Corporate Inv. Business Brokers v. Melcher

• Decision Date: 12 August 1987
• Docket Number: No. 86-2524,86-2524
• Citation: 824 F.2d 786
• Parties: CORPORATE INVESTMENT BUSINESS BROKERS, an Arizona corporation, Plaintiff-Appellant, v. Albert MELCHER, husband; Rosemary Melcher, wife; Melcher & Associates, dba Corp. Investment Business Brokers, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 786

824 F.2d 786

CORPORATE INVESTMENT BUSINESS BROKERS, an Arizona corporation, Plaintiff-Appellant, v. Albert MELCHER, husband; Rosemary Melcher, wife; Melcher &amp Associates, dba Corp. Investment Business Brokers Defendants-Appellees.

No. 86-2524.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 9, 1987.

Decided Aug. 12, 1987.

David F. Gaona, Phoenix, Ariz., for defendants-appellees.

Roger L. Cohen, Phoenix, Ariz., for plaintiff-appellant.

Appeal from the United States District Court for the District of Arizona.

Before FLETCHER, BEEZER and THOMPSON, Circuit Judges.

PER CURIAM:

Corporate Investment Business Brokers, Inc. ("CIBB") appeals from the dismissal of its Arizona diversity action against its franchisee, Melcher, a Colorado defendant, for lack of personal jurisdiction. We reverse.

BACKGROUND

CIBB is an Arizona corporation that sells and administers franchises for business brokerages on a nationwide basis. Franchisees of CIBB are licensed to use the CIBB trade name, logo, and service marks for seven years. Franchisees participate in a training program in Arizona, and are provided with training for salespeople and on-the-site training upon opening, a CIBB operations manual, and a continuing consultation service. In return, CIBB charges an initial fee; thereafter franchisees are required to submit periodic progress reports and listing summaries and to pay royalties and advertising fees based on their gross sales.

Albert and Rosemary Melcher are Colorado residents and Melcher & Associates is a Colorado corporation. We refer to them collectively as "Melcher." In 1982, Melcher, in response to a CIBB advertisement, contacted CIBB by telephone. Later, Melcher met with CIBB representatives in Arizona and was provided with documents and information relating to the CIBB franchise program. Contract negotiations were conducted between Colorado and Arizona by mail and telephone. A franchise agreement was executed in August of 1982 in Colorado. The agreement provided that Arizona law would govern disputes arising under it. Melcher's CIBB franchise operates as Melcher & Associates in Denver, Colorado.

Relying on the Arizona long-arm statute, CIBB filed suit against Melcher in Arizona state court in November, 1985. CIBB alleged that Melcher breached the franchise agreement in failing to pay $14,222.78 in royalties and advertising fees due for the period April to October 1985. Melcher removed the case to the United States District Court for the District of Arizona on the basis of diversity. 28 U.S.C. Sec. 1441(a). The district court granted Melcher's motion to dismiss for lack of personal jurisdiction holding that, although Melcher had sufficient contacts with Arizona, the exercise of personal jurisdiction over him would nonetheless be unreasonable.

DISCUSSION

Because the underlying facts are undisputed, the district court's determination that it could not exercise personal jurisdiction over Melcher without violating due process is subject to de novo review. Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir.1987); Hirsh v. Blue Cross, Blue Shield, 800 F.2d 1474, 1477 (9th Cir.1986). Also reviewed de novo is the court's interpretation of Arizona law regarding personal jurisdiction. Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 834, 838 (9th Cir.1986); Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1402 (1986).

Although the burden of establishing personal jurisdiction is on the plaintiff, the plaintiff's allegations are deemed to be correct, and "[w]here, as in this case, the trial court ruled on the issue relying on affidavits and discovery materials without holding an evidentiary hearing, dismissal is appropriate only if the plaintiff has not made a prima facie showing of personal jurisdiction." Fields v. Sedwick Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir.1986).

Because this is a diversity case, any assertion of personal jurisdiction must satisfy Arizona state law requirements as well as afford due process. Lake, 817 F.2d at 1420; Decker Coal Co., 805 F.2d at 838.

