Bank of Montreal v. Kough

• Decision Date: 28 April 1977
• Docket Number: No. C-76-1307-CBR.,C-76-1307-CBR.
• Parties: BANK OF MONTREAL, a Foreign Corporation, Plaintiff, v. Jack KOUGH, also known as John Keller Kough, Defendant.
• Court: U.S. District Court — Northern District of California

430 F. Supp. 1243

BANK OF MONTREAL, a Foreign Corporation, Plaintiff, v. Jack KOUGH, also known as John Keller Kough, Defendant.

No. C-76-1307-CBR.

United States District Court, N. D. California.

April 28, 1977.

COPYRIGHT MATERIAL OMITTED

Park, Swaner & Leslie, Arthur A. Park, Jr., Cooley, Godward, Castro, Huddleson & Tatum, Frank D. Tatum, Jr., Craig H. Casebeer, San Francisco, Cal., for plaintiff.

Rusconi, Foster & Thomas, J. Robert Foster, Morgan Hill, Cal., for defendant.

MEMORANDUM OF OPINION

RENFREW, District Judge.

This case involves a foreign corporation, plaintiff Bank of Montreal ("Bank"), and a California resident, defendant Jack Kough also known as John Keller Kough ("Kough"). Cross-motions for summary judgment are presently before the Court and there appearing no material facts in issue, the matter is ripe for determination.

The case arose out of a breach of contract of guarantee. Kough is on the Board of Directors of Arvee Cedar Mills, Ltd., located in British Columbia, Canada. The parties admit that on August 8, 1973, the Bank entered into guarantee agreements with Kough and with one Merlin William Thompson, pursuant to which each agreed to guarantee the payment of all present and future debts of Arvee Cedar Mills, Ltd., to the extent of $718,000 plus interest from date of demand for payment. The guarantees were given by Kough and Thompson in return for the Bank's agreement to do business with Arvee Cedar Mills, Ltd.

The Bank subsequently brought an action on August 14, 1975, for breach of contract in the Supreme Court of British Columbia. The Bank alleged that there was due and owing $769,000 from Arvee Cedar Mills, Ltd., and that defendant Kough, as well as Thompson, as signatories to the guarantee contract were jointly and severally liable for $842,000.

On November 23, 1975, Kough was personally served in Morgan Hill, California, with a Summons and Notice of Concurrent Writ of Summons from the Supreme Court of British Columbia. In the papers served, Kough was informed of the charges against him and was instructed to enter an appearance within 21 days or face a possible default judgment. Kough did not appear in British Columbia and a default judgment was entered against him on January 16, 1976, in the amount of $842,278.75.

Thereafter, the Bank commenced the present action for foreign money-judgment against Kough in this Court on June 25, 1976. Plaintiff asked for the full amount of the British Columbia judgment plus 5% interest from the date of judgment. Jurisdiction is based on diversity and the amount in controversy is greater than $10,000. 28 U.S.C. § 1332.

In his Answer and Counterclaims filed July 30, 1976, defendant Kough alleged failure to state a claim upon which relief can be granted, denied plaintiff's averments relating to the Canadian judgment, and denied that the judgment was "duly rendered" because he never appeared and no original process or summons was served on him in British Columbia. Kough further alleged that plaintiff represented to him that the extent of Kough's personal liability would be limited to $250,000, that Kough was signing as an officer and director of Arvee Cedar Mills, Ltd., and that in return for the guarantee, plaintiff would extend long-term financing for the repayment of $718,000 already extended by the date of execution of the contract for at least three years in return for a guarantee of $250,000 secured by $380,000 worth of IBM stock. Defendant Kough admits, however, that the written contract made him liable for $718,000 at 7¾% interest. The Bank alleges interest at 9¾%. Kough alleged that the Bank failed to extend long-term financing to Arvee Cedar Mills, Ltd., and that the Bank materially altered the agreement between itself and Kough by extending Arvee's payment deadline, increasing the interest rate, and accepting payments from Arvee, all without Kough's knowledge.

Defendant makes three counterclaims alleging fraud and tortious interference with a business interest.

