Poyner v. Erma Werke GmbH

• Decision Date: 28 March 1980
• Docket Number: No. 78-3105,78-3105
• Citation: 618 F.2d 1186
• Parties: Joe Terry POYNER, Plaintiff-Appellant, v. ERMA WERKE GMBH and Insurance Company of North America, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1186

618 F.2d 1186

Joe Terry POYNER, Plaintiff-Appellant, v. ERMA WERKE GMBH and Insurance Company of North America Defendants-Appellees.

No. 78-3105.

United States Court of Appeals Sixth Circuit.

Argued Feb. 5, 1980.

Decided March 28, 1980.

Craig W. Housman, Williams, Housman & Sparks, Paducah, Ky., for plaintiff-appellant.

C. Sumner Katz, Philadelphia, Pa., and Earle T. Shoup, Paducah, Ky., for Ins. Co. of North Am.

Erma Werke Gmbh, pro se.

Before LIVELY and KEITH, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

HARRY PHILLIPS, Senior Circuit Judge.

This is a products liability action instituted by Joe Terry Poyner (Poyner), against Erma Werke Gmbh (Erma), a Germany based manufacturer of firearms, and L.A. Distributors, Inc. (L.A.), a New York based distributor of Erma products.

In February 1968, at age 16, Poyner was injured by a bullet wound inflicted from an Erma manufactured .22 caliber semi-automatic pistol. He is now a paraplegic.

In July 1969, Poyner instituted suit against Erma and L.A. Service of process was accomplished against Erma in Dachau, Germany, by virtue of the Kentucky long-arm statute, KRS § 454.210. Apparently on the advice of its American based parent corporation, Lear Siegler, Inc., (LSI), Erma decided not to respond to the suit. Erma apparently did not give timely notice to its liability insuror, the Insurance Company of North America (INA), of the pending action. Because no defense was made, Poyner obtained a default judgment in June of 1972 for $398,830.77 in damages.

By supplemental complaint, Poyner added LSI and INA as additional defendants. The district court held LSI liable under the default judgment. We reversed in Poyner v. Lear Siegler, Inc., 542 F.2d 955 (6th Cir. 1976), cert. denied, 430 U.S. 969, 97 S.Ct. 1653, 52 L.Ed.2d 361 (1977), on the ground that the separate corporate identities of LSI and Erma could not be disregarded.

Thereafter, INA filed a motion for summary judgment asserting numerous grounds for such relief. In September 1977, the district court granted the motion on the ground that the default judgment against Erma was void for lack of in personam jurisdiction over Erma and, therefore, there was no valid basis for a claim against INA.

In its motion for summary judgment, INA contended, inter alia, that the default judgment against Erma is void on jurisdictional grounds because Erma did not have "minimum contacts" with Kentucky sufficient to justify in personam jurisdiction over Erma.

It is well settled that, subject to the requirements of the due process clause of the Fourteenth Amendment, federal courts in diversity actions must look to applicable state law to determine the extent of their personal jurisdiction. Erie Railroad v. Thompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Because the in personam jurisdictional reach of a federal district court in a diversity action is determined by the law of the state in which it sits, Smartt v. Coca-Cola Bottling Corp., 318 F.2d 447 (6th Cir. 1963), we look to Kentucky law to determine the power of a Kentucky court to bind Erma by a judgment in personam. This requires an answer to two questions: 1. Has the Legislature of the Commonwealth extended the jurisdictional reach of its courts to non-resident defendants such as Erma? and, 2. Can the jurisdictional reach of those courts be extended to Erma consistent with due process as that concept is delineated in the "minimum contacts" formula of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and its progeny? ¹ If the Kentucky Legislature has authorized the Kentucky courts to reach to the full constitutional limits in pursuing non-resident defendants, these two inquiries become one. Southern Machine Co. v. Mohasco Industries, Inc., 401 F.2d 374 (6th Cir. 1968).

We answer both of these inquiries in the affirmative, reverse the jurisdictional holding of the district court and remand this cause for further proceedings.

I

We look first to the language of the Kentucky long-arm statute. Because Poyner alleged both negligence and breach of warranty against Erma, KRS §§ 454.210(2)(a) 4 and 5 ² are the statutory provisions in issue. Both are written in the disjunctive.

KRS § 454.210(2)(a) 4 provides that a "person," which pursuant to KRS § 454.210(1) includes a corporation, cause tortious injury in Kentucky by

1. an act or

2. omission outside Kentucky

IF

1. he regularly does or

2. solicits business or

3. engages in a persistent course of conduct or

4. derives substantial revenue from goods

a. used or

b. consumed or

c. services rendered in Kentucky

PROVIDED that the injury arises out of

1. the doing or

2. soliciting of business or

3. a persistent course of conduct or

4. derivation of substantial revenue in Kentucky.

