SII Megadiamond, Inc. v. American Superabrasives Corp.SII Megadiamond, Inc. v. American Superabrasives Corp.
Lead Opinion
SII MegaDiamond, Inc., located in Provo, Utah, appeals from the trial court’s dismissal of its suit on the basis of lack of personal jurisdiction. The suit sought to recover payment due from a New Jersey distributor that purchased industrial diamond products on 170 invoices ordered via fax and telephone.
FACTS
In February 1995, plaintiff SII MegaDia-mond, Inc. (“SII”), a Utah-based manufacturer of industrial diamonds, and defendant American Superabrasives Corp. (“ASC”), then a New York corрoration with its offices in New Jersey, signed a three-year nonexclusive distribution agreement covering the United States and six foreign countries. ASC, the distributor, projected that sales would total $2.6 million in 1995 alone. During the following two years, ASC placed orders by telephone and fax and paid by cheeks made payable to SII in Provo, Utah. SII shipped orders from Provo either to ASC in New Jersey or directly to ASC’s customers. However, during the period between October 1995 and July 1996, ASC failed to pay 170 of the invoices, totaling $118,000.
In March 1995, unbeknownst to SII, ASC underwent a corporate dissolution in New York and shortly thereafter reincorporated in New Jersey under the same name and at the same business address (“ASÓ II”). During the dissolution period, SII continued to receive payments by check from ASC.
On August 9, 1996, SII filed this action against ASC in the fourth district court, joining as defendants corporate officers Thomas Corcoran and Christopher Daniеlak and seeking to recover payment on the delinquent invoices. Defendants removed the case to the United States District Court for the District of Utah and filed their answer to the complaint from which SII first learned of the dissolution and reincorporation. The answer did not object to jurisdiction in the federal court but stated, “Defendants allege as a separate affirmative defense that should this matter be remanded to state court, such сourt lacks personal jurisdiction over defendants.” The United States District Court concluded that the removal was untimely and remanded the case to the fourth district court. SII then amended its complaint, designating ASC predissolution as ASC I and post-reformation as ASC II.
ASC moved for dismissal of the amended complaint, arguing that the court had no jurisdiction over it under Utah Code Ann. § 78-27-24, Utah’s long-arm statute, and also under the right to due process guaranteed under Amendment XIV, Seсtion 1 of the United States Constitution. Section 78-27-24 provides in relevant part:
Any person ..., whether or not a citizen or resident of this state, who in person or through an agent does any of the following enumerated acts, submits himself, and if an individual, his personal representative, to the jurisdiction of the courts of this state as to any claim arising from:
(1) The transaction of any business within this state....
The district court heard oral arguments, concluded that ASC lacked sufficient minimum contacts with Utah to support jurisdiction, аnd granted its motion to dismiss, relying on
ANALYSIS
The “ultimate ruling on an issue of jurisdiction is one of law as applied to facts as properly determined.” Transamerica Title Ins. Co. v. United Resources, Inc.,
ASC contends that it did not transаct business in Utah as defined by the long-arm statute and that it lacked sufficient minimum contacts with Utah to support jurisdiction under the Fourteenth Amendment guarantee of due process of law.
1. SPECIFIC PERSONAL JURISDICTION UNDER THE UTAH LONG-ARM STATUTE AND FOURTEENTH AMENDMENT DUE PROCESS
The legislature has expressly stated an intent “to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution.” Utah Code Ann. § 78-27-22. This court has explicitly upheld that policy. See Synergetics v. Marathon Ranching Co.,
A. Jurisdiction Under the Long-Arm, Statute
ASC denies that it has transacted any business within Utah. However, in Synergetics, we noted that section 78-27-23(2) defines “ ‘transaction of business within the state’ ” as “ ‘[t]he activities of a nonrеsident person, his agents, or representatives in this state which affect persons or businesses within the State of Utah.’”
