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
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.,
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 &c.,
In
Innovative Clinical,
our Supreme Court reaffirmed its prior holding in
Gust v. Flint,
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 F2d 510 (5th
Cir. 1987);
State ex rel. Hydraulic Servocontrols Corp. v. Dale,
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 on the basis of transacting business in this state if (1) the nonresident defendant has purposefully done some act or consummated some transaction in this state, (2) if the cause of action arises from or is connected with such act or transaction, and (3) if the exercise of jurisdiction by the courts of this state does not offend traditional fairness and substantial justice.
(Footnote omitted.)
Aero Toy Store v. Grieves,
the burden on the defendant, the forum state’s interest in adjudicating the dispute, plaintiffs interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution to controversies, and the shared interest of the states in furthering substantive social policies.
(Footnote omitted.) Id. at 518 (1). Thus courts have determined that under due process “it is not unfair to require a corporation to respond to a suit in a state from which it derives the benefits and privileges of conducting business.”
Showa Denko K.K. v. Bangle,
In
Showa Denko,
this Court applied a due process analysis to determine whether sufficient minimum contacts existed to extend jurisdiction under subsection (2) of the long-arm statute over a
Japanese manufacturer of amino acids.
1
The manufacturer shipped its
The holding in Showa Denko rests firmly upon the authority of World-Wide Volkswagen Corp. v. Woodson, in which the U. S. Supreme Court stated:
[I]f the sale of a product of a manufacturer ... is not simply an isolated occurrence, but arises from the efforts of the manufacturer ... to serve, directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others. The forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.
The shipment of the damper in this case was not an isolated transaction. Evidence in the file indicates that Vibratech and TCM had a longstanding business arrangement. The two parties apparently entered into a supply contract, under which Vibratech sold as many as several hundred dampers per year to TCM for incorporation into its airplane engines. 2 In addition, the two parties entered into a side agreement in which TCM agreed to indemnify Vibratech and to carry the company as an additional insured on an aviation liability policy. The certification of insurance to Vibratech under this agreement indicates that the geographical limit of the coverage is “Worldwide.”
From the facts in this case, we can conclude that Vibratech shipped its products to TCM with the expectation that it would be installed in Cessna engines for re-sale to other locales across the country, including Georgia. Accordingly, although Vibratech did not conduct any sales activities in Georgia itself, “its business has been directly affected by sales transactions occurring here. To that extent, it has benefited from the protection which our laws have given to the marketing of Cessna aircraft containing its [dampers].” (Citation omitted.)
State ex rel. Hydraulic Servocontrols Corp. v. Dale,
[w]e are convinced that when the “transacting any business” language is read to extend to the limits of due process, it encompasses a case like the present one where a nonresident defendant ships goods to an intermediary with the expectation that the intermediary will distribute the goods [to] a region that includes [Georgia].
(Citation omitted.) McDaniel v. Armstrong World Indus., 603 FSupp. 1337, 1341 (D.C. 1985).
Turning to the third prong of the due process test, we must consider whether the exercise of jurisdiction by the trial court will offend traditional fairness and substantial justice. Three of the plaintiffs in this consolidated matter are residents of Georgia, and the other three are residents of surrounding states.
4
“Certainly, Georgia has an interest in providing an effective means of redress for citizens whose health and welfare have been injured by defective products which our commercial laws permit to be imported into the state.”
Showa Denko v. Pangle,
Accordingly, we find no error in the trial court’s denial of Vibratech’s motion to dismiss for lack of personal jurisdiction.
(b) Service of Process
The trial court also rejected Vibratech’s motion on the ground of insufficient service of process. This Court will uphold a trial court’s ruling on a motion to dismiss a complaint for insufficient service of process absent a showing of an abuse of discretion.
Woodyard v. Jones,
“OCGA § 9-10-94 directs that foreign corporations not registered to do business but nonetheless subject to Georgia’s long-arm
jurisdiction ‘may be served with a summons outside the state in the same manner as service is made within the state. . . ”
Rovema Verpackungsmaschinen, GmbH v. Deloach,
Vibratech contends, however, that service upon CT Corporation was invalid under Due
West Assoc. v. Renfroe Mining & Grading Co.,
Here, CT was listed as Vibratech’s agent for service of process with the Delaware Secretary of State, and under Delaware law, any resignation from that position must be filed with the Secretary of State. 8 Del. Code Ann. §§ 135, 136. While a corporate officer may resign his position by informing the corporation, CT’s correspondence notifying Vibratech it was withdrawing its services was insufficient under the law to effect its resignation as its designated corporate agent. It is undisputed that CT made no attempt to resign with the Secretary of State until after plaintiffs served their summonses and complaints in this case. Moreover, CT checked its own database in an attempt to confirm its representation and decided to accept service based upon that review. Thus Due West is inapposite.