KRS § 454.210(2)(a) 5 is somewhat similar to KRS § 454.210(2)(a) 4 but rests on breach of warranty. It extends jurisdiction against a corporation which causes an injury in Kentucky by breach of warranty in the sale of goods outside Kentucky when

1. the seller knew such person would

a. use,

b. consume or

c. be affected by the goods in Kentucky

IF

1. he also regularly

a. does or

b. solicits business or c. engages in a persistent course of conduct or

d. derives substantial revenue from goods

1) used or

2) consumed or

3) services rendered in Kentucky.

KRS § 454.210 became effective on June 13, 1968. Prior to that time, KRS § 271.610 (1946) governed the service of process in Kentucky. This court interpreted KRS § 454.210 in Etheridge v. Grove Manufacturing Co., 415 F.2d 1338, 1340 (6th Cir. 1969), and held: "This new statute extends the permissible scope of jurisdiction over out-of-state corporations with minimal contacts in Kentucky." (Emphasis supplied.)

It is clear that the Kentucky Legislature, in enacting the "new and broader" KRS § 454.210, intended to extend the permissible scope of jurisdiction over foreign corporations with minimal contacts in Kentucky, which previously could have been sued in Kentucky courts only in "a cause of action arising out of or connected with the doing of business by such corporation in (Kentucky)," KRS § 271.610(2). In Etheridge we noted:

In enacting the 1968 statute, the Kentucky Legislature recognized the narrowness and restrictiveness of the 1946 law. The caption and preamble of the 1968 statute is as follows:

"AN ACT relating to jurisdiction of the Courts of Kentucky.

"WHEREAS, persons have acted directly and through agents in the Commonwealth of Kentucky.

"WHEREAS, those persons have caused injury and property damage and financial inequities in the Commonwealth.

"WHEREAS, remedy cannot presently be had against those persons in our Courts due to their non-residence within the Commonwealth.

"WHEREAS, the progress and tranquility of our Commonwealth can be best assured through the complete settlement of disputes."

Kentucky Acts 1968, p. 152.

415 F.2d at 1340-41.

Further, the Court of Appeals of Kentucky, then the highest court of the Commonwealth, in Ford Motor Credit Co. v. Nantz, 516 S.W.2d 840 (Ky.1974), in discussing the long-arm's venue provision, KRS § 454.210(4), recognized that "KRS § 454.210 was designed to extend the permissible scope of jurisdiction over foreign corporations with minimal contacts in Kentucky." Id. at 842, citing Etheridge, supra.

Recently, the Kentucky Court of Appeals, now the intermediate appellate court, in Volvo of America Corporation v. Wells, 551 S.W.2d 826 (Ky.App.1977), recognized that KRS § 454.210(2)(a) 5 is to be interpreted as coextensive with the outer limits of due process. In upholding the constitutionality of KRS § 454.210(2)(a) 5, the Volvo court quoted Keckler v. Brookwood Country Club, 248 F.Supp. 645, 649 (N.D.Ill.1965):

When a manufacturer voluntarily chooses to sell his product in a way in which it will be resold from dealer to dealer, transferred from hand to hand and transported from state to state, he cannot reasonably claim that he is surprised at being held to answer in any state for the damage the product causes. Nor can he deny the substantial interest of the injured person's state in providing a convenient forum for its citizens. Volvo, supra, at 828.

Volvo of America Corporation was held to be subject to in personam jurisdiction pursuant to KRS § 454.210(2)(a) 5 because "it (is) not unreasonable to require the Volvo companies to be responsible for their product after the product enters the main stream of commerce." Id. at 827. The court assumed that defendants knew or should have known that cars shipped to a Huntington, West Virginia, dealer might be sold in Kentucky. Further, Volvo advertised in Kentucky and authorized dealer service in the Commonwealth. This was held to qualify for in personam jurisdiction under the section of the statute requiring that "he also regularly does or solicits business" and "engages in a persistent course of conduct."

The Volvo court noted at 828 If the contentions of the defendants-appellants in this case were upheld there would be no way that you could have a products liability case or breach of warranty case brought in any state except where the manufacturer or distributor of the product had its place of business. Certainly that would be an illogical and unfair doctrine and contrary to the trend of the federal cases on this particular point.

It is amply clear that although the Kentucky Court of Appeals no longer is the court of last resort in Kentucky, its pronouncements constitute the rule of decision when it has not been expounded by the highest court of the state, Fidelity Trust Co. v. Field, 311 U.S. 169, 177, 61 S.Ct. 176, 177, 85 L.Ed. 109 (1940). The decision of the Kentucky Court of Appeals should be followed by a federal court in deciding a question controlled by the law of the Commonwealth. See also Simpson v. Jefferson Standard Life Insurance Co., 465 F.2d 1320, 1323 (6th Cir. 1972).

When a state legislature authorizes in personam...