Northern Ins. Co. of New York v. B. Elliott, Ltd.

• Decision Date: 01 September 1982
• Docket Number: Docket No. 53996
• Citation: 323 N.W.2d 683,117 Mich.App. 308
• Parties: NORTHERN INSURANCE COMPANY OF NEW YORK, subrogee of Schreiber Manufacturing Company, Inc., Plaintiff-Appellant, v. B. ELLIOTT, LTD., a Canadian Corporation, Defendant-Appellee. B. ELLIOTT, INC., a Delaware Corporation, Defendant-Appellee, Third-Party Plaintiff, v. SCHREIBER MANUFACTURING COMPANY, INC., Third-Party Defendant.
• Court: Court of Appeal of Michigan — District of US

Page 683

323 N.W.2d 683

117 Mich.App. 308

NORTHERN INSURANCE COMPANY OF NEW YORK, subrogee of

Schreiber Manufacturing Company, Inc., Plaintiff-Appellant, v. B. ELLIOTT, LTD., a Canadian Corporation, Defendant-Appellee.

B. ELLIOTT, INC., a Delaware Corporation, Defendant-Appellee, Third-Party Plaintiff, v. SCHREIBER MANUFACTURING COMPANY, INC., Third-Party Defendant.

Docket No. 53996.

Court of Appeals of Michigan.

Submitted Dec. 2, 1981.

Decided June 22, 1982.

Released Sept. 1, 1982.

Deneberg, Tuffley, Thorpe, Bocan & Patrick by Irene Gordon, Southfield, for plaintiff-appellant.

Dahlberg, Mallender & Gawne by Fred Mallender II, and Thomas E. Callow, Detroit, for defendants.

Before DANHOF, C. J., and J. H. GILLIS and BRONSON, JJ.

BRONSON, Judge.

Plaintiff appeals as of right from two orders entered in the Oakland County Circuit Court which summarily disposed of its actions against defendants, B. Elliott, Ltd. (hereinafter Elliott-Canada) and B. Elliott, Inc. (hereinafter Elliott-Delaware). Elliott-Canada was dismissed by the court as a party in this case on the basis that it lacked personal jurisdiction over the corporation. GCR 1963, 116.1(1). Although the court granted Elliott-Delaware's motion for summary judgment based on GCR 1963, 117.2(3), no genuine issue as to any material fact, it recognized that it was really basing its ruling on GCR 1963, 116.1(5), accelerated judgment, for the reason that the claim was barred as Elliott-Delaware was the beneficiary of a covenant not to sue agreed to by the injured party, Schreiber Manufacturing Company (hereinafter Schreiber). Schreiber is not a party to this appeal. The relevant facts follow.

Plaintiff is a foreign corporation licensed and authorized to provide businesses in Michigan with property insurance. Elliott-Canada is engaged in the installation, sale, and distribution of machinery in Canada. Elliott-Delaware is engaged in the sale, distribution, and installation of machinery in the United States. Although the two Elliott corporations have some officers in common, they are operated as separate and independent entities.

On October 14, 1976, Schreiber ordered a boring mill from Elliott-Delaware. The purchase price was $173,000 and the purchase contract was part of a purchase money security agreement executed by Elliott-Delaware and Schreiber, dated November 8, 1976. Elliott-Delaware placed an order for the purchase of the boring mill with Elliott-Canada, and the latter company ordered the mill from its manufacturer, Union Gera, an East German company.

Union Gera sold and delivered the mill to Elliott-Canada in Toronto. The latter company sold and delivered the mill to Elliott-Delaware in Buffalo, New York. In turn Elliott-Delaware shipped the mill to Schreiber's plant in Clawson, Michigan.

After the machine was delivered to Schreiber's plant, the machine's installation was inspected by Terry Hellowell in February, 1977. Hellowell is an employee of Elliott-Canada. However, he was loaned to Elliott-Delaware for purposes of inspecting the mill. Hellowell acted as an agent of Elliott-Delaware in inspecting the machine's installation and Elliott-Canada was paid $2,000 by Elliott-Delaware for Hellowell's services.

On August 30, 1977, the boring mill's counterweight crashed into the machine. Both Elliott corporations were notified of the accident within 24 hours. A representative of Elliott-Canada, Ross Binnie, went to inspect the damaged machine at the request of Elliott-Delaware. Peter Manchur, a vice-president in both Elliott corporations, could not recall whether Elliott-Delaware had reimbursed Elliott-Canada for Binnie's services. In any case, Binnie submitted a report stating that the boring mill was a complete loss.

Schreiber submitted a claim under its insurance policy to the Maryland Casualty Company. Apparently this firm is related to plaintiff or plaintiff has taken it over. However, the record does not disclose the exact nature of their relationship. Schreiber sought compensation for the damage to the machine and for business interruption losses. On April 28, 1978, Schreiber wrote to Elliott-Delaware informing it that Schreiber's insurance company had rejected its claim because of inherent defects in the machine caused by the negligence of the manufacturer. Schreiber demanded payment from Elliott-Delaware in the amount of $228,000 for the damaged machine and $125,000 for business interruption losses.

