STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1343

Steven Woller,
Respondent,

vs.

McHale Engineering Limited,
Appellant,

Vermeer Manufacturing Company,
Respondent.

Filed June 28, 2005

Affirmed

Minge, Judge

Morrison County District Court

File No. C5-02-1162

H. Morrison Kershner, Pemberton, Sorlie, Rufer & Kershner, P.L.L.P., 110 North Mill Street, P.O. Box 866, Fergus Falls, MN 56538-0866; and

Kevin S. Carpenter, Carpenter Injury Law Office, 204 Midsota Center, 3701 North 12thStreet North, St. Cloud, MN 56303 (for respondent Steven Woller)

Robert D. Brownson, Kristi K. Warner, Brownson & Ballou, PLLP, 225 South Sixth Street, Suite 4800, Minneapolis, MN 55402 (for appellant)

George W. Soule, David N. Lutz, Kristine T. Donatelle, Bowman and Brooke LLP, 150 South Fifth Street, Suite 2600, Minneapolis, MN 55402 (for respondent Vermeer Mfg.)

Considered and decided by Lansing, Presiding Judge; Stoneburner, Judge; and Minge, Judge.

U N P U B L I S H E D O P I N I O N

MINGE, Judge

Appellant challenges the district court’s denial of its motion to dismiss the complaint for lack of personal jurisdiction. Because appellant has sufficient minimum contacts with Minnesota to support the exercise of personal jurisdiction, we affirm.

FACTS

On June 11, 2000, respondent Steven Woller was injured while operating a bale wrapper on his farm in Minnesota. This machine wraps large bales of hay with plastic. In addition to farming, Woller sells agricultural equipment. Respondent Vermeer Manufacturing Company (Vermeer) supplied Woller with the bale wrapper and encouraged Woller to use it on his farm as part of a special promotion. The bale wrapper that injured Woller was identified as a Vermeer SW-3500, but was manufactured by appellant, McHale Engineering Limited (McHale).

Vermeer is an Iowa corporation, which primarily designs and manufactures a variety of tree and agricultural equipment. Vermeer products are distributed through a network of 474 independent, authorized dealers in 44 states throughout the United States. Although the highest concentrations of Vermeer dealers are in Nebraska, Missouri, and Arkansas; Vermeer has 19 dealers in Minnesota.

McHale manufactures agricultural equipment. McHale is incorporated and has its principal place of business in Ireland. In 1997, Vermeer and McHale entered into a Supply and Licensing Agreement (Agreement), under which McHale would manufacture certain equipment and Vermeer would sell those items under its name. McHale relied on its original design and Vermeer then performed a safety review and requested seven to eight changes. These changes were not to the design, but rather involved location of the safety stickers and painting the machines in Vermeer colors. According to the Agreement McHale maintained ultimate approval of these changes. Pursuant to the Agreement, McHale supplied Vermeer with operator and parts manuals, which Vermeer relied on in preparing owner manuals that it distributed with the equipment, including the Vermeer SW-3500. Nothing identified the equipment as having been designed or manufactured by McHale. The manuals listed Vermeer as the only company to call for questions and problems.

McHale did not directly market or sell any of the Vermeer labeled equipment. However, in 1997 the director of McHale attended a sales meeting in Iowa of Vermeer dealers from throughout the United States. The director also initiated a meeting in which the director discussed Vermeer’s sales volumes of McHale equipment throughout the United States. To promote sales, McHale rewarded two Vermeer territory managers with the most sales and the largest increase of sales with paid trips to Ireland. McHale did not advertise or solicit any business in Minnesota and had no connection with the bale wrappers once they were shipped to Vermeer. Since the 1997 Agreement, Vermeer has sold 840 pieces of McHale manufactured equipment in the United States and 41 in Minnesota. Twenty-three bale wrappers, including 16 Vermeer SW-3500 bale wrappers, have been sold in Minnesota.

According to the Agreement, “McHale warrants that Products supplied and manufactured by McHale hereunder shall be free of defects and workmanship for a period of twelve (12) months from the date of delivery to the retail customers.” The Agreement also provides that

With respect to Products manufactured by McHALE and sold to VERMEER, McHALE agrees to defend, protect, indemnify and hold harmless VERMEER . . . against any and all claims, including expenses and reasonable attorney fees, for injuries or damages of any kind . . . including, but not limited to, claims in the nature of strict liability in tort, negligence, or breach of express or implied warranty, resulting or allegedly resulting from design, defects in material, workmanship or manufacturing, failure to instruct, or failure to warn, up to product liability insurance policy limits . . . . If product liability insurance does not provide coverage for such occurrence, VERMEER shall have no recourse against McHALE.

