Opinion
Case No. 01-4139-JAR
June 10, 2002
ORDER GRANTING MOTION TO DISMISS CAROLINA WATERWORKS, INC. AS THIRD-PARTY DEFENDANT
Plaintiff DJ's Rock Creek Marina, Inc. filed this action against Imperial Foam and Insulation Manufacturing Company (Imperial Foam), for breach of warranty and other claims arising from Plaintiff's purchase of dock floats from Imperial Foam. In turn, Imperial Foam filed a third party complaint against Carolina Waterworks, Inc. seeking indemnification, based on Carolina Waterworks (CW) having provided Imperial Foam with the machine and design Imperial Foam used to manufacture the dock floats. In this diversity action, subject matter jurisdiction is not at issue. Plaintiff is a Kansas corporation, Imperial Foam is a Missouri corporation, and CW is a South Carolina corporation, whose registered agent and principal place of business is in South Carolina.
CW moves to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). (Doc. 25). Imperial Foam, as the third-party plaintiff, bears the burden of establishing personal jurisdiction over CW, the third-party defendant. This requires showing that jurisdiction is proper under the laws of the forum state, Kansas, and that the exercise of jurisdiction would not offend due process.
OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir. 1998) (citing Rambo v. American Southern Ins.Co., 839 F.2d 1415, 1417 (10th Cir. 1988)).
Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d 1244, 1247 (10th Cir. 2000).
In OMI Holdings, Inc. v. Royal Ins. Co. of Canada, the Tenth Circuit noted that because the Kansas long arm jurisdiction statute is liberally construed by Kansas courts, jurisdiction is generally considered proper under Kansas law and courts proceed directly to the due process issue. The Due Process Clause allows the exercise of personal jurisdiction over a nonresident defendant, so long as there are "minimum contacts" between the defendant and the forum state.
149 F.3d at 1090 (citing Federated Rural Elec. Ins. Corp. v. Kootenai Elec. Coop., 17 F.3d 1302, 1305 (10th Cir. 1994)).
Intercon, 205 F.3d at 1247 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980)).
The minimum contacts standard may be met in one of two ways: specific jurisdiction or general personal jurisdiction. Specific jurisdiction exists if the nonresident defendant has "purposefully directed his activities at residents of the forum, and the litigation results from alleged injuries that arise out of or relate to the activities." Both the quantity and quality of the defendant's contacts with the forum are considered.
Id. (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472(1985)).
Specific jurisdiction exists when the defendant has intentionally sought to do business in the foreign jurisdiction, and the injuries arise from the defendant's forum related activities.
Burger King Corp. v. Rudzewicz, 471 U.S. at 475.
OMI Holdings, 149 F.3d at 1091.
Imperial Foam acknowledges that the court lacks specific jurisdiction over the person of CW, but contends that the court has general personal jurisdiction over CW. General personal jurisdiction exists when the defendant's contacts with the forum state are "so continuous and systematic that the state may exercise personal jurisdiction even when the claims are unrelated to the defendant's contacts with the forum state."
SF Hotel Co., L.P. v. Energy Investments, Inc., 985 F. Supp. 1032, 1033 (D.Kan., 1997) (citing Trierweiler v. Croxton and Trench Holding Corp., 90 F.3d 1523, 1532-33 (10th Cir. 1996)).
For such jurisdiction to exist, the defendant must be conducting "substantial and continuous local activity in the forum state." General personal jurisdiction does not require that the actionable conduct have a direction relationship to the jurisdiction.
Soma Medical Intern. v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999) (citation omitted).
The question presented in this case is whether CW's interactive web site, which is accessible to residents of Kansas, constitutes "substantial and continuous local activity" to render general personal jurisdiction over CW. As early as 1958, the Supreme Court recognized that technology, and its effect on the manner and mode of business transactions would increase the flow of commerce among the States and would affect the long arm jurisdiction of courts.
Hanson v. Denckla, 357 U.S. 235, 250-51, 78 S.Ct. 1228, 1237-39, 2 L.Ed.2d 1283 (1958).
Some forty years later, in Zippo Mfg. Co. v. Zippo Dot Com, Inc., the court echoed the Supreme Court's remarks in discussing the effect of internet web sites on specific jurisdiction. The court in Zippo noted that the "likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet." The court characterized internet business as falling into one of three categories along a sliding scale.
952 F. Supp. 1119 (W.D.Pa. 1997).
Id. at 1122-23.
Id. at 1124.
