OMI Holdings, Inc. v. Royal Ins. Co. of Canada, s. 97-3022

• Decision Date: 30 June 1998
• Docket Number: 97-3041 and 97-3042,Nos. 97-3022,s. 97-3022
• Citation: 1998 WL 348037,149 F.3d 1086
• Parties: 98 CJ C.A.R. 3573 OMI HOLDINGS, INC., Plaintiff-Appellant-Cross-Appellee, v. ROYAL INSURANCE COMPANY OF CANADA; Seaboard Surety Company of Canada, Defendants-Appellees-Cross-Appellants, Royal Indemnity Company; Zurich Insurance Company, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1086

149 F.3d 1086

98 CJ C.A.R. 3573

OMI HOLDINGS, INC., Plaintiff-Appellant-Cross-Appellee, v. ROYAL INSURANCE COMPANY OF CANADA; Seaboard Surety Company

of Canada, Defendants-Appellees-Cross-Appellants,

Royal Indemnity Company; Zurich Insurance Company, Defendants.

Nos. 97-3022, 97-3041 and 97-3042.

United States Court of Appeals,

Tenth Circuit.

June 30, 1998.

Steven H. Hoeft (Byron L. Gregory and Paul L. Langer of McDermott, Will & Emery, Chicago, IL, and Richard N. Roe, Lowe, Farmer, Bacon & Roe, Olathe, KS, with him on the brief) of McDermott, Will & Emery, Chicago, IL, for Plaintiff-Appellant.

Robert M. Callagy and John Haybob (Christina Magee of Niewald Waideck & Brown, Kansas City, MO, and Mark Lerner of Satterlee Stephens Burke & Burke, L.L.P., New York City, with him on the brief) of Satterlee Stephens Burke & Burke, L.L.P., New York City, for Defendants-Appellees.

Before ANDERSON, BALDOCK, and MURPHY, Circuit Judges.

BALDOCK, Circuit Judge.

Plaintiff OMI Holdings, Inc. (OMI) is a wholly-owned subsidiary of Canadian brewer, John Labatt, Ltd. (Labatt). OMI is an Iowa corporation with its principal place of business in Minnesota. During the period from 1985 to 1992, OMI purportedly held two United States patents covering the process for making large-granule wheat starch (LGS) and the process for making carbonless paper from LGS. On November 6, 1986, Manildra Milling Corporation, a Kansas Corporation and OMI's chief competitor in the LGS market, filed suit against OMI in the United States District Court for the District of Kansas seeking, inter alia, a declaration that OMI did not hold valid and enforceable patents covering the process for producing LGS and the process for producing carbonless paper from LGS.

Between 1986 and 1990, OMI vigorously defended the patent suit. During this four-year period, OMI and Manildra conducted substantial discovery and engaged in settlement discussions. On November 5, 1990, Labatt's general counsel retained an additional attorney to act as lead trial counsel in the case. The new attorney inquired whether Labatt's insurance would cover the costs of defending the case and whether OMI had notified its carriers of the lawsuit. Although Labatt is a sophisticated, multinational corporation with in-house legal counsel and an in-house risk management department, no one in the company had considered whether the cost of defending the suit was covered under any of the company's numerous insurance policies.

OMI notified Zurich Insurance Company, Royal Insurance Company of Canada (Royal) and Seaboard Surety Company of Canada (Seaboard) of the patent infringement suit on November 26, 1990, less than four months before trial. OMI notified Royal Indemnity Company approximately six months later. The insurance companies denied coverage. The companies first asserted that Manildra's claims were not covered under the policies issued to Labatt. In the alternative, the companies denied coverage on the ground that OMI's four-year delay violated the provisions in the insurance contracts requiring prompt notice of any claims covered by the policies.

On cross-motions for summary judgment, the district court concluded that the claims asserted against OMI fell within the scope of the policies issued to OMI. However, the district court concluded that OMI's egregious delay in notifying the insurance companies violated the policies' notice provisions. Accordingly, the district court concluded that the companies were not obligated to defend the case.

On appeal, OMI argues that the district court erroneously concluded that the insurance companies ¹ were prejudiced by OMI's late notice. In the alternative, OMI argues that a disputed issue of material fact exists regarding prejudice, and therefore, the district court improperly decided the issue on summary judgment.

