No. 81-288 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

FRED REED, Petitioner,

AMERICAN AIRLINES, INC., Respondent.

ORIGINAL PROCEEDING: Counsel of Record: For Petitioner: William Boggs argued, Missoula, Montana For Respondent: Keller,Reynolds,Drake, Sternhagen and Johnson,

Helena,Montana Kieth Keller argued, Helena, Montana

Submitted: December 

### 7, 1981 Decided: February 18, 1982Mr. JusticeFrank B. Morrison, Jr., delivered the Opinion of the Court.

This case is certified from U.S. DistrictCourt, the District of Montana, Missoula Division. Petitioner had fileda diversity actionbased upon the alleged negligence of American Airlines, Inc., inthe handling and subsequent loss of petitioner's luggage inNew York City. In that complaint, plaintiff Reed affirmatively alleged that the defendant corporation was "found within Montana." Defendant, American Airlines, filed a motion todismiss the complaint for the reason that the United States DistrictCourt lacked personal jurisdiction over the defendant. The certification followed. Certificationpresents the following issues: "(1) Was the defendantAmerican Airlines found inMontana? 

### "(2) If not, do the lettered subdivisions of Rule 4B(1) extend thatjurisdiction to cases where the claim does not ariseout of the doing of the actsmentioned inthe lettered subdivisions?" Wefind issue 1tobe dispositive. Resolution of the firstissuedepends upon the facts found inthisrecord. Wetherefore set them forth indetail. Plaintiff traveled toNew York City from Missoula, Montana, viaNorthwest Airlines on December 5, 1978. Plaintiff intended totransfer flights and continue toNepal on BritishAirways. During theprocess of transfer, theplaintiff losta case containing inexcess of $2,000 worth of professional camera equipment. The case ultimately arrived inNepal several weeks laterbut was found tobe empty. The damages attendant this loss formed the basis of plaintiff's claim. Except for an infrequent charter flight, American~irlines does not flyinto orout of Montana. Ithas no property nor personnel inMontana. Itpays no taxes in Montana. American Airlines does solicitbusiness inMontana by listings in 19Montana telephone directories, by television advertising broadcast inMontana, and by furnishing material totravel agents inMontana. Occasionally American Airlines' personnel come toMontana toinstructMontana travel agents. The airlineshas provided a serviceenablingMontana residents tocalltollfree, scheduling flightson American Airlines. Defendant's business originating through callsfrom Montana direct toAmerican Airlines or through Montana-based travel agencies approximated $803,000 in 1980 and $992,000 from March toDecember of 1979. The plaintiff is a citizenof the Stateof Montana. American Airlines is a Delaware corporationprincipally domiciled inTexas. The conduct of which plaintiff complains of defendant occurred inNew York. Under the facts above set forth, we hold thatAmerican Airlines was "found within Montana" and that there isjurisdiction inthe United States ~istrict Court for the ~istrict of Montana. Before the activities of a foreign corporation can create a physical presence within Montana, those activities must be substantial, continuous, and systematic asopposed toisolated, casual, or incidental. The activitiesmust comprise a significantcomponent of the company's business, although thepercentage asrelated tototalbusiness may be small. See, e.g., O'Neal v. Hicks Brokerage Company (4th Cir. 1976), 537 F.2d 1266; Ratliff v. Cooper Laboratories, Inc. (4thCir. 1971), 444 F.2d 745; Lee v. Walworth Valve Co. (4thCir. 1973), 482 F.2d 297.Wemust decidewhere American Airlines, under the facts here before us, fitswithin the legal framework provided. A strikingly similar fact situationwas presented inLadd v. KLM ~oyal ~utch ~irlines (S.D. N.Y. 1978), 456 F.Supp. 422. In that case, plaintiff brought an action inFederal Court in Tennessee and the casewas heard by a federal districtjudge inNew York Statepursuant to 28 U.S.C. 1407. The issuewas whether the Tennessee court had jurisdiction. Defendant airlinehad itsprincipal place of business in theNetherlands. Itwas not authorized tofly intoor out of any placewithin Tennessee. Itwas not authorized todo business inTennessee and paid no taxes inthat state. The airlinehad no office

