Vencedor Mfg. Co., Inc. v. Gougler Industries, Inc.

• Decision Date: 15 February 1977
• Docket Number: No. 76-1459,76-1459
• Citation: 557 F.2d 886
• Parties: VENCEDOR MANUFACTURING CO., INC., Plaintiff-Appellant, v. GOUGLER INDUSTRIES, INC., et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 886

557 F.2d 886

VENCEDOR MANUFACTURING CO., INC., Plaintiff-Appellant, v. GOUGLER INDUSTRIES, INC., et al., Defendants, Appellees.

No. 76-1459.

United States Court of Appeals First Circuit.

Heard Feb. 15, 1977.

Decided June 20, 1977.

Horacio R. Subira, Santurce, P.R., with whom Ralph J. Rexach and Quetglas, Vazquez & Subira, San Juan, P.R., were on brief, for plaintiff-appellant.

John F. Malley, Santurce, P.R., with whom Jaime A. Garcia Blanco, Santurce, P.R., was on brief, for defendants, appellees.

Before COFFIN, Chief Judge, VAN OOSTERHOUT ^* and INGRAHAM ^**, Circuit Judges.

COFFIN, Chief Judge.

Plaintiff, Vencedor Manufacturing Company (Vencedor), brought this contract action in Puerto Rico. Defendant, Gougler Industries, Inc. (Gougler), ¹ moved to dismiss for lack of personal jurisdiction, arguing that its contacts with Puerto Rico were insufficient to permit a Puerto Rican court to hear the lawsuit. The district court agreed and dismissed the suit. This appeal followed.

The plaintiff uses extruders to make asbestos-cement pipe. In 1964, Vencedor's corporate predecessor purchased an extruder from the Chambers Brothers Co. For a few years, Chambers Brothers supplied spare parts for this machine to Vencedor. In 1967, the defendant, an Ohio corporation, purchased the inventory and patterns of Chambers Brothers and began to do business with Vencedor. Over the next five years, Gougler filled more than a dozen of Vencedor's orders for spare parts. In all, Vencedor bought about $5,000 worth of parts from Gougler, and in 1969 Vencedor ordered an extruder from Gougler at a cost of more than $27,000. The purchase order reveals that the extruder was not a "stock" item; Gougler was to duplicate the Chambers Brothers' extruder but make several specified modifications. Gougler allowed Vencedor credit on all purchases; the terms were net cash 30 days. Although all sales were f. o. b. Ohio, Vencedor frequently (if not always) filed with the United States Department of Commerce a shipper's export declaration, specifying Puerto Rico as the destination. The present suit arose from one of Vencedor's orders. The complaint alleges that Vencedor requested nickel alloy augers for one of its extruders; that Gougler supplied chrome alloy augers without pointing out the substitution; and that the substituted augers failed, causing substantial damage.

In addition to its dealings with Vencedor, Gougler made sales on credit to five other Puerto Rican firms. Two of the firms bought extruders costing more than $20,000 each. In all, Gougler did about ninety thousand dollars worth of business with Puerto Rican customers between 1967 and 1973. This represented less than .5 percent of Gougler's total sales volume in those years. Gougler sent no salesmen to Puerto Rico; customers ordered spare parts from catalogues or manuals supplied by Gougler with its extruders. Gougler does not maintain an office in Puerto Rico, and it does not send technicians there. On one occasion, however, a representative of the firm did pay courtesy calls on some Puerto Rican customers while he was in the Commonwealth on vacation.

Puerto Rico's "long-arm" rule permits the exercise of jurisdiction to the full extent of constitutional authority. See Arthur H. Thomas Co. v. Superior Court, 98 P.R.R. 864, 870-71 n. 5 (1970); Ramon Vela, Inc. v. Sagner, Inc., 382 F.Supp. 478 (D.P.R.1974); 32 P.R.Laws Ann., App. II, R. 4.7. The limits of this constitutional authority are ultimately set by "our traditional conception of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 320, 66 S.Ct. 154, 160, 90 L.Ed. 95 (1945). Before International Shoe, jurisdiction over a corporate defendant depended on such abstract formulas as whether the corporation was "present" or "doing business" in the forum state. International Shoe focused judicial attention on a more concrete question whether the corporation's contacts with the forum made it reasonable to require the corporation to defend against a suit there. Id. at 317, 66 S.Ct. at 154. Although International Shoe was a conceptual breakthrough, in that case the Court did not try to do more than sketch the sorts of contacts it had in mind. It did draw one distinction of importance to this case. When a cause of action arises from the defendant's contacts with the forum, less is required to support jurisdiction than when the cause of action is unrelated to those contacts. Id. In this case, one of Gougler's contacts with Puerto Rico is its sale of the disputed augers to Vencedor. Gougler's other sales to Vencedor, and its sales of parts and extruders to other Puerto Rican companies, are also "related" to the present cause of action.

