Wednesday, February 26, 2014

Abetting Collection Avoidance Is Purposeful Availment

Gilmore Bank v. AsiaTrust New Zealand, Ltd., No. G048053 (D4d3 Jan. 21, 2014)

The court of appeal reverses an order quashing service for lack of personal jurisdiction. In doing so, it reads the effects test enunciated in Calder v. Jones, 465 U.S. 783 (1984) and subsequent California Supreme Court cases to require only the knowing direction of an intentional tort into the California forum, but not necessarily at the plaintiff in the case.

This is a fraudulent transfer case where a California judgment debtor supposedly transferred the bulk of her assets to a New Zealand trust company to avoid collection on the creditor/plaintiff’s judgment. The trust company moved to quash service of lack of personal jurisdiction. The trial court denied the motion and the trust company appealed.

In assessing specific jurisdiction, the court applies a three step analysis: (1) whether the defendant purposely availed itself of the forum state though its contacts; (2) whether the case at issue arises out or relates to those contacts; and (3) whether the exercise of jurisdiction comports with fair play and substantial justice. Plaintiff bears the burden on (1) and (2) and defendant on (3). Under the so-called effects test set forth in Calder, minimum contacts are satisfied if the plaintiff commits an intentional tort it knows to be directed at causing injury in the forum state. But here, plaintiff tried to go further and argue that Calder applies only when the tort is knowingly directed at some specific plaintiff. (Presumably, although the trust company might know that it was helping the judgment debtor avoid its California creditors, it did not know precisely who those creditors were.) The court, relying on language in the California Supreme Court’s post-Calder decision in Vons Companies, Inc. v. Seabest Foods, Inc., 14 Cal. 4th 434, 444 (1996), rejects that argument, holding that direction into the forum state is sufficient to meet the test.

The court then renders that holding dicta, because it says it does not need to apply the effects test to affirm the exercise of California jurisdiction over the trust company. Other tests for purposeful availment can be satisfied. In doing so it rejects the trust company’s (somewhat nonsensical) argument that the effects test is the only that can be used to ascertain purposeful availment for intentional torts. The court finds that the trust company had availed itself of California by creating ongoing business relationships between itself and California citizens, by directing its business activities to such citizens, and by purposefully deriving benefits from these activities in California. “Essentially, [the trust company] has received compensation for accepting, investing, managing, disbursing, and shielding the assets of [the debtor],  a California judgment debtor, in a scheme that contemplates an ongoing contractual relationship for [debtor’s] lifetime.” That was sufficient to constitute purposeful availment, even if these these contacts were accomplished through mail, wire transfers, e-mail, and other non-physical means.

As to the second element of the test, the court notes that in cases like Vons, California has interpreted the requirement that the action “arise out of or relate to” the defendant’s contacts fluidly. California does not require that the defendant’s contacts with the forum to be a proximate, or even just a but-for, cause of plaintiff’s injury to satisfy this test, as some other jurisdictions do; it just requires a substantial relationship between the in-forum availment activity and the cause of action. See generally O'Connor v. Sandy Lane Hotel Co., Ltd., 496 F.3d 312, 318 (3d Cir. 2007) (discussing three-way split of authority between “proximate cause,” “but-for cause” and “substantial connection” tests; citing Vons, noting that California applies the latter). Here, the connection between the trust company’s business dealings with the judgment debtor and the substance of the cause of action—use of those dealings to accomplish fraudulent transfers—was amply sufficient to meet that test.

Finally, it is neither unfair nor unreasonable to require the trust company to defend itself in California. Ticking through the “gestalt factors,” from the U.S. Supreme Court’s opinion in Asahi Metal Industries v. Superior Court, 480 U.S. 102 (1987), the court finds that the trust company “has failed to make a compelling case that California’s exercise of specific jurisdiction would be unfair and unreasonable the court,” further noting that the trust company did not even raise the unfairness argument in superior court.


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