Although the distribution agreement was not a contract per se, since neither party was bound to perform, each order that ASC sent and SII received in Utah was an offer to form a contract. “The offer of a promise for an act takes place ... in the sending of an order for goods to а merchant or manufacturer.” 17 C.J.S. Contracts § 36(1) (1963). SII’s shipment of goods in response to an order constituted acceptance of ASC’s offer. “Under the Uniform Commercial Code an order or offer to buy goods for prompt or current shipment may be accepted either by shipping the goods or promptly promising to do so.... ” 67 Am.Jur.2d Sales § 145 (1985) (footnotes omitted); see also 17 C.J.S. Contracts § 41(d) (1963) (“An acceptance of an offer may be by act.... In such a case, performance is the only thing needful to complete the agreement and to create a binding promise-”). “In cases involving a contract which possesses possible elements in two or more jurisdictions ... the place where the last act is done which is necessary to complete the contract and give it validity is generally regarded as the place in which the contract is made.” 16 Am.Jur.2d Conflict of Laws § 97 (1998) (footnotes omitted). Therefore, “[a]n informal contract consisting of an offer in one state and an acceptance in another is usually regarded as having been made in the latter state.” Id. § 98 (footnote omitted).
Here, both the receipt of the offer and the “last act” needed to form the contract occurred in Utah. Furthermore, payment to SII constituted ASC’s performance of its contractual promise, and default constituted breach of the contract. Consequently, the orders and shipments constituted hundreds of individual contracts, аll formed and performed, or with performance due, in Utah, and all bound together into a course of business by the distribution agreement. As we held in Synergetics, the formation of a contract within a state involving a state resident qualifies as transaction of business for purposes of the long-arm statute.
Additionally, other connections are stronger in the instant case than in Synergetics. SII is located in Provo, Utah. The parties signed a three-year distribution agreement that ASC considеred significant enough to set out on its letterhead. ASC subsequently produced a sales forecast of $2.6 million for 1995 alone and represented that it would hire a full-time marketer to promote the SII products. Thereafter, almost weekly orders and shipments followed. These transactions pertained to the distribution agreement and therefore constituted part of a course of business, not isolated events. In short', pursuant to a three-year сommercial agreement involving a Utah-based corporation, ASC submitted continuous orders for a product manufactured in Utah. The orders were received in Utah, filled in Utah, and invoiced in Utah, and the products were shipped from Utah. ASC mailed its payments to Utah, and its default on the payments injured a corporation. All of these activities “affectfed] persons or businesses within the State of Utah.” Synergetics,
Nonetheless, ASC relies on CPC-Rexcell, Inc. v. La Corona Foods, Inc.,
The Supreme Court clarified the role of mail and wire transactions in Burger King, stating:
[I]t is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communicаtions across state lines,*435 thus obviating the need for physical presence within a State in which business is conducted. So long as a commercial actor’s efforts are “purposefully directed” toward residents of another State, we have consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there.
B. Fourteenth Amendment Due Process Requirements
Expanding interstate business and the increasing necessity to protect state residents also gives rise to a converse consideration of due process protection for defendants. ASC expresses a legitimate concern with protecting parties from unforeseeably being haled into court in a foreign jurisdiction regarding a transitory or ephemeral transаction. Therefore, we turn to the analysis of jurisdiction under the due process requirements of the Fourteenth Amendment.
It is well established that jurisdiction must result from “ ‘minimum contacts with [the forum state] such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” ’ ” Synergetics,
ASC’s transaction of business in Utah, as discussed above, fulfills the requirement of “minimum contacts.” Additionally, “[b]y transacting business in this state, [defendant] satisfied the purposeful activity requirement of Hanson and Mallory.” Synergetics,
[a]ny nonresident business that confirms that it intends to act as a national and international distributor for a Utah business and then places hundreds of purchase orders for goods that are to be shipped and invoiced from Utah, with full knowledge that it must рerform its part of the bargain by paying for the goods in Utah[,]*436 should not be surprised when it gets haled into court after it fails to pay no fewer than 170 invoices.
ASC relies on Conn v. Whitmore,
Turning to the question of fairness to the parties and the interest of the state, we note that “where a defendant who purposefully has directed his аctivities at forum residents seeks to defeat jurisdiction, he must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.” Burger King,
The distribution agreement between SII and ASC covered the United States аnd six foreign countries. Clearly, ASC was conducting an interstate business. Additionally, the amount in controversy, $118,000, is large enough that ASC II is unlikely to default on its defense due to the burden of defending in a foreign forum. See id. Where the “amount in controversy ... is substantive compared to the costs of litigating the action,” there is only minimal possibility of defendants defaulting on the basis that they cannot afford to litigate in the forum. Id.
