Cases by Issue - Jurisdiction

Reynoldsville Casket Co. v. Hyde - Oral Argument

Fri, 09 Jan 2009 14:49:59 +0000

Case:

Reynoldsville Casket Co. v. Hyde

Media File:

94-3_19950227-argument.mp3

Related Transcript:

transcript.xml

Transcript:

Argument of William E. Riedel

Chief Justice Rehnquist: We'll hear argument next in Number 94-3, the Reynoldsville Casket Company v. Carol Hyde.

Mr. Riedel.

Mr. Riedel: Mr. Chief Justice, may it please the Court:

The general question that was before the Ohio supreme court was, should a decision that establishes a new rule of law apply to events that occurred before the date of the decision?

The specific issue before the Ohio court was, should the decision of this Court in Bendix v. Midwesco in June of 1988, wherein Ohio's tolling statute, 2305.15, was declared to be unconstitutional as being in violation of the Commerce Clause, apply to time-bar the respondent's lawsuit of August of 1987 for bodily injury arising out of a motor vehicle accident that took place between the parties in March of 1984, and at all times before and after this accident, Ohio had, continues to have, a 2-year statute of limitations for the filing of personal injury actions.

Unknown Speaker: The accident took place where, in Ashtabula County in Ohio?

Mr. Riedel: It did, Your Honor.

Unknown Speaker: The parties were Pennsylvanians?

Mr. Riedel: Everybody.

The petitioners, the corporation and its driver were residents of Pennsylvania.

The respondent likewise was a resident of Pennsylvania.

Although the Ohio trial court and a court of appeals both answered the specific issue in the affirmative... in other words, Bendix applies retroactively to the parties and the respondent's lawsuit was time-barred... when the question was presented to the Ohio supreme court, it reversed the decisions of the lower court and stated that Bendix should not be retroactively applied to the parties in this case.

It was not a unanimous decision.

It was 5-2.

The rationale of the Ohio supreme court, the majority, for denying the retroactive application of Bendix, was essentially twofold, and it appeared in Parts I and Part II of the majority's opinion.

In Part II of the majority's opinion, the court placed its reasoning on this Court's decision in Harper v. Virginia, and that is clear because the majority stated, even if the Chevron case test has been replaced by Harper, the retroactive application of Bendix remains impermissible.

Unknown Speaker: Well, how do you overcome Harper, Mr. Riedel?

Mr. Riedel: I overcome Harper by virtue of the constitutional issue.

The violation in Harper was a real violation.

There is no constitutional--

Unknown Speaker: So you think there was no constitutional violation here or in Bendix?

The statute was not unconstitutional?

Mr. Riedel: --In Bendix, the statute was unconstitutional.

Unknown Speaker: And it is this very statute, is it not?

Mr. Riedel: It is, but not in this case.

Unknown Speaker: Excuse me?

I mean, the holding in Bendix--

Mr. Riedel: Yes.

Unknown Speaker: --was that the statute we're talking about--

Mr. Riedel: --was unconstitutional.

Unknown Speaker: --was unconstitutional.

Mr. Riedel: Exactly.

The supreme court of Ohio recognized the unconstitutionality of that statute in this case.

The respondent has conceded to the unconstitutional... of that statute in this case, in that sense.

Unknown Speaker: I thought Harper had indicated that backward-looking relief is required.

Mr. Riedel: Backward-looking relief for underlying constitutional violation.

I don't believe that there was an underlying constitutional violation in this case.

The majority went on to state that Harper allows State courts to tailor their own remedies as they determine.

Unknown Speaker: Excuse me, I'm really getting confused here.

You're not running away from Harper.

You like Harper, don't you?

Mr. Riedel: I do.

Unknown Speaker: Yes.

Mr. Riedel: Yes.

What I'm trying to do, Your Honor is, Justice Scalia, is distinguish why this majority opinion is wrong.

Unknown Speaker: In that connection, it's my understanding that the only thing that counts in Ohio is the syllabus, that everything else is like a law review article, is that not so?

Mr. Riedel: Yes.

Unknown Speaker: So that we should look at just this one sentence.

The syllabus said, the supreme court decision may not be retroactively applied to bar claims which accrued prior to the announcement of that decision.

That's the holding of the court, and that's al that counts.

Mr. Riedel: That is true, Justice Ginsburg, and what the majority went on to state was that Harper, their reading of Harper, allowed State courts to tailor their own remedy as they determine the manner in which a United States Supreme Court opinion was to be retroactively applied.

And what the majority's manner of tailoring in this case was, was to employ a provision of the Ohio constitution, Article I, section 16, and state that that prohibited the application of Bendix to the parties in this case, and specifically with regard to Article I and section 16, the majority stated,

"We find that when there is a conflict between a State constitutional civil right, Article I, section 16, and a Federal rule of decision, the Bendix case, that is not rooted in the Constitution, such as retroactivity, the civil right prevails. "

The rationale of the majority, in Part II of its decision, in denying full retroactivity to the parties in this case, is wrong, and that's been, I believe, so conceded by the respondent in this case.

They state--

Unknown Speaker: Suppose Chevron Oil, where there's still some vitality left to it.

In that case, shouldn't we uphold the Ohio decision?

Mr. Riedel: --No, and I'd like to talk about that a little later, Justice Ginsburg, as to why, if Chevron is in fact applied, that even if it is applied, it would not achieve the result that the majority found in this case.

The respondent has conceded with the petitioners, we agree, that the clear command of the Supremacy Clause of the Constitution displaces all conflicting State's law.

What is left, therefore, in this case to support the denial of full retroactivity of the Bendix decision is the logic of Part I of the majority's opinion, and whereas in Part II was premised upon the majority's reading of Harper, in Part I the court denied retroactivity by resort to a Chevron analysis, and again, that's clear because the court said,

"If Chevron remains good law, then Chevron, not Harper, provides the proper test to apply to the present case. "

Without quite saying so, I would submit that the majority had its doubts regarding the continued viability of a Chevron analysis.

That's evidenced by statements in the majority's opinion that it is unclear whether Harper was intended to replace Chevron or supplement it: if Chevron remains good law, even if Chevron has been replaced by Harper, whether or not Chevron remains good law.

Despite what I believe were legitimate reservations about Chevron, the court nevertheless went ahead and did a Chevron analysis, and although the majority did not so state, I would submit that its resort to Chevron was solely in the context of a choice of law analysis.

In other words, the new law or the old law.

The issue of remedy, the second prong of the court's opinion, was discussed in Part II.

In other words, when the court went on to say, Harper allows the courts to tailor their own remedy.

Part I of the opinion, its Chevron inquiry, the term "remedy" was never mentioned by the majority.

It never used the term, because I would submit the court viewed Chevron as a vehicle for determining choice of law.

Again, old law, resort to the continued use of the tolling statute, or new law, Bendix, 2305.15 is unconstitutional.

Unknown Speaker: Mr. Riedel, is there any choice of remedies in this cas, or is the choice simply between a remedy and no remedy?

Mr. Riedel: In this case, in my opinion, Justice Souter, there is no issue as to remedies.

I believe it is a matter of application of the old law or the new law.

Just as the--

Unknown Speaker: Is it clear that we have old law and new law here?

I thought that perhaps one reading of Bendix at least is that it relied on established legal principles, so it's not a change of law.

There's not new law and old law, and that is a way to distinguish Chevron.

Mr. Riedel: --Well, in terms of courts that must follow this Court's decision, this Court's decision... this Court in 1988 said in Bendix that that statute was unconstitutional.

Unknown Speaker: Under settled legal principles.

Mr. Riedel: Correct, and between 1988 and when the Ohio supreme court decided this case in February of 1994, those principles had not changed.

Unknown Speaker: So you could just--

--And that is my point, and I think... isn't that a distinction between this case and Chevron?

Mr. Riedel: No, I don't, sir.

I don't think that is a distinction.

Unknown Speaker: Couldn't you just as readily, then, answer my question by saying the choice is between applying Bendix and not applying Bendix, those are the only two choices?

Mr. Riedel: Yes.

Unknown Speaker: Okay.

Mr. Riedel: Yes.

Unknown Speaker: But haven't... under the Chevron-type approach, haven't we said, if the rule is clearly foreshadowed, it's not a new rule?

I mean, that is certainly an argument that could be made here, even if Chevron remained.

Mr. Riedel: That is true, and even if the court... I don't believe that the Ohio court looked at Chevron in a remedial sense as you are talking about, but rather, a choice of law, but if--

Unknown Speaker: Well, can we talk--

Mr. Riedel: --Sure.

Unknown Speaker: --about it here?

Mr. Riedel: Sure.

Even if you did it in a remedial sense, what occurred, in terms of, I think, a time frame in this case is significant to look at.

This accident between the parties occurred in March of 1984.

Three days later, March 8 of 1984, the District Court for the Northern District of Ohio in Copley v. Heil-Quaker ruled this particular statute as being unconstitutional.

June of 1987, the United States Court of Appeals for the Sixth Circuit in Bendix v. Midwesco, in a unanimous opinion, this statute is unconstitutional.

The respondent's lawsuit was still not filed.

Respondent did not file this lawsuit until over 2 months later, August of 1987.

Unknown Speaker: So that when the lawsuit was filed, the doubt about the validity of this statute was established under clearly settled principles--

Mr. Riedel: That it would not--

Unknown Speaker: --but that's different than Chevron, and that's a way of distinguishing this case and Chevron, but you don't seem to want to accept that distinction.

Mr. Riedel: --That the... the statute was clearly settled, I believe.

Unknown Speaker: And I'm asking, isn't that different than the Chevron case, but you say no.

You don't want to rely on that distinction.

Mr. Riedel: Well, certainly, you know, the first test of Chevron is the overruling of past... or clear past precedent, or deciding an issue of first impression whose resolution was not clearly foreshadowed.

The lawsuit had not been filed.

These decisions are out there.

'84 and '87, this statute was unconstitutional--

Unknown Speaker: It was so because this case relied on well-settled principles.

It is different from Chevron.

You seem to be resisting this.

I thought it was an argument in your favor.

If you don't want to use it, you don't have to.

Mr. Riedel: --Okay.

I'm sorry.

I would like to use it, and I think I see your point.

Unknown Speaker: On a less profound level, Mr. Riedel, was it just coincidence that both the vehicles involved in this case were from Pennsylvania?

Mr. Riedel: I believe so.

Unknown Speaker: Any reason to know why the suit was brought in Ohio rather than Pennsylvania?

Mr. Riedel: I do not know.

I think that would be perhaps a proper question--

Unknown Speaker: Could it have something to do with the statute of limitations and the tolling that would be possible under the old law in Ohio and not in Pennsylvania?

Mr. Riedel: --I don't know, Justice Ginsburg.

I don't know.

Unknown Speaker: Do you know what the statute of limitations would have been in Pennsylvania?

Mr. Riedel: I think it is the same as Ohio.

Unknown Speaker: And that's where under any theory the defendant always was, because the defendant is from Pennsylvania.

Mr. Riedel: Everybody was from Pennsylvania, and so I believe the statute was likewise 2 years in Pennsylvania.

The same rule would apply there.

Unknown Speaker: What is the timing sequence?

I've forgotten.

When was the Bendix decision?

Mr. Riedel: Bendix was decided in June of 1988.

This Court decided Bendix in June of 1988.

This accident occurred in March of '84.

The lower court, the district court declaring the tolling statute in Ohio unconstitutional occurred 3 days after this accident.

The 6th Circuit declared the same statute unconstitutional approximately 2 months before this lawsuit was filed.

Unknown Speaker: But then it would have already too late.

Mr. Riedel: Yes, ma'am.

Yes.

Unknown Speaker: So the only notice was the district court... the only hint was the district court decision.

Mr. Riedel: The district court and the Sixth Circuit.

Unknown Speaker: Well, the Sixth Circuit you said came--

Mr. Riedel: No.

Unknown Speaker: --when it would have already been too late under the 2-year limit.

Mr. Riedel: Yes.

Unknown Speaker: You said the district court decision--

Mr. Riedel: Yes.

Unknown Speaker: --was 3 days after the accident.

Mr. Riedel: Correct, yes.

Unknown Speaker: But that by the Sixth Circuit had decided, more than 2 years had elapsed since the accident.

Mr. Riedel: That's correct, and so to address what you had asked me earlier about, if Chevron... the Chevron test were applied to this case, which the majority attempted to do, or at least they said they were going to do in Part I of the opinion, clearly, they didn't even address the first issue in Chevron, the clear precedent or the foreshadowing argument, because what the Ohio majority said was, Bendix was the first time that any court of binding authority in Ohio State courts had ruled the tolling statute unconstitutional.

That's not the test from Chevron.

The test from Chevron, at least the threshold, the first test, is clear past precedent or no clear foreshadowing.

I would submit there was a lack of clear past precedent, the district court, the Sixth Circuit decision and, clearly, foreshadowing this Court's decision in June of 1988.

The second factors, and the third factor from Chevron's--

Unknown Speaker: I'm not following, because June of 1988 was much too late.

Mr. Riedel: --Yes.

Unknown Speaker: The foreshadowing would have to have been while plaintiff still could have acted on time, so the only thing that could have been... could count, the only decision, is the district court decision.

Mr. Riedel: If the respondent wanted to rely upon the tolling statute and not the statute of limitations.

Unknown Speaker: Had there been a Delaware case that had struck down a statute similar to this?

Mr. Riedel: I believe it was in New Jersey.

Unknown Speaker: Oh, it was in New Jersey.

Mr. Riedel: Yes.

Unknown Speaker: And what was the date of that case?

Mr. Riedel: That was, I believe, '83, in that area.

I believe that was... or, I don't think it struck it down at that point, but it addressed... it addressed the issue of a similar tolling statute in New Jersey under the Commerce Clause parameter.

Unknown Speaker: Well, that was our case of Searle v. Cohn.

Mr. Riedel: Yes.

Unknown Speaker: And we didn't... we simply have pretermitted that question when we gave our decision, did we not?

Mr. Riedel: Yes.

Yes.

The second and the third test, the Chevron test, the majority never even addressed those tests in this particular case.

There was not one word said as to an analysis of two and three from Chevron.

What the court did say was that it didn't have to do that because the facts of the two cases were so similar, and I would submit that they're not similar facts, and that they're quite different, Chevron and this case.

What is also uniquely different about the two cases was the manner in which the constitutional challenge was raised.

In Chevron, the issue was not raised until after this Court decided Rodriguez v. Aetna.

In this case--

Unknown Speaker: Would you refresh my recollection about Chevron?

Was that a constitutional case?

Mr. Riedel: --Chevron had to do with which statute of limitations were going to apply to a Louisiana--

Unknown Speaker: And was there any constitutional issue in it?

I didn't remember one.

That's why I was--

Mr. Riedel: --I don't think so, sir.

Again, going back to the distinction between Chevron and this case, Chevron, the issue was not raised until after this Court decided Rodriguez v. Aetna.

In this case, at the very first moment, the petitioners raised the unconstitutionality argument of 2305.15, and the right to rely upon Ohio's 2-year statute of limitation.

There was no delay whatsoever on the part of the petitioners in this case.

Petitioners did not rely upon anybody to raise the initial arguments that were ultimately ruled upon by this Court in Bendix in June of 1988.

Whether a finding that a decision is... truly applies retroactively has any practical effect I believe depends upon the remedial implications of that finding.

If equitable considerations are ignored, or are to be ignored in assessing the retroactive impact of a decision, as I read the Beam decision, Chevron does not apply to choice of law, we can discard that, but courts are permitted to shape the remedial calculus, then declaring a decision retroactive might be of little consequence.

Other courts will follow the lead of the Ohio court.

Yes, it's retroactive, but... but, State courts, we have the right to tailor our own remedies as we determine the manner in which a decision of the United States Supreme Court is to be applied retroactively.

That's exactly what the majority did in this case.

Their resort to the latter inquiry resulted in conferring constitutional status on an unconstitutional statute.

I think there are two points clear from this Court's decisions in Beam and Harper.

All of this Court's rulings apply retroactively unless the Court expressly reserves judgment on the issue.

Unknown Speaker: --But we don't have to even assume that here, because I take it the choice-of-law issue is subject to stipulation.

Mr. Riedel: Correct.

Unknown Speaker: Okay.

Mr. Riedel: It is.

It has been stipulated.

And second, once a decision is applied retroactively to one set of parties, it must be applied retroactively to all similarly situated litigants.

Because 2305.15, the tolling statute, was declared to be unconstitutional by this Court in Bendix in June of 1988, thus permitting Midwesco Industries to avail itself of Ohio's statute of limitations, that same logic should apply to the parties in this case.

Anything to the contrary is disparate treatment between similarly situated litigants.

I would respectfully request that the decision of the Ohio supreme court be reversed and this Court reinstate the decision of the lower courts.

Thank you.

Unknown Speaker: Thank you, Mr. Riedel.

Mr. Dyk.

Argument of Timothy B. Dyk

Mr. Dyk: Mr. Chief Justice, and may it please the Court:

We, of course, do not take issue with the Harper decision on the choice-of-law issue, and I should make clear that in the oral argument before the Ohio supreme court, which came after the Harper decision, Mr. Eardley and Mr. Zulandt did not argue that the Ohio supreme court had any discretion with respect to the choice-of-law aspect of Harper.

We agreed then, we agree now, that the Ohio supreme court had no choice with respect to the choice-of-law issue, and that the first part of its decision suggesting otherwise is wrong.

Unknown Speaker: That's the part that relied on the Ohio constitution?

Mr. Dyk: No, Your Honor.

The second part of the Ohio supreme court decision relied on section I... Article I section 16 of the Ohio constitution, the right to the remedy provision, and that second part of the Ohio supreme court's decision holds that the right to a remedy provision tolled the 2-year statute of limitations.

And I recognize that unfortunately the Ohio supreme court misperceived its role even in the second part of the opinion, because what they suggested there was that the Ohio constitution trumps this Court's choice of law rules even if they apply to remedies, but I think what the Ohio supreme court really meant to say, or at least should have said, was that the remedial provisions in the Ohio constitution were consistent with Federal law, were consistent with the Harper case, and we believe that they were, in fact, consistent with the Harper case.

Harper, of course, did not preclude States from applying their remedial schemes to the vindication of Federal rights.

A majority of this Court in American Trucking, in Beam, and in Harper, and individual justices have recognized that the issue of remedial discretion is an important one, and--

Unknown Speaker: Well, Mr. Dyk, may I interrupt you there?

The word "remedial" gets used throughout this case, but as I understand it, the only issue in this case is whether at some point in the future, or at the present time, for that matter, the savings statute is going to be applied or whether it isn't.

There's nothing to remedy from the past.

The State hasn't been acting unconstitutionally.

It hasn't been collecting taxes that it shouldn't have collected, and so on.

The only question in this case is whether the savings statute is going to be applied or whether it isn't going to be applied.

Mr. Dyk: --I don't understand that to be the issue at all, Justice Souter.

Unknown Speaker: Then correct me on that.

Mr. Dyk: The savings statute, [] is unconstitutional.

It is gone.

There is no question about that.

The--

Unknown Speaker: So it's not going to be applied.

Mr. Dyk: --It's not going to be applied.

It is not--

Unknown Speaker: What's left?

Mr. Dyk: --What is left is the general principle, applied by the Ohio supreme court and reflected in the State constitutional provision, which provides for tolling the 2-year statute of limitations because of surprise to this plaintiff and other people similarly situated.

In other words, it is quite a different rule of law.

Unknown Speaker: But the... isn't the effect of the tolling in effect to come up with a rule which is identical to the savings statute?

So that if you say, well, we will allow tolling as a result of surprise, we are in fact to that extent applying a kind of savings clause which would have been within the savings clause that everyone agrees is unconstitutional, and the analysis is turned into kind of a legal shell game.

We say, ah, well, the savings clause as written doesn't apply, but we've got something else just as good which has precisely the same effect.

Mr. Dyk: Well, Justice Souter, I do not think it has precisely the same effect.

With respect to all future cases and all people who are on notice of the Bendix decision, their claims will be precluded unless they are brought within the 2-year statutory period.

Unknown Speaker: But in this case, it will in fact have the same effect.

Mr. Dyk: It has the same result, but the reasoning is entirely different.

The reasoning is not that foreign corporations should be subjected to suit indefinitely.

That is not the ground for the State supreme court decision here.

The ground for the State supreme court decision is that people who are surprised should have the benefit of tolling of the statute of limitations, and as the Eli Lilly case in--

Unknown Speaker: Or to put it another way, foreign corporations should be subjected to suit indefinitely, brought by people who were relying on their ability to sue foreign corporations indefinitely.

Mr. Dyk: --That--

Unknown Speaker: I mean, it's just slicing out a small category of the unconstitutional statute, but it's still essentially applying the same statute.

Mr. Dyk: --No, Justice Scalia, it is not applying the same statute, it is applying Article I, section 16 of the Ohio constitution, which has been applied routinely in other cases to save causes of action where people were not on notice that they should have brought the case.

Unknown Speaker: But here, its effect is to preserve an unconstitutional statute for the benefit of those who are relying on the unconstitutional statute.

Mr. Dyk: Well--

Unknown Speaker: That is what it does.

Mr. Dyk: --That is true, but we think that there is nothing unusual about that.

This Court in the area of Federal law in habeas corpus, in qualified immunity, with respect to statutes of limitations under Chevron, with respect to title VII, has recognized the appropriateness of protecting these reliance interests, and if--

Unknown Speaker: Mr. Dyk, on the question of reliance interest, this case seems to me different from the Chevron Oil.

Was there any reason why this plaintiff could not have sued either in Pennsylvania or in Ohio within the 2-year limitation?

Mr. Dyk: --Let me see if I can explain, Justice Ginsburg, the situation.

The accident took place in Ashtabula, which is very close to the Pennsylvania border.

The plaintiff retained shortly after the accident an Ohio lawyer who states that he relied on the tolling provision which was invalidated in Bendix in not bringing suit, and now one of the reasons for suing in Ohio rather than in Pennsylvania would be, for example, that the witnesses, the trial witnesses would not be subject potentially to subpoena in Pennsylvania, such as the State police officer or the ambulance--

Unknown Speaker: Yes, but as far as suing in Ohio, the long arm had been long on the books.

There was no impediment to suit in Ohio.

The tolling for an out-of-State defendant had long ago become anachronistic, hadn't it?

Mr. Dyk: --Well, I don't think it had become anachronistic.

There was, in fact, no decision in the Ohio State system, and we are talking about the Ohio State system, suggesting that that tolling provision was in any way--

Unknown Speaker: But what was the reason, Mr. Dyk, for the tolling provision originally?

Why were statutes of limitations tolled against out-of-Staters?

Mr. Dyk: --I think the reasons are articulated in this Court's decisions in Searle and Bendix, that it is sometimes difficult to use long arm statutes, and it is easier for people to use the tolling provision and rely on that, and that's what happened here.

Unknown Speaker: Didn't the tolling provisions come in in a day when there were no long arms?

Isn't that the derivation?

Mr. Dyk: Yes, they did, but they were interpreted to continue to have validity after the long arm statutes came in, and if a lawyer is sitting in his office in Ashtabula and trying to figure out when he's supposed to bring suit, he looks at the statutory provisions and he says, I have an indefinite period of time to bring suit, because I am dealing with an out-of-State corporation, and then he goes to research the law.

What does he find?

What he finds is a New Jersey decision in mid-1983 saying that the New Jersey statute is unconstitutional, but the New Jersey statute is very different from the Ohio statute.

Unknown Speaker: But you could not take into account the enormous difference between a world without long arms, where you had to put your hands on the defendant in the State, and the time when it was just a matter of sending notice by mail?

Mr. Dyk: Justice Ginsburg, the statute may not have been desirable policy, the statute may have not been necessary any more, but the statute was there on the books, and people relied on it, and they are, we think, entitled to rely on tolling provisions on the books that have never been questioned in the Ohio courts and that have been routinely applied.

Unknown Speaker: How about the district court decision, Mr. Dyk?

Mr. Dyk: There were three district court decisions.

Judge Potter had decided the statute was unconstitutional in two companion cases, one of which came up to this Court as Bendix.

Judge Rubin and Judge Brown had reached opposite results.

they held the statute constitutional.

Now, none of these three decisions was reported or accessible to ordinary lawyers.

We're talking 10 years ago, before LEXIS and WESLAW.

Unknown Speaker: They weren't in Fed Supp, or--

Mr. Dyk: They weren't in... none of the three was in Federal Supplement, but there was a conflict there in the district courts.

There was no Sixth Circuit authority on this, and there certainly was no authority in the Ohio court system suggesting in any way, shape, or form that this statute was invalid, and under this Court's decisions applying Chevron, we understand that you are entitled to look to the decisions within the forum, within the jurisdiction, and anyone doing that would not have found reason to believe that the statute was unconstitutional.

And as I started to suggest earlier while this Court's decision in Searle might have raised a question about the New Jersey statute, the New Jersey statute was very different from the Ohio statute.

The New Jersey statute required that you become licensed to do business in the State as a way of getting the statute of limitations to run.

The Ohio statute had no such requirement in it.

It merely required the employment of an agent for service of process.

Now, the difference between the two is significant, because under the New Jersey statute, when you registered you became liable to taxation in the State.

The Ohio statute imposed no such requirement, and this Court in Searle suggested strongly at the end of its opinion that there was a critical difference between a statute like the New Jersey statute and a statute like the Ohio statute, so it wasn't so clear that even if this New Jersey decision were correct, that it would apply in Ohio.

Now, the only other published decision that came along was the decision of the Sixth Circuit in Bendix, which came along about 2 months before this plaintiff filed suit.

Again, it's not a decision of the Ohio system.

It was on review in this Court, but even if she were bound to look at that, if she'd looked at it we certainly think that filing suit approximately 2 months later was filing within a reasonable time and that Ohio, applying its right-to-a-remedy provision, could protect that interest legitimately.

Unknown Speaker: --Mr. Dyk, why isn't a basic Federal principle of equal treatment applicable here?

You're talking about unfairness to the plaintiff whose lawyer might not have realized that tolling provisions were becoming obsolete, but what about Reynoldsville Casket point that Bendix got off?

I am entitled to be treated the same way Bendix is treated.

What about the disparity in the treatment of identically situated defendants?

Mr. Dyk: Well, there would not be normally a disparity in the treatment of identically situated people, because this Ohio constitutional provision would apply to any suit that was brought in Ohio.

That issue apparently wasn't raised in the Bendix case.

If they'd raised that issue, they would have been treated the same way as Mrs. Hyde.

That is, that there would have been tolling of the statute of limitations as a result of this surprise factor.

We have suggested on our brief, and this is important, that we satisfy the Chevron Oil standard, which is--

Unknown Speaker: Before you go... I asked, why should we ever rule on the unconstitutionality of a statute of limitations, then?

I mean, it's really a phony case.

Ohio can go ahead and pass all the unconstitutional statutes of limitations it wants, because there's no case in which I can see anybody has standing, because you know if you strike it down the Ohio supreme court's going to be say, well, yes, it was an unconstitutional one, but in light of the fact that you relied on it, we'll allow you to have that additional time.

How do you ever get a lawsuit?

Mr. Dyk: --But that happens all the time, Justice Scalia, and that is the law about adequate and independent State ground in this Court which is very similar.

A lot of people--

Unknown Speaker: Oh, but--

Mr. Dyk: --bring cases with Federal issues in them.

The Federal issue may not ultimately be responsive--

Unknown Speaker: --No, but Mr. Dyk, that goes to the... doesn't adequate and independent State ground go to the choice of law?

In other words, we would say, you can't raise this issue.

You cannot, in effect, proffer the claim for relief, because there's some kind of a State bar.

We've passed that point.

You've raised your claim, your claim is good, there is no question that Bendix applies, and it seems to me the question in this case is whether, in an instance in which there is no choice of remedy in the sense that there may be remedy A, B, or C, as in tax cases for example, in a case in which there is only one choice, and that is, if you apply the statute, if you apply the constitutional rule, you can't apply this statute, the alternative being that if you apply this statute, you are in fact not applying the constitutional rule, is there really any choice of remedy, and I would suppose that this case was distinguishable from the paradigm of the tax cases in which there are various alternatives.

There's just an either-or question here, and if you answer the remedial question differently from the choice-of-law question, you come back to what I suggested a moment ago.

It's just kind of a shell game.

Now you see it, now you don't.

Mr. Dyk: --But Justice Souter, that happens frequently.

It happens in Federal habeas, it happens in qualified immunity, it happens--

Unknown Speaker: Ah, but Federal habeas I think is a slippery analogy, because in Federal habeas we've already... the very premise in Federal habeas is that there has already been one completed process of direct appeals in which these kinds of issues can be raised.

Federal habeas is a supplementary process.

There's nothing supplementary about this.

The only way the defendants in this case can raise the constitutionality of the savings clause is the way they've raised it.

This is their only shot.

Mr. Dyk: --But Justice Souter, in at least two cases, Chevron Oil and St. Francis, this Court has held it appropriate to toll statutes of limitations under Federal law where there has been surprise.

It is a traditional thing to have tolling of statutes of limitations where people are surprised.

Unknown Speaker: Well, I would like to say there's a distinction because of the constitutional rule that we're dealing with here, although I recognize that there have been instances in which the Court has not immediately applied its constitutional rule, but even in those cases, I would suppose that the prospective application to the particular claimant was such that there was not being a denial of all relief simply by deferring constitutional relief.

Here, however, there's an either-or choice.

This claimant gets it, or this claimant gets nothing.

Mr. Dyk: Well, I think that was true in Chevron and St. Francis also.

It happens--

Unknown Speaker: Which were not constitutional cases.

Mr. Dyk: --They were not constitutional cases, but they arose under Federal law, and I would have supposed, Justice Souter, that the States had greater authority than the Federal courts to define the appropriate scope of their statutes of limitations.

They--

Unknown Speaker: Well, you... I'm sorry.

I didn't mean to interrupt you.

Mr. Dyk: --Well, I was going to refer to the Chase case, which recognizes that States can go so far as to revive an entirely expired statute of limitations.

There are many State doctrines which preclude the litigation of Federal claims.

Res Judicata is one of them.

If this Court decides a case, the States are not obligated to go back and reopen closed cases.

Unknown Speaker: But don't you think the States, the options open to the States are affected by Beam and Harper, because it seems to me that if the Ohio court can do what you want it to do, then all of the professions in Beam and Harper are very hollow, because in fact the statute can apply... the ruling can apply in the first case, the ruling can therefore necessarily be retroactive, because there's no selective prospectivity, but it doesn't make any difference, because the remedial hand can simply take away what the choice-of-law hand hath given.

Mr. Dyk: Justice Souter, I don't believe that's true.

First of all, the State at a minimum has to be an applying an established and legitimate principle of law to deny the Federal right.

That's required by the Supremacy Clause, and here I think there's no question, there's not even an argument that Ohio was in any way discriminating against the Federal right, and I think it is clear from its case--

Unknown Speaker: No, it's just saying, we won't honor it.

Mr. Dyk: --We won't honor it, but it's not doing anything that's peculiar to the Federal right.

It's treating State claims and Federal claims the same, and it's saying, when there's surprise we're going to protect people.

That, we suggest, is a legitimate State interest.

Unknown Speaker: But ordinarily that sort of legitimate State interest doesn't triumph over, you know, a flat declaration that the thing is unconstitutional from this Court on Federal grounds.

Mr. Dyk: But frequently, Mr. Chief Justice, it does.

In the example of harmless error, which was discussed recently in this Court's decision in O'Neill, or forum non conveniens, there's a whole range of State remedial doctrines which may trump, if you wish to put it that way, may trump the Federal right and may deny enforcement of the Federal right.

It happens all the time.

Unknown Speaker: But the harmless error doctrine is itself a Federal doctrine from Chapman v. California.

It says a State may affirm a conviction if it's convinced that a constitutional error beyond a reasonable doubt did not cause any harm to the defendant.

Mr. Dyk: But the harmless error doctrine in a State court, in a State case, originates as a matter of State law, and the question is, is it consistent with this Court's rules.

The same thing is suggested--

Unknown Speaker: But even in that instance, Mr. Dyk, the very premise of applying harmless error is that there is nothing that requires a remedy, i.e., a mistake was harmless.

Nothing need to be corrected.

Here, you are looking at a prospective application of a constitutional standard, and you are going in effect to deny this person the benefit of a constitutional rule.

Those cases aren't comparable.

Mr. Dyk: --Justice Souter, I take the example of res judicata, for example.

This Court say in Bendix that this tolling statute is unconstitutional.

The State says, we have a rule of res judicata.

We're not going to open closed cases.

Well, those closed cases remain closed, the people--

Unknown Speaker: But those were cases at least, as I was saying about habeas, in which somebody had a shot at raising the issue, and you know, we can argue and give an instance as to whether the person was at fault or negligent, or what-not, for not raising the issue and prevailing, but in any event, there's no such arguable choice here.

This is the only time, the only case in which this issue can be raised.

Mr. Dyk: --Justice Souter, I don't agree with that.

I think that this issue could have been raised, at least in theory, by Reynoldsville Casket, for example, bringing a declaratory judgment after the accident to have this provision of the Ohio statutes declared unconstitutional, and they--

Unknown Speaker: You want them to go in and invite the lawsuit in order to get the benefit of a constitutional remedy?

Mr. Dyk: --I'm merely suggesting that there is a remedy here, that it's not a situation in which there is no remedy available.

The traditional remedy, of course, is to raise it as a defense.

But for what it's worth, that still doesn't put them on par with the individual who has litigated, for example, a direct appeal on habeas, or has already had an opportunity for litigation in the normal, we assume the normal adversarial context under the res judicata rules.

You're saying, well, in order to avoid unconstitutionality, they should have taken the affirmative step of beginning their own litigation.

Well, I'm--

Unknown Speaker: And maybe they should have, but I mean, the two situations are not comparable.

Mr. Dyk: --I'm not saying they should have.

I'm saying that that is an option that was available to them.

There is a potential remedy.

Unknown Speaker: Well, you're saying they should have as a basis for justifying Ohio's result.

Mr. Dyk: Well, I think that Ohio is entitled to make the choice, as it does routinely and across the board.

It is not discriminating against the Federal right.

It is simply deciding a remedial issue.

Unknown Speaker: But discriminating or not, it is in effect ruling that the Ohio constitution can make the Bendix decision prospective only in Ohio.

That's the effect of it, is it not?

Mr. Dyk: That is the effect of it, but not as a choice-of-law matter, as a remedial matter of saying that where people are surprised--

Unknown Speaker: Whatever label you put on it, the result is a prospective application of a decision that this Court declared to be fully retroactive.

Mr. Dyk: --Well, I do think the label reflects real substance underlying the Ohio rule of decision.

There is a huge difference, both as a practical matter and in theory between saying as a choice-of-law matter we refuse to apply Bendix retroactively and saying, we apply Bendix retroactively, we recognize that we are bound by--

Unknown Speaker: But that, Mr. Dyk, is what Ohio said.

I asked a question of Mr. Warren, is it isn't what... under Ohio's own law what counts is the syllabus, and under the syllabus, section 16 of Article I of the Ohio constitution... under that provision, recent U.S. Supreme Court decisions may not be retroactively applied to bar claims in State courts which accrued prior to the announcement of the decision.

That is the holding of the Ohio supreme court.

Mr. Dyk: --Yes, and Justice Ginsburg, in the syllabus they rely on Article I, section 16 of the constitution.

They are... which is a right to a remedy provision.

They are relying on a right to a remedy provision, mistakenly saying that that trumps this Court's rules about retroactivity, but I think it is nonetheless clear what they are saying, even though they should have said it differently: that there is a right to a remedy here when you are surprised.

As this Court has frequently held in past cases involving State law, all sorts of law, where you are surprised you get the benefit of tolling of the statute of limitations, and we don't think that that's an exceptional thing, and it has been done at least twice by this Court in St. Francis and Chevron, and in Glaus, for example--

Unknown Speaker: Well, however, you recast the decision, correct me if I'm wrong, I thought it was the statute of law of Ohio that the holding of the case, the case law comes out of the syllabus and not the opinion.

Mr. Dyk: --The opinion may be used to interpret--

Unknown Speaker: Clarify.

Mr. Dyk: --Clarify and interpret the syllabus, and we agree that to the extent that they said that the Ohio constitution trumps some Federal principle, they were wrong.

What they should have said was, and this is what we urged on them... we did not urge to the contrary.

What we urged on them was that the Ohio constitution, the right to a remedy provision, was consistent with Federal law, and that they could, at one and the same time, recognize that they were bound by the Bendix decision, but take account of the surprise factor by applying this right to a remedy, this provision of the Ohio constitution.

Unknown Speaker: I suppose there's no reason why such a provision, if it's operative against Federal decisions, couldn't be applied to substantive matters as well.

That is, if there is a surprise ruling by this Court that a particular substantive provision of Ohio law is unconstitutional, the Ohio court could say, well, you know, that's a surprise, and we're going to preserve expectations by not applying that retroactively.

Mr. Dyk: I would have a serious question about that, Justice Scalia.

Unknown Speaker: Why?

Why is that different from this?

Mr. Dyk: Well, first of all, if a decision of this Court says that a Federal right does not exist, Ohio could not continue to apply--

Unknown Speaker: Not a Federal right doesn't exist, that the State... the State substantive provision is unconstitutional, under which a plaintiff was suing.

Mr. Dyk: --And you would have to inquire, under those circumstances, whether the reasons that Ohio gave for preserving the State substantive provision were legitimate or illegitimate, and probably in most cases they wouldn't be legitimate.

I don't think that--

Unknown Speaker: Well, if they were legitimate, if they were genuinely protecting expectations, I guess you'd have to say its okay.

Mr. Dyk: --I don't think we're arguing, Justice Scalia, that the State in all circumstances can preserve expectations.

What we are saying is, we ask you to look specifically at this case.

It involves the statute of limitations.

It is traditional both in Ohio and in the Federal system to toll statutes of limitations where there is surprise, and we are saying that in those limited circumstances it is legitimate for the Ohio supreme court to say, if there is surprise, we are going to toll the statute of limitations.

We do it in other situations.

We are going to do it in this situation.

That is a legitimate State interest.

It is an established State interest.

It is a nondiscriminatory State interest.

Unknown Speaker: Mr. Dyk, can I ask you a more basic question?

I fully understand your drawing an important distinction between the choice-of-law rule and the remedy rule, and you say here all you're doing is talking about remedy.

But is it not at least arguable that in this case we've held, as a matter of constitutional law, that it's a burden on interstate commerce to compel this out-of-State company to defend a lawsuit that's filed after the normal statute of limitations is run, in which event we're not really talking about remedy, but we're talking about whether or not we will allow another constitutional violation to take place?

Mr. Dyk: Well, I think the question is whether the Ohio supreme court's decision represents an independent constitutional violation, and it is not, we suggest, a violation of the Commerce Clause, it is a nondiscriminatory rule.

The petitioner in this case does not urge that the Ohio supreme court has violated the Commerce Clause.

They are urging--

Unknown Speaker: No, but they're arguing, as they did in Bendix, that requiring us to defend, unlike... at a time when a local company would not have to defend, is itself a violation of the Commerce Clause.

Mr. Dyk: --But the rule of Bendix rested on the notion of discrimination on the--

Unknown Speaker: No, Justice Scalia's position rested on discrimination.

The majority rested on balancing rocks against lions, or something like that, as I remember it.

[Laughter]

Mr. Dyk: --But what it held was applying Commerce Clause principles.

Whether you characterize those as nondiscrimination principles, certainly the interest in the protection of interstate commerce was one side of the balance, and what we're suggesting here is that Ohio is not doing what it did in the foreign corporation provision.

It is not saying that we are going to create a situation where foreign corporations do not get the benefits of the statute of limitations.

That is not the holding at all.

What they are saying that anybody who is surprised will--

Unknown Speaker: But it is for Reynoldsville.

Reynoldsville is being treated by the Ohio courts just the way Bendix was.

Mr. Dyk: --But Mr. Chief Justice, I would not have understood that a foreign corporation can claim immunity from all State rules of law simply because it is an out-of-State corporation if it faces a nondiscriminatory rule, and we suggest that the rule of surprise here is a nondiscriminatory rule.

It cannot claim a Commerce Clause violation any more than any corporation--

Unknown Speaker: That's just another way of saying it's giving a different reason for the same unconstitutional violation.

Mr. Dyk: --Justice Stevens, I don't think so.

I think what it is doing is it's applying an entirely different rule of State law resting on other considerations which have nothing to do with whether they are a foreign corporation or a domestic corporation, that anyone can take advantage of the Ohio tolling rule which--

Unknown Speaker: But that rule is shaped around the former Ohio tolling rule.

It is entirely shaped around it.

Mr. Dyk: --No--

Unknown Speaker: You certainly would not allow them to bring the suit later than that rule would have allowed.

Mr. Dyk: --Justice Scalia, it is not shaped--

Unknown Speaker: You measure it by that rule.

Mr. Dyk: --Justice Scalia, it is not shaped by the tolling rule that was held invalid in Bendix.

If you look at the decisions that the Ohio supreme court cited in this case, the Hardy decision, the Eli Lilly decision, gong back to 1882, and--

Unknown Speaker: You misunderstand me.

I'm not saying that they're applying the same statute.

They are applying a rule of surprise.

But what are you enabled to do by reason of the surprise?

What you are enabled to do by reason of the surprise is to sue for as long as that old, unconstitutional would have allowed you to sue.

Not any longer than that.

Mr. Dyk: --Well, what it allows you to do is to sue for a reasonable time after the earlier statute was invalidated.

We--

Unknown Speaker: But that's an ongoing constitutional violation.

What Ohio has done is to say that we cannot cease an ongoing constitutional violation, and that seems to a) questionable and b) distinguishable from Chevron.

Mr. Dyk: --Justice Kennedy, I do not think it is distinguishable on the facts from Chevron, and I do think that applying the Chevron rule here suggests that we should prevail, but in our view the Chevron rule is too restrictive.

This ought to be judged by other principles such as those articulated in Howard v. Rose, and the State limitation should be sustained unless it is discriminatory, not established, not reasonable.

We think this one is reasonable.

Unknown Speaker: Thank you, Mr. Dyk.

Mr. Dyk: Thank you.

Unknown Speaker: Mr. Riedel, you have 7 minutes remaining.

Rebuttal of William E. Riedel

Mr. Riedel: Mr. Chief Justice, I will waive the balance of my rebuttal argument.

Chief Justice Rehnquist: Very well.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Burnham v. Superior Court of Cal., County of Marin - Oral Argument

Fri, 09 Jan 2009 14:49:20 +0000

Case:

Burnham v. Superior Court of Cal., County of Marin

Media File:

89-44_19900228-argument.mp3

Related Transcript:

1989_89_44_argument.xml

Transcript:

Argument of Richard Sherman

Chief Justice Rehnquist: We'll hear argument next in No. 89-44, Dennis Burnham v. The Superior Court of California.

Mr. Sherman.

Mr. Sherman: Mr. Chief Justice, and may it please the Court:

The issue presented here is whether a state can exercise personal jurisdiction over a nonresident defendant who was personally served while present in the state if that defendant does not otherwise have sufficient contacts with the state to satisfy the minimum contacts test announced in International Shoe.

The issue arises in the following context.

The parties lived virtually all their married lives in New Jersey.

The split up in 1987.

They had two children about ages 2 and 8 at the time, and they entered into a marital settlement agreement resolving everything in New Jersey.

The wife then moved to California with the children, as planned, and husband filed for dissolution in New Jersey and asked the court to incorporate their marital settlement agreement.

Before he served Mrs. Burnham with his petition, she filed an action in California for legal separation and filed him after he brought the children back from visiting with them to her home in Mill Valley, California.

Mr. Burnham moved to quash service arguing that he did not have sufficient minimum contacts under Kulko, International Shoe and similar cases and that under this Court's decision in Shaffer v. Heitner the fact that he was served in California was no longer relevant at all.

The trial court initially agreed with Mr. Burnham and granted his motion, in part holding that there were not sufficient minimum contacts and there was no personal jurisdiction.

It reconsidered that order when Mrs. Burnham's attorney convinced it that the fact that he was served in the forum was sufficient and that notwithstanding what this Court held in Shaffer and the language in Shaffer, personal service is still sufficient.

The court of appeal denied the petition for a writ in a decision which, again, said that Shaffer, the language in Shaffer, had not changed the traditional rule... it goes by the nickname of transient jurisdiction.

It relied on cases such as the Supreme Court's case in Nevada, Cariaga which had said this Court has never directly held that transient jurisdiction is no good so we will apply it until we are instructed otherwise.

We're here today to ask you to instruct the courts of this land otherwise, to give effect to what the Court said in Shaffer, that personal jurisdiction in all cases must be tested by the minimum contacts test.

Now, it's important to keep in mind that although the doctrine is often called transient jurisdiction or sometimes, more colorfully, gotcha jurisdiction, what's really at issue is not whether the defendant is passing through momentarily.

What's at issue is whether the fact of service on a defendant while he is in the forum is alone sufficient.

The traditional view that it was founded on the notion that... what jurisdiction is all about, what personal jurisdiction is all about is whether the state has power over the defendant, physical power over the defendant.

And it does, according to the traditional view, when a defendant is within its boundaries.

That view was long criticized by the commentators and was rejected by this Court in International Shoe and then again in Shaffer.

That power, physical power over the defendant is not fundamentally the basis for the exercise of state court jurisdiction.

Unknown Speaker: Mr. Sherman, even if you are correct that some minimum contact is necessary for personal jurisdiction, wouldn't the transitory presence within the state of someone meet that test--

Mr. Sherman: Well--

Unknown Speaker: --in a good many instances?

Mr. Sherman: --I think not, Your Honor.

And it's important to distinguish--

Unknown Speaker: I would have thought so and that perhaps someone who voluntarily enters a state to transact some business or to visit there might well meet whatever minimum contacts are--

Mr. Sherman: --That... that--

Unknown Speaker: --required.

Mr. Sherman: --On that... on those facts, yes.

If he were just passing through momentarily, say, stopping over on his way to Hawaii, not conducting any business or--

Unknown Speaker: Well--

Mr. Sherman: --classically flying over--

Unknown Speaker: --yes.

You have a different situation is someone is flying over the state, overhead--

Mr. Sherman: --Right.

Unknown Speaker: --and is served in mid-air than you do with someone in your client's--

Mr. Sherman: That's correct.

Unknown Speaker: --position.

Mr. Sherman: But the question that your hypothetical poses is what kinds of contacts would be sufficient under the minimum contacts test for somebody who was not in the state very long.

And the answer to that would depend upon applying the minimum contacts test and typically the cause of action has to be related to or rise out of contacts that the defendant has.

And in your example, for instance, if somebody is... is in the state transacting some business, even though they are there very briefly, if there is a cause of action that the plaintiff has against that defendant that arises out of his transacting that business, there's no question that under the minimum contacts test--

Unknown Speaker: Mr. Sherman--

Mr. Sherman: --there would be a restriction.

Unknown Speaker: --This sort of points out... points up one of the problems with... with abandoning the gotcha test.

One of the nice things about the gotcha test was that it made very simple the preliminary question of jurisdiction, which ought to be simple, it being a preliminary question.

It's very silly to have to litigate about that and what you're saying is by abandoning the gotcha test we're going to have to look in every single case to see whether the individual is not only served... or... or the state courts will... not only whether the individual was served there but whether the suit pertains to his presence there and so forth.

It's a big deal.

Mr. Sherman: Well, Your Honor, if there were no Fourteenth Amendment to the Constitution and we didn't have to worry about due process and we're looking for an easy test, then that might be an easy test that a court would want to--

Unknown Speaker: But for 200 years--

Mr. Sherman: --Well, that's true.

It's been around for a long time.

But quasi in rem jurisdiction was around for a long time too and this Court said in Shaffer that it was fundamentally unfair and did not comport with the Fourteenth Amendment and, notwithstanding its lineage, it was consigned to the dustbin of judicial history.

Unknown Speaker: --Well, easy tests are not unrelated to the due process clause.

There's a high degree of predictability.

I think many lay people understand, without thinking about... in terms of jurisdiction or in rem or in personam, that if you're within the borders of a state, you're subject to that state.

That's all.

Mr. Sherman: I think what most people would think is if you're within the borders of the state, you're subject to the power, if you will, of the state.

If you do something in the state that's wrong, they can arrest you.

If you're injured, you can go to the hospital and get treated.

And if a cause of action arises out of those activities, I think a defendant could rightfully expect to be sued on them.

But if you are in the state for reasons which do not give rise to the cause of action that is sued on, then I don't think you would expect to be subject to a lawsuit over them, which is what happened in this case.

Unknown Speaker: Well, the minimum contacts really... test, though, really developed on when is service outside the state satisfactory.

Mr. Sherman: That's true.

That's true.

And I think the interesting--

Unknown Speaker: And International Shoe I thought seemed to recognize the validity of the so-called gotcha.

Mr. Sherman: --Well, I think there's kind of been a mistaken understanding of what that phrase meant.

The courts... not this Court because it hasn't addressed it, obviously, but the state courts that have addressed it... have looked at International Shoe and have said if... the language there, if the defendant be not present in the forum.

But the issue is not if the defendant be not present in the form.

It's if the defendant be not served while present in the forum.

If I have... say I'm... I'm a plaintiff and I... in New York I enter into a contract with two defendants in New York and those two defendants then decide to take a trip to Hawaii and they both got to Hawaii contemplating a two-week trip.

And there's a dispute between us that arose in New York over the validity of that contract and I decide to sue them in New York.

So I file a lawsuit in New York and I get my process server to go to Hawaii and I serve one of them who has been there for a week and then... I'm sorry, I want this lawsuit to be in Hawaii, not in New York.

I serve them... one of them in Hawaii who has been there for a week and he calls the other fellow and he says, the process server is here, you'd better leave, and that person leaves a week later.

He's been there twice as long and has twice as many contacts, he's not subject to the jurisdiction of Hawaii.

But the first fellow is because the process server happened to catch him.

And that seems to me to be an irrational result.

Unknown Speaker: xxx Pennoyer was irrational.

Mr. Sherman: Well, that's correct.

I think this Court said as much in International Shoe and then in Shaffer.

Unknown Speaker: Well, I don't know.

It seemed to recognize Pennoyer.

It didn't overturn... overturn Pennoyer.

Mr. Sherman: I think it overturned the theoretical underpinning of Pennoyer when it said that power was no longer the basis of jurisdiction.

It's true that was in the context of out-of-state defendants, but the reasoning of the decision was to reject the notion that power was the basis of jurisdiction.

That's why you can get jurisdiction over out-of-state defendants after International Shoe, because power is not the basis for jurisdiction.

If power is not the basis for jurisdiction, then the fact that you physically get power over the defendant no longer can be the basis for jurisdiction either.

But going back to the question--

Unknown Speaker: May I ask you another sort of general question?

Do you... you apply the same theory to criminal jurisdiction?

Unless the man committed the crime in the state he can't be apprehended when he goes through and then extradited?

Mr. Sherman: --I really do not know enough about criminal law--

Unknown Speaker: Say... say somebody commits a crime in Nevada and they send out an all points bulletin and he's hitchhiking through New Mexico and... but he's not... doesn't intend to stay there, had no contacts at all whatsoever, but they arrest him and extradite him.

I guess that... you'd have no power to do that.

Mr. Sherman: --Well, I don't know enough about criminal law to give the best answer to that.

Unknown Speaker: But you--

Mr. Sherman: But my off-the-cuff answer would be that although the state may have the power, because it's given the right to do so by this Court, to arrest the defendant and to ship him back to the other state, extradite him, that the analogy in the civil case would be that if the defendant is served in the law... in the forum, that the state then can shift the lawsuit... should shift the lawsuit back to the original--

Unknown Speaker: --Well, forum nonconvenience allows that.

They can shift the lawsuit back.

Mr. Sherman: --But... well, but the extradition is mandatory, is it not, in your hypothetical?

It has to go back to be tried in the state where he was from, where he committed the act.

Unknown Speaker: Yeah, but the only way you get jurisdiction over him is in the gotcha theory.

Mr. Sherman: No.

The only way you get jurisdiction over him in a criminal case is you actually arrest him.

Unknown Speaker: That's right.

You--

Mr. Sherman: But the purpose of arresting him--

Unknown Speaker: --But your power to do it is based entirely on the fact that he's... he happens to be passing through the state.

Mr. Sherman: --That's true, but--

Unknown Speaker: I don't know why that's any more unfair than--

Mr. Sherman: --But the--

Unknown Speaker: --or any less unfair than what you say.

Mr. Sherman: --But the consequence of your hypothetical is that the defendant winds up being tried in the state of origin.

Unknown Speaker: Well, that's true.

But--

Mr. Sherman: And the analogy--

Unknown Speaker: --there's a legal proceeding in the state of arrest, namely, the extradition hearing and he might conceivably win there.

Mr. Sherman: --Well, but in the civil case the analogy would be there's a civil proceeding in California and he is served in California and then he makes his motion to quash for lack of jurisdiction, and it's granted, and the case then goes back to New Jersey.

Unknown Speaker: Yeah, but I don't know why he--

Mr. Sherman: Because he doesn't have sufficient--

Unknown Speaker: --I don't know why the criminal--

Mr. Sherman: --contacts--

Unknown Speaker: --defendant wouldn't be entitled to have his motion granted also on your theory.

I don't know why... because the only thing... the only basis for jurisdiction over him is he happened to be there.

Well, anyway, that's a different case, I guess.

It seems to me it's a stronger case than... well, anyway, go ahead.

Mr. Sherman: --There's no more I can say about that.

I'd like to advert back to Justice Scalia's question for a moment about a bright-line rule and point out that things are (a) not so simple even under Pennoyer because even under Pennoyer, with respect to out-of-state defendants, in order to allow there to be jurisdiction over out-of-state defendants all kinds of fictions and exceptions were created in... post-Pennoyer, like in Hess.

I mean, if you drive in the state, you would priorly consent that the registrar of motor vehicles is your agent for service of process.

I mean, there are all kinds of exceptions that were created.

It was not simple prior... under the Pennoyer regime.

Now, if it were--

Unknown Speaker: It's clear that one way you... you can place the jurisdiction in the case just beyond doubt is you serve the individual in the jurisdiction.

I mean, yeah, there are a lot of refinements as to other ways that you may get him, but up until now you have known that.

One way to be sure, you serve him.

Mr. Sherman: --Well--

Unknown Speaker: That... that would be gone?

Mr. Sherman: --That's true.

The second... second part of my answer to your question is that in Stanley v. Illinois and in Shaffer this Court said that due process should not be sacrificed for the sake of simplicity, that the cost is too high.

And Justice Marshall in Shaffer said that quasi in rem jurisdiction, traditional though it may be, and easy to apply though it may be, is not consistent with fundamental notions of due process.

And the fact that it's easy and simple and eliminates cost is not sufficient for constitutional scrutiny.

Unknown Speaker: Mr. Sherman, what do you think of the amended restatement version of when jurisdiction applies?

Mr. Sherman: I think there are several problems with it.

It's obviously somewhat of an improvement over the traditional rule because it allows for exceptions.

However, I think there are three things wrong with it.

The first is that it starts from the notion that the service--

Unknown Speaker: That there is jurisdiction?

Mr. Sherman: --There is jurisdiction.

Unknown Speaker: It starts from that premise?

Mr. Sherman: That's right.

And the basis for that, I believe, is that the restaters were unwilling to give up the notion that jurisdiction is fundamentally based on power.

Unknown Speaker: Well, it struck me as maybe a pretty good statement of what the rule might be.

That unless... that jurisdiction does attach unless it's just too attenuated.

And the notes refer to special circumstances which might include the criminal case where otherwise there will be no opportunity to arrest the defendant.

Mr. Sherman: That's true.

But in order to accept it jurisprudentially I think this Court would have to say that its prior decisions which indicated that jurisdiction is not fundamentally based upon power are incorrect, that in one sense jurisdiction is to be continually based upon power although the defendant can then show reasons why it shouldn't be exercised... then jurisdiction will not be exercised.

Unknown Speaker: Do you think... do you think we really... this case really... is it really necessary in this case for us to decide this issue?

It seems... isn't it open... isn't the issue open as whether there were plenty of contacts here anyway besides just presence?

Mr. Sherman: Well, no, I don't believe so, Your Honor.

The court of appeal opinion, which you are reviewing, refused to issue a petition... refused to grant the petition for writ of mandate and compel the trial court to quash the service because it held that service on the defendant while he is present in the forum is still a basis for jurisdiction.

Unknown Speaker: But here's a... but it said in light of the evidence presented to the trial court, the petitioner's... within California was for the dual purposes of visitation and conducting business activities.

Mr. Sherman: That's correct.

That is--

Unknown Speaker: So the imposition of personal jurisdiction in this case will not affect... will not act to discourage parental visitation.

Mr. Sherman: --That's correct.

Your Honor, the reason the court of appeals said that is it was responding to our argument--

Unknown Speaker: I understand.

I understand.

Mr. Sherman: --as to... so--

Unknown Speaker: But nevertheless--

Mr. Sherman: --It was not--

Unknown Speaker: --we... we judge this case... as the case comes to us, he wasn't just there; he was there conducting business.

Mr. Sherman: --That's true.

That's true.

But the court of appeal opinion was not upholding jurisdiction on the ground that he was conducting business.

Unknown Speaker: Well, maybe we don't have--

Mr. Sherman: And it couldn't have--

Unknown Speaker: --to hold that, but I don't... if that was... if that's the case--

Mr. Sherman: --It doesn't say that--

Unknown Speaker: --maybe we made a mistake granting the case.

Mr. Sherman: --It doesn't say that jurisdiction was being upheld on the ground that he has sufficient contacts under the minimum contacts test, and it couldn't have because it was quite obvious that the trial court did not ground jurisdiction on that basis, and it couldn't have because under California law and under this Court's decisions there are insufficient contacts as a matter of law to uphold jurisdiction here for two reasons.

The first is that doing business in a state only gives rise to jurisdiction under the traditional test, if that's what the Court thought it was applying, or if that's what this Court wanted to apply, for causes of action arising out of that business.

And the cause of action here does not arise out of the business that Mr. Burnham did in California.

The wife is seeking to invalidate a marital settlement agreement that she executed in New Jersey.

That has nothing to do with the husband's contacts in California.

Secondly, California has held in Modlin v. Superior Court, which is in our briefs, that if a person, a father, combines coming to a state to visit his children with doing some business, the combination of those do not meet the minimum contacts test.

That's Modlin v. Superior Court, 176 Cal. App. 3d 1176.

So, the court of appeal--

Unknown Speaker: I suppose if all that the wife wanted to do was to change custody, she could have served him out of state.

Mr. Sherman: --That's correct because under the Uniform Child Custody Jurisdiction Act you don't need personal jurisdiction--

Unknown Speaker: Yes.

Mr. Sherman: --over the defendant in order to adjudicate status of the children.

But the Uniform Child Custody Jurisdiction Act explicitly says that you don't then litigate support issues.

Unknown Speaker: Mr. Sherman, if... if we can't look to 500 years, or however long it is of... of the common law as to what, you know, fundamental fairness requires... we can't really on that... and we can't even rely on the American Law Institute, where... where do we search--

Mr. Sherman: The minimum contacts--

Unknown Speaker: --for this... for this principle of what fundamental fairness requires?

Mr. Sherman: --You just... you just apply the minimum contacts test across the board.

Unknown Speaker: But this is a contact.

I mean--

Mr. Sherman: Well--

Unknown Speaker: --physical presence is a contact.

Mr. Sherman: --That's true.

That's true.

Unknown Speaker: I mean, everything is a contact of sorts.

Mr. Sherman: That's true.

And I--

Unknown Speaker: And our... our tradition would seem to show that it's... that it's enough of a contact.

Mr. Sherman: --No, because--

Unknown Speaker: Why not?

Mr. Sherman: --Because the tradition does not found jurisdiction on the fact that a person is present.

It founds jurisdiction on the fact that, while present, the person is served.

Now, you can do away with the gotcha theory of jurisdiction and still say that if a person is present in the state, he has a contact with the state.

There's no question about that.

The question is what significance does his contact have in assessing whether or not the minimum contacts test of International Shoe is met.

Unknown Speaker: We'll resume there at 1:00, Mr. Sherman.

Chief Justice Rehnquist: We'll resume the argument in Burnham against Superior Court.

Mr. Sherman.

Mr. Sherman: Thank you, Mr. Chief Justice, and may it please the Court:

In thinking about this matter over the lunch hour it occurred to me that I ought to say that we're really not asking this Court to do anything very radical.

Although it's true that the doctrine of transient jurisdiction has been around for a long time, there has been an evolution in the law which has pointed in the direction of abolishing it.

In fact, in Shaffer at page 213 the Court said,

"We therefore conclude that all assertions of state court jurisdiction must be evaluated according to the standards set forth in International Shoe. "

That's been quoted very often.

However, there's a footnote to that sentence which has not been quoted very often, and it says,

"It would not be fruitful for us to reexamine the facts of cases decided on the rationales of Pennoyer and Harris to determine whether jurisdiction might be sustained under the standards we adopt today. "

"To the extent that prior decisions are inconsistent with this standard, they are overruled. "

So, already in Shaffer the Court had recognized that the law was moving in the direction of being concerned with fundamental fairness.

And I think if you look at the old rule coming out of Pennoyer, it perhaps was fair in 1877 to say that, since you can't get service on the defendant outside the jurisdiction, if you're lucky enough to catch him in the jurisdiction, well, you've gotten him and you've got jurisdiction over him.

But after International Shoe liberalized the degree to which you could get jurisdiction over the defendant by service outside the forum, the rationale for saying that you can get jurisdiction over him by serving him in the forum was totally undercut.

Therefore, if you abolish the doctrine of transient jurisdiction in this case, all you're doing is kind of completing a trio of cases that started with International Shoe, Shaffer and now this case.

Unless you do something to the doctrine of transient jurisdiction, we're stuck with cases like Grace v. MacArthur where you're served if you're flying over and have no contacts.

You're stuck with cases where the defendant comes into the forum and just steps over the line and is served with a piece of paper.

You're stuck with cases where somebody is on the way to Hawaii and the plane lands in San Francisco airport and they're served and have no other contacts with San Francisco.

None of those things would seem to comport with fundamental notions of fair play and substantial justice.

Unknown Speaker: Well, none of those things are involved here either.

Mr. Sherman: That's true.

That's true.

But the point of those examples is that if you don't do anything to the doctrine of transient jurisdiction, that's where the law will be left.

So I urge the Court to keep the case--

Unknown Speaker: xxx.

Mr. Sherman: --That's true.

It has been there.

That's why Grace was decided the way it was.

But the reason it was there--

Unknown Speaker: So, we've been stuck with these examples for a long time?

Mr. Sherman: --That's true.

And the time has come to liberate us from them and to make sure that they don't happen again.

That was the whole point of International Shoe and Shaffer.

We were stuck with the doctrine of quasi in rem jurisdiction for a long time.

But it finally was recognized that it was outmoded and it was no longer necessary and the Court abolished it.

Unknown Speaker: I assume that the state... the state supreme courts can deem it outmoded as far as their states are concerned or the state legislatures.

Mr. Sherman: Well--

Unknown Speaker: Right?

Mr. Sherman: --This Court presides over the area of personal jurisdiction because it interprets what is consistent with the fundamental due process--

Unknown Speaker: Well, that's right.

Mr. Sherman: --protections that defendants have.

Unknown Speaker: But what... what is... what is consistent with due process under the Federal Constitution?

I mean, we... we... we might decide that this has been around for too long for us to say that it isn't in accordance with due process, whereas the state supreme courts, I assume, would be freer than we were.

Mr. Sherman: Well, the problem I see with that is the state supreme courts have been loath to overturn the doctrine precisely because this Court has not.

I mean, you have--

Unknown Speaker: Well, they'd have no choice if we did.

Mr. Sherman: --Well, that's... that's true.

On the other hand, it doesn't seem as if any state court, high court, has been willing to, as Judge Goldberg said so colorfully in Mordelt, to ferry the rule across the River Styx without instructions from this Court.

So, nobody seems to be willing to take that step because they feel bound by Pennoyer v. Neff.

Unknown Speaker: What about... what about state legislatures?

Mr. Sherman: I don't know of any legislature that has seen fit to... as a matter of fact, they've all gone the other way, as California has, and enacted a long-arm statute that says we have jurisdiction if it's consistent with the Constitution.

And this Court tells states what's consistent with the Constitution.

Unknown Speaker: Well, then... then how do we know this is inconsistent with fundamental principles of fairness if the state... state courts haven't thought so... and they certainly could do it under state law.

They're... they're not bound by us on that.

Mr. Sherman: Well--

Unknown Speaker: I mean, I think they could say, as a matter of our state constitution, we don't think it's... it's appropriate, right?

And the state legislatures could certainly decline to exercise this kind of offensive jurisdiction.

And how many state legislatures have abandoned it?

Mr. Sherman: --Not to my knowledge any.

Unknown Speaker: Nobody.

Mr. Sherman: But there is--

Unknown Speaker: There's... there's a certain builtin pressure, I suppose, from the bar in every state that at least we want to be able to serve as many people as can be served in another state.

So, I would think that the chances of legislatures substantially restricting the jurisdiction of state courts on their own are probably not great.

Mr. Sherman: --That's true.

But I think the more fundamental question is that the reason that they don't do it is because they perceive that they're bound by Pennoyer.

They don't perceive, I think, that they have the freedom to do it.

Because if you read all of the state court decisions, they all look to this Court and say, well, what has the Supreme Court ruled?

Unknown Speaker: They're not bound by Pennoyer.

We didn't say that states must exercise this jurisdiction.

We just said that they may exercise this jurisdiction.

Mr. Sherman: That it's constitutional if they choose to do it.

Unknown Speaker: That it's constitutional if they choose to do it.

Mr. Sherman: And they have--

Unknown Speaker: And it's constitutional if they choose not to do it, too.

Mr. Sherman: --And they have statutes which say they may exercise jurisdiction to the full extent permitted by the Constitution.

There's... there are two additional reasons why... coming back to Justice O'Connor's question earlier today... why I think the Court should not adopt the restatement view if the Court is willing to abolish the pure form of transient jurisdiction which makes everything turn on service.

The first is that it would accomplish a shift in the burden.

Traditionally it's the plaintiff... when the defendant objects to jurisdiction, it's the plaintiff that has the burden of establishing a basis for jurisdiction.

This would put the burden on the defendant to disprove why... to prove why there should not be jurisdiction.

And that would be an incentive for plaintiffs to lure defendants to the state and to serve them, as happened in this case, in a way that would interfere with other interests.

And I think it would be better if there was one standard that is consistently applied in making the plaintiff establish jurisdiction.

Secondly, if you do the restatement view, the restatement says jurisdiction is served in the forum unless otherwise unreasonable.

This Court would then have to begin a process of deciding numerous cases to define the parameters of what's reasonable and unreasonable under the restatement test.

There's already a body of law from this Court under the minimum contacts test defining what's reasonable and unreasonable, and it would be much simpler for everybody if that body of law was just engrafted on to all assertions of state court jurisdiction.

Finally, I close my opening comments this afternoon by saying that if the Court determines that the rule has been around so long that we should keep it even though it may have unfair results, it shouldn't be applied in a case where somebody is served in the state while they're visiting their children, which is what happened in this case.

