Flannery v. Thermasteel Corporation, Inc., d/b/a Thermasteel
1:13-cv-00038
D.V.I.Aug 25, 2016Background
- Plaintiffs Timothy Flannery and Linda Morse (residents of the U.S. Virgin Islands) sued ThermaSteel (a Virginia corporation) for negligence and breach of express and implied warranties related to a house on St. Croix built using ThermaSteel panels.
- ThermaSteel had a longstanding distributorship relationship (Distributor Agreement and annual addenda) with Vestindien/All Rounder Systems, LLC (ARS), which ThermaSteel designated as its exclusive distributor in the U.S. Virgin Islands.
- Plaintiffs contracted with ARS under a Construction Management Agreement to build the house using ThermaSteel panels; ThermaSteel employees exchanged emails, reviewed and drafted design drawings, and communicated with ARS and the project architect.
- ThermaSteel moved to dismiss for lack of personal jurisdiction (Rule 12(b)(2)) and for failure to state a claim (Rule 12(b)(6)), and alternatively sought a stay to compel arbitration under a dispute clause in the ARS/owners contract.
- The court conducted limited discovery on jurisdictional facts and denied plaintiffs’ motions to strike the Construction Management Agreement and for Rule 11 sanctions. The court considered whether the Virgin Islands long-arm statute and due process permitted jurisdiction, and whether the economic-loss doctrine or pleading defects required dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction (Long-Arm Statute) | ThermaSteel transacted business in the V.I. via the distributorship and active involvement in plaintiffs’ project | ThermaSteel had no sufficient V.I. contacts; distributor was independent | Court: Jurisdiction proper under V.I. long-arm (§4903(a)(1),(2),(4)) based on distributorship and ThermaSteel’s project involvement |
| Due process / Minimum contacts (general & specific jurisdiction) | ThermaSteel purposefully directed activities to V.I.; should anticipate suit there | ThermaSteel’s contacts are insufficient and attenuated by use of exclusive distributor | Court: Minimum contacts satisfied; both general contacts and specific jurisdiction supported by ThermaSteel’s continuous V.I. dealings and project-specific conduct |
| Rule 12(b)(6) — economic-loss doctrine (negligence/product defect) | Plaintiffs assert negligence based on ThermaSteel’s design/oversight and warranty claims; not merely product defect | ThermaSteel: tort claims are barred by the economic-loss doctrine because losses arise from contractual relationship | Court: Economic-loss doctrine bars recovery only to the extent plaintiffs seek purely product-value/repair replacement economic losses; negligence claims based on ThermaSteel’s independent involvement in design/oversight may proceed; breach-of-warranty claim not barred and survives pleading challenge |
| Arbitration (binding clause in ARS–Owners contract) | Plaintiffs did not agree to arbitrate with ThermaSteel; arbitration clause governs only ARS and Owners | ThermaSteel: arbitration clause in the Construction Management Agreement should bind ThermaSteel because it was the real party responsible / agent | Court: Denied stay/compel as to ThermaSteel — ThermaSteel was not a signatory to that contract and the clause governs disputes between ARS and Owners only; plaintiffs cannot be compelled to arbitrate with ThermaSteel on that basis |
Key Cases Cited
- Cateret Sav. Bank, F.A. v. Shushan, 954 F.2d 141 (3d Cir. 1992) (plaintiff bears burden to prove personal jurisdiction by a preponderance and must submit competent evidence)
- Marten v. Godwin, 499 F.3d 290 (3d Cir. 2007) (distinguishes general and specific personal jurisdiction and related analyses)
- Metcalfe v. Renaissance Marine, Inc., 566 F.3d 324 (3d Cir. 2009) (evidence required to withstand 12(b)(2); construing long-arm transacting-business and contracting provisions)
- Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61 (3d Cir. 1984) (12(b)(2) often requires resolution of factual issues beyond pleadings)
- International Shoe Co. v. Washington, 326 U.S. 310 (U.S. 1945) (minimum contacts / due process standard)
- World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (U.S. 1980) (foreseeability that defendant may be haled into court in forum)
- Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (U.S. 1984) (general jurisdiction requires systematic and continuous contacts)
- O'Connor v. Sandy Lane Hotel Co., Ltd., 496 F.3d 312 (3d Cir. 2007) (three-part test for specific jurisdiction)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state a claim plausibly on its face)