“Balanced against the inconvenience to the defendants is thе express interest the state has in ensuring protection to its residents from the acts of nonresidents.” Id. The legislature has clearly mandated, as discussed above, that the rules of jurisdiction be applied so as to give Utah residents the broadest protection permitted by the federal constitution. Therefore, to borrow the language from Burger King, “[w]e cannot conclude that [Utah] had no ‘legitimate interest in holding [ASC II] answerable on a claim relatеd to’ contacts [it] had established in that State.”
II. JURISDICTION OVER ASC I AND INDIVIDUAL CORPORATE OFFICERS
A. Long-Arm Jurisdiction
The current controversy arose after the dissolution of ASC I as a New York corporation and its reformation as a New Jersey corporation. The contested invoices relate only to the New Jersey corporation, ASC II. There is no cause of action against ASC I arising out of that corporation’s activity in Utah, and specific personal jurisdiction may be exercised only where “ ‘the cause of action arises out of or has substantial connection with the [in state] activity.’ ” Synergetics,
We note, however, that according to the record before us the only difference between the original and successor corporation was the place of incorporation. Even the business address remained the same, and business continued as usual. The corporation did business under the name of ASC both before and after the reformation, and the record does not indicate that any of the documents that SII received were altered. Indeed, ASC did not even notify SII of the change. ASC II continued to function under the original distribution agreement; therefore, its orders for SII products were madе pursuant to that agreement. See 19 Am.Jur.2d Corporations §§ 2631, 2647 (1986) (stating successor cor
SII joined corporate officers Corcor-an and Danielak as defendants. It contends that Utah has jurisdiction over those individual defendants because they transferred assets from ASC I to ASC II. However, specific personal jurisdiction arises only out of the actual transactions between the defendаnt and the forum state. “Minimum contacts must be found as to each defendant over whom the court exercises jurisdiction,” Home-Stake Prod. v. Talon Petroleum, C.A.,
B. Voluntary Submission to Jurisdiction
Although we have concluded that the Utah long-arm statute does not provide a basis for the exercise of personal jurisdiction over ASC I, Corcoran, and Danielak by Utah courts, SII nevertheless argues that the state district court erred in dismissing the action аgainst these defendants. In particular, it asserts that these defendants waived their objection to personal jurisdiction by submitting to the federal court’s personal jurisdiction without objection.
When a federal court acquires subject matter jurisdiction on the basis of diversity, the federal court must apply the law of the forum state, see Erie R.R. v. Tompkins,
The requirement of personal jurisdiction operates to protect defendants from “the burdens of litigating in a distant or inconvenient forum” and acts to “ensure that the States, through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a feder
CONCLUSION
We hold that the district court erred in dismissing SII’s action against ASC II on the basis of a lack of personal jurisdiction. The court had jurisdiction over ASC II under our long-arm statute and the exercise of that jurisdiction does not offend the Due Process Clause of the Fourteenth Amendment to the United States Constitution. The court also erred in dismissing the complaint against ASC I, Corcoran, and Danielak. They waived their objection to jurisdiction by the state court.
Reversed and remanded for further proceedings.
Notes
. For purposes of discussion, we will refer to ASC I and ASC II collectively as ASC and differentiate only where necessary.
. Section one of United States Constitution Amendment XIV provides, "No state ... shall ... deprive any person of life, liberty or property, without due process of law
. In 1996, Utah became the first state to enact legislation specifically governing "digital signatures” — a technology designed to assure the authenticity and privacy of electronic communications and transactions. See Utah Code Ann. §§ 46-3-101 to -504. Predictably, as electronic communications become increasingly private and secure, a greater рroportion of business transactions will utilize this technology and jurisdiction will be a critical issue.
. See Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1074 (10th Cir.1995) ("To obtain personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment.”); see also Kuenzle v. HTM Sport-Und Freizeitgerate AG,
Concurrence Opinion
concurring and dissenting:
I concur with the majority’s analysis regarding Utah’s long-arm statute. I dissent, however, with respect to the majority’s holding that the defendants waived personal jurisdiction by failing to assert lack of personal jurisdiction in federal court. I believe a defendant should be entitled to waive lack of personal jurisdiction in a diversity action in federal court and still assert lack of personal jurisdiction in a.state court, if the matter is remanded by the federal court. Historically, diversity jurisdiction was predicated on giving an out-of-state defendant a choice to offset any bias that might exist in a state court toward such a defendant. Whether sound or not, we still live with that notion.