State v. Grand River Enterprises, Inc.

#24804-a-SLZ

2008 SD 98

IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA

* * * *

STATE OF SOUTH DAKOTA, Plaintiff and Appellant,
v.
GRAND RIVER ENTERPRISES, INC.,
an alien Corporation, Defendant and Appellee.

STATE OF SOUTH DAKOTA, Plaintiff and Appellant,
v.
GRAND RIVER ENTERPRISES, INC.,
a/k/a GRAND RIVER ENTERPRISES
SIX NATIONS, LTD., an alien
Corporation, Defendant and Appellee.

STATE OF SOUTH DAKOTA, Plaintiff and Appellant,
v.
GRAND RIVER ENTERPRISES, INC.,
a/k/a GRAND RIVER ENTERPRISES
SIX NATIONS, LTD., an alien
Corporation, Defendant and Appellee.

* * * *

APPEAL FROM THE CIRCUIT COURT OF
THE SIXTH JUDICIAL CIRCUIT
HUGHES COUNTY, SOUTH DAKOTA

* * * *

HONORABLE LORI S. WILBUR
Judge

* * * *

ARGUED ON AUGUST 27, 2008

OPINION FILED 10/22/08
 * * * *

LAWRENCE E. LONG
Attorney General

JEFFREY P. HALLEM
Assistant Attorney General Attorneys for plaintiff
Pierre, South Dakota and appellant.

HAVEN L. STUCK
GENE N. LEBRUN of
Lynn, Jackson, Shultz & Lebrun, P.C.
Rapid City, South Dakota

AMY L. VANDAMME
PAUL E. BENSON of
Michael Best & Friedrich LLP Attorneys for defendant
Milwaukee, Wisconsin and appellee.
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ZINTER, Justice

[¶1.] Grand River Enterprises Six Nations Ltd. (Grand River), a Canadian

cigarette manufacturer, moved the circuit court to vacate three default judgments

arising out of the sale of cigarettes in the State of South Dakota. Grand River

argued that the circuit court lacked personal jurisdiction because Grand River had

not purposefully availed itself of the South Dakota market sufficient to permit

jurisdiction under the Due Process Clause of the Fourteenth Amendment. After an

evidentiary hearing on the merits of the jurisdictional issue, the circuit court

granted the motions. We affirm.

[¶2.] In 1998, South Dakota and forty-five other states reached a settlement

with major cigarette manufacturers 1 to recoup healthcare-related costs incurred as

a result of smoking-related illnesses. The settling manufacturers and the settling

states entered into a Master Settlement Agreement (MSA) under which the

manufacturers agreed to pay the states annual sums in return for the release of

past, present, and future claims. The MSA included a “Model Escrow Statute” to be

adopted by the settling states to protect the settling manufacturers from a

competitive disadvantage following an anticipated rise in prices to pass the cost of

the settlement onto consumers.

[¶3.] South Dakota adopted the Model Escrow Statute in SDCL ch 10-50B

(Escrow Statutes). Those statutes impose financial obligations on nonparticipating

1. The manufacturers included the following companies that controlled up to
98% of the market for tobacco products in 1998: Phillip Morris, Inc., R.J.
Reynolds Tobacco Co., Brown and Williamson Tobacco Corp., and Lorillard
Tobacco Co.

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#24804

manufacturers (NPMs), which are defined as “tobacco product manufacturer[s]

selling cigarettes to consumers within” South Dakota. SDCL 10-50B-7. The Escrow

Statutes require NPMs to either join the MSA or place in escrow a certain sum for

their cigarettes sold in this State. SDCL 10-50B-6; SDCL 10-50B-7.

[¶4.] Grand River is a company that manufactures cigarettes on an Indian

reserve in Ontario, Canada. It is owned by members of the Six Nations, a group of

six Indian tribes, also referred to as the Iroquois Confederacy. Grand River

operates exclusively on the Six Nations Reserve under the authorization of the

governing councils of the Six Nations. Grand River’s principal place of business is

in Ohsweken, Ontario. It is incorporated under the Canada Business Corporations

Act.

[¶5.] Grand River began manufacturing “Seneca” brand cigarettes under a

1999 “Cigarette Manufacturing Agreement” (Agreement) with Native Tobacco

Direct. 2 In June 2000, Native Tobacco Direct (NTD) assigned the Agreement to

Native Wholesale Supply (NWS). NTD and NWS are owned by Arthur Montour, Jr.

Both companies are separate Native legal entities located on an Indian reservation

in the State of New York.3

2. In the Agreement, Native Tobacco Direct is referred to as Native Tobacco
Company. To avoid confusion we, like the parties, refer to Native Tobacco
Company as Native Tobacco Direct.

3. Grand River also entered into a Cigarette Manufacturing Agreement with
Tobaccoville USA, Inc. (Tobaccoville). This agreement related to
Tobaccoville’s distribution of cigarettes in non-Indian country in the United
States. The State argues that Grand River’s agreement with Tobaccoville is
evidence that Grand River had knowledge of an established distribution
network that would reach a retailer like that involved here: the Plaza, an
(continued . . .)
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[¶6.] According to Grand River’s Agreement with NTD/NWS, the latter

parties owned the proprietary rights to Seneca brand cigarettes, which included the

trademarks, copyrights, and tobacco blending formulas. Grand River was granted a

“limited license to use” NTD’s/NWS’s “proprietary properties” for “the sole purpose

of manufacturing and delivery of the cigarettes” for NTD/NWS. Agreement, ¶1.