In deciding whether these contacts are enough to justify the exercise of jurisdiction, we are guided by two Supreme Court cases that have applied International Shoe to the problem of claim-related contacts. In McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), the plaintiff sued a Texas life insurance company in California. The company's ties to California were slender. The policyholder had first bought his policy from an Arizona company whose obligations were later assumed by the Texas company. When the change took place, the Texas company mailed a reinsurance certificate to the policyholder in California. The policyholder accepted the offer to reinsure him on the same terms as his old policy, and he continued to mail premiums from California until he died there. Aside from this transaction, so far as the record showed, the Texas company had never solicited or done any business in California. Nevertheless, Justice Black's opinion for a unanimous Court held that jurisdiction could be obtained in California because the insurance contract "had substantial connection with that State". Id. at 223, 78 S.Ct. at 201. In addition, the Court pointed to California's interest in giving its residents a remedy against foreign insurance companies. Policyholders, the Court noted, would be severely disadvantaged if they could only sue in some distant state.

The limits of McGee were clarified later in the same term. In Hanson v. Denckla 357 U.S. 235, 251, 78 S.Ct. 1228, 1238, 2 L.Ed.2d 1283 (1958), the Court refused to interpret past cases as signaling "the eventual demise of all restrictions on the personal jurisdiction of state courts." Hanson dealt with a trust established in Delaware by a settlor who later moved to Florida. In that state, the settlor performed various small acts of trust administration; eventually she died there. The question was whether these facts permitted a suit against the trustee in Florida. The Court distinguished McGee. The crucial difference between the two cases, the Court held, was that the insurance company in McGee had sent a solicitation to the policyholder in California, while the trustee in Hanson had taken no such voluntary step into Florida. The Court also suggested that the special status of insurance in state law had justified a sweeping assertion of jurisdiction over foreign companies in McGee. The critical inquiry, apparently, is whether there is "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Id., at 253, 78 S.Ct. at 1240.

There is no doubt that Hanson reduces the potential sweep of McGee, but it is not easy to find the boundary that Hanson draws. One negative principle emerges. The interest analysis that is often applied to choice of law problems will not always supply answers to this jurisdictional question. Puerto Rico has an unquestionable interest in protecting its residents from breached contracts and mislabeled goods, but that interest does not by itself confer jurisdiction over this dispute on Puerto Rico's courts. In Hanson, the plaintiffs were Florida residents, and Florida courts had an interest in applying their law to the suit, but the Court expressly separated choice of law from jurisdictional rules, holding that jurisdiction could not be asserted over the Delaware trustee. Id. at 253-54, 78 S.Ct. 1228.

The verbal formula used by the Hanson Court to justify its holding is not easy to apply. It is hard to say when a corporation has "purposefully" availed itself of "the privilege of conducting activities within the forum State", or when it has invoked "the benefits and protections" of a state's laws. International Shoe stands as a warning that conclusory labels such as "presence" or "purposefully availing" should not replace a practical concern for the facts of each case. Hanson's language suggests that some sort of voluntary association with the forum is a jurisdictional prerequisite. Further elaboration of Hanson's formula should depend on a case-by-case analysis of contacts rather than a parsing of the Court's language.

The Hanson Court made mention of two facts that distinguished McGee. The insurance company in McGee had written a soliciting letter to the insured while he was living in California, and the insured had accepted the company's offer there. We do not put much faith in the second element. When contracts are made by mail, the place of making may be difficult to pin down. The intricacies of offer, counteroffer, and invitation to make an offer are irrelevant to the central concern for fairness that should illuminate this area of the law. See D. Currie, The Growth of the Long Arm: Eight Years of Extended Jurisdiction in Illinois, 1963 U.Ill.L.F. 533, 572-73. Thus we give no weight to the fact that Vencedor's orders were accepted, and the contracts made, in Ohio. Similarly, it makes no difference that Gougler's shipments were f. o. b. Ohio. The effect of this designation was to shift to Vencedor the cost of shipping and the risk of loss in transit. Other courts have also refused to rely either on the "place of making" or the f....