Nelson by Carson v. Park Industries, Inc.

• Decision Date: 13 October 1983
• Docket Number: 83-1270,Nos. 82-2631,s. 82-2631
• Parties: Telina NELSON, a minor, by Cindra R. CARSON, Guardian ad Litem, Gerald Nelson, and Sherry Nelson, Plaintiffs, v. PARK INDUSTRIES, INC., Defendant, F.W. Woolworth Company and Travelers Insurance Company, Defendants-Appellants, and Bunnan Tong & Company, Ltd., and United Garment Manufacturing Company, Ltd., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1120

717 F.2d 1120

Telina NELSON, a minor, by Cindra R. CARSON, Guardian ad Litem, Gerald Nelson, and Sherry Nelson, Plaintiffs, v. PARK INDUSTRIES, INC., Defendant F.W. Woolworth Company and Travelers Insurance Company Defendants-Appellants and Bunnan Tong & Company, Ltd., and United Garment Manufacturing Company, Ltd., Defendants-Appellees.

Nos. 82-2631, 83-1270.

United States Court of Appeals Seventh Circuit.

Argued June 6, 1983.

Decided Sept. 13, 1983.

As Amended Sept. 13, 1983.

Rehearing and Rehearing In Banc Denied Oct. 13, 1983.

Frank L. Steeves, Riordan, Crivello, Carlson, Mentkowski & Henderson, Milwaukee, Wis., for defendants-appellants.

Barrett J. Corneille, Bell, Metzner & Gierhart, S.C., Madison, Wis., Jeffrey M. Gallagher, Stafford, Rosenbaum, Rieser & Hansen, Madison, Wis., for defendants-appellees.

George H. Senteney, Guelzow, Aubry, Senteney & Carson, Ltd., Eau Claire, Wis., for plaintiffs.

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

FLAUM, Circuit Judge.

This appeal challenges two dismissal orders entered by the district court. In separate orders, the district court determined that it lacked personal jurisdiction over defendants Bunnan Tong & Company ("Bunnan") and United Garment Manufacturing Company ("United"). For the reasons stated below, we reverse both orders.

This diversity action is a products liability case in which the minor plaintiff seeks recovery for severe burns sustained when the cotton flannel shirt she was wearing ignited after contact with the flame from a butane cigarette lighter. ¹ The amended complaint ("complaint") names the following parties as defendants: F.W. Woolworth Company ("Woolworth"), the retail seller of the flannel shirt; Travelers Insurance Company ("Travelers"), Woolworth's insurer; Bunnan, Woolworth's purchasing agent for the flannel shirt; and United, the manufacturer of the flannel shirt. ² The complaint states four causes of action, alleging both negligence and strict liability theories against the defendants.

Bunnan moved to dismiss the complaint against it pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. In a brief order, the district court found that Bunnan has no contacts or relations with the State of Wisconsin and that there was no more than a mere likelihood that the flannel shirt supplied by Woolworth would find its way into Wisconsin. The court concluded therefore that the decision in World-Wide Volkswagen Corp. v. Woodson ("World-Wide Volkswagen"), 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), is controlling and it granted Bunnan's motion. ³ United then made a similar motion to dismiss. In a memorandum opinion and order, the district court again found World-Wide Volkswagen controlling and it granted United's motion to dismiss. Plaintiffs and Woolworth appeal from these two dismissal orders.

To determine whether exercising personal jurisdiction is proper, a court may receive and weigh affidavits prior to trial on the merits. O'Hare International Bank v. Hampton, 437 F.2d 1173, 1176 (7th Cir.1971). During this preliminary proceeding, although the burden of proof rests on the party asserting jurisdiction, if the district court's decision is based on the submission of written materials the burden of proof is met by a prima facie showing that personal jurisdiction is conferred under the relevant jurisdictional statute. Id.; see also Neiman v. Rudolf Wolff & Co., 619 F.2d 1189, 1190 (7th Cir.), cert. denied, 449 U.S. 920, 101 S.Ct. 319, 66 L.Ed.2d 148 (1980). Further, the party asserting jurisdiction is entitled to the resolution in its favor of all disputes concerning relevant facts presented in the record. Id. Applying these standards, the following facts underlie this appeal.