The right to manufacture was limited to “such quantities and at such times as per

the written request from [NTD/NWS] to do so.” Id. ¶¶1, 8. Grand River was also

required to manufacture the cigarettes “according to pre-approved quality

standards” of NTD/NWS, “using the tobacco blends and packaging as designated” by

NTD/NWS. Id. ¶¶1, 4. Finally, with certain exceptions not applicable here, Grand

River was prohibited from manufacturing Seneca brand cigarettes for itself, or for

any other person or entity. Id. ¶9.

[¶7.] Following manufacture, Grand River’s involvement ended upon its

shipment of the cigarettes, FOB Grand River’s facility in Ohsweken, Ontario, to a

“Foreign Trade Zone in Western New York, as designated by [NTD/NWS] in

advance for each delivery.” Agreement, ¶3. NTD/NWS was responsible for the

________________________
(. . . continued)
Indian-owned enterprise located in non-Indian country in South Dakota. See
infra ¶8. The relationship between Grand River and Tobaccoville is,
however, irrelevant to the judgments. The judgments were based on sales of
cigarettes in 2000, 2001, and 2002; but, according to the NAFTA complaint,
see infra ¶28, Grand River and Tobaccoville did not enter into their
agreement until the fall of 2002. Consequently, the circuit court found that
the cigarettes at issue “did not enter South Dakota through any agreement
between Grand River and Tobaccoville USA, Inc. Thus, [the Tobaccoville
USA Inc./Grand River] business relationship is irrelevant to this case.” For
this reason, Tobaccoville’s distribution activities are not discussed.

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#24804

payment of “all applicable taxes and duties arising from the importation [of the

cigarettes] into the United States and/or Seneca Nation Territory or other Native

Territory.” Id. Thereafter, NTD/NWS distributed the cigarettes without direction

or control from Grand River. Id. The Agreement did not indicate in which states

NTD/NWS might sell its cigarettes.4

[¶8.] In 2000, 2001, and 2002, NTD/NWS delivered the Seneca cigarettes at

issue to HCI Distribution Company (HCI). HCI is a Nebraska subsidiary of Ho-

Chunk, Inc., a Wisconsin Tribe. HCI acted as a tribal development corporation for

the Winnebago Tribe, located on the Winnebago Reservation in Nebraska. After

purchasing cigarettes from NTD/NWS, HCI stamped them for sale in South Dakota

and sold the cigarettes to tribally-owned clients, including those of the Yankton

Sioux Tribe in South Dakota. As is relevant here, HCI sold Seneca cigarettes to the

Fort Randall Casino, which is located on the Yankton Sioux Reservation in South

Dakota. HCI also sold Seneca cigarettes to the Yankton Sioux Travel Plaza (Plaza),

which was owned and operated by the Yankton Sioux Tribe, but which was,

unbeknownst to HCI, located in non-Indian country in South Dakota. According to

the State’s evidence, HCI sold 1,097,760 units 5 of Seneca brand cigarettes in South

Dakota in 2000, 1,650,800 units in 2001, and 440,000 units in 2002.

4. The Agreement merely acknowledged that NTD/NWS was a Native business
enterprise that distributed cigarettes to Native wholesalers and retailers on
Native Territories, and also to other wholesalers and retailers off Native
Territories in and outside the United States.

5. The Escrow Statutes define “units sold” as the “number of individual
cigarettes sold in the state by the applicable tobacco product manufacturer . .
. during the year in question, as measured by excise taxes collected by the
(continued . . .)
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[¶9.] As a result of these sales, the State filed separate suits against Grand

River in 2001, 2002, and 2003. The complaints alleged that Grand River knowingly

violated the Escrow Statutes for the 2000, 2001, and 2002 sales. Grand River failed

to answer or appear, resulting in the entry of default judgments.

[¶10.] In early 2007, Grand River moved to vacate the judgments under

SDCL 15-6-60(b)(4), arguing that the court lacked personal jurisdiction over Grand

River. The circuit court consolidated the actions, and after a hearing on the merits

of the motions to vacate, the court issued a detailed decision granting Grand River’s

motions. The court concluded that the “State has not demonstrated any action by

Grand River to purposefully avail itself to the South Dakota market” thereby

precluding this State’s exercise of personal jurisdiction under the Due Process

Clause of the Fourteenth Amendment. 6 We review this conclusion regarding

jurisdiction as a question of law under the de novo standard of review. Grajczyk v.

Tasca, 2006 SD 55, ¶8, 717 NW2d 624, 627.

[¶11.] The question of personal jurisdiction over a nonresident involves two

initial inquiries:

First, the court must determine whether the legislature granted
the state court jurisdiction over defendants who do not meet the
traditional bases for personal jurisdiction. In South Dakota,
this legislative approval is found in the state’s Long Arm

________________________
(. . . continued)
state on packs bearing the excise tax stamp or imprint of the state[.]” SDCL
10-50B-6.

6. The circuit court also concluded that the State’s manner of serving the 2001,
2002, and 2003 summonses and complaints was insufficient under South
Dakota law and the Hague Convention. Because the due process issue is
dispositive, we do not reach the services of process issues.

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#24804

Statute. 7 Next, the court must determine whether the proposed
assertion of jurisdiction comports with federal due process
requirements.

Frankenfeld v. Crompton Corp., 2005 SD 55, ¶9, 697 NW2d 378, 381. For purposes

of this opinion, we address only the latter inquiry because, assuming that

jurisdiction exists under the Long Arm Statute, the due process inquiry is

dispositive.