And the reason for that is fundamentally that in Asahi this Court... and in World-Wide Volkswagen this Court made clear that one of the things to be considered in determining whether or not a state is exercising jurisdiction consistent with the Constitution is the degree to which it impacts upon the shared substance and policies of the states.

I don't think it's beyond question that the share and substantive policy of the states in the area of child custody visitation is to encourage families of divorce to maintain contact between parents and the children after the divorce.

That policy will be impacted adversely by allowing transient jurisdiction in a case where somebody is served while they're visiting their children.

Therefore, if the Court does not totally abolish the rule and if the Court does not accept the restatement formulation, or even if it does, one of the things that it should say, it's unreasonable to allow jurisdiction to be predicated upon service on somebody who is in the state when they're seeing their children.

I'd like to reserve the rest of my time for rebuttal, if I may.

Unknown Speaker: Very well, Mr. Sherman.

Mr. Devereaux.

Argument of James O. Devereaux

Mr. Devereaux: Thank you, Mr. Chief Justice, may it please the Court:

In the opinions issued by this Court over the last 45 years, starting with International Shoe, there has been a clear trend toward relaxing limits on state court jurisdiction.

As Justice White observed in his opinion in World-Wide Volkswagen v. Woodson, this relaxation is largely attributable to the fundamental transformation of American society that has taken place and which has been accelerated in the last few years.

It is ironic that in this case, today as we stand on the threshold of the 21st century at a time when technological progress in travel and communication has resulted in a shrinking of our planet to the size of a global village, and at a time when the citizens of this country, more than at any other time in our history, are more likely to travel across state borders with ease and with increasing frequency, the petitioner is arguing for a retraction of the permissible reach of state jurisdiction and a categorical rule that presence within the boundaries of a... of the forum state should no longer provide the basis for the exercise of state jurisdiction under any circumstances.

Unknown Speaker: Well, the end result of this approach is the state ought to be able to serve him anywhere.

Mr. Devereaux: Well, I don't believe that this case is limited to the mere fact that this particular defendant was served within the State of California.

That is a fact in this case, but under all the facts in this case in a period of less than two and a half years, from October of 1987 until today, this particular defendant/husband has been physically present in California more than 20 times.

This is simply not a case of transient presence.

Unknown Speaker: So you think... you think he could have been served in New York?

Mr. Devereaux: I think--

Unknown Speaker: Under a long-arm statute.

Mr. Devereaux: --To be perfectly honest, I do think that that would be a reasonable rule because under this case the fact is--

Unknown Speaker: But is that issue open to us in this case?

Mr. Devereaux: --I'm sorry?

Unknown Speaker: Is that issue open to us in this case?

Mr. Devereaux: The... my understanding of the particular facts in this case are that this husband not only was served personally in Mill Valley, California in January of 1988, but was also served by substituted service, not personal service, in New Jersey, and that the service in New Jersey complied with New Jersey requirements relating to substitute of service.

Unknown Speaker: But the rationale of the court below was personal presence is enough.

That's all.

Mr. Devereaux: That is correct.

I do think it's important to point out, however, that while the argument was presented to both the superior court and the court of appeal in California, that in addition to actual physical service in California, the contacts here, the connection here, is... is sufficient disclosure--

Unknown Speaker: And you're arguing that that's an alternative ground for--

Mr. Devereaux: --Yes, I am.

And... and what I feel I should point out is that the California courts did not reject that argument.

They simply felt they didn't need to address it because they were able to resolve the case on the basis of service.

Unknown Speaker: --But it was raised below?

Mr. Devereaux: It was raised below in each of the courts.

Unknown Speaker: Mr. Devereaux, in your view, however, it would also be sufficient if the petitioner had been served while flying across... over California in an airplane.

Mr. Devereaux: No.

That really is not my position.

I... I personally don't believe that the facts of Grace v. MacArthur are reasonable and in that case did not lead to a just result.

So that I am not arguing in favor of... of those facts.

I'm not really addressing a whole--

Unknown Speaker: How about someone who has to change planes in an airport to get to another destination and is served while changing planes?

Mr. Devereaux: --Well, those facts are not the facts in this case.

I would have--

Unknown Speaker: No.

We know that.

Mr. Devereaux: --I would have a harder time justifying jurisdiction based on those facts, but I happily don't have to specifically address those facts in this case because here we have not only the husband's repeated--

Unknown Speaker: But I thought your power theory would resolve those rather unpleasant questions.

Mr. Devereaux: --I believe that the power theory would resolve those.

Unknown Speaker: And that's the theory you espouse.

Mr. Devereaux: No.

The theory--

Unknown Speaker: No?

Mr. Devereaux: --that I espouse is that the exercise of state court jurisdiction in each case must be fair and reasonable under the standards of International Shoe and that that is the effect in this case, that the exercise--

Unknown Speaker: Well, how is that different from the restatement approach?

Mr. Devereaux: --I don't... I think the restatement... the revised restatement approach sets forth an eminently reasonable approach to resolving this problem.

And I think that what this case really does not call for is a sweeping pronouncement by this Court abolishing the presence rule of jurisdiction for all cases.

The presence rule, as the restatement has reformulated it, is eminently reasonable because it says present... presence continues to be a proper basis for the exercise of jurisdiction as long as, under all the facts and circumstances, it's not unreasonable to--

Unknown Speaker: Yeah, but I'm sorry to hear--

--Yeah, but then you--

--you say--

--Just a minute.

Okay.

Then... then you give up a certain element of certainty in the due process standard of Pennoyer that Justice Scalia referred to in his question to you... to your opponent, that every... in... every jurisdictional inquiry is going to be kind of an ad hoc fact-specific one, isn't it?

Mr. Devereaux: --Well, I think that, as the Court pointed out most recently in 1984 in Burger King, the physical presence of the defendant in the state can in fact enhance the affiliation of the defendant with that state and can enhance the foreseeability of being sued in that state.

And I don't see anything inherently unfair about pinning jurisdiction on the fact that the defendant in this day and age where people do in fact travel across state borders regularly is found within the state and therefore is... is subject to the jurisdiction of that state.

This Court has--

Unknown Speaker: You're... you're not disagreeing then with your... with your opponent here.

You say we should just look at each case and decide whether it's fair or not.

That's what you want us to do in this case.

Mr. Devereaux: --Well, I think that... I think that--

Unknown Speaker: I mean, if that's the invitation, frankly, I don't think the mere fact that... that this person happened to be there to see his daughter... that doesn't seem to me very fair.

Mr. Devereaux: --This person didn't just happen to be there to see his daughter, however.

This person comes to California regularly; he has acknowledged in papers that he's filed in the California courts that he does in fact--

Unknown Speaker: Well, maybe we should remand to the court of appeals to... to decide whether... the court of appeals didn't purport to decide it on a totality of fairness basis, did it?

Mr. Devereaux: --No, it did not.

It didn't reach that issue--

Unknown Speaker: No?

Mr. Devereaux: --because it felt--

Unknown Speaker: Then it--

Mr. Devereaux: --that the presence rule continued to be the law in this country, and I believe--

Unknown Speaker: --But you're saying it isn't.

You're saying it's--

Mr. Devereaux: --No, I'm saying--

Unknown Speaker: --the totality of everything.

Mr. Devereaux: --No, no, no.

I'm saying that it is and that it ought to continue to be, and that if ever this Court or any other court is presented with a particular factual situation where it leads to an unfair result, that is the time--

Unknown Speaker: You can't have it both ways.

You either want us to decide it on the basis that presence is enough, and we either decide it or don't decide it on that basis, or else you say it isn't necessarily enough and we ought to remand it to the court of appeals.

But I don't see how you can... how you can have it both ways.

Mr. Devereaux: --Well, then my position is that this Court should say that the law has been that presence is sufficient and should continue to say that.

It is true that there is an alternative basis, if the Court chooses not to do that, to uphold this decision.

And that is, by pointing out that the contacts here... the connection here is significant.

I think it's important to point out that state courts always have the right to decline the exercise of jurisdiction.

And in fact, probably the most relevant case where that occurred was Kulko, where in fact the California courts did decline to exercise jurisdiction and this Court upheld that judgment on their part.

In this case and in Kulko, of course you did not have the actual presence of the defendant, and that is a major distinguishing factor between the facts of this case and the facts of that case.

But there are additional important differences as well between this case and the facts in Kulko.

And perhaps the most important of those are the fact that here both California and New Jersey have carefully considered the propriety of those respective states assuming jurisdiction in this matter not only on the superior court level but on every level of the state judicial system in both states.

And there is no conflict between the decisions of those two states.

They both came to consistent conclusions that California is an appropriate state to assume jurisdiction in this case under the circumstances.

In addition to that, and in addition to the fact that the husband was not physically present within California in Kulko, here you have more substantial contacts, more substantial connection between the defendant/husband and the state.

And on that basis, I think that the exercise of jurisdiction is eminently reasonable.

In addition to all of those factors, here you have California being the state of domicile of the wife and the children.

I think that the decisions issued by this Court in recent years, starting with Kulko and continuing with World-Wide Volkswagen and Burger King and Keeton and Asahi Metal Industries, may reveal a shift in the analytical approach that the Court is taking toward the question of fairness and substantial justice, a shift in favor of evaluating the various interests and the other factors that are involved in the case.

And particularly in a family law case, the fact of domicile of one of the spouses and the children, the interests of the state of domicile in the litigation in the subject matter of the case is an extremely important factor to be taken into consideration.

Unknown Speaker: Mr. Devereaux, the question presented in the petition for cert. and on which I thought we had... we had granted cert. and what I thought we were here to decide or what you were here for us to decide, is this: is service of process on a nonresident defendant while he is physically present in the forum state a sufficient basis by itself for the exercise of personal jurisdiction.

Now, you are inviting us to decide it not on... this case not on this ground, but to decide whether in the particular facts and circumstances of this particular controversy there was enough contact.

Frankly, that's not an issue that's of sufficient national importance to have... to have warranted the attention that this Court has given to this case.

I thought what we accepted cert. on was whether physical presence alone is enough.

Mr. Devereaux: Well, Justice Scalia, I, of course, can't speak to the reasons for the Court's granting cert. in this case.

That is an important issue and I am not trying to persuade the Court to avoid deciding that issue.

I believe that the Court should uphold the decision on that basis.

But what I am suggesting is that this case also provides an opportunity, should the Court desire to take the opportunity, to decide the case on alternative grounds as well, one of which is the question of sufficient connection or contacts, another of which is an evaluation of California's interest as a state of domicile and the interests of the wife and children in this case.

The Court, of course, has no obligation to decide those issues and can limit its decision to the issue of the continued viability of the presence basis.

But the... the case does involve... commend itself to these additional alternative grounds, should the Court desire to address them because they were raised below in the state courts and have been preserved.

They are in the record, and depending upon the approach that the Court would like to take, those issues are available for a decision.

But if the Court desires to limit its decision to the issue of whether or not the presence of the defendant within the state and service of process upon him while he was present continues to be a sufficient jurisdictional basis, then my position is that the answer to that is yes.

It has not only been... that principle has not only been established in Pennoyer v. Neff, but it has in fact been acknowledge by this Court in more modern decisions, including International Shoe, where the Court expressly acknowledged that the minimum contacts analysis related to service outside the state where the defendant was not present but at least by implication recognized that if a defendant is present within the state, that is a valid jurisdictional basis.

The O'Neill v. New York case was also an application of the presence rule where the Court clearly said, the defendant being present in Florida, Florida had jurisdiction over him.

So that all I'm suggesting is that based on the precedent established by this Court in more than one case over the last 100-plus years, an upholding of the judgment of the California courts can be accomplished simply by recognizing that the rule continues to be in effect.

And I think it's particularly significant that when the commentators argued that Shaffer v. Heitner required at least a reevaluation of the presence rule, if not an outright abolishing of it, the American Law Institute did reexamine that rule and concluded that it was not appropriate to abolish the rule but instead retained the rule in a slightly modified version.

And I think this is an indication that the presence rule is valid, it's not unfair and unreasonable and it does lend certainty and predictability to the jurisdictional equation.

So, to the extent that this Court wants to limit its decision to that narrow issue, I would urge the Court to uphold the judgment of the California courts.

Thank you very much.

Unknown Speaker: Thank you, Mr. Devereaux.

Mr. Sherman, you have two minutes remaining.

Rebuttal of Richard Sherman

Mr. Sherman: Yes.

I think that counsel kind of concedes that Grace v. MacArthur is unfair.

It offends our traditional notions of what's fair.

The next step is to say that that means that since it's a question of fairness, it has to be fact-specific to each case.

And that's the nature of due process.

That's the nature of the inquiry into due process.

It has to be, and that is why in Kulko the Court said in this area the grays predominate.

And they have to because otherwise, if you're stuck with this absolute notion that physical power is what jurisdiction is about, then you're stuck with Grace v. MacArthur and nobody seriously defends that.

Unknown Speaker: Do you think the state has physical power of somebody flying overhead in an airplane?

Mr. Sherman: Well--

Unknown Speaker: Physical power over that--

Mr. Sherman: --Well, if the--

Unknown Speaker: --over that person?

Mr. Sherman: --If the territory of the state extends to the air space, then apparently they do.

But it's not, as I started to say before the lunch bell rang, it's not because they're present in the state; it's because they were served while present in the state.

You see, service while present is what accomplished transient jurisdiction.

I'm not contending that if somebody is present in the state that should not be counted in the minimum contacts analysis.

If a person is present, he has a contact.

But then he's only subject to specific jurisdiction for causes of action relating to his presence.

If he is served under the traditional rule, he's subject to general jurisdiction for anything, and that's what makes it unfair.

With respect to the options open to this Court, it seems to me that the court of appeal clearly decided this case on the bounds... grounds of transient jurisdiction being okay.

I think that issue is directly presented here by virtue of the petition for cert. and the court of appeal opinion.

In Shaffer v. Heitner, when this Court rejected quasi in rem jurisdiction even though the Delaware court had not reviewed the matter of well, but are there minimum contacts, the Court went on to do so, concluded not and reversed.

I think that's what the Court should do here.

But at worst for husband, the Court should abolish the doctrine of transient jurisdiction in its pure form, and then, if it adopts the restatement analysis or if it replaces it with minimum contacts, at worse for husband, simply remand that part of the case to the court of appeal to consider whether, now that it can't base it simply on service while present in the forum, what should it do?

I'm quite confident that under California law it will reach the result which it reached in this case.

Chief Justice Rehnquist: Thank you, Mr. Sherman.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Bendix Autolite Corp. v. Midwesco Enterprises - Oral Argument

Wed, 13 Apr 2011 20:12:55 +0000

Case:

Bendix Autolite Corp. v. Midwesco Enterprises

Media File:

87-367_19880323-argument.mp3

Related Transcript:

87-367_19880323-argument.xml

Transcript:

ORAL ARGUMENT OF NOEL C. CROWLEY, ESQUIRE ON BEHALF OF THE APPELLANT

Chief Justice William H. Rehnquist: We will hear arguments next in Bendix Autolite Coproration versus Midwesco Enterprises, Inc.--

Mr. Crowley, you may proceed whenever you are ready.

Mr. Crowley: Mr. Chief Justice, and may it please the Court, the appellant in this lawsuit is Bendix Autolite Corporation.

It had a contract with the appellee, Midwesco Enterprises, under which Midwesco sold and installed in State of Ohio a particular boiler which turned out to be defective.

The contract was fully performed in the State of Ohio, but Bendix has been denied the right to maintain an action in the State of Ohio because the applicable four-year statute of limitations had expired, and whether the action is maintainable at this time depends on the constitutionality under the commerce clause of a particular Ohio tolling statute which suspends the running of the period of limitations in situations as we have here where the defendant can't be served within the State of Ohio.

Both the District Court and the Circuit Court have held, and we say incorrectly, that the Ohio tolling statute constitutes an impermissible burden on interstate commerce.

Those rulings were incorrect, we contend, because the supposed burden on commerce is so slight and so speculative as to make it questionable whether the burden has any reality at all.

Unidentified Justice: You say then that the Ohio tolling statute should have been allowed to be applied by the Ohio courts and therefore it would not have run against you in your action against Midwesco?

Mr. Crowley: Precisely so.

We maintain that such theoretical burden as may exist is purely incidental to a valid state purpose and is clearly outweighed by the resultant benefits which have been achieved for the benefit of Ohio citizens, and those benefits, as I will explain in a moment, are not at all theoretical, but have been explicitly recognized as valid and legitimate objects of state concern by this Court's 1982 decision in the case of G.D. Searle and Company against Cohn, which we cite in our brief.

Now, the obvious purpose of the Ohio tolling statute is to preserve the right of Ohio citizens to assert claims against individuals and corporations who are not amenable to service within the state either because they once lived there and later moved away or because they are concealing themselves within the state, or because they never lived there at all.

Unidentified Justice: Well, it also... it just doesn't benefit Ohio citizens, does it?

Anybody who is--

Mr. Crowley: No, just--

Unidentified Justice: --Anybody who sues in Ohio.

Mr. Crowley: --Certainly that would follow.

Yes, indeed.

Unidentified Justice: All right.

Mr. Crowley: The statute here in question is virtually identical to a particular New Jersey statute which this Court reviewed in the Searle case.

Now, we are accused by our opponents here of misreading Searle, and also as behaving as though Searle fully disposed of all the issues and compels a decision in our favor.

That is not our position, and I think our brief acknowledges that it is not the case.

But the Searle case does conclusively establish that a statute of the sort we are talking about does have a legitimate state purpose, and it is a purpose that remains valid and subsisting, notwithstanding the adoption by the State of Ohio of an alternative method of addressing the same concern, and that is the process for longarm service.

Arrangements for in-state service continue to be of benefit, as this Court pointed out in Searle, because it can't always be guaranteed that a particular company, a particular out of state company or out of state individual can actually be found.

Unidentified Justice: Mr. Crowley--

Mr. Crowley: Yes, Your Honor.

Unidentified Justice: --if the only way to satisfy the requirement of Ohio's statute is for the foreign company to come in and actual register to do business for all purposes, do you concede that it would fail under the commerce clause?

Mr. Crowley: No, we don't at all concede.

We welcome the chance to point out that we don't suppose that to be the situation at all in Ohio, that that isn't by any means the only way--

Unidentified Justice: I guess you didn't hear my question then or maybe I misstated it.

Mr. Crowley: --Forgive me.

Unidentified Justice: If the only way of complying with the Ohio statute is to register for all purposes, do you concede that the commerce clause burden would be such that the statute would fail?

Mr. Crowley: No, and I understand Your Honor's question, and it is a little hard to reckon with the question if that was the only way of complying.

The Ohio statute doesn't require any kind of behavior at all.

Unidentified Justice: We will get to that in a minute.

I would like you to address that question first, and I just wonder what authority you rely on for thinking that that would not be so burdensome as to fail.

Mr. Crowley: What it is not, Justice O'Connor, what it is not is a forced licensure statute.

We concede that if it were a forced licensure statute, that if as a practical matter the only way you could do business in Ohio was to qualify to do business, we would concede under that set of facts that it would fail, but there is a great disparity between what we are talking about here and the so-called forced licensure statutes.

Unidentified Justice: I'm not sure I'm following you.

Do you concede that if the only way to get the benefit of the shorter statute of limitations were to become licensed for all purposes in Ohio, it would be unconstitutional?

Mr. Crowley: No, we do not so concede.

Unidentified Justice: I thought that's what you just said.

Mr. Crowley: No.

We thought if it could fairly be said of the statute that you had to qualify to do business, that--

Unidentified Justice: In order to do what?

Mr. Crowley: --In order to seriously expect to do business in the state, as, for example, in the Allenberg Cotton case, where there is a familiar kind of statute arid where the situation is such that you are under that statute denied access to the courts of the state unless and until you qualify to do business, and they are describing business which is of an interstate character.

The Court very properly said as far as we are concerned, very properly said that a statute of that sort is so tantamount to a direct order to license--

Unidentified Justice: Well, I thought that was my question exactly.

Mr. Crowley: --Well, I had difficulty with--

Unidentified Justice: And I have different responses from you now to Justice Scalia and to me and I don't know what your position is.

Mr. Crowley: --I am putting it badly, but I understand our position and I am going to try once again to explain it.

It is, if you, as a condition of doing business if you had an Allenberg Cotton type of situation, properly described as a forced licensure situation, and if the consequence of not being qualified to do business was that you can't go to the courts of that state, in other words, you can sell things, but if the people don't voluntarily pay you you have no--

Unidentified Justice: Well, here the consequence is simply that the statute of limitations is not tolled.

Mr. Crowley: --Yes, exactly, and we don't think that that is sufficiently coercive.

Unidentified Justice: You think that is different somehow.

Mr. Crowley: It most assuredly is different.

It is not sufficiently, coercive as to obligate somebody to do anything.

It is not an intolerable situation to sell things and to be subject to suit and to have to defend suit on the merits and not have the defense of the statute of limitations.

So, again, yes, if it were true that it was forced licensure it would be invalid.

It is not, even if it was the only means of compliance, and it is not, an invalid statute here because of the great disparity in severity of sanctions between forced licensure and this.

Unidentified Justice: Now, the courts below in this case apparently did not find that the statute, the tolling statute would be met by a provision in the contract.

Mr. Crowley: We are puzzled and to some extent confounded by what the reasoning of the Circuit Court was in that regard.

They acknowledged that it could have happened, that there could have been a designation of an agent in this individual contract which would not have--

Unidentified Justice: But they said that didn't answer the question.

Mr. Crowley: --Yes, and we are at a loss to know just what they meant by that.

If they meant that there would have been other remaining constitutional questions as applied to other people, that treatment was wrong for the reason we say it is wrong in our brief, that--

Unidentified Justice: How are we to know what the state law is on that subject?

Mr. Crowley: --I think there is nothing in the statute itself which even refers to licensure, so all that can be said of licensure is that it is one means of appointing an agent for the service of process.

We certainly have an Ohio state law and we have cited it in our brief that says the means by which you serve a company is among other things to serve an agent.

You serve somebody who is appointed as an agent, you have served the company.

So I take it it follows inexorably from that that any time you have somebody designated as an agent who is resident in the State of Ohio so that you can make the service within that state, you have provided a means of service and you have defeated the tolling statute, so that it simply doesn't apply.

Unidentified Justice: He has to be an agent for service in all matters, not just in the particular contract.

Mr. Crowley: No, there is nothing in the statute to suggest that that would be the case.

If he is an agent for the particular service that is being made--

Unidentified Justice: That would do it.

Mr. Crowley: --that should be in all respects sufficient.

There is nothing in any of the statutes, any of the decisions to suggest anything to the contrary.

We have other cases from other jurisdictions, and we cite them in our brief, saying that with respect to the federal counterpart of the Ohio statute, saying that where there is a designation by contract it can be as limited as the parties to the contract want to make it.

In this case the designation not only could have been limited to Bendix, it could have been limited even as to Bendix to claims arising out of this particular contract.

And that would have been a full and sufficient answer to the attempt to apply the tolling statute in this case.

Unidentified Justice: Tell me, what is the case that holds that would have been a sufficient answer?

Mr. Crowley: It is a particular Virginia District Court opinion, and it is quoted in our brief.

Unidentified Justice: A Virginia case?

Mr. Crowley: Yes.

Unidentified Justice: Nothing from this State of Ohio?

Mr. Crowley: No, but it is not talking about a particular statute, it is just talking about, in general about the designation of agents.

Certainly--

Unidentified Justice: The Ohio statute hasn't been construed on this point, though, has it?

Mr. Crowley: --Forgive me.

Unidentified Justice: The Ohio statute has not been construed on this point.

There are no Ohio authorities supporting your position?

Mr. Crowley: I think there are Ohio decisions that confirm that if a corporation has an agent present within the state, that that makes it present within the state for purposes of the tolling statute.

I think that much is established, and I don't think there should be any remaining question once that is established on, of course, that point.

Unidentified Justice: That is something of a burden, to have a general corporation resident for... what you are saying is, you have to agree in order to get the benefit of the... or not to be... not to have the burden of the tolling statute you have to have a resident there for all purposes and be sued by anybody who wants to sue you in that state.

That is something of a burden.

Mr. Crowley: If that were the fact that would be a substantial burden.

Unidentified Justice: No, but those are the only cases that you have in Ohio that talk about a general agent for service, right?

Mr. Crowley: I don't understand that the cases we have in mind establish whether it is general or specific, and I can't imagine any reason why a narrow and specific appointment, if indeed it is a real appointment, should be any the less efficacious as regards the particular claim to which it is addressed.

I guess if I don't do anything else today I should like to differentiate this case from the forced licensure kind of case.

In forced licensure, where you tell the court... correction, tell the company that it can't use the courts of that state unless it qualifies to do business that statute has no purpose other than to induce licensure.

It doesn't serve any interests of the state simply to deny various companies access to the courts.

It only makes sense as an inducement to make them do something.

Nothing--

Unidentified Justice: But isn't one proviso of the Allenberg holding that the company has to be engaged only in interstate commerce?

Mr. Crowley: --Oh, very much so.

Yes, if the company is become localized and is a domesticated company, it is indistinguishable from any other company resident in Ohio, and I take it for that reason there is no constitutional problem as to that, and it would be perfectly valid to deny that company access to the courts unless and until it is qualified to do business.

But reverting to the other point, there is not the tiniest suggestion that this tolling statute here in question is intended to induce any kind of behavior at all on the part of companies or individuals or anybody else, nothing to suggest that the legislature didn't fully achieve its purpose simply when it extended the limitation period, that it had any purpose beyond that or that it cared at all about whether somebody qualified to do business entered into business or not, and if they had had any such intent, if the idea had been to compel companies to take out a license, certainly the statute would have been poorly suited to that end, and there isn't the tiniest hint or suggestion in the record in this case that as... that it has had that practical effect, that companies that might not have been of a mind to do so have ever felt compelled to qualify to do business, and it simply isn't the same kind of restraint that we are talking about.

We have read the recent or modern commerce clause cases by this Court, and we understand that some of them go further than some scholarly commentators would have had it go, or than some members of the Court itself would have had it go, but at least with those cases, all of them involved matters that had the potential, at least, for some serious economic or regulatory dislocation.

If, for example, you try to regulate the width of a truck or the length of a truck, as was done in the Raymond Motor case, or the South Carolina against Barnwell Brochers case, that is a serious restraint.

We have no trouble understanding that that is something to talk about there when the conversation turns to burden on commerce.

Telling an Arizona grower that he has to stop bulk shipping his cantaloupe into nearby California and instead has to construct his own packing facility so that the State of Arizona can enjoy the good will associated with his cantaloupes by having them labeled as Arizona cantaloupes that is a serious burden.

We don't fail to understand that.

Telling a New Jersey land fill operator that he can't accept refuse that is generated outside the State of New Jersey.

That, you don't have to examine that with a microscope.

Discouraging out of state banks and out of state insurance companies from setting up shop within a particular state, that is a real burden.

But in contrast to what is going on here, the restraint here, and we are indebted to Chief Justice Rehnquist for his dissent from the denial of certiorari in the case of Coons against American Honda Corporation, and we want to incorporate by reference everything he said about the supposed restraining effect of the New Jersey statute there in question, and his wording describing that burden was, it is slight.

We would say that certainly it is slight--

Unidentified Justice: Do you also rely on his dissent in the Allenberg Cotton case?

Mr. Crowley: --No, I don't think--

Unidentified Justice: You don't.

Mr. Crowley: --It occurs to us, it occurs to us that this case may be a fitting occasion for the Court saying that there is a burden that is so slight, so speculative, so insubstantial that it shouldn't ever be subjected to hostile scrutiny either under the so-called per se test or the balancing test, and this would be an occasion for that, but to reach the result we want we certainly don't have to go that far, and certainly don't have to reverse Allenberg Cotton.

We accept that rule as a rule of forced licensure, and our quarrel with the courts below is that they simply made the automatic association, because we are talking here, we are using some of the same concepts.

We are talking about appointments of agents for service.

We are talking about qualifying to do business.

And on the basis of that every lower court that has considered this matter either in this case or in the case of Coons against American Honda has made the automatic association that, oh, this is one of those forced licensure cases, and without any analysis at all, any examination of what truly is happening under this Ohio statute, have lept to the conclusion that on the authority of Allenberg Cotton and the Dahnke-Walker case and the other famous licensure cases, that this is simply another illustration of that same principle.

Unidentified Justice: Mr. Crowley, I have a special concern about whether this statute is discriminatory in the sense that it is peculiarly directed against out of state companies or against interstate business.

Is it or isn't?

Mr. Crowley: It most assuredly is not.

Unidentified Justice: You could be, I take it, a domestic company in that state or could have been at the time of the alleged tort and then if you move your company elsewhere you would still be liable.

Mr. Crowley: Absolutely.

Unidentified Justice: The tolling statute would apply.

Or if you were a private citizen, never mind companies--

Mr. Crowley: Absolutely.

Unidentified Justice: --if you were a private citizen and didn't even move your residence but... well, I guess you could be served at your residence, I don't know.

If you moved out of the state and came back it would be tolled while you were gone.

Mr. Crowley: I take it that it would, and the case seemed... the Ohio cases seemed to indicate that where there is a sojourn of substantial length out of the state, that the tolling does apply.

If it is a vacation trip, that seems not to count.

But all of that is... proceeds on the assumption that the only way to avoid the detriment of the tolling statute is to qualify to do business.

We suppose that that is a matter of greater interest to the Court, and so we put that first.

The patent reality is that no such circumstance has been shown to be the case.

No impediment whatever to putting it in the contract, putting the appointment... and putting it in a very limited fashion.

Unidentified Justice: Do you suppose there is any burden in the problem of having to negotiate the appropriate period of limitations in a contract?

Most people don't have to negotiate this sort of provision.

Mr. Crowley: I don't understand that any such negotiations would be necessary at all.

All you have to do is to say in the contract, I have an agent, he is in Columbus.

Unidentified Justice: Yes, but supposing the Ohio company said, we want the benefit of the existing statute.

We are not going to give up that right.

What are you going to give us for that?

Mr. Crowley: I think we have sort of anticipated that question, first of all, that that would be a puzzling response for the other company to make, because presumably they benefit from having an in-state agent on whom they can effect the service, so it would be puzzling to see them resist it, but if they did, arbitrarily or whatever, the other company simply writes them a letter unilaterally designating, saying, if you have any quarrel with this contract, any claim, we have appointed somebody our agent, he is in the City of Cleveland, and here is where you can find him.

Unidentified Justice: And how long will he be there?

Mr. Crowley: I think that is a sufficient answer to the whole of it.

We see in the record and we concede it is a somewhat unsatisfactory record of exchanges with the Ohio Secretary of State's office.

Unidentified Justice: Well, that may be... if you make a contract, that may be right, but what about product liability?

Mr. Crowley: This--

Unidentified Justice: You don't write around to somebody who gets hurt by one of your products.

Mr. Crowley: --Well, that is a distinguishable case, not the case presented here, but we are indebted to Judge Potter in the District Court in Toledo for making the suggestion in oral argument that it might be perfectly feasible for a company to designate an agent on the product itself, and that is not an issue we are raising here--

Unidentified Justice: Does Ohio have any formal mechanism by which you may appoint an agent for service of process in the state without qualifying to do business?

Mr. Crowley: --That is the... what I was starting to explore, talking about the correspondence that is in the record that was exchanged with the Ohio Secretary of State's office, and there are two letters.

The letters are really contradictory.

The first letter says, we would not accept for filing any such designation apart from the licensure process, in effect.

I am paraphrasing.

The second letter said we would accept such a letter.

We didn't mean to say what we apparently said in the earlier letter, and we would in fact accept something if we were satisfied after an appropriate investigation that it was not intended to circumvent our licensing procedure.

That is to say, if it was done by somebody wholly in interstate commerce--

Unidentified Justice: Does this statute have to either stand up or fall in one piece?

Maybe it might be completely valid as applied in this case and invalid as applied in some other circumstance.

Mr. Crowley: --The answer to the question, put in those terms, is, assuredly not.

It doesn't have to stand or fall in one case, and this being the kind of case it is, its validity, we would respectfully submit, should be judged on the basis of the operative considerations as we find it.

I would also, on--

Unidentified Justice: The operative considerations are those where there is no agent been appointed, right?

Mr. Crowley: --Forgive me, Justice--

Unidentified Justice: One of the operative considerations that we find is, there was no agent appointed in Ohio.

Mr. Crowley: --Yes, and that argument is made.

Unidentified Justice: There could have been.

Mr. Crowley: There could have been.

Unidentified Justice: That is your answer.

Mr. Crowley: And if there is a remaining burden, it is because they didn't make the designations, not because of any infirmity in the statute, is our answer.

We would also point out that this matter of trying to isolate the burden becomes even more illusory when you consider is there even a single claim.

First of all, I will digress and say there is not a single transaction that is shown in the record here to have ever been discouraged, much less a company been discouraged from doing business by reason of anything we are talking about here, but on the question of what burden there is, how can you tell that a particular claim, if it was brought in the period as extended by the tolling statute would not have been brought sooner if there had been no tolling statute, if there didn't need to be, and in this regard I am reminded of my earliest apprenticeship in the practice of law, where it was explained to me, facetiously, I am sure, that the operative principle in the scheduling of work activities is, don't put off until tomorrow what you can put off indefinitely.

So who's to say that what didn't have to be done today by reason of--

Unidentified Justice: If you represent plaintiffs, I don't imagine you explained that operative principle to them, that we are not going to get to your work any sooner than we have to.

Mr. Crowley: --I hope I didn't pay attention to the lesson and don't observe it.

But certainly if you are given to understand you have a specified length of time to do something you can be excused for taking that seriously and acting in conformity to it.

That brings me finally to the question of retroactive application.

We concede we could have brought up the issue of retroactive application from the earliest time.

There was never any impediment.

We were discouraged from doing so because of the treatment the retroactivity issue got in the Coons case, where the State of New Jersey deliberated about that, examined the issue of retroactivity and said they weren't going to... they were not going to make it prospective only.

Well, it was on that set of facts that it looked like an argument to which the courts were inhospitable, and we didn't make the point.

Then, after we had written our brief in chief in the Sixth Circuit, the New Jersey court reversed itself and said, it is a case that should only be applied prospectively and not retroactively, and at that point with that enhanced value of the argument, we made it, made it only in our reply brief.

The Sixth Circuit declined to deal with it on the merits because it came only in the reply brief.

We think it should have been understandable the way it arose, and it either is or it isn't, and that is... we don't think it should be necessary to reach that point, our main point being that there is no... no under analysis, an analysis that has never been made in any of the lower courts, under analysis any real burden on commerce, and that is our argument.

Chief Justice William H. Rehnquist: Thank you, Mr. Crowley.

Mr. Bornstein, we will hear now from you.

ORAL ARGUMENT OF IRA J. BORNSTEIN, ESQUIRE ON BEHALF OF THE APPELLEE

Mr. Bornstein: Mr. Chief Justice, and may it Please the Court, as counsel indicated, the issue before this Court is very simply whether or not the Ohio tolling statute is what has been construed as a forced licensure provision.

And as counsel concedes, each and every court which has been faced with this provision or a similar provision has found it to be a constitutional violation.

That includes the lower courts here as well as the courts in the Coons case, as well as the McKinley court.

And the question that we have to look at, as the Court indicated in Hughes versus Oklahoma, is the practical operation of the statute.

That is the focus, and what you have to look at is, there is a tolling statute here, and the tolling statute says that in order to obtain its benefits there must be physical presence in the state.

Now, even though it is somewhat of an anachronism as we pointed out, Ohio may very well be the only state now that holds that physical presence in the state is not the equivalent to being subject to service under the longarm jurisdiction.

It is only the same as actual physical service within the confines of the state.

And what we have here is a situation where Bendix had the defendant, Midwesco, served under longarm, and because of that fact and the fact that there must be physical presence, it is necessary to see how that physical presence can be obtained, and the only means and manner in which it can be done is via the qualifications statute of the State of Ohio.

Unidentified Justice: Well, that isn't exactly what the Court of Appeals said in its opinion, is it?

I mean, there is a sentence in the opinion of the Sixth Circuit that says that we acknowledge that Midwesco could have chosen to name an agent as part of its contract with Bendix.

Mr. Bornstein: I agree, and I believe what the court said is incorrect.

I don't believe that in the Ohio Foreign Corporation Act that is possible.

The Ohio Foreign--

Unidentified Justice: Well, do you want us then to say the Sixth Circuit was just wrong on that as a matter of Ohio law?

Mr. Bornstein: --Well, what the Sixth Circuit said is that they could have put their provision in there.

They didn't state and did not make a decision as to whether or not there would be any validity of such a provision.

They merely stated that there could have been such a provision in there, and in fact I believe that there would not have been any validity because it would allow a corporation to easily circumvent the entire corporate scheme setup in the State of Ohio.

One could easily then engage in business by going ahead and entering into these agreements, these side agreements without having to become qualified and appoint an agent.

Unidentified Justice: Well, the answer to the question, though, seems to me to affect the extent of the burden on interstate commerce.

If it can be done that easily, it seems to me that is less of a burden.

Wouldn't you agree?

Mr. Bornstein: If it can be done that easily, it would be less of a burden.

Unidentified Justice: And it would be helpful to know.

Mr. Bornstein: It would be helpful to know.

Unidentified Justice: So are we stuck just as we were in the Searle case with not knowing and having to send it back?

Mr. Bornstein: No, I don't believe we are, because in Searle the reason that they were stuck was there was what was considered to be a footnote in the Velmohos case which seemed to indicate that possibly there were other means in which it could be done, and in fact after remand, and Coons turned out to be the culmination of Searle, the Supreme Court of New Jersey found there was no other way, and in fact the same argument that there could have been some type of contractual provision was raised in Coons, and the New Jersey Supreme Court said it can't be done.

Unidentified Justice: Well, that was New Jersey, not Ohio.

Mr. Bornstein: That's correct, but Ohio has the same type of Foreign Corporation Act, almost identical.

Unidentified Justice: But, Mr. Bornstein, in that passage from the Sixth Circuit's opinion they say two arguments are made.

One is appointing an agent, and the other is giving notice to the Secretary of State.

Then they say they could have appointed an agent, so that is something we have to deal with.

They say as to the suggestion giving notice to the Secretary of State it is highly speculating and devoid of any statutory support.

Now, that suggests to me by implication that they thought probably the first thing, appointing an agent for the contract, did have some statutory support.

Mr. Bornstein: Well, I don't believe so.

I believe all that they were stating was that the provision could have been in there, and I believe that because of the fact the provision was not in there and therefore it was moot, they were not going to issue a decision as to whether or not it was valid, but we did raise the argument in the Sixth Circuit before the court that under the Ohio statutory scheme it would not be valid and it would allow one to circumvent it.

Unidentified Justice: Well, they certainly didn't use your argument in dealing with the question at all, did they?

Mr. Bornstein: They did not make any statement in there one way or the other.

As part of the statutory scheme under Section 1703.041 of the Ohio Code one is required to appoint a statutory agent in order to transact business within the state, and the effect of that provision, as Ohio recognizes, is that a foreign corporation would become subject to the general jurisdiction of Ohio courts for any and all transitory causes of action, and the courts in the cases we have cited have pointed out that the only thing that they would look to then is whether or not the corporate defendant could be served within the confines of the state.

That is it.

It does not matter whether the plaintiff resides in the state or not.

It is a question of whether or not the defendant could be served.

Unidentified Justice: You think that's the only way that the Ohio statute can be complied with?

Suppose you have a state that isn't doing business in the state but it does... it does no business but it does rent an office there.

You think that that would not comply with the statute unless they actually registered with the Secretary of State?

Mr. Bornstein: If they have an office within the state then they are able to be physically served within the state.

It is not the same thing.

Unidentified Justice: Sure, so that would comply.

Mr. Bornstein: Then that would comply.

They could be served in the state.

We could not be served within the state.

Unidentified Justice: Well, the next step is, they don't have an office there but they have an agent there who is in somebody else's office.

Mr. Bornstein: But they can't be--

Unidentified Justice: Now, what is the matter with that?

Mr. Bornstein: --Well, the thing is that in this instance there wasn't one, and the question is whether or not they can be compelled to come in and appoint an agent within the state.

Unidentified Justice: But you seem to acknowledge that they can appoint an agent within the state without complying with the whole licensing scheme of the Secretary of State.

Mr. Bornstein: No, I don't mean... when I said that--

Unidentified Justice: I think you gave it away when you said you could have an office there without doing business in the state and they could serve you with that office.

I think you gave it away then, didn't you?

Mr. Bornstein: --No, because there is still physical presence within the state.

If there is physical presence within the state under the tolling statute then you can obtain the benefits of the tolling statute.

Unidentified Justice: But if you can have physical presence by an office, why can't you have physical presence by somebody that you name as an agent?

Mr. Bornstein: Because under... the only way you can appoint an agent though is under the statutory scheme.

You can have it under an agent but the agents have to be appointed under the Ohio Foreign Corporation Act.

Unidentified Justice: How do you know that?

Mr. Bornstein: Because looking at the Ohio statutory scheme, that is the only way, that is the only provision anywhere that it is stated how a foreign corporation engaged in interstate commerce can appoint an agent.

Unidentified Justice: You can't have any agents, foreign corporations can't have any agents in that state unless they are appointed under that provision?

I can't imagine that.

There are a lot of--

Mr. Bornstein: If they are going to transact business within the State of Ohio.

If they are going to transact business.

Unidentified Justice: --But this was not a company that was transact business.

Precisely.

I mean, this is a company that doesn't want to transact business.

It just wants to have an agent there.

I can't believe that the only way to get an agent in the State of Ohio is to use that provision.

Mr. Bornstein: If you are a foreign corporation I believe that that is the only way.

I have not seen any other means or mode, and there hasn't been any other which has been suggested by Bendix in this case.

Unidentified Justice: Mr. Bornstein, it is essential for you to prevail here, isn't it, to show that Midwesco was engaged exclusively in interstate commerce in its dealings in Ohio.

Mr. Bornstein: That's correct.

Unidentified Justice: And what, it sold and installed a boiler to Bendix, where, in Fostoria, was it?

Mr. Bornstein: Fostoria, Ohio.

Unidentified Justice: And what did that... what did the installation efforts consist of?

Mr. Bornstein: It consisted of Installing a boiler, having people there and literally constructing a boiler.

Unidentified Justice: Shipping it in or--

Mr. Bornstein: Shipping it in from Illniois to Ohio, and, Your Honor, there is a statute, Section 1703.02 of the Ohio Code which says that a foreign corporation engaged in interstate commerce which comes into the state to construct any type of machinery or equipment is still considered to be engaged in interstate commerce and is not subject to the qualification provisions of the statutory scheme, and there is no doubt under the statutory scheme that Midwesco was still engaged exclusively in interstate commerce.

Unidentified Justice: --And wasn't subject to qualification.

Mr. Bornstein: And would not otherwise have been subject to qualification.

By becoming registered... if, as our position is that you must become registered and you must have an agent, a statutory agent, and by doing that under the Ohio law in essence a party such as Midwesco is being forced to give up its due process and its defenses based on personal jurisdiction, because once there is someone there then they have submitted themselves to the Ohio courts, and not just... I mean, the effects on interstate commerce are just tremendous if one thinks about that, because if various states forced these types of requirements upon a corporation, then they could become subject to lawsuits throughout the United States despite the fact that the interstate corporation has no contact with the forum state.

Merely because of the fact that they have appointed an agent in order to comply, they could be defending lawsuit throughout the whole 50 United States, and not just states like Ohio.

Midwesco has done jobs in Alaska.

They could be sued in Alaska for auto accidents.

They could be sued in Puerto Rico.

They could be... throughout the country, and they would be forced to incur the cost of defending cases throughout this country all because of this.

Unidentified Justice: Would you say that... would this case come out differently from your point of view if Ohio had a provision that allowed a foreign corporation to appoint an agent for service of process without requiring them to qualify?

Mr. Bornstein: No, I believe it would still end up being the same thing.

Unidentified Justice: Anybody... any foreign corporation that wants the benefit of the statute of limitations in our state may file a piece of paper appointing an agent for service of process, and he can appoint the Secretary of State.

Mr. Bornstein: But the problem is that under the Ohio statutory scheme Ohio case law said that by appointing an agent within the state, an agent gives you presence, and therefore you are submitting to general jurisdiction.

Therefore even if they did this Midwesco would in essence be submitting to the general jurisdiction to the courts of Ohio.

It is not just because of the qualification.

It is because of the fact that if they were still required to appoint an agent, that agent would subject them to jurisdiction for any and all actions.

It wouldn't just be for this particular action, and therefore the effect, the burden on interstate commerce would still be the same.

Unidentified Justice: Well, what about the office that Justice Scalia asked you about?

Mr. Bornstein: That is because in fact the corporation has agreed, has gone in and established a physical--

Unidentified Justice: But that wouldn't be a valid service, I take it.

Just having an office there doesn't mean that the service would be valid.

It would just mean there would be presence and you could get the benefit of the statute.

Mr. Bornstein: --That's correct.

That's correct.

Now, as far as these forced licensure provisions, this Court has long held these provisions to be unconstitutional, and unlike what counsel for Bendix has said, this Court has not focused on the sanctions.

This Court has focused on the conditions.

In fact, recently in Eli Lilly versus Savon Drugs this Court pointed out that it was the conditions, the regulatory conditions that were being looked at, and it was not the sanctions at the end, and in fact in that case the Court stated that it is well established that New Jersey cannot require Lilly to get a certificate of authority to do business in the state if its participation in this trade is limited to its wholly interstate sales to New Jersey.

There is no limitation or qualification on the sanction.

This Court has long held, going back to 1914, quite some time ago, long before the interstate trade developed it the way it is right now, in Sioux Remedy versus Cope, that a provision such as this was unconstitutional.

Sioux Remedy, the Court focused on the condition, and interestingly enough, 70 years ago, in excess of 70 years ago the conditions were exactly the same.

The condition was that the corporation has to become qualified to transact business, had to appoint a statutory agent and became subject to the general jurisdiction of the Court, and this Court looked at that and said that the conditions being imposed were much too great, and Justice Vander Vanter, with a tremendous amount of prescience, kind of foretold the future in that case.

He stated that if one state can impose such a condition, others can, and in that way corporations engaged in interstate commerce can be subjected to great embarrassment and serious hazards, and that was in 1914.

Here we are in 1988.

Trade is not only interstate it is international, and those burdens, those hazards, that embarrassment has only disproportionately increased over the years.

It is also necessary to keep in mind the entire purpose and idea behind the commerce clause, this idea of preventing economic Balkanization, that the states are not separate economic units, and that you cannot keep corporations out of states and prevent them from transacting business.

As the Court stated in International Textbook versus Pigg, the Court said that one cannot impose a condition upon a corporation of another state seeking to do business in the State of Kansas, which is a case of interstate business, and which is a regulation of interstate commerce, and directly burdens on such commerce.

Again, it is the conditions that are being focused on.

It is not the sanctions.

It is not the fact that one is being barred from the courthouse door.

It is the fact that one is being conditioned to become registered, become licensed within the state in order to transact that interstate business.

And even though the courts found, and we believe rightfully found, that there is a per se violation here, even if one were to apply the test, the balancing test of Pike versus Bruce Church, it is our belief, as we have already set out, that that test clearly indicates that there has been a burden upon interstate commerce, because of the fact that one must weigh the consequences, and the only effect as far as the state goes, the state interest that has been established here, is that which this Court found in Searle, which is the fact that there is a certain interest in having one served or be able to be served within the state.

However, some of which I have already touched upon, the effect upon interstate commerce here is great, because of the fact it will subject a corporation to the jurisdiction of potentially lawsuits within all 50 states if all 50 states should choose to enact similar statutes such as the State of Ohio has done.

And the effects on interstate commerce that we noted in our brief, this case is a construction of--

Unidentified Justice: Well, it doesn't subject you to suit.

It just means that you can be served in a state.

You haven't got the--

Mr. Bornstein: --It could submit you to jurisdiction within the state if someone should choose to sue you there.

Unidentified Justice: --Yes, well, if they can find you there.

Mr. Bornstein: But if you have been forced to become registered and have an agent there then obviously--

Unidentified Justice: Well, yes, but you haven't been forced to do that.

The only thing that requires you to register here is, you want the benefit of the statute of limitations.

Mr. Bornstein: --That is correct, but what they've done is, they've taken--

Unidentified Justice: Well, suppose you don't register.

Mr. Bornstein: --If you don't register--

Unidentified Justice: If nobody can sue, if nobody can get service on you, why, you are not really at much risk.

Mr. Bornstein: --Well, except the problem is, the statute as drafted allows you to remain liable in perpetuity, and if you are a corporation engaged in interstate commerce, the odds are that they eventually will find you, and they could find you in 50 years or just choose to wait 50 years to find you, or to serve you, and then you would become subject to the jurisdiction of that court because there is no type of time limitation set forth in this at all.

This statute is as broad as could be.

Unidentified Justice: And I suppose if they find out they could use the longarm statute against you you couldn't get the statute of limitations either.

Mr. Bornstein: Unfortunately, you don't have the benefit of that, and therefore even though they could serve you under longarm they could choose to wait 10, 20, 30, or 40 years, and the effects, as we point out, this is a construction case.

I mean there are bonding companies, surety bonding companies, insurance companies that are involved in cases such as this, and what would the effect be if this statute were to be upheld and the principles were to be liable in perpetuity?

You wouldn't find surety companies or bonding companies that are willing to undertake that kind of liability if their principal could be sued in 50 years.

Who is going to even be around to know that the case was about?

What kind of witnesses will they have?

And how could these companies go ahead and undertake this kind of liability when--

Unidentified Justice: The plaintiff might be pretty old, too.

Mr. Bornstein: --Definitely.

If they... if the insurance companies or bonding companies themselves would be forced to be defending these cases potentially in myriad states throughout the country, they wouldn't be willing to bond these and these interstate corporations would be unable to come within states such as Ohio and engage in their interstate business.

And the other, the last part of the Pike versus Bruce Church test is the fact that the statute has to be narrow, it has to be as narrow as could be, and in fact this statute is the exact opposite.

It is as broad as possible.

It states that it is tolled forever.

There is no time limitation.

There is no rational relationship at all between the tolling and how long it takes to find a defendant.

So that if it only takes a year they can wait 50 years, as we said, and in fact even if they know where the defendant is because of this anachronistic interpretation in Ohio, as Justice White pointed out, knowing that longarm jurisdiction will not give a company the protection of the statute of limitations, they can choose to wait.

Even though they have the address and they know where they are, they can just choose to wait.

Unidentified Justice: Is there any practical motive that might impel them to wait, as you point out?

Mr. Bornstein: Well, it could very possibly be, if there is a younger plaintiff possibly, but it is often times more difficult for a defendant to defend if there is not someone there directly on point that can testify to what happened, and because of the fact that the burden is more on the defendant in that kind of suit than it is on the plaintiff from the standpoint of trying to have someone there who is physically, you know, in existence at that time, and it might be the type of thing almost like a choice of forum, where depending on the situation there might be in particular instances particular reasons.

It might be that the foreman on the job is an older person, and there might be a personal injury type case or something, and they are hoping that the person might not be around if they wait a long period of time.

Unidentified Justice: But what usually happens is just the opposite.

It is usually the defendant who is hiding, not the plaintiff who is waiting 50 years.

It is usually just the opposite.

And this is a statute to meet that problem.

Now, it applies evenhandedly, and we can't under the constitution grant an exemption to the citizens of Ohio, for example, if a citizen of Ohio, even if he is reachable by longarm, but he takes off, and he is not there, and can't be served, the statute will be tolled.

You are asking us to give special benefits to interstate companies, even though citizens in Ohio can be subjected to this dog in the manger process of somebody waiting 50 years, we have to give interstate companies an exemption from it.

Why should we do that?

Mr. Bornstein: I disagree that it's evenhanded.

I think that it's grossly discriminatory, because of the fact that it's only interstate corporations, which under the statute are compelled in order to obtain this benefit to appoint a statutory agent and become subject to the general jurisdiction of the courts of the State of Ohio,--

Unidentified Justice: Don't you want to just reverse the discrimination?

You would not be striking down this statute for Ohio residents.

It would continue to apply to them, wouldn't it?

Mr. Bornstein: --But it would not require them to become subject to the general jurisdiction of the courts of Ohio to appoint an agent in order to do that.

A person... this is part of the distinction between the fact a person has physical presence.

A corporation is a legal fiction.

It doesn't have physical presence.

It does business.

That's why most states except for Ohio state that if you are subject to longarm jurisdiction you get the benefit of a statute such as this.

Interstate corporations are unique in this aspect, because of the fact the only way they can do it is to appoint a statutory agent and therefore become subject to the general jurisdiction, and a person, an Ohio resident does not have that problem, is not forced into that dilemma or that Hobson's choice.

As far as the letters from the Ohio Secretary of State which were referenced by Mr. Crowley, quite to the contrary, as far as the issue of whether or not there could have just been some type of designation with the Secretary of State, the letters are not different.

The bottom line of both letters is exactly the same, and that's because of the fact the second letter, the December letter, Patricia Mell stated that in the general course of business the Ohio Secretary of State would not, would not recognize nor accept a designation of agents from an unlicensed foreign corporation, which also indicates as far as the previous questions, is there any indication that a corporation can somehow otherwise appoint an agent, this indicates, no, it can't, because the Ohio Secretary of State themselves has come out and said that you can't, we won't recognize it, we won't even allow it to be filed.

The only way for a company to file this with us is to first become licensed, and the previous letter, from September of 1983 came right out and stated that they will not accept for filing a designation of statutory agent for an unlicensed foreign corporation, and therefore there really is not any distinction between the letters except for some speculative language that then followed in that letter about what happened if there might be, might be some investigation.

There's no guidelines for the investigation, no type of format to do it, what the parameters of it were, and in fact, looking at the bottom line, there was not even a statement that if somehow they would comply with the investigation that the Secretary of State would even ever allow or recognize that registration or that designation.

And in fact the Court of Appeals looking at it came out and correctly stated that the argument was highly speculative and devoid of any statutory support.

There was no statutory support at all.

Even that of the letters which they relied upon which were not even filed in this case but instead in the companion case of Copley versus Heil-Quaker.

As far as the question of retroactivity, I haven't heard any real valid excuses here today nor have I at any point in time as to why this wasn't raised.

They claim that they know that they could have raised it at any point in time.

As we have stated all along, retroactivity is not a new or unique issue.

It is something that the issue has been around for years and years and years.

made a choice.

They looked at it, and they decided, they claimed, based upon the initial Coons case, that they couldn't win, and therefore they chose not to raise it.

They didn't raise it in the District Court.

They didn't raise it in the Sixth Circuit Court of Appeals.

They only raised it after the Coons court in a rehearing before the Supreme Court found that it would only be applied prospectively.

The Sixth Circuit Court of Appeals found that... they waived it.

It was not even raised, in fact, in their opening brief in the Sixth Circuit.

It was only in their reply brief, and the same excuse they gave then is the same one they gave now, which is simply the fact, we made a choice, but Coons II came along and we realized now that we might have another argument.

Coons II, as we set forth in our brief, I believe, is a poorly rationalized decision.

I believe that under the cases that we've cited that it would be patently unfair, besides the fact that they've waived it, to deny Midwesco the fruit of its labor.

I believe that it would have a tremendous impact upon the legal profession if one could not obtain the benefits of their own work, and if the clients could not do that, and in fact I haven't seen any cases cited by Bendix indicating, except the Coons II case, that one is not entitled to the application in their own case of a decision of unconstitutionality.

First of all, it would render the decision basically moot, which this Court has held it can't do on a constitutional issue, and more importantly is the fact that in all the cases, including Chevron, which they are so fond of citing, Chevron involved the application of the holding in another case, in the Rodrigue versus Aetna Casualty, and interestingly enough, in that case, in Rodrigue, the Court held that the plaintiffs in that case would get the benefit of the holding.

The case was remanded back down, and there are no cases cited where a party is not entitled to the fruits of its work, and I believe it would be inequitable, to say the least, to deny Midwesco the benefits, and the benefits which I believe it has conferred upon the people of the State of Ohio as well as interstate corporations, who are always the beneficiaries of constitutional holdings.

I believe that we have established that this is a forced licensure provision, and that it is the conditions which this Court has to look at.

It has to look at that because of the whole theory behind the commerce clause, the theory behind the fact that the states are not separate economic unit, the fact that you cannot stop interstate corporations from going into and engaging in business in the various states and I believe for that reason that this Court must affirm the holding of the Court of Appeals.

Thank you.

Chief Justice William H. Rehnquist: Thank you, Mr. Bornstein.

Mr. Crowely, you have two minutes remaining.

ORAL ARGUMENT OF NOEL C. CROWLEY, ESQUIRE ON BEHALF OF THE APPELLANT -- REBUTTAL

Mr. Crowley: Thank you.

In describing the unthinkability of open-ended liabilities that last in perpetuity, let's not forget the defense of laches, and in that regard we acknowledge that Midwesco cites certain cases to the effect that the doctrine doesn't apply or doesn't apply in its normal way in the State of Ohio.

He cites cases, and we will concede that the cases are supportive of what he says.

He is just as clear that the cases are demonstrably wrong.

The true state of law in the State of Ohio is in the cases we site on Page 20 of our brief, and they are more recent cases.

They are more authoritative because they come from the Supreme Court of Ohio, and they make it clear that the doctrine of laches does obtain.

Even if it were open ended and permanent, if the company is engaged entirely in interstate commerce, has no minimal contacts with the state, why should that be unsatisfactory to them?

They are never going to be vulnerable to suit anywhere in the State of Ohio.

There is nothing parochial about this state.

There is nothing protectionist about it.

It provides for evenhanded treatment.

What if it be the fact that there is no statute in Ohio that provides for an alternative method of service?

Shouldn't it be just as relevant that if under the practice, as the Secretary of State in Ohio says is the case, there are circumstances under which they would take, and the whole message is on Page 28 of our brief, the relevant message from that office, what does it matter that there may not be a statute if it is the practice of the State of Ohio to accept designations of agency apart from the licensure process?

That letter does not--

Unidentified Justice: xxx suit at any time.

Mr. Crowley: --Not necessarily.

The letter doesn't... there are lots of questions one could think of that we wish were answered by the letter.

Our only--

Unidentified Justice: Well, an agent... he is saying you can appoint an agent for service of process.

Mr. Crowley: --Nothing in the letter to suggest that it couldn't be a limited designation, couldn't identify the class or category of claims and of people in whose favor it might operate.

Unidentified Justice: Among the questions you wish he had answered is whether he would accept it.

All he said is that he could.

Mr. Crowley: No, he said... I understand--

Unidentified Justice: I think that's the bottom line, that he could.

Mr. Crowley: --I understand that they said on Page 28, on our Page 28 that there is a situation in which they would do it.

This office... well, this office could accept without requiring the corporation to obtain a license.

That implies to me that there are circumstances in which they would do it.

We wish we knew more about the circumstances.

It should have been enough to withstand summary judgment and it wasn't.

Unidentified Justice: Thank you, Mr. Crowley.

The case is submitted.

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Sun Oil Co. v. Wortman - Oral Argument

Wed, 13 Apr 2011 20:12:52 +0000

Case:

Sun Oil Co. v. Wortman

Media File:

87-352_19880322-argument.mp3

Related Transcript:

87-352_19880322-argument.xml

Transcript:

ORAL ARGUMENT OF GERALD SAWATZKY, ESQUIRE ON BEHALF OF THE PETITIONER

Chief Justice William H. Rehnquist: We will hear arguments next in Number 87-352, Sun Oil Company versus Richard Wortman and Hazel Moore.

Mr. Sawatzky, you may proceed whenever you are ready.

Mr. Sawatzky: Mr. Chief Justice, and may it please the Court, the questions presented in this case are, first, whether the full faith and credit clause and the due process clause require Kansas, a quorum state, to apply the limitations laws of the States of Texas, Oklahoma, and Louisiana, where the claims arose in favor of class members residing in those states, and secondly, whether Kansas has failed in this case to apply the interest laws of those same states to those claims as required by this Court's decision in Phillips Petroleum Company versus Shutts, which was an identical case to this one except it did not involve the limitations issue.

Sun Oil sells gas from wells located in various states and pays royalty to landowners, thousands of land-owners located in these states.

In the 1970s Sun had received, filed for and received price increases from the then Federal Power Commission subject to refund pending a determination of their legality, and once determined to be legal, royalty was paid on the suspended funds representing the increases to the royalty owners, and such payouts were made in July of 1976 and on another occasion in 1978.

Plaintiffs filed this suit in August of 1979 in Kansas state court seeking to collect interest on the principal payout of these suspended royalties on behalf of the class of these royalty owners located in these various states.

Ninety-nine percent of the class members resided in states other than Kansas.

Over 90 percent of the wells were located in Texas, Oklahoma, and Louisiana.

Now, in the first Wortman case in 1984 the Kansas courts held that Kansas interest law should be applied to all the claims in all the states and also held that the Kansas limitations statute, which it determined was five years, should apply to all the claims in all the states.

Thereafter, this Court decided Phillips versus Shutts in 1985, which required Kansas to apply the interest laws of the other states to the claims arising in those states if those laws were different, and it pointed out they probably were different.

On Sun's petition this Court then remanded the first Kansas Wortman case back for reconsideration in light of this Court's case of Phillips versus Shutts.

And on reconsideration the Kansas court, reviewing many decisions in these other states, and not finding anything directly on point, nevertheless held despite this Court's direction that the Kansas theory of equitable interest would be uniformly adopted in each one of these states.

Then on the limitations question when we again raised the constitutional objection that the limitations laws were substantive, certainly as substantive as interest laws, where the difference is between 6 percent and 10 percent, between liability and no liability, the Kansas court adopted what is a standard black letter conflicts rule that limitations goes, is remedial or procedural, therefore the law--

Unidentified Justice: Mr. Sawatzky, may I ask you a question?

It seemed to me that at least in your brief you didn't argue that Texas, Louisiana, and Oklahoma courts consider their shorter statutes of limitations as substantive.

Mr. Sawatzky: --Your Honor, the... I think I--

Unidentified Justice: Do they... have you cited any authority that would indicate to us that those states regard their statutes of limitations as substantive rather than procedural?

Mr. Sawatzky: --No, Your Honor.

Those states follow the common law rule, as Kansas does, as most states do, that the normal statute of limitations such as we have involved here, are considered procedural or remedial for conflict of laws purposes.

That does not mean to say that those states do not apply those laws to claims arising in each one of those states in such a manner as to terminate completely any claim or cause of action that has arisen in that state.

And my whole point, Justice O'Connor, is that the nature of a statute of limitations when it is applied by each one of these states is such that constitutionally it is substantive because it deprives a party of a claim.

Unidentified Justice: Well, I can imagine certainly that a particular state could make a determination for itself that it wanted to treat a particular statute of limitations as substantive, but absent that, I wonder whether we should assume that it is.

Mr. Sawatzky: I think that in applying the constitution, Your Honor, we must look at what a statute of limitations does to a party and to a claim, and because of the history, the common law history by which this common law fiction arose, a fiction that limitations goes to the remedy and not to the right, which arose way back in McLemoyle versus Cohen.

Prior to that time, Justice Storey... I am getting back into history now, but it goes right to the very essence of this case.

And that is that Justice Storey in LeRoy versus Crowninshield analyzed this common law fiction and from every aspect he concluded in effect that a limitations law by its nature was substantive because it affected the substantive rights of the claimant.

Unidentified Justice: Well, that certainly wasn't the holding of this Court in the Wells case, was it?

Mr. Sawatzky: No, it wasn't.

In the Wells case, Your Honor, there was absolutely no reexamination and no constitutional analysis of limitations statutes or their purposes.

Unidentified Justice: Well, Justice Jackson certainly put forward an argument in his opinion in that case.

Mr. Sawatzky: Yes.

Unidentified Justice: But it didn't carry the day, did it?

Mr. Sawatzky: It didn't carry the day, Your Honor, because the majority opinion in Wells simply rotely adopted the old McLemoyle line of cases, and if you look back at McLemoyle, likewise it did not analyze the question.

One would think that before we rotely adopt an old rule for the sake of old times and antiquity that we ought to look at the reason behind the rule and see if the rule stacks up in light of the purposes of our constitution.

And if we do go back, you will note that McLemoyle and Wells recited the common law fiction that limitations goes to the remedy and not to the right.

Well, that is pretty well accepted by scholars that that remedy, common law remedy type of thing was basically something to preserve English sovereignty over England's people and its courts.

Now, when Justice Storey, really the only analysis made in the early days was by Justice Storey in the Crowninshield case, and he examined it by reason and logic and said, in effect, the common law rule is wrong, but it is the law, and I will apply it to the case, but that case did not involve the Constitution.

And if you come to the Constitution, where Kansas must respect the laws of Texas which affect people's rights, and like any other substantive law, then we have an issue which is not, which is not simply a question of the common law of England.

We have a constitutional purpose.

Limitations--

Unidentified Justice: Do you think we have to overrule a whole string of cases to hold for you on this?

Mr. Sawatzky: --I don't really think you have to, Your Honor.

I think it would be the best thing--

Unidentified Justice: Just ignore them, or what?

Mr. Sawatzky: --I think it would be the best thing that this Court could do to overrule them, because it is an old English common law fiction which has been applied without discrimination.

Unidentified Justice: Well, don't you have a Court of Appeals case on your side?

Mr. Sawatzky: Yes, we do.

We have the Ferens case.

Unidentified Justice: The Third Circuit?

Mr. Sawatzky: The Third Circuit.

Unidentified Justice: What did they say?

Mr. Sawatzky: They said that constitutionally under the full faith and credit clause and the due process clause in particular, the common rule in effect, the common law rule should be disregarded because one state should apply the law of another state.

Unidentified Justice: They must have felt that there weren't any cases and this Court finding them that would hold otherwise.

Mr. Sawatzky: Well, I think, Your Honor, you are coming to one aspect of my case.

Perhaps I bit off a bigger chunk than I should chew by saying that some of these old cases are wrong, which I think they clearly are, but in Keaton versus Hustler Magazine, this Court said under a due process analysis it would reserve the question of whether or not one state must apply the limitations law of another state where the forum state's only connection was the presence of a suit, the bringing of a suit.

Unidentified Justice: Do you think in some of the old cases did that very situation obtain?

I mean, how could Hustler have reserved that question if there were a lot of cases historically that had addressed that very situation?

Mr. Sawatzky: Well, yes.

That--

Unidentified Justice: Had they?

Had they or not?

Mr. Sawatzky: --There had absolutely been no cases discussing, analyzing the due process clause in connection with this problem.

The Wells case did not consider it.

Certainly McLemoyle didn't.

It was long before the--

Unidentified Justice: So it's the constitutional issue that Hustler reserved, you think?

Mr. Sawatzky: --It is perfectly open and right here for this Court in this case.

Unidentified Justice: How is the due process argument different from the full faith and credit argument?

Mr. Sawatzky: Well, you look at the due process analysis in the Shutts case itself and in the cases cited by Shutts, and that is that parties are entitled to expect that their activities and their rights and legal obligations will be governed by laws of the jurisdiction where they undertake their activities, and where the alleged wrong or the breach occurs, and that this lends predictability to the law, and this is an element of the fairness incorporated in and an absolute part of the due process clause.

Fairness that the parties reasonably expect that this law where they perform their activities will be applied, but not--

Unidentified Justice: Predictability is important when you are going to govern your actions by it.

Mr. Sawatzky: --Absolutely, Your Honor.

Unidentified Justice: But how do you govern your actions differently if you know that there is a five-year statute of limitations rather than a nine-year one?

