Flynt Distributing Co., Inc. v. Harvey

• Decision Date: 12 June 1984
• Docket Number: No. 83-5941,83-5941
• Parties: FLYNT DISTRIBUTING COMPANY, INC., Plaintiff-Appellee, v. Leon HARVEY, Alfred Harvey, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1389

734 F.2d 1389

FLYNT DISTRIBUTING COMPANY, INC., Plaintiff-Appellee, v. Leon HARVEY, Alfred Harvey, et al., Defendants-Appellants.

No. 83-5941.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 9, 1984.

Decided June 12, 1984.

Henry D. Fetter, Thomas Doniger, Stanton, Oberstein & Doniger, Los Angeles, Cal., for defendants-appellants.

Richard N. Rust, Richard Agay, Cooper, Epstein & Hurewitz, Beverly Hills, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

Before GOODWIN, SNEED and ALARCON, Circuit Judges.

ALARCON, Circuit Judge:

Leon Harvey, Alfred Harvey, et al. (the Harveys) appeal from the grant of a preliminary injunction in an action brought by Flynt Distributing Company, Inc. (Flynt) for breach of a written distribution agreement, open book account, money had and received, account stated, and an injunction. The complaint alleges that the Harveys, by failing to ship their publications for distribution and by refusing to pay for services rendered, breached the agreement in August 1982. Flynt seeks money damages in the amount of $293,656.99 plus interest and lost profits.

In support of the claim for an injunction, Flynt alleged that the Harveys were "planning to dispose of their assets and the stock in the Defendant corporations in a manner by which they would attempt to have the transferee avoid responsibility for their obligations under the Agreement." It also alleged in the complaint that Flynt would be irreparably damaged by such transfer because "the assets received in such transfer would be secreted in a manner that would make them unavailable for levy of execution." The original complaint was filed on April 18, 1983, and the first amended complaint was filed on April 27, 1983.

On May 5, 1983, Flynt filed a motion for a preliminary injunction. The Harveys filed an opposition to the granting of a preliminary injunction and a motion for dismissal for want of personal jurisdiction. On May 23, 1983, the court ordered that a preliminary injunction should issue and denied the motion for dismissal based on the affidavits submitted by both sides and oral argument by counsel. All eighteen Harvey defendants were enjoined from transferring their assets without including as an express condition of the transfer that the distribution agreement be binding on the transferee.

Notice of appeal was filed on June 2, 1983. ¹

I

The Harveys raise three issues on appeal.

One. The district court lacked in personam jurisdiction over the five defendants who were parties to the distribution agreement because of "insufficient minimum contact[s]."

Two. The district court had no jurisdiction over the thirteen defendants who did not sign the agreement.

Three. The district court erred in issuing an injunction because Flynt seeks money damages arising out of an alleged breach of contract.

We have concluded that the court had jurisdiction over each defendant but erred in granting a preliminary injunction because the facts demonstrated that the remedy at law was adequate.

We discuss each contention and the facts pertinent thereto under separate headings.

II

A. Jurisdiction Over the Signatories to the Distribution Agreement.

The Harveys are New York corporations, New York partnerships and individual residents of New York. Five of the Harvey corporations--Harvey Hits, Inc., Harvey Illustrated Humor, Inc., Harvey Picture Magazines, Inc., Harvey Publications, Inc., and Sad Sack, Inc., (the five signatories)--had an agreement with Publishers Distributing Corporation (PDC) for the nationwide distribution of their magazines. In March 1980, Flynt, a California corporation, acquired PDC and thereby became the nationwide distributor for the five signatories. On December 9, 1981, Flynt and the five signatories executed an amendment to the distribution agreement. The amendment provided that the distribution agreement would terminate on October 31, 1982.

All of the named Harvey defendants are nonresidents of California, whose only contact with the forum state arises out of the distribution agreement. The Harveys argue that the distribution agreement is an insufficient minimum contact to support the exercise of jurisdiction over them.