Id.
Personal jurisdiction clearly exists over businesses in the first category, which actually transact business with residents of the foreign jurisdiction by means of the internet by entering into contracts that require the "knowing and repeated transmission of computer files over the Internet." Personal jurisdiction clearly does not exist over businesses in the second category, who merely maintain "[a] passive Web site that does little more than make information available to those who are interested in it . . ."
Id.
Id.
In the middle of the sliding scale are businesses that have an interactive web site allowing users to exchange information with the host computer. Whether that interactivity renders the defendant subject to jurisdiction in the particular forum depends upon "the level of interactivity and commercial nature of the exchange of information that occurs on the Web site." The Zippo court concluded that it had specific personal jurisdiction over the defendant because the defendant had sold subscriptions to its internet news service to more than 3000 residents of the forum state, and had contracted with seven internet access providers in the forum state to permit these subscribers access to the news service.
Id.
Id.
Id. at 1125-1126.
A number of other courts, have used the Zippo sliding scale analysis to determine whether there are sufficient minimum contacts to exercise personal jurisdiction over a defendant. Most of these cases use that analysis, as the Zippo court did, to determine whether the nature and quality of commercial activity over the internet web site constitute purposeful action for purposes of exercising specific jurisdiction.
See Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d at 1247-48 (defendant's routing of its customer's email through an Oklahoma mail server purposefully directed its activities to render specific jurisdiction over defendant); Panavision Intern., L.P. v. Toeppen, 141 F.3d 1316, 1322 (9th Cir. 1998) (defendant who established a web site using another company's trademark as domain name, demanding payment to release domain name, had purposefully directed itself in manner warranting exercise of specific jurisdiction); See also SF Hotel Co. v. Energy Invs., Inc., 985 F. Supp. at 1034.
In Soma Medical International v. Standard Chartered Bank, the Tenth Circuit used the Zippo sliding scale analysis to determine whether there was specific or general personal jurisdiction. The court concluded that there was no specific jurisdiction over a defendant who maintained a passive web site, did not solicit business in the forum, and whose contacts with the forum were a limited number of faxes, wire transfers of funds and other written communications concerning the account at issue. The court further concluded that there was no general personal jurisdiction over the defendant because none of the factors Utah courts considered in finding general jurisdiction existed. The court concluded that the defendant's maintenance of a passive web site did not constitute the"substantial and continuous local activity" necessary to find general jurisdiction.
196 F.3d 1292 (10th Cir. 1999).
Id. at 1299.
Id. at 1295-96 (citing Buddensick v. Stateline Hotel, Inc., 972 P.2d 928, 930-31 (Ut.Ct.App. 1998), cert. denied, 528 U.S. 928 (1999)). Those factors include whether in the forum state the corporate defendant: is engaged in business; licensed to do business; owns, leases or controls property; pays taxes; has employees, offices, agents or bank accounts; has shareholder who are residents of the state; advertises or solicits business; visits potential customers, has a sales force who travels to state, recruits employees or generates a substantial percentage of its national sales through revenue generated from in-state customers.
Id.
CW's web site is not passive. CW's web site ends in ".com," has an online catalogue of 122 products under 48 product headings, and allows customers to order online or through a toll-free number. Interested persons may email to CW inquiries about the products, including a request for quote ("RFQ"). They may also set up a customer account number online, including their employer tax identification number. Kansas residents have access to the web site, and thus are able to transmit RFQ's as well as make purchases over the web site. CW's web site is in the middle category along the Zippo sliding scale.
Yet, CW's contact with residents in Kansas is limited to its web site; it has no traditional types of business contacts in this state. CW is not licensed to do business in Kansas, does not own, lease or control property here, does not maintain offices, employees, agents or bank accounts in Kansas, nor do its employees travel to Kansas for sales or other business transactions.
Courts have generally not found general personal jurisdiction premised solely on a defendant's internet web site, but have relied on traditional business contacts as well as the web site to find general jurisdiction. For example, in Mieczkowski v. Masco Corp., a products liability action, the court found general personal jurisdiction by virtue of defendant's "traditional business contacts" in the forum coupled with defendant's interactive web site whose online ordering system had the potential to reach millions of residents in the forum state. The court declined to rule on whether the web site and its potential to reach residents were alone sufficient to create general personal jurisdiction.
997 F. Supp. 782, 785-86 (E.D.Tex. 1998)
Id. at 785-786.
Id. at 788.
