Precision Laboratory Plastics, Inc. v. Micro Test, Inc.

• Decision Date: 18 June 1999
• Docket Number: No. 23333-9-II,23333-9-II
• Citation: 981 P.2d 454,96 Wn.App. 721
• Court: Washington Court of Appeals
• Parties: PRECISION LABORATORY PLASTICS, INC., Appellant, v. MICRO TEST, INC., a foreign corporation, Respondent.

Page 454

96 Wn.App. 721

981 P.2d 454

PRECISION LABORATORY PLASTICS, INC., Appellant, v. MICRO TEST, INC., a foreign corporation, Respondent.

No. 23333-9-II.

Court of Appeals of Washington Division 2.

June 18, 1999.

Publication Ordered July 23, 1999.

Mark Barshfield Anderson, Davies Pearson P.c., Tacoma, for Appellant.

Timothy C. Batten, Schreder Wheeler & Flint Llp, Atlanta, GA., Robert Nelson Meals, Meals & Bor P.l.l.c., Seattle, for Respondent.

HUNT, J.

Precision Laboratory Plastics, Inc., appeals dismissal of its breach of contract lawsuit against Micro Test, Inc. Holding that Micro Test transacted business in Washington and was, therefore, subject to personal jurisdiction under the long-arm statute, we reverse.

FACTS

I. CONTRACT

Micro Test, Inc. (Micro Test), a Georgia corporation, manufactures a medium for transporting disease-causing organisms to medical laboratories. Precision Laboratory Plastics, Inc. (Precision Labs), a Washington corporation located in Centralia, manufactures plastic parts and supplies used by medical, research, and pharmaceutical laboratories. Micro Test uses vials, such as those produced by Precision Labs, to contain its medium for shipment.

On November 12, 1996, Micro Test ordered 10,000 10 ml vials from Precision Labs. Steve Racioppi, president of Micro Test, telephoned Precision Labs and asked if they could also produce a 15 ml vial, similar to the 10 ml vial. Precision Labs was not manufacturing 15 ml vials; rather, it would need to retool machinery and create the necessary larger mold. Nonetheless, Joseph Lasby, Precision Lab's Chief Financial Officer, faxed information to Racioppi. After a series of negotiations by telephone, Lasby prepared and faxed a written agreement to Racioppi, who requested minor changes.

After further long-distance negotiations, on February 6, 1997, the parties entered into a contract for Precision Labs to create a special mold for manufacturing 15 ml vials for Micro Test. ¹ Micro Test agreed to purchase 3 million 15 ml vials over a three-year period, after which the price would be reduced. Micro Test could cancel the contract by giving 60 days notice, but it would have to reimburse Precision Labs the unamortized cost of the mold. When Precision Labs received a $3,800 down payment on the mold, it was to give Micro Test a date certain for the first shipment of vials so that Micro Test could terminate its relationship with its existing supplier. ² Micro Test ordered 10,000 10 ml vials in May 1997 and 20,000 more in October 1997. In September 1997, Precision Labs shipped Micro Test its first order of 15 ml vials.

II. GEORGIA LAWSUIT

Micro Test contends that the 15 ml vials were defective because they leaked. On January 12, 1998, Micro Test filed an action in Georgia, claiming breach of contract based on product unfitness. Precision Labs filed a counterclaim, asserting breach of contract for failure to pay for the product.

III. WASHINGTON LAWSUIT

On January 16, 1998, Precision Labs filed a separate action in Lewis County Superior Court, Washington, asserting in its complaint the allegations of the counterclaim it had previously filed in Georgia. On April 6, 1998, Precision Labs amended its complaint. On April 8, 1998, Micro Test filed a special appearance and a CR 12(b)(2) motion to dismiss Precision Labs' Washington action based on lack of personal jurisdiction over Micro Test. ³ Micro Test argued that it was merely a buyer of Washington-made goods and, as such, it was not doing business in Washington and not subject to Washington's long-arm statute, RCW 4.28.185.

On April 14, 1998, Micro Test filed its answer to Precision Labs' complaint, asserting five defenses: (1) lack of jurisdiction, reiterated from its CR 12(b)(2) motion; (2) insufficient service of process; (3) supersedure by the Georgia proceeding; (4) failure of a condition precedent; and (5) failure of consideration. On May 1, 1998, the Lewis

County Superior Court granted Micro Test's motion to dismiss for lack of personal jurisdiction.