Do you make time go faster or make it go slower?

There is nothing you can do about a statute of limitations.

It doesn't affect your--

Mr. Sawatzky: The statute of limitations, as this Court has pointed out many times and is generally recognized, is a statute of repose that gives people certainty in their affairs, and if you want to go to a state and conduct your activities with a limitation of two or three years instead of five of six years, that is your option.

Unidentified Justice: --Do you think anybody ever conducted affairs in one state versus another because they knew they had a shorter statute... do people really advert to statutes of limitations when they conduct their primary conduct?

I can't imagine that.

Mr. Sawatzky: Well, I don't think anybody has made a study out of it, Your Honor, but that is one of the elements that goes into your expectancy.

Unidentified Justice: Part of a favorable climate for business, perhaps?

Mr. Sawatzky: Well, the point is, though, that in any action there are affirmative defenses, let's say unclean hands or something else.

Normally we say that this, because this law affects the rights of the parties, affects this claim in this case substantively, it wipes it out, or it increases it, therefore it is subject to the due process clause, and you look to the law of the state and jurisdiction that has an interest in that.

Unidentified Justice: But one can certainly make the argument in the case of the statute of limitations that the primary interest it serves is that of a state, the state's court system in not trying to process stale claims which are very difficult to figure out who is right and who is wrong, and that if Texas feels they want a shorter statute of limitations, it is a state interest there that is being vindicated, but if the Kansas court system feels they don't have that same reservation, then why not let Kansas apply its longer statute?

Mr. Sawatzky: Of course, in our case, you understand, Kansas supplied its longer statute, not a shorter statute--

Unidentified Justice: Yes.

Mr. Sawatzky: --to bar something, and so this argument technically would not apply, but... and so I wouldn't need to rebut that particular argument, but I think from the standpoint of logic and common sense, this argument which has been made does not bear analysis, because the interest as far as stale claims is concerned, the parties are interested in it.

Whether or not there is evidence in this case that has been lost bears upon the parties and upon that claim.

Now, our courts all the time, every day handle cases where the evidence is difficult.

Whether a statute of limitations has run or not run or whether any evidence has been lost or not lost, the state where this occurs does not have an interest in the freshness or the staleness of that claim per say because of all these factors.

The interest and the impact is upon the parties.

Professor Loeffler, who has been involved in this situation and studied this for many, many years, succinctly summarizes it in the Mercer Law Review article which we cite in our reply brief, where the Uniform Commissioners on State Laws studied the problem, and back in the fifties they proposed a uniform rule that the shorter statute would apply, adopting this very argument that the Chief Justice has mentioned.

But this turned out to be very unsatisfactory, and his analysis in this article and by the commissioners showed the weaknesses in that, just as I think that I have tried very poorly to mention.

And as a result they adopted, they concluded that, yes, limitations laws are substantive, and because they are substantive, the law which should be applied in our uniform law proposal is that you look to the law just like any other substantive law of the state where the activity occurred and the claim arose.

Unidentified Justice: And that... taking it both ways, whether the forum state statute is longer or shorter.

Mr. Sawatzky: That is correct.

That is what they concluded.

They disregarded or they discarded what they had formerly proposed, and they studied this, and they know about it.

Now, the same thing has occurred in England that gave rise to this whole problem and has led to all this inconsistency and all this quorum shopping which--

Unidentified Justice: May I interrupt--

Mr. Sawatzky: --Yes, sir.

Unidentified Justice: --just to go back to Professor Loeffler's article?

Was he recommending a conflicts of law rule or a constitutional law rule?

Mr. Sawatzky: His function and his role, Your Honor, was in the conflict of laws area, and was proposing that as a uniform rule.

Unidentified Justice: I have a vague recollection that he is very reluctant to constitutionalize the law of conflicts of laws.

Mr. Sawatzky: But if you read the article and read the study, and similar scholars, and conclude, Your Honor, that this is substantive, that they are correct in saying it is substantive, once you say it is substantive, our constitution requires us to apply it in that manner.

Their role is not to take over the function of this Court.

Their role--

Unidentified Justice: Mr. Sawatzky, what do you do with Texas itself says when it enacts its statute of limitations: the reason we have these statute of limitations is, we don't think our courts can find the facts very accurately or efficiently when the claims are older than this.

Now, if other courts want to take a shot at it, if they think they can do better, we don't care.

Texas says that.

Our statutes of limitations are jus procedural.

Then you would acknowledge that neither the full faith or credit clause nor the due process clause would require the forum to apply them, or would you still say the forum had to apply them?

Mr. Sawatzky: --I would still say, Your Honor, that that would apply.

Number One... for two reasons.

First of all, Texas doesn't really say that.

They may say it is procedural, but that is because of this old common law fiction.

And secondly, if they did go further and say that because it is procedural it affects our ability to handle these claims--

Unidentified Justice: It is in the statute.

They have actually--

Mr. Sawatzky: --In the statute.

I say it would be unconstitutional because it would not reflect reality, because the reality is that the administrative upkeep of the courts, the procedure in the courts is not really affected by whether a statute is longer or shorter.

And Professor Loeffler points that out very well.

And if you assume that what I am saying is correct, and I think it is correct, then a state's artificially saying that something is true that is not true cannot possibly govern the operation of our constitution.

So we come again to the... I was mentioning the law of England that gave rise to this whole problem.

The Law Commission made a study and concluded, yes, limitations laws by their nature are substantive.

Therefore the law in England now is, pursuant to Parliament, that the law of the place where the occurrence happened or the claim arose governs, whether longer or shorter, when the action is brought in England.

Now, there are also movements under foot to revise the Restatement of Contracts, Conflicts, second, section 142, which recognizing this problem, because you see, in the Ferens case, when the Ferens case, the Third Circuit held that this basically was a constitutional problem, and we had a situation where an accident in Pennsylvania and barred by the Pennsylvania statute was brought in Mississippi, where they have a longer statute, in federal court.

So it is brought in federal court, and the consequence of our old common law rule was that it is procedural and therefore you apply the law of Misssippi, which was six years.

Well, then under the forum non conveniens statute you bounce it back to federal court in Pennsylvania, where it was barred, of course, if it had been brought there by the statute, and suddenly you have a claim that is alive in Pennsylvania that was really dead in Pennsylvania, and this points out the whole illogic and irrationality of this common law fiction that says that a claim which is dead and unenforceable in the state which created it, and it is one, nevertheless lives and survives well in any state that fortuitously may have or later enact a longer statute of limitations, and allow this kind of forum shopping and hopscotching among the states in litigation to occur.

And this is especially a problem in class actions such as this particular case, because what we will have is a forum state that has a law favorable to one particular class or one particular interest, so a class action will migrate to that state, and that state will then with the longer statute apply the law everywhere and perhaps apply its own law to the other states like Kansas has here and become a magnet state and a state which applies national law which it creates.

Unidentified Justice: --Where I don't follow you, Mr. Sawatzky, is, I don't see how we can tell a state that its statute of limitations must be substantive, and once you accept that then your scheme doesn't give us any more certainty that the existing scheme.

You would still have to examine each state's statute of limitations to decide whether they really intend it to be substantive or not.

All you are doing is shifting the presumption, I suppose.

Mr. Sawatzky: If a state were to design a statute of limitations so that it would bear a real relationship to lost evidence and to stale claims and which could demonstrably improve the administration of cases in this Court, that might be one thing.

But that is not what we have here.

We just have general statutes of limitations which by their nature are statutes of repose for the benefit of people because we live in a world of time and space where we draw lines on the map that give jurisdiction, and we draw lines in time which say we go on to something new, and people are entitled to rely on that.

And it is important in civilization, ever since the early 17th century under the King James Statutes, which originated most of these statutes of limitations, and the way they operate is to operate substantively.

Scholars generally--

Unidentified Justice: How do you get different statutes of limitations in the same state, depending on whether it is personal injury, trespass to real property, personal property, that sort of thing?

Mr. Sawatzky: --This again is a combination of objects by the state.

For example, libel and slander might be one year in most states but two years or longer in some other states, even though the evince of libel may be maintained for years and years, but there is something about the public policy entitling people to repose, and saying to people that have claims and know about them, you assort these in a certain time or they are lost, and the defendant, the other party is entitled to be free and go about his business and not worry about it.

And there are different times for different types of activities, different wrongs or different breaches of contract.

So again these are for the substantive repose of the litigants and to allow life to go on, and they are substantive because they affect the particular claim.

They terminate it entirely when it is applicable.

Now, under the present rule, procedural rule we can bring a case in Nevada, for example, against the Howard Hughes estate and be barred by limitations by the claim arising there, but the plaintiff then may march over to Texas and bring an action and say, you have a longer statute, and I am not barred by the judgment there.

You not only do not give full faith and credit to the limitations law, but you don't give full faith and credit to the judgment because it didn't bar it on the merits.

It was just procedural.

And then if Texas for some reason should find it barred, you jump over to another state.

Now, that's an actual case cited, from Texas, cited by respondents, and this business of substance and procedure is just an awful mess.

Now, I am not proposing that this Court need to get involved in delineating when a state for its own purposes may call something procedural or substantive.

Statutes of limitation by their nature are substantive, and constitutionally under due process under the Ferens case, under the expectations of the parties under the due process clause, they are entitled to rely upon the law of the state, that bundle of substantive rights which was created in that state where that claim arose.

Now, the Schreiber case... excuse me, the I mentioned the Ferens case and I was really thinking of the Schreiber case in the Tenth Circuit before where the Schreiber case allowed the action to be perpetuated in Kansas when it was barred in Kansas by being filed in Mississippi.

In the Ferens case, they said you can't do that, you can't jump over to Mississippi and come back to Pennsylvania and let the case continued because the Constitution requires that you look to the law where the claim arose and prevent this kind of nonsense, jumping back and forth between the states and applying hit or miss, fortuitously somebody's jurisdiction's longer statute of limitations.

Now, I have mentioned the lack of finality.

It is an object of the full faith and credit clause, of course, in particular to obtain finality in litigation, as this Court has held, Justice White in particular.

Another thing that has happened as a result of this old McLemoyle rule is that borrowing statutes were created by the states because there was a constitutional void.

It doesn't seem right, this whole mess did not seem right to many states, and they enacted borrowing statutes to apply the statutes of limitations of these other states.

Unidentified Justice: Is there an interest argument here, what rate of interest?

Mr. Sawatzky: Yes, there is.

Unidentified Justice: Are you going to leave that to your brief?

Mr. Sawatzky: I am going to argue that right now, Your Honor.

0 [Generallaughter.]

Unidentified Justice: That's a good idea.

Mr. Sawatzky: Because the Kansas court on remand after being directed by this Court to look to the laws of these other states... I will mention Texas as a prime example.

In Texas the Stahl case held in exactly this kind of a case that the Texas statutory 6 percent rate applied.

The Stahl case cited the Shutts case in Kansas as a case awarding interest.

The Stahl case mentioned the higher federal rate of interest in the federal statute but it did not adopt the higher rate that Kansas had proposed in its Shutts case, which the Texas court cited.

It did not adopt the higher federal rate from the federal statute which Kansas had adopted.

And no case since then has done so.

There is no law in Texas that says in this case or in this kind of a case a rate higher than 6 percent applies, and yet Kansas under the guise of predicting that the Texas courts would adopt the Kansas theory if presented to it, said we will apply the same law in Texas because we think that's what they would find.

Unidentified Justice: And the rate?

Mr. Sawatzky: The rate that Kansas found was the federal rate, a rate that ranged up to 18 to 20 percent.

Unidentified Justice: And they thought the Texas courts would apply that?

Mr. Sawatzky: Yes, they did.

Chief Justice William H. Rehnquist: Thank you, Mr. Sawatzky.

We will hear now from you, Mr. Penny.

ORAL ARGUMENT OF GORDON PENNY, ESQUIRE ON BEHALF OF THE RESPONDENT

Mr. Penny: Mr. Chief Justice, and may it please the Court, I believe the Court granted certiorari in this case to consider these interesting and important choice of law questions, and they are difficult and subtle, and they should not be regarded lightly.

But I think it's important not to become so deeply involved in the intricacies of the choice of law that we lose sight of the fundamental question in this case, and in my opinion the fundamental question is, are our courts, our institutions of justice capable of redressing an enormous interstate ripoff by a large national corporation at the expense of about 3,000 people located in several states, or does the expense of individual suits and the fact that the victims are located in many of the states mean that the courts can do little for them, and that the defendant can take and use their money with no real fear of accounting?

The facts in this case show that Sun used money belonging to the plaintiff class members for several years and paid no compensation for its use.

This is money... is not money that Sun thought they might own.

It was money which Sun never could own.

It either belonged to the royalty owners, our clients, or it had to be refunded back to pipeline.

Unidentified Justice: Well, Mr. Penny, with all respect, I didn't think that was why we took the case.

We concede what the merits are.

I thought we were here to decide whether the Kansas court should... what statute of limitations should be applied and what interest rate should be applied to those claims arising in other states.

Mr. Penny: I believe you are right, Justice O'Connor.

I will get on to that.

Unidentified Justice: So do you plan to talk about those?

Mr. Penny: Yes, I do.

Unidentified Justice: While I have you interrupted, what if Texas, for example, passed a law that made it crystal clear it considered its shorter statute of limitations to be substantive?

Do you think the full faith and credit clause might require Kansas to apply that Texas law?

Mr. Penny: Yes, I do, Justice O'Connor, if Kansas did not have enough other contacts with the litigation to make its application of its own statute of limitations reasonable.

I think the... I would like to talk a little bit now about substantive and procedural.

I am not sure that the labels are very important here, but they are more than labels, and this is evident by the fact that when you get a... when the case is dismissed because it is brought too late for the statute of limitations, when it is an outlawed claim, that is not treated anywhere that I am aware of as a judgment on the merits.

Statutes of limitations have been considered procedural rather than substantive because they have nothing to do with the substance of the lawsuit, nothing to do with whether it is just or unjust.

They are just either too old or still fresh enough to try.

Substantive laws governing liability have entirely to do with whether a claim is just or unjust.

I guess statutes of limitation in that... in their application are completely arbitrary.

They draw a line... in this case Sun says we are approximately two months too late on a part of the claims in this case.

They don't allege that they are damaged in any way by our two-month delay.

The records have not gone anywhere.

Witnesses haven't died.

Their computers haven't burnt up.

There is no damage.

But that is the way statutes of limitations work.

The attack on Kansas' application of its own statutes of limitation is made on a couple of different grounds, and I would like to talk about the Fourteenth Amendment ground first.

As I read the cases of this Court, the Fourteenth Amendment would not require Kansas to apply the statute of limitations of another state.

In Hague versus Allstate and Phillips versus Shutts this Court determined what modest restrictions there are on the state's application of its own substantive law.

It seems to me that in application of a law which is part of the state's policy, part of the state's machinery for regulating its judicial process that the restrictions on the state's actions should be even more modest.

Due process of law as Mr. Sawatzky discussed has a great deal to do with the expectation of the parties, and for the last 150 years I suppose any reasonably well informed potential litigant in this country would expect that the statute of limitations of the forum would apply in any lawsuit brought against that person.

Unidentified Justice: Of course, by that standard you would never be able to overrule any case that says old process is due process, in effect, because people are used to living under that regimen.

Mr. Penny: Well--

Unidentified Justice: Perhaps that is not a disadvantage.

Mr. Penny: --It is not a disadvantage as far as I am concerned.

It is somewhat of a circular argument, and I acknowledge that.

It seems like there are a lot of them in this area.

Unidentified Justice: And others.

Mr. Penny: You say and others?

Unidentified Justice: And others, yes.

Mr. Penny: Oh, I see.

It simply doesn't seem to me that Kansas is required by the Constitution to surrender control over its own courts to other states.

And that is what we would have if Kansas is required to apply statutes of limitations of other states.

Kansas has interests in this case which make application of its statutes of limitation and other procedural rules reasonable rather than unreasonable.

I think in the administration of its court system there is a whole package of procedural rules.

I think Kansas has an interest in maintaining the integrity of this package and of the scheme which it as a sovereign state has in regulating litigation in its own courts.

It has an interest in regulating Sun Oil Company, which is qualified to do business and does do business in Kansas.

I think there is an interest here in cooperating with other states to furnish a forum where this... where these 3,000 approximately claims can be litigated in one action that would save judicial resources and simplify the task.

And of course Kansas has an interest in regulating the oil and gas business which is an important commercial activity in Kansas.

The other prong of the attack is full faith and credit, and as I understand this attack on Kansas... on the application of the forum statute of limitations, is that it somehow impairs other states' interests or offends other states in the Union.

It is difficult for me to see how this can be when the other states involved here consider their statutes of limitations to be procedural.

They affect only the remedy.

None of the other states cancelled Sun's debt.

Louisiana, perhaps, where we concede the statute of limitations had expired on the part of the claims.

Louisiana didn't cancel Sun's debt.

Louisiana simply says, we consider this a claim for rent.

We have historically applied a three-year statute of limitations.

You are more than three years.

Sometimes this state's... the state's interest in... sometimes it is hard to tell what a state's policy might be from the statute or what the intention was, but when Oklahoma, one of the states involved here, adopted the uniform statute of limitations on foreign claims... I believe that was in the fifties... this was a uniform act that was not universally popular.

Only three states, including Oklahoma, ever adopted it.

And its general scheme was to make the shorter statute of limitations apply to bar the claim.

However, when Oklahoma adopted this uniform law, they took out one word and inserted another to make it mean that when the statute of... the statute of limitations shall be either that prescribed by the law of the place where the claim accrued or by the law of this state, whichever last bars the claim.

Oklahoma was there expressing in that context their policy and decision that whichever last bars the claim should prevail.

Unidentified Justice: That is a plaintiff's state.

Mr. Penny: Excuse me, sir?

Unidentified Justice: That's a plaintiff's state.

Mr. Penny: Apparently so.

As this Court has said, the statute of limitations represents a policy about the privilege to litigate.

The shelter of the statute of limitations in such a way as to benefit a potential defendant is simply a by-product or a fall-out of that.

I think this is recognized intuitively, and it has been recognized specifically by this Court.

We have a question in petitioner's brief as to this being nonsense to have a right without a remedy.

This has been with us a long time, and I think the courts have always recognized this.

Rights without remedies are of some good.

They can be offset.

They do furnish consideration for a new promise to pay.

There may be a change of state policy, in which case your remedy comes alive again, as in the Chase Securities case cited in our briefs.

These cases we do not believe are barred by either Texas or Oklahoma law if those states' laws were to apply.

We cite in our brief the longer statutes of limitations of those states, that is, the statutes dealing with recovery on written contracts.

These are on written contracts, the oil and gas leases.

Although our recovery was probably based more on the theory of unjust enrichment, it was unjust enrichment by Sun keeping the money it owed our clients under the written contracts for longer than it should have.

Maybe one of the thorniest problems in this case is the Kansas courts' determination of the other states' law.

When this case was... not this case, when the companion case, Phillips, was here before the majority opinion questioned the Kansas courts' finding all the law the same.

Kansas has looked at these substantive laws of the other states again and has come to the same conclusion.

Typically, historically a decision of this type by a state court has been entitled to great respect from this Court, and there are, I think, good reasons for that.

Sometimes it is very difficult for a state court to decide what a neighboring state court might do if faced with a particular fact situation.

Maybe there is no clearcut answer.

It has to be decided, though, and the question is, once it is decided, does another court then second guess or look again?

The law--

Unidentified Justice: Well, you had here a Texas case that had used the lower interest figure, didn't you?

Mr. Penny: --Yes, sir.

Unidentified Justice: And in the face of that the Kansas court said, no, the next time around they are going to use a higher one.

Mr. Penny: Yes, the Stahl case was... which did apply 6 percent interest, was an unusual case.

That was all that Stahl ever asked for in that case.

It was... it was a declaratory judgment action brought by Phillips, the oil company, which had paid Stahl certain principal amounts.

Phillips requested a judgment that it was not liable for any interest on the amounts already paid out, and in addition also asked for that money back.

Stahl counterclaimed for 6 percent interest, and it was allowed by the Court.

There is no suggestion that he ever asked for any more.

In addition to the Stahl case there have been in Texas a great ferment of cases involving prejudgment interest since the Stahl case was decided.

They are cited in our brief, but Cavnar versus Quality Control Parking is one of the cases in which the Texas Supreme Court said, from now on our... in cases of this type we are going to have prejudgment interest, and it will be at the same rate as the legislative... as the statute on postjudgment interest presently is.

Unidentified Justice: Those are personal injury cases you are referring to.

Mr. Penny: Yes, sir, personal injury.

And then later there is a... there are several more Texas courts... Court of Appeals cases, some going both ways.

February 10th, the Texas court decided a case called Perry Roofing Company versus Olcott, which is in a supplemental brief which I believe was filed yesterday, in which the Texas Supreme Court cleared the question up and said, we will... unless you can... well, let me back up a little bit.

Their ruling was, if you have a case on a contract, and by looking at the face of the contract you can tell how much money is due on the contract, then their 6 percent interest rate applies.

They have judicially limited the application of that 6 percent statute.

On all other cases, as I understand the Texas ruling, they are granting prejudgment interest at a rate corresponding to the bank prime rate compounded daily.

This is strictly by the action of the Texas Supreme Court, and the Cavnar case, I believe, was 1985.

All those cases are in our brief.

I think if the Kansas court missed the application, missed the mark on the Texas law, it didn't miss it by very far.

The Federal Power Commission rate which the Kansas court found applicable is also based on the bank prime rate, and it is a floating rate, though, rather than being set at the date of judgment as is the Texas rule under Cavnar.

In Louisiana there has been new legislation which would indicate the Kansas court was not far off the mark there either.

Unidentified Justice: A little bit off the mark?

Mr. Penny: I would say that the prediction missed by some amount.

Louisiana Civil Code Article 2000... this is not cited in our brief but is in the latest Kansas case of Phillips versus Shutts, Shutts versus Phillips, Louisiana Civil Code Article 2000, a statute on prejudgment interest which is declared to be retrospective and prospective adopted effective January 1 of 1985 calls for 12 percent interest on money due in Louisiana if there is no other contract.

Maybe the... if the Kansas court missed the... missed the prediction by a ways on the Louisiana substantive rate of interest, it did the same as the federal courts did Boutte versus Chevron, which were federal cases involving exactly this same type of money.

It came up in Louisiana and the federal courts there said... this was at a time when Chevron still held the money and hadn't paid it out.

In fact, the rate increases were not yet final.

The landowners were trying to collect the money before the rate increases were final.

Unidentified Justice: So the Kansas court was a little bit wrong.

Should we say, well, it is only a little bit so we affirm?

Or do they have to do it over again?

Mr. Penny: Well, Your Honor, I think probably the way to finality of judgments is to affirm if a good faith effort was made by the Court to arrive at what the other state's court law is.

Unidentified Justice: Or would be?

Mr. Penny: Right.

Unidentified Justice: At the time of this judgment was the Louisiana law the way you say it is now?

Mr. Penny: Yes, it was.

This 12 percent statute had been adopted, was adopted--

Unidentified Justice: Well, they just didn't look at the Louisiana Code then.

Mr. Penny: --No.

No, I will agree with that.

It is not the code.

Unidentified Justice: How about Texas?

Mr. Penny: The Texas law, the Cavnar case, I believe, came down in 1985.

Unidentified Justice: It came later.

Mr. Penny: Yes.

And the--

Unidentified Justice: Oklahoma?

Mr. Penny: --The Texas Supreme Court judgment applying it to all types of cases or really confirming that it applies to all types of cases just came last month.

Unidentified Justice: Well, the Supreme Court of Kansas opinion is June 8th, 1987.

That should be after the Texas case you refer to, the Cavnar case, shouldn't it?

Mr. Penny: Yes, it was after the Cavnar case.

Unidentified Justice: I see.

How about Oklahoma?

Mr. Penny: Okay.

Oklahoma has... I am honestly embarrassed that this statute is not cited in our brief.

Oklahoma has a statute.

It is not 6 percent, but it is 12 percent.

It is a statute specifically dealing with late payments of oil and gas royalties, and it has been around since 1980.

It is Title 52, Section 540.

Unidentified Justice: And the Kansas court just borrowed the federal rules, the federal rate?

Mr. Penny: The Kansas court applied the federal rule to--

Unidentified Justice: Saying that these other states would do the same thing.

Mr. Penny: --Yes.

Unidentified Justice: Is it clear that they would not do that?

I mean, is it clear from the Texas case law that given a case that specifically involved this kind of a situation they wouldn't use the federal agency's rule rather than--

Mr. Penny: No, I don't think it's... I don't think it's that clear, Justice Scalia.

In this case--

Unidentified Justice: --You think there is some possibility that they got it entirely right?

Mr. Penny: --Yes, I think it was a good faith effort, and I think if one of these cases comes before one of the other courts, Texas, Oklahoma, or Louisiana, I think it's quite likely they would do exactly as the Kansas court did.

Unidentified Justice: In spite of a statute.

Mr. Penny: Yes.

Unidentified Justice: In Oklahoma it says, here's the interest rate on overdue royalty.

We nevertheless will apply the federal rate.

Mr. Penny: I think that would make it more difficult.

However, Kansas had a general interest rate statute as well which the Kansas court decided not--

Unidentified Justice: Have you got a citation for the Oklahoma statute that you didn't have in your brief?

Mr. Penny: --Title 52, Section 540.

Unidentified Justice: May I ask if that statute was called to the attention of the Kansas Supreme Court by either party to the litigation?

Mr. Penny: It was not, Your Honor, and maybe this is incompetence on our part.

Unidentified Justice: You at least had a theory that the federal rule applied.

Mr. Penny: Yes.

Unidentified Justice: And they opposed it.

What did they claim?

Mr. Penny: They claimed 6 percent.

Oklahoma has a general statute or a general interest state of 6 percent.

Unidentified Justice: But isn't there an issue in here of not only postjudgment but prejudgment interest?

Mr. Penny: Yes, sir.

I have been talking all throughout about prejudgment interest, and the only place the--

Unidentified Justice: I thought there was some argument that these other states wouldn't give prejudgment interest at all.

Mr. Penny: --Yes, there was that claim made.

Unidentified Justice: Well--

Mr. Penny: It would be, especially with respect to Oklahoma, the claim was made that there would be no prejudgment interest.

Unidentified Justice: --That was a common law rule, wasn't it?

Mr. Penny: Yes.

I think that would be very difficult to maintain inside of the particular statute they have on there, and again, I--

Unidentified Justice: May I ask about the Oklahoma statute?

I understand... neither party cited it, and I understand your theory was that the federal rule applied.

Were you aware of the statute at the time the case was argued in Kansas?

Mr. Penny: --I was not aware of the statute until yesterday.

Unidentified Justice: I see, and you don't know whether your opponent was or not?

Mr. Penny: No.

It was never cited to any court considering--

Unidentified Justice: What about the Louisiana statute?

Mr. Penny: --The Louisiana statute was cited by the Kansas court in the Shutts versus Phillips case.

Unidentified Justice: How about in this case?

Mr. Penny: In this... the Kansas court's opinion in this case referred... mostly just referred to the Shutts case, which had been decided a month earlier.

Unidentified Justice: Well, how come they said Louisiana would apply the federal rule?

Mr. Penny: There was a case in Louisiana called Boutte versus Chevron, in which the federal court said, whenever this money is paid out... it was dicta in the case, but the federal court did say, Chevron, you don't have to pay the money out until the rates become final, but when you do pay the money out, you will pay them to the royalty owners at the same... together with the same rate of interest as you are required to by your Federal Power Commission undertaking.

There was also a federal court case in Texas, Sid Richardson Oil and Gas Company, in which the federal judge said the same thing, that when the money goes out it will go out with the same rate of interest.

Here I think the Court has two options on this determination of other states' law.

One would be to affirm the Kansas decision which is made in good faith.

Whether it is exactly like state law turns out to be two or three years later or a year or two later probably doesn't happen very often, even when a federal court predicts what a state court is going to decide, or a federal court predicts what another... a neighboring state court will decide.

The other option, I think, would be to find that the Kansas determination was erroneous, although I submit by a very small amount, and enter judgment for interest in accord with the Oklahoma statute, the Texas Cavnar rule on prejudgment interest, and the Louisiana civil code section.

If there are no other questions, I will finish.

Chief Justice William H. Rehnquist: Thank you, Mr. Penny.

The case is submitted.

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Volkswagenwerk Aktiengesellschaft v. Schlunk - Oral Argument

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Case:

Volkswagenwerk Aktiengesellschaft v. Schlunk

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86-1052_19880321-argument.mp3

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Transcript:

ORAL ARGUMENT BY HERBERT RUBIN, ESQ. ON BEHALF OF PETITIONER

Chief Justice William H. Rehnquist: Mr. Rubin, you may proceed whenever you are ready.

Mr. Rubin: Mr. Chief Justice, and may it please the Court:

This case arises by certiorari to the Appellate Court of Illinois.

It presents, we believe, the gravest issue regarding the continued viability of a highly successful, a real success story among treaties, the Hague Convention on Service of Process, which to date has been recognized and acknowledged to be a simple, effective device to end and remove what was a minefield for litigants, Americans abroad as well as foreign litigants in the United States.

What has happened here by the decision in this, in the court below, is that there is a suggestion which has been created, a somewhat cynical suggestion, that service on a foreign involuntary agent has been ruled out, but service on an involuntary agent in the United States is perfectly all right and not within the treaty.

Respectfully, we believe that this is a somewhat parochial and provincial approach which is inappropriate in the area of contract law which involves the world community.

Unidentified Justice: Counsel, suppose that the CEO of Volkswagen Germany were in Illinois for a business meeting for a day and he were served, what result?

Would you have to comply with the treaty?

Mr. Rubin: I think, Your Honor, that you would have to comply with the treaty.

I don't believe that the treaty contemplates that... and I don't believe that the intention of the contracting parties was that there should be a kind of a hit-or-miss situation with respect to the service of process.

Service of process is, I think, the quintessential element in the commencement, in the conduct, of a lawsuit which cries out for formality, for a sense of very definite precise kinds of procedures so that a party who is being hailed into court is informed that this is the start of a lawsuit, that this is the time when you have to begin to respond, and that any kind of actions that have to be taken are being taken, and that the idea that the president is running through an airport and some papers pushed on him should trigger that.

We respectfully submit that that was not within the contemplation of the contracting parties.

Unidentified Justice: What is the language in the treaty that you rely on in order to support your conclusion that the documents would necessarily have to be transmitted abroad as a practical matter?

Because they don't have to be transmitted as a legal matter.

Mr. Rubin: We respectfully submit that in presenting the proposition to the Senate, Mr. Carney, who was the representative of the State Department who presented it, indicated in the broadest terms how this treaty was to be administered and what it's purpose was.

He said that for the purpose, for the service of judicial documents abroad, that is, in cases where an action is commenced by a Plaintiff in one country against a Defendant who is in another country; now the juxtaposition is very clear: you have a case where you have a Plaintiff in one country and a Defendant who is in another country.

Unidentified Justice: But that's not what the treaty says.

The treaty says where there is occasion to transmit a judicial or extrajudicial documents for service abroad.

Mr. Rubin: That's right and that, too, is stated in the broadest and most embracing fashion.

It says in all cases where there is an occasion to transmit a document for service abroad.

Unidentified Justice: Even if the company does it voluntarily, not as a legal requirement?

Mr. Rubin: Your Honor, please, I believe that the intention was clear among the contracting parties.

And, indeed, it was understood by each of the courts that've had occasion to rule on it.

Unidentified Justice: Well, then are you saying that it's irrelevant that the document has to be transmitted abroad?

Mr. Rubin: It is not irrelevant at all.

Unidentified Justice: Well, then we have to focus on the language of the treaty in that clause, don't we?

Mr. Rubin: The expectation, Your Honor--

Unidentified Justice: All right.

Then, in the example I give, why is there any necessity to transmit the document abroad?

Mr. Rubin: --There is the necessity to transmit it abroad, Your Honor, because the party that's being hailed into court has a right to know precisely what the contentions are against it.

Unidentified Justice: It knows.

The president, in the hypothetical case receives the document in Illinois.

Mr. Rubin: Well, the president is receiving it, Your Honor, on the fly.

He is not someone who at that point is prepared to address that issue.

And the contemplation of the treaty was that there should be the formality.

That's instinct in every aspect of this treaty.

Unidentified Justice: Mr. Rubin, what if Volkswagen Germany had an office... that's the next question... in the state?

Mr. Rubin: I think, Your Honor, that if it had an office in the state it would have qualified in the state.

It would have designated a representative to receive service--

Unidentified Justice: No, this is a state that doesn't have such a thing.

Mr. Rubin: --If it had an office in the state--

Unidentified Justice: Just has an office in the state.

That's all.

It hasn't designated anybody as an agent, but it has an office there.

Mr. Rubin: --I think in that respect, also, you have a question as to what kind of an office this is.

If this is an office where you have a freight forwarder sitting there, it's not the kind of a situation--

Unidentified Justice: No, this is a big office.

This is an office that engages in the full line of the business that the parent company does in Germany.

Mr. Rubin: --Well, that's not the situation, obviously, Your Honor.

If the corporation has proceeded into the state and set up a structure under which it is conducting... it has essentially removed itself into the state... this would be the type of case, for example, we had in Perkins v. Benquet or the type of case where perhaps you had in the Scophony case, where you now have moved the corporation into the state, you would have a different situation.

Unidentified Justice: It's not moved there.

There still is a German corporation.

They do a lot of business in Germany, most of their business in Germany, but they have a full-fledged office in the state.

Mr. Rubin: Your Honor, the expectation and intention still is that the address of the company is in Wolfsburg, Germany, and it's anticipated that service would take place at its office.

Unidentified Justice: Where it's incorporated, is that it?

It has to be at its head office?

Mr. Rubin: At its home.

Where it is.

That's where it is.

Unidentified Justice: And you find that in the language of the treaty where there is an occasion to make service abroad?

Mr. Rubin: I think, Your Honor, I find it in terms of the recital by the... in the Senate document... saying that where the action is commenced by a Plaintiff in one country against a Defendant who is in another country.

This continues to be... it is certainly, there is no suggestion in this case... that Volkswagen was in the United States with offices itself.

The only suggestion here is that somehow or other it has created an involuntary agent.

Unidentified Justice: Well, that's a dramatic departure then from the way process is ordinarily served on corporations outside of the treaty where, you know, you have to serve some human individual every time when you are serving a corporation.

And, certainly, and you say then that the treaty just has dramatically changed that.

Mr. Rubin: I say, Your Honor, that the treaty contemplates that there be a very, very significant formality in terms of service.

And, in fact, what has been created here has been a very efficient, a very simple, a very mechanical device, which was the contemplation of the parties.

Unidentified Justice: But I just don't understand the principle that you're urging on us as the determinant for when the treaty applies and when it doesn't.

You say: well, if the corporation is in Illinois.

But we know that corporations are physically present only through their agents.

You seem to assume there has to be a large manufacturing plant there and that that would do it.

This is just an unprincipled rationale that you're urging upon us.

Mr. Rubin: Respectfully, Your Honor, what we're saying is that the principle is that a formal document should be, was anticipated by the contracting parties to be, directed with a degree of formality, so that there could be certainty, so that they could put the simplicity or there can be an assurance, and that's what was achieved by the parties.

Indeed, that's the indication which is set forth expressly by the five contracting parties who are the major commercial nations in the world outside of the United States.

You have, of course, the United Kingdom, Japan, France, Belgium, and Germany, which have expressly indicated that a service on an agent outside of the nation is simply not contemplated here.

Unidentified Justice: Unless it's an agent appointed for the service of process?

Mr. Rubin: That's right.

Unidentified Justice: But in that situation, the papers still go abroad.

Mr. Rubin: But there, again, the treaty expressly provides that there can be a voluntary submission.

And this was the contemplation of the treaty.

The treaty says that if a party voluntarily submits, it's one thing.

But there is no voluntariness here.

Unidentified Justice: Well, let's assume that there's an office in the state, that the foreign corporation voluntarily set it up.

They haven't qualified to do business but they should have.

Mr. Rubin: Your Honor, if there is a voluntary submission, if there's a voluntary acceptance, certainly that is within the shared anticipation, the expectation, of the parties.

But the shared expectation here is to the contrary.

Unidentified Justice: So you suggest that if a foreign corporation sets up an office in a state or in such a way that it should have qualified but did not, that that office could be served?

It did it voluntarily.

It set it up.

And here's an office.

They're doing business.

They should have qualified and appointed an agent.

They did not.

Mr. Rubin: To the extent that there's a voluntary submission to the acceptance of process, that would be the case.

And I should point out to you, too, that this is not a case where the Petitioner is seeking to avoid amenability to litigation in this state.

This is not a case of jurisdiction.

There's no question here of avoiding in any way of being sued and responding to the issues and having a full course hearing on whatever are the basic elements to be decided substantively.

Unidentified Justice: Well, I take it you agree on my example that the foreign corporation could be served through its office in the United States.

Mr. Rubin: Well--

Unidentified Justice: Is that right or not?

Mr. Rubin: --I'm not sure, Your Honor, that I'm in a position to concede that as the intention.

We're talking now about a contract among parties and, to the extent that it has now been expressed formally and, I think, authoritatively in the notes verbal which have been filed and the amicus brief which has been filed, this is the law and this is the understanding of the contracting parties.

I'm certainly not in the position to make a concession which is contrary to their, I think, authoritative expression of what their expectation has been.

And they give reasons for it, as well.

Unidentified Justice: Mr. Rubin, that brings up an issue.

You've quoted from the Senate debate on the treaty.

What is the situation if we think the treaty is clear, that the language is clear, and let's even say all the other parties have interpreted it that way.

So, we think what the treaty really means is X.

But we find in the Senate ratification debates, that the executive has simply misrepresented the treaty, and the Senate thinks the treaty means Y, what are we bound by?

Mr. Rubin: I think, Your Honor, you're bound, you're interpreting, you're construing a contract.

This is a world contract in which the United States made representations to the other contracting parties.

The suggestion is made here that the United States, perhaps, got even the better of the bargain because it was giving up very little and getting very much.

Indeed, it got quite a bit of protection for its citizens, the businesses which do business abroad and are sued abroad.

And in terms of construing what the shared intention was, what the shared expectation is, I think that we have to understand that the interpretation given by these other contracting parties has certainly some persuasive effect.

And I think that was articulated by this Court in the Air France case.

Unidentified Justice: Are you going to answer my question?

Do we give the treaty what we think was its meaning despite what we know Congress thought it meant, or the opposite?

Mr. Rubin: I believe the Court has to give the meaning that the Court believes, because this is a federal question.

The Court is going to construe the treaty in the way in which it believes that the contracting parties intended.

Respectfully, also, Justice Scalia, I believe that there's been a patent overstatement as to what the impact was going to be on American law.

Again, looking to the Senate document, it is very clear that the statement was made that this will not make major changes in American procedures with respect to judicial assistance.

And that's all that was said.

That judicial assistance is not going to be significantly changed.

We had in place already, by that time, I think in 1963, the new Federal Rules of Civil Procedure, Rule 4(i).

We had correspondingly the Public Law 88-619, I believe it was, which became part of the U.S. Code.

And that spelled out a scheme, a mechanics, for the system of judicial assistance.

And Mr. Amram says in summary there is no change being affected here from our system of judicial assistance.

But then what was it that the other contracting nations intended and what did they carry out and what is in existence?

I think, if I may just take a moment to indicate how this works.

We say it's simple.

We say it's efficient.

We say it's uniform.

And it's striking, the way in which it works.

And there's... all that has to be done is that if Plaintiff takes his summons and complaint, if required by the foreign country, as it does in Germany... it's translated, there are standardized forms which have to be prepared which are transmitted, it's sent by ordinary mail to the central authority... and from that point on, free of charge, without worry, without care, the central authority takes it and puts it in whatever channels are necessary and affects the service, and you get this certificate--

Unidentified Justice: And your rule is that this applies to any foreign corporation that has not appointed an agent for service of process within the state.

Mr. Rubin: --Respectfully, I believe that that's what the treaty intended and that is, it was the huge mischief and evil which was sought to be overcome here is, indeed, overcome by this very, very simple procedure.

Unidentified Justice: Let me ask you one more question.

Suppose Volkswagen is physically present in, say, the state of New York, with a major corporate office and a manufacturing plant, too.

And then the state of Illinois, through service of process, serves Volkswagen in New York.

What result?

Mr. Rubin: Your Honor, again, on the basis of the formal position taken in the note verbal and the amicus brief, I think that the result would be that there would have to be service abroad unless Volkswagen was actually here.

But that isn't the case.

We're talking now about a treaty which is going to have the universal application.

We're talking about a treaty that relates, for example, to a case where there's an attempt to serve an adjuster of an insurance company where you have small companies that are going to be faced with papers which are pushed at them, and then they have to cope with them.

We're talking also, Your Honor, about a situation where, expressly, the United States and all of the other parties indicated they intended to eliminate the involuntary agent.

The notification au parquet, the Solicitor General concedes, was a major object to be removed.

This was the involuntary agent abroad.

He concedes that the Secretary of State's service, which has been so common here in the United States, is removed now and that such service has to be performed pursuant to the treaty requirements.

How is the service here any different--

Unidentified Justice: You're wrong about that, too.

Mr. Rubin: --this is an involuntary agent which is created by law.

And the court below merely makes the general statement, which I think is very difficult to understand... that it makes no difference how the agent is created.

It makes all the difference in the world how the agent is created.

If this is an involuntary agent, this involuntary agent which says that a subsidiary is an involuntary agent is no different from a Secretary of State or no different from the au parquet involuntary agent, except that it's even worse.

Because in those cases, there is at least some kind of statutory official duty on the part of those agents to forward the papers.

Here, there is no official statutory duty.

It's a kind of an inference, a guess, or a conjecture.

And, as a matter of fact, that the Solicitor General winds up in saying, is that three possible things can happen.

He says you don't have to send this paper over to Germany, because maybe the subsidiary will merely send a summary.

Or maybe the people in Germany will come over to the United States to look at it.

Or maybe the people in Germany will put everything into the lap of the lawyer and hope that the lawyer is somehow going to be able to cope with it.

That, respectfully, is totally unrealistic.

The expectation of everybody here was that the paper would be sent to Germany.

That's what was indicated by the Court in the Lamb case, that was what was indicated by the District Court in the Alabama case, it's what was indicated: that the German company would be apprised.

Unidentified Justice: But that isn't the necessary reading of that language at all, it seems to me.

Where there is occasion to transmit a judicial or extrajudicial document for service abroad.

Now, you can argue that simply doesn't deal with the situation or it is possible under standard rules to serve the person by an agent in this country.

Mr. Rubin: Your Honor, it certainly is possible.

But we're talking now, again, in terms of the contemplation, the shared expectations of the contracting parties.

Unidentified Justice: But we look for the shared expectations and the contemplation of the parties at the instrument that they adopted.

Mr. Rubin: Exactly.

Unidentified Justice: And I just quoted you language from the instrument that doesn't at all bear out what you say about it.

Mr. Rubin: Your Honor, I think we have to understand that, first of all, liberal construction is impelled because you have a world contract.

Secondly, it's a remedial contract.

Unidentified Justice: Well, just a minute, Mr. Rubin.

I'm about to ask you a question, if you'll slow down long enough for me to ask it.

Will you?

Mr. Rubin: I certainly will, Your Honor.

Unidentified Justice: What is your authority for the proposition that liberal construction is impelled in this particular case?

Mr. Rubin: I think, Your Honor, that--

Unidentified Justice: I mean, a case authority.

Mr. Rubin: --The Air France case, for example.

I believe also that was indicated in the Aeorospatiale case.

And particularly where you have a remedial situation which is being addressed--

Unidentified Justice: What is a remedial situation?

Mr. Rubin: --You have a totally chaotic situation where courts are being burdened with a lot of ad hoc issues that they have to decide whether somebody is... whether this insurance adjuster or this freight forwarder or this toolmaker... an agent.

Unidentified Justice: Well, are you suggesting there is some situations where treaties are made, or laws are passed, that not, quote, remedial, close quote?

Mr. Rubin: No, Your Honor, but I'm saying--

Unidentified Justice: I mean, Congress doesn't act unless they think there's something that needs a remedy, does it?

Mr. Rubin: --I understand, Your Honor, but--

Unidentified Justice: So why is one situation different from another so that you would say one situation is a remedial situation whereby inference, perhaps, another situation is not a remedial situation?

Mr. Rubin: --Well, I think because in this particular case, all of the commentators indicated that there was in existence at that time a chaotic situation which had to be remedied, and that there was an expanding area of transnational litigation, and the burdens on the court were being very, very heavily tried, and therefore this was the quintessential situation for remedy and the remedy by this simple device and there's no counterbalancing reason why it shouldn't be used.

Unidentified Justice: May I ask you a question, Mr. Rubin?

One of the concerns was that it sometimes hard to identify an involuntary agent.

I think you have problems whether a subsidiary should be treated as an agent or not.

But even if you apply the treaty procedure for service of process purposes, aren't you still going to have that kind of issue?

For example, in this case maybe the service would have been perfectly all right if you followed the treaty procedure, but nevertheless the Defendant might have contended that it has no representation within the United States and therefore is not subject to jurisdiction in Illinois.

Mr. Rubin: That's an entirely different question, Your Honor.

Unidentified Justice: I mean, isn't it very similar in terms of what you have to litigate?

Mr. Rubin: No, I think it's totally different.

That's the Burger King case.

That, respectfully, is the Worldwide Volkswagen Woodson.

That's International Shoe.

That's a different issue.

Here we are talking about the bright line question: is there service of process or not.

Unidentified Justice: Well, I understand that.

Mr. Rubin: And here it is so simply established by a certificate which comes from the official.

It costs nothing.

Unidentified Justice: Well, I understand that but why is it so?

I know you don't challenge jurisdiction over your client, but why is it so clear that your client is doing business in Illinois and subject to the jurisdiction of Illinois courts?

Mr. Rubin: I don't think that it is clear.

Unidentified Justice: But you don't challenge that?

Mr. Rubin: No, Your Honor, please, the question of jurisdiction here is not on the basis of doing business.

The question of jurisdiction has to do with whether it's fair to be hailed into this court.

All of the tests which have been enunciated: International Shoe, the Burger King, and the Worldwide Volkswagen Woodson case--

Unidentified Justice: But if that issue had been raised, wouldn't it largely depend on whether the subsidiary was really to be regarded as an agent?

Mr. Rubin: --No, Your Honor.

Unidentified Justice: It wouldn't?

Mr. Rubin: You have a separate entity.

And this Court has indicated there's no reason to trifle with the existence of the separate entities where you have, which merely spur and increase issues which are unnecessary issues to face.

There's no reason for raising that question here where you have this very simple clear, bright line--

Unidentified Justice: Well, let me just ask one thing to be sure I have it right.

You do concede, do you not, that if proper service had been affected on the German company, it would be subject to suit in Illinois?

Mr. Rubin: --We don't challenge that, Your Honor.

There's no issue of that at all.

If I may, respectfully, I'd like to reserve whatever further time I have for rebuttal.

Chief Justice William H. Rehnquist: Very well, Mr. Rubin.

We'll hear now from you, Mr. Ring.

ORAL ARGUMENT OF JACK SAMUEL RING, ESQ. ON BEHALF OF RESPONDENT

Mr. Ring: Mr. Chief Justice, and may it please the Court:

It is the Respondent's position that the Hague Convention for service abroad does not render invalid service in a foreign corporation within the United States when such service complies with due process.

The heart of the issue before this Court is the interpretation of the Hague Convention on service abroad, regarding service in a foreign corporation doing business in Illinois, which it owned and so closely controlled.

It is, therefore, necessary to look first at the convention which is clear with regard to its scope.

Article 1 of the convention states: the present convention, and I quote, shall apply in all cases, in civil or commercial matters, where there is occasion to transmit a judicial or extrajudicial document for service abroad.

If the drafters of this convention had intended the convention to be an exclusive method for service upon foreign nationals, regardless of their presence and their shores, then I believe Article 1 would have simply read: the present convention shall apply in all cases, in civil or commercial matters, involving foreign nationals.

Clearly, if the framers would not have intended this treaty to apply to all foreign nationals, they would never have used the clause: where there is occasion to transmit a judicial document for service abroad.

Unidentified Justice: May I interrupt you there?

Mr. Ring: Yes, Your Honor.

Unidentified Justice: What language was this treaty... what's the treaty language in?

Mr. Ring: The treaty, you mean the negotiating treaty?

Unidentified Justice: What is the official language for interpretation?

Mr. Ring: French and English.

Unidentified Justice: And the word, occasion.

There could be an occasion for a service of a document abroad, couldn't there?

What if you read the word to sort of mean opportunity, an occasion on which it might be done, or something like that?

Mr. Ring: I would say that there's an opportunity to serve abroad.

There is an opportunity to serve here.

If there is an opportunity to serve here--

Unidentified Justice: Well, if you read occasion to mean opportunity, then there sure was an opportunity here and the treaty covers everything.

Mr. Ring: --I read occasion to be necessity.

You have to look at the intent and purpose.

Unidentified Justice: So you don't rely on plain language.

You think we have to look at history, too.

Occasion means necessity.

That's how you read it.

That's nice.

Mr. Ring: I read it as necessity because you have to look at the negotiations, the legislative history, the intent, the purpose that--

Unidentified Justice: What's the French text?

Mr. Ring: --The French text, I think, is it would be a necessity.

I don't think... I'd say... if it's an opportunity--

Unidentified Justice: What is the French text?

What is the French word?

How does it read?

Mr. Ring: --I don't understand French, but I--

Unidentified Justice: But I do.

Does anybody have it there?

Mr. Ring: --I would assume the French interpretation might be the same as ours.

Unidentified Justice: If it says necessite, you're in good shape, aren't you?

Mr. Ring: Yeah, if it's... it would be.

I think that's close enough to English that I could understand.

Unidentified Justice: But if it says opportune... where we can find it.

Is the French text in the papers before us?

Mr. Ring: I think the French text, it says here--

Unidentified Justice: Says where?

Where are you reading?

Mr. Ring: --I'm reading, Your Honor, from the Solicitor General brief, who I believe has been able to get the French text interpreted for us.

And I think they refer there--

Unidentified Justice: What page?

What page?

Mr. Ring: --Page, Justice O'Connor, 14.

Unidentified Justice: Well, I don't want the French text interpreted.

I assume the English text interprets the French text.

Mr. Ring: Well, I hope so.

I'm relying, Justice, on matching the... Solicitor General being able to interpret the French.

The negotiations, unfortunately, were in French and--

Unidentified Justice: Transmit... it means must be transmitted, doesn't it?

Mr. Ring: --Must be transmitted?

Only for the purpose of making service when service cannot be made in our shores.

The intent of the convention, Your Honor, was to provide a method, facilitate a method, for service abroad.

Not with regard to domestic service.

We had no problem with domestic service.

It was our problem to find a method to facilitate transmitting a document overseas.

The definition of service abroad is not defined in the convention.

However, it states that it means a formal delivery of a document to a Defendant in a contracting country.

Now, if you don't have to make a transmissal of service overseas and you don't have to make it abroad, then you don't have to use the convention.

It is as clear as that.

The purpose of the convention was to facilitate a manner so that we could, in fact, serve Defendants overseas who had no presence in our shores.

Unidentified Justice: Was it to simplify?

To the rules?

Was that the purpose?

Mr. Ring: Justice, correct, in serving overseas.

Because our difficulty was not--

Unidentified Justice: I mean after forty minutes I've been worried about how--

Mr. Ring: --I didn't hear your question.

Unidentified Justice: --After forty minutes of argument, I don't understand that it was simplified.

Mr. Ring: It wouldn't simplify it.

No.

You're right, Justice.

I'm sorry.

So the purpose, when you look at all of the... I couldn't agree more with the Petitioner... when you look at the language of the legislatures, the Senate committees, and the U.S. negotiators, it was never the intent of our country to give up the domain of the several states laws.

It was never intended to deprive our states, courts, and in federal courts, of their procedures and practice.

It was never the intent of the convention to change our American law.

It was never the intent of the convention to change our internal law.

The purpose was, in fact, to permit American litigants to serve abroad, to serve a person overseas, a corporation, entity, or individual, who had no presence here and, likewise, to give our friends in Europe and other members of the convention... which I think there are thirty... the same privilege, the same right, to sue Americans and give them notice over here of litigation when it was pending abroad.

Unidentified Justice: Mr. Ring, do you agree with the SG's position that this treaty did eliminate, however, two things: one, the... what's it called... French practice, notification au parquet, which is sort of you just serve some functionary in France and can sue anybody by doing that.

Do you agree that it eliminates that?

Mr. Ring: I agree that... I can't pronounce it as you do, Justice... but I do agree that the purpose of the convention, it was a fair... and that's why Article 15 and Article 16 were--

Unidentified Justice: Just answer.

Does it eliminate that?

Mr. Ring: --Yes.

Unidentified Justice: Does it eliminate that?

Mr. Ring: Yes.

Unidentified Justice: It does eliminate that.

Mr. Ring: Yes, it does.

Unidentified Justice: Now, how come it eliminates that?

Mr. Ring: Because prior to this time, there was no due process built into the notification au parquet as we have in Secretary of State service.

We have that embedded in our particular statute so that there would be an extra requirement of due process.

Unidentified Justice: Well, that's a good reason why it ought to be eliminated.

But why does the text of it eliminate that but not eliminate this?

Mr. Ring: Because it had no affect on our own domestic policies of service of process.

Unidentified Justice: Oh, it says somewhere in the treaty that it can affect internal French requirements as to what's needed to get proper service but not internal United States requirements?

Mr. Ring: The purpose of the notification au parquet, the purpose of the treaty for the civil law countries, was because they were fearful that unless they had some kind of protection that the French, who are using notification au parquet, might, in fact, obtain judgements without giving notification.

Unidentified Justice: I understand and I assume that we were fearful of that, too.

But I can't, for the life of me, figure out how it reaches the one but doesn't reach the other?

Mr. Ring: It would reach our Secretary of State service.

Unidentified Justice: It would reach that, too?

Mr. Ring: It would if--

Unidentified Justice: Why?

Mr. Ring: --If only... if we had a Secretary of State statute which provided for, which would have to have for due process, a requirement to give it extra step... if that extra step of mailing could not be done in our shores, yes, we would have to use the convention.

If, on the other hand, it was on our shores, I'm saying we would not have to use the convention.

If, in fact, we had a mailing required to go to a corporation at its principle place of business, or where he's incorporated, and that place was in a foreign country, yes, we would have to use the convention.

Unidentified Justice: That distinction hinges upon the assumption that the French practice requires, for its effectiveness, that the French functionary transmit the document.

And that's being contested by Mr. Rubin.

Are you certain that the French practice--

Mr. Ring: The French have recently changed their law in that they now require that there be a transmission... I'm not sure of the complete language requirements of the French law... but if there would be, in the same method, if they had to send over that transmittal to the United States, if there was no agent over there which they could serve, then, yes, it would have to go through the convention.

In the same way that our Secretary of State process would have to be through the convention if there was no way of making that second mailing on our shores.

Unidentified Justice: --Well, Mr. Ring, if your interpretation is correct, though, there would be no reason why France couldn't return to its system of notification au parquet.

Mr. Ring: Well, first of all--

Unidentified Justice: None whatsoever.

They're not bound by our due process requirement and there is no due process requirement written into the Hague Convention.

Mr. Ring: --That's true.

They could go back and do that if they wanted to.

Unidentified Justice: Yes.

And that was exactly one of the things that we had an interest in eliminating and motivated us to participate in the Hague Convention.

We didn't like that method of service of American companies in France.

Isn't that right?

Mr. Ring: That's true, Your Honor.

But the French have recently changed the notification au parquet--

Unidentified Justice: Well, all right, except if your interpretation of this treaty is correct, the French can go back to their old system.

Nothing would prevent that.

Mr. Ring: --We have no control over their internal law.

They have no control of our internal law, nor should they have a right to determine our internal law.

Unidentified Justice: But you agree that one of our goals and purposes in entering into this treaty was to eliminate that notification au parquet.

Mr. Ring: No.

Our interest, our interpretation, our desire, was to find a method where we could have service abroad because we were having difficulty finding a procedure.

Rule 4(i) started the process in our federal courts where we were trying to find a method by mailing.

Unidentified Justice: Don't you agree that we were also concerned about inadequate methods of service and notification on American companies abroad?

Mr. Ring: There's no question about it.

But the fact is there are approximately thirty countries which are members of this convention, and most of them, the majority, more than the majority entered the convention for the purpose of having this protection against notification au parquet.

That would mean, I would say, that the majority of those countries agree with us.

France would be the only one that might take your position on this.

Unidentified Justice: What can you cite to indicate that other members, signing parties to the treaty, agree with your interpretation of it?

The briefs filed with us in this case indicate they don't agree with you.

Mr. Ring: There are only four countries... there are thirty countries, I understand, who are contracting parties.

And none of them has stated any objection.

If you use that kind of logic, I would say the majority agree with us.

Unidentified Justice: Well, you can't take the failure to file a brief here as agreement with you.

I wondered if you had anything you could cite?

Mr. Ring: No, I don't, Your Honor.

All I can say is I have to use common sense, and I would say that if they really objected strongly they would have possibly also filed briefs, as some of the countries did in deciding nationale.

I also might add that because these are diplomatic notes, and I'm not an international lawyer by any means... I would say that we don't know how the courts of these countries might react.

Whether or not they would agree with the diplomatic notes.

And we also don't know, Justice, what, in fact, the German government... and I had mentioned to them as the reason for their notes... I say this because if you look at the Belgium note, they say: based on what the Federal German Republic told us about this situation.

I don't know... I'm not privy to the what the discussions were between the German embassy and the other embassies and, of course, if I had privy to that I might have a better answer for you.

I'm sorry.

I don't have any more than that.

Unidentified Justice: Mr. Ring, can I ask you kind of a common sense, practical question, and get away from the language.

What is the burden on an American Plaintiff if we should hold that the treaty... occasion means, you know... means what your opponents say and this is the way to serve foreign corporations and you have to go through this mailing procedure, is that such a big deal?

Mr. Ring: Well, if mailing was the thing that you would have to worry about alone, I think that would be fine.

But there is a problem in this case.

There was some question about my wisdom in not using the convention.

If you consider, Justice, that it cost me $42.00 to file my suit... I mean, forget service cost... on Volkswagen, if I had to get the translation, which is a requirement of Article 5 of the convention, it would have cost me, for a 42-page complaint, $2,500 to $3,000.

That's common sense to me because that's my client's money.

It's my money.

I'm trying to do the best I can for my client.

Unidentified Justice: So what's involved is the cost of translating the complaint, basically?

Mr. Ring: Very expensive.

And there's also another problem, Justice.

Let's assume that I were to use the convention... and this happened... Germany, by the way, has three central authorities.

They are the only nation that has requirements of those procedures.

Most countries don't have a central authority and some do.

There's some confusion with that.

However, if the central authority which receives your particular request determines that they can't understand the translation and because I wasn't able to get a real good interpreter, unfortunately, who didn't know law, then the fact would be that they would return it to me.

That would mean, under our Illinois law, I have a thirty-day summons life.

And that cannot be changed by a clerk, as the Petitioner suggests, or a Judge.

Because our rule and procedure do not provide for extension of the life of the summons.

That would mean that each time that it would be returned, I would have to go through the same process, more expense with translation, and have that sent back to the consular, or whoever is going to be the central authority, and see if they'll accept it this time.

There's problems that would come into a practical situation.

Unidentified Justice: I can see that theoretically, but I should think there would be competent translaters available.

Mr. Ring: Well, I can show you that we have seen documents where they have been returned.

There's nothing to stop them... any country... from rejection.

What's left for us for relief under these situations is diplomatic channels.

Now, that's going to be very intimidating to a lawyer in a small town who has all of a sudden--

Unidentified Justice: Like Chicago, you mean?

Mr. Ring: --Like Chicago, Justice.

Right.

And I think it is intimidating to us, too.

But I think that when you look at those problems, the fact that you might... you might turn this convention not into a service convention, but to a dismissal convention.

And I think that's unfair to have to use an opportunity if you have an opportunity available to you, an alternate method in your own country, a method which provides you for the tools to use to serve, they have to accept that coming to our country that they have to accept our laws.

We do that when we go over there.

Our laws are not so difficult to follow.

And I think that, basically, when you can find a Defendant, a foreign corporation, acting through an agent on our shores, which they control so completely, as was surely... if you will look at our pages on the merits, our briefing on the merits, pages 8 through 13... overwhelming basis for the control of this corporation.

Not only that, but Volkswagen has never contested agency, in the lower courts.

Never contested jurisdiction.

Never contested controlling relationship.

Or that it's amenable to our process.

Unidentified Justice: Well, they contested agency.

One of the issues before the Illinois court was whether they were an involuntary agent.

Mr. Ring: They have not contest that in the record.

Unidentified Justice: Well, there were two issues in the Illinois Appellate Court.

One was the treaty issue and the other was whether they were an agent.

Mr. Ring: Well, that's true, but--

Unidentified Justice: So they contested that.

Mr. Ring: --they have not contesting agency now, you know.

But the fact remains, that if you look at the facts, each court would look at those facts.

Each court would have those facts before them.

It has to have those facts.

They determined, the basis of that finding, as to the control that the corporation had over them, it complied with due process as far as our Illinois law was concerned.

It was recently calculated that the notice to the agent would be notice to the principal.

And why shouldn't it have been.

Unidentified Justice: Any agent?

I'm a little uncomfortable just talking about agency in the abstract.

Can't you be an agent for some purposes and not an agent for others?

Don't you have to be an agent for the purpose--

Mr. Ring: That's true.

But the court can interpret when you can be an agent by the factual setting for the acceptance of service.

Even International Shoe made that comment.

And the fact is, in this case, it wouldn't be every agency.

If they appointed an agency, even they admitted in the lower court, they said: if we had appointed the agent that we will contest the use of the convention.

On the Appellate Court level, they said: if we had appointed the agent and he was standing next door to the process server, you couldn't serve us because you have to use the Haque Convention.

My feeling is that that's inconsistent.

And it's inconsistent because it makes no difference if they appoint or we appoint the courts.

Our courts have a right and a duty to look at the facts to determine the agency.

It would not be in every agency relationship.

Of course, it would be no question if they appointed an agent for a certain purpose.

But here, I think, the facts are conclusive that they were an agent for service.

They surely were so controlled.

There was no question that they were going to get notice.

And that was due process as it's supposed to be for... applying rules which would assure the Defendant of an opportunity to be heard and getting notice of the actions pending against them in this country, or if we are beginning suit over there in that country.

Unidentified Justice: --Well, Germany takes the position, I gather, that if you don't follow the Haque service convention in your service, that even if a judgement is obtained it won't be enforceable in Germany?

Mr. Ring: Well, there are no guarantees if you use the convention, Justice, that there's no full faith and credit clause in the Hague Convention, there's no guarantee that they will enforce the convention, there's no guarantee you'll get jurisdiction in the convention.

And if a party, as myself, chooses to sue them, based on the finding that there may be joint and several liability here anyway, there may be sufficient assets of Volkswagen in this country where I wouldn't be worried about that.

I think it's a case by case basis.

That would be the judgement of the lawyer.

And I don't think that interpretation of enforcement should be a basis for interpretation of a treaty.

Chief Justice William H. Rehnquist: Thank you, Mr. Ring.

We'll hear now from you, Mr. Minear.

ORAL ARGUMENT BY JEFFREY P. MINEAR, ESQ. AS AMICUS CURIAE, SUPPORTING RESPONDENT.

Mr. Minear: Mr. Chief Justice, and may it please the Court:

Volkswagen is fundamentally mistaken in arguing that the Hague Service Convention gives foreign corporations blanket immunity from local service rules.

Article 1 states the convention comes into play only when there is occasion to transmit a judicial document for service abroad.

Unidentified Justice: Well, that isn't the French language exactly, is it?

Mr. Minear: That is correct, Your Honor.

The French language is even stricter than that.

And it says, essentially, that the convention is applicable only when the document must be transmitted abroad to be served there.

Unidentified Justice: It says: doit, which is from devoir.

Meaning should or ought, not must.

Mr. Minear: Yes.

In this context, it would be.

I think the best interpretation would be must or is to be transmitted.

In any event, it seems quite clear that it does not leave much room for the interpretation that Petitioner's suggest, namely, that whenever there is an opportunity to transmit the document abroad.

This is, of course, the most natural reading of Article 1.

And it is fully supported by the negotiating history which indicates the drafters left to each state responsibility for determining when a document must be served abroad.

The reporter specifically explained in the debates that, quote: one must leave to the requesting state the task of defining when a document must be served abroad.

This appears at Negotiating History, page 254.

Unidentified Justice: When the French do that... how can you strike down the French practice?

That is what troubles me.

Mr. Minear: The notification au parquet practice?

Unidentified Justice: Yes.

Mr. Minear: That, in fact, was clarified in the report that was prepared by the reporter of the convention.

In this report, the reporter noted, and I quote: While the strict language of Article 1 might raise the question whether or not the convention regulates notification au parquet, the understanding of the drafting commission based on the debates is that the convention would apply... close quote.

Unidentified Justice: Well, that's nice.

What do you mean based on the debates.

Is it in the--

Mr. Minear: On the debates... what the reporter, at this point, this appears at Negotiating History, page 367.

At that same page, there is also a footnote back to the debates.

What the reporter's relying on is on statements from the French and Dutch delegations that au parquet service does include an obligation to transmit the document abroad as part of the service procedure.

For example, Mr. Lef of The Netherlands explained, and this is at page 169 of the Negotiating History, translated, quote: There is in The Netherlands a real obligation on the part of the Public Prosecutor's Office and the Ministry of Foreign Affairs to transmit abroad... close quote.

He also indicated the situation in The Netherlands is, therefore, quote: almost identical... close quote, to that of France.

Indeed, shortly after signing the convention, France amended its Code of Civil Procedure, Article 684 through 686, to eliminate any doubt that documents served through this method must be transmitted abroad.

Unidentified Justice: --So your position is that it covers any situation in which under the domestic law the document must be transmitted abroad.

Mr. Minear: That is correct, Your Honor.

Unidentified Justice: And you assert that there is no necessity under the domestic law of Illinois here for the agent to transmit the complaint to his principal?

Mr. Minear: That is also correct, Your Honor.

That is our position.

Unidentified Justice: What if Illinois simply says: you can serve this... when you want to serve Volkswagen Germany, you can serve the Secretary of State right here in Springfield?

Mr. Minear: Illinois, in fact, does leave open that opportunity under its corporation law.

I believe that's Section 5.25 of the Illinois Code.

But what it also indicates is that if one serves the Secretary of State, the Secretary of State is under an obligation to transmit those documents abroad.

Unidentified Justice: What if Illinois says, hypothetically, you may serve the Secretary of State here in Springfield and he'll post a notice on the door.

Mr. Minear: That would probably be unconstitutional under Wuchter v.... Wuchter.

I don't recall the last name of the party, but that's cited in our brief.

Unidentified Justice: But it's a matter of due process and not of service?

Mr. Minear: Yes, and that simply indicates that, in fact, Volkswagen has two levels of protection here.

First, Illinois statutory law and, second, the due process clause.

In short, there's ample protection.

Unidentified Justice: Due process isn't going to protect American companies abroad from other state's, member state's, rules.

Mr. Minear: Yes, that's right, Your Honor.