[¶12.] The Due Process Clause affords protection against judgments of a

forum with which a person has no meaningful contacts, ties, or relations. Id. ¶10,

697 NW2d at 381-82. To satisfy due process, a putative defendant must have

sufficient minimum contacts with the forum state to not offend traditional notions

of fair play and substantial justice:

In International Shoe, the United States Supreme Court
established the minimum contacts test for determining whether
personal jurisdiction comports with Fourteenth Amendment
due process. 326 US 316, 66 SCt 158, 90 LEd 95. According to
the Court, due process requires that a non-resident defendant
“have certain minimum contacts with [the forum state] such
that the maintenance of the suit does not offend ‘traditional
notions of fair play and substantial justice.’” Id. (quoting

7. This State’s relevant Long Arm Statute provides in pertinent part:

Any person is subject to the jurisdiction of the courts of this state as
to any cause of action arising from the doing personally, through
any employee, through an agent or through a subsidiary, of any of
the following acts:

(1) The transaction of any business within the state;
....
(14) The commission of any act, the basis of which is not inconsistent with
the Constitution of this state or with the Constitution of the United
States.

SDCL 15-7-2.

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#24804

Milliken v. Meyer, 311 US 457, 463, 61 SCt 339, 343, 85 LEd
278 (1940)).

Id.

[¶13.] The minimum contacts issue in this case is whether, through its

activities directed at this forum, Grand River “purposefully avail[ed] itself of the

privilege of conducting activities within [this] state, thus invoking the benefits and

protections of its laws.” See id. ¶12, 697 NW2d at 382 (citing Hanson v. Denckla,

357 US 235, 253, 78 SCt 1228, 1240, 2 LEd2d 1283 (1958)). This requires that the

defendant’s activities must be “purposefully directed” toward the forum. Burger

King v. Rudzewicz, 471 US 462, 472, 105 SCt 2174, 2182, 85 LEd2d 528 (1985). “It

is not enough that it is foreseeable that a defendant’s activities may cause injury in

a forum.” Frankenfeld, 2005 SD 55, ¶11, 697 NW2d at 382 (citing World-Wide

Volkswagen Corp. v. Woodson, 444 US 286, 295, 100 SCt 559, 566, 62 LEd2d 490

(1980)). Rather, “the foreseeability that is critical to the due process analysis . . . is

that the defendant’s conduct and connection with the forum State are such that he

should reasonably anticipate being haled into court there.” Id. (citing World-Wide

Volkswagen, 444 US at 297, 100 SCt at 567, 62 LEd2d 490). Further, the

defendant’s contacts with the forum must “proximately result from actions by the

defendant himself that create a ‘substantial connection’ with the forum State.”

Burger King, 471 US at 476, 105 SCt at 2184, 85 LEd2d 528 (citation omitted)

(emphasis added). “Thus, the unilateral activity of a third party with some

relationship to a nonresident defendant cannot suffice to establish personal

jurisdiction.” Frankenfeld, 2005 SD 55, ¶12, 697 NW2d at 382 (citing Denckla, 357

US at 253, 78 SCt at 1240, 2 LEd2d 1283).

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[¶14.] In this case, it is undisputed that Grand River did not have any offices,

personnel, real estate, sales agents, bank accounts, or similar connections with

South Dakota. Further, Grand River did not advertise or solicit business in South

Dakota, and it did not ship to or sell cigarettes in South Dakota. Grand River had

no connection with South Dakota other than it manufactured the Seneca cigarettes

for NTD/NWS, a New York importer. Thereafter, NTD/NWS sold the cigarettes to

HCI, an independent wholesale distributor, located on the Winnebago Reservation

in Nebraska, who sold tobacco products primarily to tribally-owned entities. This

Nebraska distributor, HCI, was the first entity that paid the tax and stamped the

cigarettes for sale in South Dakota. HCI then sold the cigarettes to Yankton Sioux-

owned businesses in South Dakota. The Yankton Sioux businesses then sold the

cigarettes to consumers in South Dakota.

[¶15.] The Supreme Court analyzes purposeful availment through such

distribution networks under a “stream of commerce” standard. Asahi Metal Ind.

Co. v. Superior Court of California, 480 US 102, 107 SCt 1026, 94 LEd2d 92 (1987).

In Asahi, a California resident brought suit in California state court to recover for

injuries he sustained when a tire on his motorcycle exploded. The plaintiff sued the

tire tube manufacturer, a Taiwanese company, who then impleaded the

manufacturer of the tube’s valve, a Japanese company. The Japanese

manufacturer contested personal jurisdiction, pointing out that it manufactured the

valves only in Japan, and that it was the Taiwanese corporation that incorporated

the valves into the tubes in Taiwan and sold the finished tubes throughout the

world.

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[¶16.] The Supreme Court concluded that California’s exertion of personal

jurisdiction over the Japanese valve manufacturer exceeded the limits of due

process. Id. at 112, 107 SCt at 1032, 94 LEd2d 92. Delivering judgment for a

unanimous Court, Justice O’Connor wrote a plurality opinion expressing the view of

four members of the Court, which has become known as the stream of commerce

“plus” standard. Under that standard:

The placement of a product into the stream of commerce,
without more, is not an act of the defendant purposefully
directed toward the forum State. Additional conduct of the
defendant may indicate an intent or purpose to serve the
market in the forum State, for example, designing the product
for the market in the forum State, advertising in the forum
State, establishing channels for providing regular advice to
customers in the forum State, or marketing the product through
a distributor who has agreed to serve as the sales agent in the
forum State. But a defendant’s awareness that the stream of
commerce may or will sweep the product into the forum State
does not convert the mere act of placing the product into the
stream into an act purposefully directed toward the forum state.