Arizona Law

The Arizona long-arm statute asserts personal jurisdiction "[w]hen the defendant ... is a person, partnership, [or] corporation ... which has caused an event to occur in this state out of which the claim which is the subject of the complaint arose." 16 Ariz.Rev.Stat.Ann.R.Civ.P. 4(e)(2). The Arizona courts apply a two part test in determining whether jurisdiction exists under the statute:

1. Did defendant cause an event to occur in Arizona out of which the claim arose?

2. If the answer to the first question is in the affirmative, did defendant have sufficient minimum contacts with Arizona to justify the assumption by an Arizona court of personal jurisdiction.

Rollins v. Vidmar, 147 Ariz. 494, 711 P.2d 633, 634 (1985).

It is clear that Arizona would consider the breach of a contract with an Arizona resident, which is partially performed in Arizona, a sufficient "event" to trigger the second-level due process analysis. ¹ See Manufacturers' Lease Plans, Inc. v. Alverson Draughon College, 115 Ariz. 358, 565 P.2d 864, 865-67 (1977) (assignment by California lessor to Arizona corporation of its rights under agreement with Alabama lessee sufficient where lease governed by Arizona law); Rollins, 711 P.2d at 634-35 (holding that breach by Californian of contract with Arizona resident, negotiated while Arizonan was in Illinois, was Arizona event where Arizonan's performance occurred in Arizona and payments were made in Arizona); Holmes-Tuttle Broadway Ford v. Concrete Pumping, Inc., 131 Ariz. 232, 639 P.2d 1057, 1060 (1982) (ordering product from Arizona plaintiff and intending not to pay for it provides sufficient minimum contacts); Powder Horn Nursery, Inc. v. Soil & Plant Laboratory, Inc., 514 P.2d at 273-74 (Ariz.App.1973) (holding that "it is not the occurrence of the initiating act of causation which is required in this state, but rather that the resulting event or effect be in this state," and that "in rendering contractual services to [the Arizona] plaintiff, the defendant has caused an event to occur in Arizona").

The second prong of Arizona's personal jurisdiction test is a recognition that the state must not violate a defendant's due process rights. In order to resolve both the state and the constitutional issues in this case, it is necessary to decide whether the exercise of jurisdiction over Melcher in Arizona exceeds this constitutional limitation.

Due Process

The Supreme Court recently discussed the constitutional limitations on the exercise of personal jurisdiction:

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." International Shoe Co. v. Washington, 326 U.S., at 319, 66 S.Ct. at 160....

Where a forum seeks to assert specific jurisdiction ² over an out-of-state defendant ... [the]' "fair warning" requirement is satisfied if the defendant has "purposefully directed" his activities at residents of the forum, Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S.Ct. 1473, 1478, 79 L.Ed.2d 790 (1984), and the litigation results from alleged injuries that "arise out of or relate to" those activities, Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984).

Burger King Corp. v. Rudzewicz (Burger King), 471 U.S. 462, 471-73, 105 S.Ct. 2174, 2181-82, 85 L.Ed.2d 528 (1985) (footnotes omitted).

Our court has analyzed these constitutional requirements in terms of a three-part test:

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.

Haisten, 784 F.2d at 1397 (emphasis added); see also Lake, 817 F.2d at 1421. Application of the test here satisfies us that jurisdiction over Melcher in Arizona would not constitute a violation of due process.

1. Purposeful Availment

The Supreme Court's recent decision in Burger King, which involves the exercise of jurisdiction over a franchisee in the franchisor's forum, is particularly relevant. ³ The Burger King Court refused to find that personal jurisdiction could be based solely on the existence of a contract between a defendant and a resident of the forum state. 471 U.S. at 478, 105 S.Ct. at 2185. It insisted that past and future consequences of the contractual arrangement involving a resident of the forum state be evaluated. Id. at 479, 105 S.Ct. at 2185. The focus is on the relationship between the parties:

[W]here the defendant ... has created "continuing obligations" between himself and residents of the forum ... he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by "the benefits and protections" of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.

Burger King, 471 U.S. at 475-76, 105 S.Ct. at 2183-84 (citations omitted) (emphasis added).

In its application of the test for purposeful availment, the Burger King court recognized that wire and phone transmission make possible impact on the forum state without the physical presence of the actor. Id. at 476, 105 S.Ct. at 2184; Hirsh, 800 F.2d at 1478. Accordingly, physical contacts in the forum are not required so long as the defendant "purposefully directs" his commercial activities to forum residents. Burger King, 471 U.S. at 476, 105 S.Ct. at 2184; Haisten, 784 F.2d at 1399. There can be no question but that Melcher, in forming a long-term franchise...