State v. Grand River Enterprises, Inc.

• Decision Date: 22 October 2008
• Docket Number: No. 24804.,24804.
• Citation: 2008 SD 98,757 N.W.2d 305
• Parties: STATE of South Dakota, Plaintiff and Appellant, v. GRAND RIVER ENTERPRISES, INC., an alien Corporation, Defendant and Appellee. State of South Dakota, Plaintiff and Appellant, v. Grand River Enterprises, Inc., a/k/a Grand River Enterprises Six Nations, Ltd., an alien Corporation, Defendant and Appellee (Two Cases).
• Court: South Dakota Supreme Court

757 N.W.2d 305

2008 SD 98

STATE of South Dakota, Plaintiff and Appellant, v. GRAND RIVER ENTERPRISES, INC., an alien Corporation, Defendant and Appellee.

State of South Dakota, Plaintiff and Appellant, v. Grand River Enterprises, Inc., a/k/a Grand River Enterprises Six Nations, Ltd., an alien Corporation, Defendant and Appellee (Two Cases).

No. 24804.

Supreme Court of South Dakota.

Argued August 27, 2008.

Decided October 22, 2008.

Lawrence E. Long, Attorney General, Jeffrey P. Hallem, Assistant Attorney General, Pierre, SD, for plaintiff and appellant.

Haven L. Stuck Gene N. Lebrun of Lynn, Jackson, Shultz & Lebrun, P.C., Rapid City, SD, Amy L. Vandamme, Paul E. Benson of Michael Best & Friedrich, LLP, Milwaukee, WI, for defendant and appellee.

ZINTER, Justice.

[¶ 1.] Grand River Enterprises Six Nations Ltd. (Grand River), a Canadian cigarette manufacturer, moved the circuit court to vacate three default judgments arising out of the sale of cigarettes in the State of South Dakota. Grand River argued that the circuit court lacked personal jurisdiction because Grand River had not purposefully availed itself of the South Dakota market sufficient to permit jurisdiction under the Due Process Clause of the Fourteenth Amendment. After an evidentiary hearing on the merits of the jurisdictional issue, the circuit court granted the motions. We affirm.

[¶ 2.] In 1998, South Dakota and forty-five other states reached a settlement with major cigarette manufacturers¹ to recoup healthcare-related costs incurred as a result of smoking-related illnesses. The settling manufacturers and the settling states entered into a Master Settlement Agreement (MSA) under which the manufacturers agreed to pay the states annual sums in return for the release of past, present, and future claims. The MSA included a "Model Escrow Statute" to be adopted by the settling states to protect the settling manufacturers from a competitive disadvantage following an anticipated rise in prices to pass the cost of the settlement onto consumers.

[¶ 3.] South Dakota adopted the Model Escrow Statute in SDCL ch 10-50B (Escrow Statutes). Those statutes impose financial obligations on nonparticipating manufacturers (NPMs), which are defined as "tobacco product manufacturer[s] selling cigarettes to consumers within" South Dakota. SDCL 10-50B-7. The Escrow Statutes require NPMs to either join the MSA or place in escrow a certain sum for their cigarettes sold in this State. SDCL 10-50B-6; SDCL 10-50B-7.

[¶ 4.] Grand River is a company that manufactures cigarettes on an Indian reserve in Ontario, Canada. It is owned by members of the Six Nations, a group of six Indian tribes, also referred to as the Iroquois Confederacy. Grand River operates exclusively on the Six Nations Reserve under the authorization of the governing councils of the Six Nations. Grand River's principal place of business is in Ohsweken, Ontario. It is incorporated under the Canada Business Corporations Act.

[¶ 5.] Grand River began manufacturing "Seneca" brand cigarettes under a 1999 "Cigarette Manufacturing Agreement" (Agreement) with Native Tobacco Direct.² In June 2000, Native Tobacco Direct (NTD) assigned the Agreement to Native Wholesale Supply (NWS). NTD and NWS are owned by Arthur Montour, Jr. Both companies are separate Native legal entities located on an Indian reservation in the State of New York.³

[¶ 6.] According to Grand River's Agreement with NTD/NWS, the latter parties owned the proprietary rights to Seneca brand cigarettes, which included the trademarks, copyrights, and tobacco blending formulas. Grand River was granted a "limited license to use" NTD's/ NWS's "proprietary properties" for "the sole purpose of manufacturing and delivery of the cigarettes" for NTD/NWS. Agreement, ¶ 1. The right to manufacture was limited to "such quantities and at such times as per the written request from [NTD/NWS] to do so." Id. ¶¶ 1, 8. Grand River was also required to manufacture the cigarettes "according to pre-approved quality standards" of NTD/NWS, "using the tobacco blends and packaging as designated" by NTD/NWS. Id. ¶¶ 1, 4. Finally, with certain exceptions not applicable here, Grand River was prohibited from manufacturing Seneca brand cigarettes for itself, or for any other person or entity. Id. ¶ 9.

