By: Scott B. Riddle, Esq.
Vibratech, Inc. v. Frost, et al., 2008 WL 1704091 (Ga. App. March 27, 2008).
Although this Georgia Court of Appeals opinion involves a bankruptcy issue, it is more important for the discussion and holding on personal jurisdiction. This case indicates that a defendant can be hauled into Georgia Courts based on its placing products in the "stream of commerce" that reaches Georgia, or placing products in the stream of commerce to third parties outside of Georgia, who themselves place the products in the stream of commerce that reaches Georgia. The basic facts are as follows:
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.
(bold emphasis added)
Vibratech did not answer the lawsuit and a default judgment was entered. However, Vibratech was an additional insured on a policy held by TCM. At at some point, TCM began providing a defense to Vibratech, and Vibratech moved to open the default as a matter of right and dismiss the case for, inter alia, lack of personal jurisdiction.
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 Servs. v. First Nat’l Bank, 279 Ga. 672 (620 S.E.2d 352) (2005), the Georgia Supreme Court construed subsection (1) of the Georgia long-arm statute to extend jurisdiction to the maximum limits permitted by procedural due process. OCGA § 9-10-91(1). The trial court determined that Vibratech’s activities in placing its dampers into the stream of commerce by manufacturing, selling and delivering them for resale were sufficient to satisfy the requirements of due process and to confer jurisdiction over the company. Vibratech counters, however, even under the Innovative Clinical ‘s expanded interpretation of subsection (1), the language of the statute requires more than merely putting merchandise into the stream of commerce; it still requires the actual transaction of business by the defendant in Georgia.
The Court’s analysis, after the jump…
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 F.2d 510 (5th Cir.1987); State ex rel. Hydraulic Servocontrols Corp. v. Dale, 294 Ore. 381 (657 P.2d 211) (1982); Bach v. McDonnell Douglas, 468 F.Supp. 521 (D.Ariz.1979). As to our long-arm statute, Innovative Clinical clarified that direct contacts are not required to establish jurisdiction. Thus, we cannot limit our analysis to a strictly literal reading of the subsection’s language, but must consider Vibratech’s intangible contacts with the state in determining whether the company transacted any business, subject to the limits of due process. …
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.
The Court of Appeals then applied this test to the facts at hand.
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. 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 inured 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 benefitted from the protection which our laws have given to the marketing of Cessna aircraft containing its [dampers].” State ex rel. Hydraulic Servio-Controls Corp. v. Dale, 294 Or. at 389 (finding jurisdiction under almost identical facts). Vibratech’s actions in selling a product to TCM in Alabama with the intention of deriving an economic benefit from its sale in other states, were purposeful actions which should have led Vibratech to reasonably anticipate being haled into court in those states, especially a border state such as Georgia. As this activity was directly connected to the cause of action in this case, the requisite minimum contacts are established. Therefore, “[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 F.Supp. 1337 (D.C.D.C.1985).
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. ..
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. “Certainly, Georgia has an interest in providing an effective means of redress for citizens whose health and welfare has been injured by defective products which our commercial laws permit to be imported into the State.” …. And it would place an undue burden upon the plaintiffs to pursue a separate action against Vibratech in another state such as New York or Delaware. “[I]t would be no less burdensome for [Vibratech] to defend a separate action in New York than to defend this action in Georgia where all other issues and the alleged joint tortfeasors may be joined.” .. This is especially true as Vibratech is a defunct corporation, with no officers, directors or employees, and it has local counsel to represent it in this action. Thus, judicial economy and efficiency are served by extending jurisdiction over Vibratech in this case.