N.E.2d 1288 (1977). Accordingly, upon examination of the few cases that have interpreted this...

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