Opinion
No. SA-04-CA-0551-RF.
May 18, 2005
ORDER GRANTING MOTION FOR LEAVE TO FILE FURTHER BRIEFING AND DENYING THIRD-PARTY DEFENDANT'S MOTION TO DISMISS
BEFORE THE COURT is the Motion to Dismiss of Third-Party Defendant Chicago Laminating, Inc. ("Chicago Laminating") for lack of personal jurisdiction, filed on October 25, 2004, along with a response by Third-Party Plaintiff and a reply. The Court held a hearing on the issue of its in personam jurisdiction over Chicago Laminating on May 17, 2005.
Also before the Court is Third-Party Plaintiff's Motion for leave to File Additional Briefing, filed on May 11, 2005 (Docket No. 62). After careful consideration, the Court finds that Third-Party Defendant's Motion for Leave (Docket No. 62) should be GRANTED and that its Motion to Dismiss (Docket No. 15) should be DENIED.
FACTUAL PROCEDURAL BACKGROUND
This case involves claims of breach of contract, negligent misrepresentation, and violations of the Texas Deceptive Trade Practices Act. Plaintiff VP Racing Fuels, Inc. ("VP") is a Texas corporation doing business in Bexar County, Texas. VP sells racing fuels and related products primarily to customers in the racing industry. VP brought suit in Texas state court against Dri-Stick Decal Corp. d/b/a/ Rydin Decal ("Rydin"), an Illinois corporation that manufactures pressure-sensitive decals. Rydin timely removed to this Court on June 25, 2004. Rydin subsequently impleaded three Illinois companies pursuant to Rule 14(a), claiming that the companies are responsible third parties necessary to the resolution of the claims before the Court. Two of those companies have assented to the Court's in personam jurisdiction. Only Third-Party Defendant Chicago Laminating challenges the jurisdiction of this Court over it.Plaintiff VP distributes a line of products that includes racing fuels which are sold primarily in drums and similar containers. VP contracted with Defendant Rydin to supply it with various label decals to be placed on the drums. These labels indicate what product is located in the drums and also provide environmental, marketing, and safety information. VP also distributes the decals it purchases to its customers, who place them on their racing vehicles or trailers to signify use of VP's products.
The decals produced by Rydin are assembled from a number of component parts and some of these are purchased from independent suppliers like Chicago Laminating. In the instant case, VP contracted with Rydin to provide pressure-sensitive decals to place upon drums containing VP product fuels. Rydin printed its decals on pressure-sensitive material and then sent the printed decals to Chicago Laminating for application of a clear lamination. The final product was then returned to Rydin, where the decals were cut into finished shape, packaged, and shipped to VP in Texas.
In the racing industry, decals are often used as a form of marketing. VP frequently uses decals as advertising and states that they require quality decals that remain affixed to the surface upon which they are placed. Beginning in 2001, decals that VP had purchased from Rydin began delaminating, or losing their adhesive quality. VP alleges that some of the decals began delaminating immediately upon being placed upon a surface, while others held fast for a period of weeks or months before peeling. VP states that some of the Rydin decals did not exhibit this delaminating phenomenon.
VP asserts that it gave Rydin notice of the problem and allowed them time to remedy it by providing VP with replacement labels. However, VP states that later shipments were less reliable and it has been unable to use the latest shipments of Rydin decals due to high incidence of delamination among the decals. As set forth above, VP brought claims against Rydin, who subsequently impleaded three Third-Party Defendants: Sun Process Converting, Inc.; Nazdar Company; and Chicago Laminating, Inc., who it alleges were parties responsible for the alleged defects. Chicago Laminating now moves to dismiss, asserting the Court's lack of in personam jurisdiction over it.
