CELEBREZZE, Circuit Judge.
This declaratory judgment action arose out of a licensing agreement between Southern Machine Company, Inc., (hereinafter "Southern Machine") Plaintiff-Appellant, and Mohasco Industries, Inc., (hereinafter "Mohasco") Defendant-Appellee. Southern Machine brought the action in the United States District Court for the Eastern District of Tennessee pursuant to 28 U.S.C. § 2201 joining as parties defendant Mohasco and Louisa Carpet Mills, Inc., (hereinafter "Louisa"). Upon the motion of Mohasco, the District Court quashed service of process and dismissed the action as to it for lack of in personam jurisdiction. Since jurisdiction over Mohasco is indispensable for the full declaratory relief sought, Southern Machine has appealed the granting of Mohasco's motion. We reverse.
Service of process was made on Mohasco outside the State of Tennessee through the Secretary of State of Tennessee; but no question is raised concerning the adequacy of the notice or the opportunity to be heard
In 1965 the Tennessee legislature enacted a "long arm" statute, which, among other provisions, purports to give Tennessee courts jurisdiction over nonresidents who engage in the transaction of any business in Tennessee as to "any action or claim for relief" arising out of that business transaction. T.C.A. § 20-235(a).
First, the federal district courts that have interpreted the statute have unanimously found that the statute comprehends the full jurisdiction allowable under the Fourteenth Amendment. Hamilton National Bank of Chattanooga v. Russell, 261 F.Supp. 145 (E.D.Tenn. 1966); Temco, Inc. v. General Screw Products, Inc., 261 F.Supp. 793 (M.D. Tenn.1966); Tate v. Renault, Inc., 278 F.Supp. 457 (E.D.Tenn.1967); But Cf. Fayette v. Volkswagen of America, Inc., 273 F.Supp. 323 (W.D.Tenn.1967).
Having found that the Tennessee courts are authorized to reach as far as the Constitution will permit, our sole problem is determining the limits that the Fourteenth Amendment
With the issue thus narrowed, we turn to the facts of the instant case. In May, 1962, Mohasco and Southern Machine entered into a license agreement by which Southern Machine was authorized to manufacture and sell various tufting machine attachments on which Mohasco held the patent or licensing rights. The agreement contains the usual patent licensing provisions, disavowing any representation by Mohasco as to the validity and enforceability of the patents and prohibiting Southern Machine from attacking the validity of the patents, and also contains some provisions peculiar to Mohasco's licensing plan. For example, Southern Machine is not required to pay a royalty or fee for attachments made and sold in the United States; but attachments can be sold there only to parties whom Mohasco has licensed to use the attachments.
By the terms of the agreement, Southern Machine is required to submit comprehensive quarterly reports to Mohasco. In addition, records must be kept relating to any sale, lease or loan of attachments, and the records are to be open to inspection by Mohasco for the purpose of verifying the accuracy of Southern Machine's reports and foreign-use royalty payments. The agreement also requires Southern Machine to obtain certain covenants from any purchaser, lessee or borrower of an attachment and requires that a specific notification plate be affixed to every attachment that is manufactured
Affidavits submitted by officers of the two corporations are in conflict concerning the nature of the negotiations leading to the execution of the agreement. But the assertion is uncontested that at the time the agreement was executed Southern Machine, a Tennessee corporation, had only one manufacturing plant, which was located in Chattanooga, Tennessee. Southern Machine says that the negotiations were primarily by long distance telephone between Tennessee and New York, while Mohasco contends that the negotiations occurred at its office in Amsterdam, New York in March, 1962. In any event, the agreement provides that it is to be construed as having been made in New York and in accordance with the law of New York; and both parties acknowledge that the agreement was drawn up by Mohasco, signed by Southern Machine in Chattanooga, and then finally executed by Mohasco in New York.