Nevertheless, Vibratech contends that no service was effected because neither the corporation nor the bankruptcy trustee ever received actual notice of the complaint. But under Georgia law service does not necessarily require actual notice to a defendant. See, e.g., OCGA §§ 9-11-4 (f) (1) (service by publication); 14-2-504 (b) (3) (service automatically perfected within five days of proper mailing). In this case, the trial court found that Vibratech’s failure to receive actual notice was due to the corporation’s own failure, or that of its bankruptcy trustee, to take the requisite steps to alter its registered agent or to otherwise insure that service would be forwarded to the trustee, or some other appropriate person. Compare
Charming Shoppes of Delaware v. Parrish,
We cannot say that the trial court abused its discretion in denying Vibratech’s motion to dismiss on this ground. See generally
S. Donald Norton Properties v. Triangle Pacific,
(c) Bankruptcy Stay
Vibratech also sought dismissal on the ground that the lawsuits were void ab initio because they violated the automatic bankruptcy stay. The trial court determined that the claims in this case did not fall within the automatic stay under 11 USC § 362. 6 We agree.
The accident occurred 18 months after Vibratech filed for bankruptcy, and the issue arises as to whether the claims in this case must be considered as pre-petition or post-petition claims. A post-petition tort may not give rise to a claim against the bankruptcy estate in a Chapter 7 proceeding such as
(i) events occurring before confirmation create a relationship, such as contact, exposure, impact, or privity, between the claimant and the debtor’s product; and (ii) the basis for liability is the debtor’s prepetition conduct in designing, manufacturing and selling the allegedly defective or dangerous product.
Id. at 1577 (II) (B). Even assuming, without deciding, that the claims in this case could be considered pre-petition bankruptcy claims, the automatic stay does not apply to bar the plaintiffs recovery in this case.
The primary asset at issue is the insurance policy owned by TCM. It is not owned by Vibratech and thus is not an asset protected by the automatic stay. Vibratech asserts, however, that the side agreement established a separate right to indemnification by TCM, which was a pre-petition asset subject to the stay. But the indemnification under that side agreement was co-extensive with the insurance policy obtained by TCM under the terms of the agreement. Moreover, the side agreement remained in effect only so long as Vibratech accepted orders to supply dampers to TCM. Vibratech is a defunct corporation, and there is no evidence that it was continuing to accept orders at the time of the bankruptcy filing. In fact, the evidence indicates that the company sold most of its assets in May 2003. Thus no contractual right existed at the time of the bankruptcy. Rather, because the insurance policy at issue was acquired after the side agreement expired on its own terms and after Vibra-tech filed for bankruptcy, it was not subject to the automatic stay. See generally
In re Plexus Enterprise,
Our analysis is not altered by the fact that the plaintiffs in this case sought relief from the automatic stay, yet filed their complaints before receiving such relief. As we have found that the stay was not applicable to their claims, no such relief was required. And nothing in their actions in seeking the relief or in their pleadings in this case arise to the level of an admission or a waiver of this issue. Further, Vibratech did not oppose the plaintiffs’ motion to lift the stay, and the bankruptcy court ultimately granted such relief.
Accordingly, we find no error in the trial court’s denial of Vibratech’s motion to dismiss on this ground.
2. Motion to Open Default
Vibratech argues that the trial court erred in refusing to open default. OCGA § 9-11-55 (b) provides that a default may be opened on one of three grounds where four conditions are met. The three grounds are (1) providential cause, (2) excusable neglect, and (3) proper case. The four conditions are the defendant’s (1) showing made under oath, (2) offer to plead instanter, (3) announcement of ready to proceed with trial, and (4) setting up a meritorious defense.
