Midland Forge, Inc. v. Letts Industries, Inc.

• Decision Date: 27 March 1975
• Docket Number: No. C 74-49.,C 74-49.
• Citation: 395 F. Supp. 506
• Court: U.S. District Court — Northern District of Iowa
• Parties: MIDLAND FORGE, INC., Plaintiff, v. LETTS INDUSTRIES, INC., and Langenstein & Schemann AG., Defendants.

395 F. Supp. 506

MIDLAND FORGE, INC., Plaintiff, v. LETTS INDUSTRIES, INC., and Langenstein & Schemann AG., Defendants.

No. C 74-49.

United States District Court, N. D. Iowa, Cedar Rapids Division.

March 27, 1975.

COPYRIGHT MATERIAL OMITTED

Stephen J. Holtman, Robert C. Tilden, F. James Bradley, Cedar Rapids, Iowa, for plaintiff.

Ross H. Sidney, Des Moines, Iowa, for Letts Industries, Inc.

Donald A. Wine, Eric F. Schwarz, Des Moines, Iowa, for Langenstein & Schemann AG.

ORDER

McMANUS, Chief Judge.

This matter is before the court on the resisted motion to dismiss filed January 8, 1975, by defendant Langenstein & Schemann AG.

Plaintiff Midland Forge, Inc. (Midland), an Iowa corporation with its principal place of business located in Cedar Rapids, Iowa, instituted this diversity action to recover damages under various theories of products liability. Defendants Letts Industries, Inc. (Letts) and Langenstein and Schemann AG. (Lasco) are foreign corporations with principal places of business outside of Iowa. The matter in controversy exceeds $10,000.00 and subject matter jurisdiction is present under 28 U.S.C. § 1332.

Service on both defendants was accomplished under Rules 4(d)(7) and 4 (e), F.R.Civ.P., by utilizing the procedures of the Iowa "long-arm" statute, § 617.3, Code of Iowa (1973).¹ Defendant Lasco, a West German corporation not licensed to do business in Iowa, has moved the court to dismiss divisions II and III of the complaint for lack of personal jurisdiction, and division IV for failure to state a claim upon which relief can be granted.

In Personam Jurisdiction

Defendant Lasco contends that the court lacks jurisdiction over its person because its actions were not within the purview of § 617.3, Code of Iowa, and even if they could be so interpreted, these contacts with Iowa would not satisfy the minimum required by due process.

The first issue, whether a state long-arm statute applies to a given nonresident defendant, is a question of state law. Arrowsmith v. United Press Int'l, 320 F.2d 219 (2nd Cir. 1963); Jennings v. McCall Corp., 320 F.2d 64 (8th Cir. 1963); Schinker v. Rudd Mfg. Co., 386 F.Supp. 626 (N.D.Ia.1974). Plaintiff has the burden of establishing prima facie that the defendant is amenable to service under § 617.3. Schinker, supra; Edmundson v. Miley Trailer Co., 211 N.W.2d 269 (Iowa 1973). Once this prima facie showing has been made, the defendant must overcome or rebut that showing. Edmundson, supra; Tice v. Wilmington Chemical Corp., 259 Iowa 27, 47, 141 N.W.2d 616, 143 N.W.2d 86 (Supplemental Opinion) (1966).

In establishing the prima facie showing, plaintiff's well pleaded allegations are accepted as true. Lundell v. Massey-Ferguson Services N.V., 277 F.Supp. 940 (N.D.Ia.1967). A brief recitation of the pleaded facts and those appearing in supporting documents is necessary to consider plaintiff's various asserted bases for applying the long-arm statute.

Plaintiff contracted in August of 1972 with defendant Letts to purchase three electro-hydraulic drop forging hammers, the hammers to be manufactured by defendant Lasco. Plaintiff's purchase agreement was directly with, and signed by, Letts only.

Letts is not a subsidiary or commission agent of Lasco, but rather buys and resells products of Lasco and other firms. Letts maintains a stock of Lasco products at its Detroit, Michigan, facility, but it appears that the three drop forging hammers in the instant case were special ordered by Letts from Lasco to be delivered directly to Midland in Cedar Rapids.² Lasco is not licensed to do business in Iowa, and maintains no official representatives or salesmen in Iowa. This suit developed when the hammers repeatedly failed to perform as planned.

Plaintiff seeks to bring Lasco within the contract language of § 617.3, Iowa Code. That section requires a foreign corporation to "make a contract with a resident of Iowa to be performed in whole or in part in Iowa."

Plaintiff's difficulty lies primarily in establishing the existence of a contract between it and Lasco, since the latter was not a signatory party to the purchase agreement. Three arguments are advanced to support the existence of a contract, and the court is of the view that these arguments are well taken.

First, plaintiff contends that Lasco breached the implied warranties of merchantability and fitness for purpose which attended the sale of goods under the respective sections of the Uniform Commercial Code (U.C.C.) then in force in Iowa, §§ 554.2314 and 554.2315, Iowa Code (1971). It is argued that these implied warranties extended to plaintiff even though it did not purchase directly from, and therefore was not in privity with, Lasco. These warranties are then asserted as the contracts between Midland and Lasco to be performed in part in Iowa.