United and Bunnan are both foreign corporations and neither company has ever had any physical presence in the State of Wisconsin. United is incorporated under the laws of Hong Kong and it is in the business of manufacturing textile products in Hong Kong. From 1973 to 1977, United manufactured all of the 100% cotton flannel boys' shirts ("flannel shirts") purchased by Woolworth for resale in the United States. There was, however, no direct commercial relationship between United and Woolworth. Rather, Woolworth retained the services of Bunnan, which is also a company incorporated under the laws of Hong Kong. Bunnan is an exporter and agent for foreign buyers of general merchandise, including textile products manufactured in Hong Kong and other Southeast Asian countries. Bunnan and Woolworth have had a business relationship since the end of World War II. This relationship has consisted of a series of buying agreements in which Bunnan agrees to act as a buying representative for Woolworth. The services Bunnan performs in that capacity include buying product samples, placing purchase contracts, inspecting products before shipment to Woolworth, acting as Woolworth's representative in efforts to obtain reimbursement from a manufacturer for defective merchandise, and holding Woolworth harmless from certain claims made against Woolworth involving the merchandise purchased by Woolworth through Bunnan.

The flannel shirt worn by the minor plaintiff in this case was manufactured by United in Hong Kong, purchased on behalf of Woolworth by Bunnan in Hong Kong, and sold at a Woolworth retail store by Woolworth in Wisconsin. The shirt was one from a purchase order placed by Woolworth with Bunnan in October 1976 for 4,300 dozen flannel shirts. Bunnan filled this purchase order with shirts manufactured by United. The shirts were packaged at United's factory with a label bearing the brand name "Topsall." Those labels were manufactured and placed on the shirts by United. Bunnan purchased the shirts from United "F.O.B. Hong Kong." The shirts were delivered by Bunnan to a shipper in Hong Kong which had been selected by Woolworth. The shipper then arranged the transportation of the shirts from Hong Kong to New York, Boston, Philadelphia, San Francisco and Los Angeles at Woolworth's expense. Several of these shirts eventually were displayed in a Woolworth retail store in Wisconsin and one was purchased for the minor plaintiff in this case.

A federal court has personal jurisdiction over the parties in a diversity action only if a court in the state in which the federal court is sitting would have jurisdiction. Lakeside Bridge & Steel Co. v. Mountain State Constr. Co., 597 F.2d 596, 598 (7th Cir.1979). In addition, Fed.R.Civ.P. 4(e) requires that if no federal statute provides for the manner of service, service is governed by the law of the state in which the district court sits. The applicable statute in this case is Wisconsin's long arm statute, Wis.Stat. Sec. 801.05 (1981-82). That section provides for personal jurisdiction over an out-of-state defendant [i]n any action claiming injury to person or property within this state arising out of an act or omission outside this state by the defendant, providing in addition that at the time of the injury ... [p]roducts, materials or things processed, serviced or manufactured by the defendant were used or consumed within this state in the ordinary course of trade.

Wis.Stat. Sec. 801.05(4)(b) (1981-82). There are constitutional limits, however, on the reach of this long arm statute. These limits, most recently described by the Supreme Court in World-Wide Volkswagen, 444 U.S. at 291-94, 100 S.Ct. at 564-65, were relied on by the district court in dismissing United and Bunnan.

Beginning our analysis with the long arm statute, there is no question in this case that United is subject to suit under the language of that statute. United manufactured flannel shirts in Hong Kong and the one allegedly causing injury was purchased and used in Wisconsin. Bunnan, however, argues for the first time on appeal that its alleged actions in this lawsuit do not come within the purview of the long arm statute. Specifically, Bunnan submits that the complaint does not allege that Bunnan "processed, serviced or manufactured" the flannel shirt at issue here. In addition, Bunnan contends that it did nothing to prepare any of the shirts for sale. We are not persuaded by Bunnan's technical pleading argument or its narrow reading of the long arm statute. Federal Rule of Civil Procedure 8(a)(1) requires only a short and plain statement of the grounds upon which jurisdiction depends, not a verbatim repetition of the language of the long arm statute. The complaint alleges that Bunnan is in the business of selling and/or distributing children's clothing for resale to the public and specifically that Bunnan distributed to Woolworth certain flannel shirts, one of which ultimately was purchased in Wisconsin for the minor plaintiff. These allegations are sufficient to meet the pleading requirements if the conduct described falls within the scope of the long arm statute. In this regard, the parties and court have not located any case law interpreting the phrase "processed, serviced or manufactured." ⁴ As a general principle though, the Wisconsin Supreme Court has determined that the long arm statute should "be given a liberal construction in favor of the exercise of jurisdiction." Stevens v. White Motor Corp., 77 Wis.2d 64, 74, 252 N.W.2d 88, 93 (1977). Under such a liberal construction, we conclude that the word "processed" should be interpreted to include a distributor's purchase and sale of goods in the normal course of the distribution of those goods. ⁵ Therefore, both Bunnan and United are subject to suit under the long arm statute, unless the exercise of jurisdiction over them would be inconsistent with due process.

The due process question raised here requires an interpretation and application of the holding and certain dicta in World-Wide Volkswagen concerning the stream of commerce theory of personal jurisdiction in a products liability case. In World-Wide Volkswagen, the Court considered the...