The High Price of Doing Business in Pennsylvania

Mallory v. Norfolk S. Railway, No. 21-1168 (U.S. Jun. 27, 2023)

Like most states, Pennsylvania has statutes that require foreign corporations doing business in the state to register and designate an agent for service of process. Unlike most states, however, Pennsylvania’s statutes say that, by availing oneself of that process, a foreign corporation consents to general jurisdiction in the state. That is, it consents to personal jurisdiction, even in cases, like this one, that have no relationship to the corporation’s contacts with the state. The question is whether that kind of setup satisfies due process.

In a weird 4-1-4 decision, the Supreme Court says it does. The opinion of the Court is written by Justice Gorsuch and joined by Justices Thomas, Alito, Sotomayor and Jackson. The Court explains that because personal jurisdiction is a personal right that can be waived, there is nothing wrong with jurisdiction by consent, including when that consent is required to be given as a condition of obtaining privileges under state law. A pre-International Shoe decision from the Court—Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U. S. 93 (1917)—so holds. And because the Court holds that Pennsylvania Fire remains good law on jurisdiction by consent, that pretty much resolves the question.

Justice Alito, however, doesn’t join the whole opinion. He agrees Pennsylvania Fire controls the due process question, and that the Court needn’t overrule it. But he has doubts about whether a state can impose such conditions under Dormant Commerce doctrine. He says forcing a foreign corporation to submit to personal jurisdiction over claims that are unrelated to its contacts with the state is effectively a form of discrimination against out of state companies that is unjustified by any legitimate local interests.

Justice Barrett dissents, joined by the Chief Justice and Justices Kagan and Kavanaugh. She says that the Court’s ruling effectively nullifies the recent Daimler/Goodyear/BNSF line of cases that hold that just doing business in a state is inadequate to create general jurisdiction. The consent that Pennsylvania secures by virtue of registration goes too far. Indeed, it would effectively permit a state to write a long-arm statute conferring general jurisdiction over any company that did business in the state. 

Reversed.

For what it’s worth, amongst us Californians, California has a registration and agent for service of process requirement for foreign corporations doing business here. See Corps Code § 2105. But the Court of Appeal has consistently interpreted it not to provide a foreign corporation’s consent to general jurisdiction unrelated to the corporation’s California contacts. See Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (1987); DVI, Inc. v. Superior Court, 104 Cal. App. 4th 1080, 1095 (2002).

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Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

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Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (Cal. Ct. App. 1987)

Judgments and Jurisdiction

WV 23 Jumpstart v. Mynarcik, No. C095046 (D3 Nov. 21, 2022)

This is a weird opinion, in that it is deciding collections-related issues in a context where collections―at least collections in California―don’t appear to be a viable option.

Back in 2010, Creditor won a $1.4 million judgment against three individuals and a company. Shortly thereafter, it domesticated the judgment in California, where some of the defendants apparently had assets. Creditor ultimately settled with two of the individuals. And the company went Chapter 7. But there was still about a million bucks uncollected, with interest accruing, and the third Debtor to collect against. 

Unlike California judgments, which last ten years, Nevada judgments only last six. So when, slightly less than ten years after the California domestication, Creditor assigned the judgment to Plaintiff, the time to renew the underlying Nevada judgment in Nevada had already run.  

It appears, however, that Debtor doesn’t have any assets in California, only in Nevada. So to get around the expiration of the Nevada judgment, Plaintiff timely renewed the California judgment and then went back to Nevada to re-domesticate it. Debtor moved in Nevada to quash the judgment, claiming it was invalid. The Nevada court stayed the case pending a ruling from the California court on the judgment’s validity under California law. Debtor then argued to the California court that the renewed judgment was invalid because there was no personal jurisdiction over him in California to enter the original domesticated judgment. The trial court agreed. Plaintiff appealed.

The Court of Appeal reverses. In a basic sense, the idea that a court needs personal jurisdiction over a judgment debtor to domesticate a judgment doesn’t make sense. Collections is basically in rem. You domesticate a judgment because there are assets in the jurisdiction to be levied against. But if some separate minimum contacts style test is the rule, a judgment debtor could render itself collection proof just by moving its assets to a state with which it has no contacts.

The Court points out that nothing in the Sister State Money Judgments Act requires personal jurisdiction to domesticate a judgment. Indeed, the process is essentially ministerial. You attach the judgment to a form and the clerk stamps it as enforceable in California. While the Act permits challenges based on jurisdictional defects in the underlying merits judgment, it does not layer on any requirements beyond those.

Nor are any of the due process concerns from which personal jurisdiction requirements arise implicated. There is no dispute that the Nevada court that actually adjudicated the claim had personal jurisdiction over Debtor. He had notice and an opportunity to be heard in a court in a jurisdiction where he had contacts that bore a substantial relationship to the claims. There was thus no need for a separate jurisdictional analysis to justify out-of-state collections, which, after all are guaranteed under the Full Faith and Credit clause of the federal constitution.

