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Empire Abrasive Equipment Corp. v. H. H. Watson Inc.

argued: October 7, 1977.



Gibbons, Weis, Circuit Judges, and Wright,*fn* District Judge.

Author: Gibbons

GIBBONS, Circuit Judge:

This is an appeal from a dismissal of a diversity action against two non-resident, corporate defendants for lack of personal jurisdiction. The appellant is Empire Abrasive Equipment Corporation (Empire), a Pennsylvania corporation with its principal place of business in Philadelphia, Pennsylvania. The appellees are H. H. Watson, Inc. (Watson), a Rhode Island business corporation with its principal place of business in East Providence, Rhode Island, and Old Stone Bank (the bank), a Rhode Island banking corporation with its principal place of business in Providence, Rhode Island. Service of process was attempted pursuant to Fed. R. Civ. P. 4(e) and Pennsylvania's long-arm statute, Pa. Stat. Ann. tit. 42, § 8308 et seq. (Purdon). Since both defendants are foreign corporations, they are amenable to service of process under the Pennsylvania long-arm statute "to the fullest extent allowed under the Constitution of the United States." Pa. Stat. Ann. tit. 42, § 8309(b) (Purdon). See Proctor & Schwartz, Inc. v. Cleveland Lumber Co., 228 Pa. Super. 12, 16-18, 323 A.2d 11, 13-14 (1974). Thus we must examine the facts disclosed by the pleadings on file to determine whether the Commonwealth of Pennsylvania could constitutionally exercise adjudicatory authority over either defendant with respect to the dispute in question.*fn1 We affirm the dismissal of the complaint against the bank, but reverse the dismissal as to Watson and remand for further proceedings respecting the latter.


On January 12, 1976, a representative of Watson in Rhode Island placed with Empire by a telephone call to Pennsylvania an order for eleven abrasive finishing cabinets for a total price of $29,876.00. These cabinets are products regularly manufactured by Empire and described in a mail-order catalog which Empire distributed. By letter dated January 13, 1976, Empire confirmed the terms of the order, but added a proviso that Watson secure payment by causing the issuance of an irrevocable letter of credit, payable at the bank in Rhode Island upon presentation either of Empire's invoice and shipping document or of a signed receipt from Watson acknowledging receipt of the merchandise. Immediately after sending the January 13, 1976, letter, Empire alleges that it alerted its vendor and took other steps in preparation for filling the order. Thereafter Watson caused the bank to issue a letter of credit, which provided:

Funds under this Letter of Credit are available to you at our International Department, against your draft on us at thirty (30) days date (see below), mentioning thereon our Credit No. 76017. Each such draft must be accompanied by your commercial invoice representing shipment of eleven (11) abrasive finishing cabinets and a receipt signed by a duly authorized agent of H. H. Watson, Inc., for the merchandise.

The complaint alleges that the letter of credit, dated January 26, 1976, was received by Empire "on or about" that date, a Monday. On January 29, 1976, a Thursday, it received from Watson a writing dated January 27, 1976:

Please cancel immediately our purchase order #'s 5268 and/or 5298 dated January 27, 1976 for eleven . . . Cabinets.

This writing indicated that a copy went to the bank. On February 5, 1976, Empire received from the bank a letter dated January 30, 1976, requesting that its Letter of Credit be returned because the Watson purchase order had been cancelled. On February 25, 1976, Empire mailed to the bank an invoice for $15,335 for "cancellation charges" on the $29,876.00 Watson order. The bank replied by mail, declining payment because the $15,335 invoice was not the documentation specified in the Letter of Credit.

In this lawsuit which followed, Empire seeks damages from Watson for breach of the purchase contract and from the bank for failing to honor its letter of credit. Both defendants moved to dismiss under Rule 12(b)(2) of the Federal Rules of Civil Procedure, each claiming that it was not amenable to Pennsylvania long-arm jurisdiction under the facts alleged.*fn2


Viewed in the light most favorable to Empire, the complaint alleges that the bank, an issuer in Rhode Island, contracted with a Rhode Island customer, Watson, to issue an irrevocable letter of credit under which a Pennsylvania beneficiary, Empire, could present drafts accompanied by specific documents at the issuer's place of business in Rhode Island; that a credit was established in Rhode Island in favor of the beneficiary when it was advised in Pennsylvania of the issuance of the letter of credit; and that the bank wrongfully cancelled the credit. See Pa. Stat.Ann. tit. 12A, §§ 5-103, 5-106, and 5-115 (Purdon 1970); R.I. Gen. Laws tit. 6A, §§ 5-103, 5-106, and 5-115 (1969). The question is whether on these facts Pennsylvania could, in compliance with due process of law, require the bank to litigate the propriety of its alleged cancellation of credit in the Pennsylvania courts.

In Aldens, Inc. v. Packel, 524 F.2d 38, 43 (3d Cir. 1975), cert. denied, 425 U.S. 943, 96 S. Ct. 1684, 48 L. Ed. 2d ...

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