Woller filed suit against Vermeer in April 3, 2002, alleging that his injury was the result of defective design and/or inadequate warnings. He amended his complaint to add McHale as a co-defendant. McHale moved to dismiss the action against it on the ground that it was not subject to the jurisdiction of the courts of this state. The district court denied McHale’s motion. This appeal followed.

D E C I S I O N

Whether personal jurisdiction exists is a question of law, which is reviewed de novo on appeal. TRWL Fin. Establishment v. Select Int’l, Inc., 527 N.W.2d 573, 575 (Minn. App. 1995). Once personal jurisdiction is challenged, the party asserting that personal jurisdiction exists has the burden of proving a prima facie case supporting jurisdiction. Id. At the pretrial stage, the plaintiff's alleged facts, including facts derived from the complaint and other supporting documents, are taken as true. Dent-Air, Inc. v. Beech Mountain Air Servs., Inc., 332 N.W.2d 904, 907 n. 1 (Minn. 1983).

According to Minnesota’s long-arm statute, Minnesota courts may exercise personal jurisdiction over the defendant to the full extent of federal due process. Minn. Stat. § 543.19 (2004); Domtar, Inc. v. Niagara Fire Ins. Co., 533 N.W.2d 25, 29 (Minn. 1995); Valspar Corp. v. Lukken Color Corp., 495 N.W.2d 408, 410-11 (Minn. 1992). Due process requires that the defendant have “certain minimum contacts” with the forum state and that the court’s exercise of jurisdiction over the defendant in maintaining the suit “does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. Wash., 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945) (quotation omitted).

Minnesota uses a five-factor test for determining whether the exercise of jurisdiction over a defendant is consistent with due process. Juelich v. Yamazaki Mazak Optonics Corp., 682 N.W.2d 565, 570 (Minn. 2004). The five factors include: “(1) the quantity of contacts with the forum state; (2) the nature and quality of those contacts; (3) the connection of the cause of action with these contacts; (4) the interest of the state providing a forum; and (5) the convenience of the parties.” Id. (quoting Hardrives, Inc. v. City of LaCrosee, Wis., 307 Minn. 290, 294, 240 N.W.2d 814, 817 (1976)). “The first three factors determine whether minimum contacts exist and the last two factors determine whether the exercise of jurisdiction is reasonable according to traditional notions of fair play and substantial justice.” Id. “[I]n doubtful cases, courts should lean toward finding jurisdiction.” Nat’l City Bank of Minneapolis v. Ceresota Mill Ltd. P’ship, 488 N.W.2d 248, 252 (Minn. 1992) (citation omitted).

A. Quantity of Contacts with Forum State

McHale argues that because it does not have any offices in Minnesota, no McHale employees ever visited Minnesota, it is not authorized to do business in Minnesota, it has no direct contacts with Minnesota, and only 41 of its products were sold in the state, the quantity of its contacts with this state is insufficient to establish personal jurisdiction. However, minimum contacts may be indirect under the stream-of-commerce theory. Juelich, 682 N.W.2d at 571; Rostad v. On-Deck, Inc., 372 N.W.2d 717, 720-21 (Minn. 1985). The stream-of-commerce theory was developed by the Supreme Court in World-Wide Volkswagen Corp. v. Woodson, where the Court stated:

When a corporation “purposefully avails itself of the privilege of conducting activities within the forum State,” (citation omitted) it has clear notice that it is subject to suit there, and can act to alleviate the risk of burdensome litigation by procuring insurance, passing the expected costs on to customers, or, if the risks are too great, severing its connection with the State. Hence if the sale of a product of a manufacturer or distributor such as Audi or Volkswagen is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor 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.

444 U.S. 286, 297-98, 100 S. Ct. 559, 567 (1980); see also Juelich, 682 N.W.2d at 571. The stream-of-commerce theory was adopted by Minnesota in Rostad, in which a New Jersey manufacturer that owned no property, had no agent, and was not licensed to do business in Minnesota was held subject to personal jurisdiction in Minnesota. 372 N.W.2d at 718, 720-22. In Rostad, the defendant manufactured weights for baseball bats. Id. at 718. One of these flew off a bat and permanently injured an umpire. Id. The owner of the company stated that he did not know that the bat weight was ever sold in Minnesota, but the court noted that the defendant entered into contracts with distributors to sell the product throughout the United States. Id. at 721. Additionally, the owners traveled extensively to promote the product and encouraged professional teams such as the Minnesota Twins to use the product in order to create a national market. Id. at 719.