There is, however, a different concern that is suggested, but not raised in the opinion. As I said, reading between the lines, there doesn’t appear to be any evidence that Debtor has assets in California to collect against. So can a creditor renew a domesticated Nevada money judgment in California, which can’t actually be enforced in California, in order revive an otherwise lapsed judgment in Nevada, to be enforced there? That seems a little squirrelly. But it's a Nevada problem, not a California one.

Reversed.

More Talk About Ford

LG Chem, Ltd. v. Superior Court, No. D079718 (D4d1 Jun. 27, 2022)

Plaintiff was injured when a lithium-ion battery called an “18650” that he bought from a San Diego vape shop blew up in his pocket. He sued a Korean Manufacturer that makes 18650 batteries. Manufacturer moved to dismiss for lack of personal jurisdiction. The trial court granted the motion, and the Manufacturer took a writ.

Jurisdictional discovery revealed that Manufacturer did sell a large number of 18650 batteries to three customers in California. These customers all approached Manufacturer—it did not market, advertise, or solicit their business. And these customers were all industrial. They would encase the batteries in an enclosure with protective circuitry for use in products like electric cars and power tools. Manufacturer did not sell to anyone in California that re-sold batteries for direct sale to consumers, including vape shops or vape shop supply businesses. Indeed, owing out of a vaping battery incident in 2016, Manufacturer made all of its customers certify that its batteries would used only for the aforementioned industrial uses and that they would not be sold or re-sold for individual consumer use.

On these facts, the court finds specific personal jurisdiction to be lacking. It finds that the sales were adequate to constitute purposeful availment. But the jurisdiction founders on the second—relatedness—element of the specific jurisdiction test.  There’s not much dispute that Plaintiff’s injury does not “arise” out of Manufacturer’s industrial sales in California. But the question is whether the claims “relate” to those contacts, a la, the Supreme Court's Ford decision, which we recently discussed in the Daimler Trucks case.*

The Court rejects the Ford analogy, however, based on both the quality and quantity of the contacts. First, unlike Ford, manufacturer did not extensively market and advertise sales of its product to anyone in California. And second, the California market that Manufacturer served was industrial, not consumer. So unlike Ford—where Ford sold trucks in Montana, just not plaintiffs truck—here Manufacturer did not systematically serve a market for consumers like Plaintiff to purchase or use its 18650 batteries.

Writ granted.

Interestingly, this falls on the other side of the “junior varsity general jurisdiction” line I discussed in my post on Daimler Trucks. As I said there, in Ford, the U.S. Supreme Court basically created a third jurisdictional category for certain tort cases—one with a more malleable relatedness prong—where there are (1) home-state plaintiffs; (2) defendants who would have satisfied the pre-Daimler “systematic and continuous” test; and (3) where the instrumentality that hurt the plaintiff is marketed and sold to others in the jurisdiction where the defendant lives. Unlike in Daimler, this case fails in both elements (2)—Manufacturer doesn’t satisfy the old systematic and continuous test from Helicopteros Nacionales v. Hall—and (3) Manufacturer didn’t market or sell 18650 batteries to consumers in California.

*Daimler Trucks was actually decided a few weeks after this case. I was in trial when this case came down and I am working through some backlog.

JV-GJ

Daimler Trucks North America LLC v. Superior Court, No. B316199 (D2d5 Jul. 7, 2022)

This is basically the state court equivalent of the U.S. Supreme Court’s recent personal jurisdiction decision in Ford Motor Company v. Montana Eighth Judicial District Court, 141 S.Ct. 1017, 1024–1025 (2021). Plaintiff, a Californian, is a truck driver. His truck is made by Daimler. He bought it used, in California. But it was originally sold in Georgia. Plaintiff got into a bad accident in Oklahoma while on a long-haul trip back to California. He sued Daimler, in California, alleging that the truck had a design defect. Daimler moved to quash for lack of personal jurisdiction. The trial court denied the motion, and Daimler took a writ.

Daimler makes two basic points: (1) it didn’t design, manufacture, assemble, or sell the truck in California; and (2) the accident was in Oklahoma.  

The first point is clearly foreclosed by Ford. There, plaintiffs, who bought used Ford vehicles in their home states sued Ford in home state courts after vehicular accidents in those states. Ford argued that those facts didn’t satisfy the second element of the traditional three-step specific personal jurisdiction analysis—that the claim arise out of or relate to the defendant’s in-state contacts—because the plaintiff’s injuries weren’t caused by anything Ford did in their home states. The Court rejected that analysis, finding that Plaintiff’s claims related to Ford’s extensive marketing and sales of its vehicles in the home states, even if those particular vehicles were sold elsewhere. 

