Vibratech, Inc. v. Frost

• Decision Date: 27 March 2008
• Docket Number: No. A07A2078.,A07A2078.
• Citation: 291 Ga. App. 133,661 S.E.2d 185
• Parties: VIBRATECH, INC. v. FROST et al.
• Court: Georgia Court of Appeals

291 Ga. App. 133

661 S.E.2d 185

VIBRATECH, INC. v. FROST et al.

No. A07A2078.

Court of Appeals of Georgia.

March 27, 2008.

Reconsideration denied April 14, 2008.

King & Spalding, Eric M. Wachter, Chilton D. Varner, for Appellant.

Scherffius, Ballard, Still & Ayres, Andrew M. Scherffius III, Tamara McDowell Ayres, Segal, Fryer, Shuster & Lester, Keith E. Fryer, Charles Ike Pollack, McKenna, Long & Aldridge, Charles Kyle Reed, Jonathan R. Friedman, Stites & Harbison, Donald R. Andersen, Paul T. Carroll III, for Appellee.

ADAMS, Judge.

Vibratech, Inc. appeals from the trial court's denial of its motion to dismiss and its motion to open default in this action involving five consolidated aviation wrongful death cases and one aviation property case. For the reasons cited below, we affirm.

This lawsuit arises out of the crash of a Cessna twin engine aircraft in the vicinity of Apison, Tennessee, on December 2, 2004, resulting in the death of the pilot and four passengers. The aircraft was owned by the Georgia Cumberland Conference of Seventh-Day Adventists (GCCSA). The GCCSA and the estates of the five decedents filed these lawsuits in Gwinnett County against multiple defendants including Vibratech. The plaintiffs allege that Vibratech negligently manufactured the plane's viscous damper, a mechanism designed to reduce engine vibration, which was installed in the aircraft's left engine.

Vibratech was a Delaware corporation with its principal place of business in Alden, New York, but is now defunct, with no officers, directors or employees. The corporation filed for bankruptcy protection on July 18, 2003, approximately 18 months before the accident. The company never maintained a certificate of authority to conduct business in the State of Georgia and did not carry out business operations in the state. Vibratech sold the damper at issue in this case to Teledyne Continental Motors, Inc. (TCM), a Delaware company with its principal place of business in Mobile, Alabama. Vibratech sold the damper "FOB Seller's Plant" in Alden, New York, and TCM installed the damper in a rebuilt Cessna engine. The GCCSA purchased the engine through Air Power, Inc., a third-party Texas company, on April 9, 2001. TCM shipped the engine at Air Power's instruction to L & M Aircraft in Rome, Georgia, for installation in GCCSA's airplane.

On December 2, 2005, the plaintiffs served their lawsuits on CT Corporation, Vibratech's registered agent in Delaware. Although CT had previously notified Vibratech that it was discontinuing service for nonpayment, it accepted service in this case, after checking its own databases to determine if it was Vibratech's registered agent. CT forwarded the service documents to Ross M. Posner at Ridge Capital Corporation, the last contact Vibratech had provided. Only after this service did CT submit a resignation as the registered agent to the Delaware and New York secretaries of state. Ridge Capital returned the documents to CT, explaining that Vibratech was in bankruptcy and that Ridge Capital was no longer involved with the manufacturer. CT then returned the service papers to the clerk of the trial court, copying plaintiffs' counsel on the transmittal letter stating that its statutory representation services for Vibratech had been discontinued. Although aware that Vibratech had filed bankruptcy proceedings, plaintiffs did not attempt service on the bankruptcy trustee.

Vibratech did not file an answer within 30 days of the December 2, 2005 service. In the meantime, on January 6, 2006, several of the plaintiffs moved to amend their complaint, asserting the fact of Vibratech's bankruptcy, that they had received relief from the bankruptcy, and they sought to re-serve Vibratech. CT rejected a second attempt at service, and the plaintiffs served the Delaware Secretary of State on January 12, 2006.

Although Vibratech is defunct, the corporation is listed as an additional insured on a policy held by TCM. This policy was issued on January 19, 2005, more than 18 months after Vibratech's bankruptcy and over a month after the crash, but it provides coverage for events occurring from June 1, 2004 to June 1, 2005, which included the date of the crash here. At some point, TCM began providing a defense to Vibratech, and on February 27, 2006, Vibratech moved to open default as of right. The plaintiffs then moved for entry of default judgment, and Vibratech filed a motion to open default, along with a separate motion to dismiss the lawsuits. The trial court denied the company's motions, and this Court granted Vibratech's application for interlocutory appeal to consider these rulings.

1. Motion to Dismiss

Vibratech moved to dismiss asserting (1) lack of personal jurisdiction, (2) insufficient service of process, and (3) a violation of the automatic stay of litigation afforded by Vibratech's bankruptcy.