or bank account inTennessee and did not own or lease any property there. However, the airlinedidmaintain tollfree numbers within the stateand advertised insixmajor telephone directories. The airline supplied promotional materials to Tennessee travel agents and periodically sentpersonnel into Tennessee for thepurpose of instructing those travel agents. Travel agencies inTennessee accounted for totalbusiness volume in 1976 of $323,304. On these facts, the court found the defendant airlinetobe present inTennessee forpurpose of conferring inpersonam jurisdiction. Another similar casewas decided by a federal district judge inGullettv. QantasAirways, Ltd. (M.D. Ten. 19751, 417 F.Supp. 490. In the Gullett case, the airlinemaintained tollfree telephone listings inmajor urban centerswithin the state; itplaced advertisements innational media circulating inthe forum state; it supplied travel agents located inthe forum with promotional materials; infrequently it sent its employees tothe forum statefor purposes of servicing the travel agents; total dollar volume of ticket sales in the subject statewas a maximum of $91,529 for a twelve month period. The airlineowned no property within the statenor maintained any offices inthe state. under thesefacts, the Federal District Court held that the airlinewas presentwithin the stateforpurposes of conferring in personam jurisdiction. The plaintiff relies upon North Dakota 

### v. Newberger (1980), 37 St.Rep. 1119, 613 P.2d 1002. Suitwas instituted against defendant intheMissoula County District Court. Defendant had promoted a rock concert atthe University of North Dakota, but because of illness of one of the performers, failed togo ahead with the concert. An actionwas commenced inMissoula, Montana, for the reason that defendantwas engaged inpromoting a subsequent concert attheUniversity of Montana and sincedefendant had certainmonies resulting from thatpromotion, plaintiff sought toinstitutethe action inMissoula forpurposes of acquiring control of those proceeds. The court inNewberger atp. 1123 said: "Appellant purposely availshimself of the privileges and benefits of the laws of this stateby conducting hisbusiness of promoting rock concerts inMontana and throughout theNorthwest. The record reveals that appellant has promoted concerts inMontana prior tothe one inMissoula atwhich the proceeds were attached. As part of his business transactions, appellant alsoenters intocontracts for services tobe provided in this state. It is out of a similar and related contract thatrespondent's claim for relief or course of action arises. 

# . . Further, atthe time of this action, appellant was inpossession of monies or personal property inthis statewhich were alleged tohave rightfully belonged torespondent. Itwas for thisreason that respondent chose tofilethisaction inMissoula. "Itappears, therefore, that appellant has 'minimum contacts' with this state; appellant was found inMontana, transacts business in Montana, had an interest inproceeds inMontana which wereattached, and contracts for services tobe provided inMontana. The facts of this case satisfy the requirements of Rule 4B(1) (a), (c)and (e)

### , M.R.Civ.P." The record shows that the defendant inNewberger maintained his business inCalifornia. However, as indicated inthefacts described above, Newberger had physical presence in Montana differentfrom that found inthe casebefore us. Furthermore, the language inNewberger is dictum asthe court said atp. 1123: "Inany event appellant through his counsel appeared without objection tojurisdiction over hisperson. Hethereby waived any objection under rule 12, M.R.Civ.P." There isno contention that traditional concepts of "dueprocess" areoffended by the assertion of jurisdiction here. The due process requirements articulated inInternational Shoe Co. v. Stateof Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, are satisfied. The question here iswhether defendant's activities are so substantial, continuous, and systematic thatthey constitute

a physical presence within the Stateof Montana. Wehold thatunder the facts inthisrecord the defendant, American Airlines, was "found inMontana" forpurposes of conferring inpersonam jurisdiction upon theUnited StatesDistrict Court for theDistrict of Montana. Wefeel that such holding comports with the trend of authority and with the spiritof Rule 4B(1) 

# .

WeConcur:

Chief Justice A 5Mr. Justice Gene 

### B. Daly dissenting: I respectfully dissent from the majority opinion. Under the law presently in effect in Montana, American Airlines (AA) cannot be considered "found within" Montana and therefore cannot be subject to the in personam jurisdiction of this State. It is important, in the first instance, to emphasize the special facts of this case. The plaintiff flew from Montana to New York City on Northwest Airlines. he planned to transfer to British Airways and continue to Nepal. While at the New York airport, plaintiff alleges that somehow AA

came into possession of his camera case, refused to give it back to him upon request, and insulted him. The plaintiff had not traveled on AA; there was no privity of contract between them. The plaintiffIs claim of relief, therefore, is in no way related to AA's contacts with this state. The issue here is how to interpret the words "found within" as they are used in Rule 4B, M.R.Civ.P. The pertinent part of Rule 4B reads: "All persons found within the state of Montana are subject to the jurisdiction of the courts of this state." The remaining lettered subdivisions of Rule 4B are not applicable here since they apply only when a plaintiff's claim of relief arises out of the activities of the nonresident defendant in the forum state. While this Court has extended in personam jurisdiction over nonresident defendants to its constitutional limits under the lettered subdivisions of Rule 4B, Prentice Lumber v. Spahn (1970), 156 Mont. 68, 474 P.2d 141, we have never done

so under the first sentence of Rule 4B. But, we have applied the "two-step" test. The effect of the majorityopinion is to institute a change in the existing law by extending jurisdiction under "found within" to that allowable under due process and reducing the l.aw to a onestep test. 