But I also, respectfully, submit that interpreting the convention in the way that Petitioner suggests will not protect American corporations, either.

The foreign corporations are not obligated to follow our interpretation of the convention, and they are not obligated to follow this Court's interpretation of the convention.

In fact, it appears that some of the foreign governments' positions are somewhat inconsistent with their own law.

For instance, in Illinois, under the Illinois Companies Act of 1985, Section 695 does provide for service upon an unregistered foreign corporation at its place of business in England.

That, under Petitioner's position, would be inconsistent with the convention but, nevertheless, is allowed.

Likewise, the French's new Code of Civil Procedure, of Section 690, also provides for service at a place of business or upon any qualified member of the corporation.

Now, we don't know how the French or the English courts might ultimately interpret the convention.

We're not aware of any decisions from those courts that have interpreted the convention.

However, we believe, that given, in particular, with France, the language of Article 1 the most likely interpretation would be the interpretation that we, in fact, advance here.

Now, I would like to return to the notification au parquet again to clarify another matter of confusion.

The convention does not eliminate or remove the notification au parquet.

That method of service still exists in the French Civil Code, of Section 684 through 686.

What it does do is regulate that method of service.

In particular, it regulates it under Article 15 of the convention.

Now that also explains why there might be some confusion about this question of where there is occasion.

If you look at Article 15, it says: where a writ of summons, or an equivalent document--

Unidentified Justice: Where are you reading?

Mr. Minear: --This is page 32A of the Petition Appendix.

And again: where a writ of summons or an equivalent document had to be transmitted abroad for the purpose of service.

In other words, they go on to say that judgement shall not be given unless certain conditions are met.

Now, Article 15 does seem to cover notification au parquet, here.

But, again, it depends on whether or not a document had to be transmitted abroad for the purpose of service.

Unidentified Justice: Could you... I don't know whether you have it handy now, but I'd be curious to whether the phrase: had to be transmitted abroad, there is in the French, using the verb devoir.

Mr. Minear: I don't have it here, but I believe that is the past tense of the verb devoir.

We note, further, that there are no substantial policy reasons for rewriting the Hague Convention to protect Volkswagen from the service method employed here.

It is certainly not unfair to serve Volkswagen through instate delivery of a summons to wholly-owned and closely controlled subsidiary that conducts Volkswagen's affairs in the foreign state.

First, Volkswagen is subject to the Illinois court's jurisdiction, precisely because it does business in Illinois through that subsidiary and, in fact, the Illinois Appellate Court's decision reflects this in Pages 8 through Page 18 of the Petition Appendix.

Second, Volkswagen has complete control over that subsidiary and, therefore, can, and we believe, has, taken the necessary steps to assure that it will receive prompt notice of suit.

Third, this service method does not discriminate against foreign corporations because it subjects them to precisely the same requirements as any domestic out-of-state corporation.

And, fourth, Volkswagen receives all the protections associated with the due process clause.

This is as much, or more, protection than U.S. corporations receive when they do business overseas.

Unidentified Justice: For what purpose are they an agent?

Suppose I appoint someone an agent and I say: you're an agent for everything except receipt of service of process.

I do not want you to be an agent for that and I forbid you to transmit to me any process you receive on my behalf?

Would this Illinois provision--

Mr. Minear: Effectively, that is what Volkswagen has said here, with respect to its wholly-owned subsidiary.

Our position is that a state is in a position to identify that agent as an agent for service of process, and that is a matter of state law.

Some states do allow that.

Others don't.

I think that one thing that is clear, however, is that the requirements to become an agent for that purpose are, in fact, very strict.

Here, the Illinois court went on at some length to identify all the factors that indicate the substantial identity between Volkswagen of Germany and Volkswagen of America.

I'd like to address a few other points that have arisen here.

Petitioners have pointed out the importance of formality of service.

However, I think it's important to note that a German court's jurisdiction does not depend on service.

Those formalities are primarily common law formalities.

This point is made in Kaplan and Von Merin, in 71 Harvard Law Review, at 1203 through 1204.

Professor Smith's book on international service of process also indicates this at some length.

I've already mentioned that, with respect to Justice Scalia's office of the state hypothetical, that that situation is covered under the English law, and apparently under the French law as well.

While Volkswagen says that the convention is--

Excuse me.

My time has expired.

Chief Justice William H. Rehnquist: Thank you, Mr. Minear.

Mr. Rubin, you have four minutes remaining.

ORAL ARGUMENT BY HERBERT RUBIN, ESQ. ON BEHALF OF PETITIONER -- REBUTTAL

Mr. Rubin: If Your Honor, please:

The question was raised as to what is simpler?

Where is the simplification?

That really is a question which has been answered by the Solicitor General.

He concedes that it is simpler.

We have shown that it is inexpensive.

There's a reference to the cost of translation.

I think that Your Honors will have a better idea as to what the opportunities are for translation, even in Chicago, and what costs could be.

The fact is that the Solicitor General has conceded that in 1986 alone, there were 5,000 occasions where service was made on American companies under the treaty.

And in 1986 alone, there were approximately, or up to, 700 cases where service as made from the United States to Germany.

So that this is a treaty which is working.

It operates.

In terms, now, of trying to weigh why now... what disadvantage, what real disadvantage is there to changing the system which is stated by these five major powers... major commercial, contracting countries... as the system which should be working.

You have, apart from anything else, you have the considerations of comity.

This Court in Aerospatiale made the point about providing for a smoothly operating legal regime.

You have here a smoothly operating legal regime.

The reference has been made to the jurisdictional basis for the action in illinois.

That jurisdictional action was not based on doing business and the court didn't find any doing business.

It was based on the long arm statute.

It was a long arm type of situation.

But, again, we respectfully submit that's not relevant to the issue of service of process which is conceded by the Solicitor General to be a question of federal law in terms of interpretation.

Unidentified Justice: But isn't the long arm issue one of service of process?

Mr. Rubin: Pardon me?

Unidentified Justice: But isn't the long arm issue one of service of process?

It's a long arm statute--

Mr. Rubin: Long arm has to do with amenable--

Unidentified Justice: --The question there was whether the service of process was valid as a matter of Illinois law, under the Illinois long arm statute.

Mr. Rubin: --That's right, Your Honor.

But the question here of service is a federal question.

It's a question of contractual intent and that's conceded by the Solicitor General.

In terms of contractual intent, the intent was to go to create a bright line.

And there's no reason which has been advanced here, there's nothing which weighs on the other side, to depart from the bright line which is feasible, which has worked as we see here by these statistics, and which was the specific intention of the parties.

The indication to the Senate at the time that the Senate was presented with this treaty... the Senate was told that this doesn't essentially change, there's no major change, with respect to judicial assistance.

And that's what Mr. Amram said.

He didn't say anything more than that.

Chief Justice William H. Rehnquist: Thank you, Mr. Rubin.

Your time is expired.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Omni Capital Int'l v. Rudolf Wolff & Co. - Oral Argument

Wed, 13 Apr 2011 20:11:38 +0000

Case:

Omni Capital Int'l v. Rudolf Wolff & Co.

Media File:

86-740_19871006-argument.mp3

Related Transcript:

86-740_19871006-argument.xml

Transcript:

ORAL ARGUMENT OF ELLIOT PASKOFF, ESQ. ON BEHALF OF THE RESPONDENT

Chief Justice William H. Rehnquist: We will hear argument now on No. 86-740, Omni Capital International v. Rudolf Wolff & Company.

Mr. Kutcher, you may proceed whenever you are ready.

Mr. Kutcher: Mr. Chief Justice, may it please the Court:

This case addresses squarely the question of whether in a purely Federal question case arising under the Commodities Act against foreign nationals a Federal Court is bound by the state long arm statute in which it sits in determining whether the foreign national is subject to personal jurisdiction.

Ancillary to that issue is the question of whether in a private commodities claim there exists the same nationwide service standard as that found in other provisions of the Commodities Act.

The facts of the case are set forth in our brief.

They do not need to be repeated.

I do want to point out, however, to the Court that this is one of the so-called "Silver Straddle" cases which was argued in front of the Tax Court.

The Silver Straddle cases involved over 1400 United States taxpayers who, through trading in silver straddles, were attempting to shelter over $100 million.

The petitioners in this case were among those investors, Rudolf Wolff & Company and James Gourlay were among the London brokers who effected some of the trades.

Accordingly, there was a substantial participation by not only among these petitioners but about 1400 United States taxpayers, all involved in the same transactions.

The facts of the case present the Court with clear alternatives.

Under the Louisiana long arm statute, we have conceded that there are insufficient contacts to maintain this commodities fraud suit against Rudolf Wolff & Company and James Gourlay, one of whom is a British corporation, the other is a national of the United Kingdom.

However, it has also been determined that if one aggregates their contacts not only with the State of Louisiana, but throughout the United States, then there are sufficient contacts to subject them to suit under the Commodities Act.

The question which is presented here is what standard should this Court apply.

In essence, Your Honors, this case comes down to the application of Federal Rule Civil Procedure 4(e) and whether that procedural rule imposes a substantive standard on personal jurisdiction.

We submit that it does not and, as Judge Wisdom pointed out in his dissent in the Fifth Circuit opinion, Rule 4 is nothing more than a procedural rule designed for efficient housekeeping of the Federal Courts.

It was never intended nor should it be construed to impose substantive standards of personal jurisdiction.

Unidentified Justice: Do you think Rule 4(e) ever applies to a purely Federal question case?

Mr. Kutcher: Justice White, Rule 4(e) applies--

Unidentified Justice: Or it just doesn't apply when there is a foreigner involved?

Mr. Kutcher: --Well, Rule 4(e) applies for the purpose of the physical means of effecting service of process, not the amenability of the individual to the court's law.

Unidentified Justice: So, in a purely Federal question case, Rule 4(e) wouldn't apply at all if the question is the amenability of the defendant to service?

Mr. Kutcher: Yes, sir.

And I think that has to be the logical conclusion of the argument and I think... and I think your opinion, Your Honor, in Insurance Corporation of Ireland properly points out that the source for personal jurisdiction comes from the Fifth Amendment, comes from the due process clause, and 4(e), we submit is nothing more than the procedural means, the second half of determining whether or not you have got personal jurisdiction, but it doesn't effect the amenability.

This case involves foreign nationals and I certainly make the argument--

Unidentified Justice: Well, what if the state didn't have a long arm statute at all and there is just a purely Federal question case pending in a Federal Court?

Mr. Kutcher: --Yes, sir.

Unidentified Justice: Can you serve at all?

Mr. Kutcher: I think that if the state does not have a long arm statute then what you are faced with is whether or not it comports with the due process clause.

And, as you pointed out, the Fifth Amendment due process clause is the basis for personal jurisdiction.

So, yes, sir, I think you can.

The question is whether or not you can... the manner in which you physically effect that service I think, as Judge Wisdom said in his dissent, is something that can be fashioned on an ad hoc basis.

You do not need to have a specific provision in 4(e) to determine all methods of service of process, because Rule 82 and 83 permit the courts to fashion rules which are not inconsistent with the Federal Rules.

Unidentified Justice: Well, Mr. Kutcher, I think most decisions in this area have taken the position that Federal courts have only as much subject matter and personal jurisdiction as Congress gives them by affirmative grant.

Mr. Kutcher: Yes, ma'am.

Unidentified Justice: And under your theory, there would not be an affirmative grant of jurisdiction then.

Mr. Kutcher: Justice O'Connor, a personal jurisdiction.

Unidentified Justice: Yes.

Mr. Kutcher: You are correct.

And that is the conclusion of our theory that the courts... the Federal courts, the courts of limited jurisdiction, that is that Congress will only create those statutes and you do not have the authority to hear that case.

But with respect to personal jurisdiction, with whether or not you can bring somebody in to hear a case, that comes either from the Fifth Amendment insofar as Federal question cases--

Unidentified Justice: Well, I suppose the weight of authority might be against you on this point; wouldn't it?

Mr. Kutcher: --Yes, ma'am.

I can't do anything about that.

Unidentified Justice: Well, it is very difficult to say that the Fifth Amendment is a source of authority to serve process.

The Fifth Amendment is a restriction on the authority of government.

Mr. Kutcher: Yes, sir.

Unidentified Justice: So, why do you say the Fifth Amendment is a source of authority?

Mr. Kutcher: Our argument is that the Fifth Amendment requires that there be due process in bringing someone into a court.

That is whether--

Unidentified Justice: But it's not.

The Fifth Amendment, you agree, is not an affirmative grant of authority to anyone.

Mr. Kutcher: --Yes, sir.

I do.

I do, Chief Justice Rehnquist.

And I can't argue that point with you, either.

Our position is that the due process clause of the Fifth... if there were no, as Justice White asked me: If there were no state long arm statute, I think that a state under the Fourteenth Amendment, not under the Fifth Amendment, can bring someone in, determine personal jurisdiction based on the limits of the Fourteenth Amendment.

In fact, as the Court knows there are some state statutes which simply say if it is okay under the Fourteenth Amendment, you can do it.

Unidentified Justice: If a state doesn't have a long arm statute it means that its courts... you may never bring in a non-resident into its courts.

Why shouldn't Rule 4(e) then govern that?

You can't bring him in in a Federal court, either.

Mr. Kutcher: Well, that relates to the question of whether or not... the distinction that I'm making, Justice White, is the distinction between the amenability to jurisdiction and the physical means of service of process.

And I think you can't bring them in based on--

Unidentified Justice: I know, but the state says that... the state law is that you just may not serve this person at all.

You just may not even try to bring him in.

He is just not amenable to the service of process for the purposes of a state court suit.

Now, why shouldn't the Federal court follow that under 4(e)?

Mr. Kutcher: --Because this is a Federal question case and the authorities and the authority under which a Federal court is acting in a Federal question case stems from the Commodities Exchange Act and not from state action.

And that is precisely the argument that we are making: that in this particular instance the authority under which the court is acting has no relationship to what jurisdiction or what state the District Court is sitting in.

To do otherwise would permit a disparity in treatment, depending on a state's long arm statute.

To do otherwise would permit a foreign national who, as in this case, has been found to have adequate contacts throughout the United States, but insufficient contacts in any one state to avoid ever having to answer on the merits of whether or not any commodities fraud was committed or not committed.

Unidentified Justice: Mr. Kutcher, there are some Federal statutes in which Congress has expressly adopted a provision such as you would have us apply here without an express provision.

Mr. Kutcher: Yes, ma'am.

Unidentified Justice: So, I guess, under your view, all those affirmative grants of jurisdiction on a national basis by Congress are superfluous.

They are not necessary.

Mr. Kutcher: Well, I think that--

Unidentified Justice: Isn't that right?

Mr. Kutcher: --Insofar as a claim against foreign nationals is concerned, I think that the standard is--

Unidentified Justice: Well, you think that that action by Congress is just not necessary.

It's superfluous.

Mr. Kutcher: --Insofar as claims against foreign nationals are concerned because the source of the authority comes from the due process clause of the Fifth Amendment.

Unidentified Justice: There you go again and say the source of the authority comes.

Mr. Kutcher: Yes, sir.

Unidentified Justice: The source of the authority has to come from somewhere else.

Where does it come from?

Mr. Kutcher: Well, I think it comes from whether or not it meets the traditional notions of fair play and justice that this Court has adopted over the past 50 years.

Unidentified Justice: Are you saying then that we can presume that Congress wished to reach out in every Federal question cause of action to the limits of the due process clause?

Mr. Kutcher: I don't think you have to make that presumption, Chief Justice Rehnquist.

I think that the due process clause on its own permits you to determine whether or not you meet the standards of traditional justice and fair play.

Unidentified Justice: Of course.

But there is always the question entirely apart from the constitutional limitation whether the person having the authority wishes to exercise it.

And that is the intimation I drew from Justice O'Connor's question is that Congress in several sections of the Securities Act has indicated: Yes, we do want to reach as far as we can.

But you say that you don't need any indication like that from Congress because in every case they have created a Federal question claim, they are going to be presumed to want to reach as far as they can.

Mr. Kutcher: I think that under, I think that under 4(e) as was argued by Judge Wisdom in the dissent in the Fifth Circuit that Congress in a case... in the case of this nature involving what has been in the legislative history deemed to be something of significant importance to the enforcement of commodities actions would permit the extension of a nationwide service of process.

Now, that I will address a little bit later if the Court doesn't mind regarding the application in Commodities Act, but it seems to me that if you take a look at the origin of the way the Commodities Act was originated and the history revolving around the Commodities Act that it is clear that a commodities action was designed to prohibit the very same abuses which the securities laws 50 years earlier were designed to prohibit.

And, under those circumstances, we submit that there should certainly with regard to commodities actions be a nationwide service standard for service of process.

Yes, sir?

Unidentified Justice: Rule 4(e) says that whenever a statute of the United States or an order of the Court provides for service of summons, then you will serve the summons that way.

What is the... what does the reference to an order of the Court mean?

Mr. Kutcher: I think it refers to local rules or to rules which the courts--

Unidentified Justice: You mean a Federal Court in a Federal question case could, where a statute does not provide for a service, just enter an order in that particular case providing for serving of process?

Mr. Kutcher: --To effect the physical means of notifying a defendant of the pendency of an action in a jurisdiction.

Yes, sir.

And that is exactly what happened in the Petro Shipping case.

Unidentified Justice: Well, what about amenability?

Mr. Kutcher: On amenability, it comes down to the standard of whether or not you meet the traditional notions of fair play and justice.

Unidentified Justice: Well, could an order, could just... I just don't know why the rule has a reference to an order of the Court.

Mr. Kutcher: Well, it seems... my interpretation of that, Your Honor, is that it authorizes and incorporates Rule 83 where the Court has the authority to enter rules as long as they are not inconsistent with the Federal Rules of Civil Procedure.

And that is how I interpret that particular provision.

Unidentified Justice: Well, it could be, too, couldn't it to authorize substitute service, substitute service of process where one method has been tried and the person can't be found at the address?

That was the practice in Arizona.

Mr. Kutcher: Yes, sir.

I think that is another alternative that could apply.

Unidentified Justice: Mr. Kutcher?

Mr. Kutcher: Yes.

Unidentified Justice: If the Congress is not using the manner of service as a shorthand for prescribing what the reach of personal jurisdiction is, then why is it that when the manner of service is improper, the suit is dismissed for want of jurisdiction?

Isn't that what happens?

Is it dismissed for procedural--

Mr. Kutcher: The suit is dismissed for insufficiency of service of process.

And the process is fair--

Unidentified Justice: --That is not a jurisdictional defect?

Mr. Kutcher: --It is not a personal jurisdictional defect, no, sir.

I think it is dismissed for insufficiency of service of process.

And I think if you can properly--

Unidentified Justice: Well, what other kinds of jurisdictions are there other than jurisdiction over the person and the subject matter?

Mr. Kutcher: --That's it.

But what I am suggesting--

Unidentified Justice: So, you are saying that all these dismissals because of improper service really are not jurisdictional--

Mr. Kutcher: --They are not necessarily.

I think that they are separately addressed under Rule 12(b).

You can bring a motion to dismiss for a lack of personal jurisdiction or you can bring a motion for insufficiency of service or insufficiency of process.

So, the Federal Rules contemplate a distinction between personal jurisdiction and service of process.

And I think what has happened... and I can't argue with Justice O'Connor that the courts have done this... is somehow they have adopted a substantive constitutional basis and incorporated that into the procedure of Rule 4 for obtaining service of process.

Unidentified Justice: --What if you have an improper service of process and the point is not noted by the defendant, the case goes on to judgment and that judgment is then sued on somewhere else.

Mr. Kutcher: That's waived.

As I appreciate 12(b) the only thing that you can't waive is subject matter jurisdiction.

You can waive personal jurisdiction and you can waive the service of process, Your Honor.

And I think that, as in this case, if you don't file a motion to dismiss for--

Unidentified Justice: The individual never appears.

Mr. Kutcher: --And if you've got good service and the individual never appears and the default is taken, I don't think you can collaterally--

Unidentified Justice: Improper service.

Improper service and the individual never appears and judgment is entered nonetheless?

Mr. Kutcher: --As I appreciate it, you would have to come back and argue the same way you would in any other default.

The service... the question of the propriety of service is waived if it is not asserted under Rule 12(b).

Unidentified Justice: There is jurisdiction over the person, then, right?

Mr. Kutcher: I think so.

It's waived.

It's... there--

Unidentified Justice: How do you waive it by not appearing?

Mr. Kutcher: --Well, the same way that you would if you don't assert it, you waive it.

And if you appear, Judge.

Justice.

It seems to me--

Unidentified Justice: Well, that is a rather extreme position.

Say the defendant never even heard of the lawsuit.

Mr. Kutcher: --Well, then he has got the same remedies available to him--

Unidentified Justice: Well, he has some remedy other than 12(b)?

Mr. Kutcher: --Yes, sir.

Unidentified Justice: Well, what is the difference if you have never heard of it and you are improperly served?

What is the distinction?

When is an improper service waived and when isn't it?

Mr. Kutcher: I think an improper service is waived if... I think an improper service such as would be dismissable under Rule 12(b) would be waived in any instance that any other 12(b) motion would be waived.

Unidentified Justice: Even if he never even heard of the fact that a lawsuit had been brought against him?

Mr. Kutcher: Well, if he never heard of it--

Unidentified Justice: How could he waive?

Mr. Kutcher: --then I assume, then I would assume that when they went to try to collect on the judgment he would have remedies available to him.

Unidentified Justice: Well, he hears about it when they collect on the judgment, but the time to file a 12(b) motion is long gone.

Mr. Kutcher: I think that is something that is addressed, frankly, to the discretion of the trial court as to whether or not there was... whether he should have known about it or not.

But that really--

Unidentified Justice: Do you have any cases for this rather novel approach?

Mr. Kutcher: --No, sir, because I didn't plan on getting on the question of whether or not a default was taken.

I think we are taking the position that under the... that Rule 4 simply prescribes the method by which you physically notify someone of a suit.

Rule 4, by its own language, says service may be made under the circumstances which we argue and which Judge Wisdom and five other Circuit Court judges in the Fifth Circuit, viewed to be discretionary, not the mandatory method of if you can't do it this way, you can't do it at all, but simply, you can another route.

And the whole basis should be whether or not the presence of the defendant in the Federal Court is such that it does not offend the traditional notions of fair play and justice.

Unidentified Justice: Well, you mentioned earlier, I think, that a source of authority to fashion the service of process rule is 83.

Mr. Kutcher: Yes, sir.

Unidentified Justice: Which deals with local rules; doesn't it?

Mr. Kutcher: As I understand it it deals with--

Unidentified Justice: Beyond that?

Mr. Kutcher: --Yes, sir.

As I appreciate it and again as the dissent pointed out and as was determined in the Petro Shipping case which is cited in Judge Wisdom's dissent that the Court has the... the Federal District Court has the authority to effect a method by which service is obtained.

And what we are submitting--

Unidentified Justice: But if it is on alien defendants lack minimum contacts with the states, it nevertheless has to be sufficient national contacts?

Mr. Kutcher: --Oh, absolutely.

Unidentified Justice: To be amenable jurisdiction under the Fifth Amendment.

Mr. Kutcher: Absolutely.

Unidentified Justice: So, to that extent, your submission is not as broad as I thought you were referring--

Mr. Kutcher: Oh, no.

I'm not suggesting that.

What I am suggesting is that in Federal question cases, which the Commodities Act certainly is, and certainly in cases involving foreign nationals.

And, if you look at the national contacts cases which have been decided, which are cited in our brief, they all talk about... one of the factors that we--

Unidentified Justice: --Let me ask you one question, Mr. Kutcher.

Mr. Kutcher: --Yes.

Unidentified Justice: To the extent that you rely on Rule 83, does that mean that the District Court in New Orleans can have a rule saying: We want to go to the full extent of the Fifth Amendment in these cases.

And Western District in Shreveport can say: Well, no, we don't think we will go that far.

I mean is it 93 different rules for 93 different districts?

Mr. Kutcher: I think the authority is such that--

Unidentified Justice: Well, what authority?

Mr. Kutcher: --I think that the argument that we are asserting, Chief Justice, is that under the... that the Federal Rules should not substantively effect the rights of a plaintiff to maintain an action against a foreign national.

Judge Wisdom analogized the state long arm statute to the national contacts theory in cases involving foreign nationals.

And I think that is a pretty fair analogy.

Unidentified Justice: Well, now, are you going to get back to my question about Rule 83?

Mr. Kutcher: Well, I think that 83 just permits you to fashion... no, I don't think that you can have 93 different rules.

Unidentified Justice: So, how do you determine which rule is right in the various districts?

Mr. Kutcher: I think as long as the rule is in compliance--

Unidentified Justice: In compliance with what?

Mr. Kutcher: --With the limits of what is permitted under the Fifth Amendment.

Unidentified Justice: Well, then you say that every district has to promulgate a rule that goes as far as the Fifth Amendment permitted.

Mr. Kutcher: Well, every district has, I think... I think the Federal Courts have that authority.

Unidentified Justice: What if one particularly, the Chief Judge up in Shreveport says: I may have that authority, but I just don't choose to exercise it.

That is not the way I read this statute.

Mr. Kutcher: Chief Justice, I think that under those circumstances that there would be some sort of appellate review.

I can't answer your question specifically because it seems to me that the likelihood, frankly, of 93 different opinions as to what they can do or what a District Court judge can do--

Unidentified Justice: It is not what they can do, it is what they choose to do.

The Chief Justice's question focuses on the fact that Rule 83 is not mandatory.

It says that in cases not provided for by rule, they may regulate their practice in any manner not inconsistent with these rules.

Now, it wouldn't be inconsistent to assert the full scope of jurisdiction that you assert exists, but it also would not be inconsistent to assert something less than that.

So, how would you be reversed if you chose to exercise less than that?

Mr. Kutcher: --In thinking about it, I think, as Mr. Lee did this morning, I think that I have got to change my response and say that as long as it is constitutional a District Court judge can do anything which is permitted under the Fifth Amendment--

Unidentified Justice: So, you can have 93 different rules.

Mr. Kutcher: --Theoretically, you can have 93 different rules.

I think... but the venue provisions which are going to limit where you can maintain an action regardless of personal jurisdiction are going to have an effect here as well.

And that is something that I think needs to be addressed.

As the Fifth Circuit has held in several cases, the Federal Courts have never had to fashion a personal jurisdiction basis because your strict venue requirements dictate that you can either bring your action where the plaintiffs reside or the cause of action arose where the defendants reside, depending on whether or not you have got diversity of Federal question jurisdiction.

And under those circumstances, I think the limitation, if you will, on the power of a Federal District Court stems from the venue provisions and not from the personal jurisdiction basis.

And that is the argument which we are asserting: that venue is what is going to limit the hailing of a foreign national, such as Rudolf Wolff & Company, into a court where there wouldn't... where the court may have the personal jurisdiction and it may be constitutional and it may meet traditional notions of fair play, but it simply is not the proper venue.

And you have got to shop elsewhere.

Unidentified Justice: You say that 4(e) just deals with the manner of service of process and never in any action doesn't go to amenability of service outside the state.

Mr. Kutcher: I think that, yes, sir.

That's my argument and 1 think that in Federal--

Unidentified Justice: And so, I suppose you would say Federal District Court could by rule say that when the suits are against non-residents service of process may be had on those people to the extent the Fifth Amendment will allow.

Mr. Kutcher: --And I think... yes, sir.

Unidentified Justice: And provide the method.

Mr. Kutcher: And provide the method.

And I think that is accurate.

Unidentified Justice: And without having to worry about Rule 4(e).

Mr. Kutcher: That's exactly right.

And that's the national contacts theory.

You look to the basis of the foreign nationals contacts with the entire United States.

And this Court has held in at least one case that in terms of foreign relations that this is one country.

It is not 50 separate states.

It is not 50 separate autonomous units.

It is one country with regard to foreign nationals.

I think that standard applies.

And I think it particularly applies in a case of this nature in an action which is a commodities fraud case which was initially filed as a securities fraud claim.

The irony is that this lawsuit when it was initially filed, was filed as a securities fraud claim.

No dispute that Section 27 permits nationwide service of process.

Subsequently, the case is amended to include a commodities fraud claim, then it is determined that the commodities remedy is the exclusive remedy.

And, now, all of a sudden, these Petitioners, who when the suit was filed had service of process against Rudolf Wolff & Company and against James Gourlay, all find themselves relegated to the state remedy, the Louisiana state long arm statute to determine whether or not they have got jurisdiction over the foreign nationals.

They went from no contest as to having it to being relegated to the state claim simply... and the facts, and the underlying facts of causes of action never changed.

And under those circumstances, we believe that insofar as this cause of action is concerned that a nationwide national contacts theory should apply and that Rudolf Wolff and James Gourlay have both been found to have national contacts with the United States, although not with the State of Louisiana.

And I will reserve the rest of my time for rebuttal.

Thank you, Your Honors.

Chief Justice William H. Rehnquist: Thank you, Mr. Kutcher.

We will hear now from you, Mr. Paskoff.

Mr. Paskoff: Mr. Chief Justice, and may it please the Court:

To address the limitations of personal jurisdiction in Federal Courts over non-residents, I think we should start in the beginning.

Pursuant to Article 3, Section 1 of the Constitution, it is Congress that is ordained... that may ordain and create the lower Federal Courts.

Our Federal Court system is a creature of Congressional grant as a limited... as a court of limited jurisdiction, our Federal District Courts may not create their own jurisdictional premise.

If we delve back into history, we find that the members of this nation's First Congress were concerned with pre-revolutionary oppressiveness of causing persons to travel long distances to settle their disputes.

Unidentified Justice: Mr. Paskoff, before you get into your legal argument, could you help me on one factual matter?

Mr. Paskoff: Yes, sir.

Unidentified Justice: Your opponent indicated at the end of his argument something I hadn't really quite understood.

That the London parties who deny personal... who claim there is no personal jurisdiction over them, were subjected to the personal jurisdiction of the court while it was a Securities Act claim and then they subsequently claim there was no jurisdiction.

I had thought they were brought in as Third Parties after the Securities Act--

Mr. Paskoff: Your Honor, what has happened is in the original Point Landing litigation, one of my clients, Rudolf Wolff & Co., Ltd.

, was named as a direct party.

That Defendant moved to dismiss for failure to assert impersonum jurisdiction under Section 27.

We never conceded that we were subject to the jurisdiction of the Federal District Court in Louisiana pursuant to Section 27.

The reason why we never conceded that, Justice Stevens, is that the assertion of personal jurisdiction over a non-resident is a dual-pronged requirement.

And these are not parallel prongs.

The initial prong is you require a statutory grant from Congress--

Unidentified Justice: --You had it in Section 27.

Mr. Paskoff: --Yes, but then you had the next step.

The next step was whether or not that statutory grant as applied comports with traditional notions of fair play and substantial justice.

Unidentified Justice: Whether your contacts with the whole country were adequate.

Mr. Paskoff: Exactly.

Now, understanding the--

Unidentified Justice: And that motion was never decided.

Is that right?

Mr. Paskoff: --Your Honor, that motion... that motion was decided... the motion was decided and that was Point Landing 1.

In Point Landing 1, the Federal District Court held that there was impersonum jurisdiction.

Unidentified Justice: So, then your client was before the court.

Mr. Paskoff: Yes.

But we also argued at that time, Your Honor, that the Commodities Act as amended in 1974 granted exclusive jurisdiction... I know this is not part of this petition, but we did argue that it granted exclusive jurisdiction through the Commodity Futures Trading Commission and to the Federal District Courts.

Unidentified Justice: But if you had lost on that argument, your client would have been before the court?

Mr. Paskoff: If I had lost under that argument, we would have been before the court.

That's right.

Unidentified Justice: And, of course, if the District Court was right on the contacts rule.

Mr. Paskoff: That is correct.

Under Section 27 of the Federal Securities--

Unidentified Justice: What if the District judge had deferred ruling on your pre-emption argument or the, you know, that there's no Securities Act claim here, until the end of the Plaintiffs' case, something like that.

And then they had said,

"Well, I was wrong. "

"I never should have gone to trial on the Securities Act because there is just no... it has been preempted by the Commodities Exchange Act. "

Would you still be able to get out on your present jurisdictional theory, do you think?

Mr. Paskoff: --I believe so, Your Honor.

Unidentified Justice: After the case is half tried?

Mr. Paskoff: Because if the Commodities Exchange Act has preempted the regulation of commodities futures trading, then Section 27 does not apply because the commodity... because the Securities Exchange Act is not applicable to determining the duties and liabilities involved with trading of commodity futures.

Unidentified Justice: What if instead of the preempt, the argument that the Commodities Act superceded the other, you had simply persuaded the District judge that it didn't state a cause of action under the Securities Act and, yet, you were properly before... if you were before the court on the Securities Act, I presume they also could have tried the commodities exchange claim at the same time.

Couldn't they?

You can't have a pending jurisdiction motion.

Mr. Paskoff: Well, I understand what you are saying, Your Honor, except Congressional history has clearly indicated that the Commodity Exchange Act preempts--

Unidentified Justice: Well, I understand that.

I understand.

But at least that he had the right to bring you before the court and require you to make that argument to the court and demonstrate that there really is no valid claim under the Securities Act.

Mr. Paskoff: --That is correct.

Unidentified Justice: So, you were, for a brief period of time at least, subject to the jurisdiction of the Louisiana court.

It's a kind of a puzzle.

I don't know what... they haven't really argued this, but I have to confess I don't quite understand it.

You don't really want to give that pendant jurisdiction necessarily applies to jurisdiction over the person as well as it applies to jurisdiction over subject matter?

Mr. Paskoff: That's correct.

Part of the second prong of the Petitioners' request to this Court is to ask for an implication of nationwide service of process under the Commodity Exchange Act.

Congress has had three separate opportunities within the last 12 years to speak on the subject of nationwide service of process.

In 1974, the Commodity Futures Trading Commission Act was enacted and it specifically conferred nationwide service of process under Section 13(a)(1) on the Commodity Futures Trading Commission.

It similarly conferred nationwide service of process on the sister states' attorney generals under Section 13(a)(2).

Nowhere was there a mention that there was a nationwide service of process for private litigants.

This Court decided Merrill Lynch v. Curran in 1982, holding that a private right of action exists under the Commodity Exchange Act.

In 1982, the Futures Trading Act amending the Commodity Exchange Act expressly provided for a private right of action by a private litigant aggrieved under the Commodity Exchange Act.

That was the perfect place if Congress had so intended to assert a nationwide service of process clause for private litigants.

That Act is silent.

That provision does not provide for nationwide service of process in enforcing private claims.

Congressional history with respect to the enactment of Section 25 in 1982 indicates that Congress recognized... the Agricultural Committee of the House stated that Congress does not intend to rely upon private litigants as the policemen of the Commodity Exchange Act.

More recently, Congress enacted the Futures Trading Act of 1986 which among other provisions granted to the Commodity Futures Trading Commission the power to serve extra-territorial subpoenas beyond the United States' territories.

In the conference committee report relating to that provision, the conference committee has instructed the Commissioners that prior to the issuance of a pre-complaint investigatory subpoena they must confer with the Department of State in order to meet with representatives of the receiving nation so as not to cause a perception of intrusion on the sovereignty of the receiving nation.

It is not surprising in light of the caution and sensitivity expressed by Congress in dealing with aliens under the Commodity Exchange Act that a restrictive scope of personal jurisdiction has been defined because Congress simply cannot restrain private litigants in their dealing with aliens.

So, we are left with the statutes, the Commodity Exchange Act.

It has in some sections grants of nationwide service of process with respect to the Commodity Futures Trading Commission and in other sections relating to private action, there is no such language.

This Court has observed in Russello v. United States as a matter of constitutional construction that where Congress includes particular language in one part of the statute but omits that language in another section of the statute, it will be presumed that that omission was intentional and deliberate.

The basic assumption is that Congress knows how to write its statutes.

I think the likely inference that I draw is that Congress did not intend to grant extra-territorial jurisdiction as a weapon to private litigants.

For that reason, I would urge this Court to reject the request by the Petitioners to imply a nationwide service of process clause under the Commodity Exchange Act.

Unidentified Justice: It seems to me that argument would also demonstrate that Congress didn't intend any cause of action to be implied.

Mr. Paskoff: Your Honor, not necessarily.

And the reason... I am quite familiar with your decision in Merrill Lynch v. Curran.

The Congressional intent relied upon by the majority seemed to want to preserve a private right of action which existed by case law prior to the enactment of the Commodity Futures Trading Commission Act of 1974.

There was a private right of action by case law.

So all that decision does is preserve.

Congress did not intend, Congress did not specifically intend to eliminate that private right of action.

When a Federal statute is silent as to a provision for nationwide service of process, Rule 4(e) instructs us how to obtain impersonum jurisdiction over a non-resident.

1963, we had 4(e) amended to the Federal Rules of Civil Procedure.

It used the language,

"Service of process may be made under the circumstances and in the manner prescribed by the statute or rule of the state where the District Court is sitting. "

The commentators including the reporter to the Advisory Committee in 1963 have indicated that it was the intent to incorporate by reference the state's standard of amenability to personal jurisdiction.

There is no other reason to include the language under the circumstances but for to include the state standard of personal jurisdiction.

Thus, if Respondents Wolff and Gourlay were amenable to the impersonum jurisdiction of the Louisiana long arm statute, then they would be amenable to the impersonum jurisdiction of the Federal District Court under 4(e).

Petitioners concede and this can be found at page 50 of the joint appendix.

Petitioners concede and Plaintiffs concede that there is no personal jurisdiction under the Louisiana long arm statute.

What concerns me is an implication of nationwide service of process under the Commodity Exchange Act.

If that were to be granted today would, by analogy, be applicable to every single Federal question statute which is silent as to service of process.

I do not believe that that is what Congress intended.

Mr. Chief Justice, if any Member of the Court has a question for me, I would respond.

Otherwise, I will sit.

Chief Justice William H. Rehnquist: Thank you, Mr. Paskoff.

Mr. Kutcher, you have four minutes remaining.

ORAL ARGUMENT OF ROBERT A. KUTCHER, ESQ. ON BEHALF OF PETITIONERS -- REBUTTAL

Mr. Kutcher: First, I will respond to Justice Stevens' inquiry regarding what happened in the District Court below.

The District Court judge did find that there existed adequate national contacts based on... for Mr. Rudolf Wolff and Mr. James Gourlay, and held that he had personal jurisdiction.

Subsequently, the Fifth Circuit in DeMelo came out and said: You have to look to the state statute under 4(e).

And that was when they came back for motion for reconsideration.

And the District Court judge reversed himself based on the DeMelo decision, but there was no question that the judicial determination after discovery as to the contacts found that there weren't adequate national contacts.

The national contacts theory in Federal question cases I think has application here and, as Judge Wisdom indicated in dissent, in the appellate court opinion, is something which the court should consider in Federal question cases.

Mr. Paskoff's argument that what is going to result are rampant lawsuits everywhere in all Federal question cases ignores what I alluded to in my argument in chief and that is the venue provisions of the United States Code which will limit where litigation can take place.

Before 1963, this Court in International Shoe and its successors determined that all that is required is traditional notions of fair play and justice.

The argument that a rule of procedure which has been described as a housekeeping rule should somehow control the rights of a Federal litigant in a Federal cause of action in a Federal court is something which places procedure over substance.

This is a commodities fraud claim.

The exclusive place to bring it is in the United States District Courts.

And the effect of the Fifth Circuit decision is to insulate the foreign aliens from any action in any District Court because they don't have adequate contacts with that particular district, although there is no question that they have contacts with the entire country.

I thank Your Honors for your time.

If you have got any questions, I will be happy to answer them.

Chief Justice William H. Rehnquist: Thank you, Mr. Kutcher.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Asahi Metal Industry Co. v. Superior Court - Oral Argument

Fri, 09 Jan 2009 14:48:30 +0000

Case:

Asahi Metal Industry Co. v. Superior Court

Media File:

85-693_19861105-argument.mp3

Related Transcript:

1986_85_693_argument.xml

Transcript:

Argument of Graydon S. Staring

Chief Justice Rehnquist: Do you pronounce your name "Stare-ing"?

Mr. Staring: "Starring".

Chief Justice Rehnquist: "Starring", okay.

They have two dots over the "a" and I wasn't sure just how that figured out.

Mr. Staring: I'm not sure how they got there.

Mr. Chief Justice, may it please the Court:

Narrowly viewed, this case arises from a dispute over a supply contract between two foreigners abroad.

A different and broader view was taken of the case by the Respondent and by the California Supreme Court, as a case affecting the potential tort and indemnity claims of Californians.

Even if this Court were to decide the case upon the narrowest of grounds, we think it could not very well ignore the implications which the case might have for the tort suits of injured parties in America.

I therefore do not address the case with the intent to neglect that broader issue, but instead would propose to address it on that issue, rather than the narrower one.

Both parties here start with World-Wide Volkswagen.

That case, as you well know, is an interstate case rather than a case involving an international relationship or a foreign defendant.

I think that members of this Court have not been completely at ease with the emphasis upon the concept and term "sovereignty" in the analysis of the problem in World-Wide Volkswagen.

That analysis can probably be validly taken as a reverse view of the individual rights which are intended to be preserved by the due process clause, and indeed I have seen that view taken.

Here in this case, however, by contrast with World-Wide Volkswagen, we have an attempted projection of state power internationally.

We have, I think, therefore an authentic case for analysis in the traditional terms of sovereignty, as we are dealing not only with an express clause of the Constitution, albeit a terse one, but with the problem of considering standards of international law and comity.

Perhaps the conclusion that we urge here could be reached on the basis of such international standards and without reference to the due process clause.

We don't urge that.

We see no need to, and we don't think it's desirable.

Questions which arise domestically and questions of personal jurisdiction which arise internationally should, if possible, be resolved with similar analyses.

These analyses in our view would be inconsistent only in respect of the element of this Court's power to control reception and enforcement within the United States and this Court's function of distributing to some extent the judicial business within an interstate federal system.

And of course, therefore, in the international case it would be necessary, we think, to take account of the lack of that power and the lack of that function in the international sphere, and in that sphere to give some heed to the views of others abroad in connection with our international powers.

Unknown Speaker: Mr. Staring, straighten out a couple of details for me.

Are there any other cross-claims filed against you in this case by California citizens?

Mr. Staring: There are none in this case, but there are other cross-claims in other cases not before the Court, not this identical case.

They exist.

Unknown Speaker: And it has nothing to do with this accident?

Mr. Staring: Yes, they arise from this accident.

Unknown Speaker: I see.

Mr. Staring: Yes.

Unknown Speaker: Is there a choice of law clause in the contracts between your client and Cheng Shin?

Mr. Staring: We have no knowledge of that.

Unknown Speaker: Thank you.

Mr. Staring: The record shows nothing as to it.

We are not suggesting, by the way, that this Court in this case should announce a rule of international law or a standard of international conduct.

That would be uncalled for.

It is, I suppose, a proposal of that nature which the Respondent suggests in urging the affirmance below at one point in its brief.

What we do say is that international considerations call for a heightened scrutiny of the necessary contacts, ties, or relations to establish personal jurisdiction, and we do urge that a case of this character is not one in which the scope of the jurisdiction of our state courts over manufacturers abroad should be extended.

We would not even urge that there should be such an extension if our client were a domestic manufacturer of components, but that is not the situation here.

It is a foreign, an alien manufacturer, and we think this is not... such a case is not a case for an extension such as the Supreme Court of California has given to World-Wide Volkswagen.

Unknown Speaker: Would you be making the same argument if the original Plaintiff had not settled?

Mr. Staring: Yes.

Yes, I don't see why not.

May I add, Justice Blackmunn, that the original Plaintiff did not sue my client Asahi here.

Unknown Speaker: Yes, that's correct.

Mr. Staring: But had it done so, we would be making the same argument.

As I said at the outset, I did not wish to take refuge solely in the narrow view, in the narrow issue in this case raised by the fact that it pertains to a contract between two parties in the Far East.

I do not waive that issue, but I think the broader issue has to be seen by the Court.

The focus of attention under World-Wide Volkswagen in this case has been on the stream of commerce doctrine.

We don't know where the headwaters of that stream are and we have no map to show us.

But we assume for our purposes here that Asahi delivered products into that stream or some tributary of it.

We don't accept, however, the Respondent's further suggestion, that a component maker in the position of Asahi here is somehow or other especially responsible for that stream, as though it were the original spring.

That is an unrealistic view, we suggest, both commercially and legally.

This Court in referring to the significance of delivering products into the stream of commerce in World-Wide Volkswagen added, however, the important qualification that they must be so delivered with the expectation that they would be sold to consumers in the forum state.

The Court went on to say that foreseeability or mere foreseeability of their reaching the forum state was not enough.

The Supreme Court of California chose to deal with the case not in terms of foreseeability, the term "foreseeability" which this Court had used, but rather in terms of awareness, and there has been some argument in the briefs about the difference between the two.

I would not bandy words here about foreseeability and awareness, but would suggest instead that at this point we look at the evidence, the very brief, the very simple evidence in the record, which was found sufficient below to sustain jurisdiction in California, because it illustrates a problem which is inherent in cases which will arise under the standard which the California Supreme Court has adopted.

Unknown Speaker: Mr. Staring, do you concede that it was foreseeable that the valves would reach California?

Mr. Staring: No, I do not concede that it was foreseeable.

The evidence on it--

Unknown Speaker: You argue that foreseeability alone is not enough, anyway.

Mr. Staring: --Yes, we argue that foreseeability alone is not enough.

And let me retract that.

I think that we're prepared to argue this case and present this case to the Court in terms of foreseeability, mere foreseeability.

Unknown Speaker: By that what do you mean, that that should be the test?

Mr. Staring: No, but that that should not be the test and that that is the very most, the very most which could be shown by the record here.

Unknown Speaker: You may as well give that away, because the California court found foreseeability.

You don't expect us to reverse that on this record, do you?

Mr. Staring: I don't ask this Court to review the facts as found by the California court.

Unknown Speaker: And they found foreseeability.

Mr. Staring: On whatever record.

Unknown Speaker: Right.

Mr. Staring: I don't know whether they found it.

They found something that I think was at least that.

And as I say, I don't want to bandy words about what awareness is and foreseeability.

They went pretty far with the thin record they had.

I want to go into that record, though, for a special reason.

Unknown Speaker: Do you think there has to be a different test for a component manufacturer than the primary manufacturer?

Mr. Staring: I do not think that there's any different principle which applies.

I think the principles which this Court has laid down apply to both.

We think, however, that the situation of component manufacturers is likely in most instances to be very different, and that it is possible therefore to frame a test with respect to component manufacturers which is consistent with the same principles applying to everyone else, and we have tried to do that in our brief.

The record here was very short so far as knowledge or awareness or foreseeability was concerned.

There is an affidavit which shows some conversations, unspecified.

Some time in those conversations, information was given to Asahi that Cheng Shin sold tubes worldwide and that some unspecified number or type were sold in the United States.

That's it.

Now, Asahi's knowledge of those meager facts is absolutely undated in reference to contract, production, delivery, or even the accident in this case, which occurred in 1978, the first year of six years in which the Plaintiff Cheng Shin collected statistics to use against Asahi in this case.

Now, that shows, we think, what kind of murk, what kind of fog, we are likely to get into in component cases under the standard which has been followed by the California Supreme Court.

We could, I suppose, have had a battle of affidavits, which could have been two or three or more affidavits.

We have one affidavit full of fog.

We could have had several foggy affidavits.

And if you think about the distinction between the component manufacturer's situation and the situation of the ultimate manufacturer and exporter, you will see how likely this area is to be foggy all the time.

In the case of the ultimate manufacturer--

Unknown Speaker: Where do you want to end the fog?

Where would you draw the line?

Suppose I am the ultimate manufacturer, but not the exporter?

That is to say, I manufacture washing machines, the totality of them, including all of the components, and I sell the washing machine to... let's say in Japan, to a company which I know exports them, and I know they export them to the United States, and indeed I know they export them to California.

Mr. Staring: --I wouldn't draw the distinction just on the basis of whether it was an ultimate manufacturer or an exporter.

I think the critical thing is that, whichever one it is, it seek to serve the California market, as was said in World-Wide Volkswagen, that there be some act, some act by which it positively seeks to serve that market and direct its products into that market.

And so it will depend upon the facts in every case.

But I would say that if a manufacturer had nothing more to go on than a bit of conversation, of undocumented conversation, that an exporter sent products to the United States as well as other places, that is not the kind of activity of direction toward the California market which we think this Court intended in World-Wide Volkswagen and which is consistent at least with other decisions of the Court.

Unknown Speaker: If I understand you, I have to be the one who sends the thing into the market.

Is that where you're drawing the line?

I have to be the one that sends it?

It's not enough that I know I am delivering it to someone who will send it there?

The sending of it there has to be my doing?

Mr. Staring: No, Justice Scalia, I do not contend that.

I do say, though, that you must at least do some act by which you encourage the sending of it there, by which you seek to serve that market.

You must do something more than respond to an order which is unspecific as to where the product is going to go.

Unknown Speaker: Well, now you're getting foggy.

See, I suddenly don't see the line any more.

Why isn't it encouraging the sending it there to deliver the equipment knowing that once I deliver it it's going to be sent there?

If we had a law of accessory applicable to this, I'd certainly be an accessory to the sending of it there, wouldn't I?

Mr. Staring: I must beg off any response on criminal law.

But I would have thought that to be an accessory under the criminal law it would be necessary to have more knowledge, more scienter than that.

I don't know.

Unknown Speaker: Well, does the record show what percentage of Cheng Shin's... is that the name, Cheng Shin?

Mr. Staring: Cheng Shin.

Unknown Speaker: Cheng Shin's valves are purchased from your client?

Mr. Staring: It does not show it.

Unknown Speaker: So that it does show that Cheng Shin bought from other suppliers?

Mr. Staring: Yes.

Unknown Speaker: So your client just supplied part of the demand--

Mr. Staring: That's right.

Unknown Speaker: --for that particular company?

Mr. Staring: That's right.

Unknown Speaker: And so some of his valves might have gone to California and perhaps none of them did?

Mr. Staring: Exactly.

That is exactly the situation.

We don't know from the record what portion of valves were bought from us and what portion were bought from--

Unknown Speaker: We do know there were quite a few, don't we?

We do know it was something like a quarter of a million that were sold in California?

Mr. Staring: --We don't know that from this record, no.

Unknown Speaker: Not their valves.

Mr. Staring: Beg your pardon?

Unknown Speaker: There were that many tires sold.

Mr. Staring: Tires, I think.

Unknown Speaker: And didn't they all have your client's valves?

Mr. Staring: No, we don't know the number of valves.

Unknown Speaker: Wouldn't your client know that?

Mr. Staring: No, because the component manufacturer puts his valves in inventory, he ships them to the ultimate manufacturer, they go through his inventory.

At some time or other, he takes them out and sends them on.

Unknown Speaker: He must have some idea what's going to happen to those.

I mean, you have salesmen who talk to your customers, I suppose, and they find out what their needs are and what kind of products they need, don't they?

Mr. Staring: I think that the realistic situation in an industrial situation of this sort is a little different, and that there are more likely to be supply contracts and shipments from one country to another under supply contracts, rather than door to door salesmen.

Unknown Speaker: Well, doesn't the record show an investigation and finding of your valves in California?

Mr. Staring: The record contains affidavits in which a lawyer in Sacramento has said that he identified quite a number of our valves on tires in California.

Unknown Speaker: Is that improper material in the record?

Mr. Staring: Yes, we think so.

We think this is really to be disregarded.

And we don't think that, incidentally, that the lower court or that the California Supreme Court indicated any great reliance upon that.

Unknown Speaker: I'm not sure about great reliance, but does the record show the presence of your valves in the state of California?

Mr. Staring: The record shows that valves identified as ours have been found in the state of California in the year 1983.

I believe that's the year in which they're said to have been found.

Unknown Speaker: That's my impression.

Mr. Staring: That's right, 1983.

This accident happened in 1978, and we are talking, I hope, about contemporaneous knowledge when we seek to impose jurisdiction upon someone for--

Unknown Speaker: Well, if you find the registered agent today you could serve him today, couldn't you?

I mean, for personal jurisdiction isn't it your presence at the time you're sued?

Mr. Staring: --Well, that is not, however, at the heart of the stream of commerce doctrine as we understand it.

We don't deal here with any question of general jurisdiction over Asahi in California, and I don't think there's any contention that anyone even would dare to contend that the presence of some Asahi valves in California would constitute Asahi's presence there.

So it's necessary here for Cheng Shin to prevail, if it does at all, on the stream of commerce doctrine, and that involves--

Unknown Speaker: Well, your client at least knew that Cheng Shin's tires were being sold in the United States?

Mr. Staring: --The record shows that we were told that at some time.

Unknown Speaker: Yes, and the only thing... and you knew that there's a chance then that some of your valves would get to California.

But there was a chance... there also was a chance, I suppose, that none of them would, because you didn't supply all of the valves for Cheng Shin?

Mr. Staring: It must be taken... yes, it must be taken that we had a mere... an awareness of a mere likelihood, and that is all, a mere likelihood at most that some valve of ours might find its way to California.

And the statistics gathered afterward show that on the probability basis it was unlikely, rather than likely.

We have no more than that.

Unknown Speaker: Unlikely?

I thought the evidence was there were 500,000 of your valves that were sold by Asahi to Cheng Shin in one year.

And you think it's unlikely that any of those went to the United States when you know they're doing business in the United States?

Mr. Staring: Well, the evidence of that--

Unknown Speaker: Wasn't there a sampling of one county and about half of the valves there came from your client?

Mr. Staring: --There was an affidavit showing, as I said, that in 1983--

Unknown Speaker: I understand.

Mr. Staring: --there were a number of valves found which were identified as Asahi's, tentatively by the way.

I would like to point out, because this is, again, one of the vices inherent in this sort of thing, that it is still disputed whether the valve in this case was ever made by Asahi.

Asahi has now inspected the valve and says, no, it's not ours.

So we have yet to get, presumably, to some point in a trial where it may finally be established whether the component was or wasn't made by the component maker.

And then perhaps if the answer is no we can get out on a lack of jurisdiction.

I don't know.

Unknown Speaker: Well, I don't see where you'd get out on a lack of jurisdiction.

I mean, supposing I sued the Ford Motor Company in California and I said, this car that you made for me is really loused up, and their answer is, well, it's not a Ford.

Well, it may turn out not to be a Ford, but that doesn't mean the California courts didn't have jurisdiction over Ford.

It means I lose the case on the merits.

Mr. Staring: I agree with you, Chief Justice Rehnquist.

And this really heightens the injustice of it, that jurisdiction should be established on such a thin premise.

Unknown Speaker: Well, don't you have a right to test... supposing you think this affidavit is foggy or you think it doesn't say as much as you think it ought to.

You have a right to take that person's deposition, don't you?

Mr. Staring: Yes, we do, Your Honor.

Unknown Speaker: And did you choose to avail yourself in this case?

Mr. Staring: And we did not do it.

We did not do it, and I repeat that I think what the record here shows is the inherent fogginess of this kind of case.

We would have gotten simply more vague and speculative indications.

Unknown Speaker: But Mr. Staring, isn't the fogginess partly due to the fact that the affidavit of Asahi's president is perhaps not as detailed as it might have been?

Couldn't he have spelled out in detail just how much knowledge they had of the ultimate destination of these valves?

And didn't do that.

He just said he knew he sent some to Taiwan, and he doesn't say anything about what he knew was going to happen later.

Isn't that right, or maybe I'm misstating the affidavit?

Mr. Staring: No, I think, Justice Stevens, that you're correct.

But I think you have to look at the limitations upon one executive in an affidavit which, if it's to serve any purpose, has to be inherently negative.

Someone comes in and says: Over the lunch table, I told these people once this.

And what do we do?

We come back and say, I never heard it, I don't remember it, I don't remember this incidental fact?

If the... when we turn by contrast to the case of the primary manufacturer and shipper and to cases where jurisdiction has been found in the past, we find objective... we're going to find objective acts, objective documented transactions.

We're not going to find this kind of foggy situation.

Unknown Speaker: Well, let me ask you this question.

As a legal matter, supposing your opponent took the president's deposition and said: Mr. President, what do you know about the distribution of your products in the United States?

And he said: Well, we don't ship anything directly to the United States; we send everything to Taiwan; we do understand that they send about 100,000 or 200,000 or a million dollars worth of our product into California.

That's purely at their decision, but we do know that happens.

Would there be jurisdiction or not?

Mr. Staring: I think there would not, Justice Stevens.

Unknown Speaker: So there doesn't have to be fogginess.

You have a real cleancut position if you want to make it.

You're not arguing that.

Mr. Staring: If you have that situation, yes.

But I don't think there would be jurisdiction, and I don't think--

Unknown Speaker: So that would be the same if your client knew that they supplied 100 percent of the requirements of the tire manufacturer and they knew that every tire that that manufacturer sent into California had your valve in it?

You would say no jurisdiction?

That's the same question as Justice Stevens asked.

Mr. Staring: --If I may repeat it to be sure I understand it, this is that we have knowledge we supply all the valves to Cheng Shin--

Unknown Speaker: Yes.

Mr. Staring: --and we have knowledge that they ship their tires with our valves into California.

Unknown Speaker: And that every tire that they ship to California has your valve in it.

Mr. Staring: All right.

I will say that in that case we have certainly foreseeability and we have more than mere foreseeability.

Unknown Speaker: Well, that's the same question, though, that Justice Stevens asked you.

Mr. Staring: But there is another... I do not concede there is jurisdiction because we have to look at other possibilities.

Suppose that all we do is to supply valves which are in accordance with the specifications which are given us.

It is not realistic, it is not reasonable, it is not consistent with International Shoe, it is not fair play and substantial justice, to require everyone who supplies a part abroad in response to an order or specifications to make inquiries and to attach the ultimate legal and jurisdictional significance to the possibilities of where those parts may go.

Unknown Speaker: Well, maybe that's a defense on the merits, that you just did exactly perform your contract.

But supposing you knew they filled the specifications, you also knew that they were going to explode as soon as they were put in motion on a motorcycle, or there were fireworks or something.

Would you still say no jurisdiction at all?

Mr. Staring: The difficulty as a practical matter with that, Justice Stevens, is that you don't know what the ultimate manufacturer is going to do or how he's going to do it, what products he's going to put it into and what products he's going to say it should be used on, a bicycle or a high speed motorcycle.

You are very far out of control of all of those things.

If I have a minute, I should like to say that I submit that this situation of Asahi does not conform to that fair play and substantial justice which this Court has said is the principal guideline in cases of this sort.

Thank you.

Argument of Ronald R. Haven

Chief Justice Rehnquist: Thank you, Mr. Staring.

We'll hear now from you, Mr. Haven.

Mr. Haven: Mr. Justice Rehnquist, members of the Court:

I'd like to point out first of all, getting right into the factual background of this case, that the record is totally devoid of there being any contract whatsoever between the parties.

There's no indication of anything more than the fact of a sale, the terms of which have not been made a part of this record.

Let me point out that when the motion to quash was initially heard back in 1983, the last declaration to come in in support of the motion to quash was from Mr. Matsoko in support of the motion.

He is with Asahi.

There was never any mention made of any contract in the course of his affidavit, nor in his affidavit were there any denials of any kind that Asahi was aware of the fact that Cheng Shin and other manufacturers distributed in the United States and in California.

He had ample opportunity to make that denial if he chose to do so, and it was never done.

Therefore, up until the point of the reply brief in this case it has always been taken by the court as a given, if you will, that Asahi was well aware of the distribution system of Cheng Shin, which included the United States and California.

It was also taken by the court as a given that Asahi was fully aware of the fact that the distribution system of Honda, Bridgestone, Yokahama, IFC, and others included the United States and California.

It is also a matter of common knowledge.

It would be commercially unreasonable to accept the proposition that Asahi is selling one and a quarter million valves to Cheng Shin over the course of a five year period, 150,000 in '78, 500,000 in '79, 500,000 in 1980--

Unknown Speaker: How many tires did they make?

Mr. Haven: --How many tires did Cheng Shin make?

I don't have that information.

I don't know what percentage of Asahi's valves went onto Cheng Shin's tires.

Unknown Speaker: Well, it might have been only half of one percent.

Mr. Haven: It might have been a half of one percent, but that's still a lot of valves.

Unknown Speaker: It might be a lot of valves, but it certainly reduces the chance that any of those valves got to the United States, especially when only 20 percent of the business of Cheng Shin came from California.

Mr. Haven: 20 percent of Cheng Shin's business in the United States comes to California.

Unknown Speaker: Well, how does anybody know that any of--

Mr. Haven: Nobody could say absolutely that they knew that one of their valves would in fact--

Unknown Speaker: --The odds are even against it.

Mr. Haven: --I beg your pardon?

Unknown Speaker: The odds are against it, just on the figures.

Mr. Haven: The percentage odds are against it.

However, we found that a lot of them are here, or a lot of them are in California, anyway.

Unknown Speaker: Maybe ten.

Mr. Haven: No, there's a lot more than that, something like 267.

Unknown Speaker: Nevertheless, in terms of whether Asahi should have anticipated that its products were regularly going to arrive in California, that's a different question.

Mr. Haven: If Asahi knows that Cheng Shin and other worldwide distributors of tire tubes are distributing in the United States and specifically in California, and Asahi continues year after year after year to sell--

Unknown Speaker: To sell.

Mr. Haven: --they take advantage of a systematic method of distribution that they know covers the United States and California, and I think that rises to the level of an expectation.

Unknown Speaker: Does Cheng Sing, is it?

Mr. Haven: Cheng Shin, I believe.

Unknown Speaker: Cheng Shin, sell its tires in the United States to motorcycle manufacturers, or does it put them directly on the tire market?

Mr. Haven: To the best of my knowledge, they sell replacement tubes.

I know that they also sell some bicycle tubes that come on Schwinn bicycles.

Unknown Speaker: These are tubes that go inside of tires?

Mr. Haven: Right.

We're talking about the tube.

We must remember that the valve is really the only mechanical part of the tube.

It's a very significant part.

The rest of the tube is nothing other than an air-filled rubber donut.

The one mechanical part is the valve that goes on it.

And the valve stem itself is supplied to Cheng Shin already attached to an oval rubber base, and it's that rubber base that is melded into the tube itself.

And in this case, the question of fact at the time of trial is going to be whether there's a defect solely within the valve unit itself.

Unknown Speaker: Well, who does Cheng Shin... does it sell to tire manufacturers?

Mr. Haven: Cheng Shin does sell to some tire manufacturers, yes.

It also sells replacement parts that are stocked directly in distributors' warehouses, such as the Hon Cycle Center in Sacramento County, which was the subject of one of our inspections.

Unknown Speaker: So it's valve to tube to tire to motorcycle?

Mr. Haven: Well, the tube goes inside the tire.

The tube is not... the tube and the tire are not sold as one unit.

Unknown Speaker: Yes, but the tube is manufactured separately from the tire.

Mr. Haven: That's true, that's true.

And it is placed on the rim of a motorcycle, and then there is a tire placed on top of the tube.

And the tube pokes in through the rim and that's how you put air in it, just like on your bicycle.

Unknown Speaker: Now, how is this foreseeability or whatever you want to call it, awareness of the possibility, any different in kind from the awareness that the seller, that an automobile dealer has when he sells automobiles in New Jersey that they are very likely to be driven in Oklahoma?

Mr. Haven: Substantial difference.

I think your dealer in New Jersey seeks to serve a certain marketplace.

He's at the opposite end of the stream of commerce, if you will, from the component part manufacturer or the primary manufacturer.

The primary manufacturer relies, depends on for its existence service of a much wider market.

It doesn't seek to serve just New Jersey in most case.

We're talking about somebody at the other end of the spectrum, somebody who has to serve a much broader marketplace in order to sell a lot of the product.

Unknown Speaker: The equivalent of the person serving the marketplace is the person who buys the Volkswagen in New Jersey, and I know I'm selling these cars to people who travel and I know that they're going to travel, among other places, to Oklahoma.

Yet we've held that Oklahoma can't base its jurisdiction over the New Jersey company simply on the ground that somebody who bought a Volkswagen in New Jersey travels in Oklahoma with it.

Mr. Haven: Well, I suppose you can say that it's foreseeable that anybody who has any kind of a vehicle could end up in any state of the Union and perhaps Canada, Mexico, or someplace else.

But the point is that your New Jersey dealership did not seek to serve the Oklahoma marketplace, unless you find that there's some other element.

Unknown Speaker: So you think Volkswagen should have come out the same even if the seller of the vehicle had said, oh, you want a new car, where are you going?

I'm going to Oklahoma.

Have a good trip.

Mr. Haven: Well, if he's doing something to take advantage of the Oklahoma customers and getting them to come to him--

Unknown Speaker: No, no.

This is just a New Jersey customer of his that says he's going to go visit his daughter in Oklahoma.

But that nevertheless, it still leaves a New Jersey fellow who is not seeking to serve the Oklahoma market.

Mr. Haven: --I don't think that you can say that the New Jersey automobile dealer sought to serve the Oklahoma marketplace because an Oklahoman by chance, some fortuity, walks into his dealership.

Unknown Speaker: Or some New Jersey person buys the car and says, I'm going to Oklahoma.

Mr. Haven: It's still a mere fortuity.

He's not... the dealer is not seeking to serve that marketplace.

Unknown Speaker: Well, nor was Asahi here.

Asahi couldn't have cared less where these valves went.

It happened to know that it was very likely they were going to go to California, but they couldn't care less where they went once they unloaded them and got the money for them.

They weren't seeking to serve California any more than the Volkswagen dealer could have cared less where the person was driving his Volkswagen.

He knew he was going to probably go to Oklahoma.

In the hypothetical that Justice White just gave you, the fellow says: I am going to go to Oklahoma.

The dealer says: Well, good luck.

You're right, he doesn't care whether he goes to Oklahoma or not.

So he's not trying to serve the Oklahoma market.

Mr. Haven: That's right.

Unknown Speaker: And it's the same here.

Mr. Haven: And the dealership is not systematically again and again seeking to serve the Oklahoma marketplace in your analysis.

Unknown Speaker: Asahi was not seeking to serve California, either.

It was just selling valves.

It couldn't care less where the valves went.

Mr. Haven: That's right, they couldn't care less.

They just happened to sell valves to a whole bunch of manufacturers of tire tubes that they knew serviced this marketplace.

Unknown Speaker: Just the way the Volkswagen dealer knew that these people were going to be driving the car in Oklahoma.

Mr. Haven: No, no.

The New Jersey dealer in your hypothetical sells one automobile to somebody who happens to be going to Oklahoma.

In this hypothetical or in this case, Asahi sells over a million valves to just one worldwide producer of tire tubes, knowing that its product is going to come to California, and it sells... in ten different years, it sells valves to Cheng Shin.

It is, as a matter of a distribution system it is indirectly benefiting from what's going on in California.

Now, you're never going to get a case--

Unknown Speaker: Even in VW, some of us were in dissent.

Mr. Haven: --I beg your pardon?

Unknown Speaker: I say even in VW, some of us were in dissent.

Mr. Haven: That's very true.

But I think VW is a case that is distinguishable based on the fact that we're at a different end of the marketing spectrum.

The two entities, the local dealership and the component part manufacturer, have to serve, seek to serve different marketplaces as a matter of the way business works.

You're never going to get a component part manufacturer case where the component part manufacturer has a direct sales relationship with the consumer, because the component part manufacturer makes nothing other than the component part that has to be put into something else before it can be utilized.