Under § 554.2318,³ Iowa Code, the seller's warranties do extend to household members and guests of the buyer who are personally injured by any breach of the warranties. However, the comments to the Iowa Code provision and to § 2-318 of the U.C.C. indicate that this statutory language is not intended to restrict developing case law extending the warranties to others in the distributive chain who are not in privity with the seller. Comments, § 554.2318, Iowa Code Annotated (1967).

The abolishment of privity as a requirement to enforce implied warranties originated in the field of unwholesome foods and has evolved to include a vast range of products which prove defective and result in personal injuries. E. g., Tice v. Wilmington Chemical Corp., supra; State Farm Mutual Auto Ins. Co. v. Anderson-Weber, Inc., 252 Iowa 1289, 110 N.W.2d 449 (1961); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960). In Iowa, the trend of judicial thinking has been to liberalize the responsibility of the seller and restrict the application of "caveat emptor." Peters v. Lyons, 168 N.W.2d 759 (Iowa 1969); Dailey v. Holiday Distributing Corp., 260 Iowa 859, 151 N.W.2d 477 (1967).

In the Dailey case, supra, the Iowa Supreme Court explicitly repudiated the privity requirement between a manufacturer and the ultimate purchaser in a commercial context. Plaintiffs in that case purchased dry cleaning equipment solely from a distributor-dealer, but the court found the manufacturer as well as the dealer accountable under the implied warranties. 260 Iowa 871-72, 151 N.W.2d 477. By the same reasoning in the instant case, any implied warranties accompanying the sale of the drop forging hammers by Lasco to Letts must extend to Midland.⁴

Plaintiff's second and third arguments for the existence of a contract relate to express warranties. Plaintiff contends that it relied upon certain written representations contained in advertising brochures published and circulated by Lasco, and these representations constituted an express warranty. Additionally plaintiff asserts that Letts, acting as an agent on behalf of Lasco, expressly warranted the machines for their intended use by a provision in the sales contract.

Express warranties can be made by distributing advertising literature which contains factual representations relied upon by the ultimate purchaser, even though the latter is not in privity with the manufacturer who made the statements. § 554.2313, Code of Iowa; Jacobson v. Benson Motors, Inc., 216 N.W.2d 396 (Iowa 1974); Hawkins Constr. Co. v. Matthews Co., Inc., 190 Neb. 546, 209 N.W.2d 643 (1973) (interpreting § 2-313 of the U.C.C.); Randy Knitwear, Inc. v. American Cyanamid Co., 11 N.Y.2d 52, 226 N.Y.S.2d 363, 181 N.E.2d 399 (1962) (commercial transaction). It is the court's view that plaintiff has alleged sufficient facts to establish an express warranty on the basis of the printed circulars for purposes of this motion.

Plaintiff's assertions regarding the agency relationship also establish a prima facie showing of an express warranty between Lasco and Midland. Paragraph six (6) of the sales contract with Letts states: "Manufacturer warrants that the product is suitable for the intended proposed use." (Emphasis added.)

The burden of proving that Letts acted as an agent for Lasco in making this warranty is on plaintiff. Jacobson v. Benson Motors, supra; Martin v. Jaekel, 188 N.W.2d 331 (Iowa 1973). But the question of principal-agent relationship and the extent thereof is one of fact to be proved in arguing the merits. Ioerger v. Schumaker, 203 N.W.2d 572 (Iowa 1973); Dailey v. Holiday Distributing Corp., supra. Unless conclusively rebutted, plaintiff's allegations are taken as true in ruling on this motion.

Defendant has not successfully rebutted plaintiff's assertions of fact which prima facie establish implied and express warranties. The only substantial rebuttal of these factual assertions is that Letts was not a commission sales agent for Lasco, but this does not negate the allegation of a more limited agency which empowered Letts to execute a warranty on behalf of Lasco.

Having determined that a prima facie showing of implied and express warranties between Lasco and Midland has been made, it remains to decide whether these are "contracts to be performed in whole or in part in Iowa" under § 617.3, Code of Iowa. No case has been cited by the parties nor has the court located one which rules on this point.

However, the language of § 617.3 has been construed broadly in actions involving foreign corporations. Ceasar's World, Inc. v. Spencer Foods, Inc., 498 F.2d 1176 (8th Cir. 1974); Lundell v. Massey-Ferguson, supra; Tice v. Wilmington Chemical Corp., supra. The Iowa Supreme Court declared in Tice that "Code section 617.3 does nothing more than provide a plaintiff claiming some right of action in contract or in tort with an Iowa forum for enforcement of an existing substantive right." 259 Iowa at 41, 141 N.W.2d at 625.

Clearly plaintiff has alleged facts supporting a substantive right to recovery. The validity of these claims on their merits is irrelevant to whether a basis...