The record is not very well developed concerning the extent of performance under the contract by either party. What expenses Southern Machine incurred in altering its machinery and production schedules to produce the tufting machine attachments and what expenses it has incurred in marketing the attachments are not indicated in the record. Southern Machine asserts, however, that two Mohasco representatives came to Chattanooga to inspect the plant facilities and to explain how the attachments were to be built; but Mohasco denies that any of its agents have been in Tennessee on any matter relating to the licensing agreement. The record does show, however, that E'Con Carpet Mills, Inc, a Tennessee corporation located in Chattanooga, has been licensed by Mohasco to use an attachment produced by Southern Machine under this licensing agreement and that the Singer Company, Cobble Division, which is located in Chattanooga, is also manufacturing tufting machine attachments under some arrangement with Mohasco.
Although Mohasco is a New York corporation with its principal offices in Amsterdam, New York, it has divisions located in other states. Nevertheless, Mohasco has no office and neither owns nor leases any property in Tennessee. Nor has Mohasco qualified to do business in Tennessee or appointed the Secretary of State of Tennessee or any other person as agent for the service of process in that State. On the other hand, Mohasco has apparently managed to derive a profit from the commerce of Tennessee. A regional sales representative calls about six times a year on an independent Memphis distributor of Mohawk products. Also three salesmen, one of whom is a resident of Tennessee, solicit orders from retailers in the State; and one of Mohasco's divisions solicits orders by mail in the State. All orders from Tennessee, however, from whatever source, are mailed to the New York office for acceptance or rejection there, and all merchandise that is shipped into Tennessee is shipped from outside the State to the customer, presumably by common carrier.
The present controversy concerns the licensing agreement outlined above and a contract between Louisa Carpet Mills, Inc., a Kentucky corporation, and Southern Machine for the manufacture and delivery of certain machines, including some of the patented attachments. When the contract between Louisa and Southern Machine had been executed, Mohasco, pursuant to its agreement, approved Louisa for a use license. After delivery of one machine and preparation of the rest of the order, however, Louisa refused to take a use license because the patents covered by the license agreement had been held invalid by the United States District Court for the Northern District of Georgia. Mohasco Industries, Inc v. E. T. Barwick Mills, Inc., 221 F.Supp. 191 (N.D.Ga.1963). Aff'd 340 F.2d 319 reh. denied 342 F.2d 431 (5th Cir. 1965) cert. denied 382 U.S. 847, 86 S.Ct. 61, 15 L.Ed.2d 86 (1965). If Southern Machine would not deliver, Louisa threatened to obtain the machines elsewhere; and it is alleged in the complaint without
The nature and quality of a person's contact with a state that will serve as the basis for the exercise of in personam jurisdiction over that person by the state is not a subject of easy description. We have come a long way since the simplistic rule of Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565 (1878), that "* * * [p]rocess from * * * one state cannot run into another state * * *." 95 U.S. at 727. Presence of the defendant in the forum state at the time process is served is no longer required. Our courts have moved "away from the bias favoring the defendant toward [a policy] permitting the plaintiff to insist that the defendant come to him" when a sufficient basis exists for such insistence.
Today, it can no longer be doubted, if it ever was,
When considering a single act as the basis of in personam jurisdiction, the two most pertinent Supreme Court cases after International Shoe are McGee v. International Life Insurance Company, 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), and Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). In McGee, the only contacts of a Texas insurance company with California were the mailing of a reinsurance certificate and premium notices into the State and the receiving of the signed certificate and premium payments by mail from the State on only one policy insuring a California resident. Upholding the jurisdiction of a California court over the Texas insurance company in a suit by a California beneficiary of the policy, the Supreme Court said: "It is sufficient for purposes of due process that the suit was based on a contract which had substantial connection with that State." 355 U.S. at 223, 78 S.Ct. at 201.
Hanson v. Denckla, supra served notice, however, that an interest in the plaintiff or an interest in the cause of action are not by themselves sufficient to justify a state issuing process beyond its borders. In that case, the Court held that Florida could not assume in personam jurisdiction over a Delaware trustee of a trust that was executed in Pennsylvania by a domicile of Pennsylvania who later moved to Florida. Noting the trend toward expanding personal jurisdiction over non-residents, the Court cautioned that to satisfy the requirements of due process "* * * it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." 357 U. S. at 253, 78 S.Ct. at 1240.