Therefore, we're in a position where the component part manufacturer can be insulated by the nature of his business unless he's responsible in those cases where there's a systematic advantage being taken of a marketplace by that component part manufacturer.

Unknown Speaker: He's not insulated.

He's just not able to be sued everywhere in the world where his component parts go.

He's liable.

He can be sued where he can be found.

Mr. Haven: He could be sued in Japan.

Unknown Speaker: We're not talking about not being able to obtain redress against the person who makes a defective valve.

It's just a question of where you can obtain it, whether you can obtain it wherever the valve happens to turn up or whether you have to go to some place where he is located to sue.

Mr. Haven: Wherever the valve happens to turn up, that's California.

Unknown Speaker: That's what you're saying, wherever the valve turns up.

Mr. Haven: Not wherever it turns up.

I'm not suggesting that.

I'm suggesting much more.

I'm suggesting much more activity being required of the component part manufacturer.

I am suggesting that the mere fortuity that one... a valve could end up on your car from New Jersey.

Let's say that's an Asahi valve and it happens to roll into Oklahoma or California.

That's a fortuity.

But where you have a manufacturer of a component part who's never going to have direct contact with the forum because he's only going to sell to other manufacturers, when that component part regularly and systematically, because of the known distribution system of the primary manufacturer, ends up in California or some other state, that's a different ballgame than the one isolated instance.

I would submit under the one isolated instance jurisdiction probably is not appropriate.

That would be consistent with Volkwagen.

Unknown Speaker: Mr. Haven, you're going to get to the second prong of the argument, aren't you, having to do with fair play?

Mr. Haven: Yes.

Unknown Speaker: In light of the fact that what's left in this case are two foreign corporations, really foreign corporations, the California residents, the original Plaintiffs, are out?

Mr. Haven: The problem again that I have is the fact that we're dealing with a component part manufacturer who, at least in this case, does all of its business in Japan, which means to me that if in those cases where the injured party perhaps has only one available Defendant, the valve manufacturer, that that Plaintiff may have to go to Japan to seek any redress at all.

Now, I admit that's not this case.

We're talking indemnity.

The Plaintiff has settled out.

The Defendants didn't have to settle with the Plaintiff, by the way.

We could have drug the Plaintiff through all of this.

We settled, we're seeking our indemnity, and I think California has a substantial interest in promoting not only settlements, but also promoting the indemnity which the law in California permits.

Now, in footnote one of the Petitioner's brief is a fairly thorough summary of what the nature of the cross-complaint is.

You'll see the cross-complaint is an equitable cross-complaint for indemnity or apportionment, as allowed by California law.

It is not a contractual indemnity cause of action.

The state of California has a substantial interest for many reasons: the accident happened there, the goods were bought in California, California has an interest in making sure safe goods come into the state, as do all the states in this Union.

There's a lot of those that are very obvious.

But in terms of fair play and substantial justice, I think in balancing the interest of the state versus balancing the interest of Asahi weighs favorably in that of the state, because again I come back to the same notion, that Asahi regularly over the course of ten years and over the course of five years sold well over one and a quarter million valves to Cheng Shin with knowledge of its distribution system, made money off of Californians, subjected Californians to the potential of harm.

It's the legal system in California that allows Asahi to do the business that it does there indirectly, and I don't see why Asahi can't come to California and defend its case.

Unknown Speaker: But what interest of California remains now that the original Plaintiffs have settled?

Mr. Haven: Well, for one thing, the interest that California has--

Unknown Speaker: Possible future injuries?

Mr. Haven: --I beg your pardon?

Unknown Speaker: Possible future injuries?

Mr. Haven: Well, that's one thing.

But another thing is the transaction took place in California, and under California law... Cheng Shin, by the way, submitted to the jurisdiction of California.

Cheng Shin is entitled to the benefits and the burdens of California law.

Why can't Cheng Shin, if it's subject to those benefits and burdens, bring its indemnity action there in California, where the main action was?

Unknown Speaker: This is Cheng Shin the American subsidiary of the Taiwanese company?

Mr. Haven: No, there's a Cheng Shin U.S.A. which goes out and sells tubes to distributors, and then Cheng Shin of Taiwan sends the tubes in directly to the distributors.

So Cheng Shin U.S.A. is nothing more than an order taker.

It's a separate California corporation.

Unknown Speaker: Yes, but wasn't it a party to the case?

Mr. Haven: It was a party to the case.

Unknown Speaker: And I assume--

Mr. Haven: And it's still out there and has a cross-complaint of its own.

Unknown Speaker: --I assume... and I don't know what the facts are in this particular case.

I assume in the typical situation here your American company probably has an American insurance carrier who probably settled with the Plaintiff and has a subrogation claim against the manufacturer.

Mr. Haven: Well, that's actually an indemnity claim.

But actually, Cheng Shin of Taiwan was the one that settled, because Cheng Shin U.S.A. was in an indemnity position vis a vis Cheng Shin of Taiwan.

Unknown Speaker: Normally that company... normally we'd really have an insurance company that would have an interest in this.

Mr. Haven: At least have an option to do so, yes.

Unknown Speaker: This particular juncture in this litigation.

Mr. Haven: Now, I would also point out that the retailer of the tire, of the tube more appropriately, had a cross-action against Asahi, which is not before the Court at this time because of some technical problems in terms of service and so forth, time of service and all of that.

But it's the best of my knowledge there is another action out there waiting for the determination of this Court, because they didn't want to go through the same appellate process that we were going through.

So there is an interest of some other California residents out there.

Unknown Speaker: Of course, if you're right that an indemnity claim such as Cheng Shin's is always going to be able to bring in a person further back in the stream, presumably Asahi could make the same argument, if we sustain you here, if it wants to file an indemnity action against the steel manufacturer somewhere in Hong Kong from whom it bought the steel.

Somewhere the chain has got to get too thin.

Mr. Haven: Well, and I think you probably hit the nail right on the head right there, because if you have a producer of a natural metal who is pulling it out of the ground and sending it to the valve manufacturer, sending it to Asahi for whatever purpose Asahi wants to make for it or make out of that particular metal, that's a great deal different.

Unknown Speaker: Well, how different is it?

I mean, this person just sends steel bars from Hong Kong to Japan, and the same conversations took place.

Asahi tells him: Yes, we send a lot of our stuff to Cheng Shin and Cheng Shin sends a certain amount to the United States.

And do you know that your steel is all over California.

Mr. Haven: Your steel is all over California, and you know that your steel is being made into valve stems.

Unknown Speaker: Yes.

Well, if you don't know, we're telling you.

Mr. Haven: Okay.

Like in the last case, valve stem headed for California.

Unknown Speaker: And it cracks.

And last week what really failed in an accident was your steel.

Mr. Haven: Well, to the extent that a metal producer is subject to product liability law... and I'm not sure that steel itself constitutes product liability.

But to the extent that there is bubbles in the metal or it's not tempered properly or whatever the process is--

Unknown Speaker: So your answer is yes, he should be suable--

Mr. Haven: --Yes.

Unknown Speaker: --in California?

Mr. Haven: If he knows it, if he's taking advantage of it on a regular basis, if he's making money off it and he knows and he continues to sell and he doesn't do anything to protect himself from suit in California.

I don't see why he shouldn't be answerable in California.

He has the same opportunity to get insurance to cover him here, because he has knowledge that--

Unknown Speaker: So it is never too far, it is never too remote?

Mr. Haven: --Never say never.

I wouldn't say that.

Unknown Speaker: Just never find out where the person you're selling something to intends to resell it.

I mean, that's all he has to do to protect himself, right?

Mr. Haven: Well, if you--

Unknown Speaker: Ask not where your valves go.

Mr. Haven: --If you stick your head in the sand, you can't be sued where you're making a lot of money from.

I'm not sure that that's right, either.

I think where as a matter of commercial reality your producer has to know that he is making money from a marketplace on a regular, systematic, continued basis, I don't see why there shouldn't be jurisdiction.

Unknown Speaker: But at least the seller of the finished product, he will always know where his products are going.

Mr. Haven: And this is a valve.

A valve is a valve.

It's got one purpose, is to be a valve, nothing more, nothing less.

Now, if he's got a valve that's manufactured for bicycles and is wrongfully put in a motorcycle tube, that's a matter of liability and misuse.

However, if that valve... he's sending valves, which is a finished, complete product that cannot be used for anything other than a valve.

We're not talking metal.

We're talking a valve is a valve, and it can only go into a tire tube and it's not good for anything else.

That's the case we have here, and under these circumstances, where so many valves are in question, where so many valves were actually found in California... I want to break the train of thought for just a second here.

There has been a suggestion made that some lawyer found some valve stems that he identified as Asahi, and the implication obviously is he doesn't know an Asahi valve from some other valve.

The declaration from Wally Chen, who is the person from Cheng Shin, is offered as Exhibit A to the Respondent's brief, and in that appendix it specifically stated that Asahi's logo is a capital Mr. Shepard, my partner.

As indicated in appendix B and C, that's how he identified those valves.

There has never been any denial in any affidavit submitted on the record that the logo is not a capital "A" that is totally encircled.

There has never been any kind of an affidavit that the identification was somehow wrong based on the affidavit of Mr. Shepard.

So we know that there is 267 of those valves in California in 1983.

This accident happened in 1978.

What I'm proposing to the Court is that the continued systematic taking advantage of Cheng Shin's system of distribution--

Unknown Speaker: What evidence is there of continuous taking advantage of California?

Mr. Haven: --I believe the affidavit of Asahi's president said that they had done business with Cheng Shin over a ten year period.

And there is also a declaration--

Unknown Speaker: What about, what's the evidence that Asahi consciously was taking advantage of the California market over a period of years?

Mr. Haven: --Well, they didn't say that.

Unknown Speaker: Well, what evidence is there?

Mr. Haven: Well, the evidence is that they, number one, knew or at the very least should have known that Cheng Shin, Honda, and others regularly serve this market.

They're an important cog--

Unknown Speaker: Isn't know enough?

Mr. Haven: --No, I'm saying the declarations say that they knew that Cheng Shin did.

Unknown Speaker: I know that.

Mr. Haven: I'm also saying that it would be unrealistic to expect that they didn't.

Unknown Speaker: We're back to where we were a while ago, that there is still the missing component of how... what percentage of Cheng Shin's tubes contained Asahi's valves.

You don't know that?

Mr. Haven: No, I don't know that.

I don't know that.

As I was going to point out, however, the sampling that we did in northern California shows that approximately 25 percent of the valves--

Unknown Speaker: Well, wasn't there a finding... was there a finding below that Asahi over a course of years was consciously taking advantage of the California market?

Mr. Haven: --There is specific language in the California Supreme Court decision at at least three places--

Unknown Speaker: That that's the case, is that it?

Mr. Haven: --Yes, that there was an awareness.

Asahi was aware of the distribution system's operation and knew that it would benefit economically from the sale in California of products incorporating its components.

That's page C11 of the appendix.

Unknown Speaker: Yes, if any of them were sold there.

That's a very general statement.

I mean, obviously they knew they would benefit from the sale of products containing their components anywhere, including California.

But that does not say to what extent it thought they were being sold or knew they were being sold in California.

Mr. Haven: I can't tell you what the percentage of tire tubes were that came into California.

I just don't have a record of that.

What I can--

Unknown Speaker: Why wouldn't Cheng Shin have know how many Asahi valves were sold and distributed in California in the year 1978?

Why wouldn't they have put an affidavit in the record for the year that is most critical here?

Mr. Haven: --The year that's most critical--

Unknown Speaker: Or '77, whatever you want.

Mr. Haven: --'78, we do know that there were 100,000 valves sold to Cheng Shin in that year.

Unknown Speaker: But how many of those came to California?

Cheng Shin ought to know.

Mr. Haven: Cheng Shin might very well know.

That's something that I just didn't get the declaration on.

Unknown Speaker: They probably don't know, that's the point.

Mr. Haven: Well, they may very well know.

They may know that a certain percentage of their tire tubes contained Cheng Shin--

Unknown Speaker: Right.

And they know how many tubes went to California.

But they don't know how many tubes... they might not know how many tubes went to California containing Asahi valves.

Mr. Haven: --They might not know that, I can't deny that.

Unknown Speaker: But they ought to know what the percentage.

First of all, they ought to know the percentage, and if you just extrapolate you ought... but they didn't give us those figures, did they?

Mr. Haven: I beg your pardon?

No, I don't have those figures.

I just don't have them.

Unknown Speaker: So the burden really is en you to sustain jurisdiction.

So it's a hole in the record.

Mr. Haven: It's true, it's my burden, it's my burden.

I can't offer you that, but I can offer you what was actually there in '83.

And what I was going to say a minute ago is that, whether or not this accident or this valve came into California at the beginning of the time of this systematic distribution of the product or at the end of it shouldn't matter.

Unknown Speaker: It just seems to me it's such a strange way to get this evidence, to have your partner going out looking through a bunch of valve assemblies five years later.

Mr. Haven: We wanted to establish that they were in fact in California.

Unknown Speaker: Yes.

Mr. Haven: The only thing I would ask is that the Court take cognizance of the cases below, all of which are cited in the briefs, which point out the significance of awareness of distribution systems and consider those facts in coming to your decision.

In closing, I can only say that it doesn't seem to me to be appropriate, where in fact the component part manufacturer who is in a unique position can insulate itself from having to appear within the forum simply because it will never have contact directly with the forum.

A component part manufacturer is in a unique position.

It makes all of its sales some place else.

It's never going to be selling directly to the consumer.

And it's necessary for the Court to devise a way or certain circumstances under which those people can be held accountable for the safety of their products in our state and in all the states.

And I would suggest--

Unknown Speaker: That can always happen with somebody that doesn't know that it's going to be brought in.

I mean, you can have somebody who is negligent as can be in the manufacture of something more dangerous than a valve, let's say an airplane, okay, and he doesn't know that the airplane's going to be used in the United States, and he sells it to someone who then brings it to the United States and it's used here.

Now, it's very easy for that to hurt somebody in the United States, and you wouldn't assert that the mere fact that he manufactured the product that was used here is enough to enable him to be sued here, right?

Mr. Haven: --No, not at all, not at all.

But where that company manufactures those airplanes knowing that they're going to be coming here, it's a different ballgame.

That's a different set of circumstances, and if you've got--

Unknown Speaker: And it isn't the fact that the injury occurred here alone that makes it an appealing case.

Mr. Haven: --I'm sorry?

Unknown Speaker: It isn't the fact that the injury from the defective product occurred here, it is not that fact that makes it an appealing case for the assertion of jurisdiction.

Mr. Haven: Not that alone.

Unknown Speaker: There has to be some voluntary--

Mr. Haven: There has to be more.

Unknown Speaker: --submission to the jurisdiction.

Mr. Haven: There has to be purposeful availment, are the key words I believe, of the benefits and protections of the laws of the state.

And I am submitting that awareness and continued, the continued taking advantage, the continued selling of these valves to Asahi, with the awareness that they were coming into the state, which is I think what the declaration says, I submit that that is purposeful availment within the meaning of due process.

Rebuttal of Graydon S. Staring

Chief Justice Rehnquist: Thank you, Mr. Haven.

Mr. Staring, you have one minute left.

Do you wish to use it?

Mr. Staring: Just a few seconds of it, if I may make one final observation.

And that is that the doctrine laid down by the California Supreme Court and urged of course by the Respondent here is one which places Cheng Shin or any manufacturer similarly situated in complete control of the question of jurisdiction over the component maker, according to whether it discloses or doesn't disclose some seemingly incidental fact.

And we submit that that is not consistent with the predictability which this Court has held is supposed to be preserved by the due process clause.

Thank you very much.

Chief Justice Rehnquist: Thank you, Mr. Staring.

The case is submitted.

Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.

Attribution:

The OYEZ Project

Featured:

Phillips Petroleum Co. v. Shutts - Oral Argument

Fri, 31 Aug 2012 18:29:59 +0000

Case:

Phillips Petroleum Co. v. Shutts

Media File:

84-233_19850225-argument

Related Transcript:

84-233_19850225-argument

Transcript:

ORAL ARGUMENT OF ARTHUR R. MILLER, ESQ., ON BEHALF OF THE PETITIONER

Chief Justice Warren E. Burger: We will hear arguments next in Phillips Petroleum Company against Shutts, et al.--

Mr. Miller.

Arthur R. Miller: Thank you, Mr. Chief Justice, and may it please the Court.

The two issues in this case are, first, whether the state of Kansas, consistent with the notions of individual liberty and interstate federalism imbedded in the due process clause and the full faith and credit clause may assert jurisdiction and enter a binding judgment affecting thousands of non-residents of Kansas who have had no contacts with Kansas and whose oil and gas royalty interest claims have absolutely nothing to do with Kansas and when there is no legitimate public policy of Kansas implicated in the action, and second, whether Kansas can indiscriminately apply Kansas law to each and every one of these claims.

The petitioner asserts that the answer to both of these questions is in the negative.

In an unbroken line of cases starting with International Shoe and moving through Hanson and Denckla, and most recently further articulated in the Woodson case, for 40 years this Court has established a constitutional requirement that minimum contacts must exist between a party and a state before that state can assert jurisdiction over that party, that there must be a relationship among the defendant, the forum, and the litigation, to use language from those cases.

As fully articulated in Justice White's opinion in the Woodson case, that minimum contact standard serves as a principal, realistic, and flexible instrument protecting two values.

First is the liberty interest of the individual not to be subjected to litigation in a forum with which he or she has not voluntarily affiliated.

The second objective of the minimum contacts test is to limit the authority of each state within the context of the federal system.

That means that I as a citizen of Massachusetts, and Mr. Kubbich of Phillips Petroleum as a citizen of Oklahoma, has an individual liberty interest not to be burdened, not to be affected, not to have his property rights or personal rights affected by a state that he has not affiliated with.

Justice Byron R. White: So this would just... your submission is that that is just a limit on plaintiff class actions?

Arthur R. Miller: Our position, Justice White, is that although those cases which I have described do speak in terms of the defendant, because the party to be affected in those cases were defendants, that that same principle must be applied to non-resident class members.

Justice Byron R. White: And it isn't enough just to give them an option to opt-out?

Arthur R. Miller: Absolutely not.

This Court has said several times that a cause of action is a property right.

It has said that in the Zimmerman case.

It has said it in effect in the Mullane case.

It has said it in Boddie.

It has said it in Rogers.

In a sense it has said it in the Dunleavy case many, many years ago, that there really is no difference between my being held liable for $10 and my claim of $10 being foreclosed by the judicial action of the state of Kansas, that I have an individual liberty interest unless I have affiliated with Kansas.

I have a constitutional right to have my property, my claims, my liabilities adjudicated by the sovereignty of my state--

Unidentified Justice: So a plaintiff class has... the Constitution requires the plaintiff's class to be limited to those who have some realistic connection with the forum state?

Arthur R. Miller: --Well, those members of the plaintiff's class who have voluntarily affiliated by some affirmative act.

Unidentified Justice: Right, like the named plaintiffs.

Arthur R. Miller: Like the named plaintiffs or anyone from any state who would wish to join the named plaintiffs in that action.

Justice Sandra Day O'connor: You would require an opt-in procedure in effect?

Arthur R. Miller: We would require, and I believe the constitution requires that there be an affirmative act taken by the non-resident to show a willingness to subject himself to the forum.

Justice Sandra Day O'connor: Even if you are right, I am concerned about the standing of your client to raise that question for one of the 28,000 some odd people who apparently have not come forward to object.

Arthur R. Miller: We base our standing on cases going back to Hansen and Denckla in which a defendant from Florida was permitted by this Court to assert on behalf of an absent trustee the non-jurisdiction of the state of Florida over that Delaware trustee.

In that situation, this Court said that those Floridians had a direct, substantial personal interest in the outcome of that jurisdictional question, in part, of course, because the Delaware trustee was declared by Florida law to be indispensable.

We believe that the non-resident, non-volitional plaintiff class members are also indispensable parties to their own claims, just as that Delaware trust was indispensable in the Hansen case.

Unidentified Justice: Well, if these non-residents are proper parties, you may have to pay them.

That sounds like a piece of standing, doesn't it?

Arthur R. Miller: Well, our standing, I believe, is predicated on our own personal interest in this case.

We have been subjected in Kansas to a lawsuit and the judgment now in favor of 28,100 plaintiffs.

There are only somewhere between 500 and 1,000 Kansas or Kansas leased plaintiffs that would satisfy any of the due process standards.

Unidentified Justice: Well, I suppose even now if all the parties were notified that the Phillips attorney is making an argument that you people shouldn't be entitled to share, but please write us a letter now and we will give you some money, I suppose even at this late date thee could be some opt-ins, couldn't there?

Arthur R. Miller: If you believe that each of the non-resident class members has a constitutional right to make up his own mind as to whether his piece of property is to be put on the litigation chessboard, then it seems to me that if, to go back to Justice O'Connor's reference to the opt-in class, if Kansas wishes to expand its class action power, then its invitation to non-residents, its invitation to those with whom it has no constitutional affiliation, must come at a moment in time that is meaningful.

If one looks at the class action statute of Kansas, which is virtually but not completely identical to Federal Rule 23, you discover that the notice provided for and the opt-out right and the representation provided for by the Kansas class action statute comes after certification, which we submit is not a rational time at which the non-resident class member can exercise his right to participate or not participate.

This case is a classic illustration of that, because three years went by between the institution of the action and the notice to the absent class members.

Justice O'Connor asked about our standing.

Well, we were the only game in town.

You cannot expect the class representative to assert the lack of jurisdiction over 28,000 of his troops.

That is unrealistic.

You cannot expect the non-resident class members to assert the jurisdiction issue between institution and notice.

They have no notice of the case.

We were obliged under the normal rules of assertion of threshold defenses to make the jurisdictional objection prior to answer and litigate it, as we did, in a fully adversarial context.

I don't think there can be any doubt about the completeness of this issue or the zealotry with which we have pursued this issue.

We were forced to assert it when there literally was no one else who would assert it.

Justice William H. Rehnquist: As a matter of practicality, we really don't have much reason to think that these 28,000 people who have been kind of handed a percentage of a recovery on a silver platter are going to have much squawk about it.

Arthur R. Miller: If one views life with 20/20 hindsight, Justice Rehnquist, if you ask me or any rational person, would you prefer to have a check for $10 or not to have a check for $10, I assume I would take the $10 every time.

But you cannot construct a principle about state court jurisdiction and the legitimacy of Kansas powers with the assumption that the class will always win.

If the class losses, then you have the potential that the party in the Phillips position then prevents action to by another member of the class, a non-resident, and seeks to bind that person by virtue of res judicata.

Chief Justice Warren E. Burger: On this record, would we be able to determine in how many jurisdictions these 23,000 people are scattered, if each category in each state was to bring a suit in its own state--

Arthur R. Miller: The record--

Chief Justice Warren E. Burger: --in their own state.

Arthur R. Miller: --Excuse me, Mr. Chief Justice.

The record is clear that there are eleven gas states involved, and that there are class members from each and every state in the Union.

Chief Justice Warren E. Burger: There must be more, too.

Every state in the Union.

Arthur R. Miller: Every state in the Union is represented by a royalty owner, as well as some foreign countries.

Now, one thing should be, I think, very clear.

Phillips is not arguing that there cannot be a national class action in a state court.

There typically is at least one jurisdiction with the necessary Shoe, Denckla, Woodson contacts to provide a forum.

To be sure, the restriction of the forum to a state that would have the requisite minimum contacts with each and every member of the class might reduce the forum shopping capacity of the plaintiff's attorney, but, for example, in this context we believe that quite possibly Oklahoma is such a forum.

Second--

Justice John Paul Stevens: May I stop you right there for a moment?

I must have misunderstood your brief, because I thought most of your arguments would apply even if you had 90 percent of your class in Kansas and your 10 percent were non-residents.

Isn't there the same problem for those 10 percent as to the fairness to them of being bound?

Arthur R. Miller: --Justice Stevens, I think that is right.

If you have a member of the class who is unaffiliated in the due process sense, that individual cannot be bound by the forum state absent his or her voluntary participation by using an appropriately crafted--

Justice John Paul Stevens: So that your first submission, then, putting aside the choice of... your first submission, as I understand it, is that unless you have an opt-in procedure or some equivalent, you may not have a class that includes non-residents.

Arthur R. Miller: --You may not have a class that will include unaffiliated class members.

I do not--

Justice John Paul Stevens: By that you mean persons who are not residents of the forum state?

Arthur R. Miller: --Persons who have not manifested consent.

Justice John Paul Stevens: Right.

Arthur R. Miller: Persons who do not have voluntary affiliation.

Persons who do not--

Justice John Paul Stevens: To sum up, you either have to opt-in or be a resident to be a class member.

Arthur R. Miller: --You either would have to opt-in or be a resident or by some circumstance of fact have voluntarily affiliated by the nature of your transaction.

Justice John Paul Stevens: And it would not be enough that you received an adequate notice and you did not respond to it.

Arthur R. Miller: No.

Understand that--

Justice John Paul Stevens: That would be enough, if I understand your submission, for a resident.

Arthur R. Miller: --It would be enough for a resident.

It would be enough for a consenting plaintiff.

It would be enough, for example, if the non-resident class member had a lease, let's say, a gas lease in that state.

Irl Shutts is a perfect illustration.

He is a Kansan, but his gas royalty interests are in Texas and Oklahoma.

Texas and Oklahoma could assert jurisdiction over him because he has voluntarily affiliated in the due process sense with that state.

Unidentified Justice: Why do you suggest that Oklahoma might be able to... a forum for this entire class?

Because that is the... just because Phillips has its main office there?

Arthur R. Miller: Phillips has its main office there, first of all.

Second--

Unidentified Justice: Why would that affect the connections of the plaintiffs with the--

Arthur R. Miller: --Conceivably, and perhaps your own opinion in the Woodson case suggests perhaps not.

The flow of transactions between Phillips and the oil royalty owners, over the years the payments of royalties, the locus of the lease transactions, many of which would be in Oklahoma.

But even in a situation in which there were no such single forum, the fact remains that at most, you might have state-based class actions in a few states, depending on what their circumference of jurisdictional reach would be.

It is quite possible, and again, I think the choice of law issue has tremendous bearing on this--

Unidentified Justice: --You are going to argue that, I take it.

Arthur R. Miller: --I would hope so, Your Honor.

It is quite possible that you wouldn't have precisely the same efficiency of a single nationally based class.

You might have to have two, three, four regionally based classes, but certainly efficiency cannot be the be-all and end-all of this.

It would be efficient, for example, if a court like Kansas, which has a party rule structure just like the federal rules, it would be efficient to be able to assert jurisdiction over a third party defendant, to assert jurisdiction over a third party to a counterclaim or a cross-claim, to assert jurisdiction over a necessary or indispensable party, a Rule 19 party.

I don't think anyone would ever argue that there is ancillary jurisdiction over these non-parties just because the party structure of the federal rules or the rules of Kansas permitted a procedural device to be used to expand the scope of the action.

So, I am mystified as to why through the simple device of saying this is a class action that suddenly the state of Kansas has broader geographic, broader due process reach than the state of Kansas would have over a necessary or indispensable party, over a third party claim, or over an additional party to a compulsory counterclaim or to a cross-claim.

No one has ever advanced that proposition in the name of efficiency and economy.

The problem is that the modern class action, based solely on common questions... that is all we have in this case; this isn't a joint interest, it is not a common interest, it is at best a common question class action... seems to be operating in a way that sweeps aside individual liberty interests, sovereignty problems of interstate federalism, and to turn to the choice of law issue, the question of governing law.

On that issue, it seems to me one need only read Allstate Insurance Company versus Hague.

This case seems to me to violate totally the plurality opinion in that case.

What is required is a significant contact, Requirement Number One, creating state interests, Requirement Number Two, so that it is neither arbitrary nor fundamentally unfair to apply forum law, Requirement Number Three.

Petitioner submits that the application of Kansas law across the board in this class action violates each and every one of those three requirements.

There is no contact.

The only contact this case has when viewed through the eyes of the non-resident class members is the fact that Phillips does business in Kansas.

But when you look at a transaction between Phillips, the Oklahoma company, and an Oklahoma royalty owner involving gas in the ground in Oklahoma--

Justice John Paul Stevens: May I interrupt for just a second on that question?

Supposing we didn't have a class action now, and are just focusing on choice of law, and somebody in Alaska sued your client, presumably got jurisdiction in Kansas, because you do business there.

Would you have the same forceful constitutional arguments to applying Kansas law in that lawsuit?

Arthur R. Miller: --Justice Stevens, that is this case.

Betty... the Andersons, they are Oklahomans.

They are Oklahomans with gas interests in Oklahoma.

They have traveled to Kansas to sue Phillips.

We submit--

Justice John Paul Stevens: And say the Kansas Supreme Court makes an erroneous choice of law decision.

Clearly under all principles of choice of law they should have applied Oklahoma law instead of Kansas.

Have we ever reversed a state court for making that kind of an error?

Arthur R. Miller: --The closest case would be the Yates case and the Dick case, admittedly older cases.

Justice John Paul Stevens: Does this give us general review of all choice of law decisions?

Arthur R. Miller: No, I would submit that if you simply apply the tripartite standard that this Court recently announced in the Hague case, that is a legitimate and reasonable limitation on state court choice of law.

You need go no further.

With great deference, Justice Stevens, I think if we applied the test espoused in your concurring opinion in that case, one would be hard pressed to see what conceivable interest the state of Kansas has in applying its law to a transaction about Oklahoma gas between Oklahomans and a company whose principal base is in Oklahoma.

Justice John Paul Stevens: May I ask also, because it helps me focus on the issue, on what particular issues of law do you think it was most outrageous for them to do what they did?

Arthur R. Miller: There are several, Your Honor.

First, when you look at the structure of Shutts II, and it is very important to understand that Shutts II and Shutts I are two entirely different cases, they are not the same case in a later manifestation, you see that what the state of Kansas did without citing Hague is literally say, we have jurisdiction here, and absent compelling reasons, we are going to apply Kansas law across the board.

And then, in what might be called all fruits are apples approach, the state of Kansas said all of these contracts are the same.

The truth of the matter is, all the contracts are not the same.

Some of the contracts that Phillips has, particularly with producers as opposed to royalty owners, are no interest contracts that do not call for payment until the end of the suspense royalty period, and explicitly say no interest.

We know from the Supreme Court of Texas in a post-Shutts I, pre-Shutts II opinion that the state of Texas would enforce that contract.

The state of Kansas chose to ignore that in favor of Kansas's perception of what is fair.

Second, the official statutory interest rates in the other states, particularly Texas, the most dominant state, Oklahoma, Louisiana, New Mexico, Wyoming, range between 6 and 7 percent.

The state of Kansas chose to use what is called the FERC rate.

That is a rate that applies between the interstate pipeline companies and a producer like Phillips.

It has absolutely nothing to do with royalty owners.

Absolutely nothing.

Kansas said its notions of fairness, favoring the royalty owners, caused the application of the FERC rate under Kansas law which averages 11 to 13 percent, whereas we know from the Stahl case that the state of Texas would have applied its statutory 6 percent rate.

In short, there was a complete absence of any inquiry as to what the other state laws were.

Justice Byron R. White: Mr. Miller, could I interject here?

Do you understand your opponents to suggest that the federal law should govern in this case?

Arthur R. Miller: I would not go that far, Justice White.

I think they view it as a sort of a brooding omnipresence, an influence, and the fault with that is that the relationship between royalty owners and gas producers is state-based, whereas the so-called FERC rate regulates the relationship between the gas sellers and the interstate pipelines.

Unidentified Justice: In any event, there were no arguments in the courts below in any of these cases that federal law should govern?

Arthur R. Miller: No, absolutely none.

I do not believe there is a problem here of--

Unidentified Justice: Preemption.

Arthur R. Miller: --preemption or federal common law or anything of that kind.

Unidentified Justice: Thank you.

Arthur R. Miller: We have tried to indicate, Justice Stevens, in our reply brief that we are not talking about harmless error here.

At the moment, the interest liability imposed on Phillips is approximately $6.5 million.

We estimate that the application of the applicable statutory interest rates of the other states and the recognition as Texas would recognize the no-interest contracts would reduce that $6.5 million liability to something under $2 million, perhaps as low as $1 million.

So, I think it is fair to say that Phillips feels aggrieved by the indiscriminate application of Kansas law to transactions that are not transitory the way the national risk coverage in Allstate was.

This is gas in the ground.

This is a contract about gas in the ground, being Oklahoma, or in Texas.

It is not a national risk.

I would like to reserve the remainder of my time.

Chief Justice Warren E. Burger: Mr. Klein.

ORAL ARGUMENT OF JOEL I. KLEIN, ESQ., ON BEHALF OF THE RESPONDENTS

Joel I. Klein: Mr. Chief Justice, and may it please the Court, the standing issue in this case is not merely whether Phillips may raise the constitutional rights of others, but whether Phillips may raise the rights of absent class members to defeat a recovery in their favor that was obtained against Phillips.

Justice Sandra Day O'connor: Mr. Klein, did the respondents challenge petitioners' standing to raise this question over non-resident plaintiffs in the Kansas courts?

Joel I. Klein: Yes, we did, Your Honor.

We challenged that in the Kansas courts.

Justice Sandra Day O'connor: And did the Kansas courts nevertheless reach and resolve the jurisdiction question?

Joel I. Klein: The Kansas courts did reach and resolve the jurisdictional question.

Justice Sandra Day O'connor: Well, is that sufficient, then, for us to exercise discretion to reach it under Craig versus Boren?

Joel I. Klein: Absolutely not, Your Honor.

This Court has made clear that state court determinations of standing do not confer a jurisdiction in this Court.

It made clear in Tileston, and of course the term before last in Massachusetts General Hospital and the City of Revere case the Court said that state courts are not bound by the limitations on standing that this Court is bound by.

And of course this Court always assesses its jurisdiction, and this standing doctrine is a part of its jurisdiction independently, and that is, no matter what the state court does, it applies federal principles here.

Justice Sandra Day O'connor: And you think this Court doesn't even have discretion to reach the issue?

Joel I. Klein: I do not think... on established case law it doesn't, Your Honor, and I think the reason is that no case has ever gone in this direction.

Let me make something clear.

It is somewhat confused by the argument we have just heard.

There is only one constitutional right at issue here.

That is the right of the action class member to object to jurisdiction in Kansas.

Now, when a case comes to this Court, that class member has received a complete recovery against Phillips, and here is what Phillips is saying to him.

We are going to take your right, we are going to take it to the Supreme Court, we are going to protect your right, and the result of it is, we take away your recovery.

Justice William H. Rehnquist: Well, Mr. Miller's argument is that that isn't always going to happen, and in a case where the defendant prevails, there may be some problems with the absent plaintiff.

Joel I. Klein: There may be, Your Honor, and in that case I assume we may hear from them.

They will press their own rights then.

Justice William H. Rehnquist: But how do you decide this sort of an issue when the time comes for a motion to certify at the beginning of the case in the state court?

Joel I. Klein: Well, at the beginning of the case in the state court, in Kansas as in the federal court, all parties have a right to raise the issue.

But it is entirely different after judgment, and that is true, Justice Rehnquist, with respect to a defendant.

Let me give you an example.

A defendant comes into court.

He makes a special appearance and contests jurisdiction.

The court rules he has jurisdiction.

They proceed to the merits.

The defendant wins on the merits.

The plaintiff can't appeal and say we wouldn't have had jurisdiction.

Once there is a judgment, the equation changes.

Now, Phillips says in this Court, it says we have suffered injury.

That satisfies the case in controversy requirement.

But this Court has made clear time and again injury alone is not sufficient to invoke jurisdiction.

Everybody up here seeking a reverse of judgment has suffered injury.

That is by definition the case.

In order to reverse the judgment, you have to invoke your rights, or in limited circumstances the rights of an allied party, such as when the Court has said a doctor can use a patient's rights, but never, in no case, and Phillips cites none, has the Court suggested that a party could raise his adversary's rights.

Unidentified Justice: So you say that even though the defendant prevailed on the merits in this case, the defendant either before or after judgment can never raise the rights of an absent plaintiff.

Joel I. Klein: The defendant can raise them at the outset of litigation.

That is what Kansas law allows them, Your Honor, and I think if you read the federal rules, the federal courts allow that.

But it is an entirely different matter, it must be, once the person has a judgment, to say you are going to raise his rights.

Anybody can raise a right and then waive it later.

That is the nature of the right, and that is effectively what is going on here.

Justice John Paul Stevens: Are you conceding, Mr. Klein, that before judgment they did have standing to say it is unfair for you to sue me when I couldn't get a binding judgment against you?

Joel I. Klein: I am conceding that under Kansas law, that is--

Justice John Paul Stevens: No, as a matter of constitutional law.

Joel I. Klein: --Not as a matter of constitutional law.

Justice John Paul Stevens: Article III standing, isn't it... don't I have the right to argue it is unfair to me for you to be suing me when I can't get a binding judgment if I win?

That is basically their argument, as I understand it.

Joel I. Klein: Their argument is that--

Justice John Paul Stevens: They could not get a binding judgment against the absent plaintiffs even if they win on the merits.

Joel I. Klein: --But they have no constitutional right.

They will get a binding judgment in this case.

Their right is protected, Justice Stevens.

As soon as each class member receives his judgment, they will have a binding--

Justice John Paul Stevens: Now that you have won, but in advance of the decision on the merits, their position, as I understand it, is, it ought to be a two-way street.

If you win, you will pay, but if you lose, they ought to be protected by res judicata against relitigation.

Joel I. Klein: --No, but that... it is not a two-way street once we have won, Your Honor, because they are taking my rights.

That is the basic Parklane versus Shore.

The two-way street argument is basically a mutuality argument.

Justice William H. Rehnquist: But that is certainly their argument.

Joel I. Klein: But their argument is wrong.

Justice William H. Rehnquist: Well, I don't happen to agree with you.

Justice Sandra Day O'connor: And, Mr. Klein, is it a matter of Article III standing or prudential standing?

Joel I. Klein: Well, I think the Court has confused those concepts, Your Honor, but I think it is a matter that is, in some cases the Court refers to the right to invoke others' rights as Article III standing, such as in Warth, and in other cases they refer to it as prudential standing.

Justice Sandra Day O'connor: Well, it would seem here within the meaning of Article III standing that there is a case or controversy, and you have someone who is well able to litigate the issue, and that it is more a matter of prudential standing if there is a problem at all.

Joel I. Klein: But, Justice O'Connor, when you say well able to litigate the issue, mind you, they have a directly antagonistic interest to the rights of the party they are trying to protect.

Just in thinking about this, we would not normally suppose that the right person to stand before the Court and protect the rights of absent class members was its adversary.

And the reason we have this doctrine, the whole doctrine was created, which is a jurisdictional limitation, as this Court has made clear, on the Court's activity, the reasons we have it are two.

One, because the party is usually the best proponent.

In this case, we can assume that Phillips is the worst proponent.

They have an antagonistic interest.

And second, and the Court says this opinion after opinion, a party may in fact, who enjoys the rights, a party may want to waive those rights.

He is entirely free, and he doesn't have to either waive them at the outset or never again.

Now, when a party comes to this Court with a judgment in its favor, can we simply assume, I submit, that that party would waive the rights?

They are his rights.

They are not Phillips' rights.

He says, no, I have no interest in pursuing it.

Now, there will be a case, there will be a case before this Court where an absent class member will assert his own rights.

That has happened in more than half a dozen cases.

When you have that case, you have a real case.

You have the party saying my rights were violated.

The judgment should not bar me.

On the other hand, you have a defendant protecting his judgment, saying, no, your rights weren't violated, you should be included.

That's the way this issue should be framed.

Justice William H. Rehnquist: But that takes two lawsuits to litigate, doesn't it?

You are saying the defendant can lose its rights in just one lawsuit, but it has to prevail in two lawsuits in order to establish res judicata.

Joel I. Klein: Not necessarily.

In many cases class members will intervene if they--

Justice William H. Rehnquist: But let's ones who don't intervene and simply--

Joel I. Klein: --Your Honor, ever case makes clear when you have a situation of an absent party it will always take two lawsuits to resolve the issue of res judicata.

Let me suggest even if this Court today rules for Phillips, that will not be res judicata for the absent class member.

It will be stare decisis.

But the absent class member cannot be precluded in the first litigation.

That is clear in this Court's cases.

Justice Sandra Day O'connor: --How about if there were an opt-in procedure required as a matter of--

Joel I. Klein: Well, that is simply the question of the merits, whether opt-in would bind him or not.

What I am saying is, they don't have the standing to raise the claim.

Justice Sandra Day O'connor: --Well, I understand that, but if they did, and if it were resolved that opt-in was required, I suppose then you end up with a res judicata situation.

Joel I. Klein: Well, but if it is resolved as we submit, now that we turn to the merits, Justice O'Connor, if it is resolved that opt-out is sufficient, they will be bound, and we frankly think they are bound.

We don't think somebody who stays out of a litigation with an opt-out opportunity and then comes in years later and says I wasn't bound is going to have a very good claim.

But let's turn to the merits, because I think this shows--

Justice Sandra Day O'connor: Well, how about the opt-out person, member of the class who in fact never got the notice?

Joel I. Klein: --In this case that didn't occur.

Anyone to whom notice wasn't delivered, Justice O'Connor, they were struck from the class, so it had to be people who received notice.

But even these questions show why this case is a bad vehicle to resolve it.

There are questions about, what about if you didn't get the notice?

Suppose he got it late.

How about counterclaims?

How about court costs?

All of those matters are not in this case.

We have to conjecture about them.

None of them were presented.

If we have a case from a class member, we will hear exactly what the graveman of his complaint is.

And it is clear that this Court doesn't decide cases on conjecture, and that is what Phillips is asking you do to, especially when you have a party who wants a conjecture in the wrong direction.

So let me turn to the merits, because again, the rule here is to protect the absent class member, not to protect Phillips, but I think you look at the rule that Phillips espouses, you will see that in the name of the absent class members Phillips is shielding itself from litigation.

Now, the Kansas courts provided all class members with the following protections.

First, adequate representation through the named plaintiffs and their counsel.

Second, first class mail notice that had to be delivered describing the action.

Third, a right to participate in person or through that person's counsel.

And fourth, a right to opt-out simply by signing a form included with the notice and sending it to the Court.

Predictably, Phillips argues that that is enough.

It says there must also be a showing of minimum contacts between the non-resident class member in the forum.

Phillips reaches this conclusion, we submit, by ignoring significant and almost obvious differences between plaintiff class members and defendants, differences that we believe justify a different constitutional due process approach to protecting the rights of both groups.

Now, a defendant, of course, rarely wants to be in court at all, and certainly we know, we take it as a given that when he is opposing jurisdiction, he doesn't want to be in that court.

If he did, and Phillips neglects this with its interstate federalism argument, and it neglects the Court's holding in Insurance Company versus Ireland, if the defendant wants to be in a court, he is free to come in at any time irrespective of the federalism arguments.

Now, starting from that premise... you have to realize every minimum contacts case so far has started from the premise that the party doesn't want to be in court.

When you start from that premise, what the Court has said, there are limits as to which courts we can require him to litigate in.

Now, let's turn to a plaintiff class member.

A plaintiff class member doesn't face the exposure that a defendant faces.

He has not made an objection.

Instead, the fact is, a class member has a claim that he wants asserted.

He wants to have it heard.

What is the problem?

The problem is, when the small claimant has a claim, the costs of litigation are so high that he is prohibited, in effect, from asserting his claim.

Now, as this Court has recognized in Deposit Guaranty versus Roper and elsewhere, the class action is designed to overcome that hurdle, to facilitate the plaintiff's access to court.

Thus the class action, in contrast to what a defendant faces when he goes into court, the plaintiff faces no risk and no cost unless he prevails, in which case a portion of his fee is paid for the attorneys.

Now, given that circumstance, the plaintiff's circumstance, it is impossible, we submit, that a minimum contacts requirement could protect him.

Rather, what it will do is limited the potential forums that he can have his claim heard in, and he will be in a different position from the other plaintiffs in cases like Keeton versus Hustler who, because they have large claims, can go to their forums.

Now, in the present case, for example, Phillips says, and we agree, that most of these class members would not meet the minimum contacts test in Kansas.

As a result, their claim in the name of protecting their rights would have been barred from this case.

Now, it may be that there would have been other cases filed.

It may be we can speculate that because Phillips is in Oklahoma, sort of, that would be okay.

All of that is speculation.

The fact is that the large majority of these people would have been denied their day in court.

Now, Phillips says, and we agree, a class member may have an interest in not involuntarily being brought into a particular class.

The reason he might have that interest is, he might want to assert a claim on his own.

Or he might want to join another class action, or for whatever reason.

But Kansas recognizes that interest.

It provides an opt-out procedure that is clear and easy.

Once again, Phillips says the opt-out procedure is not adequate.

It instead would require an opt-in procedure.

Unfortunately, the large body of scholarly and judicial opinion that has looked at the area has decided almost unanimously that an opt-out procedure better protects the class members than an opt-in procedure.

Thus, the federal rules and virtually every state court's rules require an opt-out procedure.

They do so not to harm the absent class member but to help him.

Judge Kaplan, then Professor Kaplan, who is a recorder for the rules, he explained the way this came about.

He said, we have to be especially concerned about the relatively small claimant.

He said, this is somebody, if he is not included in the class, is likely to have no opportunity to have his claim heard.

He said nevertheless a small claimant is often unsophisticated, and as a result of what he called timidity or ignorance or unsophistication about business or legal matters, might decline to execute an opt-in forum, but that person should be protected in the class, and yet it is that person in the name of protecting his rights that Phillips would knock out from this class action altogether.

And Phillips would then suggest to the Court, well, the solution is that there be a few others, or maybe one other, or there be one with an opt-in provision, but if there is an opt-in provision, and Professor Kaplan and everybody else who has looked at the matter is right, then that opt-in provision won't protect people, and whether or not there will be other actions we have no idea.

Justice William H. Rehnquist: You say it won't protect people.

It will certainly protect them from having jurisdiction exercised over their claim contrary to their wishes.

Joel I. Klein: An opt-out provision protects that, too, Justice Rehnquist.

Justice William H. Rehnquist: What is it about the opt-in provision that you say doesn't protect--

Joel I. Klein: The exact reason that it was chosen, and that is, there are some people, small claimants who really as a matter of unsophistication may not check the box, but these are people who every state's rules, virtually every state's, protect by including them in the case.

Justice William H. Rehnquist: --But how does it protect them to include them?

Joel I. Klein: Because it gives them a chance to have their claim adjudicated.

They can lose nothing.

They have a claim.

It gives them a chance to be included in the class.

There can be no harm to them.

They lose, it costs them nothing.

But this really gives them the benefit of the process.

Justice William H. Rehnquist: Well, you know, they could lose several things, I suppose.

You know, they might have a claim adjudicated in a jurisdiction they didn't want to.

They might have it adjudicated by a poor lawyer, that sort of thing.

Joel I. Klein: Well, that is true, but, Justice Rehnquist, it assumes that there would be other cases out there.

These are small claimants.

They are not going to be able to bring their own case.

That is why they choose opt-out.

Justice William H. Rehnquist: What is the typical size of the claim?

Joel I. Klein: In this case?

Justice William H. Rehnquist: Yes.

Joel I. Klein: A hundred dollars.

Justice William H. Rehnquist: A hundred dollars?

Joel I. Klein: A hundred dollars.

Right.

So these are not people... and it is to protect their interests that you have an opt-out rule.

That is why everyone does it.

I mean, is it conceivable--

Justice William H. Rehnquist: I can see how an opt-out rule gets you a lot more plaintiffs.

I can't see how it necessarily "protects" the absent plaintiffs the way you are talking about.

Joel I. Klein: --It protects them by facilitating the chance for them to have their claim litigated, people who would otherwise not execute the form and therefore never get a chance to have their claim, these people in this case.

They are not going to get their own lawyer.

There were not other class actions out there.

So it protects them in that it gives them a fair shot to have their claim litigated.

Now, if I might in the time remaining, I would like to address the choice of law issue that has been raised here.

Now, Phillips objects to the choice of law by the Kansas Supreme Court on the grounds that its application to the claims of the non-resident class members violated the principles set forth in this Court's decision in Allstate versus Hague.

Now, in Allstate, the Court made clear that in deciding whether a state may apply its law to a dispute, it does not matter that another state might have an interest or even a greater interest in that dispute.

As the Court said, the forum court is allowed to apply its law when it has a significant contact or contacts creating state interests such that, and this is the important part, such that the application of its law is neither arbitrary nor fundamentally unfair.

Now, to clarify our position and to state it briefly, Kansas's contact with Phillips is constitutionally sufficient in the circumstances of this case, especially in light of the fact that the law it chose to apply was by no means parochial, but rather was borrowed directly from a federal regulatory program that actually led to the dispute in question in this case.

Now, the plurality opinion in Allstate--

Justice John Paul Stevens: May I just ask, does your position require this to be a class action?

Would you make the same argument with my individual from Alaska who sued on an Oklahoma lease?

Joel I. Klein: --Absolutely.

Justice John Paul Stevens: What if the lease... it is clear there would be expected Oklahoma law to apply, and in Oklahoma he wouldn't have gotten any interest at all?

I don't know if that is true of Oklahoma.

It seems to me there is an argument that in one state you wouldn't have gotten any interest.

Texas, I guess it is.

Joel I. Klein: I suggest... let me say I think, Your Honor, it would not make a difference.

When you say there is an expectation that the law would always apply, that expectation can be put in the agreement.

Phillips never put that expectation in the agreement.

Now, in Allstate there was an expectation in that sense, I think, as the plurality and Your Honor's opinion suggested, there was an expectation that the matter would be resolved by state law--

Justice John Paul Stevens: You are saying that a party like Phillips, unless it puts it in the agreement, it cannot rely on the normal rule of the place where the contract is made that this will be governed by, say, everybody expects that rule to apply?

Joel I. Klein: --Well, I think when you say--

Justice John Paul Stevens: How would they have ever anticipated in my Alaska-Oklahoma example that Kansas law would apply?

Joel I. Klein: --I think the question is not whether they would anticipate it.

I think the question is whether the Constitution prohibits Kansas from applying its law.

I think as the Court realized in Allstate, that in an interstate situation--

Justice John Paul Stevens: Doesn't there have to be a reason for Kansas to apply its law, or do you say there doesn't even have to be a reason?

Joel I. Klein: --I think there is a reason here.

I think there are two reasons.

The first reason is, Phillips does business, big business, in Kansas.

Now, Kansas confers the authority.

It has no right on its own measure to come in and do business.

The state confers the authority for it to do business.

Now, it has been recognized by this Court that when a corporation is doing business within a state, the state has an interest not only in the corporation--

Justice John Paul Stevens: That is... any time you get jurisdiction over the defendant in a state, it is all right for that state to apply its own law?

Joel I. Klein: --Well, I think you have to look at the facts of the case.

Unidentified Justice: What is the second interest?

You said there were two reasons.

Joel I. Klein: Well, the second interest has to do with the law that was chosen, Justice Stevens.

Unidentified Justice: That is is a particularly fair choice.

Joel I. Klein: It was an especially fair choice, and not only that, it was not simply a fair choice in the sense it was a good rule, but it was chosen out of the federal regulatory system that created the problem.

Let me explain that for a second.

Unidentified Justice: If it were perfectly clear that in one of these other states they would have not chosen that law, but they would have chosen a rule that says no interest at all, would you still be able to make the same argument?

Joel I. Klein: Yes, sir.

My argument would be based on Allstate--

Unidentified Justice: Even though the royalty... even though the governing papers said no interest, there will be no interest in these suspended royalty payments.

Joel I. Klein: --I think--

Unidentified Justice: Suppose the contract was perfectly clear, and I understand it to be asserted here that if this case had been tried in some other states, they would have followed the provisions of the contracts.

Joel I. Klein: --I dispute that, but I don't think it is helpful.

I think let's operate on that assumption.

Unidentified Justice: Yes, all right.

Joel I. Klein: My point is that as long as it doesn't violate the standard in Allstate, it doesn't have to apply in other states' law, and that is clear.

Now, Allstate said that with this--

Unidentified Justice: So Kansas would be perfectly free as far as you are concerned to say, well, we know that that provision is in the contract forbidding interest, but we just won't follow that provision in the contract.

Joel I. Klein: --No, no--

Unidentified Justice: It is contrary to our law.

Joel I. Klein: --No, at that point you get to the question which I think is fair, Justice White, is, is it parochial, is it arcane?

After all, why are there limitations on a choice of law?

This Court hadn't decided--

Unidentified Justice: Well, what about my question then?

Here is, in this case, it is shown to the Court that there are some contracts with royalty owners that would bar interest, just no interest, it just provides right in the contract no interest.

Joel I. Klein: --That would--

Unidentified Justice: Now, could Kansas then apply its law and say we are going to disregard that?

Joel I. Klein: --That wasn't shown in this case.

If it were shown, I think that would raise an issue of parochialism that I think might well raise a choice of constitutional violation, but that was not shown in this case, and if there is a question on that, I think that it is appropriate to look at the Texas law.

But the question, what is--

Justice Sandra Day O'connor: Well, don't the respondents make the argument that the applicable law in some of the states in which the leases were made would result in a different amount of interest?

Joel I. Klein: --They do make that argument, yes.

Justice Sandra Day O'connor: And we don't know but what that might be true for purposes of our decision, right?

Joel I. Klein: That's correct, Justice O'Connor.

Unidentified Justice: You must be arguing that it doesn't make any difference.

Joel I. Klein: For this point it doesn't make a difference, but that is clear from Allstate.

That is... there is not one law that has to be chosen.

I mean, Minnesota and Wisconsin had diametrically opposed laws on stacking.

A contract was entered into in Wisconsin.

The law was applied in Minnesota.

The court found sufficient contacts, and of those contacts, a significant one was the fact that the insurance company was doing business in both states.

Now, this Court said as long ago as 1908 that a state could prevent a corporation from practicing, from doing business within its jurisdiction if it committed an antitrust violation in another jurisdiction that had no impact in the home jurisdiction, so a state does have an interest, a recognized interest in preventing or in regulating a corporation's dealings with other states.

Unidentified Justice: Well, I suppose you would make the same interest... make the same argument if it turned out to be a fact that here are 100 royalty owners who reside in a certain state, and their royalty contracts provide for a higher rate of interest than the Kansas court awarded.

Joel I. Klein: I assume the same argument would be made, and if Phillips prevailed on that, I assume that would withstand choice of law.

But let me also go to the specifics.

Unidentified Justice: Well, could Kansas apply its own rate of interest, or not?

Joel I. Klein: I think it could.

Yes, sir.

Unidentified Justice: Despite the governing law for a higher rate in another state?

Joel I. Klein: If there were a clear contractual obligation, then I think you do raise the arbitrary and fundamentally unfair.

That is the test.

Now, here, let's look at what they did, because I think it is important to understand that.

There is a federal price approval system that deals with retroactive prices for gas.

Because of that, we have suspense royalties.

That is the reason we have the problem in this case.

The federal government says, if you hold the money, you have to pay interest to the fellow you sold it to at this specific rate if we disallow the price.

That is the system.

As a result of that, they hold the royalty owner's money, exactly as if they had held the producer's money, exactly.

And what does the Kansas court say?

We will apply that federal principle.

The federal law created it.

We will apply it.

There is nothing arcane or provincial.

In fact, Phillips itself uses that exact rate when it demands interest from royalty owners in the precise circumstances.

When you take those facts, we submit that there was nothing arbitrary and unfair in the Kansas court uniformly applying the law that it did, enshrined in Kansas law, to the identical claims of the class member.

Thank you.

Chief Justice Warren E. Burger: Do you have anything further, Mr. Miller?

ORAL ARGUMENT OF ARTHUR R. MILLER, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL

Arthur R. Miller: Yes, Mr. Chief Justice.

We believe on the standing question that the Article III requirement is clearly satisfied by the impact of this Kansas judgment on Phillips.

The question of so-called third party standing, which has been raised by several of the Justices, is a prudential doctrine, pure and simple, be applied to assure the necessary adversarial and concreteness in the case.

In Craig versus Boren, Justice Brennan, writing for the Court, said that these prudential objectives cannot be furthered here where the lower court already has entertained a relevant constitutional challenge.

In such circumstances, a decision by us to forego consideration of the constitutional challenge to the statute by injured third parties would be impermissibly to foster repetitive and time consuming litigation under the guise of caution and prudence.

As this Court well knows, this issue was up here two and one half years ago in Miner versus Gillette.

At that time, the party in the position of Phillips was told, you have no final judgment.

Now to be told that you have no standing, and to wait for the hypothetical collateral attack to occur while the states are reaching inconsistent results on this issue... keep in mind that New Jersey and Pennsylvania take a different view, take the view that Phillips is asserting here... leads to destabilization in the national class action context at the very moment in time when this phenomenon is mushrooming.

So, we believe that there clearly is standing from a prudential point of view.

Second, let me remind the Court that it has said that the issue of jurisdiction is analytically prerequisite to the issues of procedure.

That statement, analytically prerequisite, is from Rush versus Savchuk, where you had a nominal defendant.

This Court in Baldwin years ago, most recently in Bank of Ireland, said that an individual is free to ignore proceedings.

The right to ignore proceedings is taken away by saying that Kansas can assert jurisdiction over non-resident, non-volitional class members.

In the Churry case years ago, and again in Bank of Ireland just a couple of years ago, this Court said that a state cannot conclude interested parties by the mere assertion of its own power.

Unidentified Justice: I suppose your argument would be also directed against a federal class action, Rule 23.

Arthur R. Miller: A Rule 23 diversity-based class action as it is currently constituted, I believe that you have the same Fourteenth Amendment problems that we are asserting here.

Unidentified Justice: Yes.

Arthur R. Miller: What respondent is saying is that Kansas wants to help the small claimant.

God bless Kansas for doing it.

But there are many ways Kansas can do it without shoving aside the individual liberty interests, the interstate federal interests, let alone the choice of law sovereignty interest.

Kansas could create a legitimate opt-in and invite people to come in.

Kansas could sweeten the class action pot by awarding as a statutory matter treble damages.

It could provide punitive damages to encourage it.

If Kansas is really interested in the small claimant, it could create a patens patriae action.

That is for Kansas to do, not for this Court to do.

Unidentified Justice: Are you suggesting the risk of sort of a Reno syndrome when Reno, Nevada, had all the divorces for a while?

Arthur R. Miller: Yes, I think, Mr. Chief Justice, that the image in this field is known as the magnet jurisdiction.

Here Kansas is dictating oil and gas policy to the nation in the guise of what it believes is fair.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.

Unidentified Justice: The honorable court is now adjourned until tomorrow at 10:00.

Featured:

Burger King Corp. v. Rudzewicz - Oral Argument

Fri, 31 Aug 2012 18:29:34 +0000

Case:

Burger King Corp. v. Rudzewicz

Media File:

83-2097_19850108-argument

Related Transcript:

83-2097_19850108-argument

Transcript:

ORAL ARGUMENT OF JOEL S. PERWIN, ESQ., ON BEHALF OF THE APPELLANT

Chief Justice Warren E. Burger: We will hear arguments next in Burger King against Rudzewicz.

Mr. Perwin, I think you may proceed whenever you are ready.

Joel S. Perwin: Thank you.

Mr. Chief Justice, and may it please the Court, the first question is whether this Court's jurisdiction is conferred by direct appeal under Subsection 1254.2.

We submit that the Circuit Court declared unconstitutional as applied a provision of Florida's long arm statute which confers jurisdiction over one who breaches a contract in Florida by failing to perform acts required by the contract to be performed in Florida, in this case, by failing to make payments under a franchise lease and purchase and sales agreement connected with a Burger King franchise in a suburb of Detroit, Michigan.

Under Subsection 1254.2, the answer to that question depends upon the Circuit Court's chosen resolution of the issue.

In this case, as the Circuit Court's opinion states, both parties agree that by its plain language the jurisdictional statute in question plainly reached the conduct at issue.

Rather than revisiting that assumption, the Circuit Court proceeded to consider the constitutional question, and concluded that the District Court's exercise of jurisdiction was inconsistent with minimal constitutional requirements.

We suggest that on that basis, given that resolution, the prerequisites for the acceptance of a direct appeal under Subsection 1254.2 were satisfied.

As this Court said in its 1984 Franchise Tax Board decision, a necessary predicate to the Court of Appeals' holding is that enforcement of the state statute would be inconsistent with federal law, hence invalid under the Constitution.

Accordingly, we have jurisdiction under Section 1254.2.

We also argued that the parties' stipulation in the District Court was an appropriate one in light of the plain language of this statute and its interpretation by a clear majority of Florida appellate courts.

And finally, we argued that independent of the question of direct appeal, the case is one of far-ranging and far-reaching importance.

It implicates a way of doing business which is increasingly pervasive in our society, and therefore renders appropriate the acceptance of jurisdiction by this Court.

My intention would be to rest with that, to submit the position of our brief on that issue, and in the absence of any inquiries, to proceed to the merits.

The question on the merits is whether the Circuit Court erred in holding that Florida's exercise of jurisdiction was inconsistent with the minimal requirements of due process, and that requires, of course, that we aggregate the contacts between these franchisees in Detroit and Burger King's headquarters in Miami and determine whether or not there were sufficient affiliating circumstances to put the franchisees on notice that they might be called to answer in a Florida court for any breach of contract or trademark infringement.

The contacts in this case can be abrogated under two general categories.

The first might be applicable to a case in which all we had was an arm's length contract for the purchase and sale of goods, independent of the intimacy of the franchise relationship which we have in this case.

In other words, even in the abstract there are a category of signals in the course of this relationship and in the contracts that were created between the parties, which we submit were independently sufficient to put the franchisees on notice of the possibility of a defense.

For example, three separate contracts, the lease agreement, the franchise agreement, and the purchase and sale agreement for equipment all called for the application of Florida law, creating an unmistakable signal of Florida's interest in the case, and under this Court's pronouncement in the International Shoe case, suggesting that the franchisees avail themselves of the protection and benefits of the forum.

Second, the lease agreement called for arbitration to be held in Florida if necessary, which this Court has at least acknowledged might represent a forum of implicit consent to jurisdiction of the Florida courts.

Third, the contracts are replete with references to Miami as Burger King's headquarters and as the locus of decisionmaking in this case.

They identify Burger King as a Florida corporation.

The initial franchise offering circular informed the franchisees that Burger King conducts its business in Miami, that that is the locus of decisionmaking.

All notices were required to be sent by the franchisees to Miami.

All payments were required to be sent by the franchisees to Miami.

Payments for rent, for royalties, advertising, real estate taxes, and that, incidentally or parenthetically, should have made very clear to the franchisees that a default in their payments would necessarily cause economic injury in Miami.

Indeed, in its recent decision in the Calder case, this Court in a footnote adopted the "effects" test which had been utilized by the Circuit Court for the proposition that the defendant should have realized that the effects of his conduct would be felt most deeply in the forum.

Unidentified Justice: That would be true of just a sale of a particular piece of equipment that is payable in Florida.

So you don't argue that this last item you mentioned would be enough in itself.

Joel S. Perwin: I don't, although as we have indicated, the clear majority of Circuit Court decisions appear to indicate that it might be sufficient in a pure arm's length purchase and sale agreement which calls for the application of the substantive law of the forum.

I don't contend that that alone is sufficient.

It was, however, it seemed, however, to be sufficient in the torts context in the Calder case, in which the Enquirer article in question was aimed at a resident of California who suffered the injury in California.

I don't contend that that is independently sufficient in this case and need not be so in--

Unidentified Justice: I don't think you would really argue that just a requirement that Florida law be applied to resolve any disputes would in itself be enough to confer jurisdiction in Florida.

Joel S. Perwin: --I think I agree.

I don't think it would be independently sufficient, and again, I need not take that position in light of the plethora of other contacts.

Finally, the franchise--

Unidentified Justice: Your other two contracts really are the headquarters and an arbitration provision.

Is that right?

Joel S. Perwin: --Well, there was the requirement of all the payments that he made to--

Unidentified Justice: Right.

Supposing I opened a bank account in a Florida bank, and they said any disputes would be resolved under Florida law, and if we can arbitrate, we will arbitrate here at headquarters.

Could they sue me for amounts above what I had on deposit?

Joel S. Perwin: --If the cause of action grew out of the contact, I would suggest that they could.

That is a tougher case than this one.

Unidentified Justice: Why is it tougher?

Why isn't it exactly the same case?

Joel S. Perwin: Because... it is not exactly the same thing.

Because this case involves a far more symbiotic business relationship.

This case involves a degree... that was the second point I was about to get to.

This case involves a degree of intimate control by the franchisor of the quality of the franchisee's enterprise and operation.

Unidentified Justice: But that is control exercised in Michigan.

Joel S. Perwin: No, I would respectfully disagree.

I would assert as strongly as I can that the control was exercised from Miami.

It is true, and the record certainly supports the contention that the immediate physical contact between the franchisees and Burger King was their contact with the Michigan regional office, but the control that we have been discussing was exercised exclusively from Miami, both in terms of the documents that were created and in terms of more occasional or ad hoc exercises of control from Miami.

I would be happy to--

Unidentified Justice: You have international franchisees, as I understand the record, London and some other places.

Could you get jurisdiction over a London franchisee in Miami the same way?

Joel S. Perwin: --I don't know that we have ever attempted to do so, but I think the same arguments would apply.

Unidentified Justice: Your theory would apply, wouldn't it?

Joel S. Perwin: I think it would.

It might be argued in that case, it may turn out in that case that Burger King operates in connection with its overseas outlets from some central depository overseas, which would be a policymaking--

Unidentified Justice: But that would be no different from your Michigan branch office, would it?

Joel S. Perwin: --It would be if it were a policymaking body with independent decisionmaking authority.

Unidentified Justice: Oh, I see.

Joel S. Perwin: In this case, we do not have that.

Not only does the evidence, taken in the light most favorable to the trial court's exercise of jurisdiction to make that clear, the uncontradicted evidence makes clear that it was the Miami headquarters which had total decisionmaking authority in this case, and that the franchisees knew it.

There were two or three occasions in which the franchisees, as was an appropriate practice, took a complaint or grievance or request to the Michigan headquarters and were told that they were powerless to adjudicate or respond to the request because all decisionmaking was reposited in the Miami headquarters.

Unidentified Justice: Mr. Perwin, just as a matter of curiosity, where was the defendant served?

How was he served?

Joel S. Perwin: He was served under Florida's long arm statute by direct personal service in Michigan.

Unidentified Justice: In Michigan?

Joel S. Perwin: Yes, Your Honor.

Unidentified Justice: Mr. Perwin, it isn't clear to me, at least, whether Florida itself would apply the standards for personal jurisdiction that you apparently stipulated would be sufficient.

What is the Florida law on the personal jurisdiction standard?

Aren't the courts in that state in some disagreement?

Joel S. Perwin: Yes, there is some disagreement, Your Honor.

We have abrogated 13 intermediate appellate court decisions representing all five of the intermediate appellate districts, in the absence of a dispositive ruling by the Florida Supreme Court, all of which hold that this statute means what it says, and that the mere failure to perform an act, including the failure to make payments, required to be performed in Florida, is independently sufficient to invoke the long arm statute.

Unidentified Justice: Well, I guess the Court of Appeals itself recognized that it isn't clear in Florida law.

Joel S. Perwin: I would argue exactly the opposite.

The Court of Appeals accepted the parties' agreement that--

Unidentified Justice: The Court of Appeals accepted the parties' stipulation in lieu of a determination of what Florida law provides.