Id. at 112, 107 SCt 1026.

[¶17.] Justice Brennan, however, expressed the view of four members of the

Court that due process did not require the “plus”; i.e., additional conduct. Id. at

117, 107 SCt at 1034, 94 LEd2d 92 (Brennan, J., concurring in part and concurring

in the judgment). In the concurrence’s view, “[a] defendant who has placed goods in

the stream of commerce benefits economically from the retail sale of the final

product in the forum State, and indirectly benefits from the State’s laws that

regulate and facilitate commercial activity.” Id. Justice Brennan continued,

“[t]hese benefits accrue regardless of whether the participant directly conducts

business in the forum State, or engages in additional conduct directed toward that

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State.” Id. He opined that Justice O’Connor’s stream of commerce “plus” standard

“represented a marked retreat from the analysis in World-Wide Volkswagen[.]” Id.

at 118, 107 SCt at 1035, 94 LEd2d 92. According to Justice Brennan, under World-

Wide Volkswagen, delivery of a product into the stream of commerce with an

expectation that it would be purchased in the forum state was sufficient: “The

forum State does not exceed its powers under the Due Process Clause if it asserts

personal jurisdiction over a corporation that delivers its products into the stream of

commerce with the expectation that they will be purchased by consumers in the

forum State.” Id. at 119, 107 SCt at 1036, 94 LEd2d 92 (citing World-Wide

Volkswagen, 444 US at 298, 100 SCt at 567, 62 LEd2d 490). Thus, Justice Brennan

concluded that minimum contacts were present because: “Asahi was aware of the

distribution system’s operation, and it knew that it would benefit economically from

the sale in California of products incorporating its components.” Id. at 121, 107 SCt

at 1037, 94 LEd2d 92.

[¶18.] In this case, the parties agree that the issue is one of purposeful

availment. The parties disagree, however, which standard of purposeful availment

applies. The circuit court applied Justice O’Connor’s stream of commerce “plus”

standard. Grand River contends that this Court adopted that standard when we

discussed the issue in Frankenfeld, 2005 SD 55, 697 NW2d 378. The State

disagrees. The State contends that the circuit court should have applied Justice

Brennan’s World-Wide Volkswagen “expectation” standard as applied by the Eighth

Circuit Court of Appeals in Clune v. Alimak AB, 233 F3d 538 (8thCir 2000) and

Barone v. Rich Bros. Interstate Display Fireworks Co., 25 F3d 610 (8thCir 1994).

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Further, the State argues that the South Carolina Supreme Court’s recent opinion

in State v. NV Sumatra Tobacco Trading, Co., 379 SC 81, 666 SE2d 218 (2008)

supports the assertion of personal jurisdiction over Grand River. We review these

authorities.

Frankenfeld

[¶19.] In Frankenfeld, tire consumers sued multiple defendants (including

Crompton and Flexys), alleging that defendants conspired to fix the price of rubber

processing chemicals used to manufacture tires. 2005 SD 55, 697 NW2d 378.

Crompton was a Connecticut corporation with its principal place of business in

Connecticut. It marketed specialty chemical products and processing equipment

that were used in the manufacture of rubber and tires. Flexys was a Delaware

Corporation with headquarters in Ohio and was the world’s leading supplier of

chemicals to the rubber industry. Crompton and Flexys sold their rubber

processing chemicals to tire manufacturers principally located in Tennessee and

North Carolina. After the tires were made, they proceeded along a chain of

distribution from manufacturers to distributors, then to retailers, and eventually to

consumers. Once Crompton and Flexys sold their chemicals to the tire

manufacturers, they had no control over the rest of the marketing chain in which

the tires were distributed.

[¶20.] As in the instant case, both Crompton and Flexys argued that they

lacked sufficient minimum contacts with South Dakota rendering personal

jurisdiction inappropriate. On appeal, we noted that although no South Dakota

case had specifically adopted Justice O’Connor’s stream of commerce “plus”

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standard, our decision in Rothluebbers v. Obee, 2003 SD 95, 668 NW2d 313, was

“more consistent with the ‘stream of commerce plus’ analysis.” 2005 SD 55, ¶19,

697 NW2d at 385. We further stated, “[i]n fact, one of our earlier cases, Miller v.

Weber, 1996 SD 47, 546 NW2d 865, confirms this analytical framework.” Id. ¶20,

697 NW2d at 385. Therefore, in Frankenfeld, we first applied the stream of

commerce “plus” standard, concluding:

[A]pplying the analysis from Asahi, Rothluebbers, and Miller,
the facts here established that Crompton and Flexys did not
purposefully avail themselves of the privilege of acting in South
Dakota. Rather, their products, like the tube valves in Asahi,
were incorporated by a third party into a finished product
which found its way to South Dakota. At most, Crompton and
Flexys placed their products into a stream of commerce which
took them to Tennessee and North Carolina, where they were
manufactured into a third party’s product (tires) and then
injected into the stream of commerce that eventually lead to
South Dakota. Further, Crompton and Flexys did not enter
into a contract with anyone in South Dakota. Because no fact
suggests that they purposefully availed themselves of the
benefits and protections of South Dakota’s laws, the first
element of proper personal jurisdiction is lacking.

Id. ¶22, 697 NW2d at 385. Significantly, however, we did not rest our holding solely

on this stream of commerce “plus” standard. We noted that even if we were to apply

Justice Brennan’s “expectation” standard, personal jurisdiction over the defendants

would have been lacking because the Frankenfeld defendants “did not deliver their

products into the stream of commerce with the expectation that they would be

purchased by consumers in South Dakota.” Id. ¶24, 697 NW2d at 386. Thus,

Frankenfeld did not determine which standard should be applied in future cases.

