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Litton Industrial Systems Inc. v. Kennedy Van Saun Corp.

Decided: October 26, 1971.

LITTON INDUSTRIAL SYSTEMS, INC., PLAINTIFF,
v.
KENNEDY VAN SAUN CORPORATION , DEFENDANT



Doan, J.c.c. (temporarily assigned).

Doan

This is an action in breach of contract by a Delaware corporation (Litton) with its main offices in Delaware, but which also has offices in Totowa, N.J. under the name of its division, Hewitt-Robins Inc., against another Delaware corporation (Kennedy Van Saun), with offices only in Delaware. Both are authorized to do business in this State and such business appears in both instances to be substantial.

The facts as uncontroverted in the pleadings to date are these: On December 27, 1968 plaintiff and defendant entered into a contract under the terms of which defendant was to manufacture and deliver certain steel rotary elevators, the first of which was to be delivered to plaintiff on June 15, 1969, with time of the essence. Litton, at that time, was obligated to ship said elevators to another of its subsidiaries. Erie Marine Division of Rust Engineering, which was in turn obligated to ship to Bethlehem Steel. The first elevator was not delivered by defendant until September 25, 1970, which Litton claims is a substantial breach and for which it claims damages in the amount of $50,000, and its subsidiary, Erie Marine, claims of plaintiff damages of $1,044,000 for alleged loss of profits by preempt of yard space. Bethlehem Steel also claims expenses from Erie who, in turn, seeks reimbursement from plaintiff therefor.

Kennedy Van Saun, by way of answer, admits the contract of December 27, 1968, but alleges that under that contract Litton supplied plans, drawings, and specifications for the elevator which proved faulty and led to impossibility of performance. It appears from the affidavit of Edwin Stebbins (purchasing manager of Robins Engineers and Constructors, part of Hewitt-Robins) that their plans and specifications were drawn up in Hewitt-Robins' offices in Totowa and sent to Kennedy Van Saun from there. The records of these plans and specifications remain at the Hewitt office in New Jersey. Defendant Kennedy Van Saun further alleged in its answer that the contract was amended on September 12, 1969, changing the plans and specifications,

setting a new time for performance and relieving Kennedy of all liability under the prior contract. Kennedy also claims that subsequent to the amended contract Litton caused further delay by submitting eight change orders at various times through the following year. Lastly, defendant has preserved its jurisdictional objections in its answer and has moved within the time limit required by R. 4:6-3.

Kennedy Van Saun started the series of actions surrounding this litigation when it filed a complaint against Litton in the United States District Court for the Middle District of Pennsylvania on March 25, 1971 for monies due on the contract. That action was dismissed on June 16, 1971 by stipulation of counsel, both parties agreeing that the court lacked jurisdiction because there was no diversity of citizenship. Prior to this dismissal Litton had started the current action here in New Jersey on May 14, 1971. Not to be outdone, Kennedy countered by commencing another action in Pennsylvania on June 6, 1971, this time in the Common Pleas Court for Montour County -- this also prior to the federal court dismissal. This state action in Pennsylvania appears to be dormant. According to the affidavit of Russell J. O'Malley (representing Litton in the Pennsylvania action) Litton has yet to file an answer, the time for which had been extended until August 11, 1971. By contrast, this action in New Jersey is alive and thriving; an answer has been filed, defendant and plaintiff have exchanged notices to take depositions, plaintiff has served interrogatories and four letters have passed between the parties regarding the taking of depositions. Service was made in New Jersey on Kennedy Van Saun by serving the Corporation Trust Co., Kennedy's registered agent for the service of such process designated under N.J.S.A. 14A:4-1.

Defendant moves to dismiss the complaint on the grounds that the forum is inconvenient and that service on the registered agent did not give this court jurisdiction of a cause of action allegedly unrelated to the activities of defendant in the State of New Jersey.

I

In support of its jurisdictional objection defendant cites Sielcken v. Sorenson , 109 N.J. Eq. 397 (Ch. 1931), and Kane v. Essanay Film Mfg. Co. , 98 N.J.L. 363 (Sup. Ct. 1923), the former involving substituted service on the Commissioner of Banking and Insurance, and the latter involving service upon the Secretary of State on behalf of a foreign corporation. Neither case is relevant to the problem at hand, where we have service on a registered agent specifically designated by the foreign corporation expressly for that purpose. More importantly, both were decided long before the expanded jurisdictional concepts espoused in International Shoe Co. v. Washington , 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945), and McGee v. International Life Ins. Co. , 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957).