Juelich is a recent Minnesota Supreme Court examination of personal jurisdiction in the context of product liability. 682 N.W.2d at 565. In Juelich, the plaintiff was injured while servicing a scissor-lift table incorporated into a laser-cutting machine. Id. The table and the laser machine were manufactured in Japan by separate firms. Id. The laser machine was distributed internationally and sold to a Minnesota supplier, which in turn sold the laser machine to the injured plaintiff’s employer. Id. at 568. The Minnesota Supreme Court found that although 122 laser machines containing the scissor-lift component were sold in the United States and 17 machines were sold in Minnesota, the quantity of contacts with the Japanese table manufacturer was not sufficient to confer personal jurisdiction. Id. at 573. The Juelich court distinguished Rostad and noted that the table manufacturer produced only a component of the larger machine product, did not conduct any distribution or marketing efforts of its products anywhere in the United States, and did not participate in the distribution of the laser machine. Id. Additionally, the court noted that the table manufacturer’s relationship with the distributor of its products was confined to Japan and that its distributor had no distribution or sales connection with the larger laser machine in the United States. Id.

Here, McHale manufactured the final product, not just a component; directly entered into an agreement with an American distributor, who was very active in Minnesota; attended the distributor’s sales meeting in Iowa; and established an incentive program in the United States, open to Minnesota dealers, to encourage sales of the machines. As for the number of units sold, the case before us is close to Juelich. We note that 41 McHale machines have been sold in Minnesota, of which 23 are bale wrappers. Although it is a close call, we conclude that because McHale’s activities are more consistent with Rostad than with the component manufacturer in Juelich and because McHale was directly involved with Vermeer in placing its machines in a national stream of commerce that included Minnesota, that this quantity-of-contact factor favors Minnesota exercising personal jurisdiction.

B. Nature and Quality of the Contacts

In reviewing the quality of contacts, the courts look to whether the defendant purposefully availed itself of the benefits and protections of Minnesota law. Dent-Air, Inc., 332 N.W.2d at 907; Johnson Bros. Corp. v. Arrowhead Co., 459 N.W.2d 160, 163-64 (Minn. App. 1990). The requirement that the defendant “purposefully avail” itself of Minnesota law seeks to ensure that jurisdiction does not result based on “random,” “fortuitous,” or “attenuated” contacts or from the “unilateral activity of another party or third person.” Schuck v. Champs Food Sys., Ltd., 424 N.W.2d 567, 569-70 (Minn. App. 1988) (quoting Burger King v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174, 2183 (1985) (quotation omitted)).

McHale argues that it did not purposefully avail itself of Minnesota law and relies on Juelich, 682 N.W.2d at 574, Welsh v. Takekawa Iron Works Co., 529 N.W.2d 471, 475 (Minn. 1995), and Johnson Bros., 459 N.W.2d at 163-64, to support its claim. The Juelich court found that the only evidence presented to support the second factor was a single meeting in Japan, at which the table manufacturer was informed that the laser machines were destined for the United States and was instructed to attach warning labels in English. 682 N.W.2d at 574. The case before us is distinguishable because McHale was actively involved in promoting its products in the United States.

Welsh and Johnson Bros. are distinguishable because those cases involved products that came to Minnesota through the unilateral actions of a middleman. Welsh, 529 N.W.2d at 475; Johnson Bros., 459 N.W.2d at 163-64. In Welsh, a Japanese company manufactured rip-saws, which it sold through two distributors in Florida and Arizona. 529 N.W.2d at 472, 474-75. One of the distributors sold a saw to another company, which then sold it to the plaintiff’s employer. Id. Similarly in Johnson Bros., the defendant, a fireworks manufacturer and distributor, sold fireworks in southern and western states and did not sell any fireworks in Minnesota. 459 N.W.2d at 162. A middleman fireworks supplier was unable to fill its order made by a company, which put on fireworks displays, and this middleman supplier contacted the defendant to fill this single order. Id.

In contrast, McHale contracted with a national equipment firm located in Iowa to sell McHale’s farm machinery, and it was through this distributor that Woller received the bale wrapper that caused his injury. Additionally, its relationship with the United States market was not attenuated; McHale visited Iowa, a neighboring state, to attend a sales meeting and instituted a reward program. Although McHale did not know the ultimate destination of individual machines, it was aware of how many pieces of equipment were going to dealers in each region. We conclude the nature and quality of the contacts were such that McHale should have been aware that some of its machines would be used in Minnesota and that this factor supports holding McHale subject to personal jurisdiction in this state.

