Hill v. Denko
Annotate this CaseSeptember 1992 Term
___________
No. 20904
___________
SYLVIA HILL, BY HER COMMITTEE, DONALD HILL;
and DONALD HILL, COMMITTEE FOR SYLVIA HILL,
Plaintiff Below, Appellants,
v.
SHOWA DENKO, K.K., A JAPANESE CORPORATION;
SHOWA DENKO AMERICA, INC., A NEW YORK CORPORATION;
P. LEINER NUTRITIONAL PRODUCTS, INC.,
OF DELAWARE, A DELAWARE CORPORATION;
P. LEINER NUTRITIONAL PRODUCTS, INC.,
OF CALIFORNIA, A CALIFORNIA CORPORATION;
RITE AID CORPORATION, A DELAWARE CORPORATION;
RITE AID OF WEST VIRGINIA, INC.,
A WEST VIRGINIA CORPORATION,
Defendants Below,
SHOWA DENKO, K.K., A JAPANESE CORPORATION,
Appellee
_______________________________________________________
Appeal from the Circuit Court of Kanawha County
Honorable John Hey, Judge
Civil Action No. 90-C-3098
REVERSED
_______________________________________________________
Submitted: September 22, 1992
Filed: December 17, 1992
Marvin W. Masters
Barbara H. Lupton
Masters & Taylor
Charleston, West Virginia
Attorney for the Appellants
P. Michael Pleska
Fazal A. Shere
Bowles, Rice, McDavid, Graff & Love
Charleston, West Virginia
and
Richard W. Hulbert
Cleary, Gottlieb, Steen & Hamilton
New York, New York
and
Richard deC. Hinds
Sara D. Schotland
Matthew D. Slater
Cleary, Gottlieb, Steen & Hamilton
Washington, D.C.
Attorneys for the Appellee,
Showa Denko K.K.
JUSTICE BROTHERTON delivered the Opinion of the Court.
SYLLABUS BY THE COURT
1. "The standard of jurisdictional due process is that
a foreign corporation must have such minimum contacts with the
state of the forum that the maintenance of an action in the forum
does not offend traditional notions of fair play and substantial
justice." Syllabus Point 1, Hodge v. Sands Manufacturing Company,
151 W.Va. 133, 150 S.E.2d 793 (1966).
2. Personal jurisdiction "premised on the placement of
a product into the stream of commerce is consistent with the Due
Process Clause" and can be exercised without the need to show
additional conduct by the defendant aimed at the forum state.
Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 117, 107 S. Ct. 1026, 94 L. Ed. 2d 92 (1987).
Brotherton, Justice:
This case involves the appeal of Sylvia and Donald Hill
from the June 18, 1991, order of the Circuit Court of Kanawha
County in which Showa Denko K.K. (SDK) was dismissed from a lawsuit
filed by the Hills against SDK and several other parties. In that
order, Judge Hey found that West Virginia could not exercise
personal jurisdiction over SDK.
On December 22, 1988, Sylvia Hill became ill while taking
a drug L-tryptophan for a sleep disorder, on the advice of her
physician. It was eventually discovered that she had developed a
rare blood disorder, Eosinophilia-Myalgia Syndrome (EMS). Mrs.
Hill is currently in a nursing home and unable to walk, sit up, or
care for herself. On August 22, 1990, the appellants filed suit
against the appellees in Kanawha County Circuit Court.
Through discovery, it was elicited that L-tryptophan is
an essential amino acid which was until recently sold over the
counter, and commonly used to help with insomnia, premenstrual
syndrome, weight control, pain relief, and depression. In
November, 1989, the FDA issued a recall of products containing L-tryptophan after hearing reports of at least 1500 EMS cases,
including twenty-seven deaths, in which the only factor common to
those cases was that those who contracted the disease had taken
products containing L-tryptophan. It was subsequently discovered
that it was not the L-tryptophan itself which caused the disease,
but rather a contaminated L-tryptophan product. According to a New
England Journal of Medicine article, the contaminated L-tryptophan
was traced to SDK. The article determined that the contamination
occurred when SDK converted to a less expensive method of
manufacturing L-tryptophan, and apparently omitted some of the
purification process.