But the second point is different. The Ford plaintiffs sued where the accidents happened, which also happened to be their home states. Here, however, the accident happened in Oklahoma, albeit to a Californian. While Ford suggested that an in-state injury could be relevant to the jurisdictional inquiry, it was not an irreducible minimum to find jurisdiction. The Court here finds that it because Plaintiff is Californian, the out-of-state nature of the accident isn’t dispositive. When a Californian is injured by a product that a defendant extensively markets and sells to Californians, that is enough to satisfy the relatedness test, even if the injury occurs elsewhere.

In coming to this conclusion, the court contrasts Bristol-Myers Squibb Co. v. Superior Court, 137 S.Ct. 1773 (2017), where the court found that a defendant’s extensive marketing and sales of drugs in California did not satisfy relatedness when the plaintiffs were out-of-state citizens who were allegedly injured by pharmaceuticals taken in their home states.

Writ denied.

It seems like we’re effectively seeing a third category of personal jurisdiction emerge. Eight years ago, in another case involving Daimler—Daimler AG v. Bauman, 134 S.Ct. 746 (2014)—the Supreme Court did away with the old “systematic and continuous” test for general jurisdiction, replacing it with a test finding general jurisdiction only where the defendant is “at home.” For a corporation, that’s its headquarters and place of incorporation. So just doing a lot of business in a state is not enough, without more, to make a company subject to jurisdiction there. And Bristol-Myers Squibb declined to blow a hole in that rule by finding, at least for out of state plaintiffs, that lots and lots of in-state business was enough to justify a “sliding-scale” rule where a flimsy standard for relatedness would suffice.

But limiting general jurisdiction causes some problems. Because, under a more stringent test for relatedness in specific-jurisdiction, it means that arbitrary factual distinctions (like the fact that an allegedly defective truck was bought used, in California, from someone who originally bought it in Georgia) could lead to plaintiffs being unable to sue in the courts of their home states, even when the defendant moves lots of the same product in the plaintiff’s home state.

So there is this class of cases where there are (1) home-state plaintiffs; (2) defendants who would have satisfied the pre-Daimler “systematic and continuous” test; and (3) where the instrumentality that hurt the plaintiff is marketed and sold to others in the jurisdiction where the defendant lives. In these cases, we are getting to a kind of junior-varsity general jurisdiction, where “relatedness” requires only that the three elements exist. 

And maybe that’s fine. Jurisdiction feels fair in Ford and here. If companies elect to extensively avail themselves of a state’s markets, state courts should get to vindicate their citizens’ injuries connected with those products, even if the relatedness line is only conceptual, not causal. On the other hand, the plaintiffs in Bristol-Myers—non-Californians suing for injuries allegedly due to taking Plavix outside of California—were pretty obviously engaged in forum shopping, so holding them to a higher relatedness standard makes sense. I'm just not sure this is a rule.

Parent Cos. Own Acts Establish Personal Jurisdiction

SK Trading Int’l Co. Ltd. v. Superior Court, A163590 (D1d4 Apr. 12, 2022)

Petitioner in this case is a Korean outfit whose California subsidiary is alleged to have engaged in a conspiracy to manipulate the price of a gasoline blendstock called CARBOB. Petitioner argues that there’s no personal jurisdiction. When the trial court disagreed, it took a writ under Code of Civil Procedure § 418.10(c).

It has long been established that having a domestic subsidiary is not, own its own, enough to give rise to personal jurisdiction over a foreign parent. The test, instead, looks to whether the parent’s own acts are significant enough, and sufficiently related to the claims that it’s fair to hale them into court here. 

In this case, the evidence showed that Petitioner/parent was not just a passive owner of a domestic sub. Parent’s execs took an active role in managing the California-based conduct that was part of the conspiracy. They had a role in hiring key, California-based personnel. They facilitated the creation and operation of a joint venture arrangement through which the conspiracy was carried out. That’s enough to meet the test.

The Court makes an interesting point in a footnote. For a long time, there was a open debate about how closely the in-state conduct needed to relate to the claims to satisfy the test. As I discussed in a post eight years ago, there were basically there takes. Some courts required the conduct to be the cause of the claim, some applied an “arising from or related to” test, and some asked whether the claims and contacts were “substantially connected.” The last test—generally viewed as the most liberal—had been adopted by the California Supreme Court. See Snowney v. Harrah’s Entmt. Inc., 35 Cal.4th 1054, 1068 (2005). But subsequent decisions of the U.S. Supreme Court—including a case that reversed the Cal Supremes—appear to have settled on the “arising from or related to” standard. See Bristol-Myers Squibb Co. v. Superior Court, 137 S.Ct. 1773, 1781 (2017) (casting doubt on the adequacy of substantial connection); Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S.Ct. 1017, 1026 (2021) (rejecting proof-of-causation requirement).

Writ denied.

Quashing Service in Unlawful Detainer

Stancil v. Superior Court, No. S253783 (Cal. May 3, 2021)

Unlawful detainers—eviction proceedings—are among the most common civil litigations in California state courts. More than 150,000 of them get filed in any given year. 

