Aquadrill, Inc. v. Environmental Compliance Consulting Services, Inc.

• Decision Date: 22 January 1997
• Docket Number: No. 95-1537,95-1537
• Citation: 558 N.W.2d 391
• Parties: AQUADRILL, INC., Appellee, v. ENVIRONMENTAL COMPLIANCE CONSULTING SERVICES, INC., and Claudia A. Wright, Defendants, and W. Thomas McKEE, Appellant.
• Court: Iowa Supreme Court

Page 391

558 N.W.2d 391

AQUADRILL, INC., Appellee, v. ENVIRONMENTAL COMPLIANCE CONSULTING SERVICES, INC., and Claudia A. Wright, Defendants, and W. Thomas McKEE, Appellant.

No. 95-1537.

Supreme Court of Iowa.

Jan. 22, 1997.

Martin A. Diaz of Tom Riley Law Firm, P.C., Iowa City, for appellant.

Steven E. Ballard of Leff, Haupert, Traw & Willman, L.L.P., Iowa City, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, LARSON, LAVORATO, and TERNUS, JJ.

LARSON, Justice.

Aquadrill, Inc., an Iowa corporation, sued Environmental Compliance Consulting Services, Inc. (ECCS), an Oklahoma corporation doing business in Iowa, and its two shareholders and officers. On the failure of the defendants to provide discovery information, the court entered a judgment by default against them as a sanction under Iowa Rule of Civil Procedure 134(b)(2)(C). One of the defendants, W. Thomas McKee, appealed on the grounds that the court (1) lacked personal jurisdiction over him, and (2) abused its discretion in ordering the default judgment as a sanction. We affirm.

In December 1993 Aquadrill filed a petition against ECCS asserting claims for breach of contract and conversion based on the failure of ECCS to pay for drilling services provided in Iowa by Aquadrill. In 1994 Aquadrill amended its petition to add defendants McKee and Claudia Wright, principals of ECCS, as individual defendants. The amended petition asserted claims based on breach of contract, negligent misrepresentation, and fraudulent misrepresentation.

McKee filed a motion to dismiss the petition, based on lack of personal jurisdiction over him. He asserted that he has never lived in Iowa, owns no real estate or personal property in Iowa, and that all of his visits to Iowa have been purely for business purposes, including some on behalf of ECCS. Aquadrill responded that McKee negligently and falsely represented that in the event ECCS did not pay its outstanding balance with Aquadrill McKee would personally pay it and that these contacts in Iowa were sufficient to vest an Iowa court with personal jurisdiction over McKee.

Aquadrill served requests for production of documents and interrogatories on ECCS, and by agreement of counsel, all previous discovery requests directed to ECCS would also be applicable to the additional parties, including McKee. On May 3, 1995, the district court ordered the defendants to answer certain interrogatories. The court entered a second order on May 19, 1995, ordering the defendants to produce certain documents by June 12, 1995.

The defendants failed to produce the documents, and Aquadrill filed a motion for sanctions on June 29, 1995. The court scheduled a hearing on the motion for August 4, 1995, and on that date, the defendants produced some of the documents to Aquadrill. In an order dated August 10, 1995, following a hearing on a motion for sanctions, the district court found that the defendants had willfully failed to comply with the discovery orders and entered a default judgment against them. McKee filed this appeal.

I. Personal Jurisdiction.

There is no dispute that the corporate defendant, ECCS, was subject to the jurisdiction of the State of Iowa; it was actively engaged in environmental cleanups in Iowa. The issue is whether McKee, by virtue of his contacts with Iowa, can be made to defend an action here. Meyers v. Kallestead, 476 N.W.2d 65, 66 (Iowa 1991), stated the rules for review of a ruling on a motion to dismiss for lack of personal jurisdiction:

[W]e accept as true the allegations of the petition and the contents of uncontroverted affidavits. The plaintiff has the burden to sustain the requisite jurisdiction, but when he [or she] establishes a prima facie case the defendant has the burden of producing evidence to rebut that showing. The trial court's findings of fact have the effect of a jury verdict and are subject to challenge only if not supported by substantial evidence in the record; we are not bound, however, by the trial court's application of legal principles or its conclusions of law.

(Quoting Percival v. Bankers Trust Co., 450 N.W.2d 860, 861 (Iowa 1990)).

We apply a two-step analysis in determining whether the district court appropriately exercised personal jurisdiction: (1) whether a statute or rule authorizes the exercise of jurisdiction, and (2) whether the exercise of jurisdiction would offend the due process principles in the United States Constitution. Larsen v. Scholl, 296 N.W.2d 785, 787 (Iowa 1980).

