Appeals court reverses circuit court decision on long-arm statute

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An Arizona man recently found out he may not be able to elude the Wisconsin long-arm statute just because he had finished printed materials sent directly to third-party clients and never set foot in Wisconsin to pursue the business.

Last month, the appellate court reversed a circuit court decision to dismiss a case out of Eau Claire County, Johnson Litho Graphics of Eau Claire, Ltd. v. Sarver d/b/a National Print Service, 2010 AP 1441, where the lower court concluded that service on the out of state defendant violated 14th Amendment due process protections, and thus lacked personal jurisdiction over the long-distance defendant.

The lower court had in part relied upon Lakeside Bridge and Steel Co. v. Mountain State Construction, 597 F.2nd 596 (7th Cir. 1979) to suggest the plaintiff had reached too far and obtained service on a defendant who lacked sufficient contacts with Wisconsin.

In reversing the lower court and sending the case back for further proceedings, the appellate court was clear in stating that, when a court analyzed a case, it “cannot produce an absurd result.”

“We see no principled difference under the long-arm statute between nonresidents who direct Wisconsin companies to ship goods directly to them,” the court commented, “and nonresidents who instead direct Wisconsin companies to ship goods to third parties.”

The court also determined that Sarver had established the necessary minimum contacts in part by “soliciting and making numerous contacts with [Johnson]… which were not “random” or “attenuated…,.” and that the decision did not “offend notions of fair play and substantial justice.”

Johnson Litho Graphics had exclusively produced printing materials for Sarver’s National Print Service for approximately five years, shipping the finished product directly to Sarver’s customers across the country.

Sarver had originally approached Johnson in 2000, when he was an Illinois resident with an Illinois-based printing company. In 2002, Sarver relocated to Arizona, but continued working with Johnson for all of his company’s commercial printing materials.

Both parties to the litigation agreed that, for each printing job, contact with Sarver was substantial. Typically, Sarver would first contact Johnson and place an order, and then Johnson would generate a quote, which was signed and returned by Sarver. In addition, all changes made by the customer had to be approved by Sarver.

After the customer approved the proofs, Sarver directed Johnson to send completed printing jobs straight to the customer.

In 2006, Sarver contacted Johnson to do printing work for a New York customer. From September 2006 through December 2006, Sarver and Johnson exchanged quotes and confirmations to further clarify and confirm three separate orders.

When the work was done, on Sarver’s instructions, Johnson shipped the final printed materials directly to Sarver’s clients in New York and New Jersey. According to court records, there was no indication the client was unhappy with the final product.

After making several payments, Sarver refused to pay the balance of almost $50,000, and Johnson sued in Eau Claire County, the location of its business and sole manufacturing site.

Sarver affirmatively responded that the language of the Wisconsin long-arm statute excluded him from service under the law.

According to Sarver, if one is not a Wisconsin resident and did not receive or direct goods, the long-arm statute does not apply.

“The language of the statute is straightforward and unambiguous,” Sarver stated.

Section 801.05(5)(d) of the Wisconsin long-arm statute reads in part that the court has jurisdiction in circumstances when it “[r]elates to goods, documents of title, or other things of value shipped from this state by the plaintiff to the defendant on the defendant’s order or direction.”

In the court’s opinion, the statute’s language “to the defendant” should be interpreted more expansively, and “include shipping goods from Wisconsin to third parties at the defendant’s order or direction.”

The court did acknowledge that rules of statutory construction do look at the “plain meaning” of a statute, and that Wisconsin law does provide that if the meaning of a statute is plain, then frequently the court can stop further inquiry.

But the court further explained that “the ultimate purpose of statutory interpretation is to give full effect to the policy choices of the legislature,“ which should not lead to an “absurd result.”

Turning to the issue of 14th Amendment due process concerns, the court concluded that Sarver did purposefully establish minimum contacts in Wisconsin. In reaching that decision, the court was not moved by Sarver’s argument that he had never set foot in Wisconsin during any part of the business relationship, and also that Johnson unilaterally controlled where the printing was performed.

Ultimately, the court was more persuaded by federal caselaw established through Madison Consulting Group v. South Carolina, 752 F.2nd1193 (7th Cir. 1985) and Citadel Grp. Ltd v. Washington Regional Med. Ctr., 536 F.3d 757 (7th Cir. 2008), which involved more case-specific examination of facts which could establish minimum contacts.

And the court also expressed that the Lakeside decision itself presented questionable precedent, pointing out that the U.S. Supreme Court and other federal courts had “stepped back” from Lakeside.