UD procedure is, however, a wreck. It is super-expedited—a response to a complaint needs to be served within five days. Summary judgment motions can be heard on five days notice. Trial can be set in twenty days.

At the same time, it is also very complicated. The substance and procedure are governed by numerous vaguely worded statutes, strewn across multiple codes in seemingly random fashion. There are overlapping layers of law at the city, county, state, and sometimes even the federal level. Many of the defenses are extremely technical. And, despite the enormous volume of filings, there is very little case law on anything. 

And then on top of all that, many of the litigants are pro se, and even the represented ones often aren’t paying their lawyers for hours of work to figure it all out.

This case, however, made it to the Supreme Court. The question presented is whether and how the tenant can use a motion to quash to challenge a UD complaint. It’s an interesting one.

In ordinary civil procedure, a motion to quash is used to challenge a defect in service or the lack of personal jurisdiction. The relevant statute, Code of Civil Procedure § 418.10, also addresses forum nonconveniens. It permits a defendant to make a special appearance to challenge service. No responsive pleading is required unless and until the motion is denied. The time to respond is further tolled if the defendant takes writ petition—specifically authorized by § 418.10(c)—until ten days after it is denied.

This has an unusual significance in UD cases because it potentially creates a avenue the tenant to really slow things down. Instead of five days to respond, the tenant gets the time spent to brief and argue the motion, ten days to take a writ, whatever time it takes to get decided, and then, if denied, ten days after the denial to answer.   

That creates a lot of incentive for the tenant to move to quash. Even when personal jurisdiction, as such, is not really at issue. Which is what happened here. Plaintiff—who appears to be the renter of a boat slip at a Marina of the S.F. Bay—argued in his motion that the wrong public entity was the name plaintiff. The trial court denied his motion, and then the appellate division and the Court of Appeal denied his writs. But the Supreme Court granted review, due to a longstanding perceived split of authority between Delta Imports, Inc v. Municipal Court, 146 Cal. App. 3d 1033, 1036 (1983) and Borsuk v. Superior Court, 242 Cal. App. 4th 607, 610 (2015).

The Court, in a unanimous opinion by Justice Cuellar, takes an interesting tack. Plaintiff loses, but the rule the Court lays winds up being relatively favorable to tenants. As the Court explains, a motion to quash under § 418.10 can only raise issues with personal jurisdiction or service. Tenant’s effort here—which entails a challenge to the truth of some of the facts alleged in the complaint—is not that. So a motion to quash is not an appropriate vehicle in his case.

But while that was enough to end the case, it doesn’t end the analysis. As the Court explains, UD is a creature of statute, with a bunch of special procedures. One of them is the right to serve a summons that requires a response within five days. In order to serve that kind of summons, however, the case needs to be a legit UD case. Were you to serve a five-day summons in an ordinary tort case, that service would be defective, it would be inadequate for the court to take jurisdiction over the defendant, and thus it could be subject to a motion to quash.

So, reasons the Court, a condition of serving a five-day notice in a legit UD case is pleading a legit UD case. A complaint that doesn’t state facts, if assumed true, that make out all the elements of an actionable UD claim is thus amenable to attack by a motion to quash.*

The upshot of all this is that although the tenant can’t use a motion to quash in a UD case to accomplish what he could with a summary judgment motion, he can use the motion to serve the same essential function of a general demurrer. And because the landlord’s strict compliance with the statutory procedures are elements of a UD claim, that means many of the kind of technical defects that trip up landlords and their counsel are amenable to resolution on on a motion to quash, even if they don’t raise what one would ordinary consider to be defects in service or personal jurisdiction.

Writ denied.

*This case shows the value of a well placed amicus brief. The link between stating a claim and jurisdiction thorough a five-day notice that the Court drew is not all that apparent from the tenant’s brief—it comes directly out of an amicus brief filed by the Western Center on Law & Poverty.

Going to California

Yue v. Yang, No. A159145 (D1d5 Mar. 25, 2021)

A Canadian made a bunch of highly inflammatory posts against a California resident on Chinese language Internet bulletin boards that were themselves located in California. Plaintiff Californian sued for defamation. The trial court quashed service for lack of personal jurisdiction.

Generally speaking, making postings on the Internet does not subject you to personal jurisdiction anywhere they might be read by somebody upset by them. But when your stay stuff like “I am going to come to California and bully you in your back yard,” and threaten to “go to California” and “destroy you the shyster in U.S. federal court,” the posts cross the line from generalized speech on the Internet to the kind of stuff that satisfies the Calder effects test. That is, when you deliberately aim harmful speech at someone, that is specifically directed to the jurisdiction they live in, you have purposefully availed yourself of the legal regime of that state and thus of its courts. 

Reversed.