### By this expansion of jurisdiction, the majority has ignored both the importance of the words "found within" and the two-step test we have used for determining in personam jurisdiction. The well.-established two-step test for interpreting Rule 4B provides that the court must, as a first step, look to whether the statute provides for the exercise of jurisdiction under the particular facts of the case, and applying the second step, the court must determine whether it would offend due process to assert jurisdiction. State of North Dakota v. Newberger (1980), Mont. 

## , 613 P.2d 1002, 1004, 37 St.Rep. 11-19, 11.21; May v. Figgins (1980), 

## - Mont. 

## - , 607 P.2d 1132, 1134, 37 St.Rep. 493, 495, quoting 2 Moore's Federal. Practice q14.41-l[l] at 4-421. The first question here, then, is whether AA is "found within" the State of Montana, and the second question iswhether the assertion of jurisdiction offends due process --that is, the "traditional notions of fair play and substantial justice." International Shoe v. Washington (1945), 326 U.S. 310, 31.6, 66 S.Ct. 154, 158, 90 L.Ed. 95, 102, quoting Pllillikin v. Meyer (1940), 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278, 283. It is important to note at this point that the "minimum contacts" test of International Shoe and its progeny is used only to determine whether due process has been offended. The majority has meshed this two-step test into one step 

### by looking only to whether the traditional notions of"due process" are offended by asserting jurisdiction here. The effect of its ruling is that "found within" must be interpreted, in the first instance, in terms of the most liberal constructions allowed to the "minimum contacts" test. The major problem of applying the more liberal "minimum contacts" test, in the first instance, is the fact that there is no connection between plaintiff's claim of relief and AA's contacts with this state. Plaintiff did not buy a ticket to fly on AA and had no contact with AA prior to the alleged conversion of his camera case in New York. If he had bought a ticket from AA, it may have been possib1.e to apply the more liberal "minimum contacts" interpretation to subdivision (a)of Rule 4~$j\"transacting business." In Newberger this Court acknowledged that jurisdiction over a nonresident defendant may be asserted even though the cause of action did not arise out of the defendant's contacts with the forum state. Neverthel.ess, both this Court and the United States Supreme Court have recognized that, "[tlhe contacts required upon which to base jurisdiction, consistent with due process, would be greater where the action is brouqht upon a claim not arising from these contacts with the state, than where the action does arise from the state's contacts." (Emphasis added.) May_, supra, 

### 607 P.2d at 1137, quoting 2 Moore's Federal Practice 714.41-1[1] at 4-414; International Shoe, 326 U.S. at 317- 318. The majority has ignored the case law that sets a restrictive test for personal jurisdiction when the claim of relief does not arise from the nonresident's contacts with this state.By ignoring this case law, the lnajority has failed to recognize the true issue of this case: how much more "substantial, continuous and systematic" must the nonresident's activity be under "found within" than under the lettered subdivisions of Rule 4B. Themajority relies upon two cases, Gullett v. Qantas Airways Ltd. (M.D. Tenn. 1975), 417 F.Supp. 490, and Ladd v. KLM Royal Dutch Airlines (S.D. N.Y. 1978), 456 F.Supp. 422, to support its conclusion that AA has sufficient contacts with this state to support the assertion of in personam jurisdiction. The precedential value of these cases is highly questionable here. In Gullett the plaintiffs had a contractual relationship with Qantas Airways that gave rise to the claim of relief, and in Ladd the New York federal court was construing a Tennessee statute which provided for the exercise of in personam jurisdiction over any person on 

### "[a] ny basis not inconsistent with the Constitution of this State or the United States." TCA S20-235(f). Here, there is no contractual relationship between the parties, and we

are not dealing with statutory language in any way similar to Tennessee's statute, Tennessee being a typical one-step state. Only two cases give any guidance for the interpretation of "found within" as it is used in Rule 4B. McIntosh

v. Heil Company (D. Mont. 1972), 350 F.Supp. 866, speaks directly to this point; and Newberger, 613 P.2d at 1.005, speaks only indirectly. In Heil, the nonresident corporation advertised in Montana, sent agents into Montana to bid on municipal contracts, and distributed products through a distributorlocated in Billings. The corporation had no registered agent in Montana, owned no property, and maintained no office. Most importantly, the pl.aintifflsclaim of relief

arose out of the use of one of the corporation's trucks in wyoming, so there was no connection between the claim for relief and the corporation's contacts with Montana. The sole question was whether the corporation was "found within" Montana. 