(a) Personal Jurisdiction

"In Georgia, a defendant who files a motion to dismiss for lack of personal jurisdiction has the burden of proving lack of jurisdiction." (Footnote omitted.) Home Depot Supply v. Hunter Mgmt, 289 Ga.App. 286, 656 S.E.2d 898 (2008). Where the motion was decided upon written submissions "any disputes of fact in the written submissions supporting and opposing the motion to dismiss are resolved in favor of the party asserting the existence of personal jurisdiction, and the appellate standard of review is nondeferential." (Punctuation and footnotes omitted.) Id.

Vibratech argued that the trial court lacked personal jurisdiction over it because the company never transacted any business in the State of Georgia, in that it had no office, took no orders, made no sales, delivered no products and solicited no business here. In rejecting this argument, the trial court found that in Innovative Clinical & Consulting Svcs. v. First Nat. Bank, etc., 279 Ga. 672, 620 S.E.2d 352 (2005), the Supreme Court of Georgia construed subsection (1) of the Georgia long-arm statute to extend jurisdiction to the maximum limits permitted by procedural due process. OCGA § 9-10-91(1). The trial court determined that Vibratech's activities in placing its dampers into the stream of commerce by manufacturing, selling and delivering them for resale were sufficient to satisfy the requirements of due process and to confer jurisdiction over the company. Vibratech counters, however, even under the Innovative Clinical's expanded interpretation of subsection (1), the language of the statute requires more than merely putting merchandise into the stream of commerce; it still requires the actual transaction of business by the defendant in Georgia.

In Innovative Clinical, our Supreme Court reaffirmed its prior holding in Gust v. Flint, 257 Ga. 129, 356 S.E.2d 513 (1987) that "the rule that controls is our statute, which requires that an out-of-state defendant must do certain acts within the State of Georgia before he can be subjected to personal jurisdiction." (Citation and punctuation omitted.) Innovative Clinical, 279 Ga. at 673, 620 S.E.2d 352. But the court stated that prior cases had "unduly limited the literal language" of the long-arm statute. Id. Addressing subsection (1), the court observed that nothing in the subsection's language requires the defendant's physical presence in Georgia or minimizes the importance of a nonresident's intangible contacts with the state. Id. at 675, 620 S.E.2d 352. Rather, the language of OCGA § 9-10-91(1) must be construed as reaching "to the maximum extent permitted by procedural due process." (Citations and punctuation omitted) Id.

Even prior to this clarification, Georgia courts found long-arm jurisdiction under subsection (1) premised upon a stream of commerce analysis. The Supreme Court held that putting merchandise into the stream of Georgia commerce for delivery in the state under an agreement to indemnify its purchaser for damages amounted to transacting business in the state under subsection (1). J.C. Penney Co. v. Malouf Co., 230 Ga. 140, 143, 196 S.E.2d 145 (1973). And in Patron Aviation v. Teledyne Indus., 154 Ga.App. 13, 267 S.E.2d 274 (1980), this Court considered an aviation case involving some of the same parties present here. In Patron, L & M sold an airplane engine to a Georgia resident. TCM built the engine and shipped it to L & M in Georgia for installation into the purchaser's plane. The purchaser sued TCM when a dispute arose concerning the condition of the engine, and TCM contested jurisdiction. Id. This Court found that the manufacturer transacted business in Georgia when it sent the engine knowing it would be placed into the stream of Georgia commerce. Id. at 14(1), 267 S.E.2d 274. Thus, it is clear that jurisdiction exists over TCM in this case.

But our appellate courts have not considered the application of subsection (1) to the specific factual situation before us, where the manufacturer of an aviation component ships to an intermediary like TCM, who installs the part into an aviation engine and then ships the engine into Georgia. But at least three other courts considering the issue found jurisdiction on such facts under varying jurisdictional statutes. Petroleum Helicopters v. Avco Corp., 834 F.2d 510 (5th Cir.1987); State ex rel. Hydraulic Servocontrols Corp. v. Dale, 294 Or. 381, 657 P.2d 211 (1982); Bach v. McDonnell Douglas, Inc., 468 F.Supp. 521 (D.Ariz.1979). As to our long-arm statute, Innovative Clinical clarified that direct contacts are not required to establish jurisdiction. Thus, we cannot limit our analysis to a strictly literal reading of the subsection's language, but must consider Vibratech's intangible contacts with the state in determining whether the company transacted any business, subject to the limits of due process.

This requires that we follow a three-prong analysis:

In considering whether a Georgia court may exercise jurisdiction over a nonresident based on the transaction of business, we apply a three-part test: Jurisdiction exists...