C. Source of Contacts

The connection between the contacts and the cause of action is generally examined in terms of general or specific jurisdiction. See Marshall v. Inn on Madeline Island, 610 N.W.2d 670, 674 (Minn. App. 2000) (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 nn. 8-9, 104 S. Ct. 1868, 1872 nn. 8-9 (1984)). General jurisdiction exists when the defendant has “continuous and systematic” contacts with the forum state. Id. “Specific jurisdiction exists when the cause of action arises out of or is related to the defendant’s contact with the forum state.” Id. A single contact with the forum can give rise to specific jurisdiction if the cause of action arose out of that contact. Id.

McHale argues and Vermeer concedes that this case does not involve general jurisdiction. McHale relies on Juelich and Johnson Bros. in arguing that the specific connection of selling the machine to a distributor who introduced it into Minnesota does not favor Minnesota’s exercise of jurisdiction. Both Juelich and Johnson Bros. are distinguishable because both involved a more attenuated distribution network and, in the case of Juelich, incorporating a part into a larger piece of equipment. Juelich, 682 N.W.2d at 575; Johnson Bros., 459 N.W.2d at 164-65. Unlike Juelich and Johnson Bros., here there were no intervening suppliers, but rather Vermeer, the distributor with which McHale contracted, directly supplied McHale machines to Minnesota, a neighboring state. There should be no surprise that McHale’s manufacturing of the machine pursuant to the Agreement with Vermeer would lead to the machines reaching Minnesota. That Woller, a farmer and dealer, might be injured because of an alleged manufacturing defect should not be a surprise. In fact, the Agreement between McHale and Vermeer specifically recognizes that McHale will be liable for defending and insuring Vermeer against product liability, tort, and contract claims arising out of the use of the equipment it manufactures. Based on this clause, McHale and its insurer should clearly anticipate being involved in defending Vermeer throughout the United States. For McHale to be defending itself is a minor additional step. This factor favors exercising personal jurisdiction over McHale.

D. Minnesota’s Interest in Providing a Forum

McHale argues that Minnesota does not have an interest in providing a forum because Woller should be able to recover from Vermeer, and this case involves an issue of indemnity like that addressed by the court in Juelich. 682 N.W.2d at 575. In Juelich, the injured party settled and was not part of the appeal. Id. The appeal consisted of cross-claims between the Japanese table manufacturer and the Japanese laser-machine manufacturer and distributor. Id. The Juelich court also noted that the table manufacturer supplied only a component of the machine and that, even if the plaintiff were still involved in the suit, he could pursue a claim against the manufacturer and distributor of the finished product. Id. at 575. Here, McHale is the manufacturer of the finished product. Woller has not settled his claims with Vermeer and is still involved in the suit. Moreover, there is a possibility that McHale is solely responsible for the design flaw and that it failed to notify Vermeer of this design flaw. The injured party should be able to assert his claims against all parties in one forum to resolve possible conflicting claims. Because Minnesota has an interest in providing its citizens such a forum, this factor supports exercising personal jurisdiction over McHale.

E. Convenience of the Parties

Convenience of the parties is a neutral factor when witnesses will be required to travel regardless of the forum. Juelich, 682 N.W.2d at 575-76. Here, as in Juelich, some witnesses may face international travel. However, in this case Woller and Vermeer are located within a few hours’ drive or a short flight of each other. Only McHale witnesses will be obliged to travel a long distance. Additionally, McHale signed a contract in which it agreed to indemnify and to defend Vermeer in this type of situation and presumably contemplated the possibility of travel to the United States for litigation.

McHale repeatedly argues that there is no personal jurisdiction because Vermeer labels were on the products and Vermeer took great steps to ensure that its customers believed that the machines were actually made by Vermeer. It does not appear that this marketing tactic was intended to insulate McHale from the American courts, but to impress the marketplace with Vermeer’s comprehensive design and manufacturing capacity. This aspect of the case should not insulate the ultimate, undisclosed manufacturer from the jurisdiction of Minnesota courts.

The five factors support jurisdiction. Minnesota’s assertion of jurisdiction does not offend traditional motions of fair play and substantial justice. Conferring personal jurisdiction on McHale conforms with due process requirements.

Affirmed.