Relatedness Is Not Liability

Bader v. Avon Prods., Inc., No. A157401 (D1d4 Sept. 29, 2020)

Plaintiff in this case is a lifelong Californian who claims she got mesothelioma from a lifetime of using Avon products containing talc that was allegedly contaminated by asbestos. Avon objected to personal jurisdiction, claiming that Plaintiff had not satisfied the “relatedness” prong of the specific jurisdiction inquiry, which asks whether the plaintiff’s claims are substantially connected to the defendant’s in-state contacts. The trial court found that relatedness had not been established and dismissed for lack of personal jurisdiction.

Avon’s relatedness argument here is, charitably, a stretch. Plaintiff says Avon sold her talc products in California and that the talc gave her cancer. That seems like it should be enough relatedness for specific jurisdiction. (Generally, in products liability cases, relatedness arguments come up when plaintiffs engage in forum shopping by suing where they have only tenuous connection, such that their injuries have little to do with the defendant’s in-forum sales. Like when someone from Iowa sues in California based on a product that was purchased in Iowa.) 

Avon, however, says that the Supreme Court’s rejection of California’s “sliding scale” relatedness test in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773, 1776 (2017) also requires Plaintiff to show that the talc that Avon sold her in California actually contained asbestos in order to establish personal jurisdiction. The Court of Appeal rejects the argument, more kindly than I would. Because it’s basically nonsense. 

Sliding scale relatedness was a short lived effort to concoct a junior varsity version of general jurisdiction after the Supreme Court limited general jurisdiction to states where the defendant is “essentially at home.” See Daimler AG v. Bauman, 134 S. Ct. 746 (2014); Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011). Skirting that rule, a 4-3 majority of the California Supreme Court held that when a defendant has lots and lots of connections in the forum state—sort of akin to the “systematic and continuous” test that applied for general jurisdiction pre-Goodyear and Daimler, see Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)—the nexus between the defendant’s contacts and the plaintiff’s claims could be pretty tenuous. But the U.S. Supreme Court granted cert from that decision, ultimately finding that the sliding scale test was inconsistent with due process. Bristol-Myers, 137 S. Ct. at 1781–82. Specific jurisdiction thus requires some substantial relationship between the contacts and the claim irrespective of what other non-claim related contacts the defendant might have in the forum, regardless of how significant those contacts are.

So far, all good. 

But what neither Bristol Meyers nor any other court has ever said is that, to show relatedness, the plaintiff has to affirmatively prove, as jurisdictional matter, that the defendant’s in-forum sales actually caused her injury. That would make the test for personal jurisdiction—a question usually resolved at the outset of the case—impossibly high and unduly complicated. So high and complicated that a plaintiff couldn’t hale a defendant into a court in her home state for selling her an allegedly defective product in her home state unless she arrives at the courthouse on day one loaded for bear with expert testimony on causation. That doesn’t make any sense.

Reversed.

The Avails of Sales

Thurston v. Fairfield Collectables of Ga., LLC,  No. E072909 (D4d2 Aug. 26, 2020)

Defendant, which is located in Georgia, sells models over the Internet. It doesn’t have employees or stores in California, but it makes about 8 percent of its sales—about $350k annually—to customers here. Plaintiff, who is blind, brought an Unruh Act claim alleging that Defendant’s website did not accommodate her disability. The trial court quashed service for lack of personal jurisdiction.

So that gets us into the morass that is personal jurisdiction over the Internet. Personal jurisdiction requires: (1) contacts that demonstrate purposeful availment of the law of the forum state; (2) a connection between the contacts and the claim; and (3) the satisfaction of a gestalt test of overall reasonableness.

There are a whole bunch of tests for personal availment in the Internet context. The easiest one looks to whether the defendant used its Internet presence to make a substantial amount of sales to persons within forum state. Other tests also look for some state-specific direction of activity. The Court of Appeal here says that substantial sales are enough. But even if more direction were needed, there was some evidence that Defendant also mailed catalogs to Californians who requested them.

The Court says that relatedness is also satisfied. Even though Plaintiff never actually bought anything, her interaction with the website through which Defendant sold stuff to Californians was good enough. 

Finally, the exercise of jurisdiction was reasonable. Although Defendant argued that it was unfair to force it to comply with the laws of 50 different states, the jurisdiction question is different than the choice of law one. Just because Defendant can be made to litigate here, doesn’t mean California law will ultimately apply. 

Justice Menetrez dissents. His point is basically about relatedness. Because Plaintiff didn’t buy anything, her claim isn’t really related to any of Defendant’s California sales, regardless of volume. Her claim is, instead, based on the way that Defendant operated its website. But nothing about that purposefully availed itself of California. To me, that seems like a pretty good point.

Affirmed.

When You Get There, Remember It's Nev-æd-uh, Not Na-Vah-Duh.

Farina v. SAVWCL III, LLC, No. B294516 (D2d8 Jun. 10, 2020)

Back in what we will probably soon start calling the last financial crisis, there was a hard money Lender in pooling Investor money to loan to real estate Developers in Las Vegas. Lender, which was also a Nevada entity located in Nevada, facilitated contractual arrangements between Developers and Investors. There were contracts (promissory notes) but no contact between Developers and Investors. Most of Investors in Nevada. But about 10 percent of the Investors were from California.