Clune and Barone.

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[¶21.] The State argues that we should apply the expectation standard as

applied in Clune and Barone. In those cases, the Eighth Circuit observed that five

Justices declined to adopt Justice O’Connor’s “plus” standard, and consequently, the

Eighth Circuit applied Justice Brennan’s expectation analysis from Asahi and

World-Wide Volkswagen. See Clune, 233 F3d at 542 (noting: “Although a majority

of the Asahi Court agreed with Justice O’Connor that jurisdiction was not proper in

that case, five Justices refused to adopt her articulation of a stream of commerce

‘plus’ theory.”); Barone, 25 F3d at 614 (noting: “Because the Supreme Court

established the stream of commerce theory, and a majority of the court has not yet

rejected it, we consider that theory to be determinative.”) (quoting Dehmlow v.

Austin Fireworks, 963 F2d 941, 946 (7thCir 1992)).

[¶22.] Clune involved a Swedish manufacturer that had designed

construction hoists for the United States market. 233 F3d 538. A Missouri

construction worker fell from one of the hoists and brought a wrongful death action

in that state. The evidence reflected that the manufacturer had exclusive

distribution agreements with United States distributors, and these distributors

were a subsidiary of the manufacturer. The Clune court observed, “at minimum,

[the manufacturer] had constructive knowledge that its construction hoists would

end up in Missouri. . . . Also, the intermingling of directors and officers between

[the manufacturer and distributor] suggests that the parent was aware of its

subsidiary’s activities.” Id. at 545 n9. Thus, the court found that the defendant

“head[ed] a distribution network,” and the Swedish manufacturer “did more than

simply set a product adrift in the international stream of commerce. The record

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shows [the defendant] created the distribution system that brought the hoist to

Missouri.” Id. at 543. Based on these facts, the Eighth Circuit concluded that the

manufacturer “purposefully directed its products to the United States through the

distribution system it set up in this country.” Id. at 544. The court explained, “[t]he

company knew that by virtue of this system, its construction hoists entered

Missouri,” and the “creation of the system that brought hoists to Missouri

established sufficient minimum contacts with that forum to satisfy the due process

standards.” Id. at 544-45.

[¶23.] Barone involved a Nebraska man, injured by fireworks, who sued the

fireworks’ foreign manufacturer. 25 F3d 610. The Eighth Circuit held that

although the manufacturer had no office, agent, or distributor in Nebraska, did not

advertise in Nebraska, and did not send any products into Nebraska, it was subject

to personal jurisdiction because of the way its products arrived in that state. Id. at

615. The court observed that the manufacturer had strategically selected a network

of distributors that could reach much of the United States. Id. After noting that

the manufacturer used nine distributors in six states, the Barone court explained

that the manufacturer’s “strategic choice of distributors that could reach much of

the country” was evidence of the manufacturer’s efforts “to place its products in the

stream of commerce throughout the Midwest[.]” Id. at 614. The Barone court

concluded that “when a seller heads a distribution network it realizes the much

greater economic benefit of multiple sales in distant forums, which in turn may

satisfy the purposeful availment test.” Id. at 613. Barone ultimately held that

because the manufacturer “ha[d] reaped the benefits of its network of distributors . .

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. it is only reasonable and just that it should now be held accountable in the forum.”

Id. at 615 (emphasis added).

[¶24.] Although the Eighth Circuit declined to apply the stream of commerce

“plus” standard, the reasoning of these opinions nevertheless reflects that a

manufacturer must do “more than simply set a product adrift in the international

stream of commerce.” Clune, 233 F3d at 543; see also Barone, 25 F3d at 615. The

court found personal jurisdiction only because those manufacturers expected their

products to reach the forum through marketing networks that were created or

headed by the defendant manufacturers.

Sumatra Tobacco

[¶25.] In Sumatra Tobacco, 379 SC 81, 666 SE2d 218, South Carolina

brought an action under its Escrow Statutes against Sumatra Tobacco (Sumatra).

Sumatra was an Indonesian tobacco product manufacturer. Sumatra alleged that it

sold its products solely to a Singapore corporation, UNICO Trading Pte, Ltd.

Sumatra admitted, however, that: UNICO may have sold the cigarettes to a British

Virgin Islands corporation, Silmar Trading Ltd; and Silmar may have engaged a

United States importer based in Florida for the purpose of selling tobacco products

manufactured by Sumatra in the United States. Similar to Clune and Barone, the

South Carolina Supreme Court applied the World-Wide Volkswagen “expectation”

standard and concluded that Sumatra had sufficient minimum contacts with South

Carolina based upon the following facts:

(1) Sumatra admits it manufactured the United brand
cigarettes; (2) Sumatra admits it owns the United States
trademark for that brand; (3) the Department of Revenue
states 6,868,000 United brand cigarettes were sold in South

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Carolina in 2001; (4) Sumatra, either on its own or by someone
else on its behalf, filed an ingredient report for the United
brand cigarettes with the Center for Disease Control; (5)
Sumatra admits it packaged its cigarettes in packs and cartons
which bear the United States-required health warnings; and (6)
the United brand packaging identifies the cigarettes as an
“American blend,” has a Surgeon General’s warning, and shows
an eagle and striped packaging.

Id. 379 SC 81, *4, 666 SE2d at 223.

[¶26.] Although the circuit court did not have the Sumatra Tobacco case for

its review, it concluded that similar applications of the expectation standard in

Clune and Barone were “unpersuasive as applied to the facts of [Grand River’s]

case.” The State disagrees, contending that it has shown purposeful availment

under these cases and the World-Wide Volkswagen/Asahi expectation standard.