Whether there is a basis for the exercise of personal jurisdiction in a diversity of citizenship case depends upon two inquiries: (1) whether a state statute of the forum confers personal jurisdiction over the nonresident defendant and (2) whether the exercise of jurisdiction accords with federal constitutional principles of due process. Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1286 (9th Cir.1977). Section 410.10 of the California Code of Civil Procedure permits the exercise of jurisdiction to the extent authorized by the Constitution of the United States. Thus, the state and federal limits are coextensive. Data Disc, 557 F.2d at 1286 & n. 3. The basic federal rule is that the defendant must have certain minimum contacts with the forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945); Data Disc, 557 F.2d at 1287.

The party seeking to invoke jurisdiction has the burden of establishing that jurisdiction exists. Data Disc, 557 F.2d at 1285. Where, as here, the trial court determines that it will receive only affidavits, the plaintiff need make only a prima facie showing of jurisdictional facts. Id. If there is a dispute about the jurisdictional facts, the plaintiff will have to establish them by a preponderance of the evidence at a preliminary hearing or at trial. Id.

In determining whether the Harveys' activities that are related to Flynt's cause of action are of such a nature and quality that they support the exercise of jurisdiction, we use the following approach:

(1) The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws. (2) The claim must be one which arises out of or results from the defendant's forum-related activities. (3) Exercise of jurisdiction must be reasonable.

Data Disc, 557 F.2d at 1287.

The five signatories originally entered into the distribution agreement with another New York corporation, PDC. After Flynt acquired PDC, the five signatories extended the expiration date of the original distribution agreement in an amendment negotiated with Flynt. Although the five signatories to the December 9, 1981, amendment to the distribution agreement negotiated and signed the amendment in New York, they knew that they were negotiating with a California corporation. They intended that their magazines be distributed nationwide, and a portion of those were distributed in California. By entering into a distribution agreement with a California corporation for the distribution of their magazines in California and elsewhere, the five signatories purposefully availed themselves of that forum. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980) (if sale of a product arises from efforts of manufacturer or distributor to serve the market in other states, it is reasonable to subject the manufacturer to suit in one of those states); Taubler v. Giraud, 655 F.2d 991, 994-95 (9th Cir.1981) (breach of contract and antitrust claims against French winemaker). The breach of the distribution agreement alleged by Flynt, consisting of a failure to pay Flynt and to ship magazines to California and elsewhere, caused injury to Flynt in California. The district court could properly conclude that jurisdiction over the five signatories is reasonable. Due process does not require substantial contacts or the selection of the best forum; it requires only minimum contacts and fair play. Taubler, 655 F.2d at 996.

The five signatories purposefully availed themselves of the privilege of conducting activities in California when they entered into the distribution agreement with Flynt and may be sued in California on causes of action related to that agreement.

B. Jurisdiction Over the Thirteen Non-Signatories.

Thirteen of the Harvey defendants did not sign the agreement to ship magazines to California. Nevertheless, the district court correctly concluded that, if Leon and Alfred Harvey were the alter egos of the five signatories and of the other Harvey corporations and partnerships, jurisdiction could be asserted over them all. "[W]here a corporation is the alter ego of the stockholders so as to justify disregard of the corporate entity[,] jurisdiction over the corporation will support jurisdiction over the stockholders." Sheard v. Superior Court, 40 Cal.App.3d 207, 210, 114 Cal.Rptr. 743 (1974).

To apply the alter ego doctrine, the court must determine (1) that there is such unity of interest and ownership that the separate personalities of the corporation and the individuals no longer exist and (2) that failure to disregard the corporation would result in fraud or injustice. Watson v. Commonwealth Insurance Co., 8 Cal.2d 61, 68, 63 P.2d 295, 298 (1936). The district court required only a prima facie showing of jurisdiction. Under Data Disc, Flynt was only required to make a prima facie showing of the alter ego relationship. Flynt's affidavits showed that Leon and Alfred Harvey, the sole shareholders of the corporations and the sole partners of the partnerships, converted the assets of the various corporations and partnerships for their own use and dealt with them as if they were one. These affidavits also contained allegations that the Harveys transferred valuable assets from the five signatory corporations to the other nonsignatories. This activity left the five signatories...