On June 13, 1978, representatives of Schreiber, Elliott-Delaware, and Union Gera met at the Detroit Metropolitan Airport and conducted negotiations with respect to Schreiber's claims. Schreiber's attorney, A. Albert Sugar, informed the parties present that Schreiber's insurer had rejected the company's insurance claim. In fact, according to Sugar's deposition of June 26, 1980, Schreiber had been offered $50,000 by plaintiff to compensate it for business interruption losses prior to the June 13, 1978, meeting. Elliott-Delaware contends that it was never informed that Schreiber had rejected an offer made by plaintiff. While Sugar's deposition avers that Elliott-Delaware was specifically informed at the June, 1978, meeting that negotiations were continuing between Schreiber and plaintiff for benefits under the policy issued by the Maryland Casualty Company, said deposition does not dispute Elliott-Delaware's contention that it was not told of the insurer's settlement offer.

The participants at the June, 1978, meeting agreed to settle Schreiber's claim by Elliott-Delaware, Union Gera, and Schreiber each assuming one-third ($51,666.33) the cost of a new machine. Elliott-Delaware also agreed to remove the damaged machine and install the new machine. The minutes of this meeting further disclose that the parties agreed to release Elliott-Delaware and others from any further claim.

The tentative agreement of June 13, 1978, was formalized by letters from Schreiber's attorney to Elliott-Delaware dated July 25, 1978, and August 1, 1978. Both letters were subsequently signed by Peter Manchur as indicating his approval of the agreement on behalf of Elliott-Delaware and Union Gera. The August 1, 1978, letter stated in part that: "In consideration of the execution of the letter agreement by Elliott, Schreiber will furnish to Elliott and Union Gera a covenant not to sue in relation to the old machine."

Elliott-Delaware completely fulfilled its obligations under the agreement by October, 1978. In December, 1978, plaintiff paid Schreiber $75,000 as compensation for business interruption losses. Plaintiff then instituted action in federal district court in Detroit against Elliott-Canada, alleging negligent inspection of the boring mill. This suit was ultimately voluntarily discontinued. Not until September 7, 1979, did Schreiber actually execute the covenant not to sue in favor of Elliott-Delaware for all damages of any kind that it had sustained as a consequence of the boring machine accident. In October, 1979, plaintiff, as subrogee of Schreiber, filed the present suit against both defendants.

I

Plaintiff's first claim on appeal is that the circuit court erred in holding that Elliott-Canada lacked sufficient minimum contacts with the State of Michigan to allow it to be sued, consistent with concepts of fair play and substantial justice, in a Michigan court. See, International Shoe Co. v. Washington, 326 U.S. 310, 320, 66 S.Ct. 154, 160, 90 L.Ed. 95, 104 (1945). The correct approach to jurisdictional problems of the type posed here is to analyze whether exercise of personal jurisdiction is precluded on either statutory or constitutional grounds. However, all agree that, if constitutionally permissible, M.C.L. § 600.715(2); M.S.A. § 27A.715(2) ¹ would allow Michigan to assume jurisdiction as the forum state in this case. It has been said that this state's "long-arm" statutes extend jurisdiction to the maximum limits permitted by due process. Sifers v. Horen, 385 Mich. 195, 199, 188 N.W.2d 623 (1971). For purposes of the type of personal jurisdiction problem we must resolve in this case, the constitutional and statutory test are the same. ²

In Khalaf v. Bankers & Shippers Ins. Co., 404 Mich. 134, 153, 273 N.W.2d 811 (1978), the Supreme Court held that an essential consideration in ascertaining if Michigan constitutes a proper forum is whether the defendant has "purposely availed" itself of the privilege of conducting business in Michigan. The Court further indicated:

"A 'purposeful availment' is something akin either to a deliberate undertaking to do or cause an act or thing to be done in Michigan or conduct which can be properly regarded as a prime generating cause of the effects resulting in Michigan, something more than a passive availment of Michigan opportunities. The defendant will have reason to foresee being 'haled before' a Michigan court." Id., 153-154, 273 N.W.2d 811.

See, also, Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958). This "purposeful availment" test will be applied to the facts of this case.

Plaintiff first asserts that Michigan is a proper forum for this action because Terry Hellowell, who inspected the boring mill in Michigan, was an employee of Elliott-Canada. The acts conducted by Hellowell in Michigan could constitute a "purposeful availment" of opportunities in this state by Elliott-Canada, if these acts could be attributed to the Canadian corporation. However, we find that they cannot.

The sales agreement between Schreiber, plaintiff's subrogor, and Elliott-Delaware required the latter corporation to come to Michigan to inspect the boring mill. Toward this end, Elliott-Delaware procured by contract with Elliott-Canada the right to borrow Hellowell. Elliott-Delaware, and not Elliott-Canada, controlled Hellowell's work duties while he was in Michigan. Elliott-Canada had no interest in Hellowell's activities in Michigan, and Hellowell acted solely as Elliott-Delaware's agent while in...