On December 17, 1976, cross-motions for summary judgment were filed by the parties. The main issues raised on the cross-motions for summary judgment are (1) whether Kough agreed to submit to the personal jurisdiction of the courts of British Columbia when he signed the guarantee; (2) whether there are other bases of personal jurisdiction over Kough that this Court will recognize; (3) whether other considerations would prevent recognition of the foreign judgment if it is found that the British Columbia court had personal jurisdiction; and (4) whether defendant's counterclaims should be dismissed as res judicata. Because this is a diversity case, California substantive law will be applied to determine the effect of the British Columbia judgment. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

California has adopted the Uniform Foreign Money-Judgments Recognition Act which governs this action. California Code of Civil Procedure ("C.C.P.") §§ 1713 et seq. Under these sections, a foreign money-judgment which is final and conclusive and enforceable where rendered is conclusive between the parties to the extent that it grants a recovery of a sum of money. The foreign judgment is enforceable in the same manner as the judgment of a sister state which is entitled to full faith and credit. C.C.P. §§ 1713.2, 1713.3. However, a foreign judgment is not conclusive in California if the foreign court did not have personal jurisdiction over the defendant (C.C.P. § 1713.4(a)(2)). It need not be recognized if (1) the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend (C.C.P. § 1713.4(b)(1)); (2) the judgment was obtained by extrinsic fraud (C.C.P. § 1713.4(b)(2)); or (3) in the case of jurisdiction based only on personal service, the foreign court was a seriously inconvenient forum for the trial of the action (C.C.P. § 1713.4(b)(6)). Other provisions for non-conclusiveness or nonrecognition of foreign judgments are not relevant to this action.

However, a foreign judgment will not be refused recognition for lack of personal jurisdiction if, inter alia, "the defendant prior to the commencement of the proceedings had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved" (C.C.P. § 1713.5(a)(3)). Nor will the judgment be refused recognition for lack of personal jurisdiction if "the defendant had a business office in the foreign state and the proceedings in the foreign court involved a cause of action arising out of business done by the defendant through that office in the foreign state" (C.C.P. § 1713.5(a)(5)). Finally, "the courts of this state may recognize other bases of jurisdiction" (C.C.P. § 1713.5(b)).

I

First, it is necessary to determine whether Kough agreed to submit to the personal jurisdiction of the courts of British Columbia. Plaintiff contends that the following paragraph contained in the contract constitutes an agreement to submit to the jurisdiction of the foreign court under C.C.P. § 1713.5(a)(3):

"THIS CONTRACT shall be construed in accordance with the laws of the Province of BRITISH COLUMBIA and for the purpose of legal proceedings this contract shall be deemed to have been made in the said Province and to be performed there, and the Courts of that Province shall have jurisdiction over all disputes which may arise under this contract, provided always that nothing herein contained shall prevent the Bank from proceeding at its election against the undersigned in the Courts of any other Province or country."

The paragraph appears in a form contract with the identity of the Province completed by hand. Kough points out, and the Court agrees, that the Bank could easily have included a clause in the contract specifically stating that Kough agreed to submit to the personal jurisdiction of the courts of British Columbia if that had been its purpose. The Bank appears to concede this point in its Supplemental Memo of Points and Authorities at page 5.

Earlier, the Bank had cited a New York case interpreting the same section of the Uniform Foreign Money-Judgments Recognition Act which has also been adopted by the State of New York. New Central Jute Mills Co. v. City Trade and Industry, Ltd., 65 Misc.2d 653, 318 N.Y.S.2d 980 (N.Y.Sup. Ct.1971). In that case, the court held that the foreign judgment would be recognized because defendant had agreed to submit to the Indian Arbitration Act. 318 N.Y.S.2d at 982. Kough argues, and the Court agrees, that this case should be distinguished from the case at bar because Jute Mills involved two large companies who had negotiated a contract in which they agreed to submit to binding arbitration. The parties bargained for the jurisdiction clause, and there was specific consent to a particular Arbitration Act which would govern the resolution of the parties' disputes. In the case at bar, there was only a general agreement that the contract disputes would be governed by the law of British Columbia when it would have been so easy for the Bank to insert a clause in which Kough agreed to submit to the personal jurisdiction of the British Columbia courts.

Thus, the paragraph in the contract is not sufficient for the Court to find that Kough agreed to submit to personal jurisdiction of the courts of British Columbia under C.C.P. § 1713.5(a)(3).

II

The second issue to be decided is whether there are other bases of jurisdiction over the defendant in accordance with C.C.P. § 1713.5(b). These other bases of jurisdiction must be, at a minimum, in compliance with the requirements of traditional notions of fair play and substantial justice under the due process clause of the United States Constitution. International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). If the procedure of the court of British Columbia satisfied these due process requirements, then...