DISCUSSION
I. Rule 12(b)(2) Motion to Dismiss for Lack of Personal JurisdictionIn this case, Rydin as Third-Party Plaintiff must show that the Court has personal jurisdiction over Chicago Laminating, as Third-Party Defendant. The Court may rule upon a defendant's motion to dismiss for lack of subject matter jurisdiction without an evidentiary hearing when the plaintiff has made a prima facie showing that personal jurisdiction is proper. In resolving a jurisdictional issue, the court may review pleadings, affidavits, interrogatories, depositions, oral testimony, exhibits, any part of the record, and any combination thereof. The requirement of a prima facie case does not require the Court to credit conclusory allegations, even if un-controverted.
A. Standard for Asserting Personal Jurisdiction
In a diversity action, the Court may exercise personal jurisdiction over a defendant to the extent permitted by state law. Thus, the Court must determine whether personal jurisdiction is appropriate under Chapter 17 of the Texas long-arm statute. Because this statute has been interpreted to extend to the limits of due process, this Court need only determine whether subjecting Chicago Laminating to suit in Texas would offend the due process clause of the Fourteenth Amendment.
Alpine View Co. v. Atlas Copco A.B., 205 F.3d 208, 214 (5th Cir. 2000); FED. R. CIV. P. 4(e)(1).
TEX. CIV. PRAC. REM. CODE § 17.001 et seq. (Vernon 1997).
Mink v. AAAA Development LLC, 190 F.3d 333, 335 (5th Cir. 1999); Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990).
This Court may exercise personal jurisdiction over Third-Party Defendant Chicago Laminating, a nonresident corporation, if Chicago Laminating has sufficient "minimum contacts" with Texas and the exercise of personal jurisdiction does not offend traditional notions of substantial justice and fair play. In making this determination, all uncontroverted, non-conclusory allegations by Third-Party Plaintiff Rydin, who here seeks to assert personal jurisdiction, will be accepted as true, and all factual conflicts between the parties will be resolved in favor of Rydin.
Central Freight Lines Inc. v. APA Transport Corp., 322 F.3d 376, 380-81 (5th Cir. 2003).
Alpine View, 205 F.3d at 214.
The constitutionally required "minimum contacts" here can be established through a showing that Chicago Laminating had contacts with Texas sufficient to assert either specific or general jurisdiction. When a nonresident defendant has "purposefully directed its activities at the forum state and the litigation results from alleged injuries that arise out of or relate to those activities," the defendant's contacts are sufficient to support the exercise of specific jurisdiction over that defendant. Courts may assert general jurisdiction when a defendant's contacts with the forum state are substantial and "continuous and systematic" but unrelated to the instant cause of action.
See AAAA Development, 190 F.3d at 335.
See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985).
See Central Freight Lines, 322 F.3d at 381; Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n. 8 (1984).
Rydin, as the party seeking to have the Court assert jurisdiction, has not argued that the Court can assert general personal jurisdiction over Chicago Laminating. Rather, Rydin has argued that the Court may exercise specific personal jurisdiction. For this reason, the Court need not determine whether it could exercise general personal jurisdiction over the third-party defendant.
Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 868 (5th Cir. 2001).
B. Specific Personal Jurisdiction Over Chicago Laminating
Under the controlling authorities, the Court may not exercise specific jurisdiction over Chicago Laminating unless Rydin meets its burden of showing that Chicago Laminating had sufficient minimum contacts with Texas. The Supreme Court has stated that a defendant's placement of its product into the stream of commerce with the knowledge that the product will be used in the forum state is sufficient to constitute minimum contacts. The Fifth Circuit has interpreted World-Wide Volkswagen to hold that "mere foreseeability or awareness is a constitutionally sufficient basis for personal jurisdiction if the defendant's product made its way into the forum state while still in the stream of commerce."
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298 (1980).
Ruston Gas Turbines, Inc. v. Donaldson Co., 9 F.3d 415, 419 (5th Cir. 1993) (quoting Asahi, 480 U.S. at 111).
In Asahi Metal Industries Co. v. Superior Court, a divided Supreme Court again addressed the issue of minimum contacts and the World-Wide Volkswagen's holding regarding minimum contacts. Justice O'Connor, writing for a plurality of the Court, articulated a standard requiring more than mere foreseeability that products would wind up in the forum state. Justice O'Connor provided examples of "additional conduct" required to satisfy what has later been referred to as the "stream-of-commerce-plus" test.
Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102 (1987).
Asahi, 480 U.S. at 112("The placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum state . . .").
Ruston Gas Turbines, 9 F.3d at 419 (citing Asahi, 480 U.S. at 112) (such additional conduct includes "(1) showing an intent or purpose to serve the market in the forum state; (2) designing the product for that state's market; (3) advertising in the forum state; (4) establishing channels to provide regular advice to customers in the forum state; or (5) marketing the product through a distributor-agent in the forum state.").
In Ruston Gas Turbines, the Fifth Circuit explained how it has responded to the Supreme Court's plurality decision in Asahi:
In the years after Asahi, the Fifth Circuit has continued to follow the original "stream-of-commerce" theory established in the majority opinion of World-Wide Volkswagen, and has rejected the "stream-of-commerce-plus" theory advocatedby the Asahi plurality. [citing Irving v. Owens-Corning Fiberglas Corp.]; Bearry v. Beech Aircraft Co., 818 F.2d 370, 375 (5th Cir. 1987) (noting that "[t]he dimension of the 'stream of commerce' doctrine now divides the Supreme Court" and referring to the "uncertainty" evident in Asahi). In Irving, 864 F.2d at 386, this circuit stated:
"Because the Court's splintered view of minimum contacts in Asahi provides no clear guidance on this issue, we continue to gauge [the nonresident defendant]'s contacts with Texas by the stream of commerce standard as described in World-Wide Volkswagen and embraced in this circuit."
Thus, despite the Supreme Court's plurality opinion in Asahi, the Fifth Circuit continues to follow the "stream-of-commerce" theory articulated in World-Wide Volkswagen and echoed in earlier Fifth Circuit cases such as the Bean Dredging case. In Bean Dredging, the Fifth Circuit noted that the stream-of-commerce theory is designed for application to companies that purposefully serve markets broader than the states in which their initial or direct sales are made.
Bean Dredging Corp. v. Dredge Technology Corp., 744 F.2d 1081 (5th Cir. 1984).
See Bean Dredging, 744 F.2d at 1084.
Based upon the reasoning in Bean Dredging and despite the Supreme Court's Asahi decision, the Fifth Circuit applies the stream-of-commerce theory when determining whether a defendant has had minimum contacts sufficient to support a finding of personal jurisdiction. Most relevant, the Fifth Circuit upholds jurisdiction over companies that manufacture component parts in one state for incorporation into a finished product in a second state and sale to customers in a third state.
Ruston Gas Turbines, 9 F.3d at 420; Ham v. La Cienega Music Co., 4 F.3d 413, 416 n. 11 (5th Cir. 1993); Gulf Consol. Servs., Inc. v. Corinth Pipeworks, S.A., 898 F.2d 1071, 1073 (5th Cir. 1990).
Gulf Consol. Servs., 898 F.2d at 1073; Bean Dredging, 744 F.2d at 1085.
Here, Chicago Laminating seeks to dismiss the third-party claims that Defendant Rydin seeks to assert against it, arguing that the Court does not have jurisdiction over these claims because Chicago Laminating has no contacts with Texas and it would violate due process to subject it to jurisdiction. Rydin asserts that Chicago Laminating was aware that its products would be placed into the stream of commerce and would ultimately be received by end users located outside of Illinois. Further Rydin argues that Chicago Laminating should have been able to foresee that its products would end up in Texas.
On May 11, 2005, Rydin sought leave to submit additional briefing regarding facts that had emerged related to the Court's in personam jurisdiction over Chicago Laminating. Because the Court finds that additional facts are crucial to its understanding of the jurisdictional bases for asserting jurisdiction over Chicago Laminating, it will grant this request.