Isn't that correct?

Joel S. Perwin: --Yes, Your Honor.

Unidentified Justice: Do you think you can just stipulate to jurisdiction?

Joel S. Perwin: No, Your Honor, I do not think--

Unidentified Justice: For our purposes?

Joel S. Perwin: --There certainly can be no stipulation to the jurisdiction of this Court.

It might be a different question as to whether in the posture of the constitutional question as presented to the Circuit Court the parties might stipulate that Florida law is X or Y.

I would not question the Circuit Court's prerogative to revisit that stipulation and to undertake an independent inquiry of the Florida cases.

Unidentified Justice: It could make our decision just advisory if we are deciding it on the basis of your stipulation as to what Florida law is.

Joel S. Perwin: I would respectfully submit that the decision would not be on the basis of the parties' stipulation but on the basis of the Circuit Court's holding that given that stipulation the statute was unconstitutional as applied.

I agree that the Circuit Court had the prerogative to revisit that assumption.

My position is that because the Circuit Court did not do so, but accepted the stipulation, and proceeded to find that invocation of the statute was inconsistent with the requirements of due process, that the Circuit Court necessarily declared the statute unconstitutional as applied.

Unidentified Justice: Well, the Court of Appeals I thought did not hold that as a matter of state law the Florida statute would allow state courts to exercise jurisdiction.

Joel S. Perwin: That's correct.

There is no formal holding to that effect.

The Circuit Court merely begins its opinion by acknowledging the parties' stipulation and then declines to revisit it, not expressly, but by effectively proceeding to the constitutional question.

Unidentified Justice: Mr. Perwin, why don't we call it the Court of Appeals?

That has been the name for years now, not Circuit Court.

Joel S. Perwin: I apologize, Your Honor.

The Court of Appeals.

In addition, Your Honor, I would respectfully submit that the case, regardless of the posture in which it reaches this Court, has far-reaching implications for the nature of franchise relationships.

It implicates the franchise relationship as it exists in the United States.

It implicates other forms of relationships in which a central manufacturer deals with a number of disparate enterprises, and therefore is appropriate for review in that context.

Unidentified Justice: Just to make sure I understand what you and Justice O'Connor have been talking about, the Court of Appeals majority opinion says that Rudzewicz concedes that his activities fall within the reach of the Florida long arm statute.

Now, there may have been a stipulation, but the Court of Appeals talks about in terms of a concession.

Joel S. Perwin: Yes, Your Honor, that is what I am referring to, and what I find significant in that is that the Court of Appeals appeared to have accepted that concession rather than undertaking any scrutiny of the Florida decisions in this area, and thus far we have undertaken such scrutiny in our briefs and we have suggested that the clear majority of Florida decisions comport with the parties' agreement below.

There was a second set of contacts in this case independent of the disparate and abstract references to Florida as the center of decisionmaking for Burger King which are perhaps even more significant, and that is that this was not an arm's length purchase and sales agreement, which is the subject matter of the many Circuit Court opinions that we have discussed in this case in our briefs.

This was a 20-year interdependent franchise agreement, a lease and sublease agreement whose purpose was to create a continuing relationship between the parties, not to separate them at some arm's length, but a continuing relationship between the parties in which the franchisees willingly subjected themselves to a degree of intimate control over the quality and the very finest details of the franchise operation, and received substantial consideration for that agreement, the consideration of minimizing the risk of failure and of maximizing the chances of success by trading on a national reputation, a national marketing structure, and a built-in clientele.

That, it seems to me, is a central distinguishing feature of your typical purchase and sales agreement in which you have parties from two jurisdictions, and which it calls for the application of the law of one of them.

In this case the franchisees had the unilateral power to reject the formation of that relationship.

They had the perfect option, had they desired, to create a purely local enterprise to control it 100 percent free of any or almost any connection with interstate commerce and to do so free of any control by anyone else.

They made the decision to reject that option.

Instead they applied to Burger King Corporation for franchise operation.

Mr. Rudzewicz is and was the senior partner in an accounting firm.

He had no expertise or knowledge in the restaurant business.

He did this because by subjecting himself to such rigid standards and controls, he was able to achieve or seek an investment success in an area in which he might not otherwise have been able to do so.

He made that affirmative voluntary decision, and that seems to us to be the most significant character of this relationship.

He purposefully entered into a meaningful business relationship with a corporation which he knew to be centered in another jurisdiction, and there are a plethora of decisions by this Court on both sides of the issue which seem to make that a controlling factor.

For example, in the McGee case, it was the insurer who had solicited the business of the insured by sending voluntarily and unilaterally a reinsurance certificate into his state.

In Keeton, it was the magazine who had made the purposeful decision to disseminate in the jurisdiction.

In Calder, it was the newspaper which purposefully directed its article toward the plaintiff.

All cases in which the defendant had the unilateral ability to avoid the contact which he voluntarily created, and on the other side of the ledger, in, for example, the Hanson case, it was because the trustee had undertaken no unilateral activity of his own which might have subjected himself to jurisdiction that this Court denied Florida's jurisdiction.

In the Kulko Case, it was because the wife had moved voluntarily to California and the husband had no control over that activity and had undertaken no unilateral contact of his own, that this Court held that the exercise of jurisdiction was inappropriate.

In the Rush case, it was because the insured had no control over the ubiquity of his insurer, State Farm, and over its presence in some other jurisdiction, that this Court held that the exercise of jurisdiction over the insured was inappropriate.

And it was in the Worldwide Volkswagen case that the Court held that the regionally focused retail and wholesale outlet had no control over the decision of a purchaser to create a contract with a jurisdiction 1,500 miles away.

In every one of those cases, the dispositive observation seems to have been that the defendant purposefully engaged in activity which he had the unilateral control or ability to avoid, and that is precisely what we have in this case.

In addition, the cause of action grew out of that activity.

There is no question that the requirement of a connection for the exercise of specific jurisdiction was satisfied, and finally, it seems to us that there is no significant unfairness in Florida's exercise of jurisdiction under those circumstances.

We listed five factors which we thought relevant to the issue of fairness.

I would like to mention all five, and then come back to two, with your permission.

One, Florida of course has an interest in protecting a Florida corporation.

That encompasses the notion of sovereignty.

It also reflects... it reflects at the deepest sense the state's interest in prescribing a statute which reaches as far as possible to protect the contractual expectations of Florida residents.

As I mentioned, or may have mentioned, in the Keeton case this Court seemed to place dispositive reliance upon New Hampshire's interest in adjudicating a libel action even for the benefit of a New York resident against a California publisher primarily because New Hampshire had an interest in protecting its own residents from the exposure to libelous material, and it was the interest of the forum that seemed to be important.

So, there are cases which stress this, and Florida has an undeniable interest in protecting the business expectations of its residents in the context of a contractual obligation.

We will hear a lot of talk about the inconvenience of the franchisees having to travel to Florida and about the interest of Michigan.

That kind of argument works both ways, and it is equally relevant to emphasize that Burger King had a contractual expectation in Miami that Florida by the plain language of its jurisdictional statement sought to accommodate that expectation, and that the inconvenience of having to prosecute the suit in Michigan would have been comparable.

Second, Florida has an interest, of course, in enforcing its own law, and that interest is magnified in this case by the assertion that the law of some other jurisdiction might apply.

Third, Burger King has an interest in a convenient forum and in some consistency of result across a regulatory system which depends for its economic success upon the adherence by franchisees to a rigid and exacting set of operating requirements.

Unidentified Justice: Don't some states have some laws about franchises that Burger King would have to abide by if it was going to franchise?

Joel S. Perwin: Yes, Your Honor.

Unidentified Justice: Well, in that respect there wouldn't be any national uniformity.

Joel S. Perwin: The only laws of which I am aware are comparable to that in Michigan, in which the--

Unidentified Justice: Comparable, but not the same.

Joel S. Perwin: --Not the same, no.

They are all--

Unidentified Justice: And there are some states that don't have them at all.

Joel S. Perwin: --Yes, Your Honor, some states don't have them at all.

But most of them, as Michigan's does, appears to focus on the relationship between the parties before a contract is formed, on the offer and acceptance, the disclosure of information, and to that extent of course Burger King has to comply with the laws of any jurisdiction.

Unidentified Justice: And whatever its contract said.

Joel S. Perwin: Well, I suppose that's a choice of--

Unidentified Justice: Well, I mean, absent that law, the validity of the contract would be governed by Florida law.

Joel S. Perwin: --Perhaps in the--

Unidentified Justice: Is that right?

Joel S. Perwin: --Yes, Your Honor.

Unidentified Justice: And under Michigan's law, under the franchise law in Michigan, it would be settled under Michigan law.

Is that right?

Joel S. Perwin: Yes, Your Honor.

Unidentified Justice: All right.

Joel S. Perwin: But in this case my position is that there is no conflict between Florida law and Michigan law.

In a case in which... and therefore both can apply undisturbed.

In a case in which there is such a conflict, I would argue that the parties' voluntary choice of substantive law should override the franchise law of any interested jurisdiction unless under the typical choice of law analysis the application of the law chosen by contract is so fortuitously related to the cause of action as to render its application unfair, and if the law, franchise law of the other interested jurisdiction is so fundamental to its policy that the Florida court might agree to yield, it is unclear that either criteria is satisfied in this case.

Unidentified Justice: That in any event is a choice of law question rather than a jurisdictional question.

Joel S. Perwin: Yes, it is, Your Honor, and what is relevant for the purposes of jurisdiction is not so much the question of what substantive law might apply as a product of that process, but rather that the parties put in their contract that they agree to comply with the law of the state of Florida, and therefore had reason to know that they were both invoking the benefits of Florida law and might be called to answer for breach of contract in a Florida court.

What is important is that they contracted for the application of Florida law, and not simply that the substantive choice of law process might call for the application of Florida law.

Unidentified Justice: My I just ask this question, just again limited to your point about your client's interest in a consistent interpretation of the law.

In addition to different franchise law possibilities in different states, aren't there all sorts of things that may be governed by local law?

I mean, I suppose they have to comply with Michigan food and drug laws, Michigan zoning laws, usury laws.

There are all kinds of laws that might not be the same as they are in Florida, so it is really conceivable that everything can be done on a nationwide basis on this theory?

Joel S. Perwin: No, of course, it is not conceivable, but that does not undermine the objective of trying to create some centrality of decisions on the contract issues that exist between the parties, on the question of breach, on the measure of damages, on the expectations of the parties in a contractual relationship.

Obviously, if a franchisee fails to comply with some sanitary law which is in effect in the locality, it will be the operation of that law which determines the outcome.

But it seems to me that that observation does not undermine the central objective of Burger King in trying to obtain some substantive consistency in connection with the central relationship between... contractual relationship between the parties, and that is best served by... I mean, this Court has said in a variety of contexts that that is best served by adjudication of these issues in a single court.

That was first said in 1816 in Martin versus Hunters Lessee, in which this Court established the right of review over state decisions of constitutional dimension, and the central thesis of that opinion is that uniformity of decisionmaking in a judicial context is essential, and as recently as the M.S. Bremen case upholding the enforcement of a forum clause, the Court said the same thing about consistency of result.

With your permission, I would like to reserve the balance of my time for rebuttal.

Chief Justice Warren E. Burger: Very well.

Mr. Oehmke.

ORAL ARGUMENT OF THOMAS H. OEHMKE, ESQ., ON BEHALF OF THE APPELLEE

Thomas H. Oehmke: Mr. Chief Justice, may it please the Court, an interesting aspect of this case, of course, is that the question of whether this is a direct appeal or not was suggested when the Court noted its probable jurisdiction.

We felt that that was an issue that deserved some briefing on our part, and indeed in our reply brief did spend some substantial time on that portion, but not to ignore the minimum contacts requirement, of course.

Obviously, this Court could elect not to take a direct appeal and certainly rule on the issues by petition for certiorari, but for just a moment I would like to comment on whether or not there is a direct appeal, knowing, of course, this Court's desire to, if it can, allow the--

Unidentified Justice: What do you mean, direct appeal?

Thomas H. Oehmke: --An appeal.

I am sorry.

Unidentified Justice: Just an appeal?

Thomas H. Oehmke: Yes, an appeal as opposed to a petition for cert. Thank you, Justice White.

In this case here--

Unidentified Justice: Did we not postpone jurisdiction?

Thomas H. Oehmke: --Yes.

I suppose we implied that that may have been a note of probable jurisdiction, but I think it meant that we needed to wrestle with that issue somewhat in our briefing, and we did that.

Unidentified Justice: At least not take it for granted.

Thomas H. Oehmke: That's right.

Thank you, Mr. Chief Justice.

Now, in this case here we think it was possible to read the Court of Appeals opinion and not necessarily come to the conclusion that the Court of Appeals ruled the Florida statute unconstitutional.

The Court of Appeals, we believe, could have said, but didn't, because it never made a pronouncement, that we are holding it unconstitutional or we are not--

Unidentified Justice: Didn't they at least hold it unconstitutional as applied?

Thomas H. Oehmke: --Yes, they did, Justice White.

Unidentified Justice: Isn't that the basis for an appeal?

Thomas H. Oehmke: I think not.

When we look at the word "as applied", we see some mention of it certainly in previous cases, but as applied to a particular defendant rather than as applied to everyone in a particular state.

Unidentified Justice: Can you point to a single case that suggests that a holding that a statute is unconstitutional as applied is not a basis for an appeal?

Thomas H. Oehmke: No, I can't, because we had some struggle as we looked for the term or the phrase "as applied", to try to learn and be educated what the Court has meant by that in the past.

Unidentified Justice: What about Donkey Walker?

Yes, the Donkey Walker case.

Thomas H. Oehmke: We think that if you apply it only to one--

Unidentified Justice: How about Donkey Walker?

Thomas H. Oehmke: --I can't respond to that case, Justice Brennan.

Unidentified Justice: Well, I am afraid you are wasting your time, counsel, because that case seems to settle it.

Thomas H. Oehmke: If that certainly is the sentiment of the Court, then it would settle it.

Unidentified Justice: You do what you want to.

Thomas H. Oehmke: Thank you.

We just think the Court did not declare the statute unconstitutional as it applied to everyone in the state.

We think what the Court said was that perhaps you may fall within the literal grasp or the literal meaning of the statute, but we are not going to declare the statute unconstitutional.

All we are going to say is that when we see whether this Court has jurisdiction over the defendant.

In this particular case it works a manifest injustice because it is unfair to him.

He has no minimum contacts in Florida.

I would like to move along if I can to the issue of minimum contacts and what we think is really happening here.

Burger King is actually asking this Court to allow it by means of this case to be able to take jurisdiction over a franchisee wherever that franchisee is found.

Mr. Perwin seemed to concede to Justice Stevens--

Unidentified Justice: What about the contract clause?

What do the contracts say about that?

Thomas H. Oehmke: --The contract had a choice of law provision, and it had a choice of forum provision for arbitration, but not for litigation.

With respect to the choice of law provision, we think that there is case law that says that when a state like Michigan has a comprehensive, systematic Franchise Act, as they do, that parties can't agree to disregard that and just apply any other law that they particularly would like to see applied.

So, we think that the choice of law provision here is inapplicable.

Parties can't contract to ignore a major piece of public policy legislation in a state.

But further, Burger King has admitted in their briefs and in court that Michigan law applies here.

In essence they are abandoning what the contractual language says.

We have cited many points in our... many times in our response brief--

Unidentified Justice: What if we disagree with you on that, and that there is a clause for the application of Florida law which is perfectly valid.

You haven't lost your case just because of that, have you?

Thomas H. Oehmke: --I don't think we have.

In this particular case here, even if we are going to choose to apply Florida law, there still has to be minimum contacts on the part of the defendant, who had absolutely no contacts with the State of Florida whatsoever.

Interestingly, the choice of forum provision in the contract only applied to arbitration, not to litigation, so we think that the choice of law forum here not only should not be applied, because we have a Michigan comprehensive statute that regulates franchises that Florida doesn't have, but we also think that Burger King has abandoned that argument.

As we take a look at the issue of whether or not Mr. Rudzewicz did have minimum contacts, we find a whole host of things that he never did in Florida.

We find that he didn't incorporate his business there, but rather, in Michigan.

He had no employees in Florida.

All employees were in Michigan.

That he had no business location or site for doing business in Florida, only in Michigan.

That he didn't have an agent in the forum.

He promulgated no advertisements directed to a Florida market.

He did not solicit business within the State of Florida, either in person or by mail or by TV or radio or periodical.

He did not do anything deliberate and purposeful in Florida to avail himself of the market in Florida or the benefits and protections of the laws of the State of Florida.

Unidentified Justice: Except to sign the contract.

Thomas H. Oehmke: Except to sign the contract, Justice Marshall, the contract which did say that it was entered into and made in Florida, when the reality of the situation was, physically it was signed in Michigan, and Burger King then mailed it down to its headquarters people for signing.

That was the only thing that he did, was to sign a contract with a Florida-based corporation, and perhaps secondly, as Burger King has argued, he failed to mail a check to the State of Florida, or failed to mail his checks for royalty and for advertising payments.

So, Burger King suggests that a non-act, a failure to do an act, a failure to mail a check in and of itself is a contact if the state law requires you to do that.

We think the Florida law can be construed quite well constitutionally.

Unidentified Justice: But, of course... I think the argument is a little bit different.

They say that where you contracted to perform an act that is to be... where the effect is to take place in Florida, and fail, then that is an act within the state.

Thomas H. Oehmke: We have to believe that this... Justice Rehnquist, that this is not a substantial enough contact to elevate itself to the level of a constitutionally imagined minimum contact.

Failure to mail a check standing by itself flies in the face of the history of decisions that have said you ought to have a purposeful, an affirmative act, where you deliberately intend to invoke the benefits and protections of the laws, and that should probably lead one to conclude that you have a continuous and systematic doing of business in a state.

There was no continuous and systematic doing of business in Florida.

Unidentified Justice: Well, isn't it relevant in that regard that the contract envisioned a 20-year relationship with the Florida corporation, and the length and the detail of the involvement with that corporation seemed to make it foreseeable that your client might be hauled before the Florida court?

Thomas H. Oehmke: I think not for this reason, Justice O'Connor.

All of the contacts between Mr. Rudzewicz and Burger King were contacts with the Burger King office in Birmingham, Michigan, a suburb of Detroit, where Burger King had dozens of staff and a fully furnished office.

The contacts with Rudzewicz were there.

They interviewed him there to see if they liked him as a franchisee.

They blessed and approved him as a franchisee there.

Correspondence arrived from that particular office.

He went and visited that office during the course of the negotiations, never visited Florida, and every single contact he had was with the Birmingham, Michigan, office of Burger King.

When it came time to sign the contract, they brought the contract to him in Michigan.

He signed it and gave them his $40,000 check in Michigan, plus another five for a site development fee.

So, I think that the mere fact that one contracts with a corporation that may be headquartered elsewhere or doing business elsewhere does not put one on notice that they are necessarily going to be sued there.

Unidentified Justice: Can you assume that your client had legal advice before he signed this contract?

Thomas H. Oehmke: In fact, our client did not have legal advice, but that is not in the record, Justice Marshall.

We have evidence in the record that says there is a state requirement that you give a contract seven days in advance for the obvious purpose so one can think about it and cogitate about it.

This contract was given to Mr. Rudzewicz four days in advance, and he was told to either sign it or rip out all of his $180,000 worth of furniture, fixtures, and equipment, so I think one can conclude from the record that--

Unidentified Justice: He was in this to the extent of $180,000 and didn't have a lawyer?

Thomas H. Oehmke: --That's right.

Well, he didn't have a lawyer advising him at that time, Your Honor.

There is nothing in the record about that.

Justice O'Connor, I would like to go back and share something with the other justices that we did not put in our reply brief that has to do with notice.

In the joint appendix is the Burger King prospectus, which was the document that they used to encourage people to take the franchise up.

At Pages 17 through 21 in the prospectus, Burger King is required by Michigan law to list all of the litigation that it is involved in.

When you look at Page 17 to 21, there are seven cases that Burger King disclosed.

Six out of the seven of those cases are not in Florida.

There is only one case in Florida.

So, if one takes a look at the prospectus, which lists cases in Colorado and New Jersey, Indiana, Connecticut, Georgia, and then one in Florida, certainly--

Unidentified Justice: Maybe it was the pendency of those cases that led them to draft a form of contract that required application of Florida law.

Thomas H. Oehmke: --I think in part it was, Justice Rehnquist, but I think what Burger King has had in mind--

Unidentified Justice: Also, it may have been that they were being sued.

Thomas H. Oehmke: --As a matter of fact, in all of those cases they were defendants, Justice White.

Unidentified Justice: That doesn't prove anything.

Thomas H. Oehmke: To we as lawyers it doesn't, and as the Court, but to a Certified Public Accountant who doesn't understand the difference between defendant and plaintiff, for him to read the fact that there are six out of seven cases in other states, I think, doesn't put him on notice that he could only expect to be used in Florida.

Unidentified Justice: Are you serious in saying a Certified Public Accountant doesn't know the difference between a plaintiff and a defendant?

Thomas H. Oehmke: I am not serious in only stopping at that point.

I am not trying to be facetious.

He doesn't understand what that means when you look at where you are going to sue somebody or where you are not going to sue somebody.

In this particular case, in the appendix, Burger King was the defendant in every case, and they were being sued where they were found.

I just don't think he understands the implication of that when it comes to jurisdiction and being put on notice where he is going to be sued.

So, in this particular case here, he was not put on notice.

To come back to Justice Rehnquist's question for just a moment, I think that Burger King has finely tuned and finely honed a contract to the point where they have invoked every incantation that they can to be given the best possible chance of suing people in Florida, where they are filing.

Burger King does business in the State of Michigan.

It has some 60 restaurants there, and it has a Michigan regional office.

Unidentified Justice: It may well be that had your client chosen to initiate litigation, he could have sued in Michigan.

Michigan could have claimed minimum contacts.

It would be upheld.

Thomas H. Oehmke: I agree.

Unidentified Justice: But that doesn't mean that only Michigan could take jurisdiction.

Thomas H. Oehmke: You are right in your analysis that we could have sued in Michigan had we been quicker to the draw, but we don't think that Florida should take jurisdiction here because there is no continuous and systematic doing of business in the State of Florida.

He didn't go there and didn't do anything there, and I don't think that as a CPA he is put on notice by the mere fact that he is dealing with a Florida headquarters corporation, that he can be expected to be sued there.

Other cases that we have heard, cases where corporations are incorporated in Delaware, just the mere fact that that is where they are incorporated doesn't necessarily mean that one can be expected to be sued where it is incorporated or where its headquarters.

You know, if that is true, just because one does business with a corporation that is headquartered or located in another state, you can be expected to sue there, be sued there, if that alone is enough, then everyone who does business with another corporation ought to find out where they are incorporated, and where they are located, and they ought to build into the cost of the operation of their business enough money to go to that state and defend.

One of the themes that has come through some of these cases is that Burger King is in a better position economically to build into the cost of their doing business enough money to finance litigation for them to go where they are doing business.

Unidentified Justice: Does that theme come through from any of the cases of this Court?

Thomas H. Oehmke: No, they haven't.

They have come through from some of the Court of Appeals cases.

Unidentified Justice: If they had gone to arbitration, where would the arbitration have been conducted?

Thomas H. Oehmke: In Florida, as far as we can tell, Mr. Chief Justice, because of the choice of forum provision, because parties can contract, of course, to go to a different state.

They could contract to go to Germany or Guam, we suppose, to arbitrate, but we don't think the parties can contract and confer jurisdiction on a state by the mere pledge that that is where they are going to go.

We think the choice of law provision is different than a choice of forum provision, and we don't think that you can choose a forum to litigate in if there is no minimum contact of a defendant there.

Unidentified Justice: Are you contending this is a contract of adhesion?

You are not doing that, are you?

Thomas H. Oehmke: We have made that allegation throughout our litigation at every level, Justice Blackmun.

Unidentified Justice: Are you arguing that here?

Thomas H. Oehmke: Yes, we have argued that in our brief.

We have used that phrase.

And the reason why we argue that in part is because this is a some... I can't tell you the exact number of pages, 10 or 12 or 14-page franchise agreement that is typeset in single space.

It has two variables, I believe, that you can put in the contract, the date it it signed in the franchise agreement and the jural form of who the franchisee is going to be.

Unidentified Justice: You have an experienced businessman with a substantial amount of money invested, and a Certified Public Accountant on top of that.

Thomas H. Oehmke: That is right.

The facts, Justice Blackmun, will indicate here that Mr. Rudzewicz was orally told throughout the entire six-month negotiation process with the Detroit Burger King people that he could do business as a franchisee in a corporate forum, and it was only when four days before the franchise was to open that Burger King said, we are not going to let you do business in the form of a corporation, you must be individually liable.

He screamed surprise, and they said, through Mr. Hoffman, their regional manager, fine, you are surprised, tear out the $180,000 worth of equipment or sign the contract.

We feel that it was not only the nature of the contract but the way the economic gun was pointed to his head that forced him in that four-day period, less than what the state statute requires, to sign it.

Those are facts in the record.

Unidentified Justice: You say that... you contend this is a contract of adhesion.

What significance do you think that has under our minimum contacts jurisdiction cases?

Thomas H. Oehmke: Only this, Justice Rehnquist.

To the extent that one wishes to give some credence to a choice of law provision, I think if there is any weight to that or weight to arbitrating in Florida versus Michigan, I think one can ignore that because of the nature of this contract.

There was nothing to be bargained in this contract by Mr. Rudzewicz.

Unidentified Justice: You say you should ignore it.

I don't believe I follow your argument.

Thomas H. Oehmke: First of all, we have argued that we think it is unlawful to force the parties to go to Florida just because... because Michigan law... because there are no contacts there, but to the extent you wish to give some weight to the fact that the parties openly and voluntarily negotiated and agreed on a choice of law forum... choice of law provision, we don't think there was any... there was no bargaining, and so I think you can ignore giving any weight to that aspect of the contract.

Unidentified Justice: So you say then perhaps there should be a trial, I suppose... perhaps your opponent would dispute what you say... on the issue of whether there was some sort of economic duress in signing a... before you decide whether a state could take jurisdiction or not?

Thomas H. Oehmke: No, we don't say that.

We are saying that the Court ought to do a test and at least check and see whether there are minimum contacts of a particular defendant in a state, and the District Court in this case said, yes, Florida law applies here.

It did the first prong of a test, but it didn't do the second prong of the test.

All we are saying is, if one wishes to invoke the good services and offices of a Federal District Court as a trial court, that trial court not only looks at the state long arm statute, but ought to do a check and see whether the second prong of that test is met.

Namely, does the defendant have some contact in that state, some minimum contact.

Unidentified Justice: Yes, but going back to your contract of adhesion argument, the District Court in this case found that there was no economic duress.

Thomas H. Oehmke: That's right.

Unidentified Justice: Doesn't that blow that out of the water?

Because we are not going to review findings of fact.

Thomas H. Oehmke: No, and we are really not asking you to take that up as an issue.

Justice Blackmun asked me if we are contending it.

Yes, we have contended it throughout, but it is not an issue that we are presenting to this Court.

We have talked about a theme, not in this Court but in some Courts of Appeals, where it is Burger King who can build into the cost of their doing business the money it takes to do a litigation like this.

The record below does indicate that at this point in time Burger King has been paid more than $30,000 in legal fees.

At this point in time... that is just for the District Court action.

Rudzewicz is liable personally not only for his own attorney fees if he should not prevail, but the attorney fees for Burger King.

Unidentified Justice: Well, you feel it would be different then if instead of a franchise agreement this were... all the facts, but it were a merger agreement between Wendy's, which was doing business only in Michigan but had a huge net worth, and Burger King?

Thomas H. Oehmke: I am sorry, I don't follow you, Justice Rehnquist.

Unidentified Justice: Let's assume that your client, instead of being a CPA who didn't know the difference between a plaintiff and a defendant, was actually a very, very substantial Michigan businessman who had a net worth of millions in all sorts of business enterprise all through Michigan, but the facts of this case were exactly the same.

Thomas H. Oehmke: Yes.

Unidentified Justice: You say the result should be different.

Thomas H. Oehmke: Yes, I think the result should be different in this sense, that just because someone has a great net worth and happens to be a CPA doesn't necessarily put him on notice about the fine points of jurisdiction or venue.

Unidentified Justice: But I thought your argument a moment ago was that because Burger King was able to have such a big operation, it could pay attorneys' fees much more easily than your client.

Is that a factor in your argument?

Thomas H. Oehmke: Yes, it is, and build into their cost of running the franchise enough money to pay for their going to Michigan, because they are already in Michigan and they have local attorneys in Michigan anyway.

This case is being... we are... on this particular case in Michigan District Court on enforcement of the judgment.

They have attorneys in Michigan, and an office there.

We think they should build into the cost of franchises another penny a Whopper or whatever it costs to build up the funds they need to go to Michigan and to sue their franchisees where their franchisees are found.

Unidentified Justice: Now, is there any one of our cases on minimum contact that supports that view?

Thomas H. Oehmke: No, there is not, Justice Rehnquist.

We just think that Burger King is in a better position.

We suggest that as some logic that may offer some fruit here.

In this particular case--

Unidentified Justice: Do I understand your theory that when a fat cat is sued by a small cat, the fat cat has to pay?

Thomas H. Oehmke: --No, we are just saying that when the fat cat sues the small cat, the fat cat is in a better position to build into the cost of taxing the franchisee enough money to pay for the litigation.

Unidentified Justice: And therefore he has to pay.

Thomas H. Oehmke: No, not that he has to pay.

Only that he is in a better position.

What we are suggesting is--

Unidentified Justice: So What?

Who pays?

Thomas H. Oehmke: --This is... I guess this gets us down to the... who pays?

In this case the defendant has paid.

But our thinking is that the nature of a franchise relationship is a new type of doing business.

Unidentified Justice: Is it any different from any other contract?

You put in a contract what you want.

Thomas H. Oehmke: Right, sir.

Unidentified Justice: And if you fail to put in your protection, you are unprotected.

Thomas H. Oehmke: That's right.

That would be right.

But this Court still applies.

Unidentified Justice: If you fail to put in there that you should be tried in Michigan only, you have lost it.

Thomas H. Oehmke: Only if one can agree that people can contract jurisdiction away.

We don't think there are any minimum contacts in Florida, and we think even if the parties put a bold face choice of forum provision in there, since there were no minimum contacts in Florida, we think it would be contrary to public policy.

The parties can't confer jurisdiction by contract.

All I am suggesting with the economic argument is that Burger King franchises are small business operations essentially.

Mr. Rudzewicz, the investment for this particular franchise is around $225,000.

This is running a small hamburger operation serving essentially a community, serving essentially a neighborhood.

It is a new form and one of the new ways of doing business in this country.

The ma and pa grocery store have been substituted in large part by 7-11's.

The hamburger stands have been substituted by MacDonald's and Wendy's and Burger Kings.

But they are still... the nature of them is still a small restaurant, still serving a small community, run by small business people, and Burger King comes to the State of Michigan, it does business in the State Michigan by opening 16 restaurants and putting an extensive staff there.

We think they should opt to sue their franchisees in Michigan, too.

They haven't done that.

They have elected not do to that, not to sue their franchisees.

They want to bring them all to Miami, including, I guess, the ones from London and Spain and New Zealand and Guam, where they elsewhere have offices, and perhaps Alaska and Hawaii.

That would be manifestly unfair, to make a new rule in minimum contacts that says, just because you are dealing with a national business headquartered in one spot, you should go to them because you are put on notice they might sue you there, even if there are no minimum contacts.

We think it is manifestly unfair that he should have to travel the 1,200 miles to Miami to fight this lawsuit when he never set foot in Miami about this deal, and has no contact with that state.

And Burger King's new approach that they are suggesting here is wholly different from what it used to be, and from what is, from what is the state of law at this present time.

The Court of Appeals noted that all of the contacts were in Michigan.

They reviewed the record, and they noted the fact that Rudzewicz was interviewed there, and that the Michigan office discussed price terms, and that the Michigan office attended the final closing ceremony, and that there was no evidence that Rudzewicz bargained with anyone in Miami, only with people in Michigan.

So, every single contact with Burger King happened in the State of Michigan, with the Michigan staff, and the bargaining occurred there, and the acceptance of these gentlemen as franchisees occurred in the State of Michigan.

So we think that since all essential elements of the transaction are found in Michigan, that is where the lawsuit should be, and that is where the contacts are.

We feel there needs to be some protection of franchisees in order to protect it as a form of business.

If this Court were to rule that franchisees could be sued wherever the headquarters of the franchise was, then franchisees who do business in the future have to be able to say, I have to build into the cost of doing business enough reserve money to one day be able to go to Florida and defend myself against Burger King.

If you take a look at the normal profit on the sale of a hamburger, it is around ten cents on a $1.25 hamburger, and to finance a lawsuit like this, to pay both sides might cost a couple of hundred thousand dollars, which means selling about two million hamburgers in order to make enough profit to set them aside in reserves to defend a case like this.

The local business is not in a good position, is not well equipped in serving a small community to have to finance such distant litigation.

Of course, there is the inconvenience on the part of the franchisees, who had to either bring deposition testimony down or bring all of the live witnesses down.

All of the people that Mr. Rudzewicz dealt with were in Michigan.

Unidentified Justice: That may sound good, but what about arbitration?

He would have had to go to Florida to arbitrate.

Do you agree with that?

Thomas H. Oehmke: I agree that we would have to go to Florida to arbitrate.

Unidentified Justice: The 1,200 miles.

And you may need some witnesses.

Thomas H. Oehmke: That is right.

Yet one can make some distinction between the arbitration process and the litigation process.

Not completely.

It certainly is more expeditious, takes less time, doesn't require as many trips down.

Unidentified Justice: I don't know what you would say.

Suppose you went to... there was an arbitration.

You went to Florida to arbitrate, and you lost.

Thomas H. Oehmke: Yes.

Unidentified Justice: And you didn't live up to the arbitrator's award.

Could you be sued in Florida to enforce the award?

Thomas H. Oehmke: I think so, Justice White.

I think it could be enforced in the State of Florida.

I would then have to argue to this Court about the nature of that contract of adhesion and get into that as an issue more solidly than we have brought that issue here.

We think that there should be a three-pronged test, in conclusion, to determining whether or not the... where a person should be sued.

We think the first test should be whether the defendant commits a purposeful act or an affirmative act to avail himself of the benefits and protections of the State of Florida.

We don't think Rudzewicz did any act in this particular case to do that, certainly not a substantial act.

Secondly, we think that it ought to be fair and reasonable that he be sued in Florida.

We don't think it is fair and reasonable in this case.

And thirdly, we think there should be some connection between the subject matter of the lawsuit, namely, the operation of a Burger King franchise, and the State of Florida, particularly in light of the fact that Michigan has passed comprehensive legislation regulating the behavior of franchisors and franchisees, legislation that would apply here.

We feel--

Unidentified Justice: Wasn't he sued for failing to make payments?

Thomas H. Oehmke: --Yes, he was.

Unidentified Justice: And the payments were to be made in Florida?

Thomas H. Oehmke: Yes, he was, Justice O'Connor, and he was brought into Florida on the sole basis that he had failed to send his check.

And that was all that was done.

So we feel that that three-pronged test, were it adopted by this Court, reiterated by this Court, would certainly summarize a fair test that would show franchisees that you are not different from Sears Catalogue or from Volkswagen or from any other person who does business in this country, as this Court has passed for years and years on the issue.

You have to go find the franchise... the defendant, where the defendant was found, where there was some minimum contact, assuming, of course, we are not talking about a tort, but in a contract case, you have got to go where there is some minimum contact.

That law applies to franchisees as well as it applies to franchisors.

We think that there is no reason why Burger King should ask this Court to adopt a new philosophy of letting them for the sake of uniformity and national consistency sue every single person in the State of Miami.

That is unfair, and I think that if we look at what that will mean, it will mean, and Burger King conceded that, perhaps bringing franchisees from foreign countries to Miami, if they can get away with that, to sue people in Miami.

That is not the kind of fairness that we think the constitution contemplates.

If there are no questions, I thank you very much.

Chief Justice Warren E. Burger: Very well.

Do you have anything further?

ORAL ARGUMENT OF JOEL S. PERWIN, ESQ., ON BEHALF OF THE APPELLANT -- REBUTTAL

Joel S. Perwin: A few points, Your Honor, if I may.

Very briefly, a few disparate points.

Number One, Mr. Rudzewicz was represented by counsel throughout his dealings with Burger King.

His lawyer was out of town the weekend before the closing.

He did not ask for a delay in order to consult with his lawyer.

At the time of trial he had a net worth of $1 million and was making $170,000 a year.

The trial court... the District Court found that there was no economic duress or coercion in any form.

The Court of Appeals, of course, did not reach that issue.

Number Two, there were a fair number of contacts with the regional office.

We don't deny that.

On the other hand, it cannot be denied that there were substantial--

Unidentified Justice: May I just ask on this sort of fat cat-small cat argument, would it be a different case if he just owned a mom and pop grocery store?

Joel S. Perwin: --Yes.

Unidentified Justice: You think you would not have jurisdiction, even if you had all your other factors?

Joel S. Perwin: Well, a mom and pop grocery store is not a franchise.

Unidentified Justice: But they had a contract to be able to use the name, whatever, some franchise product, as a lot of them do, saying, and any dispute of it will be governed by Florida law, and we will arbitrate in Florida if we have to, and wouldn't it be the same case?

Joel S. Perwin: Yes, it would, if the plaintiff had the same measure of control over the activities of the enterprise.

Unidentified Justice: Correct, with respect to the product in dispute.

Joel S. Perwin: With respect to the product, and it weren't simply an arm's length purchase and sale agreement which included a license.

That is one of the keys to this case, is that from Miami, Burger King exercised intimate daily control over the quality of this franchise, not just through the manuals and the contracts, but through day-to-day contacts, and there weren't just contacts with the regional office on the policy questions, on the question that needed to be negotiated, there were direct contacts by telephone and by letter directly between Miami and the franchisees.

It is incorrect to say that their only expectation was that the sole physical embodiment of Burger King was in Michigan.

That is simply incorrect.

Unidentified Justice: Just to boil it down, you really don't rely on the fact that he had $1 million.

Joel S. Perwin: No, it is just rebuttal.

Unidentified Justice: If he were bankrupt, it would be the same case.

Joel S. Perwin: If he were--

Unidentified Justice: Or just on the fringe.

Joel S. Perwin: --If the facts were otherwise the same, yes.

I caution that--

Unidentified Justice: If the contractual relationship was otherwise the same.

Joel S. Perwin: --Yes.

I caution that as the Court has said repeatedly, every case should be cited on its own facts, but yes, if that were the only change, I submit, I agree that the burden of my position is that jurisdiction would be appropriate.

Unidentified Justice: It is quite important, because the question whether a wealthy man has a right to move for want of jurisdiction on a different standard than one who doesn't have much money is really a fairly important question of whether we administer the law with an even hand.

Joel S. Perwin: I agree, and a fairly disturbing implication.

It is equally disturbing from the other side that a corporation should somehow be at a disadvantage because of its net worth before this Court.

Unidentified Justice: I take your argument on that point to mean that a CPA making $170,000 a year with a net worth of $1 million is sufficiently sophisticated to have arm's length dealing with anybody.

Joel S. Perwin: I would agree, Your Honor, and I believe so, and in this case that arm's length dealing produced a contract which called for an intimate 20-year relationship controlled by a company whose finest details were controlled by a company based in Florida and entitled to the protection of a Florida law which sought to preserve its business, its legitimate business expectations.

The nature of that contract was inherent in Burger King's business relationship.

The due process clause should not be utilized to force Burger King to increase the price of its hamburgers and to pass them on to franchisees and on to the public in order to decentralize.

That is an internal business decision, and the due process clause should not reach that far.

The opinion of the Court of Appeals should be reversed, and the cause remanded with instructions to affirm the District Court's judgment.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.

Featured:

Calder v. Jones - Oral Argument

Thu, 30 Aug 2012 22:14:22 +0000

Case:

Calder v. Jones

Media File:

82-1401_19831108-argument

Related Transcript:

82-1401_19831108-argument

Transcript:

ORAL ARGUMENT OF JOHN G. KESTER, ESQ. ON BEHALF OF THE APPELLANT

Chief Justice Warren E. Burger: We will hear arguments next in Calder and South versus Jones.

Mr. Kester, I think you may proceed whenever you are ready.

John G. Kester: Thank you.

Mr. Chief Justice, and may it please the Court, this case is quite different from the one you just heard, although both involve personal jurisdiction.

In that case, the central issue, which apparently was the one, the only addressed by the courts below, was jurisdiction over a publishing company.

This case, however, concerns exclusively two individual corporate employees.

It is not an appeal by a publisher.

The corporate publisher here, the National Enquirer, Incorporated, is a Florida corporation.

It consented to the jurisdiction of the California courts.

It is the publisher's employees, who are two residents of Florida, who have brought this appeal to this Court.

The plaintiff below, who is the appellee here, is Shirley Jones, a television actress.

She and her husband complained that they were both libeled by an article in the National Enquirer that said that her husband's behavior was driving her to drink.

Later, her husband dropped his complaint.

Later still, Ms. Jones amended her complaint to say that she complains now only about two sentences in the article, two sentences that said that her drinking had occurred at her place of work and interfered with her work.

Unidentified Justice: Mr. Kester, does the record show why the husband dismissed his--

John G. Kester: That is not in the record, Mr. Justice Blackmun.

The plaintiffs sued the National Inquirer in a Los Angeles state court for $20 million, $10 million compensatory damages and another $10 million punitive damages.

She also sued in the same complaint John South, a National Enquirer employee whose by-line was on the story that the Enquirer published, and Ian Calder, who was the editor and the president of the National Enquirer, the Number Two man in its corporate organization.

As I said, the Enquirer consented to jurisdiction in California.

The case has not yet gone to trial.

Calder and South, who are the appellants here, were served by mailing copies of the complaint to them from Florida addressed to them... from California, however, addressed to them in Florida.

They entered special appearances in California to contest the jurisdiction of the California court.

The Superior Court of Los Angeles County cited this Court's decisions in International Shoe against Washington, Culco against Superior Court of California, and Worldwide Volkswagen against Woodson, along with the First Amendment, and held that it did not have jurisdiction personally over these two Florida individuals, and it commented that really all that they would add to the California suit would be an opportunity for the plaintiff to try to collect additional punitive damage from them personally.

Ms. Jones appealed that ruling.

The California Court of Appeals sustained her position.

It held that these two Florida individuals were required to come defend themselves in the California court.

I will discuss its reasons in more detail in a moment.

The Court of Appeal in California said it made this holding even though it found, and I quote,

"It may not be said that defendants' activities in California are extensive, wide-ranging, substantial, continuous, or systematic. "

The case comes before this Court on appeal rather than certiorari because the two individuals challenged in the lower courts the constitutionality of California's long arm jurisdiction statute as applied to them.

That statute is Section 410.10 of the California Civil Procedure Code, and this Court has jurisdiction under 28 USC 1257.2 and the Dahnke-Walker Milling Company doctrine.

I don't intend to address that aspect of the case further unless the Court wishes.

Now, the question in this case is very simple and straightforward.

It is whether the editor and the writer here, who never entered California in connection with this article, can be sued personally in California nevertheless.

It is whether the Constitution permits California to assert jurisdiction in a libel case not just over--

Unidentified Justice: --Mr. Kester?

John G. Kester: --Yes, sir?

Unidentified Justice: Did you say that the writer never entered California?

John G. Kester: That is correct, Mr. Justice Rehnquist.

Now, where the record stands on that is that there is an uncontradicted affidavit from the writer saying that he never entered California in connection with this story.

He entered California from time to time in connection with other stories.

Unidentified Justice: Well, I didn't understand your statement to have been qualified by the phrase, "in connection with this story".

John G. Kester: I am sorry.

If I didn't say that, I meant to say that.

He did enter California on other occasions, on other stories.

Unidentified Justice: Does the record show how he wrote a story without going to California to get his facts?

John G. Kester: Yes, sir, there is evidence in the record that he made a number of long distance telephone calls to California.

Unidentified Justice: How many?

John G. Kester: How many is... in the record there are four telephone calls to California established.

We would note to the Court that we know of at least one more that was subsequently established.

I don't think the number is important.

It was some number.

Unidentified Justice: Mr. Kester, was the only contact by telephone?

John G. Kester: The only contact in the record was--

Unidentified Justice: No mail communication?

John G. Kester: --No mail communications at all, as far as the record shows, simply the telephone calls, plus the article also could be written from whatever materials were available in Florida, press clippings, what other information there was.

So the question in this case is whether there is jurisdiction not just over the corporate publisher, but over the two Florida employees who never even entered Florida in connection with this story.

Unidentified Justice: I gather your suggestion is... we have no issue here of jurisdiction over the corporate publisher.

John G. Kester: That's correct.

Unidentified Justice: Just over these two individuals.

John G. Kester: Just over the two individuals.

Unidentified Justice: The publisher has submitted to jurisdiction?

John G. Kester: Yes, sir.

No contest by the publisher in that--

Unidentified Justice: But all the publisher did other than what the writer did was to send the magazines into--

John G. Kester: --The publisher circulates its newspaper in California, and--

Unidentified Justice: --Like it does elsewhere?

John G. Kester: --As it does elsewhere, and the circulation in California is approximately proportional to the population of California to the population of the United States.

Unidentified Justice: You haven't contested jurisdiction over the publisher?

John G. Kester: That's correct.

Unidentified Justice: I gather one of your arguments, Mr. Kester, is that the fact of the publisher's submission to jurisdiction ought bear on whether or not there is constitutional jurisdiction over the individuals?

John G. Kester: We think it should, because it makes a great practical difference in this case, and as I understand it, the standard jurisdictional analysis that this Court makes when personal jurisdiction of a state court is challenged, and the analysis that the state courts themselves make, is, first of all, whether the particular defendant had sufficient minimum contacts with the state to make jurisdiction not unreasonable, and then the second step is, as the International Shoe case said, once there are other contacts, you then look at their nature and quality, and see whether in all the circumstances it is reasonable in that situation for that state court to exercise jurisdiction.

Unidentified Justice: And one of those against it, you suggest, is that the publisher has consented to jurisdiction, or submitted, rather?

John G. Kester: Yes, because what we say, Mr. Justice Brennan, is that essentially what is practically at stake in here, as was recognized by the Superior Court of Los Angeles County, is simply whether these two individuals can be held personally liable for additional punitive damages beyond what the plaintiff might be able to recover against the publisher.

There is no question as to the solvency of the publisher here to pay a judgment.

The plaintiff can obtain, to the extent libel provides an opportunity to... a libel action provides an opportunity to vindicate reputation, the plaintiff can fully vindicate her reputation in the suit against the National Enquirer if she is able to, if she is successful.

Unidentified Justice: Well, but that isn't really the whole story, is it, Mr. Kester?

Certainly, at least in my day, it was thought to be advantageous if you were suing the railroad company for a crossing accident, you not only sued the railroad company, you joined the conductor and the engineer, and dismissed them at the close of the plaintiff's case, because you were able to deal with them much differently, in depositions and in handling them on the witness stand as adverse witnesses if they were named parties.

And actually, all you were doing that for was to get a judgment against the corporate defendant.

John G. Kester: There is no question in my mind, Mr. Justice Rehnquist, that the plaintiff brought the suit in Los Angeles County because she thought that was the best forum for her to bring a suit in, and she may very well have concluded that there were advantages to her in naming a whole string of defendants and not just the real tort feasor if a tort occurred here, because in libel the tort is publication, and the only publication there was made by the publisher.

Unidentified Justice: Well, if the defendant is the only tort feasor, presumably the plaintiff's complaint would ultimately be dismissed for failure to state a claim for relief.

I think the plaintiff's hypothesis is that the two individuals are also tort feasors.

John G. Kester: They could be proved to be tort feasors, or they might not, but Mr. Justice Rehnquist, the initial question here is not liability.

We are talking about jurisdiction.

And I don't think there is any question the mind of any member of the bar or any judge that merely having to defend the lawsuit is a substantial burden.

If it were not, and if the Constitution didn't recognize that, we wouldn't have all these cases under the Fourteenth Amendment saying due process is denied when a person is dragged across the county into a foreign court where there are insufficient contacts or it is not--

Unidentified Justice: But of course there is an obverse side to that here, too.

If you prevail and the plaintiff actually wants to obtain punitive damages against these defendants, the plaintiff will go marching off to Florida and have to sue in Florida.

John G. Kester: --That is right.

Unidentified Justice: And she was liable in California, where she lives.

John G. Kester: That is the dilemma which the courts face in any jurisdiction case where the plaintiff wants to be in one court and the defendants want to be in another, and what we are saying, Mr. Justice Rehnquist, is that we think that the collective defendants in this case have gone pretty far already.

The National Enquirer has said, you want to sue us in Los Angeles County.

All right.

Here we are.

Sue us.

We will defend ourselves there.

Unidentified Justice: Well, how much of a concession was that on the part of the National Enquirer?

I mean, it circulates hundreds of thousands of papers in California.

The plaintiff lived there.

You know, all of the arguments that were available to the defendant in the preceding case as to jurisdiction over the corporation seemed to me to be absent here.

John G. Kester: Well, I think that--

Unidentified Justice: I mean, I thought perhaps it could be taken from your remark that as an act of kind of graciousness the National Enquirer consented to be sued in California, whereas it really could have gotten off the hook very easily.

It couldn't have gotten off the hook at all, could it?

John G. Kester: --I would say, sir, that the National Enquirer is not incapable of graciousness on occasion.

0 [Generallaughter.]

I really don't think that that is central to the case anyway.

I suppose that had it appeared that there was a very strong winning argument that that court had no jurisdiction over the National Enquirer, its attorneys might well have urged them to make that argument.

But the point is, there isn't anything really at stake here for the plaintiff against these two individuals except the possibility that they might be held personally liable for punitive damages in addition to whatever all else she sight recover in Los Angeles County.

Unidentified Justice: But shouldn't punitive damages have been recovered in Florida for the damage in California?

John G. Kester: Punitive damages probably could be recovered in Florida.

Unidentified Justice: So the harm inflicted was something the plaintiffs could sue for and recover from these two people.

It's just a question of where?

John G. Kester: Well, it's a little more than just the question of where, Mr. Justice White, because had the suit been brought against them personally in Florida, one thing they would have had would be the advantage of a different standard in Florida law as to what must be shown to collect punitive damages than is the case in California.

Unidentified Justice: Do you think that Florida would apply its own punitive damages--

John G. Kester: I surely would urge them strenuously to do so.

Unidentified Justice: --I know you would urge them, but--

0 [Generallaughter.]

Of course you would, unless they would give more punitive damages than California.

John G. Kester: I would say that the chance of getting Florida to apply its own law in this case would be pretty good, because Florida just two years ago said--

Unidentified Justice: Well, in any event, the major factor is just where, just where the suit has to be.

John G. Kester: --That may be the major factor for the plaintiff, but the major factor for the--

Unidentified Justice: You apparently concede that in one place or another these two people could be sued in connection with the damage to reputation in California.

John G. Kester: --She could file a complaint in Florida that would state a cause of action in Florida.

Yes, sir.

But where they are sued is extremely important to these two individuals, obviously.

Now, the constitutional provisions that bear on this, as I said earlier, are three, the due process clause of the Fourteenth Amendment, the commerce clause, and because these are corporate employees of a publisher, the First Amendment applies as well.

Unidentified Justice: Do you mean First Amendment considerations may argue again or for jurisdiction?

Is that it?

John G. Kester: That is our position as--

Unidentified Justice: Have we ever said that?

John G. Kester: --You have never said it, Mr. Justice Brennan, never--

Unidentified Justice: I guess Justice Stewart has suggested it once or twice.

John G. Kester: --If he said that, I missed it, but if he said it, I commend his perspicacity.

Unidentified Justice: Well, you recall his emphasis on the word "press" in the First Amendment.

John G. Kester: Oh, yes, but when we say the First Amendment is at stake here to some degree, we are not asking really for any special favor for the press, and we are not saying that the institutional press has some rights that other people don't have.

It is not that at all.

What we are saying here is simply that this Court at least since International Shoe and going through Culco against California, many other cases... Worldwide Volkswagen mentioned it in passing... has said policy is something we look at.

After those contacts are found, we weigh it all, we look at the policy, and we have got that scale of justice there with the two pans going up and down, and one of the little brass weights that you put on one side is what is this going to do to the First Amendment, to the system of free trade and ideas, as this Court said in the Red Lion--

Unidentified Justice: But the First Amendment consideration would entirely drop out, I take it, if the suit was brought in Florida?

John G. Kester: --Against these two individuals?

Unidentified Justice: Yes.

John G. Kester: They would be sued at their home residence.

Unidentified Justice: Well, I know, but there would be no First Amendment barrier to suit there?

John G. Kester: I would think that the jurisdiction there would be so clear, Mr. Justice White--

Unidentified Justice: All right.

John G. Kester: --that it wouldn't make a difference.

Unidentified Justice: So the answer is, there is no--

--Well, that is the point, Mr. Kester.

The jurisdiction would be so clear, you suggest.

John G. Kester: Yes, sir.

Unidentified Justice: This is a jurisdictional issue.

John G. Kester: Um-hm.

Unidentified Justice: I don't quite understand why the First Amendment is an inhibitor against jurisdiction if otherwise it is appropriate.

John G. Kester: Because one has to look at the effect on First Amendment activity if jurisdiction is brought on very, very slender reeds against individuals, as I said in this case.

Unidentified Justice: In a defamation case?

John G. Kester: In a defamation case, because what you have to consider is, what does it do to an individual when he or she is impleaded, is brought into the case as a defendant individually, held up, possibly liable, not just for a share of the compensatory damages.

Let's assume that the publisher would pay those.

Unidentified Justice: I take it this would apply not only to the media, this argument, but to any citizen critic, would it--

John G. Kester: This--

Unidentified Justice: --any individual not a member of the media?

John G. Kester: --That's correct, and it would apply further to the doctrine that--

Unidentified Justice: So this isn't a suggestion which you limit to First Amendment press protection then, is it?

John G. Kester: --No, indeed, and in this very case it isn't the institutional media which is the complainer here.

It is individuals.

And what the court--

Unidentified Justice: I know, but they are one a reporter and one an editor.

John G. Kester: --One a reporter, one an editor.

Unidentified Justice: What if you just have an ordinary citizen who had done the same thing?

John G. Kester: An ordinary citizen we would ask be subject to the same jurisdictional standards, and really what we are asking this Court to do is the same thing that Mr. Grutman said in the first argument.

When you are deciding jurisdiction, you look at the contacts of each individual individually, what were his contacts, not what were somebody else's contacts.

In Hanson against Denckla, in Worldwide Volkswagen, a whole string of cases, this Court has always said, look at the contacts of the individual, and I would say that for a person to be sued personally in a case is a very different feeling from knowing that your corporate employer is being sued.

There is a certain detachment about the latter.

Unidentified Justice: Well, what if there were no corporate employer here, but these two people were simply partners in circulating a newsletter, and they circulated in California, and they libeled somebody?

John G. Kester: If they had published in California--

Unidentified Justice: Well, they put the letter out in Florida, and they sent it all over the country, just like--

John G. Kester: --So a publication occurred in California, or it was circulated there.

I would think that had they been in that position, then there probably would be jurisdiction over them, other things being equal, but they are not the publisher.

Unidentified Justice: --You say that the fact that they are employees makes all the difference?

John G. Kester: The fact that they are employees, the fact that--

Unidentified Justice: Of a publisher.

John G. Kester: --that they aren't the publisher.

They aren't the ones who did it.

John South couldn't control where the Enquirer circulates.

Tan Calder, although he is the Number Two in the organization, there is no indication that he could control it, either.

Unidentified Justice: Would there be any particular individual in the publisher that could be sued consistent with your theory?

John G. Kester: I would say consistent with my theory you could have a situation where a company had an individual who was in effect an alter ego.

Unidentified Justice: Well, somebody made the decisions in this company.

John G. Kester: Sure, collectively, a number of people made decisions, and indeed, the way the company works, a number of people work on the story.

Unidentified Justice: Then aren't all of them subject to suit?

John G. Kester: They are all subject to suit, Mr. Chief Justice.

The only question is whether and where they are all subject to jurisdiction.

Unidentified Justice: But, Mr. Kester, your suggestion that these particular individuals couldn't control where the National Inquirer went suggests that that is a highly discriminating inquiry, that perhaps the publisher might think it was suitable to send to California, but not to Washington or Oregon.

I mean, publishers are interested in expanding their circulation.

Isn't that true?

They want to get as many copies sold as they can of a national magazine.

John G. Kester: I would think so.

Yes, sir.

Unidentified Justice: So the idea that these two individuals would somehow have balked at circulating it in California if only they had been asked doesn't make much sense.

John G. Kester: No, I--

Unidentified Justice: Especially when they both certainly knew the story concerned a California resident.

John G. Kester: --Oh, I am sure that they knew that.

Unidentified Justice: And to say they didn't think the Enquirer was circulated in California is a--

John G. Kester: Oh, no, I am not suggesting that at all.

Unidentified Justice: --So they contemplated their story would be circulated in California.

John G. Kester: Well, the auto dealer in Worldwide Volkswagen, Mr. Justice White, the argument was made to this Court, could have contemplated that it would wind up in Oklahoma, but this Court said in that opinion just the fact that he knew it could have wound up in Oklahoma does not suffice in itself--

Unidentified Justice: Yes, but the dealer made no plans to send it to Oklahoma in that case, and here there are intentional plans to circulate it in California, which these two people knew as well as anybody else.

John G. Kester: --No doubt.

There is no question that they knew it.

They were members of the corporation.

They, like anybody else in the corporation, presumably participated in some way... the record doesn't show in what way... in the decision of where to circulate, but the fact that--

Unidentified Justice: Mr. Kester, may I ask you a question?

Would you agree that by reason of the fact that there was jurisdiction over the corporate defendant, that the trial court could compel the presence of the two individuals to testify at the trial?

John G. Kester: --Yes, sir, and in fact--

Unidentified Justice: So they could be compelled to go to California?

John G. Kester: --Of course, of course, and what has been going on in this case is that these two individuals have been deposed at length, and in fact the record contains deposition testimony from them.

There is no impediment to the plaintiff from that situation.

What this Court has to consider is that this is a case involving a publisher, but really, this is a case involving a corporation, and it applies just as much to the Riggs Bank, General Motors, IBM, Texas Instruments.

How much do the acts of the corporation--

Unidentified Justice: But as a practical matter, these two people are going to be sitting in the courtroom throughout the trial, even if they are not parties.

John G. Kester: --I think there probably, as a practical matter, there is a difference in that, Justice Stevens.

I think if they are parties, their attorneys would insist that they be there.

Unidentified Justice: And they may not be liable for punitive damages.

John G. Kester: Right.

Unidentified Justice: But in terms of the burdens of going and testifying and worrying about what happens to their reputations--

John G. Kester: No, I would think that the trial in the instance of John South, he would be a witness, he would be in and out, but if he is a party in that trial, and I am his lawyer, I want him in the courtroom all the time.

I think there is some difference here.

Unidentified Justice: --You don't think you'd want the author of the story in the courtroom all the time?

John G. Kester: I am not sure.

I am not sure.

It would depend on how the issues were framed and how the trial went, but if it is a month-long trial, possibly not.

Possibly not.

Unidentified Justice: Mr. Kester--

John G. Kester: Yes, sir?

Unidentified Justice: --if the corporation had been bankrupt, and judgment proof, would that make any difference with respect to whether the individuals could be sued in California?

John G. Kester: I think that would make a difference, Mr. Justice Powell.

Again, there is--

Unidentified Justice: Why would it, from the viewpoint of jurisdiction of the California court?

John G. Kester: --Because I suggest to you, and I think the opinions of this Court say the same thing, that jurisdiction does depend on practicality as much as anything else.

In the Hatori case, Judge Weinstein makes the very point that you make, and he says in that case there is no question as to the solvency of the corporation, and that if it were an insolvent corporation, or if it were a corporation that was simply a shell for one individual, that would be a different case, but the burden is on the plaintiff to establish jurisdictional facts.

There are no jurisdictional facts of that sort here, and indeed none could be established.

I would like to take one moment to talk about forum non-convenience, which Justice O'Connor and Justice Marshall mentioned in the previous case.

I think there is a case written 20 some years ago by Judge Friendly in which he suggested that the First Amendment certainly has a constitutional role in cases of this sort, but he said, why not turn forum non-convenience into a constitutional doctrine and deal with it at that point.

I would suggest to you that as a practical matter there is a lot wrong with that approach, even though logically it seems fine.

In the first place, forum non-convenience, as the term implies, is an inconvenient forum, and jurisdiction is more than a matter of convenience, as this Court has said many times.

As a practical matter, to assert forum non-convenience, you have to come into the court, you have to submit to the jurisdiction, and then you have to try to convince the local judge that he is not a convenient person to hear the case.

That is not a position a lawyer likes to be in very often.

It is not a persuasion that is very easy to accomplish.

I would say this is something that simply is not as a practical matter a very good solution to the case, particularly because--

Unidentified Justice: Sometimes judges like to get rid of cases.

John G. Kester: --That happens, too, Mr. Justice Blackmun, but not as often as one might like sometimes.

And further, forum non-convenience is... we have talked about murky doctrines and gray areas, but forum non-convenience is probably the murkiest area that exists in the law.

There are no rules practically for it, and it provides no certainty.

As difficult as the jurisdictional cases are to understand, and I don't think they are that difficult, forum non--

Unidentified Justice: I can think of a few other murky areas.

We seem to encounter them every week.

John G. Kester: --Right.

I would suggest there is no reason to create another one.

I will reserve the balance of my time.

Chief Justice Warren E. Burger: Mr Ablon, you may proceed whenever you are ready.

ORAL ARGUMENT OF PAUL S. ABLON, ESQ., ON BEHALF OF THE APPELLEE

Paul S. Ablon: Mr. Chief Justice, and may it please the Court, I think Mr. Kester's presentation is indicative of the briefs that have been filed in terms of the differences in the perception of the facts of this case.

We feel that a more thorough view of the facts are essential to see exactly what Mr. Calder's and Mr. South's contacts with California were.

First, Mr. Kester has referred to Mr. Calder as an employee of the Enquirer.

In fact, not only was he the editor, but he was also the president of the Enquirer and the second person in command.

He in deposition testimony acknowledged that the was in fact the person who oversaw the entire functioning of the Enquirer, including its editorial function.

So, we are not dealing with an individual who was just remotely related or involved in the control of the publication.

Additionally, the evidence that was adduced in the court below makes it clear that he also had significant involvement in this particular article.

So we have combined in Mr. Calder both the elements of a general control of the publication and at the same time specific involvement in this article, and that involvement included awareness of the fact that Mr. Engles on behalf of himself and his wife had denied the truthfulness of the publication prior to publication.

He was also the person who had seen the page proof of the article before publication, the evaluation of the article before publication, and in fact admitted... I am sorry... and in fact had... was the person who could have precluded the story from being published.

Additionally, he was the man who admitted specifically refusing to publish a retraction when a demand for such a retraction was made in this case.

With respect to Mr. South, there is also, I think, a disparate view of the facts between the parties in this case.

The trial court, contrary to the suggestion of Mr. Kester, and this is the trial court that ruled against the appellees in this case, stated,

"In addition, Reporter South visited California at least once for purposes relating to the article. "

Both the trial court and the court of appeals reached that same conclusion, that there was a pretrial visit by Mr. South to California with respect to this particular article, and as Mr. Kester has conceded, I don't view whether in fact there was such a visit or whether there were five telephone calls or 15, and I think we have a dispute in the record with respect to precisely how many investigative calls were made by Mr. South to California, the point being that the thrust of the investigation was aimed at California.

We feel that the fact that Mr. South and Mr. Calder were employees has no bearing on the jurisdictional question in the facts, in the jurisdictionally relevant facts that are presented in this case.

Were this the Keaton case, where it had been indicated had a great deal fewer jurisdictionally relevant contacts, possibly the employee status might have some additional significance.

In this matter, however, it is clear that both Mr. South and Mr. Calder were aware that the state of largest circulation of the Enquirer was California, in excess of or approximately 600,000 copies, and in fact that the Enquirer was a publication which proclaimed itself to be largest circulation of any paper in America, and in fact, as the record before this Court indicates, only 6 percent of the National Enquirer's publication was distributed in the state in which it was published, that is, in Florida.

So, California was the largest state, and that was known to both Mr. South and Calder, and the facts here are even more compelling.

The article dealt with a subject that were known to both Mr. South and Mr. Calder to be residents of California, in an industry that related to California, and clearly injury, if it were to occur, would be focused in California.

Certainly in this case where you are dealing with celebrities of some national reputation, a claim for injury in many, if not all other states might be involved, but that is not before the Court because there was no forum shopping here.

The lawsuit was basically filed in California, where the plaintiffs reside.

With respect to the conduct of the defendants, it is clear that both Mr. South and Mr. Calder are joint tort feasors.

As Mr. Kester has indicated, it is our belief that they could be subject to jurisdiction, and the sole question before this Court is whether or not the appellees who resided in California did nothing to bring this attack upon them in that state and nationally must now go to another jurisdiction, that is, Florida, to sue two of the primary participants in this publication.

We think that the case of Worldwide Volkswagen in fact supports jurisdiction in this case.

There was certainly no... the foreseeability of being sued in California was well known to both Mr. Calder and Mr. South, and in fact Mr. Calder had been sued in other celebrity litigation involving the National Enquirer in California and at that point did not even bother to object to personal jurisdiction.

The intent here on behalf of both Mr. Calder and Mr. South were clearly to inflict wilful and malicious injury to the plaintiff... I am sorry, to the appellee and her husband in the state of California, and we respectfully submit that the restatement, Section 36, restatement of conflicts, the effects doctrine, would certainly be applicable and justified in the context and facts of this case where you have wilful and knowing intentional conduct not only causing injury in California but aimed and intended to cause injury there.

With respect to the difficulty of suit in California, we would submit that the added burden to Mr. South and Mr. Calder to be sued in California is certainly not as great as indicated by the appellants.

They have in fact been deposed in this matter, which would--

Unidentified Justice: Mr. Ablon, what position would a typical California Superior Court of Los Angeles County take so far as who should pay the expenses for a Florida defendant's deposition being taken?

Would the superior court require the plaintiff to go to Florida to take the deposition?

Paul S. Ablon: --It is my understanding, Your Honor, that it would be required for... we cannot compel even a named defendant to come from Florida to California for their deposition.

We would have had to go to Florida, which we did--

Unidentified Justice: At your expense.

Paul S. Ablon: --at our expense.

Now, ultimately those expenses--

Unidentified Justice: Are taxed.

Paul S. Ablon: --might be taxable, but that would be resolved towards... to the conclusion of the case.

In addition, in addition, we feel that the case of Church of Scientology versus Adams is extremely appropriate.

That is the Ninth Circuit's decision, which weighs and balances the minimum contacts and jurisdictional standard in the context of a libel case, and there the court indicated, and again, the court indicated that the contacts would basically turn upon the knowing foreseeability of the defamatory article causing injury in a particular state, namely, the state of California.

It has also been referred by Mr. Kester that suing the individual defendants rather than the corporate entity allows them to have a certain detachment, and it is in fact that detachment that we feel is appropriate to eliminate, as has been suggested by the court, the--

Unidentified Justice: I thought he said... he was stating as a matter of fact that if your corporation which employs you is a party to the suit, but you are not, you have a certain detachment that you lose when you are named a defendant yourself.