Alternatively, the State contends that even if stream of commerce “plus” applies,

the facts of this case satisfy the “plus.” We do not reach the State’s “plus” argument

because we conclude that the State failed to meet its burden of proof even under the

more inclusive expectation standard in World-Wide Volkswagen/Asahi. In arriving

at this conclusion, we address the factual considerations that the State contends

establish purposeful availment under Clune, Barone, Sumatra Tobacco and two

Ohio decisions.

1. Grand River’s relationship with Arthur Montour, Jr., the principal
in NTD/NWS, and NTD’s/NWS’s distribution of Seneca cigarettes
within the United States.

[¶27.] As previously indicated, Arthur Montour, Jr. owns both NTD and

NWS, the New York importers/distributors who licensed Grand River to

manufacture the cigarettes for them. Although these corporations sold Seneca

cigarettes as legal entities separate and apart from Grand River, the State labels

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the relationship as a “co-venture” between Arthur Montour, Jr. and the principals of

Grand River. The State argues that these principals made statements in other

litigation (a complaint filed in a NAFTA dispute) that they were involved in a “co-

venture” to manufacture and market Seneca cigarettes throughout the United

States. The State contends that this marketing co-venture was the type of

distribution network that was expected to reach the South Dakota market, thereby

establishing personal jurisdiction. Citing Clune, 233 F3d at 543-45, and Barone, 25

F3d at 613-15.

[¶28.] Unlike Clune and Barone, however, the State’s evidence does not

reflect Grand River’s utilization of a distribution network that it knew or expected

to include the South Dakota market. On the contrary, the NAFTA complaint’s co-

venture statements only reflect expected connections with limited parts of the

Canadian and United States market; namely, certain Canadian and New York

Indian reservations, the East Coast, Virginia and Nebraska. 8 And, the Nebraska

connection mentioned in the NAFTA complaint was with an Indian tribe other than

8. The NAFTA complaint reflects that the “co-venture” activities were started
only between the principals of Grand River’s predecessor and then only to
distribute tobacco products “principally on Six Nations territory” in Canada
and the United States. NAFTA Complaint, ¶7. When Arthur Montour, Jr.,
later became involved, distribution was “principally in the East Coast region
of the USA,” and he became involved because of his experience “throughout
Six Nations land.” Id. ¶8. Later, the three principals expanded their
production facility to Virginia for the sale of cigarettes “on Six Nations
territory.” Id. ¶14. Finally, when production was ultimately consolidated at
Grand River’s facility, the NAFTA complaint reflects it was done so for
distribution “on Indian land in the USA.” Id. ¶22.

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the one with whom HCI was affiliated. 9 Thus, the assertions made in connection

with the NAFTA complaint are not evidence of a co-venture to market Seneca

cigarettes for the South Dakota market. For that reason, this case is unlike Barone

because there is no evidence that Grand River poured Seneca cigarettes into a

regional distribution system under circumstances where one should have known

that the product would reach the forum state. See Barone, 25 F3d at 615 (noting,

“in this case the defendant poured its products into regional distributors throughout

the country,” one of which served the Midwest market). This case is also unlike

Clune because there was no showing of a parent-subsidiary and interlocking board

of director’s relationship between the principals of Grand River and NTD/NWS. See

Clune, 233 F3d at 544 (noting that members of the parent’s board of directors also

served as directors of its marketing subsidiary and the subsidiary’s activities were

intended to generate profits for the parent corporation).

[¶29.] The State, however, also argues that the 1999 Agreement is no

different than those considered in two Ohio cases: State ex rel. Attorney General v.

Grand Tobacco, 171 OhioApp 3d 551, 871 NE2d 1255 (2007) (concluding that

personal jurisdiction existed considering the fact that the distributor’s CEO

introduced the defendant manufacturer’s cigarettes into the forum state and held

himself out as a representative of the defendant manufacturing company); and

State v. Bulgartabac Holding Group, 2007 WL 4395514 (OhioCtApp 2007)

(concluding that personal jurisdiction existed based upon the volume of sales, the

9. The Nebraska relationship did not include Arthur Montour, Jr., and it was
also limited to a manufacturing facility.

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manufacturer’s relationship with a distributor, evidence of the manufacturer’s

involvement in the packaging of the products, and the manufacturer’s compliance

with federal law). The State further argues that Grand River’s activities are similar

to those considered in Sumatra Tobacco, supra. We disagree.

[¶30.] Unlike Grand Tobacco, the State presented no evidence that Arthur

Montour, Jr., or NTD/NWS did anything on behalf of Grand River to assist in its

manufacture of cigarettes for the United States, let alone the South Dakota

market. 10 On the contrary, the Agreement reflects that Montour’s companies were

acting independently on their own behalf in the distribution of cigarettes.

Furthermore, unlike Sumatra Tobacco 11 and Bulgartabac, NTD/NWS owned the

proprietary rights to Seneca cigarettes and it merely granted Grand River a limited

10. Unlike the instant case, Grand Tobacco involved a distributor that was
acting on behalf of the manufacturer in several relevant respects:

The State submitted evidence of a close, ongoing relationship between
Grand Tobacco and its distributor, ITP, that went beyond that of a
typical manufacturer and importer/distributor, including evidence
that ITP’s Chief Executive Officer, Jeffrey Uvezian, acted at various
times on behalf of Grand Tobacco. More specifically, there was
evidence that Uvezian, as “Managing Member, International Tobacco
Partners,” certified ingredients lists submitted by Grand Tobacco to
the Center for Disease Control and Prevention. On the website of the
United States Patent and Trademark Office, Uvezian is listed as the
“Domestic Representative” for Grand Tobacco. Further, ITP’s website,
which listed “Bonita,” “Tough Guy,” and “Garni” brand cigarettes,
specifically noted its “affiliation with Grand Tobacco.”

