Ross v. Spiegel, Inc.

• Decision Date: 27 September 1977
• Parties: , 7 O.O.3d 385 ROSS et al., Appellees, v. SPIEGEL, INC., et al., Appellees, Textile Alliance Limited et al., Appellants. ROSS et al., Appellees, Commercial Union Assurance Companies, Appellant, v. SPIEGEL, INC., Appellant, Lorenzo Manufacturing Company et al., Appellees.
• Court: Ohio Court of Appeals

Page 297

53 Ohio App.2d 297

373 N.E.2d 1288, 7 O.O.3d 385

ROSS et al., Appellees, v. SPIEGEL, INC., et al., Appellees, Textile Alliance Limited et al., Appellants.

ROSS et al., Appellees, Commercial Union Assurance Companies, Appellant, v. SPIEGEL, INC., Appellant, Lorenzo Manufacturing Company et al., Appellees.

Court of Appeals of Ohio, Tenth District, Franklin County.

Sept. 27, 1977.

Syllabus by the Court

1. Where a foreign manufacturer or wholesaler of goods derives substantial revenue from sales in the United States and it can reasonably be expected that there will be an ultimate distribution of products to consumers in a particular state, such parties are not denied due process of law by the imposition of in personam jurisdiction over them by such a state, in a personal injury action based on defective goods.

2. Evidence showing that a large manufacturer or wholesaler places a substantial quantity of goods in the "stream of commerce" in the United States is sufficient to allow a trial court to infer that such manufacturer or wholesaler could reasonably have expected the goods to be used or consumed in Ohio.

3. A retailer of goods has no duty to inspect or test them for latent defects where he has no actual knowledge of their possible dangerous condition.

Russell H. Volkema, Columbus, for Melvin L. Ross et al.

Knepper, White, Richards & Miller, Louis E. Gerber and James A. Readey, Columbus, for Commercial Union Assurance Companies and Spiegel, Inc.

Porter, Wright, Morris & Arthur, and Terrance M. Miller, Columbus, for Textile Alliance Limited and Castle Peak Garment Mfg. Co.

Lane, Alton & Horst, and William L. Millard, Columbus, for C. B. S. Imports.

Vorys, Sater, Seymour & Pease, Thomas Taggart and Mary Ellen Fairfield, Columbus, for S. S. Kresge Co., amicus curiae.

McCORMAC, Judge.

Melvin L. Ross died of burns received when his pajamas ignited on February 11, 1971, while he was a patient at Mt. Carmel Hospital. A wrongful death action was brought against Spiegel from whom the pajamas were purchased and C. B. S. Imports, the wholesaler, who sold the pajamas to Spiegel for retail distribution. The pajamas were alleged to be dangerously flammable and not fit to be used as wearing apparel.

Spiegel served a cross-claim against C. B. S. Imports asserting that if they, the retailer, were held liable then C. B. S. Imports, from whom they purchased the pajamas are liable over to them. Spiegel also served a third-party complaint against Textile Alliance Limited and Castle Peak Garment Manufacturing Company. Castle Peak and Textile Alliance served motions to dismiss the third-party complaint on the basis that there was no jurisdiction over them. These motions were ultimately overruled.

Prior to trial before the court, Spiegel settled the case with plaintiffs. C. B. S. Imports paid Spiegel $50,000 toward the settlement in exchange for a covenant not to sue. The third-party complaint of Spiegel against Textile Alliance and Castle Peak was then tried to the court, a jury having been waived. The trial court ruled the court had in personam jurisdiction over third-party defendants, Textile and Castle Peak, and that the third-party defendants were liable to Spiegel for the breach of an implied contract of indemnity in the amount of $80,610.01. The judgment was reduced by the $50,000 paid by C. B. S. Imports to an amount of $30,610.01. The amount of the judgment is not in issue.

Textile Alliance and Castle Peak have appealed, setting forth the following assignments of error:

1. "The Trial Court Erred In Ruling That It Had In Personam Jurisdiction Over Third-Party Defendants, Textile Alliance Limited And Castle Peak Garment Manufacturing Company, Ltd."

2. "The Ruling Of The Trial Court That Melvin Ross Did Not Assume The Risk Of His Conduct In Smoking In Bed Is Contrary To The Weight Of The Evidence."

3. "The Ruling Of The Trial Court That The Third-Party Defendants Were Liable To Spiegel For The Breach Of An Implied Contract Of Indemnity Was Contrary To The Weight Of The Evidence And Contrary To Law."

4. "The Trial Court Erred In Failing To Give Effect To The Bar Of The Statute Of Limitations."