The music came to a stop in the Vegas real estate market in late 2007. The loans failed. Lender apparently went bk. Investors sued Developers for fraud, not in Vegas, but in LA Superior. (Lender isn’t a party to the case.) Developers moved to dismiss for lack of personal jurisdiction. The trial court granted the motion. 

The issue comes down to personal availment. The evidence showed that Developers weren’t directing Lender to reach out to Californians. At best, someone at Developers once sent a letter to someone at Lender, proposing that Investors trade their loans for equity interests in a joint venture to work out the souring debt.* (It was this swap that purportedly consummated the fraud.) Lender then sent that letter along to Investors with a letter of its own explaining the proposal. 

There was no evidence, however, that at the time Developers wrote the letter that they directed Lender to send their letter to Investors in California. Indeed, there was no evidence that Developer even knew at the time that any Investor was in California. That’s not personal availment. 

Nor was the mere promissory notes between California Investors and Developer enough to create personal jurisdiction here. The notes lent money to invest in real estate in Nevada, facilitated by a Nevada entity, governed by Nevada law and they were executed by Developers in Nevada. They specifically state that Investors’ addresses were on file with Lender (at its Nevada address.) Absent any evidence that Developers knew they were dealing with Californians, that’s not enough.

Finally, the fact that Developers retained some California-based architects and consultants to work on the developments did not create jurisdiction. For specific jurisdiction, the claims need to arise from or relate to the in-state contacts. But Plaintiff’s fraud claims had nothing to do with who Developers hired to work on their project. Indeed, there was not even any evidence that Investors even knew who Developers hired.

Affirmed.

*In what has to be the funniest parenthetical naming reference in a recent Court of Appeal decision, the Court explains, “[t]he joint venture’s name is SAVWCL III, LLC. We are unsure how to pronounce that, so we call it Joint Venture.”

Contacts, Contracts, Indemnities.

Halyard Health v. Kimberly-Clark Corp., No. B294567 (D2d5 Jan. 2, 2020)

Back in the days before he represented Stormy Daniels, and before he got criminally charged with fraud, and long before he got arrested while in the process of getting disbarred, Michael Avenatti popped Kimberly-Clark Corp. and its spinoff Halyard with a $450 mm judgement for fraudulently representing the qualities of certain surgical gowns. The awards were later dialed way back to around $20 million, due to excessive punitive damages. The case is on appeal to the Ninth Circuit. 

This case, however, is a declaratory relief action about whether Halyard needs to indemnify Kimberly-Clark for its share of the punitive damages. That seems to be required under the terms of a “Distribution Agreement” spinning Halyard out as a separate company. But there’s questions about whether an indemnity for punis is valid. The court here doesn’t even reach the merits of that question, however, because the Court of Appeal finds that there isn’t personal jurisdiction over Kimberly-Clark.

There’s no question that personal jurisdiction here needs to be specific—i.e., the defendant’s contacts with the state need to be connected to the facts that give rise to the case. Generally, in California, that invokes a three part test: First, the defendant needs to have purposefully availed itself of California. Second, the controversy needs to arise out of the defendant’s contacts with the forum. Under the test applied in California, that means there needs to be a substantial relationship between the contacts and the claim. And third, the assertion of personal jurisdiction must “comport with fair play and substantial justice.”

The Court here finds that the analysis founders on the second point. It is true that Kimberly-Clark sells lots of stuff in California. (Which is how it got sued here.) But this case doesn’t really arise from those contacts—it arises instead from the general contractual indemnity from the Distribution Agreement, which was not California specific. Nor does the fact that California law might apply to the validity of the indemnity necessarily mean that the case arises from California contacts. The Court of Appeal ultimately holds that the fact that the obligation to be indemnified arose in California is insufficient to conclude that an action in contact over the enforceability of the indemnity agreement is substantially related to Kimberly-Clark's California contacts.

Justice Rubin dissents. His principal point of contention is that although the dispute arises out of the contract, it also arises out of the underlying obligation to be indemnified. As he sees it, “[g]iven the broad ‘substantial connection’ test used for the second prong in California, it is clear to me that a declaratory relief coverage action both arises out of, and relates to, more than the contract itself, but also to the underlying tortious activity.” He cites a number of declaratory relief cases in the insurance context in support.

Affirmed.

Direct Shipment Is Purposeful Availment

Jayone Foods, Inc. v. Aekyung Indus. Co., No. B282674 (D2d7 Jan. 22, 2019)

Plaintiffs are the heirs of Decedent, who allegedly died due to exposure to a Korean humidifier cleaning agent. They sued both the retailer and the California-based Importer and distributor of the product. Importer then tried to join the Korea-based Manufacturer of the agent on a cross-claim. But the trial court quashed service due to lack of personal jurisdiction.