171 OhioApp3d at 558-59, 871 NE2d at 1261.

11. As indicated supra ¶25, Sumatra (the manufacturer) admitted that it owned
the United States trademark for the particular brand, and also that Sumatra
controlled the packaging of the cigarettes for the United States market.
Those pivotal facts are not present in this case.

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license to manufacture cigarettes for NTD/NWS in accordance with the latters’

direction as to blending, quality, packaging, and quantities for NTD’s/NWS’s

marketing enterprise. Thus, NTD/NWS had exclusive control over the packaging

for the markets it desired and it was distributing as an independent corporate

importer/distributor of cigarettes. Finally, unlike this case, in Bulgartabac the trial

court did not make an evidentiary determination whether the plaintiff met its

burden of proving personal jurisdiction. That case was appealed before an

evidentiary hearing on the merits of personal jurisdiction, and therefore, the Court

of Appeal’s language only reflected that the evidence, considered “in a light most

favorable to finding jurisdiction,” established a prima facie case sufficient to shift

the burden to the defendant. Bulgartabac, 2007 WL 4395514, ¶18. In this case, the

matter was tried on the jurisdictional merits, and the circuit court’s factual findings

on the jurisdictional merits are adverse to the State.

[¶31.] In sum, even if there were no pure, corporate separation between

Montour and Grand River’s principals, the State’s argument does not account for

the fact that the State has failed to prove that Grand River was involved in the

distribution system by which Seneca cigarettes were expected to be sold in South

Dakota. Grand River’s activities were limited to those of a licensee for NTD/NWS.

Further, Grand River’s activities ended when the cigarettes were shipped FOB

Ohsweken per NTD’s/NWS’s instructions to a free trade zone in New York. Finally,

the State did not prove that Grand River knew or should have known that

NTD/NWS was selling to HCI, and that HCI, who the State concedes “primarily

s[old] tobacco products to tribally owned entities,” would sell to a retailer located off

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the reservation in South Dakota. Therefore, we conclude that the State’s

characterization of Grand River’s relations with Montour as a “co-venture” directed

at South Dakota is not a correct description of the relationship of these parties.

Rather, the businesses involved were the type of “fully independent corporations

whose relations with each other [were] contractual only.” World-Wide Volkswagen,

444 US at 289, 100 SCt at 563, 62 LEd2d 490. Because the State further failed to

prove that Grand River’s activities were, for the 2000-2002 years at least, expected

to reach the South Dakota market, Grand River’s relationship with Montour and

NTD/NWS fails to establish purposeful availment under Clune, Barone, Sumatra

Tobacco, Grand Tobacco, and Bulgartabac.

2. Grand River’s compliance with federal and Nebraska law in
manufacturing and delivering Seneca cigarettes.

[¶32.] Citing Bulgartabac, the State argues that Grand River designed its

product for South Dakota by complying with federal and Nebraska requirements for

the sale of cigarettes. 12 This argument, however, again fails to recognize that those

were not the acts of Grand River: they were the acts of independent third parties.

12. Under the State’s argument, a manufacturer who designed its product to
comply with federal and Nebraska requirements would -- by that act alone --
be designing its product for sale in each of the fifty states. The State offers
Sumatra Tobacco, in support of this assertion. 379 SC 81, 666 SE2d 218.
That case is, however, substantially different because, after a review of six
factors, see supra ¶25, the court specifically concluded, “Regardless of how the
cigarettes arrived in South Carolina,” Sumatra’s actions indicated “that it
purposefully availed itself of conducting business in all 50 states, including
South Carolina.” Id. 379 SC 81, *4, 666 SE2d at 223 (emphasis added).
There is nothing in this record suggesting that Grand River purposefully
availed itself of conducting business in all fifty states.

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#24804

[¶33.] It must be emphasized that under the Agreement, Grand River and

NTD/NWS were to “respectively comply with all applicable laws [requirements] of

Canada and the United States regarding the exportation and importation” of

Seneca cigarettes. Agreement, ¶3 (emphasis added). Thus, for example, although

Grand River was responsible for paying all taxes, charges, fees, duties and tariffs

arising out of the export from Canada, NTD/NWS was responsible for those matters

relating to importation into the United States. Id. And more importantly, under

the Agreement, NTD/NWS -- not Grand River -- was the party responsible for the

United States and Nebraska requirements because NTD/NWS alone dictated the

relevant manufacturing specifications, like blending, quality, and packaging.

Therefore, in this case, Grand River cannot be charged with those activities. The

State’s argument finally fails to recognize it was only after the cigarettes left Grand

River’s and NTD’s/NWS’s control that HCI -- which the State concedes is an

independent party -- met the requirements for a South Dakota sale by stamping the

cigarettes for sale in South Dakota.

[¶34.] Because NTD/NWS and HCI alone were responsible for the activities

necessary to meet United States, Nebraska and South Dakota requirements, their

independent acts cannot be attributed to Grand River. See Burger King, 471 US at

475, 105 SCt at 2183, 85 LEd2d 528 (noting that the purposeful availment

requirement “ensures that a defendant will not be haled into a jurisdiction solely as

a result of . . . the ‘unilateral activity of another party or a third person’”) (citing

Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 US 408, 417, 104 SCt 1868,

1873, 80 LEd2d 404 (1984)). See also Frankenfeld, 2005 SD 55, ¶12, 697 NW2d at

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382 (noting that “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”) (quoting

Denckla, 357 US at 253, 78 SCt at 1240, 2 LEd2d 1283) (emphasis added).