### In reasoning that "found within" must be distinguished from the test of minimum contacts and transacting business, the District Court in 

# - Heil said: "In People's Tobacco Company, Ltd. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed.587 (1918), the Supreme Court said that 'to be found' within a district a corporation must be present in the district by its officers and agents carrying on the business of the corporation. In United States v. Scophony Corp. of America, 333 U.S. 795, 68 S.Ct. 855, 92 L.Ed. 1091 (1948), the Supreme Court said that t.heword 'found' denoted the concept of 'carrying on business' and that the words 'transact business' had a meaning broader than the words 'carrying on business.

### ' The words 

### 'found,

### ' 'doing business,

### '

'transaction of any business' were at the time the Montana rules were adopted words of art the meanings of which were known to the bench and bar. The scholarly committee drafting the Montana rules used these words, and it 

### is apparent that they were used as words of art. The all-encompassing phrase 'the transaction of any business' was used to provide a maximum protection to persons injured by reason of activity in Montana. As to those actions arising in other jurisdictions or torts accruinq in other jurisdictions the committee used the more restrictive words 

## ---------

'found within.'-(~rn~hasis added.) 350 -- 

### -- F.Supp. at 868. 'The court in 

# - Heil then went on to put its own limitations on the words "found within": "A corporation is not 'foundwithin the state 

### of Montana' unless it has agents or officers 

## - whom Erocess may be served or here 

### uEqn------ 

## --------- -------------- unless its business has been of such charac- 

## ---

### ter and extent as 

### to warrant the inference that it has subjected 

# -- itself to the juris

## -- diction of the state. It is aenerallv held 2 - -.' 

### that such an inference cannot arise where a corporation merely solicits for business and ships its products into the state and occasionally sends an officer or agent into the state for solicitation purposes. [Citations omitted.]" (Emphasisadded.) 350 F.Supp. at 868-869. The plaintiff argues that Newberger is the main controlling authority. In Newberger this Court found that the defendant was "found within" this state. The defendant's contacts with this state in Newberger, however, were much

more substantial. than those of AA in this case. In Newberger, the defendant was "found within" Montana because of the following activity: "The record reveals that appellant has promoted concerts in Montana prior to the one in Missoula at which the proceeds were attached. As part of his business transactions, appellant also enters into contracts for services to be provided in this state. It is out of a similar and related contract that respondent's claim for relief or course of action arises. The basis of respondent's claim is, therefore, not totally unrelated to or distinct from the activities of appellant in this state. Further, at the time of this action, appellant was inpossession ofmonies or personal property in this state which were alleged to have rightfully belonged to respondent 

# .

# . ." 613 P.2d at 1005. Most importantly, the nonresident defendant was actually present in Missou1.a at the time the action was commenced. The acts of solicitation by AA 

### are clearly less substantial than those contacts of the nonresident defendant in Newberqer. Given the higher degree of "substantial" and "continuous and systematic" activity necessary for a nonresident corporation to be "found within" this state, it seems that the acts of mere solicitation are not sufficient. While

### International Shoe clearly held that mere solicitation would be enough to satisfy "presence" for due process purposes, or the one-step type of test, that is not what we are concerned with here. It was recognized in International Shoe, itself, that where the claim of relief is not connected with the nonresident corporation's activity in a forum state, the extent and quality of corporate contacts must be greater. International Shoe, 326 U.S. at 317-318; see also prior reference to

# x, 607 P.2d at 1137. Given this greater standard of "found within," mere solicitation does not constitute the "substantial" activity necessary to find in personam jurisdiction where the claim of rel-iefis in no way connected to the solicitation in the forum state. I would, therefore, dismiss this case on the grounds that AA 

### is not subject to the in personam jurisdiction of the State of Montana.

Iconcur in

### the foregoing

### dissent. 

# m--&k$sade ChiefJustice