Et tu, Calder?

Hogue v. Hogue, No. C083285 (D3 Oct. 30, 2017) 

Wife fled her allegedly abusive Husband in Georgia and moved back in with her mom in California. Wife then sought a domestic violence restraining order in Sacto Superior Court. Husband specially appeared and moved to quash for lack of personal jurisdiction because there was no evidence of abuse that occurred in California, only Georgia. Husband’s only California contact related to any abuse was a video of him simulating suicide that he sent to Wife over the Internet, although at a time he knew she was in California. The superior court quashed for lack of personal jurisdiction.

Reversing the trial court, the Court of Appeal holds that the video was a sufficient minimum contact to satisfy due process. It met the test “under a species of specific jurisdiction in which a defendant acting elsewhere causes effects in California of a nature that are ‘exceptional’ and subject to ‘special regulation’ in this state.” The availability of domestic violence restraining orders “bespeaks California’s concern with an exceptional type of conduct that it subjects to special regulation.” So when Husband directed the video to Wife, who he knew was in California, with clear intent to cause her the kind of distress that a DVRO protects against, he did enough to merit jurisdiction here.

Reversed.

This result seems fine, but the nomenclature is a little weird. Isn’t this just a routine application of the “effects test” from Calder v. Jones, 465 U.S. 783 (1984)? I.e., when you undertake a tortious or wrongful act that is “expressly aimed” at harming someone in a particular state, you subject yourself to the jurisdiction of its courts so long as its generally fair to do so. See Pavlovich v. Superior Court, 29 Cal. 4th 262 (2002) (explaining the outer limits of the Calder test in California).

This “special regulation” test seems like both more and potentially less than that is required. Notably, the quote comes out of a Court of Appeal case from the ‘70s, so it predates Calder. Calder doesn’t require a state to “specially regulate” something for its effects test to apply—it is the defendant’s act of purposefully aiming harmful conduct into a state that matters. Notably, Calder dealt with plain ‘ol defamation of a TV celebrity, which hardly an area subject to some kind of special heighened protection under substantive law. 

On the other hand, even if there were a specific or special California regulation, without “expressly aimed” acts by the defendant that constitute purposeful availment, federal due process would nonetheless preclude hailing him into court here. See HealthMarkets, Inc. v. Superior Court, 171 Cal. App. 4th 1160, 1171 n.2 (2009). Particularly since personal jurisdiction in California is a question of the outer limits of federal law, see Code Civ. Proc. § 410.10, the existence of particular state prerogatives seems beside the point.

Refurber Madness.

Strasner v. Touchstone Wireless Repair & Logistics, LP, No. D068865 (D4d1 Nov. 4, 2016)

Plaintiff—a California native living at the time in NYC—returned a cell phone to a T-Mobile store in New York. In the process of refurbing the phone, an employee of the Refurber found some apparently sensitive pictures of Plaintiff on the phone and posted them to her Facebook wall. Plaintiff sued T-Mobile, four companies related to the refurbing, and those companies’ parent for invasion of privacy and related torts. Refurbers moved to quash service of lack of personal jurisdiction, which the trial court granted.

So Much for Diamler . . .

Bristol-Myers Squibb. Co. v. Superior Court, No. S221038 (Cal. Aug. 29, 2016)

Certain kinds of litigation gravitate towards California, even when neither the plaintiff nor the defendant is resident or headquartered here. (See, e.g., asbestos cases.) The conventional wisdom is that that state of affairs was likely to subside after the US Supreme Court did away with the broad “systematic and continuous” test for general personal jurisdiction in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), which held that general jurisdiction is appropriate only where a company is “at home.” 

No Evidence, No Personal Jurisdiction

Viaview, Inc. v. Retzlaff, No. H041521 (D6 July 6, 2016)
 
Petitioner in this case—some sort of internet outfit devoted to exposing cheaters and bullies—sought a TRO against a Dude who was, to say the least, not a fan. But the Dude doesn’t live in California. He lives in Texas or Arizona. He tried to quash service for lack of personal jurisdiction, while at the same time litigating various motions on the merits., like an anti-SLAPP motion. The sheer litigiousness of the parties makes this opinion hard to follow, but at the end of the day, the court holds that the Dude didn’t make a general appearance by simultaneously litigating personal jurisdiction alongside the merits issues. So personal jurisdiction wasn’t waived. And since plaintiff didn’t provide a sworn declaration in support of the jurisdictional facts, there was no evidence to support the exercise of personal jurisdiction. Its verified complaint wasn’t enough. Because plaintiff was a corporation, the verification by an officer doesn’t make the complaint the equivalent of a declaration. See Cal. Code Civ. Proc. § 446(a). The case thus should have been dismissed for lack of personal jurisdiction.

Reversed.