3. NTD’s/NWS’s distribution of Seneca cigarettes to HCI for resale,
and HCI’s licensing and distribution of Seneca cigarettes in South
Dakota for sale to consumers.

[¶35.] This factor also relates to the unilateral activities of independent third

parties, not Grand River. NTD/NWS, without direction or control of Grand River,

sold the cigarettes to HCI, a second-level, independent wholesaler. HCI then

unilaterally stamped the cigarettes so HCI could sell them in South Dakota. HCI

subsequently sold the cigarettes to Yankton Sioux tribal businesses for sale to an

ultimate consumer. Thus, the cigarettes passed through a number of independent

wholesalers including HCI, and the State failed to prove that Grand River had

knowledge, direction or control of HCI’s unilateral activities for the three years at

issue.

[¶36.] The State, however, points out that as of August 2001, it notified

Grand River by letter that Seneca cigarettes had been sold in South Dakota by

HCI. That letter did not, however, indicate that HCI had acquired the cigarettes

through the only party with whom Grand River had a relationship; i.e., NTD/NWS.

According to Grand River’s evidence, it did not acquire such knowledge until 2003,

in the course of related litigation involving the State’s attempts to enforce the

Escrow Statutes. Because the State has not proven that Grand River was aware

that HCI was selling cigarettes in South Dakota in 2000-2002, through the

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NTD/NWS distribution network with which Grand River was associated, there was

insufficient knowledge to meet the expectation standard: Grand River was not

“aware of the distribution system’s operation[.]” See Asahi, 480 US at 121, 107

SCT at 1037, 94 LEd2d 92 (Brennan, J., concurring in part and concurring in the

judgment). Under these circumstances, HCI’s unilateral activities directed at this

State in 2000-2002, do not establish Grand River’s purposeful availment to the

South Dakota market. See World-Wide Volkswagen, 444 US at 298, 100 SCt at

559, 62 LEd2d 490; Frankenfeld, 2005 SD 55, ¶12, 697 NW2d at 382.

4. The State’s action against Grand River as it relates to the sales of
cigarettes within the State of South Dakota.

[¶37.] The State finally argues that personal jurisdiction is conferred by

SDCL 10-50B-7, 13 a provision that requires compliance with the Escrow Statutes.

The fact that the State brought an action against Grand River for cigarettes “sold in

South Dakota” under this statute, however, only begs the question. The question is

13. This statute provides in relevant part:

Any tobacco product manufacturer selling cigarettes to consumers
within the state, on or after July 1, 1999, whether directly or through a
distributor, retailer, or similar intermediary or intermediaries, shall do
one of the following:

(1) Become a participating manufacturer . . . of the Master
Settlement Agreement, and generally perform its financial
obligations under the Master Settlement Agreement; or
(2) Place into a qualified escrow fund by April fifteenth of the
year following the year in question the following amounts, as
such amounts are adjusted for inflation:
(b) For 2000: $.0104712 per unit sold;
(c) For each of 2001 and 2002: $.0136125 per unit sold[.]

SDCL 10-50B-7.

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#24804

whether an action under this statute is permitted by due process. The mere

existence of the statute and the fact of this action are not evidence of purposeful

availment by Grand River to the South Dakota market.

Conclusion

[¶38.] The State’s evidence does not establish purposeful availment under

World-Wide Volkswagen. Grand River: did not advertise or solicit business in

South Dakota; had no offices, employees, agents, or personnel in South Dakota; did

not design its products to appeal to the South Dakota market or to comply with the

laws specific to South Dakota; did not establish channels for advising South Dakota

customers; and did not utilize a distributor who had agreed to serve as a sales agent

in South Dakota. Further, the State did not establish that Grand River had any

expectation that its limited license to manufacture cigarettes for NTD/NWS was, for

the years at issue, directing itself to the South Dakota market. In sum, Grand

River’s only connection with South Dakota was that, as a Canadian cigarette

manufacturer, it manufactured cigarettes under a limited license for an

independent New York importer/distributor. That importer/distributor

subsequently and unilaterally sold the cigarettes to an independent Nebraska

distributor, who unilaterally sold those cigarettes to South Dakota Native

businesses that ultimately sold the cigarettes in South Dakota. Paraphrasing

World-Wide Volkswagen with the facts of this case: “It is foreseeable that the

purchasers of [cigarettes manufactured] by [Grand River] may take them to [South

Dakota]. But the mere ‘unilateral activity of those who claim some relationship

with [Grand River ] cannot satisfy the requirement of contact with the forum

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State.’” 444 US at 298, 100 SCt at 567, 62 LEd2d 490 (quoting Denckla, 357 US at

253, 78 SCt at 1239-40, 2LEd2d 1283). Absent a more significant relationship with

or knowledge of this distribution chain suggesting that Grand River expected or

should have expected its manufacturing activities to be directed at the South

Dakota market during the years 2000-2002, the State failed to demonstrate that

Grand River purposefully availed itself of the laws and benefits of South Dakota

under the “expectation” standard.

[¶39.] GILBERTSON, Chief Justice, and KONENKAMP and MEIERHENRY,

Justices, and GIENAPP, Circuit Court Judge, concur.

[¶40.] GIENAPP, Circuit Court Judge sitting for SABERS, Justice,

disqualified.

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