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.

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.” 

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.

A Substantial Nexus It Ain't

Greenwell v. Auto-Owners Ins. Co., No. C074546 (D3 Jan. 27, 2015)

It’s not too often that a defendant successfully gets a case dismissed for lack of personal jurisdiction in California. This is one of the few. It’s an insurance case where the insurer is out-of-state and the coverage involved property coverage for an apartment building in Arkansas, as well as general liability for a property management business, which was operated out of California. The claim dispute is over whether two fires at the Arkansas property count as a single or separate loss. 

Addressing specific jurisdiction only, the court holds that, while there was purposeful availment, the second element of the specific jurisdiction test—relatedness between the subject matter of the lawsuit and the in-state contacts—was not met. Which is rare because of the three versions of the relatedness test recognized in US jurisdictions, California has the loosest one. It requires only a “substantial nexus” that does not, per se, require any causal link between in-state contacts and the claim. Here, the claim—based as it was on the Arkansas fires—had little if any relationship to the insurer’s California contacts, much less a substantial one. The fact that the policy also covered hypothetical California losses didn’t change that.

Affirmed.