Sielcken and Kane stood for the proposition that substituted service on the in-state agent for service was only available for causes of action arising out of the business activities done by the corporation in New Jersey and was not sufficient for unrelated causes of action.

Assuming, for the sake of argument, that the contract sued on herein was in fact unrelated to the defendant's business activities in New Jersey, and even assuming that defendant had not designated Corporate Trust Co. as its agent for service, and service had been made by registered mail (a supposedly less effective mode of service), we would have little trouble sustaining jurisdiction in this case.

In sustaining long-arm jurisdiction over foreign corporations admittedly doing business in this State we are circumscribed only by the requirement that the corporation be afforded due process. In our search for a constitutional basis upon which jurisdiction may be founded we are reminded once again of the careful statements of Chief Justice Stone in International Shoe, supra:

See McGee v. International Life Insurance Co., supra , where the court noted that "a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents." See also Hanson v. Denckla , 357 U.S. 235, 78 S. Ct. 1228, 2 L. Ed. 2d 1283 (1958); Perkins v. Benguet Consolidated Mining Co. , 342 U.S. 437, 72 S. Ct. 413, 96 L. Ed. 485 (1952), and Justice Jacobs' discussion in J.W. Sparks & Co. v. Gallos , 47 N.J. 295, 298-304 (1966).

In our own jurisdiction these limitations of "minimal contacts" and "substantial justice," imbedded in the International Shoe doctrine and in our own long-arm statute, have been interpreted as vesting our courts with jurisdiction over foreign corporations to the outer limits permitted by due process. Roland v. Modell's Shoppers World of Bergen Cty. , 92 N.J. Super. 1 (App. Div. 1966); Avdel Corporation v. Mecure , 58 N.J. 264 (1971).

Consistent with this interpretation of the limits of due process, our courts have been quick to sustain jurisdiction where the cause of action sued on arises out of the business being done in this state by the foreign corporation and where there have been sufficient minimal contacts present to suggest the reasonableness of subjecting the corporation to suit in this State. Corporate Development Specialists, Inc. v. Warren-Teed Pharmaceuticals, Inc. , 102 N.J. Super. 143 (App. Div. 1968); Roche v. Floral Rental Corp. , 95 N.J. Super. 555 (App. Div. 1967).

Where, however, the cause of action has been unrelated to the business activities carried on within the State, the jurisdictional basis required has gone beyond the mere "minimal contacts" test. In such a situation it has been held that before subjection to jurisdiction can be seen as "reasonable," defendant's activities in the State must be both "continuous" and "substantial." In a word, local contacts

must be greater where the cause of action is unrelated. Corporate Dev. Spec., Inc. v. Warren-Teed Pharm, supra; Arrowsmith v. United Press International , 320 F.2d 219, 6 A.L.R. 3d 1072 (2 Cir. 1963). See also, Restatement , Conflict of Laws 2d, ยง 47.

This concept of "substantiality" is a relative one. It really means sufficient substantiality (with continuity) of the forum business to make it reasonable to exert jurisdiction as against the countering influence of nonrelation of the cause of action. In the Warren-Teed case the Appellate Division upheld jurisdiction where the foreign corporation had local sales in New Jersey constituting 1.4% of its national gross, which sales the court held to meet the test of "substantiality" where the contract sued on was unrelated. In Lehn & Fink Products Corp. v. Milner Products Co. , 117 F. Supp. 320 (D.C.S.D.N.Y. 1953), local jurisdiction was sustained in an unrelated cause of action on the basis of only 1% local sales (plus a "desk-space" office, a local sales manager and a warehouse).

Perhaps reaching those outer limits of due process referred to in the Modell's Shoppers World case, supra , the Supreme Court of the United States in Perkins v. Benguet Consolidated Mining Co. , 342 U.S. 437, 72 S. Ct. 413, 96 L. Ed. 485 (1952), said that an Ohio court could properly take jurisdiction where a Philippine corporation had temporarily halted its activity in the Philippines due to the Japanese occupation and its president had set up an office in his home in Ohio out of which he carried on some internal corporate business, including banking and a few directors' meetings. The court felt that jurisdiction would be nonviolative of the due process clause even though the corporation owned no property in Ohio and had entered into no contracts in that state. Such activity was held to meet the requirements of "substantiality" and "continuity" where the cause of action was unrelated.

Defendant Kennedy Van Saun admits to doing business in New Jersey and nowhere does it state ...


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