Also named in the suit was Rite-Aid Pharmacies, from whom
Mrs. Hill obtained her prescription of L-tryptophan. Rite-Aid
received their supply of L-tryptophan from P. Leiner Nutritional
Products, an American processor and distributor of drug and health
food products. In 1988, Leiner obtained its supply of raw L-tryptophan from four suppliers. One of them was Showa Denko
America, Inc. (SDA), a wholly owned subsidiary of SDK and SDK's
sole American distributor for the raw materials it manufactures.
In 1989 Leiner obtained all of its bulk raw L-tryptophan from SDA.
SDK owns 100% of SDA stock. One of SDA's three corporate directors is an employee of SDK. SDA's principal business is the purchase, importation, and resale of SDK's products for sale in the United States, and maintains warehouses in California and New Jersey. In 1989, SDA purchased over $10.1 million of products from SDK for resale in the United States. SDK is a Japanese corporation with its headquarters in Tokyo. The corporation's stock is traded only on the Japanese stock exchanges and not in the United States.
All of their manufacturing and research facilities are in Japan,
and they have no offices or places of business in the State of West
Virginia or in the United States. SDK states that it owns no real
property in the United States and does not file tax returns with
the United States Internal Revenue Service or the West Virginia Tax
Department. SDK's business falls into three general categories:
(1) petrochemicals, (2) ceramics and materials, and (c) chemicals
and carbon. The sales of L-tryptophan fall into the third
category.
In its discovery responses, the appellants point out that
SDA admitted that when it learned of the possible link between
their product and the disease EMS, it immediately notified SDK.
After investigation, SDK ordered SDA to "cease immediately any
further sales of L-tryptophan."
On October 9, 1990, SDK filed a motion to dismiss the claim against it on grounds of lack of personal jurisdiction and insufficiency of service of process.See footnote 1 On April 5, 1991, a hearing was held on the motion to dismiss. The parties submitted proposed findings of fact and conclusions of law on the issue of whether there was sufficient personal jurisdiction over SDK. On June 18, 1991, Judge John Hey found that there was not sufficient personal jurisdiction over SDK and thus, SDK was dismissed from the suit.
The appellants filed this petition for appeal from that final
ruling and urge this Court to adopt the stream of commerce theory
of establishing personal jurisdiction.
Our analysis of personal jurisdiction must begin with a
review of the United States Supreme Court's decision in
International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154,
90 L. Ed. 95 (1945). In International Shoe, the Supreme Court first
set forth the elements necessary to subject a nonresident defendant
to the jurisdiction of the forum state:
[I]n order to subject a defendant to a
judgment if he be not present within the
territory of the forum, he [must] have certain
minimum contacts with it such that the
maintenance of the suit does not offend
"traditional notions of fair play and
substantial justice."
Id. at 316. The Court noted that "the quality and nature of the
activity in relation to the fair and orderly administration of the
laws" is the critical element rather than the volume of the
activity. Id. at 319. Defining "minimum contacts" has been an
ongoing process for the Court, made especially complex in recent
years by the increase in international trade.
In World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286,
100 S. Ct. 559, 62 L. Ed. 2d 490 (1980), the Supreme Court further
defined the concept of minimum contacts and ruled that jurisdiction
cannot be asserted over a defendant with which a state has no
contacts, no ties, and no relations. Id. at 294. In order to
satisfy due process, the Court held that "the defendant's conduct
in connection with the forum State [must be] such that he should
reasonably anticipate being haled into court there." Id. at 297.
In setting the limits necessary to establish reasonable contacts,
the Supreme Court commented that:
The relationship between the defendant and the
forum must be such that it is "reasonable . .
. to require the corporation to defend the
particular suit which is brought there."