From these two cases, three criteria emerge for determining the present outerlimits of in personam jurisdiction based on a single act. First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.
Applying these criteria to the instant case, we first approach the sine
We are applying a constitutional standard defined in the broadest terms of "general fairness" to the defendant. Cf. Perkins v. Benquet Mining Co., 342 U.S. 437, 445, 72 S.Ct. 413, 96 L.Ed. 485 (1952). For the purposes of that standard, business is transacted in a state when obligations created by the defendant or business operations set in motion by the defendant have a realistic impact on the commerce of that state; and the defendant has purposefully availed himself of the opportunity of acting there if he should have reasonably foreseen that the transaction would have consequences
Mohasco dealt directly with a Tennessee corporation whose only manufacturing plant was located in Chattanooga.
So it is clear that Mohasco has purposely availed itself of the privilege of transacting business in Tennessee; therefore, we can proceed to the second inquiry: Does the cause of action arise from the business transacted in the State? This question can be disposed of shortly. Although Mohasco argues that this controversy arises from Louisa's refusal to perform under its contract with Southern Machine, that argument misses the gist of the declaratory relief sought and ignores the business realities of the licensing agreement. Southern Machine was licensed by Mohasco to manufacture attachments, the manufacturing of which was allegedly protected by Mohasco's exclusive power to license. When it entered into the agreement, Southern Machine probably could reasonably assume that Mahasco would place restrictions on other manufacturers similar to those placed on Southern Machine and, thus, that it would be able to effectively compete in the sale of the attachments. Presumably, Southern Machine went to some expense in producing the marketing the attachments. Since the patents covering the attachments have been held invalid in one Circuit, Southern Machine's continuing rights and obligations under the license agreement have a questionable status. Cf. Drackett Chemical Co. v. Chamberlain Co., 63 F.2d 853 (6th Cir. 1933).
In any case, events subsequent to the execution of the license agreement have placed Southern Machine in a dilemma that is graphically presented in the instant controversy. Louisa has refused to pay Mohasco a royalty to use attachments that the Fifth Circuit has said are part of the public domain. Since Southern Machine cannot sell attachments to anyone who is not licensed by Mohasco, it is now presented with a Hobson's choice: it can complete the sale to Louisa, risking a suit by Mohasco for breach of the license agreement, or it cannot refuse to complete the sale and sue Louisa for breach of contract, risking the possibility that Louisa is right in its refusal to take a use license. Instead of foundering on the horns of this dilemma and instead of choosing to repudiate the license agreement,
The above analysis
Since it is clear that this cause of action arises from the licensing agreement, we must confront the final question: Does the licensing agreement have a substantial enough connection with Tennessee to make it reasonable to compel Mohasco to come to Tennessee to defend this suit? We think it does.
Ultimately, our decision must depend upon a determination of whether Tennessee has an interest in resolving the conflict at issue; but, once the first two questions have been answered affirmatively, resolution of the third involves merely ferreting out the unusual cases where that interest cannot be found.
We should be careful not to subvert the expressed interest of Tennessee by a too grudging interpretation of the long arm statute or a too restrictive view of the requirements of due process.
That interest of the State cannot be measured by "a little more or a little less," International Shoe Co. v. State of Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 159, 90 L.Ed. 95 (1945); it is not diminished simply because only one contract is relied upon as the basis of jurisdiction.
Throughout the opinion, this Court has taken the uncontested facts in the complaint and affidavits as true and from those facts has drawn reasonable inferences pertinent to the issues of in personam jurisdiction. In so doing, this Court expresses no view as to the probable outcome of the suit in a trial on the merits. The judgment of the District Court is reversed and the case is remanded for further proceedings consistent with this opinion.