F.D.I.C. v. Hiatt

• Decision Date: 06 April 1994
• Docket Number: No. 20379,20379
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. James A. HIATT and Laurel Ann Hiatt, Defendants-Appellants.
• Court: New Mexico Supreme Court

Page 879

872 P.2d 879

117 N.M. 461

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. James A. HIATT and Laurel Ann Hiatt, Defendants-Appellants.

No. 20379.

Supreme Court of New Mexico.

April 6, 1994.

[117 N.M. 462] Tucker Law Firm, P.C., Steven L. Tucker, Santa Fe, for defendants-appellants.

Keleher & McLeod, P.A., Robert H. Clark, Albuquerque, for plaintiff-appellee.

OPINION

BACA, Justice.

Defendants-Appellants, James A. Hiatt and Laurel Ann Hiatt (the Hiatts), appeal the denial of their motion to set aside a default judgment entered against them. The Hiatts argued to the trial court that the judgment should have been set aside under SCRA 1986, 1-060(B)(4) (Repl.Pamp.1992), because the trial court lacked personal jurisdiction over them when it entered the default judgment, and that, consequently, the judgment was void. On appeal, the Hiatts present a single issue: Whether the trial court had personal jurisdiction over them when it entered the default judgment. We review this case pursuant to SCRA 1986, 12-102(A)(1) (Repl.Pamp.1992), and reverse.

I

This case arose out of two loans made to the Deerfield Development Corporation (Deerfield), a New Mexico corporation, by First National Bank of Lea County (the Bank). Both loans were made pursuant to an agreement, which was executed on June 28, 1982, in Lea County, New Mexico. The loan principal was for $735,000. The agreement was also signed by four guarantors: Thomas and Janet David, who were residents of New Mexico, and the Hiatts, who were residents of California. After the agreement was signed on behalf of the Bank and Deerfield and by the Davids as guarantors on June 28, it was forwarded to California, where it was signed by the Hiatts as guarantors on July 9, 1982. On the same day, the Hiatts also signed a guaranty agreement, which was expressly incorporated by reference into the loan agreement, guaranteeing Deerfield's payment of loans made pursuant to the loan agreement in an amount not to exceed $735,500. The guaranty agreement recited that the Bank was unwilling to extend credit to Deerfield unless the guaranty was duly executed by the Hiatts. Mr. David, an officer of Deerfield, had requested the Hiatts to guarantee the loan in early 1982. Pursuant to the terms of the loan agreement, Deerfield gave the Bank a promissory note dated June 28, 1982, in the amount of $640,000, due and payable in full, with interest, on June 28, 1983. Contemporaneously with its execution of the promissory note, Deerfield executed and delivered to the Bank a mortgage on real property in Lea County as security for payment of the note. The note indicated that it was also secured by the Davids' and the Hiatts' guarantees, as well as by an assignment of a certificate of deposit for $140,000 and an assignment of life insurance on Mr. David's life.

Some payments were made on the promissory note. On December 16, 1982, the Bank made an additional loan to Deerfield and Deerfield accordingly gave the Bank another promissory note, dated December 16, 1982, in the principal amount of $211,000, due and payable on December 16, 1983. The second note did not mention on its face whether it was secured by the Hiatts' guaranty and the record fails to disclose that the Hiatts guaranteed the second loan. Sometime before February 6, 1984, Deerfield defaulted on both notes. The total amount owing on the first note as of February 6, 1984, was $255,306.23. The total amount owing on the second note as of the same date was $228,452.50 and the total on both notes was $483,748.73. Although the complaint ultimately filed by the Bank, which by then had changed its name to First City National Bank (First City), alleged that the second loan was made pursuant to the terms of the June 28, 1982, loan agreement, we do not assume this allegation to be true because we find that the Hiatts are not subject to personal jurisdiction in New Mexico courts, and, therefore, will not further discuss the second loan.

On February 20, 1984, First City¹ filed a complaint in the District Court of Lea County, New Mexico, naming Deerfield, as well as various parties who had signed guarantees on behalf of Deerfield, or who had an interest of record in the subject real property, as defendants. On March 19, 1984, the Hiatts were personally served in California with the summons and complaint. The Hiatts did not file an answer or any other responsive pleading and did not enter an appearance. On September 19, 1986, the case proceeded to judgment against all parties. On October 14, 1988, a deficiency judgment was entered in favor of the FDIC and against the Hiatts in the sum of $580,692.82.