(Citations omitted.) Implicit in this
emphasis on reasonableness is the
understanding that the burden on the
defendant, while always a primary concern,
will in an appropriate case be considered in
light of other relevant factors, including the
forum state's interest in adjudicating the
dispute, see McGee v. Inter. Life. Ins. Co.,
355 U.S. 220, 223, 2 L. Ed. 2d 223, 78 S. Ct. 199
(1957), the plaintiff's interest in obtaining
convenient and effective relief, see Kulko v.
California Superior Court, supra, [436 U.S. 84, 98 S. Ct. 1690, 56 L. Ed. 2d 132 (1978)], at
least when that interest is not adequately
protected by the plaintiff's power to choose
the forum, cf. Shaffer v. Heitner, 433 U.S. 186, 211 n.37, 53 L. Ed. 2d 683, 97 S. Ct. 2569
(1977), 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, see
Kulko v. California Superior Court, [436 U.S.
at 93, 98, 98 S. Ct. 1690, 1700, 56 L. Ed. 2d 132, 142, 145 (1978)].
Id. at 292.See footnote 2
The appellant urges this Court to adopt the stream of
commerce theory for establishing minimum contacts as defined in
Keckler v. Brookwood Country Club, 248 F. Supp. 645 (N.D.Ill. 1965):
When a manufacturer voluntarily chooses to
sell his product in a way in which it will be
resold from dealer to dealer, transferred from
hand to hand and transported from state to
state, he cannot reasonably claim that he is
surprised at being held to answer in any state
for the damage the product causes.
Id. at 649. The appellants contend that a number of states have
adopted this theory and urge this Court to adopt it as well.See footnote 3
The United States Supreme Court addressed the stream of
commerce theory of personal jurisdiction in Asahi Metal Industry
Co. v. Superior Court of California, 480 U.S. 102, 107 S. Ct. 1026,
94 L. Ed. 2d 92 (1987). Asahi involved Japanese tire valve
assemblies manufactured in Japan and sold to several tire
manufacturers, including a Taiwanese company. The sale took place
in Taiwan. The Taiwanese company then sold the completed tires all
over the world, including the United States. In 1978, an accident
occurred in California involving a tire manufactured by the
Taiwanese company. Shortly thereafter, the driver filed suit in
California against the Taiwanese company, who filed a cross-claim
for indemnity against the Japanese company (Asahi), among others.
The driver later settled his claims against the defendants, leaving
only the cross-claim between the Taiwanese and Japanese companies.
Although the Asahi Court split on whether placing a
product into the stream of commerce, without more, was sufficient
to allow the forum state to exercise personal jurisdiction over the
manufacturer of a defective product, three members of the Court
stated, in Part II-A, that mere awareness on the part of the
manufacturer that the product had entered into the stream of
commerce was not an act of the manufacturer "purposefully directed
toward the forum state."See footnote 4 Id. at 112. However, four members of
the Court, led by Justice Brennen, determined that the defendant
had satisfied the minimum contacts test found in International Shoe
because it put goods in the stream of commerce that the defendant
knew would lead into the forum state.
In his concurrence, Justice Brennan stated that the
requirement in Part II-A of some additional conduct aimed at the
forum state is inconsistent with World-Wide Volkswagen and
unnecessary:
The stream of commerce refers not to
unpredictable currents or eddies, but to the
regular and anticipated flow of products from
manufacture to distribution to retail sale.
As long as a participant in this process is
aware that the final product is being marketed
in the forum State, the possibility of a
lawsuit there cannot come as a surprise. Nor
will the litigation present a burden for which
there is no corresponding benefit. A
defendant who has placed goods in the stream
of commerce benefits economically from the
retail sale of the final product in the forum
State, and indirectly benefits from the
State's laws that regulate and facilitate
commercial activity. These benefits accrue
regardless of whether that participant
directly conducts business in the forum State,
or engages in additional conduct directed
toward that State. Accordingly, most courts
and commentators have found that jurisdiction
premised on the placement of a product into
the stream of commerce is consistent with the
Due Process Clause, and have not required a
showing of additional conduct.
Id. at 117.