[¶ 7.] Following manufacture, Grand River's involvement ended upon its shipment of the cigarettes, FOB Grand River's facility in Ohsweken, Ontario, to a "Foreign Trade Zone in Western New York, as designated by [NTD/NWS] in advance for each delivery." Agreement, ¶ 3. NTD/NWS was responsible for the payment of "all applicable taxes and duties arising from the importation [of the cigarettes] into the United States and/or Seneca Nation Territory or other Native Territory." Id. Thereafter, NTD/NWS distributed the cigarettes without direction or control from Grand River. Id. The Agreement did not indicate in which states NTD/NWS might sell its cigarettes.⁴

[¶ 8.] In 2000, 2001, and 2002, NTD/NWS delivered the Seneca cigarettes at issue to HCI Distribution Company (HCI). HCI is a Nebraska subsidiary of Ho-Chunk, Inc., a Wisconsin Tribe. HCI acted as a tribal development corporation for the Winnebago Tribe, located on the Winnebago Reservation in Nebraska. After purchasing cigarettes from NTD/NWS, HCI stamped them for sale in South Dakota and sold the cigarettes to tribally-owned clients, including those of the Yankton Sioux Tribe in South Dakota. As is relevant here, HCI sold Seneca cigarettes to the Fort Randall Casino, which is located on the Yankton Sioux Reservation in South Dakota. HCI also sold Seneca cigarettes to the Yankton Sioux Travel Plaza (Plaza), which was owned and operated by the Yankton Sioux Tribe, but which was, unbeknownst to HCI, located in non-Indian country in South Dakota. According to the State's evidence, HCI sold 1,097,760 units⁵ of Seneca brand cigarettes in South Dakota in 2000, 1,650,800 units in 2001, and 440,000 units in 2002.

[¶ 9.] As a result of these sales, the State filed separate suits against Grand River in 2001, 2002, and 2003. The complaints alleged that Grand River knowingly violated the Escrow Statutes for the 2000, 2001, and 2002 sales. Grand River failed to answer or appear, resulting in the entry of default judgments.

[¶ 10.] In early 2007, Grand River moved to vacate the judgments under SDCL 15-6-60(b)(4), arguing that the court lacked personal jurisdiction over Grand River. The circuit court consolidated the actions, and after a hearing on the merits of the motions to vacate, the court issued a detailed decision granting Grand River's motions. The court concluded that the "State has not demonstrated any action by Grand River to purposefully avail itself to the South Dakota market" thereby precluding this State's exercise of personal jurisdiction under the Due Process Clause of the Fourteenth Amendment.⁶ We review this conclusion regarding jurisdiction as a question of law under the de novo standard of review. Grajczyk v. Tasca, 2006 SD 55, ¶ 8, 717 N.W.2d 624, 627.

[¶ 11.] The question of personal jurisdiction over a nonresident involves two initial inquiries:

First, the court must determine whether the legislature granted the state court jurisdiction over defendants who do not meet the traditional bases for personal jurisdiction. In South Dakota, this legislative approval is found in the state's Long Arm Statute.⁷ Next, the court must determine whether the proposed assertion of jurisdiction comports with federal due process requirements.

Frankenfeld v. Crompton Corp., 2005 SD 55, ¶ 9, 697 N.W.2d 378, 381. For purposes of this opinion, we address only the latter inquiry because, assuming that jurisdiction exists under the Long Arm Statute, the due process inquiry is dispositive.

[¶ 12.] The Due Process Clause affords protection against judgments of a forum with which a person has no meaningful contacts, ties, or relations. Id. ¶ 10, 697 N.W.2d at 381-82. To satisfy due process, a putative defendant must have sufficient minimum contacts with the forum state to not offend traditional notions of fair play and substantial justice:

In International Shoe [Co. v. Washington], the United States Supreme Court established the minimum contacts test for determining whether personal jurisdiction comports with Fourteenth Amendment due process. 326 U.S. [310,] 316, 66 S.Ct. [154,] 158, 90 L.Ed. 95 [(1945)]. According to the Court, due process requires that a non-resident defendant "have certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" Id. (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940)).

Id.

[¶ 13.] The minimum contacts issue in this case is whether, through its activities directed at this forum, Grand River "purposefully avail[ed] itself of the privilege of conducting activities within [this] state, thus invoking the benefits and protections of its laws." See id. ¶ 12, 697 N.W.2d at 382 (citing Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958)). This requires that the defendant's activities must be "purposefully directed" toward the forum. Burger King v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 2182, 85 L.Ed.2d 528 (1985). "It is not enough that it is foreseeable that a defendant's activities may cause injury in a forum." Frankenfeld, 2005 SD 55, ¶ 11, 697 N.W.2d at 382 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 295, 100 S.Ct. 559, 566, 62 L.Ed.2d 490 (1980)). Rather, "the foreseeability that is critical to the due process analysis ... is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there." Id. (citing World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567, 62 L.Ed.2d 490). Further, the defendant's contacts with the forum must "proximately result...