In SF Hotel Co. v. Energy Investments, Inc., the court found that the defendant's passive web site coupled with a single traditional business contact, and the defendant's informational brochures which had been distributed to Kansas residents at their request, did not rise to the level of continuous and systematic activity in Kansas.
In Coastal Video Communications Corp. v. Staywell Corp., the court granted the plaintiff's motion for discovery of information pertinent to the nature and extent of defendant's traditional business contacts, as well as defendant's actual "[i]nternet-based contacts" in the forum state. The court specifically found that there must be proof that the web site actually reaches residents of the forum state; the mere potential to reach residents did not constitute "continuous and systematic" activity in the forum state.
59 F. Supp.2d 562, 569-70 (E.D.Va. 1999) (defendant had a web site that included a product ordering system, advertisements, a toll free numbers for inquires about products, the means to download a free demo of product, job opportunities and ability to email resume to company over the internet. This the court likened to an "on-line storefront that is readily accessible to every person in Virginia with a computer, a modem, and access to the World Wide Web).
Id.
Although Imperial Foam has similarly filed a motion to conduct discovery on the issue of general personal jurisdiction, the Court declines to grant the motion; unlike the Coastal Video case, there is absolutely no showing that CW has any traditional business contacts in Kansas. Furthermore, the affidavit of CW's Keith Rogerson establishes that CW has had no actual internet-based contacts with residents of Kansas: no sales, no inquiries, no requests for quotes, no emails, nor any phone calls, letters or contacts emanating from the web site information. Rogerson states that CW's web site was created in July 2001, but has never received an RFQ nor an order from a Kansas resident, and CW has never made a sale to a Kansas resident, nor ever had any correspondence from a Kansas resident over the internet or otherwise.
(Doc. 29) filed April 8, 2002.
Defendants in the middle category need not necessarily enter into contracts with residents of the forum state, but must point to the real possibility of actual sales, by virtue of hits on the internet site, inquiries, requests for quotes, or other indicators of active rather than mere pedestrian interest. Although discovery might reveal whether there have been any "hits" from Kansas residents on the web site, that alone would not evidence continuous and substantial activity by CW in the state of Kansas. Absent actual sales, or absent other traditional business contacts coupled with indicia of actual interest generated by the web site, general personal jurisdiction does not exist.
Even if this Court determined that the minimum contacts necessary to show general jurisdiction exist, that does not end the Court's due process analysis. The court must further determine whether exercising jurisdiction over CW would be reasonable. In OMI Holdings, the Tenth Circuit outlined the factors for considering the reasonableness of jurisdiction: the burden on the defendant; the forum state's interest in resolving the dispute; the plaintiff'`s interest in receiving convenient and effective relief; the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interest of the several states in furthering fundamental substantive social policies. The court further observed that
[t]he strength of these factors sometimes serve to establish the reasonableness of jurisdiction upon a lesser showing of minimum contacts than would otherwise be required. . . . Conversely, the factors may be so weak that even though minimum contacts are present, subjecting the defendant to jurisdiction in that forum would offend due process.
Id.
The court in OMI Holdings further noted that the burden on the defendant is of primary concern, though not determinative of the issue of reasonableness. It would clearly be burdensome on CW, which does not do business in Kansas and does not have a registered agent nor any business presence here, to litigate in Kansas. It is also clear that Kansas has an important interest in providing a forum where its residents can seek redress for injuries allegedly caused by nonresidents. Here, DJ's Rock Creek, the resident plaintiff, purchased allegedly defective product from Imperial Foam, a nonresident, who in turn blames CW, another nonresident. Although Kansas has an interest in plaintiff getting redress here, it has less interest in nonresident defendant Imperial Foam's third party complaint nonresident CW for indemnification. And, plaintiff's interest in effective and convenient relief is not affected by Imperial Foam's third-party petition against CW. Thus, even if the Court were satisfied that CW's web site provided sufficient minimum contacts for general jurisdiction, the Court would have difficulty finding that exercising general jurisdiction over CW would be reasonable under these circumstances. Therefore, the Court grants CW's motion to dismiss for lack of personal jurisdiction.
Id.
IT IS THEREFORE ORDERED that the motion to dismiss Carolina Waterworks, Inc. as a third-party defendant (Doc. 25) is GRANTED.
IT IS FURTHER ORDERED that the motion of Imperial Foam to conduct discovery on the issue of personal jurisdiction (Doc. 29) is DENIED.
IT IS THUS ORDERED.