Under the particular facts of Asahi, a majority of the
Court found that exercise of personal jurisdiction by California
over the foreign corporation was unreasonable and unfair, and
violated the Due Process Clause of the Fourteenth Amendment. Id.
at 116. In making the decision, the Court looked to the burden on
the defendant, the interests of the forum state, and the
plaintiff's interest in obtaining relief. Specifically, the Court
found that California had virtually no interest in the maintenance
of an indemnity action between Japanese and Taiwanese corporations,
the only parties left in the lawsuit at that point, and that the
burden on the Japanese company was severe. The Court also noted
that the plaintiff's interest was slight at best, since he had
settled the suit out of court and all that remained was an action
between the two foreign codefendants. Finally, the Supreme Court
found that Asahi "did not create, control or employ the
distribution system that brought its valves to California," since
it sold its valves in Taiwan rather than in the United States. Id.
at 112.
The facts in the case now before us are different from
those found in Asahi. In Asahi, the Japanese valve manufacturer
corporation was a separate entity from the Taiwanese company, which
purchased the valves and then sold the completed tires in the
United States. No evidence was presented which would connect the
two foreign corporations. In this case, SDA is a wholly-owned
subsidiary of SDK, with SDK ordering SDA when to stop selling the
defective product. Based upon the reasoning found in World-Wide
Volkswagen and Asahi, our next step is to determine what burdens
are placed on SDK by exercising personal jurisdiction, and on the
plaintiff by refusing to exercise jurisdiction over SDK. We also
must analyze the plaintiff's interest in obtaining speedy and
convenient relief, the shared interests of the states in furthering
fundamental social policies, and what interests exist on the part
of the forum state -- West Virginia -- in West Virginia's exercise
of jurisdiction over SDK.
West Virginia's long-arm statute authorizes the exercise
of personal jurisdiction where a foreign corporation sells, offers
for sale, or supplies a defective product within the state which
causes injury in West Virginia. Specifically, W.Va. Code § 31-1-15
(1988) provides, in part:
For the purpose of this section, a foreign
corporation not authorized to conduct affairs
or transact business in this State pursuant to
the provisions of this article shall
nevertheless be deemed to be conducting
affairs or doing or transacting business
herein . . . (c) if such a corporation
manufactures, sells, offers for sale or
supplies any product in a defective condition
and such product causes injury to any person
or property within the State notwithstanding
the fact that such corporation has no agents,
servants, or employees or contacts within this
State at the time of said injury.See footnote 5
Although W.Va. Code § 31-1-15 permits the exercise of
jurisdiction over a nonresident, a certain amount of minimum
contacts with West Virginia is required to avoid violation of
constitutional restraints found in World-Wide Volkswagen Corp. v.
Woodson, supra. "The standard of jurisdictional due process is
that a foreign corporation must have such minimum contacts with the
state of the forum that the maintenance of an action in the forum
does not offend traditional notions of fair play and substantial
justice." Syllabus Point 1, Hodge v. Sands Manufacturing Company,
151 W.Va. 133, 150 S.E.2d 793 (1966). In Kidwell v. Westinghouse
Electric Co., 178 W.Va. 161, 358 S.E.2d 420 (1986), this Court
emphasized that:
W.Va. Code, 31-1-15 . . . includes in the
concept of doing business, the making of a
contract, the committing of a tort, in whole
or in part, in this State, or the selling of a
defective product in this State. We do not
believe that after World-Wide Volkswagen such
an exclusive test can be relied upon to
constitute doing business sufficient for in
personam jurisdiction. As we emphasized in
City of Fairmont, the test must look to the
minimum contacts standard.
Id. at 422. See also Harman v. Pauley, 522 F. Supp. 1130, 1135
(S.D.W.Va. 1981); S.R. v. City of Fairmont, 167 W.Va. 880, 280 S.E.2d 712 (1981).