Affidavit testimony submitted by Chicago Laminating shows that the company has had virtually no contacts with Texas; does not do any business here; has never sent sales representatives to Texas; has never directed marketing, advertising, or sales efforts directly to Texas residents; has never recruited Texas residents for employment, either inside or outside of Texas; and has no other type of operations in Texas. Based upon this situation, Chicago Laminating argues that the Court has no basis upon which to assert personal jurisdiction over it.
In its recently-submitted materials, Rydin points to the product at issue in this suit, decals manufactured for Plaintiff VP Racing. Rydin attaches a photocopy of one such label to its submission. As Rydin argues, the label shows that the product is made by VP Racing and provides contact information for VP Racing's offices around the world. In particular, Rydin notes that the label identifies VP Racing's headquarters in San Antonio, Texas, providing Chicago Laminating with a basis for believing that the finished product — laminated decals produced for VP Racing — would be put to use back in Texas.
Rydin also submits a letter sent by Chicago Laminating addressed to Rydin's president, Christina Gonzalez. The letter references storage of completed decals in a warehouse in Texas. Rydin argues that this shows clearly that Chicago Laminating knew or should have known that the products found their way to Texas.
In Oswalt v. Scripto, Inc., the Fifth Circuit held that there is no distinction between whether a defendant knew or should have known that its product would reach a particular state. Thus, if the Court finds that Chicago Laminating should have known that its product would reach Texas while in the stream of commerce, then in personam jurisdiction over it is proper.
616 F.2d 191, 200 (5th Cir. 1980).
Responding to the additional evidence submitted by Rydin, Chicago Laminating argues that it was under no duty to review the decals and attempt to imagine where they might travel while in the stream of commerce. Chicago Laminating further argues that the letter from its representative, Mr. Neimac, was sent in June 2004, well after the initiation of this case and significantly after the product left the possession of Chicago Laminating for delivery to Rydin. As a result, Chicago Laminating argues that the letter provides no evidence that it knew or should have known, when it initially conducted business with Rydin, that its products would be sold in Texas.
Rydin replies that, based upon the information contained upon the decals it sent for lamination, Chicago Laminating should have known that the finished decals would find their way into Texas through the stream of commerce. Further, Rydin replies that the letter sent in June 2004 was sent prior to claims being asserted against Chicago Laminating and does indeed show knowledge on the part of Chicago Laminating that the decals would be stored or sold in Texas.
The Court finds that the question of its in personam jurisdiction over Chicago Laminating is close and that neither side's arguments are supported by overwhelming evidence. However, when jurisdictional facts are disputed, the Court must resolve all conflicts in favor of the party seeking to assert jurisdiction, here Rydin. Further, given the Fifth Circuit's adherence to the pre- Asahi stream-of-commerce test described above, the Court need only find that it would be foreseeable to Chicago Laminating that its products could be sold in Texas. Based upon the facts that have been alleged and presented to it, the Court finds that Chicago Laminating could easily have foreseen that the VP Racing decals would come to be used in Texas. The fact that the decals themselves provided information that VP Racing had its headquarters in San Antonio, Texas is compelling support for this conclusion, although not the only fact that Rydin marshaled in its arguments.
E.g, Ruston Gas Turbines, 9 F3d at 418; Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990).
Based upon all the information before it, the Court finds that Rydin has established the Court's in personam jurisdiction over Chicago Laminating. The Court will continue to monitor the factual basis for its jurisdiction as the parties conduct discovery related to Chicago Laminating and their role in creating the allegedly defective decals at issue here. If, at the close of discovery Chicago Laminating continues to believe that there is insufficient basis for the Court's assertion of personal jurisdiction over it, the Court will entertain additional motions on this issue. However, at this time, the Court finds that it must deny Defendant's motion to dismiss for lack of specific, in personam jurisdiction.
CONCLUSION
Accordingly, it is ORDERED that Third-Party Defendant's Motion for Leave (Docket No. 62) should be GRANTED.
It is further ORDERED that Third-Party Defendant's Motion to Dismiss (Docket No. 15) be GRANTED.