Butterworth v. Safelite Glass Corp.,
Vibratech first argues that the answer and motion to open default filed on February 27, 2006 were timely because they were filed within 45 days of service of the parties’ amended complaint on January 12, 2006. Therefore, the trial court should have opened default as of right under OCGA § 9-11-55. Vibratech relies upon
McBee v. Benjamin,
Vibratech further contends that it has made out a proper case for opening default. As Vibratech notes,
the rule permitting opening of default is remedial in nature and should be liberally applied, for default judgment is a drastic sanction that should be invoked only in extreme situations. Whenever possible cases should be decided on their merits for default judgment is not favored in law.
(Citation omitted.)
Patterson v. Bristol Timber Co.,
whether and how the opposing party will be prejudiced by opening the default; whether the opposing party elected not to raise the default issue until after the time under OCGA § 9-11-55 (a) had expired for the defaulting party to open default as a matter of right; and whether the defaulting party acted promptly to open the default upon learning no answer had been either filed or timely filed. Further, any additional delay occasioned by a failure to file promptly for opening default upon its discovery can be considered in determining whether defendants’ neglect was excusable.
(Citation and punctuation omitted.)
Ford v. Saint Francis Hosp.,
We have found that Vibratech’s failure to receivedimely notice of the lawsuit is imputable to its own failure to properly advise authorities of its changed status and the withdrawal of its registered agent. In addition, the trial court noted that TCM had actual notice of these claims in December 2005, and plaintiffs filed a discovery request that month for TCM to produce a copy of the insurance policy. Although there was evidence that TCM had confirmed the existence of this policy and had notice of the side agreement by February 2006, the policy was not produced to plaintiffs until April 19, 2006. While lawyers for TCM undertook to file an answer on behalf of Vibratech on February 27, their motion to open default as of right was untimely, as the last date for filing such motion would have been January 16, 2006. The TCM attorneys, who undertook to act for Vibratech, failed to move to open the default judgment until three months later, on May 22, 2006, which was five months after the initial service. The trial court found that Vibratech failed to provide a reasonable excuse
Although we are aware that default is a harsh remedy and facts of this case are complicated, we cannot say that the trial court abused its discretion. It was not an abuse of discretion to charge Vibratech with TCM’s failure to properly act once they undertook to defend Vibratech in this lawsuit, as TCM is the only party who has undertaken any defense on Vibratech’s behalf. And both TCM and Vibratech have failed to provide a reasonable excuse for failing in a timely fashion to move to open default. Accordingly, we affirm the trial court’s denial of Vibratech’s motion. See, e.g.,
Broadcast Concepts v. Optimas Financial Svcs.,
Judgment affirmed.
Notes
Although
Showa Denko
determined that subsection (1) did not apply to the facts of that case, the decision was rendered before
Innovative Clinical.
In any event, the due process analysis employed in
Showa Denko
has equal application to subsection (1). See
Behar v. Aero Med Intl.,
Moreover, we note that an aircraft engine by its very nature is “inherently appropriate” for interstate travel.
Jet America v. Gates Learjet Corp.,
The fact that the accident occurred in Tennessee, not Georgia, does not affect this analysis. Unlike the language in subsections (2) and (3), nothing in the language of subsection (1) requires that the tortious act, omission or injury occur in this state. See also
State ex rel. Hydraulic Servocontrols Corp. v. Dale,
The other three plaintiffs are residents of states bordering Georgia and have submitted to jurisdiction here.
OCGA § 14-2-504 also provides that a foreign corporation without a registered agent in Georgia may be served by registered or certified mail or statutory overnight delivery, addressed to a specified corporate officer at the corporation’s principal office. But that statute specifically states that it “does not prescribe the only means, or necessarily the required means, of serving a corporation.” OCGA § 14-2-504 (c). Accordingly, nothing in this statute affects the validity of service in accordance with OCGA § 9-10-94.
State courts have concurrent jurisdiction with bankruptcy courts to determine the applicability of an automatic stay.
In re Pope,
Vibratech argues that the complaint was not limited to recovery under the insurance policy, but rather sought to recover any assets of Vibratech in violation of the automatic stay. Pretermitting whether any other such claims exist, this argument would not render the complaint itself void ab initio because it clearly asserted valid claims for assets not subject to the automatic stay. Thus Vibratech is bound by the filing and service of the original complaint. Moreover, plaintiffs sought relief from the stay before filing and were granted such relief “to the extent necessary” six days after filing the complaint; a subsequent amendment reasserted these claims. Under these circumstances, the policies underlying bankruptcy protection were not violated.