I don't think he said that all personal... all persons ought to have a right to that.

I understand, Your Honor, but I think that a malicious and intentional wrongdoer might not be entitled to that detachment, that in fact maybe it is the people at the Enquirer, for the Enquirer as a corporation could not itself do anything but for or through the people who work for it, that in fact those people not be permitted that detachment, that they in fact, their wrongful conduct be on the line, so to speak, that they be answerable for their conduct.

It is in fact Mr. South and Mr. Calder and the other employees of the Enquirer who publish the articles which may and sometimes do lead to libel litigation.

It seems that in terms of, again, considering the practicalities of the situation, that there is very little additional burden with respect to the individual defendants.

They will likely be represented by the same counsel.

It is very frequently the case in libel litigation that there are insurance companies involved in terms of providing counsel and at least a certain degree of... a certain degree of coverage, at least with respect to compensatory damages.

Turning to the First Amendment considerations, we feel that it is inappropriate to add an additional obfuscation to the already somewhat confusing and at least hard to articulate jurisdictional standards.

The First Amendment is amply considered through these courts' prior precedents in New York Times versus Sullivan and its progeny, and the chill which this litigation might cast upon individual employees was also considered.

It seems to me that the proper and primary focus of whether or not these employees should be subjected to any chill if any there be by virtue of being subjected to suit in California is determined by the substantive law of whether or not employees can in fact be sued for libel.

That law... we feel that that has been determined.

The substantive law says they are responsible.

Why should we now engraft upon standard jurisdictional analysis another burden for purposes of evading jurisdiction?

Going back for a moment to the authority stated in the restatement, Section 37, the effects test, we feel that the effects test clearly is being applied if this Court is going to apply it in this case to Mr. Calder, who we have acknowledged had no direct contacts in terms of telephone calls, visits, or anything else with California.

If this Court will apply that principle to him, we feel it is the clearest application of that principle, for of the various situations to which the effects principle could be directed, that is the one which... that is the one which basically has the strongest support with respect to this Court's prior precedents.

There can be no unfairness in subjecting someone to jurisdiction who has intentionally directed his wrongful conduct at a particular state.

With respect to the fiduciary shield doctrine, so to speak, the appellants here are asking this Court to in fact enshrine that principle, a principle which insulates employees from jurisdiction because they are employees and because acts which they have committed in the course of their employment may in fact... excuse me.

Acts which they have accomplished in the course of their employment somehow don't count in terms of having any jurisdictional significance.

Mr. Ablon, on the effects test which you ask us to apply, do you think that there would be jurisdiction over a writer who never entered California at all and made no telephone calls at all based on simply the foreseeability that the article might be published there?

Paul S. Ablon: --Your Honor, I believe that that would be the case.

The only question I have with respect to the way in which the issue were posed was whether the issue might be published there.

It seems to me that where it is known that the article will be published there, or at least there is a reasonable probability that that will occur, I see no reason why someone having no direct contacts in terms of physical contacts, visiting, telephone calls, sending mail, or anything of that nature, should not be subject to the jurisdiction of the court.

I might also add that that response is given considering the facts of this case where the article is aimed at the particular jurisdiction in terms of the subject matter of the article, the residence of the plaintiffs of the article, the knowledge of the extent and breadth of the circulation of that article within the jurisdiction.

Unidentified Justice: I suppose if it has a big article about someone in California, you could expect to sell more copies in California when that... in the issue in which that article appears than you might ordinarily.

Paul S. Ablon: I would think so, Your Honor, and I think that is directed in the Church of Scientology case.

That is that one can reasonably anticipate more injury in the state of residence.

If there can be said to be a state where one's reputation resides, it would certainly be primarily or at least predominantly within the state of residency, and because of California being the state of residency, one could also anticipate that the interest of the readership will be largest in the community in which the plaintiff happens to reside.

We think that there are some severe problems with this Court's finding some type of due process insulation or guarantee or protection for employees of corporations.

The fiduciary shield doctrine which has been advocated by the appellants is one that we feel has very shaky both precedential and logical roots, and in fact one can hardly consider or believe that if Mr. Calder and Mr. South were not employed by the Enquirer but somehow engaged on their own, and could be held responsible for certain acts in California, why should the fact that merely because they are employees of the Enquirer they somehow be mystically insulated from jurisdiction?

Unidentified Justice: As a matter of substantive law, and I suppose this would depend on the law of California, ordinarily an agent is not insulated from personal liability because the principal is liable for his conduct also.

Isn't that correct?

Paul S. Ablon: That's correct as a matter of substantive liability, and here we are not... we may not be talking in terms of agency, because of the element of punitive damages which may be interjected.

That is, the law would be that if in fact Mr. South or Mr. Calder engaged in wrongful conduct not authorized by the Enquirer, it is conceivable that agency principle might not apply, but certainly then the intentional wilful wrongdoing of those individuals would equally subject them to substantive liability.

I would also pose to the Court the problem of in effect utilizing different jurisdictional standards, and that is really what is advocated here by the appellants.

They are advocating a different jurisdictional standard for the media because of First Amendment considerations.

They are advocating a different jurisdictional standard for employees of corporations rather than the corporations themselves.

We feel that the standard jurisdictional analysis should be applied, and when that application is made in the facts of this... in this case, jurisdiction over both Mr. Calder and Mr. South is clear.

The cases for which... which are cited in support of the due process restriction on subjecting employees to jurisdiction for acts they committed in the course of their corporate employment we feel are largely inapposite.

They generally deal with the situation where there is an effort to impute jurisdiction by the corporation... I am sorry, impute jurisdiction from the corporation to the employee where the employee cannot be shown to have in fact had the contact himself, even if it was as an agent of the corporation with the jurisdiction, and under those circumstances, we have no problem with at least suggesting that in fact there may be a more serious due process problem.

Where, however, the jurisdiction is premised upon the acts of the individual, as is presented in the facts of this case, then it seems clear that those acts should be counted for purposes of jurisdiction over that individual.

If that individual is not responsible or liable for whatever the wrongdoing might be, then the substantive law is sufficiently adequate to ensure that they will not be subjected to any substantive liability.

Unidentified Justice: You don't think the printer, for example, would be liable?

Or would be subject to jurisdiction in California?

Paul S. Ablon: Well, Your Honor, we would certainly--

Unidentified Justice: Suppose it was printed in Florida.

Paul S. Ablon: --If it were printed in Florida, and assuming that the printer had no knowledge specifically with respect--

Unidentified Justice: Well, he knew exactly what was in the magazine, what was in the paper.

He read it.

Paul S. Ablon: --I think that is different, because the printer does not have a responsible part in the publication, and certainly in the publication of this particular article.

Furthermore... And I think with that notion of responsibility goes the notion of some element of knowledge of what is going on and what is going into the article.

Certainly--

Unidentified Justice: What about the newsstand man in California?

Paul S. Ablon: --I think, Your Honor, the same would be applicable, and I think that is covered under the substantive law.

I don't know that the newsstand man would be responsible substantively if it could be determined that in fact he had no knowledge of the defamatory contents of the article or anything with respect to this publication which would suggest that articles contained in it are frequently or regularly of a defamatory nature.

Unidentified Justice: Well, what about a newspaper in California that repeated the statements in the Enquirer?

Paul S. Ablon: I think that might be a different situation, Your Honor, and I think the reason for that difference--

Unidentified Justice: Well, it would be, wouldn't it?

Paul S. Ablon: --I think so.

I think if for no other reason that they are in effect republishing the libel, and they are doing so where they at least have an obligation to make sure that what they are republishing meets the standards that are set forth with respect to libel and the constitutional parameters.

That certainly would not be the case with respect to someone who has no knowledge with respect to that.

There has been some reference in the briefs with respect to whether or not the conduct here was intentional, or whether the conduct here was wilful, and that in effect the appellants... I'm sorry, the appellees are stated to have assumed and the court is stated to have assumed that there was intentional wrongful conduct.

We submit that under the facts presented here, the wrongful conduct is made out clearly by the facts, at least as clearly as one could anticipate with the understanding that a publication and its primary employees are unlikely to admit intentional wrongdoing in the libel context, but given that parameter, we have here an article which on its face is at least horrendous and possibly worse.

We have a telephone call made by Mr. South, and we think that this particular call may have more jurisdictional significance than the other investigatory calls which he made.

Prior to publication, Mr. South telephoned the appellee and her husband, spoke with them at their residence, spoke with Mr. Engels at his residence, and in that telephone call read the article to them approximately three weeks prior to publication.

And at least with respect to that call, it is our position that it may well be more jurisdictionally significant insofar as the complaint herein alleges not only libel and invasion of privacy but intentional infliction of emotional distress, and that call may well, like the telephone call in Brown versus Flowers, the case in which this Court denied cert last term, in fact may have constituted the operative conduct with respect to the tort of intentional infliction of emotional distress.

Just as a matter of conclusion, let me just state that we think that the facts of this case do not... it is important to consider what this case does not present.

It does not present a question, as suggested by some of the amicus briefs, of self-employed, small authors of books or local publications being... having their employees subjected to jurisdiction.

It is not concerned with mere employees, that is, insignificant employees being subjected to jurisdiction, but rather a president, an officer of the corporation, and the person who actually wrote the article and investigated the article.

This is not a case dealing with a publication which did not hit home and in which the publication and its employees were not--

Unidentified Justice: Isn't it a case about the author of a book that he gets published, and the publisher circulates it around the country?

How about the author?

Paul S. Ablon: --Your Honor, I think that case would be distinguishable because one would have to look at the competence of the book.

What did that author foreseeably anticipate?

Unidentified Justice: Let's assume a man wrote a... an author wrote a book and had these very allegations in it that are in this case, and he sold it to a publisher, and the publisher sold it wherever he could.

Paul S. Ablon: I think if that author had reason to believe that the publisher would sell it wherever he could, or would sell it specifically to California, and knowing the contents of that book, there would be every reason and certainly no unfairness.

Unidentified Justice: So this case does concern that kind of a person.

Paul S. Ablon: That kind of a person it would, Your Honor.

We don't think it deals with the type of person who could not anticipate that California under Worldwide Volkswagen was an appropriate forum to anticipate being hailed into court.

Unidentified Justice: Do you have anything further, Mr. Kester?

ORAL ARGUMENT BY JOHN G. KESTER, ESQ., ON BEHALF OF THE APPELLEE -- REBUTTAL

John G. Kester: Yes, Mr. Chief Justice.

Unidentified Justice: Mr. Kester, I assume you will address the effects argument.

John G. Kester: Yes, sir, Mr. Justice Powell.

With respect to the effects argument, that was one of the three bases on which the court of appeal relied for its decision in this case.

Causing an effect in a state is a very mushy basis for jurisdiction.

It has been applied in a limited area of cases, mainly product liability cases.

In product liability cases you have a very definite injury.

You know whom it happened to, where it happened, and it is easy to measure, and you have somebody who is essentially setting something forth in interstate commerce who knows that it could cause harm some place or who should be forced to be careful to ensure against--

Unidentified Justice: You are not suggesting that one who knowingly publishes libel doesn't anticipate harm, are you?

John G. Kester: --I am saying that metaphorically we can say that a libelous article is launched and causes harm, but the harm is much more difficult to define, and in products liability cases, Mr. Justice Powell, we have a different standard of liability which matches the different standard for jurisdiction.

We have--

Unidentified Justice: But doesn't that cut the other way?

When you come down to the standard of liability in a First Amendment case, you have New York Times and Gertz that afford very substantial protection that perhaps isn't available in a products liability case.

John G. Kester: --But I would say exactly for the two cases you cite, Mr. Justice Powell, Gertz says that you do not have strict liability in the First Amendment area in libel cases, and yet in products liability cases that is exactly what you have in the law of most states, a very high standard--

Unidentified Justice: But not in all states.

John G. Kester: --In most states, Your Honor, and in the states where those cases have come up, cases which have never been reviewed by this Court, indeed.

It is a very simple matter for plaintiff to allege, as the plaintiffs did here, that this was intentional, this was malicious, this was harmful, but what this Court has always asked for are jurisdictional facts, not broad allegations in a complaint.

Certainly this case applies, as Mr. Justice White mentioned a while ago, to an author.

The decision here would apply to authors who get sued, and I take it Mr. Ablon is saying, well, it doesn't apply to authors who don't get sued, but every author who gets sued is going to be facing a complaint that says he acted maliciously, wilfully, with the intent to harm people, and so on.

If effect is carried to that extreme, then all the limits on jurisdiction for individuals in libel cases are essentially eradicated.

I would mention that this Court from at least the time of International Shoe has also recognized that individuals are not the same thing as corporations when you are dealing with the question of personal jurisdiction.

When you have got a corporation, you are immediately faced with the question, where is it, because nobody can see a corporation.

It is an incorporeal presence.

It is a jurisdictional construct.

An individual, you generally know where he is, what he is doing, and the individual has some rights under the Constitution that corporations don't always enjoy.

Unidentified Justice: When an individual, Mr. Kester, when individuals and a corporation with which they have a relationship are joined in the same posture as defendants, do you think that makes possibly some difference on how the individuals are treated?

John G. Kester: I think that we have to do exactly what Mr. Grutman said and what this Court has said, Mr. Chief Justice.

We have to look, as the Court said in Hanson against Denckla, at the contacts of each defendant individually and say what were his contacts in the case, and in this case these individuals did not have those contacts.

It is not necessary to decide this case even to reach the First Amendment, because this is not a close case.

This case can be decided under the standard jurisdictional principles of the Fourteenth Amendment as they have always been applied, and what we have here are individuals.

I can't improve on the language of Mr. Justice Rehnquist in his dissent in the Beloti case, which I--

Chief Justice Warren E. Burger: Thank you, counsel.

Thank you.

The case is submitted.

Featured:

Helicopteros Nacionales De Colombia v. Hall - Oral Argument

Thu, 30 Aug 2012 22:14:05 +0000

Case:

Helicopteros Nacionales De Colombia v. Hall

Media File:

82-1127_19831108-argument

Related Transcript:

82-1127_19831108-argument

Transcript:

ORAL ARGUMENT OF THOMAS J. WHALEN, ESQ., ON BEHALF OF PETITIONER

Chief Justice Warren E. Burger: We'll hear arguments next in Helicopteros Nacionales against Hall.

Mr. Whalen.

Thomas J. Whalen: Mr. Chief Justice, and may it please the Court:

As in the cases we heard this morning this case involves in personam jurisdiction over my client Helicol.

Helicol is a foreign corporation in the true sense.

It is a company organized existing in the country of Colombia, and its sole business is the transportation of persons principally in South America.

The jurisdictional issue in this case arises in the context of a wrongful death action which was brought in the State Court of Texas by the family of Dean Hall and several other families who were killed in an accident that occurred in Peru.

Helicol had entered into a contract with American construction companies known as Williams-Sedco-Horn, and this contract was executed in Peru and it was designed to be performed in Peru.

In the course of this helicopter operation it was necessary for the operation of the contract that Williams-Sedco-Horn had with the government of Peru, and they were building a pipeline from the jungles of Peru to the Pacific Ocean.

They needed Helicol to transport workers from construction sites to base terminals in Peru.

On the course of one of these trips an accident occurred in which the Respondents' decedents were killed along with two other passengers who are not involved in this law suit or this case.

The case was brought in the state court of Texas.

The only contacts that Helicol had with the State of Texas was established in the course of the hearing on a preliminary motion on jurisdiction was the fact that Helicol had a single contract discussion with the personnel of Williams-Sedco-Horn in Houston, Texas, and also in the course of five or six years prior to that contract they purchased equipment from an American manufacturer, Bell Helicopter Company.

Unidentified Justice: Mr. Whalen, why were Bell Helicopter Company and Williams-Sedco-Horn granted instructed verdicts?

Thomas J. Whalen: The Plaintiff failed to establish any proof of negligence against either of those defendants, and the court dismissed the case against both of those defendants.

Unidentified Justice: Mr. Whalen, was the underlying cause of action based on pilot error?

Thomas J. Whalen: Yes, Your Honor, against my client.

Unidentified Justice: Was the pilot of the helicopter involved trained in Texas?

Thomas J. Whalen: Yes, Your Honor.

I believe he was.

He was one of the pilots who went to Texas in the course of the agreement between Bell and Helicol for training in connection with the equipment.

Unidentified Justice: Was the helicopter itself purchased in Texas?

Thomas J. Whalen: The helicopter was purchased in Texas, yes, Your Honor.

Unidentified Justice: Do you not regard both of those as contacts with Texas on the part of your client?

Thomas J. Whalen: Yes, Your Honor.

They certainly are contacts, but the idea of purchases being a basis for general jurisdiction, that is, this is a case in which the cause of action did not arise out of the purchase of that helicopter.

Even looking at it from the point of view of the purchase itself without looking at it from the point of view of the verdict of the jury which found that Bell was not at all negligent in the manufacture of the helicopter, the cause of action in this case as the jury found solely was based upon the negligence of our pilot in Peru.

There were no contacts of the Defendant Helicol in Texas which in any way was connected or arose out or created the cause of action in Peru.

Unidentified Justice: Unless we regard the training in Texas and the purchase of the helicopter there as bearing on that.

Thomas J. Whalen: Well, Your Honor, I would suggest that there was no connection and would also suggest that the Supreme Court of Texas among other things ruled that there was no connection between the cause of action and the contacts in Texas, and this is the position which I do not believe my adversary contests.

What we are dealing here if Your Honor please is not a case of contacts in a jurisdiction which gave rise to a cause of action.

What we are dealing with here is a case of what is known as general jurisdiction.

Is Helicol there in Texas?

Do we have an office which we do not.

Do we have employees located there which we do not.

We have no general contacts or base in Texas which under the Perkins case I believe would give a basis for jurisdiction against Helicol with respect to any cause of action.

That is the basis upon which the Supreme Court decided this case.

Unidentified Justice: Mr. Whalen, I suppose if the facts were exactly the way they were except that the accident had taken place while they were flying over Texas there would be no question they had jurisdiction to sue Helicol for that particular accident.

Thomas J. Whalen: There is no question that Helicol under the ruling of this Court, International Shoe, would be subject to the jurisdiction of the court because the pilot error and negligence as well as the resulting injury occurred in Texas and that there were other minimum contacts as well, the contract discussion, for example, and perhaps in those cases in those instances the purchases of equipment could be a basis of additional minimal contacts to support--

Unidentified Justice: Would there be any difference if there were an adequate showing that the training itself caused the accident?

I mean, if he was poorly trained and that was proved.

Thomas J. Whalen: --No, Your Honor, I would suggest not.

Unidentified Justice: Would that make a difference?

Thomas J. Whalen: It would make no difference because the cause of action arose in Peru.

It would not have arisen in Texas.

Unidentified Justice: Suppose he was trained if he turns to the left he should boot it to the right, and that is what wrecked the plane and everybody in the world agrees that that was wrong.

Thomas J. Whalen: Well, his--

Unidentified Justice: And he was taught that in Texas.

Thomas J. Whalen: --Well, if he was--

Unidentified Justice: It is your position that that has nothing to do with it.

Thomas J. Whalen: --If he was improperly taught by Bell Helicopter then, of course, Bell helicopter stands to be liable.

If he violated his teaching, what he was taught, in Texas in Peru then that negligence and the conduct or the result of that negligence would all have occurred in Peru.

There is no connection I think under Your Honor's example if you please that there is no connection under your example between the faulty training and the accident in Peru.

Unidentified Justice: Mr. Whalen, if the suit had been brought in Peru could Bell Helicopter and Williams-Sedco-Horn have been sued in Peru--

Thomas J. Whalen: Yes, Your Honor.

Unidentified Justice: --It had jurisdiction in your view?

Thomas J. Whalen: Yes, Your Honor.

As a matter of fact we raise this question... We introduced our special appearance which procedurally is the way in Texas we raised a jurisdictional objection.

We raised it approximately eight months after the accident so if there was a jurisdictional problem then, of course, a protective suit would be filed in Colombia or in Peru in the event jurisdiction as we believe should not be found in Texas on this course of action.

After the jury returned its verdict we had to continue after the jury returned its verdict and we appealed solely on the jurisdictional issue.

The case went to the intermediate Court of Appeals where it reversed the decision of the trial court that the court had in personam jurisdiction over Helicol.

The other side then appealed to the Supreme Court of Texas and the Supreme Court of Texas initially affirmed the decision of its intermediate Court of Appeals, but my adversary then filed a petition for rehearing and the Supreme Court of Texas reversed.

It is our position that the contacts or the issue in this case is one of solely general jurisdiction that the contacts that Helicol had in Texas were insufficient to form a basis for general jurisdiction.

As the United States government--

Unidentified Justice: Mr. Whalen, do you rely at all on the contract provision that provides for jurisdiction of disputes in Peru?

Thomas J. Whalen: --No, Your Honor, I do not.

I would interpret that provision as determining the rights of the parties to that contract which in that case would be Williams-Sedco-Horn and Helicol.

I do not rely on that decision but it does indicate the intention of the parties particularly Helicol to remove any basis for jurisdiction by any United States court.

Their operation--

Unidentified Justice: Well, if the contract provision means what it says and if you were to rely on it I suppose the contract was entered into in a sense in Texas and that might give Texas jurisdiction.

Thomas J. Whalen: --If I may, Your Honor, the contract was not entered into in Texas.

There were contract discussions and the cause of action, the negligence cause of action, to the Respondents who are before the Court did not arise out of that contract.

It arose simply out of the negligence on the part of the pilot of Helicol.

So again I suggest to the Court that there is no basis for finding that the cause of action in this case arose out of that contract.

Unidentified Justice: So you would like to forget all about the contract provision at least for purposes of this argument in this case?

Thomas J. Whalen: Yes, Your Honor, for the purposes of the jurisdiction of these Plaintiffs against this Defendant on the Plaintiffs' cause of action.

If the position that the Supreme Court of Texas is to be upheld that the purchases of $4 million worth of equipment from an American vendor which is the principle contact which the Supreme Court of Texas relied on for general jurisdiction then it would appear that any time a foreign company purchased American products from an American vendor no matter what its extent that if there is a cause of action which is unrelated to those purchases that foreign purchaser could be dragged into American litigation and all the expenses involved in it solely because of the purchase of American products.

As the United States government in this case succinctly but pointedly established this would as a policy matter be against the export policy of the United States.

In the decisions of this Court certain policy matters have entered into the decisions as to whether there should be or should not be jurisdiction.

One of the policy matters in some of the cases has been the residence of the Plaintiff.

I should point out in this case that none of the Respondents were residents of Texas.

So we have in this case Plaintiffs who are nonresidents of Texas suing a company which is not based in Texas on a cause of action which occurred in Peru, and as the Supreme Court and the Respondents acknowledge there is no connection between the contacts of Helicol in Texas and the ultimate cause of action which was brought against Helicol in the State of Texas.

The decisions of this Court from International Shoe through Volkswagen have emphasized that there must be a relationship between the parties, the litigation and the forum if jurisdiction is to be established over a nonresident who is not based in the forum state.

In this case I suggest to Your Honors that Helicol in no way was based in Texas, and lacking that finding which the Supreme Court of Texas acknowledged there can be no basis for in personam jurisdiction over Helicol on an unrelated cause of action.

I think this Court respectfully is bound by the findings of the Supreme Court and of the Court of Civil Appeals that the cause of action in this case did not arise out of the contacts of Helicol in Texas.

Unidentified Justice: Mr. Whalen, are there any circumstances in which a purchaser or a buyer of goods in the forum state would be sufficient simply because of the quantity purchased, let's say, or the frequency of that occasion to provide general jurisdiction over that buyer?

Thomas J. Whalen: Yes, Your Honor.

If the business of the company was the buying and selling of helicopter equipment and that the company went into Texas to buy equipment for the purpose of reselling it then in that case I would suggest that that company by buying that equipment would be doing some business under those circumstances.

But whereas Helicol was buying capital goods for the use of its business in South America its business is not buying and selling equipment.

Its business is transporting people in South America.

So the purchase of capital goods I suggest to the Court cannot be the basis for a finding of doing business, and I believe that this was the gist of Justice Brandeis' decision in the Rosenberg case which I've cited in my brief in which he points out that purchases are not doing business.

That was a case arising in New York.

Unidentified Justice: I am not sure that that distinction alters the relationship of Texas with the buyer though.

Thomas J. Whalen: I am sorry, Your Honor.

I do not understand the question.

Unidentified Justice: Well, if the purpose of the inquiry is to determine the extent of contacts with the State of Texas in this case the forum state for the purpose of inquiring what interest the state of Texas would have and the degree to which Texas, for instance, might want to consider the interests of the buyer I would think it would not make such difference why the buyer planned to buy the goods.

Thomas J. Whalen: But the cause of action, Your Honor, was based upon that purchase, and I would agree with you that that would be a contact on which jurisdiction would be based against Helicol, that is, if Helicol failed to pay for its equipment and Bell wanted to sue Helicol for its failure then I believe that Helicol plus other contacts... Those purchases plus other contacts would form a basis for jurisdiction because the cause of action arose out of those contacts.

I hope I have answered your question, Your Honor.

I am not certain I have.

Unidentified Justice: Well, suppose Helicol was doing business and it qualified to do business in Texas, the kind of business it does.

It furnishes helicopter transportation I guess, does it not?

Thomas J. Whalen: Yes, Your Honor.

Unidentified Justice: Suppose it was qualified to do business in Texas on that basis but suppose that it was also in business in Peru and on the side it was in the real estate business and it borrowed some money to buy some real estate and did not pay the note.

Could it be sued in Texas on that note?

Thomas J. Whalen: On your facts, Your Honor, yes it could because I think the first point that--

Unidentified Justice: That would not have arisen out of any of the business they did in Texas.

Thomas J. Whalen: --Excuse me, Your Honor.

I thought you said that Helicol was authorized to do business in Texas--

Unidentified Justice: It was, but not a real estate... The only business it ever did in Texas was the transportation business.

Thomas J. Whalen: --I would interpret--

Unidentified Justice: You think that is general jurisdiction.

That is the presence.

It is present.

Thomas J. Whalen: --I think if it consents if it files with the state and says I want to do business in this state I in effect consent to the general jurisdiction and I recognize that the case that the amicus brief, not the United States, the other brief, has contested this point, but my view is that if a company files with a state asking for authority to do business I believe under one of the older Supreme Court decisions that he has consented to jurisdiction, and I would consider that a consent to be sued on any cause of action.

Unidentified Justice: But just a purchaser of a helicopter who does business in Peru... He buys a helicopter in Texas.

He does helicopter business in Peru.

He could not be sued on the note that he signed to buy some real estate in Peru.

Thomas J. Whalen: That is right.

He could not, Your Honor, under no circumstances.

Unidentified Justice: Which you say is like this case.

Thomas J. Whalen: Yes, Your Honor.

If there are no questions, I would like to save some time for rebuttal.

ORAL ARGUMENT OF GEORGE E. PLETCHER, ESQ., ON BEHALF OF RESPONDENT

Chief Justice Warren E. Burger: Mr. Pletcher.

George E. Pletcher: Mr. Chief Justice, and may it please the Court:

My clients it is true were not residents of the State of Texas.

Their relationship with the State of Texas was purely with Williams-Sedco-Horn which was domiciled in the State of Texas in Houston.

These four men were employed in Texas by Williams-Sedco-horn to work over in Peru.

My clients had absolutely nothing to do with any of the Helicol contacts with the State of Texas.

They came into the State of Texas based upon the record in this case, and the discovery was limited to that area of time from 1970 when the helicopter which crashed in Peru was purchased in Texas up until the time of the special appearance motion being heard.

Helicol came into the State of Texas for far greater reasons than simply to buy some helicopters and some helicopter parts.

In addition to purchasing the helicopter which crashed this company purchased approximately 80 percent of its fleet, and it purchased virtually all of the parts that were necessary to keep that fleet going.

They also had pilots who were trained in the State of Texas, and they also had their maintenance personnel who were trained in Texas.

They did not stay in Colombia and order helicopters and parts from the State of Texas and then wait for them to be delivered.

They sent their people to Texas and they sent their people from the head man in that company, Mr. Restrepo, the executive vice president, the head of the maintenance department of that company as well as their pilots and their maintenance personnel.

The records in this case will indicate that there were some 33 different business trips taken to the State of Texas by various officials and employees of this company.

Now when this incident occurred in Peru the Plaintiffs were immediately faced with one fundamental problem and that was where could their rights be determined.

Knowing that this Court has for the last 38 years affirmed and reaffirmed the standard of minimum contacts established in International Shoe, the cornerstone of a jurisdiction in personam case must be that there be certain minimum contacts.

Unidentified Justice: Mr. Pletcher, were any of the Plaintiffs domiciled in Texas?

George E. Pletcher: No, Your Honor, not one of them, none of the decedents nor any of their families.

The families were from Illinois, two families from Oklahoma and one family from Arizona.

Helicol had absolutely nothing to do with Illinois.

They had nothing to do with Arizona and had nothing to do with the State of Oklahoma except for one brief overnight stay there on the way to Texas to discuss the contract which has already been mentioned in the opening argument by my adversary.

The states of whom my people were resident could not hear their case because under this Court's ruling of no contacts, no jurisdiction then those three states could not possibly have passed upon my clients' rights.

Unidentified Justice: Even though one of their domiciliaries had been killed as a result of the claimed negligence?

George E. Pletcher: I think that this Court's decisions have repeatedly reaffirmed, Your Honor, that unless there be minimum contacts then nothing else matters, that it simply--

Unidentified Justice: I suppose in Volkswagen the Plaintiff was clearly resident of Oklahoma, but that was really all that was going--

George E. Pletcher: --Yes, sir, that is all there was in Volkswagen.

But without those minimum contacts this Court has held repeatedly there can be no jurisdiction.

Unidentified Justice: --Well, your position I take it is that it does not make any difference what kind of a cause of action that is being pressed against the helicopter company as long as it has these minimum contacts in Texas.

George E. Pletcher: No, Your Honor.

My position is that having once established minimum contacts which has been done, and I think there is no dispute that there is at least minimum contacts in this case, that then the focus of attention shifts from merely what did the defendant do in the forum state to examining the case from its four corners and particularly in this Court's opinion written by Your Honor in the Volkswagen case and that is where else can the Plaintiffs go to have their cause of action heard.

Unidentified Justice: Well, would you say that... Suppose some United States company sold the helicopter company some gasoline to be delivered in Peru and the helicopter company did not pay its bills.

Could it be sued in Texas on that bill just because it has these minimum contacts?

I would think you would say yes.

George E. Pletcher: Yes, sir.

I think that is the single act contact cases that are in both federal and state courts in quite a state of disarray.

Unidentified Justice: Yes, but the United States company selling the gasoline had absolutely nothing to do with Texas.

George E. Pletcher: I am sorry.

I misunderstood the Court's--

Unidentified Justice: It shipped the... It is from California.

It ships it out of California, but it sues in Texas just because that is where it wants to sue.

George E. Pletcher: --No, sir.

No, sir.

I do not believe then that jurisdiction would be permitted, and I think that it would not be permitted--

Unidentified Justice: So you think the focal point is whether they can sue any place else?

George E. Pletcher: --Well, if they could sue any place else, that is, the situation in my case here is that there is no place else in the United States--

Unidentified Justice: Except Peru.

George E. Pletcher: --Except Peru or Colombia.

Unidentified Justice: Mr. Pletcher, you said that there is no issue here of minimum contacts that they conceded?

George E. Pletcher: I think, Your Honor, that they conceded except insofar as the quality and the quantity and the importance of those contacts, but that the contacts exist I think is--

Unidentified Justice: Would you summarize them, Mr Pletcher?

George E. Pletcher: --Yes, sir.

There was in addition to those that I have already mentioned, Justice Prennan, there was the purchase of the helicopters.

There was the repeated purchases to the tune of about $50,000 per month of parts.

There was the training of the pilots.

There was the training of the maintenance personnel--

Unidentified Justice: Including the pilot of this plane?

George E. Pletcher: --Yes, sir.

There was the plant familiarization.

The record will indicate and my adversary points out in a reply brief that although it never came to fruition Helicol was trying to get to become a designated repair facility for Bell Helicopter over in Colombia.

They had on three occasions their head man and their maintenance department come to Fort Worth three different years for plant familiarization.

In addition to that if it please the Court the general manager of this Colombian corporation came to Houston, Texas.

He came there to discuss and negotiate the very contract that counsel spoke of.

Now it is true.

We have never claimed that that contract was executed in Texas because it was not.

It was executed in Peru because it had to be executed in Peru.

But it was negotiated right in Houston, Texas.

Williams-Sedco-Horn was a group of three companies that was formed purely and simply to do this work over in Peru.

Unidentified Justice: Mr. Pletcher, is that negotiation of the contract which was the source of the business they did in Peru really any different from the purchase of the helicopters themselves?

They got the raw material and the contractual rights and all with which to carry on their business in Peru.

They got those in Texas.

But aren't those all just a more dramatic example of the case that your opponent says is controlling here, the case that holds the purchases are not enough?

George E. Pletcher: Well, Your Honor--

Unidentified Justice: Are you asking us to overrule that case I guess is the bottom line of my question?

George E. Pletcher: --Am I asking you to--

Unidentified Justice: Overrule the Rosenberg case.

George E. Pletcher: --No, sir.

I am not asking you to overrule that case at all.

What I am suggesting though is that that case since it was decided 23 year before the minimum contact standard was ever established and dealt purely with the question of whether or not purchases alone equated with corporate presence which was the fiction which was then being used and which was later abandoned by this Court.

That is no longer controlling in a case involving commercial contacts which is now the minimum contact standard.

I do not think that the Rosenberg decision needs to be overruled.

I just think that it is--

Unidentified Justice: Well, would you think you had enough if there was nothing in the case except the purchase of the helicopters?

George E. Pletcher: --I certainly would not have enough in the case if counsel persuades this Court to ignore purchases as he requests.

Unidentified Justice: My problem is you have got purchases plus training plus the negotiation of the contract that enable you to do business.

George E. Pletcher: Yes.

Unidentified Justice: I am not sure any one of those is different from the other two analytically.

That is my problem.

George E. Pletcher: Well, they are different only to the extent that one is frank purchase of goods and the other is a negotiation of a contract to perform services.

Unidentified Justice: Do you put great weight on the fact that they purchased 80 percent of their flying equipment in Houston?

George E. Pletcher: Yes, sir.

Unidentified Justice: How many planes was that?

George E. Pletcher: I believe they bought five helicopters in Fort Worth.

Unidentified Justice: You said 80 percent you think it is a number don't you?

Why didn't you say five instead of 80 percent?

George E. Pletcher: Well, because the percentage was the word that was given by Helicol.

That is where we got our information about what percentage of their fleet was purchased in Texas.

Unidentified Justice: Do you think your opponent concedes that... I should have asked him.

Maybe I still will... concedes that if they had not paid for the helicopters they could be sued in Texas for the purchase price?

George E. Pletcher: I do not know if he would concede it, but he should concede it, Your Honor.

Are you talking about if Bell--

Unidentified Justice: Well, I know you think he should concede your case.

George E. Pletcher: --Bell certainly would be entitled to sue for the failure of Helicol to pay for their helicopters.

Unidentified Justice: Based on minimum contacts.

George E. Pletcher: Yes, sir, based on minimum contacts and arising out of the transaction.

Unidentified Justice: You think it is a prevailing law that if you purchased goods in a state if that is the only thing you do in a state purchasing from abroad you can be sued in that state for the purchase price.

Is that a general rule you think?

George E. Pletcher: No, sir.

I think that--

Unidentified Justice: The cases are split.

George E. Pletcher: --Yes.

I think that is where the division of authority is.

I think that is where that disarray is that--

Unidentified Justice: A fortiori there would be a big split on this one?

George E. Pletcher: --Yes, sir.

Unidentified Justice: Do you have some cases that support you?

George E. Pletcher: Well, Your Honor, I have basically the Perkins case.

The Perkins case is not unlike this case except in one way and that is that there the Philippine company president because the Japanese had taken over the Philippine Islands flew back to his home state of Ohio and was actually physically present there.

But the basic factual situation in that case is the same as it is here.

Unidentified Justice: Is Perkins relied on below?

George E. Pletcher: Oh, yes, sir.

Because there in the Perkins case a nonresident plaintiff sued a nonresident defendant on a cause of action which was entirely unrelated to contacts within the state, and there this Court held that Ohio did not have to open its courts but it was not constitutionally prohibited from doing so.

That is basically our argument and has been from the outset in this case is that the contacts with this nonresident defendant were so pervasive and over such a long period of time and of such substance that it is then what we ask the Court to do and what this Court has said is a proper thing to do is to look at the other factors in this case as to whether or not it is reasonable and fair to ask a nonresident defendant to appear in the forum state to defend a cause of action.

It is our belief and we urge upon this Court that once you look at this case on those other relevant matters they all come down favoring the Plaintiffs.

Unidentified Justice: So you... Just any cause of action that might exist against the helicopter company could be brought in Texas?

George E. Pletcher: Only if it is fair and reasonable to do so, Your Honor.

That is the second protection that a nonresident--

Unidentified Justice: Well, a resident of Ohio buys some stock in the helicopter company and the company is not doing very well and they think the directors are guilty of fraud or something so they want to bring a derivative suit.

Can they bring a derivative suit or can they sue the directors of the helicopter company in Texas, sue the helicopter company itself?

George E. Pletcher: --Yes, sir.

I believe they could if it is shown that the helicopter company is doing business on a consistent basis in Texas.

Unidentified Justice: You mean on these very facts of yours you think that suit would lie?

George E. Pletcher: Yes, sir.

They have a general presence in the State of Texas under those circumstances.

It is for that reason that it is fair and reasonable to expect them to come in and defend that case.

But, Your Honor, the fairness doctrine which is the second peg of the minimum contacts standard set forth in International Shoe protects defendants against those kind of cases that in a given case may render it unfair and unjust and not in keeping with the traditional notions of fair play.

There is another matter that I would like to discuss particularly with reference to a question by Justice O'Connor, and that is whether or not in the country of Peru the plaintiffs could have sued Bell Helicopter Company.

Your Honor, from this record I think that it is not possible even if we assume that the country of Peru has the same jurisdictional standards that we have in this Court.

I think that there is absolutely no showing that Bell helicopter had any contacts with the country of Peru topside or bottom.

That is one of our problems and was from the beginning of this case.

In Colombia the record would reflect Bell helicopter has a representative but Williams-Sedco-Horn has nothing to do with that country.

The only place in the United States that my clients could have their rights established was in Texas, and the only place on earth that the Plaintiffs and the three Defendants could all be joined together in one cause of action to efficiently dispose of this case was in the State of Texas.

A question was also asked about why was an instructed verdict granted as to Williams-Sedco-Horn and Bell Helicopter, and it is true that the Plaintiffs, my clients, failed to raise a fact issue as to negligence or product defect as to either of those Defendants.

It is also true that the helicopter company's claim of defective helicopter was also not such as to raise a fact issue.

A case such as this is almost a certainty.

When a helicopter flies into a tree in a fog and all hands are killed either there was pilot error, there was a problem with the contractor pressuring the flying company to fly in that weather, or there was something wrong with the helicopter.

Those were all issues in this case from the outset by one party against the other parties.

When this case was finally tried and when all of the evidence was in those claims and those cross claims were all thrown out of court as far as Williams-Sedco-Horn and Bell helicopter leaving only Helicol and the Plaintiffs in the case submitted to the jury and the jury found as counsel has indicated.

Unidentified Justice: May I ask... I take it the pilot was not a defendant.

George E. Pletcher: I beg your pardon?

Unidentified Justice: The pilot was not a defendant?

George E. Pletcher: The pilot was not.

The pilot was killed as well and his estate was--

Unidentified Justice: His estate was not named?

George E. Pletcher: --No.

Only the company was named as a defendant.

Unless there are further questions, that is all the time I need to take.

Thank you very much, Mr. Chief Justice.

Chief Justice Warren E. Burger: Very well.

Do you have anything further, Mr. Whalen?

ORAL ARGUMENT OF THOMAS J. WHALEN, ESQ., ON BEHALF OF PETITIONER -- REBUTTAL

Thomas J. Whalen: Yes, Your Honor.

My adversary in this case apparently is prepared to have the case decided on the Perkins case.

He says that this case is identical to the Perkins case.

The facts in the Perkins case are that it was a company that was principally doing business in the Philippines and because of the war in effect had to leave the Philippines and set up operations in Ohio.

The president was there.

They actually operated business, all kinds of business, from Ohio.

They had employees, payroll, bank account, offices, employees located there.

They had set up shop, and the position I think of this Court in the Perkins case was as a commentator says it is never a violation of due process for a defendant to be sued in his own backyard.

In that case the defendant had in effect set up an office.

He was equivalent to a domiciliary and under those circumstances a defendant should be subject to suit on any cause of action, and that is essentially what this Court held in that case.

Perkins came after International Shoe and Perkins was in a sense signaled by International Shoe because the language in International Shoe suggested that there would be circumstances in which the contacts were so great they were substantial, continuous, systematic doing business that the cause of action would not necessarily have to arise out of those facts in order as a matter of due process jurisdiction could be had.

I would like to point out to the Court this Court in International Shoe cited the Rosenberg case, cited it indicating that it still had strength even after International Shoe.

I would point out in Rosenberg and to this extent Rosenberg may very well have been changed to some extent by International Shoe.

In that case the cause of action arose out of the conduct in New York although it is not clear from the facts as to whether it arose out of the purchases.

Notwithstanding the fact in Rosenberg that the cause of action arose out of conduct in the State of New York, the Court in that case said that purchases... the purchase of a significant amount of capital as well as inventory is not sufficient to form basis for jurisdiction over that defendant.

I think my adversary's position in this case is simply that he represents United States citizens and that his court, the Texas court, should provide a forum somewhere in this country--

Unidentified Justice: Mr. Whalen, if there were kind of a world-wide due process clause administered perhaps by the World Court of the Hague and that court had decided a world International Shoe case talking about minimum contacts for a country certainly somewhere in the United States should qualify as minimum contacts to adjudicate this dispute don't you think?

Thomas J. Whalen: --No, Your Honor.

There are no minimum contacts as I understand the doctrine of minimum contacts from International Shoe that the cause of action simply did not arise out of those contacts.

Unidentified Justice: Well, it did not arise but all the plaintiffs reside in the United States.

Certainly the defendant had some contacts with the United States.

I grant you so far as Texas when you try to pick one out of several of the United States no one of them seems very strong, but I have a rather strong conviction that somewhere in the United States there ought to be jurisdiction to try this.

Thomas J. Whalen: Your Honor,--

Unidentified Justice: One does not decide on those feelings.

I realize that.

Thomas J. Whalen: --The constitutional due process which is the argument I am proposing to this Court is the due process which should be accorded to this Defendant.

I would suggest to Your Honor that if this Defendant constitutionally cannot be subject to suit this Court should not find jurisdiction where he can be sued simply because the Plaintiffs are United States citizens.

I do not believe as a matter of the United States Constitution that a U.S. citizen is guaranteed a forum for any causes of action on any basis in this country.

I believe that that is the fundamental basis of the argument of my adversary.

This Court because they are the United States says it must find a forum.

I think that in this case under the present rulings of this Court there is no basis because of the contacts of Helicol with the jurisdiction in Texas... There is no basis for holding Helicol subject to the jurisdiction of Texas on this cause of action.

My adversary has not disputed the fact that... What he is relying on are solely the purchases of capital equipment in Texas and a single contract discussion which lasted only about two hours in the City of Houston, and that is the basis upon which he is claiming that my client is subject to suit on a cause of action which happened in South America.

I suggest to the Court--

Unidentified Justice: Mr. Whalen, let me ask the question I think you have not answered.

Supposing the suit was not arising out of an airplane action in Peru but rather supposing your client had not paid for the helicopters and the manufacturer wanted to sue them.

Could they sue your client in Texas?

Thomas J. Whalen: --Your Honor, on those facts alone I would state they could not sue.

Unidentified Justice: Even though the cause of action arose out of the activity in Texas which would be unlike this?

Thomas J. Whalen: I understand Mr. Justice White's dissent to a denial of certiorari in the Lakeside case.

There was a discussion of whether those facts alone were sufficient to form a basis of jurisdiction over a defendant simply on a telephone call or--

Unidentified Justice: Let me change it.

Say they did not pay for the training school for their pilots.

They bought the helicopters and they had them trained in Texas and then they did not pay for the instruction on how to fly the helicopters.

I suppose that is pretty close to the same.

Thomas J. Whalen: --That is pretty close to the same.

I would say that there would be... I do not think I would be prepared to say that that satisfies even the minimum contacts doctrine of International Shoe.

It has got to be more than that.

That would be my position, Your Honor, although admittedly it is a close case.

In Volkswagen, of course, the cause of action did arise in Oklahoma and this Court nevertheless with respect to two regional distributors found that there was not jurisdiction over those defendants.

Following the rationale I believe of the Court's opinion in that case I do not think that simply the fact that a cause of action arose would be sufficient--

Unidentified Justice: No, but it arose out of a commercial relationship in my hypothetical which is an unsatisfied debt and so forth.

Well, anyway I understand your position.

Thomas J. Whalen: --I think it is a close question, Your Honor.

I would not... It is a close--

Unidentified Justice: Anyway that is a different case.

Thomas J. Whalen: --It is a different case, Your Honor.

In this case the contacts of Helicol in Texas did not in any way give rise to the cause of action on which the Plaintiff has brought his claim, and I submit that that is the critical distinction and this Court should follow Perkins and dismiss the case.

If there are no further questions I will submit.

Chief Justice Warren E. Burger: Thank you, gentlemen.

The case is submitted.

Featured:

Insurance Corp. v. Compagnie Des Bauxites - Oral Argument

Fri, 09 Jan 2009 14:46:56 +0000

Case:

Insurance Corp. v. Compagnie Des Bauxites

Media File:

81-440_19820323-argument.mp3

Related Transcript:

transcript.xml

Transcript:

ORAL ARGUMENT OF EDMUND K. TRENT, ESQ. ON BEHALF OF PETITIONERS

Chief Justice Burger: We will hear arguments next in Insurance Corporation of Ireland against Compagnie des Bauxites.

Mr. Trent, I think you may proceed whenever you're ready.

Mr. Trent: Mr. Chief Justice, may it please the Court:

This case comes before this Court on a cross-petition for certiorari to the Court of Appeals for the Third Circuit, brought by the Appellants there, Defendants in the District Court for the Western District of Pennsylvania.

The pleading in suit was the second count of the complaint by the Plaintiff, the Compagnie des Bauxite de Guinee, a non-Pennsylvania corporation, against a number of Defendants, including the 14 Cross-Petitioners, non-Pennsylvania insurance companies... Indeed, they were non-American insurance companies... on contracts of insurance made in London insuring a risk in Africa.

The Defendants pleaded lack of personal jurisdiction and filed a motion to dismiss for want of personal jurisdiction.

The Plaintiff requested the Defendants to produce their insurance policies covering Pennsylvania insureds, Pennsylvania risks, and emanating from brokers in Pennsylvania.

At the hearing before the district judge on the motion to dismiss and on the Defendants' objections to the request for documents, the counsel for the Defendant insurers, two young people from New York at the time, pointed out to the court that the Defendants did not have copies of their policies in their possession.

The contracts of insurance consisted of for the most part each contract a single piece of paper called a placing slip, where the terms of the risk were summarized in shorthand form, abbreviated form, in accordance with the practice in London.

And so then the district court said, well... oh... the Defendants' counsel said: These are in the hands of about 150 brokers in London.

According to British practice, the broker is not the agent of the insurance company, but the agent of the insured or the prospective insured seeking insurance.

And so the district judge said, request them from the brokers.

New York counsel for the insurers went to England to see what he could find out about these things.

In effect, he undertook to do what the court had ordered him to do.

And he found there that there were about four million files involved in these policies, because the insurers did not have indexes relating to Pennsylvania.

Their indexes were based on large geographical areas.

The continent of North America was the smallest group that they had.

And so he came back and, within the time allowed by the court as extended for 30 days, he filed an affidavit offering to produce all the Defendants' own records, these placing slips, at their places where they were kept in England, mostly in London, and for one of the Defendants in Tel Aviv, where its records were kept.

At the hearing... oh, the Plaintiff then filed a motion to compel, and at the hearing on that motion the district judge said, I'll give you another 60 days to get these policies from the brokers.

Unidentified Justice: Did the district court at that time, Mr. Trent, say where the production should take place?

Mr. Trent: Not expressly, no.

But the request for documents asked for them to be brought to the office of Plaintiff's counsel in Pittsburgh, and it was assumed that that's where they were to be produced.

Unidentified Justice: Is that disputed at all or does everybody agree?

Mr. Trent: I think everyone agrees on that.

There was no specific statement by the court that they should be produced in Pittsburgh, but everyone assumed it because the request for documents said to produce them at the office of Plaintiff's counsel in Pittsburgh.

Unidentified Justice: Counsel, insofar as I was able to determine reading the briefs, the Defendants at trial indicated that that would basically be possible; it was a question of when, not if.

Is that right?

Mr. Trent: To produce in Pittsburgh, you mean?

Well, it would be possible, yes, to bring 4,000, four million files to Pittsburgh.

But as a practical matter I would say no.

I question even whether Hercules could do such a thing, and we have no one of his caliber on our staff.

As a practical matter, it was impossible.

When--

Unidentified Justice: And that position was articulated at all times before the district court?

Mr. Trent: --Yes.

It was not--

Unidentified Justice: That it was impossible physically?

Mr. Trent: --Well, I can't say that it was expressly said, but it would seem to me that it's just obvious that you can't bring four million files across the ocean as a practical matter.

And that was the position that we took.

Now, then the district court gave the Defendants another 60 days to get the policies from the brokers in London.

The Defendants then sent letters to roughly 150 brokers, and the brokers answered that it was impossible for them to get these policies out of their files or that it was impossible to do it within the time limit, which was a little less than 60 days by the time they got the request.

So that there they were taking the definite position that it was impossible because their files too were not indexed according to the states in the United States.

After that the Plaintiffs filed a motion for sanctions to have the court find that the Defendants were subject to jurisdiction in Pennsylvania.

While that motion was pending, the Defendants, based on some newly discovered evidence which they had received a few months before, filed an action in London for a declaratory judgment that they had the right to avoid, as the British term is, to rescind the contract, because of the failure of the Plaintiff to disclose material information at the time they asked the Defendants to assume the risk.

The Plaintiff then filed a motion to enjoin that London action, and at the hearing on the preliminary injunction the district court entered a sanction, finding the Defendants subject to jurisdiction and entered a preliminary injunction enjoining the action in London.

About two months later, on the Plaintiff's motion he entered orders saying that the jurisdictional finding is conclusive, there shall be no discovery on jurisdiction and no testimony on it at the permanent injunction hearing.

Then on appeal to the Court of Appeals, the Third Circuit, in an opinion by Judge Aldisert, reversed the injunction, but affirmed on the jurisdiction.

Plaintiffs filed a petition for certiorari on the injunction, which is still pending, and the Defendants filed a cross-petition on the jurisdiction, which Your Honors granted.

Unidentified Justice: Mr. Trent, before you get into your argument could I ask just perhaps kind of a stupid question?

What is the position of these British insurance companies as to where they should properly be sued?

Mr. Trent: Where they should be sued?

In London.

The custom over there is that if--

Unidentified Justice: That if an American company enters into an insurance... gets insurance from an English company, they're expected to sue in London?

Mr. Trent: --Yes, because the way that the insurance is placed, it's the broker in London who makes the contract with the insurer there.

Unidentified Justice: And they wouldn't even have been subject to suit in West Africa, either?

Mr. Trent: No, unless it's stated on the placing slip, it's assumed that it will be in London.

Now, in the present case the insurers, the underwriters who accepted the contract for the insurers thought that this was a Guinean company in Africa.

They had no knowledge at all that the Plaintiff was a Delaware corporation.

Its name being in French and French being the language in the Republic of Guinea, they thought it was a Guinean risk.

As a matter of fact, the testimony was they thought they were reinsuring a Guinean company, because many of the countries there have preference for their own insurance companies and the London companies then reinsure them.

The Court of Appeals in... well, I should say that the question is then whether the sanction was proper.

The Court of Appeals held that it... no.

And we say that depends on two things, whether a court can make a sanction, make an order requiring discovery and impose a sanction for not obeying before the court has found the Defendants subject to personal jurisdiction; and second, that the order in this case, the sanction order, is valid only if the discovery order is valid, and a discovery order requiring us to bring four million files from London to Pittsburgh is a complete abuse of discretion, it's impossible.

The Defendants could not comply with it and therefore they didn't willfully disobey it.

It was just impossible to obey.

And there's not a shred of evidence in the record that the young New York lawyers who were handling the matter were contumacious in any way.

They were trying to do what the court wanted them to do, and when they--

Unidentified Justice: Mr. Trent, that's I think the third time you've used the phrase "young New York lawyers".

I take it you wish in some way to disassociate yourself from--

Mr. Trent: --Well, I beg Your Honor's pardon.

I was in effect excusing them because of their lack of experience.

They are very nice people.

Unidentified Justice: --Excusing them for what?

Mr. Trent: For not immediately saying, we will produce these things in London.

They first... they tried to get--

Unidentified Justice: But they did have authority to represent your clients at the time?

Mr. Trent: --Oh, absolutely.

They were in charge of the case.

Unidentified Justice: And we must presume they are duly admitted and competent lawyers, even though they're young.

Mr. Trent: That's right, Your Honor.

Now--

Unidentified Justice: Counsel, was the court's order to produce only the files on policies issued by these companies to people in Pennsylvania, or was the order to produce all four million files?

Mr. Trent: --The order was to produce the Pennsylvania policies, but in order to do that the brokers in London and the Defendants in London would have had to go through four million files to see which ones related to Pennsylvania.

Now, in the course of one of the hearings, arguments in court, the lawyer from New York said: Well, suppose we admit that we're doing one percent, we get one percent of our income from Pennsylvania.

Will that satisfy?

And Mr. Mellott for the Plaintiffs said: No, I will not take your word for that.

I want to see all the records to make sure that you're showing them all to us.

So we would have had to bring four million files over, even if we had been able to sort out just the Pennsylvania ones, because Mr. Mellott was not willing to accept the representation--

Unidentified Justice: But that was not the court's order, in any event?

Mr. Trent: --No, the court's order was just the Pennsylvania files, that's right.

Unidentified Justice: How much easier would it have been to get into these records in London once they're identified?

Mr. Trent: Oh, they're there.

They're all available.

It would be just a matter for the Plaintiffs' counsel to go and look at them and see.

He would have to dig it out, and the cases say that the party seeking discovery has to bear the burden of whatever work it is to find what he wants.

Unidentified Justice: Mr. Trent, if I find myself unable to excuse what these lawyers did because they're young lawyers from New York, do you lose?

Mr. Trent: If you do not excuse them?

Unidentified Justice: If I find that I just can't excuse them--

Mr. Trent: Cannot excuse them--

Unidentified Justice: --because they're young and inexperienced--

Mr. Trent: --Well, I don't think that would.

Unidentified Justice: --did you lose?

Mr. Trent: No, I wouldn't think I would lose on that.

Unidentified Justice: All right, Well, you act like it.

Mr. Trent: Well, I beg your pardon.

I was trying to in effect explain what took place.

Unidentified Justice: I took it that your reference to these young men was to indicate that there was no deliberate, there was no xx conduct on their part.

Mr. Trent: Right, right, exactly, Your Honor.

That's true and that's correct, and I don't think the other side contends that there was.

Their principal basis is that we just did not produce the records in Pittsburgh.

Now, on the Court of Appeals Judge Aldisert... there's a split of authority in the circuits.

The latest case before this one was the case in the Fifth Circuit, Familia de Boom v. Arosa Mercantil in the Southern District of Texas, where the district court had dismissed an action because the plaintiff did not comply with... answer interrogatories.

And the Fifth Circuit, reversed that and said you cannot make an order requiring them to answer interrogatories until your first have jurisdiction over them.

The second ground for the Court of Appeals ruling here was that... Judge Aldisert admitted that the general rule is that where the documents are voluminous the party seeking... wanting to look at them must go where they are.

But he said that's a matter of discretion for the district court and we cannot find that... we can't say we disagree with it.

Now, we say that that is completely wrong, that it was an abuse of discretion to require us to bring four million files over to America, and we've cited cases in the brief that support that.

Unidentified Justice: Would it not have been compliance with the order for your people in London to search through the files and found those that showed American business and just brought those?

Mr. Trent: Yes, but that would have been a Herculean task, because they had no indexes.

They would have had to examine--

Unidentified Justice: Well, you said a moment ago that if Plaintiff's counsel went over the files would be available to them.

But it would also be a Herculean task for the Plaintiff's counsel.

Mr. Trent: --Yes, that's right.

And because the Plaintiff is seeking the information, the Plaintiff must bear the burden of that.

Unidentified Justice: And there is no way in which these companies can find any shortcuts to know how much business they've done in Pennsylvania, I guess?

Mr. Trent: Well, two of them by... or some of them, by taking files for a limited period, part of the period... the period they asked for was about six years.

They took part of a year or a year or something, and then they made estimates, and they all said, well, we don't do more than one percent.

That was--

Unidentified Justice: How would they even know about the one percent?

That's what puzzles me.

Mr. Trent: --Well, I think that was just the general feeling of the underwriters.

Unidentified Justice: I mean, I'd assume there'd be some executives who would remember some policies that came from--

Mr. Trent: Oh, I think they could have remembered some particular ones, but that wouldn't satisfy the Plaintiff.

And by taking--

Unidentified Justice: --There was no attempt to sort of say, well, maybe we... if we give you everything we can find in the first few days of search or something.

Sometimes these things can be worked out.

Mr. Trent: --Yes.

Well, that was where they got their one percent, by looking at a short period.

Unidentified Justice: Yes.

Mr. Trent: But there was never any proposal by the Plaintiffs to accept something like that.

They wanted the whole thing and they wanted to look at every paper in the file to make sure we weren't withholding some.

So as I see it, the way these things ought to be handled is if there's no jurisdiction... until jurisdiction is found, there's no power in the court to enter any sort of order against a defendant.

But the plaintiff is not without a remedy there.

That was one of the things Judge Aldisert said, that it was necessary to do this, otherwise how can the Plaintiff prove his case of jurisdiction.

All they had to do was to initiate discovery against us as non-parties.

The British statute permits that.

We would have had to produce our documents pursuant to subpoena in London, and then they could have looked at them.

Now, as a practical matter we weren't going to insist on that.

We said, sure, come over, we'll let you see them.

And if they then wanted to look at the brokers' records also, they could have subpoenaed them.

But I think the brokers would have let them come and look at them.

They... except for, one of the brokers said these things are confidential.

The others did not object to producing them as such.

They objected because it was just such a terrible job to do.

Unidentified Justice: Well, it's your position, then, that the extreme nature of the discovery required by the district court, as you regard it, really doesn't have any bearing on this case, because I take it you would have objected on your jurisdictional argument to even requiring one witness who resided in Pittsburgh to be deposed on the jurisdictional issue.

Mr. Trent: Yes, yes.

Well, we had the right to do that.

I can't say that I would have objected if they wanted to take one.

Now, I have said in one part of my argument that these files in the... policies on the brokers' possession were not subject to our control.

As a practical matter they were not, because the brokers would not produce them, although I think we had a legal right to get them from the broker.

After all, when the insurance company writes insurance and signs a policy and the broker keeps it, the insurance company has a right to get that.

But the general rule in the law is that if a party which has control of another's documents, a non-party to the action has control of the documents of a party and the party says, please give them to me, and the person with custody says, no, I won't, then it's up to the other party to the case who wants them to go after that party who has the custody.

And I cited some cases on that.

Because they wouldn't produce them for us.

So... I started to say that the best way to resolve this would be if there is a... jurisdiction is contested and then the party asserting jurisdiction would file affidavits and the other one would file affidavits.

And if they're conflicting, then you cannot... you could dismiss the motion to dismiss.

You could deny the motion to dismiss, but you couldn't grant it on conflicting affidavits.

You would have to hold a hearing, and that I think should have been done.

Judge Simmons in the district court should have held a hearing and tried to resolve, to see whether there would be evidence to support a finding of jurisdiction, and then he could order discovery to get more evidence.

But he didn't do that.

At the same time as he made his injunction order, he entered a sanction and we had no opportunity, then, to try to comply with the sanction.

I would like to reserve the remainder of my time for rebuttal.

Chief Justice Burger: Very well.

Mr. Mellott?

ORAL ARGUMENT OF CLOYD R. MELLOTT, ESQ. ON BEHALF OF RESPONDENTS

Mr. Mellott: Mr. Chief Justice and if it please the Court:

It is the position of the Cross-Respondent that when a party to a litigation in a federal court comes into the court and asks for a binding determination of no jurisdiction... and incidentally, it was not a motion to dismiss under 12(b) that was filed here.

It was a motion for summary judgment that was filed 18 months after the action was commenced.

Motion for summary judgment was filed asking the court to determine... make a binding determination that there was no personal jurisdiction over 17 of the excess insurers.

Now, not only did the excess insurers come into court and ask for that action by the court; the excess insurers took advantage of the discovery rules themselves.

They served us with a request for production of documents.

They served us--

Unidentified Justice: How many documents?

Mr. Mellott: --Well, they asked us to produce policies which they had issued to CBG or to Halco or to another affiliated company, and to produce policies which had been referred to in an affidavit of Marsh & McLennan, policies which Marsh & McLennan, a broker in Pittsburgh, had written for either Halco, CBG... and when I say CBG I mean the Cross-Respondent here... or Alcoa, in which Marsh & McLennan state in the affidavit during a period, I believe, from 1971 until 1975, when the lawsuit was filed, they had written numerous policies for each of the excess insurers here involved, and they list them by number... it appears in the appendix, Your Honors... setting forth the number of contacts that they'd had in Pennsylvania.

When we tried to obtain additional information concerning policies written for other companies, we of course were unable to get them from Marsh & McLennan.

Unidentified Justice: Mr. Mellott, it was never clear to me reading the briefs whether it was your position in the lawsuit that your clients had jurisdiction because of the Pennsylvania contacts related to these particular policies alone, or whether it was your position that there was jurisdiction because the original Defendants had done so much business in Pennsylvania that there was general jurisdiction.

Mr. Mellott: Justice... excuse me.

I didn't mean to interrupt.

It was our position that we had jurisdiction on several grounds, and Judge Simmons so found in his preliminary findings and in the findings on the permanent injunction.

We contended, first of all, that there was sufficient contacts in this particular transaction.

I find myself disagreeing completely with the statement of facts which Mr. Trent has stated to this Court and I think the record will support--

Unidentified Justice: Well, if you were willing to rest on that you wouldn't need all these four million files.

Mr. Mellott: --Your Honor, we also contended that they had conducted sufficient other business in Pennsylvania so as to meet the tests under International Shoe and other cases which this Court has decided.

And we contended that they had adopted the primary policy.

You see, we have a policy covering the first $10 million of loss with INA insurance company in Philadelphia, in Pennsylvania.

The excess insurers do not deny that they adopted the terms of the primary policy.

But they would have us sue INA in Pennsylvania and them, at least some of them, in London and one of them in Brussels.

We submit that when they adopted the terms of the primary policy they were subject to suit where the primary insurer was subject to suit.

We also contend that there was an implied term in the policy that they would consent to suit in Pennsylvania.

Other policies... and they're listed in the record... other policies had been issued to my client previously in which most of the excess insurers were involved, in which there was a consent to suit clause, anywhere.

Unidentified Justice: If there is an implied term in the policy, why is there any need for an express consent to suit clause?

Mr. Mellott: Well, Your Honor, obviously I was trying to prove jurisdiction on one of several grounds, and the Defendants were contending that they didn't do enough business here... or in Pennsylvania... to be subject to suit there.

And it seemed to me that when they're coming into court and asking the court to make a binding determination of no jurisdiction on the ground that they don't have sufficient contacts in Pennsylvania to satisfy the tests under International Shoe, that by doing so they've at least agreed to produce or consented to the jurisdiction of the court to produce those facts which are relevant to that determination.

Otherwise it seems to me, Your Honors, it's a complete abuse of our judicial process.

Furthermore, there is evidence in the record, contrary to what Mr. Trent says, that the excess insurers knew that INA was the company that had written the primary insurance, that they knew of the contact with Pennsylvania.

We have affidavits from the brokers, we have testimony on depositions.

The excess layer was $10 million.

40 percent of that was reinsured with INA Reinsurance in Brussels.

The same London broker who the excess insurers would have this Court believe for all purposes is the agent of my client, at the same time they were negotiating the excess layer of coverage, they were also negotiating the reinsurance, not for my clients but for the excess insurers, with INA Reinsurance in Brussels.

That company took 40 percent of this excess layer of $10 million.

That company is an affiliated company with the primary carrier.

That company had full information in its files, furnished by the broker, concerning CBG, its U.S. connection, the fact it was a Delaware corporation, who its owners were, completely consistent with the affidavit of the London brokers as to what they had in their files and what was available for the excess insurers to see.

Now, if they gave it to the reinsurance company, I submit there is reason to believe it was also given to all of the excess insurers.

There are a lot of other misstatements of fact which appear in the brief and which were repeated here again today.

Now, the only way that I can explain it is that Mr. Trent came into this case some time after the sanctions were entered.

I've been in the case from the beginning.

There was never a question at any time in any of the proceedings as to whether the documents had to be produced in Pittsburgh or in London.

There was never an objection made by the excess insurers on that basis.

I never refused to go to London to look at documents.

The court never really ordered them to produce them in Pittsburgh.

As a matter of fact, as Mr. Trent should know, I went to London and to Europe, to Brussels, both before and after this offer that was made four months after they were ordered to produce the documents, to look at documents when the documents were produced.

What did happen here?

A motion... after they filed the motion for summary judgment claiming no in personam jurisdiction because, they said, they didn't have sufficient contact... the fact is they had initially filed affidavits in connection with the motion for summary judgment in which all 17 denied any business in Pennsylvania.

But after we filed counter-affidavits establishing business to the extent that we were able to prove it, they filed new affidavits, in 13 of which these excess insurers acknowledge under oath that they are engaged in writing insurance and covering risks on a worldwide basis.

They don't exclude Pennsylvania.

Pennsylvania is a rather commercial state, with a lot of industries that are engaged in business worldwide.

In some of these affidavits we find representations that they conducted... that they had reviewed some of their files and that they had determined that certain percentages, either one percent more or less, had been determined to be derived from Pennsylvania.

Now, that's not just in a representation of counsel, as I understood Mr. Trent to indicate to the Court previously.

It is in signed, sworn affidavits of the excess insurers.

Justice Stevens, I believe asked the question about, how did they know.

Well, presumably, at least the representation made to the court was that the files had been reviewed to support the affidavit, not that they had some general understanding out of the air.

Now, it may be, and I submit should be, that one percent of their premium income, which in all probability runs into the millions of dollars, is enough contact with Pennsylvania to meet the test of International Shoe.

And when they... when we were in court and they asked whether that wasn't adequate, whether I wasn't satisfied with that, I said that if you are still contending that that extent of business does not meet the regularity test then I want you to produce the documents, as you were originally ordered to do.

And they said, what difference... the lawyer said, what difference does it make whether it's one or two percent?