On February 12, 1991, the Hiatts filed a motion to set aside the judgment under SCRA 1986, 1-060(B). The Hiatts argued in their motion that the judgment was void because the court lacked personal jurisdiction over them.

The trial court in its findings of fact and conclusions of law determined that the Hiatts had been personally served in California with a summons and a copy of the complaint on March 19, 1984. The trial court found that the Hiatts neither pleaded nor otherwise defended in the case until February 12, 1991, when they filed their motion to set aside the default judgment entered against them on September 19, 1986. The trial court also made additional findings and conclusions to support its judgment that the Hiatts had sufficient minimum contacts with New Mexico to be constitutionally subject to suit in this state.

II

The question before us is whether merely signing a guaranty in another state, by itself, subjects the guarantor to personal jurisdiction in New Mexico. In order for our courts to exercise personal jurisdiction over nonresident, out-of-state defendants, the following three-part test must be satisfied:

(1) the defendant's act must be one of the five enumerated in the long-arm statute; (2) the plaintiff's cause of action must arise from the act; and (3) minimum contacts sufficient to satisfy due process must be established by the defendant's act.

State Farm Mut. Ins. Co. v. Conyers, 109 N.M. 243, 244, 784 P.2d 986, 987 (1989) (citing Salas v. Homestake Enterprises, Inc., 106 N.M. 344, 345, 742 P.2d 1049, 1050 (1987)). The first and third step of this test have been "repeatedly equated" with the due process standard of "minimum contacts." Kathrein v. Parkview Meadows, Inc., 102 N.M. 75, 76, 691 P.2d 462, 463 (1984) (citing Telephonic, Inc. v. Rosenblum, 88 N.M. 532, 534, 543 P.2d 825, 827 (1975)). Because we have interpreted the long-arm statute as extending our personal jurisdiction as far as constitutionally permissible, United Nuclear Corp. v. General Atomic Co., 91 N.M. 41, 42, 570 P.2d 305, 306 (1977), it is not necessary to determine whether the Hiatts transacted business within New Mexico in any technical sense. When the state courts have construed the state long-arm statute as being coextensive with the requirements of due process, "the usual two-step analysis collapses into a single search for the outer limits of what due process permits." Forsythe v. Overmyer, 576 F.2d 779, 782 (9th Cir.), cert. denied, 439 U.S. 864, 99 S.Ct. 188, 58 L.Ed.2d 174 (1978).

A state court may exercise personal jurisdiction over a non-resident defendant only if there are "minimum contacts" between the defendant and the forum state. The contacts must be enough so 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) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278 (1940)). Before personal jurisdiction can be exercised, "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958).

Although it is essential that the defendant's conduct and connection with the forum state be such "that he should reasonably anticipate being haled into court there," World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980), " 'foreseeability' alone has never been a sufficient benchmark for personal jurisdiction under the Due Process Clause." Id. at 295, 100 S.Ct. at 566. In fact, this Court recently held that the purposeful availment test of Hanson is the "key focus" in analyzing minimum contacts questions. Conyers, 109 N.M. at 245, 784 P.2d at 988 (emphasis added). Therefore, our inquiry will focus on whether the transaction entered into by the Hiatts amounts to a purposeful decision by the Hiatts to participate in the local economy and to avail themselves of the benefits and protections of New Mexico law. Applying this standard, we conclude that the Hiatts' contacts were insufficient to satisfy the requirements of due process.

It is the required purposefulness on the part of the defendants, in establishing their contact with New Mexico, that is lacking in this case. The record fails to disclose that the Hiatts purposefully availed themselves of the benefits and protections of New Mexico laws. Likewise, the record does not indicate that the Hiatts anticipated that they would derive any economic benefit as a result of their guaranty. The Hiatts maintained no residence or business in New Mexico and do not own any real or personal property in New Mexico. The only contact they have had with New Mexico is to have been guarantors on a loan agreement executed in California, which was entered into pursuant to an agreement which Deerfield and First City had already worked out in New Mexico. The Hiatts "stepped into a business arrangement which [Deerfield] and [First City] had already established, and did not purposefully avail [themselves] of the 'privilege of conducting...