A. Authorization by statute or rule. The first question is answered by Iowa Rule of Civil Procedure 56.2, which provides in part:

Every corporation [or] individual ... that shall have the necessary minimum contact with the state of Iowa shall be subject to the jurisdiction of the courts of this state, and the courts of this state shall hold such ... individual ... amenable to suit in Iowa in every case not contrary to the provisions of the Constitution of the United States.

See also Iowa Code § 617.3 (1993) (long-arm statute authorizing service of process or original notice on nonresidents who contract with a resident of Iowa or commit a tort in Iowa ).

B. The effect on due process. In Burger King Corp. v. Rudzewicz, the United States Supreme Court stated:

[T]he Due Process Clause "gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit[.]"

Where a forum seeks to assert specific jurisdiction over an out-of-state defendant who has not consented to suit there, this "fair warning" requirement is satisfied 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[.] ... And with respect to interstate contractual obligations, we have emphasized that parties who "reach out beyond one state and create continuing relationships and obligations with citizens of another state" are subject to regulation and sanctions in the other State for the consequences of their activities.

We have noted several reasons why a forum legitimately may exercise personal jurisdiction over a nonresident who "purposefully directs" his activities toward forum residents. A State generally has a "manifest interest" in providing its residents with a convenient forum for redressing injuries inflicted by out-of-state actors. Moreover, "where individuals purposely derive benefit" from their interstate activities, it may well be unfair to allow them to escape having to account in other States for consequences that arise proximately from such activities; the Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed. And because "modern transportation and communications have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity," it usually will not be unfair to subject him to the burdens of litigating in another forum for disputes relating to such activity.

471 U.S. 462, 472-74, 105 S.Ct. 2174, 2181-83, 85 L.Ed.2d 528, 540-41 (1985) (citations omitted) (footnotes omitted) (quoting Travelers Health Ass'n v. Viriginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154, 1161 (1950), and McGee v. International Life Ins. Co., 355 U.S. 220, 222-23, 78 S.Ct. 199, 201, 2 L.Ed.2d 223, 225-26 (1957)).

To determine whether the exercise of jurisdiction offends the due process principles of the constitution, we have applied a five-factor test:

(1) the quantity of the contacts,

(2) the nature and quality of the contacts,

(3) the source and connection of the cause of action with those contacts,

(4) the interest of the forum state, and

(5) convenience.

Larsen, 296 N.W.2d at 788; accord Covia v. Robinson, 507 N.W.2d 411, 415 (Iowa 1993). The first three factors are the most important. Bankers Trust Co. v. Fidata Trust Co., 452 N.W.2d 411, 413 (Iowa 1990); Larsen, 296 N.W.2d at 788. " '[T]he critical analysis must be on the relationship among the defendant, the forum and the litigation.' " Meyers, 476 N.W.2d at 68 (quoting with approval, West Am. Ins. Co. v. Westin, Inc., 337 N.W.2d 676, 678-79 (Minn.1983)).

In resolving jurisdictional questions regarding nonresidents, based on the five factors of Larsen, we take the allegations of the petition as true. Meyers, 476 N.W.2d at 66.

(1) The quantity of contacts. As for the quantity of contacts, the affidavit of Diane E. Joslyn, vice president of Aquadrill, states that she communicated with McKee in person, on the telephone, and by mail. According to Joslyn's affidavit, during the course of some of these communications McKee represented that, if defendant ECCS did not pay its debt to Aquadrill, McKee would pay it. All communications with McKee took place while Joslyn was in Johnson County, Iowa.

(2) The nature and quality of the contacts. According to the petition and affidavits, McKee attempted to persuade Aquadrill to forebear on collection efforts against ECCS. Aquadrill alleges that McKee had a personal financial interest in supplying this information to Aquadrill and that McKee was therefore acting as an individual in his own interest, not merely as an agent of the corporation.

(3) The source and connection of the cause of action with those contacts. Aquadrill alleges that the sources of the negligent and fraudulent contacts were McKee and Wright. According to the plaintiff's petition, these contacts have a close nexus with the causes of action of negligent misrepresentation, fraudulent misrepresentation, and breach of contract. As alleged, these communications were meant to deceive, with McKee reaping the benefits of the deception.

(4) The interest of the forum state. The State of Iowa has an interest in exercising jurisdiction over a party who negligently or...