A second long-arm statute, W.Va. Code § 56-3-33(a)(4)
(1992), permits the exercise of personal jurisdiction within the
following parameters:
(4) Causing tortious injury in this State
by an act or omission outside this State if he
regularly does or solicits business, or
engages in any other persistent course of
conduct, or derives substantial revenue from
goods used or consumed or services rendered in
this State;
The federal court for the Northern District of West
Virginia analyzed W.Va. Code § 56-3-33(a)(4) in Hinzman v. Superior
Toyota, Inc., 660 F. Supp. 401 (N.D.W.Va. 1987). The court divided
W.Va. Code § 56-3-33(a)(4) into two basic requirements necessary to
exercise jurisdiction: (1) a tortious injury in West Virginia that
is caused by an out of state act or omission, and (2) a
relationship between the defendant and West Virginia exists in any
of the three manners specified in subsection (4). Id. at 402.
Thus, if the company regularly does or solicits business in West
Virginia, engages in another persistent course of conduct, or
derives substantial revenue from goods used or consumed in West
Virginia, then personal jurisdiction would extend out of West
Virginia. The appellees, of course, argue that SDK has no
relationship with West Virginia based on either W.Va. Code §§ 31-1-15 or 56-3-33(a)(4). We disagree.See footnote 6
This Court declined to exercise personal jurisdiction in
two prior cases involving out-of-state defendants. Hodge v. Sands
Manufacturing Co., 151 W.Va. 133, 150 S.E.2d 793, 800 (1966),
involved a foreign corporation which manufactured component parts
of hot water heaters which were eventually shipped into and sold in
West Virginia. The Court held that local courts could not exercise
personal jurisdiction over a foreign defendant that was not
authorized to do business in the State and had no representatives
in the State, had not maintained a place of business in the State,
had not entered into any contracts to be performed by any party to
such contracts within the State, did not own property within the
State, and had not appointed anyone to accept process within the
State. Similarly, in Chase v. Greyhound Lines, Inc., 158 W.Va.
382, 211 S.E.2d 273 (1975), the Court ruled that a West Virginia
court could not exercise personal jurisdiction over an out-of-state
defendant where that defendant was not licensed to do business in
the State, made no contracts to be performed in whole or in part in
the State, was not doing business in the State, committed no tort
in the State, had no employees or agents in the State, owned no
property within the State, had not manufactured, sold, offered for
sale, or supplied a product causing injury within the State, did
not appoint anyone to accept process in the State, and had contact
only in that its product entered the State as a component of
another's product.
Contrary to SDK's argument, the facts in this case are
distinct from Hodge and Chase. In Hodge, the Court ruled that "the
determination of the existence of minimum contacts essential to
confer jurisdiction upon a court of the state of the forum depends
upon the specific facts of each particular case . . . ." Id. at
802. Unlike this case, Hodge did not involve an establishment of
a distribution system for its product through the mechanism of a
wholly owned subsidiary. The use of the wholly owned subsidiary
enabled SDK to run all their United States distribution of L-tryptophan through that company. Further, SDK admitted that once
they realized the problem with the L-tryptophan, they ordered SDA
to halt distribution. We fail to see how much more control SDK
could have over SDA.
Like the federal district court's analysis of W.Va. Code
§ 56-3-33(a)(4) in Hinzman, we note that SDK derived substantial
revenue from the L-tryptophan purchased and used in West Virginia.
Although SDK denied that it solicited business in West Virginia,
SDA clearly did. Further, under the analysis set forth in World-Wide Volkswagen and affirmed in Asahi, we determine that West
Virginia has a substantial and legitimate interest in exercising
personal jurisdiction over SDK, the company that manufactured and
sold the contaminated L-tryptophan. Likewise, the burden on the
plaintiff would be substantial since SDK, rather than SDA, has the
information related to the manufacturing process. SDK's assertions
that this need on the part of the plaintiff could be satisfied by
open communication between SDA and SDK merely reinforces our
conviction that the true authority in this relationship is SDK, not
the shell corporation, SDA. The burden of SDK submitting to
jurisdiction in the United States and West Virginia would be
minimal since SDK has already gone through the effort of setting up
SDA in the United States. They have obviously found doing business
in the United States to be profitable enough to create SDA. We
fail to see how defending these suits in the United States would be
a greater burden. By contrast, requiring the plaintiff to travel
to Japan to litigate this case would create a substantial burden.