Lots of Waivers in Divorce Court

Obrecht v. Obrecht, No. H040827 (D6 Feb. 24, 2016)

Husband in a divorce case objects to personal jurisdiction. His problem is that the record seems to establish that during his first appearance in the case he argued (pro se) the merits of a requested support order. He didn’t move to quash for lack of personal jurisdiction until several months later. But an argument on the merits was a general appearance—sufficient to waive any personal jurisdiction objection.
 
Husband contests what actually happened at the hearing, but none of the hearings in the case were reported due to the court’s policy of not providing an official reporter in most family law matters. (I.e., a policy like the kind of policy under review in Jameson v. Desta. The Court here drops a footnote to express that it is “deeply troubled” by that policy, but no party raised the issue on appeal.) In the absence of a record of oral proceedings, the trial court’s minute order suggesting the merits, not personal jurisdiction, were argued, was dispositive.
 
Husband also argues that it is unfair to hold him subject to the orders entered prior to the hearing in which he effectively waived any challenge to personal jurisdiction due to retroactivity concerns. But the court isn’t buying it. The cases he's analogizing to deal with service of process. While it might be unfairly retroactive to hold a party to account for actions that occurred prior to being validly served, the same rationale does not apply to actions that occurred before the time in which the party could be deemed to have waived personal jurisdiction. While service has a temporal element—the case doesn't start for a defendant until he is served—PJ doesn’t work that way. Essentially, personal jurisdiction is a yes/no issue that applies throughout the whole case; either there’s jurisdiction over the defendant or there isn’t.

Husband also waived any challenge to whether he had been afforded timely notice of a hearing. The record is pretty clear that he received less than the sixteen days’ notice of a motion required under Code of Civil Procedure § 1005(b). But to challenge a lack of statutory notice, a party generally needs to raise the issue at the earliest opportunity and demonstrate some prejudice. Here, Husband didn’t challenge the short notice. Indeed, at the first hearing he attended--several months after the motion was decided--he didn’t mention it at all.

Affirmed.

In Rem

Buchanan v. Soto, No. D065652 (D4d1 Nov. 6, 2015)

Wife, facing a collections action, transferred some marital property to Husband’s separate ownership. Plaintiff won the collection case and then sued Husband and Wife for fraudulent conveyance. She had some trouble serving Husband, who had allegedly been deported to Mexico before the case was filed. Wife unconvincingly claimed not to know Husband’s address there. After several attempts to serve Husband at the pre-deportation residence, the court permitted service by publication. Husband defaulted and Plaintiff ultimately won a judgement against both Wife and (defaulted) Husband, with the court finding that the property had been fraudulently transferred by Wife to avoid collections.

California Law's Empire

Moncrief v. Clark, No. H040098 (D5 Jul. 21, 2015)

During negotiations over the sale of some farm equipment, seller’s attorney in Arizona made statements regarding his client’s title to the equipment. Those statements turned out to be untrue, and the deal failed. Purchaser then sued its California-based attorney for legal malpractice. Purchaser’s Lawyer turned and cross claimed against Arizona Attorney for equitable indemnity. Arizona Attorney filed a motion to quash service due to lack of personal jurisdiction, which the trial court granted.

The court of appeal applies the standard three-step analysis for specific personal jurisdiction. (1) Did the defendant purposefully avail himself of the California forum; (2) Does the controversy relate to the defendant’s contacts; and (3) Would notions of fair play and substantial justice be offended by hailing the defendant into court in California? Arizona Attorney argued only a lack of purposeful availment. But AA had called Purchaser’s Lawyer on the phone—while PL was in California—in order to close the deal. AA then followed up with an email reiterating that his clients had clear title. That’s not much, but it’s enough for personal availment in California.

Reversed.

Railroad Isn't at Home in California

BNSF Railway Co. v. Superior Court, No. B260798 (Mar. 27, 2015)

This is an asbestos case.  Plaintiffs are the heirs of a man who died from meso contracted through asbestos exposure in Wichita, Kansas. One defendant is BNSF, which is a Delaware Corporation with its headquarters in El Paso, Texas. BNSF moved to quash service based on lack of personal jurisdiction. Given the location of the exposure, there’s no specific jurisdiction because nothing connects the plaintiff’s injury to California. As to general jurisdiction, the new Daimler standard says there’s only general jurisdiction where a company is “at home,” which is essentially where is is headquartered. Plaintiff tried to wiggle out of that by arguing the BNSF does a lot of business in California and that Daimler was distinguishable because it involved a truly foreign defendant. The trial court took the bait.

On a writ, the court of appeal doesn’t. The Daimler test doesn’t ask if a company does a bunch of business. It asks if it is “at home.” So the fact that BNSF does big business in California doesn’t much matter. On the latter point, the court gives a good quote on stare decisis: “Factual differences between the case at bar and the four general jurisdiction cases considered by the high court do not render the broad principles enunciated in those cases inapplicable to the situation here.” 

Writ granted.

Update: Review granted, July 23, 2015.