Spiegel was cross-appealed, asserting the following assignments of error:

1. "The Trial Court Erred In Failing To Award To Appellees Expenses And Attorneys' Fees For Appellees' Making Of Various Motions To Compel Discovery, Obtaining Various Orders Of Discovery, For The Willful Failure Of Appellants To Comply With Discovery, And For Failing To Award Expenses And Attorneys' Fees Incurred By Appellees In Proving Certain Matters At Trial Which Were Denied By Appellants In Responses To Requests For Admissions."

2. "The Trial Court Erred In Failing To Declare Certain Matters Admitted By Appellants, Which Matters Were Denied By Appellants In Responses To Requests For Admissions."

3. "The Trial Court Erred In Finding That Appellants Had Not 'Transacted Business' In Ohio Under Rule 4.3(A)(1) Of The Ohio Rules Of Civil Procedure."

The principal issue in this case is whether in personam jurisdiction was effected over Textile Alliance and Castle Peak.

After extensive discovery, it was shown that Castle Peak, a corporation for profit organized under the laws of Hong Kong with its principal place of business in Hong Kong, manufactured the pajamas worn by Ross at the time of his death. Castle Peak is a wholly-owned subsidiary of Textile Alliance, also a corporation for profit organized under the laws of Hong Kong with its principal place of business in Hong Kong. Castle Peak is engaged in the cutting, sewing and assembly of garments, including the pajamas herein. All of the goods thus manufactured by Castle Peak are sold directly to Textile who in turn sells the goods to importers in foreign commerce. C. B. S. Imports, a New York corporation, purchased the pajamas from Textile Alliance and ultimately sold them to Spiegel, who in turn retailed them throughout the United States. The specific pajamas worn by Ross were sold in Ohio.

During the years 1969 to 1973, Textile Alliance had sales in the United States amounting to $30,000,000 to $74,000,000, which was a substantial part of their total income. The largest United States customers were nationwide retail stores, such as Spiegel, J. C. Penney, Montgomery Ward, etc., who have numerous retail sales outlets in the United States and in the state of Ohio. Because of the complicated sales procedure and the insulation of the Hong Kong manufacturer and wholesaler from the ultimate sales process, it was difficult to discover evidence concerning the exact amount of revenue derived in Ohio from the sale of goods manufactured by Castle Peak and distributed by Textile Alliance. Moreover, the two Hong Kong corporations failed to comply with Ohio discovery procedure when depositions were taken in Hong Kong.

The basic theory of Spiegel is that if a foreign manufacturer or wholesaler places a substantial amount of goods in the "stream of commerce" in the United States where it can be reasonably expected there will be an ultimate distribution to consumers in Ohio in a substantial amount, there is in personam jurisdiction over these manufacturers in relation to an injury in Ohio proximately resulting from a defect in the goods. On the other hand, appellants contend that the "stream of commerce" theory has no application to in personam jurisdiction in Ohio and that there was insufficient proof that appellants derived substantial revenue from goods used or consumed in Ohio to satisfy the requirements of Civ.R. 4.3.

Spiegel must satisfy two criteria in order to exercise personal jurisdiction over an out-of-state or foreign corporation which is served with process outside Ohio. The first requirement is that the activities of the foreign corporation are such as to render it amenable to the jurisdiction of the state within the limitations of the due process clause of the Fourteenth Amendment. The second requirement is that the activities of the defendant are embodied within the "long-arm" rule, Civ.R. 4.3, which sets forth the requirements for subjecting nonresidents to the jurisdiction of Ohio courts.

The due process standard for exercising jurisdiction over a defendant not present within the forum is whether the defendant has certain minimum contacts within that forum so that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95. Whether due process is satisfied depends upon the quality and nature of the activity in relation to the claim asserted. It is a qualitative rather than a quantitative standard.

The forum state has an interest in opening its courts to Ohio residents seeking redress from nonresidents who have set in motion activities which ultimately result in an injury in Ohio. In this day and age when both foreign corporations and out-of-state corporations place goods in the "stream of commerce" for distribution throughout the United States, and derive substantial revenue from that distribution, it is reasonable that claims emanating from injuries caused by defective products thus distributed be litigated in the place where the injured victim is found, rather than requiring the injured victim to institute an action against the defendant manufacturer or distributor in the jurisdiction where it can be located (Hong Kong in this case).

The injury from the breach of warranty occurred in Ohio. Most of the witnesses relating to the claim are located in Ohio. The goods were sold in Ohio. The third-party defendants expected to and did receive substantial revenue from goods sold for distribution in the United States. It is unfair that a defendant be able to insulate itself against personal jurisdiction in a state where an injury is caused by its product and where the goods were actually sold and used by selling its goods to a middleman...