Consequently, we conclude that "notions of fair play and
substantial justice" require us to exercise personal jurisdiction
over SDK. International Shoe, 326 U.S. at 316.
Moreover, under Justice Brennan's analysis in Asahi,
supra, SDK benefitted from its contacts with West Virginia
regardless of whether it directly conducts business in or directed
toward West Virginia. We conclude that personal jurisdiction
"premised on the placement of a product into the Stream of Commerce
is consistent with the Due Process Clause," and can be exercised
without the need to show additional conduct by the defendant aimed
at the forum state. Asahi, 480 U.S. at 117. Given the
distribution pattern of the product, this and the many other
lawsuits filed as a result of the use of the contaminated L-tryptophan cannot come as a surprise. Accordingly, we reverse the
decision of the Circuit Court of Kanawha County and hold that SDK
is subject to the long arm jurisdiction of West Virginia and the
United States Supreme Court's decisions in International Shoe,
World-Wide Volkswagen, and Asahi.
Reversed.
Footnote: 1The objection to service of process was eventually
mooted and is not before this Court.
Footnote: 2See also Hanson v. Denkcla, 357 U.S. 235, 78 S. Ct. 1228,
2 L. Ed. 2d 1283 (1958).
Footnote: 3See Cunningham v. Subaru of American, Inc., 631 F. Supp. 132 (D.Kan. 1986), in which the plaintiff claimed that he was
injured as a result of the design, manufacture and distribution of
the Subaru Brat truck. The defendant, a Japanese corporation, had
designed, manufactured and sold Subaru trucks to the defendant,
Subaru of America, Inc., in Tokyo. Thus, the defendant maintained
that its only contact with the United States was the sale of these
vehicles in Tokyo and that it had no "minimum contacts" sufficient
to support an exercise of jurisdiction in the forum state. The
federal court disagreed:
While Fuji [the defendant] greatly profits
from the sale of Subaru Brat vehicles in the
United States, it claims that it is immune
from all jurisdictional claims against it in
the United States. The court views this as a
company which seeks to reap all of the
benefits without incurring the resulting
liabilities and costs . . . . The court finds
that Kansas' interest in asserting
jurisdiction over Fuji in this action is
substantial. Any inconvenience to defendant
in defending this lawsuit is clearly
outweighed by Kansas' interest in protecting
its citizens from injury. The court finds
that it would be fundamentally unfair to allow
a foreign manufacturer to insulate himself
from the jurisdiction of this court by use of
an exclusive distributor.
Id. at 136. The court then dismissed the defendant's motion to
dismiss for lack of personal jurisdiction.
See also Warren v. Honda Motor Co., Ltd., 669 F. Supp. 365
(D.Utah 1987); Welkener v. Kirkwood Drug Store Co., 734 S.W.2d 233
(Mo.App. 1987); Wessinger v. Vetter Corp., 685 F. Supp. 769 (D.Kan.
1987).
Footnote: 4In Part II-A, four justices concurred that "[t]he
'substantial connection," (citations omitted) between the defendant
and the forum State necessary for a finding of minimum contacts
must come about by an action of the defendant purposefully directed
towards the forum State . . . . The placement of a product into
the stream of commerce, without more, is not an act directed toward
the forum State." Id. at 112. In order to show an intent to
direct the products towards the forum State, the Court lists
specific examples: "designing the product for the market in the
forum State, advertising in the forum State, establishing channels
for providing regular advice to customers in the forum State, or
marketing the product through a distributor who has agreed to serve
as the sales agent in the forum State." Id.
Footnote: 5Subsection (c) is an addition to the statute enacted by
the Legislature in 1969.
Footnote: 6In Showa Denko K.K. v. Pangle, 414 S.E.2d 658 (Ga.App.
1991), cert. denied (1992), the Georgia court affirmed the trial
court's denial of SDK's motion to dismiss for lack of personal
jurisdiction. In Pangle, the Georgia court found that SDK was
subject to the Georgia long-arm jurisdiction based upon the
tortious acts of its agent and that the exercise of personal
jurisdiction did not offend due process. Id. at 568.
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