ANALYSIS

I. Standard of Review

A trial court's ruling on personal jurisdiction is a question of law reviewable de novo when the underlying facts are undisputed. Lewis v. Bours, 119 Wash.2d 667, 669, 835 P.2d 221 (1992), MBM Fisheries, Inc. v. Bollinger Mach. Shop & Shipyard, Inc., 60 Wash.App. 414, 418, 804 P.2d 627 (1991). If the trial court's ruling is based on affidavits and discovery, "only a prima facie showing of jurisdiction is required." MBM, 60 Wash.App. at 418, 804 P.2d 627; Pedersen Fisheries, Inc. v. Patti Indus., Inc., 563 F.Supp. 72, 74 (W.D.Wash.1983). Here, although Precision Labs has the burden of demonstrating jurisdiction, the allegations in its complaint are considered substantiated for purposes of appeal. See MBM Fisheries, 60 Wash.App. at 418, 804 P.2d 627.

II. PERSONAL JURISDICTION

Personal jurisdiction is bounded by due process under the Fourteenth Amendment; ⁴ an out-of-state defendant must have some minimum contact with the state so that personal jurisdiction will not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. State of Washington, Etc., 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95, 161 A.L.R. 1057 (1945), quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278, 132 A.L.R. 1357 (1940).

General personal jurisdiction can exist when the defendant transacts "substantial and continuous business of such character as to give rise to a legal obligation." MBM Fisheries, 60 Wash.App. at 418, 804 P.2d 627. Here, we are concerned with specific jurisdiction, which arises from certain activities within the state. MBM Fisheries, 60 Wash.App. at 422-23, 804 P.2d 627. Specific personal jurisdiction over out-of-state defendants is measured by RCW 4.28.185, which reads in pertinent part:

(1) Any person, whether or not a citizen or resident of this state, who in person or through an agent does any of the acts in this section enumerated, thereby submits said person, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of said acts:

(a) The transaction of any business within this state....

Three factors must coalesce to satisfy RCW 4.28.185:

(1) The nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state; (2) the cause of action must arise from, or be connected with, such act or transaction; and (3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice, consideration being given to the quality, nature, and extent of the activity in the forum state, the relative convenience of the parties, the benefits and protection of the laws of the forum state afforded the respective parties, and the basic equities of the situation. (citations omitted)

Tyee Constr. Co. v. Dulien Steel Products, Inc., 62 Wash.2d 106, 115-16, 381 P.2d 245 (1963); Smith v. York Food Mach. Co., 81 Wash.2d 719, 721, 504 P.2d 782 (1972); Shute v. Carnival Cruise Lines, 113 Wash.2d 763, 767, 783 P.2d 78 (1989) (emphasis added). RCW 4.28.185 extends personal jurisdiction over out-of-state defendants to the full limit of federal due process. Shute, 113 Wash.2d at 771, 783 P.2d 78.

1. Purposeful Transaction In Forum State

The first Tyee factor is whether the foreign corporation has transacted business in the forum state. It is irrelevant which party initiated the transaction if a business relationship arises from the transaction. Sorb Oil Corp. v. Batalla Corp., 32 Wash.App. 296, 299, 647 P.2d 514 (1982); see Kysar v. Lambert, 76 Wash.App. 470, 487, 887 P.2d 431, review denied 126 Wash.2d 1019, 894 P.2d 564 (1995). But the mere presence of a contract alone cannot establish specific personal jurisdiction; rather, we view the nature of the contractual relationship and consider factors such as:

prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing [to determine] whether the defendant purposefully established minimum contacts within the forum.

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479, 105 S.Ct. 2174, 2185, 85 L.Ed.2d 528 (1985). When parties "reach out beyond one state and create continuing relationships and obligations with citizens of another state, courts need not resort to a fictional 'consent' in order to sustain the jurisdiction of [the latter state's courts]." Travelers Health Ass'n v. Commonwealth of Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950)(emphasis added); Burger King Corp., 471 U.S. at 473, 105 S.Ct. 2174.

Here, Micro Test formed a contract with Precision Labs contemplating future consequences and creating a continuing relationship with ongoing obligations. Micro Test has purposefully and continuously transacted business within Washington State. If Micro Test had merely purchased goods from Precision Labs, then its argument against specific personal jurisdiction might prevail. But Precision Labs and Micro Test negotiated an ongoing business relationship, culminating in a bilateral contract, pursuant to which Precision Labs retooled its machinery to custom manufacture 15 ml vials for Micro Test.

The contract reflects a series of negotiations facilitated by telephone and fax machine, the locus of which, therefore, is difficult to pinpoint. ⁵ The parties agreed that Precision Labs would create a special mold at a cost of $38,000 so that Precision Labs could custom manufacture 15 ml vials for Micro Test. Micro Test agreed to purchase 3 million vials over a three-year period. Even if Micro Test cancelled prematurely, it would be liable for the remaining unamortized cost of producing the mold. Viewing the totality of the business relationship between Precision Labs and Micro Test, we hold that Micro Test purposely transacted business within...