493 F.

2d 818

AJAX REALTY CORPORATION, Appellant,

v.
J. F. ZOOK, INC., et al., Appellees.
No. 71-2145.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 2, 1972.
Decided Dec. 12, 1972.

J. Cameron Mann, Norfolk, Va. (Maurice Steingold and Steingold,

Steingold & Friedman, Norfolk, Va., on brief), for appellant.
E. Preston Grissom, Norfolk, Va. (Allan S. Reynolds and White,
Reynolds, Smith & Winters, Norfolk, Va., on brief), for appellees.
Before WINTER, BUTZNER, and RUSSELL, Circuit Judges.
WINTER, Circuit Judge:

Plaintiff, Ajax Realty Corporation (Ajax), appeals from the district court's
decision granting the motion of defendant, Durell Products, Inc. (Durell), to
dismiss and to quash service of process. The appeal raises questions concerning
the interpretation and constitutionality of Virginia's Long Arm Statute.1 Va.
Code Ann. 8-81.2 (1964).2

Durell, a corporation of the State of Washington, manufactured unglazed

window frames which C & S Sales Company, a Colorado corporation,
purchased and sold to Ajax, a Virginia corporation. Ajax installed the frames in
its apartment complex in Virginia. The frames leaked, occasioning property
damage to the apartments. Ajax sued Durell and others alleging both breach of
warranty and tort liability. Jurisdiction of the subject matter was based on
diversity of citizenship. 28 U.S.C.A. 1332.

With regard to the jurisdictional issue, the district court found the following
facts: Durell transacts nearly all its business in the Pacific Northwest. It has
never been domesticated in Virginia. Durell has never maintained any

manufacturing, sales, storage, or other business facility in Virginia. It has never

advertised, solicited, or contracted for any sales in Virginia. It has never
directly distributed its products in Virginia. It has never maintained a
distributor, jobber, agent, or other representative in Virginia.
4

Durell manufactured the frames in issue in Washington. It sold the frames to C

& S Sales in Denver, Colorado for $37,000. C & S Sales then sold the frames
to Ajax in Virginia. Durell was not involved in the sale by C & S to Ajax. C &
S is not Durell's agent. At the request of C & S, Durell shipped a sample frame
to Chicago to facilitate preparations for glazing. Again at the request of C & S,
Durell shipped the manufactured, but unglazed, frames directly to Ajax in
Virginia. After the frames leaked, Durell sent a representative to Virginia to
examine them in an attempt to alleviate the problem.
I.

Ajax invokes several sections of the long arm statute. We shall discuss only 881.2(a)(1) and 8-81.2(a)(5).3

1. Sec. 8-81.2(a)(1) provides that a court may exercise personal jurisdiction if

the claim arises from a corporation's 'transacting any business in this State.' At
issue is whether 8-81.2(a)(1) should be construed to embrace Durell's sole act
of shipping the frames to Virginia. In Haynes v. James H. Carr, 4 Cir., 427 F.2d
700, 704, cert. den. 400 U.S. 942, 91 S.Ct. 238, 27 L.Ed.2d 245 (1970), we
held that (a)(1) was not a single act statute. In other words, a foreign
corporation must conduct more than a single business transaction in Virginia to
be subject to jurisdiction under the provisions of that statute.

However, in John G. Kolbe v. Chromodern Chair Co., 211 Va. 736, 180 S.E.2d
664, 668 (1971), the Supreme Court of Virginia, stressing the word 'any,'
construed (a)(1) as 'a single act statute requiring only one transaction in
Virginia to confer jurisdiction.' The Court reasoned that: (1) 'the purpose of
Virginia's long arm statute is to assert jurisdiction over non-residents who
engage in some purposeful activity in this State to the extent permissible under
the due process clause'; (2) since it would not offend traditional due process
notions of fair play and substantial justice to subject a foreign corporation to
Virginia jurisdiction where its one business transaction 'invoked the benefits
and protection of the laws of' Virginia, (a)(1) should be construed to reach such
a case.