The insurance companies cross-appeal, contending that the district court erroneously denied their Fed.R.Civ.P. 12(b)(2) motion to dismiss for lack of personal jurisdiction. Specifically, Defendants contend that the district court's exercise of personal jurisdiction over them violated the Kansas long-arm statute and the Due Process Clause of the Fifth Amendment. Defendants, however, urge us to reach their cross-appeal only if we decide in favor of Plaintiff on the merits of its appeal. We are unable to comply with this request. Because a court without jurisdiction over the parties cannot render a valid judgment, we must address Defendants' personal jurisdiction argument before reaching the merits of the case. Leney v. Plum Grove Bank, 670 F.2d 878, 879 (10th Cir.1982) (court must consider cross-appeal on personal jurisdiction before reaching merits of case.). Our jurisdiction arises under 28 U.S.C. § 1291. We conclude that the district court's exercise of personal jurisdiction over Defendants deprived them of the due process rights guaranteed by the Constitution. Accordingly, we reverse and remand.

I. Jurisdiction

"Because the Kansas long-arm statute is construed liberally so as to allow jurisdiction to the full extent permitted by due process, we proceed directly to the constitutional issue." Federated Rural Electric Ins. Corp. v. Kootenai Electric Coop., 17 F.3d 1302, 1305 (10th Cir.1994) (internal citation omitted) (citing Volt Delta Resources, Inc. v. Devine, 241 Kan. 775, 740 P.2d 1089, 1092 (1987)). "The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful 'contacts ties, or relations.' " Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). Therefore, a "court may exercise personal jurisdiction over a nonresident defendant only so long as there exist 'minimum contacts' between the defendant and the forum state." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S.Ct. 559, 62 L.Ed.2d 490 (1979). The requirement that "minimum contacts" be present protects a defendant, who has no meaningful contact with a state, from the burdens of defending a lawsuit far from home in a forum where the substantive and procedural laws may be quite different from those with which the litigant is familiar. See id. at 292, 100 S.Ct. 559. Moreover, "it acts to ensure that the States, through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system." Id.

The "minimum contacts" standard may be met in two ways. First, a court may, consistent with due process, assert specific jurisdiction over a nonresident defendant "if the defendant has 'purposefully directed' his activities at residents of the forum, and the litigation results from alleged injuries that 'arise out of or relate to' those activities." Burger King, 471 U.S. at 472, 105 S.Ct. 2174 (internal quotations omitted). Where a court's exercise of jurisdiction does not directly arise from a defendant's forum-related activities, the court may nonetheless maintain general personal jurisdiction over the defendant based on the defendant's general business contacts with the forum state. Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 415, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984). However, "[b]ecause general jurisdiction is not related to the events giving rise to the suit, courts impose a more stringent minimum contacts test, requiring the plaintiff to demonstrate the defendant's 'continuous and systematic general business contacts.' " Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir.1996) (quoting Helicopteros, 466 U.S. at 416, 104 S.Ct. 1868.).

In this case, Plaintiff concedes that the district court could not maintain general personal jurisdiction over Defendants. Aplt's Resp. Br. at 35. Accordingly, we review Defendants' contacts with the forum to determine whether the district court's exercise of specific personal jurisdiction over Defendants offends due process. In doing so, we resolve all factual disputes in favor of Plaintiff and review the district court's jurisdictional ruling de novo. Kuenzle, 102 F.3d at 456.

"The Plaintiff bears the burden of establishing personal jurisdiction over the defendant." Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir.1988). When a district court rules on a Fed.R.Civ.P. 12(b)(2) motion to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, as in this case, the plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion. Kuenzle v. HTM Sport-Und Freizeitgerate AG, 102 F.3d 453, 456 (10th Cir.1996). The plaintiff may make this prima facie showing by demonstrating, via affidavit or other written materials, facts that if true would support jurisdiction over the defendant. In order to defeat a plaintiff's prima facie showing of jurisdiction, a defendant must present a compelling case demonstrating "that the presence of some other considerations would render jurisdiction unreasonable." Burger King, 471 U.S. at 477, 105 S.Ct. 2174; see also Rambo, 839 F.2d at 1419 n. 6.

Our specific jurisdiction inquiry is two-fold. First, we must determine whether the defendant has such minimum contacts with the forum state "that he should reasonably anticipate being haled into court there." World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. 559. Within this inquiry we must determine whether the defendant purposefully directed its activities at residents of the forum, Burger King, 471 U.S. at 472, 105 S.Ct. 2174, and whether the plaintiff's claim arises out of or results from "actions by the defendant himself that create a substantial connection with the forum state." Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102, 109, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987) (internal quotations omitted) (emphasis in the original). Second if the defendant's actions create sufficient minimum contacts, we must then consider...