Well, I offered to withdraw the request for production of documents if they would acknowledge that the one or two percent of their business was sufficient to meet the tests of the Pennsylvania long arm statute and the requirement of International Shoe.

They were not willing to do that.

They still contended that the contacts were not adequate.

Now, they were originally ordered to produce, on July 27th, 1978.

Mr. Trent would have you believe, and in fact says so in his brief and in his reply brief and intimated it again today, that the lawyers from New York, who are experienced insurance lawyers in the international insurance field, immediately went to London to contact the brokers.

In fact, that's what he says in his brief.

There's no citation to the record for that.

Unidentified Justice: Counsel, do you agree with Mr. Trent that the order to produce did contemplate production in Pittsburgh?

Mr. Mellott: No, Your Honor, I do not.

Unidentified Justice: Where do you think it contemplated production?

Mr. Mellott: Your Honor, I think that matter was never settled.

They never objected.

At any time there was any discussion about this matter on the record, Your Honor, they never objected that it was the burden to bring it to Pittsburgh.

That's not in their objections.

The burdensomeness that they objected to was the collection of the documents.

The only objections in the record to this production, contrary to what Mr. Trent has indicated in his brief and again today, are objections as to relevancy... I think it's clearly relevant... and objections as to burdensomeness from the standpoint of having to contact the brokers to get the documents.

Unidentified Justice: Well, but if as you say there really was no place for production specified, then they would have had no occasion to get into the question of whether it was too burdensome to bring it, once it had been assembled, from London to Pittsburgh.

Mr. Mellott: Well, Your Honor, in the order which the judge entered there was no provision for place of production.

And we had gone to London previously to look at documents.

We were perfectly willing to go again, and I'm sure the lawyers so understood.

That to me is a red herring that's come into the case after the sanctions were entered.

It's not something that was involved at all.

We went to London and looked at their documents.

We went to Brussels and looked at documents.

We did it both before and afterwards.

Now, the problem is, at the July 27th, '78, hearing the counsel from New York told the court they'd have to contact brokers, there were 150 brokers involved.

In fact, they had filed an affidavit earlier that day in which they said there'd be 150 brokers involved and it would require contacts.

The judge suggested that a letter be written to the brokers, a form letter.

This is in July.

And there was no objection at that time that they were outside of the control of the excess insurers.

When was the letter finally written to the brokers?

Six months later, in January 1979.

Even though at the July hearing their counsel is saying, the documents you want are in the hands of the brokers, they're not saying, however, that they're outside their control... and if I understood Mr. Trent today, he's now not suggesting that either, because I think clearly they are not outside the control of the excess insurers... instead of immediately going to London, as Mr. Trent indicates in his brief, and in his reply brief, and again today, they admitted five months later at the December hearing that they hadn't contacted even one broker, five months after they had been ordered to do it.

As a matter of fact, they had only contacted 15 of their 21 clients.

They hadn't even contacted all of them.

And that's conclusively established by the affidavit that they filed in November, and by the--

Unidentified Justice: Mr. Mellott--

--Where is that affidavit?

Mr. Mellott: --It's in the record, Your Honor.

Unidentified Justice: Well, we don't need to take your time hunting it up.

Mr. Mellott: The affidavit is at 98a and 99a.

Unidentified Justice: Of?

Mr. Mellott: Of the appendix, volume one.

Unidentified Justice: What volume, what volume?

Mr. Mellott: Volume one, Your Honor.

Unidentified Justice: Okay.

Mr. Mellott: Now, the admission as to the fact that they hadn't contacted any brokers as late as five months after they were originally ordered to produce the documents and the judge had originally suggested that they do it appears in the transcript of the December 27, 19... or December 21, 1978, hearing, which also appears in the joint appendix, volume one.

It starts on page 105a.

At none of the... well, first of all, the judge gave them all the time they wanted in--

Unidentified Justice: Counsel, you went to London and looked at the documents?

Mr. Mellott: --Not these documents, Your Honor; other documents.

Not these documents.

They did produce some other documents, Your Honor, but not these.

Unidentified Justice: Did you make any attempt to review these documents for business in Pennsylvania?

Mr. Mellott: Your Honor, prior to the time that the sanction was he entered, except for the offer to produce four million files... and while it's been characterized in the brief and here today as being a list of the North American files, it was never so identified to us, nor was it so identified in any of the papers or in any of the discussions.

All it was was an indication to us that they would open the files of 15 of the excess insurers.

That's were the four million files were supposed to be located.

At the same time they're telling us that the files are in the hands... the documents that they were ordered to produce are in the hands of the brokers.

So these four million files may or may not contain what they were ordered to produce.

Unidentified Justice: Well, time is getting away and I have two questions--

Mr. Mellott: All right.

Unidentified Justice: --I'd really like to hear you address.

And one is the question of whether it was an abuse of discretion for the court to order the production of four million files.

And secondly, if not and if the court could properly impose sanctions in this discovery effort, was it an abuse of the court's discretion to prevent any further litigation of that problem at the trial on the merits, the jurisdictional question?

Mr. Mellott: Your Honor, in the first place, Judge Simmons did not order the production of these four million files.

He ordered... and he changed our request after the counsel for the excess insurers had presented arguments.

All they were ordered to do was to give us names of the policies, the policy numbers and the general outline of those policies which had a Pennsylvania contact, either by being written for a Pennsylvania insured, being written through a Pennsylvania broker, or covering a risk in Pennsylvania.

Now, that's what they were ordered to do.

I submit, Your Honor, that when they made this offer, four months after they had been originally ordered to produce, it was not an offer that complied with what they'd been ordered to do.

I mean, on the one hand they're telling us they don't have the files, they're with the brokers... although they never said that they were outside their control... I mean, that they didn't have the documents.

On the other hand, after coming to the court at the end of the 90 days, asking for an extension of time and representing to the court that in all probability we can comply with the court's order within 30 days, and the court granted an extension of an additional 30 days, all we get is a two-page affidavit, the end of November, four months later, which simply says 15 of the companies will open their files.

Now, those are not the documents the court ordered produced.

There was not even any representation that those included the documents which were produced.

In fact, if you believe them when they say that the documents that we were requesting were in the possession of the brokers, those files didn't even include any of them.

Unidentified Justice: If we assume for a moment that the court had the power to enter some sanction and to compel discovery for the purpose of reviewing its own in personam jurisdiction, do you think the court also properly precluded any further consideration of that issue at trial?

Mr. Mellott: Well, I think the court did, Your Honor, and I think by virtue of the holding of this Court in the National Hockey League case that's required.

If sanctions are going to mean anything and have any deterring effect, you can't say that once the sanction has been entered it can be removed by compliance later.

All that'll do is bring about a complete abuse of the discovery process.

Unidentified Justice: That doesn't necessarily follow, it seems to me.

Maybe this particular sanction was not the correct one.

Maybe there should have been a monetary sanction based on all of your time and energy and interest and all the rest, and delay.

Wouldn't that serve a deterrent purpose?

Mr. Mellott: Your Honor, I submit that it was not... and I'm not even sure that it's the case today.

The Defendants haven't even today, so far as I know, offered to produce the documents which they were ordered to produce.

Now, Mr. Trent after he got into the case made a new offer, and it's not clear from the offer whether he's talking about producing the documents including those from the brokers or whether he's talking about the same four million files.

But in any event, Your Honor, I don't agree with what Mr. Trent said about my view as to whether the lawyers acted in good faith or not.

I do not believe they acted in good faith.

I think they did not act in good faith, as the Third Circuit found.

And I think a review of the record will make it very clear here they did not act in good faith.

And the judge gave them nine months to comply--

Unidentified Justice: It seems to me that all of that goes to the question of what would be an appropriate sanction.

Maybe you're dead right that you were really given a terrible run-around here and entitled to a very severe sanction.

The legal question, though: Is it correct for the sanction to be a finding of jurisdiction when in fact there may be no jurisdiction?

Mr. Mellott: --Well, if Your Honor please, I think if you look at the evidence that's in the record... and I submit that there is adequate evidence in the record for the court to find jurisdiction even now on the face--

Unidentified Justice: Well then, really, you've spent an awful lot of time on an unnecessary project.

Mr. Mellott: --Well, that may be, except that there's a lot of money involved in this case, Your Honor, and... the suit was filed in December '75.

Here we are in March of 1982.

And most of the reason why this case isn't to trial--

Chief Justice Burger: We'll resume there at 1:00 o'clock.

Mr. Mellott: --Thank you, Your Honor.

Chief Justice Burger: You may resume, counsel.

ORAL ARGUMENT OF CLOYD R. MELLOTT, ESQ. ON BEHALF OF RESPONDENTS -- RESUMED

Mr. Mellott: Mr. Chief Justice and may it please the Court:

I would like to continue with my response to Justice Stevens' question.

There are three points that I would like to make in response to your question as to whether a money sanction wouldn't have been better.

Maybe I haven't phrased it exactly as you did, Your Honor.

In the money sanction, as I understand it, you were suggesting that they pick up the expenses that were involved from the delay.

I submit, Your Honor, that that type of a sanction would have no deterrent effect on the type of misconduct that was engaged in here, particularly in a time of high inflation, which we had during the period of dilatory tactics.

Unidentified Justice: You mean deterring other people or being effective in this case?

Mr. Mellott: Deterring other people, Your Honor.

Unidentified Justice: Well, what do you care about that?

You just want--

Mr. Mellott: Well, what I'm suggesting--

Unidentified Justice: --to deter somebody in this case, don't you?

Mr. Mellott: --Well, yes, Your Honor, I'm really primarily concerned in this case.

But I'm suggesting that the sanction that was imposed here is fully in accordance with the provision of Rule 37(b)(2)(A), which presumes under that rule that the facts which would be established if the discovery were complied with are deemed to be established.

And that's exactly what Judge Simmons did, and he did it only after he had warned them, five months after he had originally ordered the production, he warned them that if the production wasn't made in another 60 days the sanction of the type he's mentioned would be entered.

He gave them actually 120 days, so that they had a total of nine months to comply.

And they didn't comply.

Furthermore, I submit that sanction is in accordance with the rules and... the rule, Rule 37, and with the decisions of this Court in the National Hockey League case, in which the sanction of dismissal was used, which is even more severe than the sanction here involved.

At least they still have an opportunity to defend on the merits.

Furthermore, I think it's in accordance with the holding of this Court in the Hammond Packing case, in which a sanction of a dismissal--

Unidentified Justice: I'm not so much concerned about the severity of the sanction as the question of the theory by which, if there in fact is no jurisdiction how does the court have power to impose it?

Mr. Mellott: --Well, Your Honor, on that point, I submit that when a party comes into court and asks the court to make a binding determination that there is no personal jurisdiction over him, and when that party engages in discovery against another party already in the case--

Unidentified Justice: All these arguments are arguments that you didn't really need the discovery that gave rise to the particular order before us, because those are independent grounds for jurisdiction.

Mr. Mellott: --What I'm saying, Your Honor, is that when they come into court and ask for a binding determination of the court, as the Fourth Circuit held in the Lekkas case which we've cited in our brief, they are deemed to submit to the jurisdiction of the court, at least to the point of providing relevant evidence on the issue that they've asked the court to decide.

It seems to me it would be a complete misuse of our judicial process--

Unidentified Justice: Would you mean the court has jurisdiction has to determine its jurisdiction, and that there were efforts, you say, that frustrated the determination of jurisdiction and therefore this drastic step is taken?

Mr. Mellott: --That's correct, Your Honor.

I mean, it would be a real misuse of process to say on the one hand, as this Court has said, that there is jurisdiction to determine jurisdiction, and that a party can come in and invoke that jurisdiction and yet say: but I'm not going to produce the evidence that's relevant to that determination; you have to decide it on what evidence is in the record; I'm not going to produce the evidence that's in my possession.

Now, that's what the excess insurers ask this Court to hold.

I submit that that would be clearly improper.

I also would argue that this is a question... the test here is, did Judge Simmons abuse his discretion in applying this sanction?

He warned them that it would be applied.

They elected not to comply.

And as I said this morning, I do not believe that their offer, their belated offer to open files of 15 excess insurers, was a compliance with the order to produce certain specific documents which they say are in the hands of the brokers, so they couldn't have been in the files that they were offering to produce in any event.

Unidentified Justice: Does the record show what interest will be payable on the claims when, as and if they're allowed?

Mr. Mellott: No, they do not, Your Honor.

But we have made a claim and we've amended the complaint to ask for an inflation factor, and the court has permitted that amendment.

Now, whether we'll be able to sustain it ultimately or not I don't know.

Unidentified Justice: Permitted the amendment?

Mr. Mellott: The court permitted the amendment only, Your Honor.

Your Honor, I believe some of you asked me questions this morning about, why did you go ahead with the discovery if you felt so confident there was jurisdiction.

Well, if this Court holds from the contacts, as I believe it could on the basis of International Shoe, that there's no need for this discovery, that there is sufficient evidence of contacts in the record, as I believe there is, then of course... I don't need the sanction, because there's no appeal from this decision.

But I felt that I had to assert jurisdiction on every ground available to me, and that's what I tried to do, as long as they were trying to contend that there wasn't sufficient jurisdiction.

Unidentified Justice: Does the order that was entered here foreclose any further investigation of jurisdiction?

Mr. Mellott: Yes, it does, Your Honor, primarily based on the reasoning of this Court in the National Hockey League case.

Unidentified Justice: Was that specifically done under the rule?

Mr. Mellott: That was done subsequently by an order of court, Your Honor, that in view of the fact that one of the grounds for jurisdiction was that he had imposed a sanction under Rule 37(b)(2)(A) and based on the National Hockey League case, that that issue should not be further litigated.

Unidentified Justice: And so the question of jurisdiction supposedly is no longer open in this case, is that it?

Mr. Mellott: That's right, Your Honor, on the basis of the reasoning of this Court in the National Hockey League case that if you permit them to avoid the sanction after it's been imposed by then complying with the court order, all you'd get would be dilatory tactics.

Unidentified Justice: You are not now complying with a court order, proving that there isn't jurisdiction.

That isn't the same as complying with the order.

Mr. Mellott: The court actually, in the preliminary injunction order and in the permanent injunction order, found jurisdiction on several grounds.

Unidentified Justice: Yes?

Mr. Mellott: Including the sanction.

And the court has held that, in view of the entry of the sanction, that the issue of in personam jurisdiction is no longer open for litigation, that it's finally binding on the parties in this case.

Now, the Court of Appeals, I believe incorrectly, dismissed as to three of the Defendants, and that's part of what is included in our petition for cert to this Court, which the Court presently has under consideration, because we believe there is adequate evidence of contacts in the record.

There is also evidence that they did not comply with the order, either.

And our petition for cert also includes the injunction, a point which they--

Thank you very much, Your Honors.

Chief Justice Burger: Mr. Trent?

REBUTTAL ARGUMENT OF EDMUND K. TRENT, ESQ. ON BEHALF OF PETITIONERS

Mr. Trent: Mr. Chief Justice, may it please the Court:

One thing Mr. Mellott has just mentioned now and he mentioned as well before lunch, he said that we had asked for a binding determination of jurisdiction, not merely a motion to dismiss.

Now, he is incorrect in that.

On page 38a of the prayer of the affidavit which was filed by the New York lawyers under their New York practice, where they make an affidavit and contain the motion in it--

Unidentified Justice: That's 38a of what?

Mr. Trent: --Of the joint appendix.

Unidentified Justice: Volume one?

Mr. Trent: Yes.

"Wherefore, it is respectfully urged that the motion for summary judgment dismissing the complaint against the moving Defendants on the grounds of lack of in personam jurisdiction and forum non conveniens, be, in all respects, granted."

So all he was doing was moving to dismiss for lack of jurisdiction.

He did not invoke the jurisdiction of the court by saying it had no jurisdiction.

I think that's just a complete contradiction to say that.

Now, one thing I think has not been clearly brought out here is to just what was being asked for in these records.

First, the request for documents asked for the policies, and then the court said at the hearing on that, we'll get up this list in a general way.

And Mr. Mellott then said, I want to see the policies.

And then counsel for the Defendants said that the brokers had the policies, and so mister... Judge Simmons said, well, write to the brokers.

So we understood that we were to get the policies.

Then after New York counsel had gone to England to investigate the situation... and Mr. Mellott's correct, he didn't talk to the brokers, he talked to 15 of his clients, but they knew about the brokers and so forth... he came back and he made this affidavit... and there's not anything dilatory; he did it within the time... that it would involve four million files.

Now, he was talking then about the insurers' own files, but they would show the same thing as the brokers' files.

That is, the contract is the placing slip and the insurance company keeps that.

The broker, as agent for the insured, then prepares a policy, gives it to the insured to sign and then takes it back and keeps a copy of it.

So the same information would be in the brokers' files as would be in the insurers' files.

So New York counsel, Mr. Bruckmann, thought, well, let us offer our own files and we will make those available.

They would show the same thing as the brokers' files.

Now, Mr. Mellott says that we never did offer to produce the documents anywhere.

But after I got into the case, which was after the sanctions had been entered, I thought, well, let's see if we can get the... offer to produce them now and satisfy the court and be done with it.

And so I expressly offered to produce all these files in London.

And Mr. Mellott said, no, we're not interested in the files relating to jurisdiction now, and he prepared this order and he submitted it and the judge said he was going to sign it, barring us from ever contesting jurisdiction again.

And I said, on the strength of that I offer to produce all these records in London on July 2nd, 1979.

That's right in the record.

So Mr. Mellott is incorrect to say we never did offer to produce the files.

Unidentified Justice: You didn't offer to produce them until the sanction had been entered.

Mr. Trent: No... well, that was my offer.

But Mr. Bruckmann before the sanction had been entered, he offered to produce them in London, and I just repeated that offer in the hope that it would be accepted and we would get the thing done.

Because we were perfectly willing to produce our files, and they could look through them and rummage through them all they want.

Unidentified Justice: Mr. Trent, did your offer pertain to your files or the brokers' files?

Mr. Trent: Our files.

Unidentified Justice: Where did I get the notion that the information was only obtainable from the brokers' files?

What was all this fussing around about the brokers' files?

Mr. Trent: Well, that was because Mr. Mellott's request for documents asked for policies, and we did not have any policies in our files.

We had only the placing slips, which were the contracts.

Unidentified Justice: I thought I also got the impression that your files wouldn't disclose whether it was Pennsylvania business or--

Mr. Trent: Well, the indexes... the placing slips themselves would, if you looked at each one.

But the indexes did not say which ones were from Pennsylvania, and the same was true of the brokers.

They did not have the indexes, either.

Unidentified Justice: --Because I'm puzzled about why you sort of shuttled them off to the brokers.

It probably would have been much more efficient in the first place to stay with your files, wouldn't it?

Mr. Trent: Well, I think it would have been.

But that was Judge Simmons' idea, because they wanted... they had asked expressly for the policies and only the brokers had the policies.

Unidentified Justice: And you didn't... your predecessor representing your client didn't happen to say, well, really a quicker way to get it would be to look at our own files instead of going through the policies?

Mr. Trent: No.

No, that was not said.

That could have been said.

I don't know whether the realized that or what at the time.

Unidentified Justice: Would you think on your theory of the case or of the rule the district court would have been justified in saying, I'm going to impose... I'm going to find that there is jurisdiction unless you sustain the burden of proof that there isn't?

Mr. Trent: No.

Unidentified Justice: And that you will have to get your own documents and come in here with proof?

Mr. Trent: No, that was wrong.

I think Judge Simmons in effect did say that.

But that is not correct.

The burden is on the Plaintiff to show jurisdiction.

Unidentified Justice: When did the judge say that?

Mr. Trent: I beg your pardon?

Unidentified Justice: When did the judge say that?

Mr. Trent: He said that--

Unidentified Justice: Before he imposed the sanction?

Mr. Trent: --Yes.

Unidentified Justice: So he said to you: Look, I'm going to find that there's jurisdiction unless you come in and prove--

Mr. Trent: Yes, yes, precisely.

Unidentified Justice: --Now, that is... and you think that was unjustified?

Mr. Trent: Yes, that was erroneous, because all we have--

Unidentified Justice: Let's assume for the moment that you agree that there had been a refusal to discover.

I know you say there wasn't.

Mr. Trent: --Yes.

Unidentified Justice: But assume there was.

Mr. Trent: All right.

Unidentified Justice: And you agree that a sanction, some kind of an effective sanction, was justified.

You say that sanction would be bad, to put the burden of proof on--

Mr. Trent: Yes, yes.

Unidentified Justice: --Even though you had refused discovery?

Mr. Trent: Yes.

Unidentified Justice: And even though the rule says that you may, as a sanction you may deem the facts sought to have been established?

Mr. Trent: Yes, because we say that doesn't apply where it's a question of jurisdiction.

And the Familia de Boom case held exactly that, that even though the burden was on the plaintiff to produce the... to prove jurisdiction, if the plaintiff couldn't get it it was too bad, but he should make other efforts.

Now, we say, as I said before, that the Plaintiff was not hamstrung here.

All he had to do was go to London and look at our records.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Attribution:

The OYEZ Project

Featured:

Allstate Ins. Co. v. Hague - Oral Argument

Wed, 18 Feb 2009 06:13:06 +0000

Case:

Allstate Ins. Co. v. Hague

Media File:

79-938_19801006-argument.mp3

Related Transcript:

79-938_19801006-argument_transcript.xml

Transcript:

ORAL ARGUMENT OF MARK M. NOLAN ON BEHALF OF THE PETITIONER

Chief Justice Burger: We'll hear arguments next in Allstate Insurance Company against Lavinia Hague.

Mr. Nolan, you may proceed when you are ready.

Mr. Nolan: Mr. Chief Justice, and may it please the Court:

My name is Mark Nolan.

I represent Allstate Insurance Company who appears today as Petitioner on writ of certiorari to the Minnesota Supreme Court.

The judicial trail that leads us here today began when the Respondent, which is the representative of the estate of Mr. Ralph Hague... it began when that representative began a national--

Unidentified Justice: A Minnesota representative?

Mr. Nolan: --Pardon?

Unidentified Justice: A Minnesota representative?

Mr. Nolan: A Minnesota representative.

Unidentified Justice: Was there ever a probate in Wisconsin?

Mr. Nolan: The record is unclear but I think we can presume that there was, because at the time of the incident they resided there and they owned a home there.

Unidentified Justice: What was the purpose of the Minnesota probate?

Mr. Nolan: I think... perhaps I could answer this--

Unidentified Justice: Perhaps we could ask your opponent on this one.

Mr. Nolan: --I think it's best to ask my opponent.

I think it was to... that the actual statute in Minnesota is to appoint a trustee to bring a wrongful death action.

I think what they did is they appointed a representative out of a probate to bring the wrongful death action, or to do all things necessary.

It's indicated in their brief, at any rate, that this action is the main asset of that Minnesota estate, as indicated on page 11 of their brief.

Unidentified Justice: That's why I asked whether there was a Wisconsin probate.

Mr. Nolan: Yes.

That also indicates that there was a Wisconsin probate, that this is the main asset of whatever is in the Minnesota estate.

At any rate, we're here today because Minnesota chose its law to say that the representative could Mr. Hague's Wisconsin insurance policy.

Our position is that Minnesota's choosing of its law in this instance is repugnant to Article 4, Section 1 of the Full Faith and Credit Clause of the Constitution; the Fourteenth Amendment section 1, Due Process, and the line of cases which have interpreted those sections as they apply to choice of law.

Now, in order that you know where I'm going, just in case it may not always appear clear, let me give you a brief table of contents as to how I intend to proceed here.

I will go through the facts because they're brief and important.

I'll break out what contacts go to each state quantitatively, then qualitatively.

I'll discuss those briefly in terms of this Court's decisions on choice of law.

And then, because I anticipate that by counsel's argument in that this Court will have a larger, an interest in the bigger picture of choice of law, I'll discuss briefly in restatement, and more importantly, Professor Leflar's article because it's somewhat representative of what people are saying in choice of law today, and it seems to be what the Minnesota Court relied on more than cases of this Court.

Unidentified Justice: Well, before you get into that let me ask a question or two.

Are insurance rates of Allstate higher in Wisconsin than they are in Minnesota, or is there any difference?

Mr. Nolan: I don't know, and the record doesn't reflect.

Unidentified Justice: What happens when a policy is issued, for instance, in the District of Columbia, where automobiles almost daily cross over into Virginia and Maryland?

Do they take into account experience in those states as well as in the District, and are rates affected?

Mr. Nolan: I don't know the answer to that, but Minnesota courts seem to indicate that they are and they seem to make the admission that they are.

They did in the case of Bolgrean v. Stich, wherein they indicated that the insurer is interested in the Minnesota risk as opposed to another state's risk.

Unidentified Justice: Suppose this accident had taken place in Red Wing, on the Minnesota side of the Eisenhower Bridge.

All other facts being the same, would you be here?

Mr. Nolan: I think that Watson might preclude us from being here: this Court's case, Watson v. Employer's.

Unidentified Justice: And the accident took place on the, just barely on the Wisconsin side?

By "barely", I mean within five miles.

Mr. Nolan: It was a bordering... yes, it was a bordering state.

But I think that in conflicts of law, the state line is very important and must be honored.

Chief Justice Burger: Well, it's like any other line-drawing, isn't it?

You have a line or you don't have a line?

Mr. Nolan: That's right.

And it's especially important here in terms of the Full Faith and Credit Clause.

Briefly, the facts of this case are that on July 1, 1974, Mr. Hague resided with his family in Wisconsin.

He had traveled for 15 years to work in Minnesota but he resided in Wisconsin with his family.

On that date he was riding as a passenger on his son's motorcycle when it was struck in the rear by another Wisconsin resident.

Mr. Hague, the son, and the person hitting him were Wisconsin residents; the accident took place on a Wisconsin road.

Neither his son, whose cycle he was on, nor the person who hit him, had insurance.

Therefore, any insurance available in wrongful death action came from Mr. Hague's, or would come from Mr. Hague's uninsured motorist coverage.

In Wisconsin you can stack that; in Minnesota you cannot.

Two years later Mrs. Hague... two years later, I mean in 1976, approximately two years after this accident, Mrs. Hague moved to Minnesota and began this action; contemporaneously with moving here she was appointed the representative.

Her capacity as plaintiff is as a representative.

The contacts in that setting are these.

The contacts in Minnesota, that the Minnesota court felt significant, were, number one, that Mr. Hague had traveled to Minnesota for some 15 years prior to this accident; that Allstate did business in the State of Minnesota; that Mrs. Hague at the time she began this action was a resident of the State of Minnesota; and that now Minnesota had some interest in the heirs of this estate.

The contacts with the State of Wisconsin are that with regard to the occurrence, it involved three Wisconsin residents, it took place on Wisconsin roads which presumably are regulated by the State of Wisconsin.

The action before you is a contract declaratory judgment action.

This contract was applied for, written, and delivered in the State of Wisconsin; most importantly, written to conform with Wisconsin's law which had $15,000 worth of minimum coverage.

That is why this particular type of coverage was written and all the premiums on this insurance policy were at all times paid from the State of Wisconsin.

Looking at those contacts qualitatively, the Minnesota contacts, the fact that Minnesota does, or Allstate does business in the State of Minnesota is important to jurisdiction but it does not give Minnesota an interest as to what Allstate does with contracts in Wisconsin.

It's... if that were true, you'd be in somewhat the same situation as in Savchuk v. Rush, where they tried to tie some significance to State Farm being in all 50 states and Justice White dismissed that as not being a significant test for jurisdiction purposes.

The other tests that Mr.... or one other test, that Mr. Hague drove to Minnesota, has really nothing to do with either this transaction, in that the transaction was written to comply with the Wisconsin statutes as a Wisconsin risk.

It has nothing to do with this occurrence because there's no... there is agreement on all sides that Mr. Hague was not going to work, coming from work, having anything to do with work at the time he was injured.

Justice Rehnquist: Mr. Nolan, you referred to Savchuk and I think Volkswagen is probably along the same lines.

That really is the exercise of judicial jurisdiction--

Mr. Nolan: Yes.

Justice Rehnquist: --over a party.

What you're talking about is the Home Insurance, Delta Pine line that raises... that say even if you have judicial jurisdiction, the Due Process Clause or the Full Faith and Credit Clause limits the right of one state to wholly impose its laws even on a party that conceivably is before it for jurisdictional purposes.

Mr. Nolan: That's correct.

I think that along those lines I think that choice of law cases have not had as much exposure as jurisdiction cases, but I think we would argue that they're perhaps more important in that jurisdiction establishes a convenience test, where you can hale a person into court, where choice of law really decides what is going to be the ultimate outcome, the disposition of matters.

It's a little bit like saying that jurisdiction may decide where a person is going to be hung, but choice of law would decide whether he is going to be hung.

Unidentified Justice: Did the policy have any provision as to which law would apply?

Mr. Nolan: No it had no... no clause in it.

Unidentified Justice: That would have been an easy way out for Allstate, wouldn't it?

Mr. Nolan: Yes, it would.

Unidentified Justice: As to both states and both parties, they were equally accessible; right?

There was no problem in getting a hold of Allstate in Wisconsin?

Mr. Nolan: No.

Unidentified Justice: So there was no problem there.

Mr. Nolan: No.

Unidentified Justice: In what county of Wisconsin were--

Mr. Nolan: Pierce County, I believe we're talking about.

In terms of those... the cases that--

Unidentified Justice: --That's a border county?

Mr. Nolan: --Pardon?

Unidentified Justice: That's a border county?

Mr. Nolan: That is a border county; yes.

Justice Marshall: This wouldn't go as far as Alaska, would it?

Mr. Nolan: Pardon?

Justice Marshall: Wouldn't go as far as Alaska, would it?

Mr. Nolan: You mean, this case?

No.

If I could perhaps survey the cases, those cases in which this Court has said that a forum court cannot apply its own law, the ones that I think are most pertinent are Dick v. Home Insurance, Yates v. John Hancock, Delta Pine; those would support our position.

In both of those, this Court reversed a forum court that applied its own law because it said that contacts were either too slight or casual; or that, in Yates, by applying the Georgia jury, letting the matter go to the jury, did not give full faith and credit to New York's law.

Those... more importantly, I should probably distinguish those cases which, in which you have let the forum court apply its own law over the contracting, the state of contracting.

The two that are the most prominent are Watson and Clay.

Now, those are distinguished from this case.

First of all, Watson.

In Watson you allowed direct action in Louisiana.

The injury took place in Louisiana to a resident of Louisiana and the Louisiana court applied its direct action statute without regard to the policy of insurance which was made and delivered in another state, which indicated you could not do that.

This Court said that was all right for Louisiana to do that and in so doing recognized that Louisiana had a significant contact in interest with this, with the matter under consideration because the person at the time they were injured was a resident of Louisiana and the injury took place in Louisiana.

Neither of those things happened in Minnesota.

With regard to Clay, Clay was... is perhaps somewhat analogous in that we're talking about an ambulatory contract It was a contract on personal property.

I think it was drawn in Illinois.

Mr. Clay, after it was made and drawn in Illinois, moved to Florida, lived there for two years, paid insurance premiums from there, and then after that time the loss occurred.

Florida applied its law to nullify a contract provision in that Illinois contract which would have limited actions to a certain period of time which had now expired, in order to give its resident the right to recover on this insurance policy.

That case came up to this Court twice, but finally this Court indicated that because Mr. Clay had moved to Wisconsin, in that the loss took place in... or not Wisconsin, Florida; and the loss took place in Florida; and presumably that the company accepted premiums from Florida for that two years; that not only did Florida have an interest in this matter, but it didn't upset anybody's justified expectations because the premiums came and everybody knew the risk had moved to Florida.

That did not happen in this case.

In this case all of the contacts which this Court has previously indicated would lean toward the choice of that state's laws are in Wisconsin.

With regard to Professor Leflar's discussion, I think perhaps we should touch upon it because it seems this has become a favorite of law review articles and this Minnesota Supreme Court certainly gave that more weight and credence than they did the decisions of this Court.

Professor Leflar indicates a five-stage test to deciding choice of law: predictability of results, maintenance of governmental order, simplification of judicial task, governmental interest, and better rule of law.

Now, Minnesota somehow applied that test and got to their law.

I think that if you really look at what Professor Leflar has indicated, number one, Minnesota did that without looking to the constitutional safeguards, and that's why we're here today.

But even if you were just to look at Professor Leflar's test as it applies to the fact that now we have to look at the interests of the states and we have a more fluid society, that sort of approach, it still leans to Wisconsin.

In other words, predictability of results, his first test, very important in a contract dispute.

This is a contract dispute.

People have the right... this is very similar to the justified expectations test of the restatement... people have a right to have, unless there is some substantial overriding interest of an opposing state, they have a right to have the law of the state they intended to have, but in--

Unidentified Justice: Minnesota is free to adopt Professor Leflar's test whether we think it is a wise one or not, unless it somehow offends the Constitution.

Mr. Nolan: --Exactly.

And not only... the only point that I raise it today is because the Minnesota court seems to say that there is some... we should be more interest-oriented in interest analysis in these types of choice of law.

I am saying that even if they wanted to take that approach, they could apply Leflar and they still should have ended up with Wisconsin law.

Unidentified Justice: This brings me back to my rate question.

Had this policy been issued to a Minnesota decedent or a Minnesota resident, would the policy be any different than the one that was issued to the decedent?

Mr. Nolan: Would the wording of the policy be any different, you mean?

Unidentified Justice: Or the rate be any different?

Mr. Nolan: I personally do not know, but, again, the Minnesota court indicated in their opinion, they seem to concede that it would.

In other words, I think on page 49 of their decision, they indicate that Wisconsin has a legitimate interest in keeping insurance premiums low.

Unidentified Justice: Well, sometimes policies do vary from state to state, and I... but I wondered whether this record showed anything on that.

I take it it doesn't.

It doesn't show anything about it.

Mr. Nolan: No, the record was submitted on stipulated facts and it did not include that and the Minnesota Supreme Court did not ask for that, but they... I think the law of the case would presume that they felt it would make a difference.

Unidentified Justice: If it did, if Minnesota rates were higher, that would have been a factor in your favor had it been in the record.

Mr. Nolan: Yes.

Yes.

Chief Justice Burger: Would the, would such an element as the age in which one state sold intoxicating liquors to persons have some bearing on rates?

That is, if one state had 18 years and the other state had 21 years, are those the kinds of factors that enter into the ratemaking process?

Mr. Nolan: I frankly do not know.

To the extent that it could be shown that more accidents occur because of that and if it could be shown that states do write to the total risk of that state... in other words, how many claims are brought, it would.

Chief Justice Burger: On the basis of massive information on the subject, couldn't any court take judicial notice that intoxicating liquors have a very serious effect on automobile accidents?

Mr. Nolan: Yes, I think... yes.

I think they could, Your Honor, and I think in the same respect in Justice Blackmun's case they could also take judicial notice that it would likely make the premium higher in the State of Minnesota if Minnesota has a policy which in essence gives out more benefits on the same insurance contract language.

Justice Stevens: Mr. Nolan, if you would help me with the other... I was thinking about the contractual aspect of this for a moment.

Could you help me with this concept of stacking that's kind of at the bottom of this, I must confess I didn't think about it enough before argument.

What that means, I gather, is that the victim who has a policy, has an uninsured motorist clause in it and has two policies may recover on both policies.

Is that the way it--

Mr. Nolan: Right.

Justice Stevens: --And there was... or are there three policies here?

Mr. Nolan: Three policies here.

Justice Stevens: And you're saying that in Wisconsin he could only recover on one because Wisconsin in effect as a matter of law imposes a condition in the contract that says, even if you take out three or four more policies with uninsured motorist clauses in them, they don't mean what they appear to say?

Mr. Nolan: But... well, it's--

Justice Stevens: Is that what it is?

Mr. Nolan: --They don't quite phrase it that way.

Justice Stevens: I know, but I'm just... that's, I'm just trying to see what kind of obligation is being changed here by Minnesota.

Mr. Nolan: Minnesota... take the... in both contracts, I think it's safe to say, whether it was written in Minnesota, it would merely say that under this coverage you have uninsured motorist coverage of X amount, $15,000 in this case, on one vehicle.

It was three coverages.

Not three coverages on one person, it was three coverages--

Justice Stevens: I see.

Mr. Nolan: --on three separate vehicles.

And Wisconsin would say, you may take the coverage from one vehicle and apply it.

Minnesota would say, you may take the coverage from all three vehicles for which you've paid a premium and stack it so as to--

Justice Stevens: It's a question of whether the policy should be construed as limited to the vehicle described in that policy or without saying anything pick up other vehicles and additional coverage, then?

Mr. Nolan: --That's right.

Justice Stevens: I see.

Mr. Nolan: That's right.

Justice Stevens: I think that you said the other way around.

Justice Powell: Mr. Nolan, a good many states, I think, require uninsured motorist insurance--

Mr. Nolan: That's correct.

Justice Powell: --Do either of these states require it as a matter of law for policies written in them?

Mr. Nolan: I believe they do.

There is... my only hesitation is that at various times in the middle '70s there was differences, I think, between the two states as to whether you had to offer it as opposed to whether you had to get a rejection of it, of the option.

And I'm not sure of the distinction between the two states in that regard.

But in--

Justice Powell: Do you know whether they were different?

I think you are saying you don't know whether they had it.

Mr. Nolan: --I don't know with regard to that, to the part of whether in Wisconsin and Minnesota at the same time the law was that you had to reject uninsured motorist or you got it as opposed to just having to make it available.

Justice Powell: Wouldn't that appear from the statutes of the two states or from the regulations of the insurance commissioners?

Mr. Nolan: Yes, it would.

Justice Powell: It'd be a matter of record somewhere?

Mr. Nolan: It would be a matter of record.

Justice Stevens: In this case, of course, the uninsured person, or the person who had the policy, wasn't in any of the three vehicles on which he had the insurance?

Mr. Nolan: No, he was not, and both the vehicles involved were uninsured.

The... his son's vehicle, the motorcycle, his son had other policies, but they didn't cover this vehicle.

Yes, the insurance that they're looking to is outside of the vehicles involved in this accident.

Unidentified Justice: Right.

Mr. Nolan: The last area... or excuse me, I guess I wandered from Professor Leflar.

At any rate, Minnesota somehow got to applying Professor Leflar instead of the U.S. Constitution, but even Professor Leflar is really a contacts test.

His two most important tests, maintenance of interstate order in governmental interest, are at the heart of the contacts tests.

In other words in terms of maintenance of interstate order, if Minnesota is to apply their law on the fragile contacts that they have with this case, then, in essence, they are chipping away at the sovereignty of Wisconsin to make laws and to judicially interpret those laws.

They're giving it no credence, they're not respecting that sovereignty.

With regard to his test of governmental interest, you don't have significant governmental interest if you don't have contacts with the matter, significant contacts, with either the transaction or the occurrence.

Minnesota in this case seized upon two very dangerous contacts to deem them significant.

By that I mean that two of the four that they even talked about as being contacts, the fact that at the time the action was commenced and the fact that at the time the action was commenced they were now concerned with the heirs of this estate, are dangerous contacts in choice of law decisions because those are the type of contacts which may be developed voluntarily, willfully, after the occurrence giving rise to the dispute.

In other words, if you're going to have a rule that's going to be predictable, and to not promote forum shopping, you really have to... perhaps the case will arise where you cannot disregard an after-acquired contact, but you have to look very closely at those, and in most instances just freeze the facts at the time of the occurrence or the time of the transaction, because if you can deem significant a contact like Mrs. Hague moving to Minnesota, and especially in this, a representative-type action, then let's say in this case Mrs. Hague didn't even move to Minnesota.

They just picked a Minnesota contact.

Justice Marshall: Mr. Nolan, is there a shortage of... in Minnesota?

Mr. Nolan: No, I think there's an abundance of them.

Justice Marshall: I mean, I was just wondering.

Maybe I was trying to find a reason for this.

Mr. Nolan: I'd like to save the rest of my time, if there are no questions, for rebuttal.

Chief Justice Burger: Very well Mr. Nolan.

Mr. Lowenfeld.

ORAL ARGUMENT OF ANDREAS F. LOWENFELD ON BEHALF OF THE RESPONDENT

Mr. Lowenfeld: Mr. Chief Justice, and may it please the Court:

I'd like, if I may, to open by answering the question put by Justice Blackmun about probate and the relations of the parties.

There was probate in Wisconsin.

It happened the decedent did own a vacant parcel of land there.

There was a joint tenancy homestead which passed outside of probate.

In Minnesota, there were a variety of interests at the time.

The decedent worked in Minnesota.

He had a profit-sharing retirement plan, he had some trust benefits, some medical benefits, he had some accrued compensation payroll where he had worked that wasn't due yet, and he had life insurance proceeds.

As you undoubtedly know better than I do, Justice Blackmun, the place where the accident happened near where they lived, Hager City, is a very small place.

Red Wing, which is where he worked, is the larger place.

It's where... one would go shopping, and so on.

In fact, when he was lying on the ground, the ambulance came and brought him to Red Wing to the hospital there.

If, for example, he had not been dead on arrival and there had been, let's say, two or three weeks of medical care, intensive care, that kind of thing, obviously one would have thought that Minnesota has an interest in recovering that kind of thing.

That's one of the dangers, I think, in the notion that at the moment of impact of the car and the motorcycle you freeze all events.

Chief Justice Burger: Do these distances make a difference in applying choice of law concepts or do lines, boundaries on maps?

Mr. Lowenfeld: Well, I'm suggesting, Your Honor, that in a constitutional sense what you have to look at is the interest of the two states.

Chief Justice Burger: Well, what if the accident had happened at, up at Superior, Wisconsin, instead of where it did, 150 miles north?

Any difference?

Mr. Lowenfeld: I think not necessarily, if it turns out that--

Chief Justice Burger: Or make it on the other end.

Put it over in Menominee, Wisconsin, in the far end of the state.

Mr. Lowenfeld: --I'm sorry to say I'm not as prepared on the geography of Wisconsin as Mr. Chief Justice.

Chief Justice Burger: One is on the east and one is on the west.

Mr. Lowenfeld: But I think what we're focusing on what the Supreme Court of Minnesota focused on, was its own interests.

Now, what were its interests?

Its interests were primarily that the typical interest in compensation law... that is to say, compensation for injured parties and in the case of death, compensation for the survivors, in this case the widow who, as is perfectly natural, after the death of her husband, she moved in with one of her sons.

It wasn't a very long move, as it happened, but the son lived in Minnesota.

Subsequently she remarried, also in Minnesota.

Unidentified Justice: In Red Wing?

Mr. Lowenfeld: I beg your pardon?

Unidentified Justice: In Red Wing?

Do you know?

Mr. Lowenfeld: I think the son was in Red Wing.

She subsequently married a man who lived in Savage.

Unidentified Justice: She was a resident there when the Minnesota probate was begun?

Mr. Lowenfeld: That's correct.

Unidentified Justice: And how long... does the record show how long she had been a resident?

Mr. Lowenfeld: I think since very soon after the accident.

She moved within a couple of weeks, which was '74, it was July, '74, was the accident.

Unidentified Justice: Is there any inference that the move was made in order to bring a, or to institute a Minnesota probate and bring this action?

Mr. Lowenfeld: None whatever.

Justice Rehnquist: You're saying that your case might well be different if the decedent had lived in Madison, which is 150 miles from the Minnesota line, and commuted to Minnesota every day to work?

Mr. Lowenfeld: No, I don't think I would say that, Justice Rehnquist.

I'm saying the case would have been different if she hadn't made a bona fide move to Minnesota before she brought suit.

The issue of the fact that it was so close to the boundary line is, I think, important in the context of the expectation.

That is to say, the insurance company knew that the decedent drove every day for 15 years from his home, drove across the river to work.

And as the Minnesota Supreme Court found, a substantial portion of the risk was in Minnesota.

This was a global policy.

It was in that case different, for example, from the Home Insurance against Dick, which is the principal case relied on by my opponent, in which the policy was limited to two particular rivers near Tampico.

And if the boat was going to go anywhere else, even in Mexico, it had to have special permission and a special endorsement for an additional premium from the insurance company.

That wasn't this case at all.

Now, I think that's... before I go on to--

Unidentified Justice: If the accident had occurred in Minnesota, could she have sued in Wisconsin?

Mr. Lowenfeld: --I believe she could have; yes.

She could have sued in either place.

There's no question that Allstate does business in all 50 states; indeed, that's in their very name, and in all their commercials.

Justice Marshall: Well, you couldn't sue them in Hawaii, could you?

Mr. Lowenfeld: I wouldn't have thought so in terms of the rules of forum non conveniens.

Justice Marshall: You mean you do think so, now?

Mr. Lowenfeld: Well, I think it would be a transitory cause of action.

You might get judicial jurisdiction, but undoubtedly a motion to dismiss for forum non conveniens would have been granted in that sense.

Unidentified Justice: Well, suppose it wasn't?

Mr. Lowenfeld: Oh, I suppose in that case suit could have... if we still believe in transitory actions, I suppose suit could have been brought in Hawaii.

I think if the Hawaii court... that that then would apply its own laws.

Justice White: Well, suppose... suppose the lady hadn't moved to Minnesota but had simply sued the insurance company in the Minnesota courts.

Same question, and the Minnesota court didn't dismiss on forum non conveniens ground.

Could it have applied its own law or couldn't it?

Mr. Lowenfeld: I think the case for application in those circumstances would be very close to arbitrary action.

Justice White: Well, on what--

Mr. Lowenfeld: And at--

Justice White: --What clause of the Federal Constitution would be implicated?

The Due Process Clause?

Mr. Lowenfeld: --Yes.

I think... and I think, to anticipate a little bit, I was going to come to that later.

But the answer to Justice White's questions, and in a sense also to the Chief Justice's question, does one draw lines?

Yes, one draws lines but if you consider that that only mandate that this Court has, only mandate since Erie against Tompkins and Klaxon, that is to say, you no longer can say, we'll decide what's the better view; we'll decide whether Professor Leflar, Professor Currie, or some other professor has the best view.

That's not within the scope of this Court's decision.

The only one that really makes sense now is the Fourteenth Amendment.

And what does that safeguard?

It safeguards individuals, including insurance companies, but it safeguards them from arbitrary governmental action.

And what's arbitrary in this field?

There's no kind of procedural due process, no question that there was service of process and notice and all of that.

They've a right to be allowed to be heard.

A kind of substantive due process may come in when a state applies a law that has nothing to do with it: if Minnesota applied the law of Hawaii, or if, for example, Minnesota said, we are interested in this case simply because it's in our court, although we never heard of this lady.

She doesn't live here, she just found--

Justice Brennan: Is this an argument that choice of law problems as they present Federal constitutional questions, is that only due process?

Constitutional questions?

Mr. Lowenfeld: --I think that is essentially our position.

It's true that the Full Faith and Credit Clause is occasionally brought in.

I think the workmen's compensation type of cases, Alaska Packers and Pacific Employer's, especially, have put that to rest; Clay as well, and in a sense, as a kind of a fortiori case, your most recent decision last June in Thomas against Washington Gas Light.

I think, realistically speaking, Justice Brennan, the Full Faith and Credit Clause doesn't have any place here, remembering that there is no act, there's no statute of Wisconsin that's relevant to this case.

Justice Stevens: Would the case be any different if the insurance policies had express language in them saying that only the coverage under one policy should... one policy shall provide the maximum uninsured motorist coverage?

And then with... Minnesota said those... we stack in Minnesota, and that's contrary to our public policy.

Would that be a same case?

Mr. Lowenfeld: If I could make a somewhat roundabout answer to your question, Justice Stevens, I think it's worth putting this whole question of uninsured motorist insurance in context a little bit.

Just let me back up for a moment.

It starts out in about the mid-60s.

In many states there is a drive for compulsory insurance and the insurance industry resists.

In other states there's a drive for no-fault insurance, and the insurance industry resists.

And what they say, they recognized the problem of the uncompensated traffic victim and they say, here's what we'll do: we'll offer a policy, and then later some states required it, but we'll offer a policy that says the motor vehicle owner and members of his household, as defined in one of those small print clauses, but basically that's right... will be covered for accidents arising where the fault is that of the uninsured motorist.

In other words, it's a kind of hybrid.

It's first-party coverage but it's tort; it's negligence, it's not a non-fault coverage.

Well, now, what happens is, it works both ways.

You are covered, yourself, and your members of your family, wherever you may be, in... it doesn't have to be your own car, and also occupants of your car are covered.

So it happens all the time that, let's say, Mr. A has insurance, including this insurance.

He then is driving as a passenger in Mr. B's car when X, the uninsured motorist, negligently runs into them.

So A is covered under his own policy, for which he's paid a premium, and he's covered as an occupant under B's policy.

Now, then the question is, what does the coverage say?

The insurance companies try to make so-called other insurance clauses.

And there is a standard clause put out by the National Insurance Bureau, which was followed in this policy and seems to be in all the textbooks and in nearly all the policies.

It didn't quite say there shall never be stacking.

Apparently, if they'd said that, the insurance commissioners' wouldn't have permitted it.

But what they tried to do is to say, if there are two policies, one of them is excess to the other and you don't get more than the total limit.

Now, then, the stacking cases came up and I was astounded... if you look at Professor Widiss's book on uninsured motorist insurance, which came out in 1969... there's a 1980 supplement... it's about 400 pages of mostly cases.

All this has come up in the last few years.

Interestingly enough, about a third of the cases seem to involve Allstate.

So they're very fully aware of this.

There's no unexpected there.

And the majority of states so far... it's a little hard to have an exact rule, because not all of the cases involve the highest court of the state... and there are different kinds of stacking.

There's the guy in the other fellow's car, and there's also the fellow who has more than one policy, or more than one car on the policy.

The majority of states that have faced this problem have said, we will permit recovery on each policy since, after all, a premium has been paid on each policy.

And there's no windfall, since there is actual... it only goes up to the provable damages.

It's not like having two policies on a boat that sinks and you could recover $4,000 on a $2,000 boat.

That's not this at all.

This is recovery for accidental injury or death up to your provable damages.

In our case we had a 52-year-old man who was earning about $15,000 and had children, so there's no issue here, that he's being somehow given a windfall.

Now, if I may get back... a somewhat longwinded answer to your question... if they had absolutely said, no stacking, I think the Wisconsin insurance commissioner would probably have said, no.

Probably the Minnesota insurance commissioner would have said no.

They--

Justice Stevens: Let me rephrase the question.

Say that's what the contract said and Wisconsin insurance commissioner said, that's okay.

Mr. Lowenfeld: --Well, it's kind of interesting, if you look at the policy.

For instance, the... Wisconsin, as we know, has direct action statutes.

And so the policy here... which is why I think, in fact... to come back to Justice Blackmun... the rate's probably higher in Wisconsin rather than lower.

And the policy says no one can sue the insurance company except for injuries in Wisconsin.

Now, you know that's not going to stand up.

If a Wisconsin driver comes--

Justice Stevens: The express language I'm suggesting is no-stacking express language that only one policy shall afford uninsured motorist coverage even though there are three vehicles and three policies.

And that was express, and the parties spelled it out more or less as they had in the Home Insurance Company case on the time problem.

Would not the Home Insurance case control in that hypothetical?

Mr. Lowenfeld: --Well, it's possible.

Courts all around the country, and Minnesota is a good example, have found ways around a variety of these clauses.

Sometimes they say they're ambiguous.

If it were unambiguous, as you suggest, Justice Stevens, they might say it's against public policy.

I'm not certain.

But certainly it would be a stronger case for Allstate than this one.

Justice Rehnquist: Well, Home Insurance was the case of a state court that tried to find a way around a policy and it was reversed by this Court, wasn't it?

Mr. Lowenfeld: That's right.

But if you notice, several things are very different about Home Insurance and this case.

Perhaps the most important one for our present purposes is, that under the present rulings of this Court there would have been no jurisdiction in Home Insurance.

Home Insurance against Dick is really the grandfather of Seider and Roth, and Rush and Savchuk, and all of those cases.

It was a quasi-in-rem action brought by taxing the alleged res, which was the obligation to reinsure, of a New York company that was doing business in Texas.

That is to say, Anglo-Mejicana, which was the actual insurer had no connection whatever.

That's one point.

Second, there was a choice of law clause.

It said, this policy will be governed by the Commercial Code of Mexico.

And third, as I already said, it specifically said, the following rivers are the only ones covered by this policy.

So those are the three differences.

And I guess it is right, that if we had that again, that probably still is arbitrary action.

Justice Stevens: Mr. Lowenfeld, I think what I'm trying to get at is whether the issue is affected at all by the clarity and certainty of the obligation that was created in the other state, whether it depends to a certain extent on a construe in that state's law as opposed to giving effect to a very plainly assumed obligation by parties who negotiate a contract.

Is that relevant at all?

Mr. Lowenfeld: I think it's relevant, but I don't think, Justice Stevens, that it is conclusive.

Because, one, it's understood that this is nationwide, in fact, continental-wide, all of North America, policy.

Second, that the insurance company itself does business... in fact, I think it's the fourth largest insurer with over 200,000 policies... in Minnesota.

If you recall, for example, the quite interesting opinion in the Watson case by Justice Frankfurter, in which he has a kind of alternative argument to the one used by Justice Black.

He says the insurance company knew all about this.

It came into Louisiana, it took advantage of the privilege of doing business there, and it's bound by the laws.

I think that same argument applies to Allstate in this case.

So that if... in other words, if the Minnesota Supreme Court had then said in the present case, Hague against Allstate is different from Van Tassel against Horace Mann, which is the principal case in which they in Minnesota said, we apply stacking.

It's different because there is a choice of law clause, because the anti-stacking clauses are unambiguous in contrast to the other case... here they're the same.

If it had made all those points, I think that is an appropriate way for the Minnesota Supreme Court to do.

If it had still said, no, because what we're concerned with is protection, is the role of the accident compensation system.

And we have our widow, we have an estate that we are concerned with.

And if it had said that, that doesn't strike me as arbitrary action of the kind that this Court ought to interfere with.

This Court is not, I think, a court of errors and appeals on the choice of law theories.

Contrary to what Mr. Nolan said, we're not asking you here to say, we agree with Minnesota Supreme Court's construction of Leflar.

We're simply saying it doesn't rise to the dignity of the kind of arbitrary action that this Court sits to exclude.

Justice Powell: Mr. Attorney General, you have emphasized two factors, primarily: the presence of the will in Minnesota and the fact that the decedent was employed in Minnesota.

I think it was Justice White who asked you what the effect would have been if she had, the widow had remained in Wisconsin.

My question is whether your case would be substantially weakened or you would have no case at all if decedent had not been employed in Minnesota?

Mr. Lowenfeld: Well, Justice Powell, I think the... I raised the issue of employment because the Minnesota Supreme Court raised it.

If you look at the purposes of the accident compensation system... and of course, this is a hybrid between tort and contract, as I already suggested... the more important issue is whether the widow and heiress becomes a public charge or whether there is a fund available to pay for her.

So I think the employment though relevant is less critical than the residence of the lady, provided, and I... just to repeat what I said to Justice Rehnquist, provided there's no suggestion of manipulation or deliberate forum shopping, something like that.

Chief Justice Burger: What if the results were to be the same in both states?

Then what happens to your argument about the widow becoming a public charge?

Mr. Lowenfeld: You mean, if Minnesota also now says stacking is foolish?

Unidentified Justice: No, if the financial result was precisely the same in both states?

Mr. Lowenfeld: Well, I suppose then there is no conflict of laws.

And in fact, as we suggest in our brief, that may well be the situation, since, interestingly enough, the Wisconsin court in the Nelson case, which said, we don't have stacking here, said, that's because this accident happened before the statute was amended and then the statute was amended and they said, well, we make no finding as to how that would come out.

And Minnesota Supreme Court said, it's possible that Wisconsin would come out the same way but we don't have to worry about that; we don't want to hold a hearing on how Wisconsin would judge this, we're just going to apply our own law.

Now, let me just briefly, if I may, come back to the question of what line should be drawn.

I've already suggested that this Court ought to be reluctant to get into the question of a particular contact or a particular interest, whether it's residence or the place of the accident or the domicile of the... of a particular party, whether it's plaintiff or defendant.

Chief Justice Burger: We'll resume there at 1 o'clock.

Mr. Lowenfeld: All right.

Thank you.

0 [Recess.]

Chief Justice Burger: Mr. Lowenfeld, you may continue.

You have seven minutes remaining.

Mr. Lowenfeld: Thank you very much.

As I was saying at the lunch break, the position that we take is that this Court does not sit to decide between one theory of conflict of laws and another, whether it's contacts analysis or interests analysis, the first restatement, the second restatement, Professor Leflar, or some other professor; that what it sits to oversee is, and only is, the question of arbitrary action.

I'd like, perhaps, in the few minutes I have remaining--

Justice Brennan: I'd like to be sure about what you mean, because there's really no Federal constitutional question for us to decide in choice of law cases, unless there's some alleged arbitrary action, denial of due process, and that's all?

Mr. Lowenfeld: --That's entirely my position, Justice Brennan; yes.

Chief Justice Burger: Does that not, to a degree... or, I'll put it, does it to a degree put jurisdiction and choice of law in logic-tight compartments?

Mr. Lowenfeld: Well, that's an interesting way, Mr. Chief Justice, to put that question.

Of course, we've had this series of cases now... four of them in four years... in which the jurisdiction has been challenged and state court action has been struck down.

It's interesting that Justice Brennan in each of those cases said, why is that so if choice of law would be permissible?

And the majority has said, no, we are prepared to strike down certain cases of arbitrary reaching out.

I think it turns out that some of the cases that you've had in the jurisdiction area... Rush and Savchuk in particular is a good example; perhaps Kulko as well... the Court might have come down the other way, but the difficulty, if it had come down... that is to say, struck them down on choice of law rather than on jurisdictional grounds... but if you had done that, it would have opened up a very large area of fine-line drawing, weighing this against that, and it would have involved this Court telling the Supreme Court of Oklahoma, Minnesota, California, et cetera, how to decide cases.

Justice Rehnquist: Of course, by the same token, you could say we told them how to decide them on the basis of jurisdiction.

Mr. Lowenfeld: No, I don't think so, Justice Rehnquist.

I think what you told them in those cases is, don't decide this case; it ought to be adjudicated somewhere else, or dismissed... as in Volkswagen... dismiss the following parties from the case, and then you can go ahead with other parties.

That's exactly the difference.

And it seems to me that in terms of a vibrant Federal system, it's easier to draw lines and it's less intrusive into the work of the state judiciary to say, you may not hear this case at all, than to say, you can hear it but you'll only decide it in a certain way.

I think that was started with Hanson against Denckla and then kept up in these four cases that you've had in the last four years now.

Chief Justice Burger: Is it possible that... I'll put it another way... which do you think will be advanced by the approach you suggest, hands off, by this Court?

Federalism or parochialism?

Is it parochialism?

Mr. Lowenfeld: I would say... I would say federalism and a certain amount of experimentation.

If you think about the difficulty with setting down rules in the choice of law area, it's a little bit like the criminal procedure cases.

Since you have no Federal statute, you only, your only criterion is a due process criterion if you lay down a certain rule.

For example, the issue must vest at the date of impact, or the following are minimum contacts, and so forth.

It will turn out that neither the lower Federal courts nor the state courts nor state legislatures nor Congress, no one can make any changes.

And that, it seems to me, it would be very unfortunate for the development of federalism.

It's no accident, Mr. Chief Justice, that the conflict of laws has really been in the forefront of experimentation in the whole area of accident compensation.

That is, we've had, for example, the series of guest statute cases that I'm sure you're familiar with, many in New York, some in California and elsewhere.

And the result over time, though the conflict theories have tended to vary with the different professors and the different judges, in the end we've had a reduction in guest statutes; we've had a reduction in wrongful death limitations; a variety of these kind of quirky state rules have tended to go.

In other words, conflict of laws has been an engine of law reform generally and I think it would be very unfortunate if this Court were to stop that.

I think that's what Professor Freund meant in his essay about Chief Justice Stone, which is cited in our brief.

It's what Chief Judge Kaufman meant in the Pearson case in which he warned against returning to the "ice age" of conflict of laws.

I think altogether a dynamic federalism, Mr. Chief Justice, would be furthered by a statement that the Court will come in only at a certain time, only when there's really arbitrary action, not by an attempt to draw particular rules of this kind here.

Justice White: But you don't think that we should say that just because a state court has jurisdiction... obvious jurisdiction, no one questions it... that it may apply its own law?

Mr. Lowenfeld: I'm not sure whether you should say that or not, Mr. Justice White.

I think--

Justice White: Would you find the application of that rule arbitrary in some circumstances, if there's acknowledged jurisdiction, everybody agrees there's jurisdiction?

Mr. Lowenfeld: --I would put the statement slightly differently.

I would say that if you exercised the kind of vigilance that you've exercised in the last few years on judicial jurisdiction, on reaching out by state courts, you will not find the kind of arbitrary action, the kind of parochialism... as the Chief Justice suggested... that you need to worry about.

I'm not quite sure I would put... but if you did put it the way you've said, I don't think that would be a tragedy.

I think it's a slight, subtle difference.

Justice Stevens: Mr. Lowenfeld, would you say that a statute would be unconstitutional that... say the State of Minnesota passed a statute that said, in all cases tried in Minnesota courts the Minnesota judges shall apply Minnesota law?

Mr. Lowenfeld: I think I could certainly conceive of situations where, as applied, that such a statute would be unconstitutional.

Yes; for example, if in our case Mrs. Hague had remained in Wisconsin or had moved to New York but had hired Minnesota counsel and then were applying that kind of statute, that would seem to me arbitrary action; yes.

I think my time is out.

Thank you.

Chief Justice Burger: Thank you.

Mr. Nolan?

ORAL ARGUMENT OF MARK M. NOLAN ON BEHALF OF THE PETITIONER -- REBUTTAL

Mr. Nolan: If I might respond and rebut quickly and briefly, I would like to answer Justice White's question by pointing out the ludicrousness of it.

Allstate could be sued in all 50 states, all 50 states, for the purposes of a declaratory judgment action, an action directly against the insurance company.

You could sue Allstate in all 50 states.

You would not want any of those 50 states to be able to choose their law.

I would say, in answer to your question, no.

The courts cannot choose their law.

Justice Rehnquist: When you say, ludicrousness, you mean the ludicrousness of the result, not the ludicrousness of the question?

Mr. Nolan: That is so.

Justice White: But where do you find the word "ludicrous" in the Constitution?

Mr. Nolan: Where I find--

Justice White: What's a... what would Allstate be deprived of if sued in Hawaii on this cause of action by a resident of Minnesota?

Mr. Nolan: --Allstate would be deprived of due process and in this particular instance Wisconsin would--

Justice White: How?

How is that?

Mr. Nolan: --be deprived of full faith and credit.

Justice White: Why would it be deprived of due process?

Mr. Nolan: Because there are no contacts--

Justice White: Please tell me if Dick does... why, what deprivation is that?

Mr. Nolan: --There are no contacts with The State of Hawaii that gives them any interest over the State of, over Allstate's interest in writing this contract in conformity with Wisconsin's law.

Justice White: Well, would it be all right to be sued there in Hawaii as long as it applied Wisconsin's laws?

Mr. Nolan: I think they could.

I think somebody might raise a motion of forum non conveniens.

But you--

Justice White: Well, suppose it was denied?

It would still be--

Mr. Nolan: --Then I think the result should be that they could hear the case but they should apply Wisconsin's law.

Justice White: --Well, what interest has Hawaii got in hearing that case?

Mr. Nolan: I don't think they have any interest and I would wonder why they would do it.

But they could... I guess what I'm saying is that you're telling me to assume that the jurisdiction is okay?

Justice White: I am.

Mr. Nolan: What should be the choice of law?

Justice White: I am; yes, I am.

Yes I am; yes.

Mr. Nolan: Okay.

I don't think they have any interest in it and that's why I think they should choose Wisconsin's law.

Justice White: Rather than just dismiss the case?

Mr. Nolan: Well, the... what they really... you've told me... I said that I would bring the motion for forum non conveniens.

They should dismiss the case.

Then you've said, assume that's denied.

Well, assuming it's denied, then they should apply Wisconsin law.

Briefly, they also... my opponent's missed the case of Yates versus John Hancock Insurance.

That is a case very much in point with this situation in that that's a life insurance policy which was applied for in New York.

After the death of the husband the wife moved to Georgia.

Georgia applied their law as opposed to New York's law and in that court this case indicated the choice of law was a Full Faith and Credit issue in addition to due process, and additionally indicated that that after-acquired fact of her moving to Georgia was not enough contact with Georgia to give them any interest to apply their law.

The same is true of Mrs. Hague moving to Minnesota after this instance.

Full Faith and Credit does go to not only acts but to judicial proceedings.

What has happened here, there's the judicial proceeding of Wisconsin has said, no stacking; Nelson is the case.

No stacking; to give full faith and credit to that, you must apply Wisconsin's law.

Additionally, there's been a hint that there's no conflict at issue, both in the argument and in the brief.

There definitely is a conflict of law.

The Minnesota court's recognized that the Nelson case in Wisconsin said, no stacking.

It wasn't raised in argument but it is raised in their brief that an amendment was added to the statute after that decision.

That amendment has nothing to do with giving arguments to stacking, as... without getting off on a tangent, it provides arguments for not allowing a set off for med. pay and uninsured motorist coverage.

As the Minnesota court recognized, that amendment did not change the statute.

There is a conflict.

The last issue that I should address is, this Court should hear these cases, should make a determination in these cases.

Its position should not be hands off.

It should not abdicate its role as the protector of the Constitution in letting courts just experiment and go to this better rule of law test without paying attention to the Constitution.

Justice White: Well, if this accident had happened in Wisconsin--

Mr. Nolan: It did.

Justice White: --had happened in Minnesota and--

Mr. Nolan: Yes?

Justice White: --suit was in Wisconsin and the widow had not moved to Minnesota, she sued... probate in Wisconsin and sued in Wisconsin, would you say that the Wisconsin courts could apply either the Minnesota law or Wisconsin law?

Mr. Nolan: I would say that would be a closer case.

I think Wisconsin--

Justice White: Is there always one answer to these questions?

Mr. Nolan: --No, there isn't; that's--

Justice White: I mean, could it... aren't there some cases in which either... the law of either state could be applied without violating the Constitution?

Mr. Nolan: --Yes.

And in that... if that were true then, if you got to that threshold, then better rule of law might be a way of resolving that, that dilemma.

But if you don't get to that threshold, if you don't cross the constitutional area, you surely don't.

Unidentified Justice: Well, in Justice White's hypothetical, would the Full Faith and Credit... in Justice White's hypothetical, would the Full Faith and Credit Clause be involved?

Mr. Nolan: To the extent that... you're saying... I guess, if it would--

Unidentified Justice: As I understand your argument in this case you do rely on the Full Faith and Credit Clause?

Mr. Nolan: --Yes.

Unidentified Justice: And you cited that what the Minnesota Supreme Court did violated that clause--

Mr. Nolan: Yes.

Unidentified Justice: --not giving... in giving weight to... with Nelson.

But in the case that Mr. Justice White put to you how would it be covered?

What would you have to turn to then?

Mr. Nolan: What would you... you mean, what would you turn to as the--

Unidentified Justice: In the Federal Constitution?

Mr. Nolan: --I guess you would turn to Due Process; the contacts, whether the contacts were such.

Unidentified Justice: But these cases do differ.

Mr. Nolan: Yes.

I think that both Due Process and Full Faith and Credit is involved.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.

Attribution:

The OYEZ Project

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