Chromodern is technically distinguishable from the instant case. The foreign

corporation there had significantly stronger contacts with Virginia than did
Durell: the foreign corporation there maintained a manufacturer's representative
for Virginia and neighboring states, it maintained a non-stocking dealer in
Virginia, it had contracted for other sales through these agents in Virginia, and
the contract in question was with the Virginia non-stocking dealer. Thus,
Chromodern does not compel a similar conclusion here. Moreover, the Court's
construction of (a)(1) as a single act statute must properly be termed dictum.
Nevertheless, mindful of our obligation under Erie Railroad Co. v. Tompkins,
304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and its progeny to follow state
interpretation of state law, we adopt the Virginia Supreme Court's construction
of (a)(1) as a single act statute. Haynes, supra, insofar as it is inconsistent, is
superseded by state decisional law and should no longer be followed.
9

Even under the state construction of (a)(1), however, Durell cannot be said to
have transacted any business in Virginia. Durell's sole contact with Virginia
was its shipment of the frames to Virginia, FOB Washington State. Durell
shipped the frames to Virginia either as an accommodation to C & S or as C &
S's agent for the purpose of shipment. C & S prepaid the cost of shipment. As
the district court found, Durell sold the frames to C & S, a Colorado firm. It
had no initial involvement in C & S's resale to Ajax in Virginia. There is no
evidence that Durell knew at the time of its sale to C & S that C & S would
resell the frames to a Virginia concern, or that C & S would request Durell to
ship them directly to Virginia. On the other hand, since C & S's business
apparently involved the resale of manufactured frames-- that is, C & S did not
purchase frames for installation in its own facilities-- it is not unreasonable to
assume that Durell knew that C & S would resell them somewhere.

10

If Durell had, as originally planned, simply shipped the frames to C & S in

Colorado, Virginia could not assert jurisdiction even under a single act statute.
To rule otherwise would be to hold that a manufacturer transacts business in
every state in which each of its independent distributors deals. Therefore, if
Virginia can assert jurisdiction here under (a)(1), the rule of the case would be
that where a non-resident manufacturer ships its products directly to the
ultimate purchaser, rather than to a non-resident independent distributor, either
as an accommodation to the distributor or as its agent for purposes of shipment,
then it has transacted business in Virginia. The Virginia Supreme Court has not
gone so far in construing (a)(1), see Chromodern, supra, and therefore we
choose not to, especially since there is another basis for asserting jurisdiction.4

11

2. Sec. 8-81.2(a)(5) provides that a court may exercise personal jurisdiction if

the claim arises from the corporation's 'causing injury in this State to any
person by breach of warranty expressly or impliedly made in the sale of goods

outside this State, when he might reasonably have expected such person to use,
consume, or be affected by the goods in this State, provided that he also
regularly does or solicits business, or engages in any other persistent course of
conduct, or derives substantial revenue from goods used or consumed or
services rendered in this State.' After C & S requested Durell to ship the frames
to Virginia, Durell possessed a firm expectation that the frames would be used
in Virginia. Although Durell did not regularly do or solicit business, or pursue a
persistent course of conduct, in Virginia, we consider that the $37,000 which it
derived from Ajax's use of the frames in Virginia constitutes 'substantial
revenue.' See Jackson v. National Linen Service, 248 F.Supp. 962
(W.D.Va.1965).
12

Durell stresses that the $37,000 contract price represents only one-half of one
percent of its total sales. Although percentage of total sales may be a factor to
be considered, it cannot be dispositive, for a small percentage of the sales of a
corporation giant may indeed prove substantial in an absolute sense.5 On the
other hand, it is difficult to identify an absolute amount which ipso facto must
be deemed 'substantial.' In Jackson, supra, the court held that a foreign
corporation which had $25,000 in direct sales in Virginia, and an undetermined
sum in indirect sales, derived 'substantial revenue' for purposes of (a)(5). Id. at
964-965. Johnson v. Equitable Life Assur. Soc'y, 22 A.D.2d 138, 140, 254
N.Y.S.2d 258, 260 (1st Dep't. 1964) (dictum), is further indicative of a trend
toward liberal construction of 'substantial revenue' provisions.6 In Johnson, the
sale of a $1,798.20 component part by one non-resident to another for ultimate
use in a New York skyscraper was said to satisfy the 'substantial revenue' test of
New York's equivalent of 8-81.2(a)(4). Without purporting to draw a hard and
fast line, we hold that Durell's $37,000 contract price constitutes sufficiently
substantial revenue to subject it to Virginia's jurisdiction under (a)(5).

13

This conclusion is bolstered by our further conclusion, infra, that this assertion
of jurisdiction does not offend the due process clause of the fourteenth
amendment. This reasoning does not put the cart before the horse, since
Virginia has held that its long arm statute exercises the full extent of
jurisdictional power permitted by the due process clause. Chromodern, supra at
667 of 180 S.E.2d Carmichael v. Snyder, 209 Va. 451, 456, 164 S.E.2d 703,
707 (1968). In other words, in Virginia, if the exercise of jurisdiction is
constitutional, the long arm statute contemplates it
II.

14

Since we hold that Virginia may exercise jurisdiction over Durell, we must
consider the constitutionality of that exercise. Due process requires only that

the foreign corporation 'have certain minimum contacts with (the State) . . .
such that the maintenance of the suit does not ofend 'traditional notions of fair
play and substantial justice." International Shoe Co. v. State of Washington,
326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1965). McGee v.
International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957).
Although the sum which Durell derived was substantial, it arose out of a rather
solitary and fleeting contact with Virginia-- its shipment to Virginia of frames
sold to a Colorado firm.7 Moreover, it is problematical whether Durell
realistically is in a position to invoke the benefit of the laws of Virginia. Cf.
Chromodern, supra. But the day is long past when the 'minimal contact'
necessary to satisfy due process is to be equated with the traditional concept of
doing business. Accordingly, we conclude that Durell enjoyed a sufficient
financial benefit from the use of its frames in Virginia so that it would not be
unreasonable to hold that it must account in Virginia for alleged defects, at least
in a case like this where the statute requires, and Durell ultimately had, a
reasonable expectation that the frames would be used in Virginia. See Jackson,
supra. Virginia is the most logical and convenient locus to try the case. See
McGee, supra, at 223 of 355 U.S. 78 S.Ct. 199. Cf. Hanson v. Denckla, 357
U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). As the Supreme Court
explained in McGee, supra, at 222-223 of 355 U.S., at 201 of 78 S.Ct.:
15

(A) trend is clearly discernible toward expanding the permissible scope of state
jurisdiction over foreign corporation . . .. In part this is attributable to the
fundamental transformation of our national economy over the years. Today
many commercial transactions touch two or more States and may involve
parties separated by the full continent . . .. At the same time modern
transportation and communication have made it much less burdensome for a
party sued to defend himself in a State where he engages in economic activity.

16

We therefore hold that the application of (a)(5) to Durell on these facts does not
violate the due process clause of the fourteenth amendment.8

17

The order of the district court dismissing Durell and quashing service of
process as to it is reversed, and the cause is remanded to the district court for
further proceedings not inconsistent with this opinion.

18

Reversed and remanded.

The district court applied the Virginia statute in determining whether it had
acquired in personam jurisdiction. F.R.Civ.P. 4(e)

8-81.2 When personal jurisdiction over person may be exercised.-(a) A court may exercise personal jurisdiction over a person, who acts directly
or by an agent, as to a cause of action arising from the person's
(1) Transacting any business in this State;
(2) Contracting to supply services or things in this State;
(3) Causing tortious injury by an act or omission in this State;
(4) Causing tortious injury in this State by an act or omission outside this State
if he regularly does or solicits business, or engages in any other persistent
course of conduct, or derives substantial revenue from goods used or consemed
or services rendered, in this State;
(5) Causing injury in this State to any person by breach of warranty expressly or
impliedly made in the sale of goods outside this State when he might
reasonably have expected such person to use, consume, or be affected by the
goods in this State, provided that he also regularly does or solicits business, or
engages in any other persistent course of conduct, or derives substantial
revenue from goods used or consumed or services rendered in this States; - - -.
See Generally Note, The Virginia 'Long Arm Statute,' 51 Va.L.Rev. 719
(1965).

Sec. 8-81.2(a)(5) addresses injury arising from a breach of warranty in the sale
of goods outside Virginia. Sec. 8-81.2(a)(4) addresses tortious injury arising
from an act or omission outside Virginia. There is a certain ambivalence in
plaintiff's position as to whether it is asserting a tort claim or a warranty claim.
We shall treat it as the latter

'The cases seem unanimous in holding, whether as a matter of statutory

interpretation or of due process, that the shipment of goods into a state, without
more, does not constitute transaction of any business. Nor was the shipment of
goods plus merely 'incidental activity' such as billing or negotiating thereafter in
the state concerning defects in the goods held to be transaction of business in
one case.'

51

Va.L.Rev., supra at 737. See Erlanger Mills v. Cohoes Fibre Mills, 239 F.2d
502 (4 Cir. 1956)

Conversely, a relatively small absolute amount might be deemed 'substantial'

where it constitutes a significant percentage of a small corporation's total sales

See 51 Va.L.Rev. at 749

We are aware of authority in this Circuit indicating that under some

circumstances a State cannot constitutionally assert jurisdiction over a foreign
corporation where that corporation's sole contact with the State is the shipment
of its goods into the State. See n. 4, supra; Golden Belt Manufacturing Co. v.
Janler Plastic Mold Co., 281 F.Supp. 368, 370-371 (M.D.N.C.1967), aff'd 391
F.2d 266 (4 Cir. 1968). These cases did not address the issue in the context of a
'substantial revenue' statute, although, of course, the parameters of due process
remain, regardless of the terms of the statutory authority

Durell does not contend that the method of service of process, as distinguished
from the basis for it, violates the due process clause. Durell had adequate notice
of the suit and sufficient time to prepare its defenses