Ganis Corp. of California v. Jackson

• Decision Date: 19 May 1986
• Docket Number: Civ. A. No. MBD 85-819-C.
• Citation: 635 F. Supp. 311
• Parties: GANIS CORPORATION OF CALIFORNIA, a California Corporation, Plaintiff, v. Neil D. JACKSON, an individual, and Ann E. Jackson, an individual, Defendants.
• Court: U.S. District Court — District of Massachusetts

635 F. Supp. 311

GANIS CORPORATION OF CALIFORNIA, a California Corporation, Plaintiff, v. Neil D. JACKSON, an individual, and Ann E. Jackson, an individual, Defendants.

Civ. A. No. MBD 85-819-C.

United States District Court, D. Massachusetts.

May 19, 1986.

G. Richard Shell, Hill & Barlow, Boston, Mass., for plaintiff.

Stephen A. Hopkins, Paul Killeen, Sherburne, Powers & Needham, Boston, Mass., for defendants.

MEMORANDUM

CAFFREY, Chief Judge.

This is a civil action to recover full payment on an installment loan which is before this Court on the defendants' motion for relief from judgment, filed pursuant to Fed.R.Civ.P. 60(b)(4). On March 8, 1985, the plaintiff, Ganis Corporation ("Ganis") commenced this action against the defendants, Ann E. and Neil D. Jackson ("the Jacksons"), in the United States District Court for the Central District of California. The Jacksons received actual notice of the suit but did not enter an appearance in the action. On July 23, 1985, the California federal court entered a default judgment against the defendants. Pursuant to 28 U.S.C. § 1963, Ganis registered that judgment in the United States District Court for the District of Massachusetts and an execution issued. The defendants now seek to vacate the judgment entered in the California court, claiming that the judgment is void because it was entered by default in a court which had no personal jurisdiction over them.

Ganis is a California corporation with its principal place of business in Newport Beach, California. Ganis is in the business of procuring retail loans for banks and for savings and loans institutions, and also occasionally lends money to borrowers itself. The Jacksons are residents of Massachusetts. Neil D. Jackson is a physician employed by Massachusetts General Hospital; his wife, Ann E. Jackson, works as his secretary. Neither of the defendants own any real or personal property located in California, nor have they ever lived in that state.

In December of 1984, Paul Garfinkel, a Florida resident, telephoned Dr. Jackson in Massachusetts to discuss the possibility of the Jacksons purchasing a fishing vessel. Jackson had known Garfinkel for some years as a tax attorney engaged in the business of arranging tax sheltered investments and had done business with him in the past. Prior to this phone call, in the spring of 1984, the Jacksons had furnished their tax returns to Garfinkel, presumably because they wanted to participate in one of the tax shelter investments in pleasure and fishing boats that the Jacksons knew Garfinkel was involved in setting up and operating.

Following the telephone conversation between Garfinkel and Dr. Jackson, Garfinkel sent various documents to the Jacksons at their home in Massachusetts pertaining to the tax shelter investment they had discussed. The deal provided that the Jacksons would purchase a fishing boat which would be leased to Garfinkel's firm, Inter Island Charters, Inc., and that charter fees would service the loan necessary to purchase the boat. Garfinkel agreed to obtain the necessary financing for the Jacksons.

Among the financing documents that Garfinkel sent the Jacksons were the "Installment Loan Note" ("Note") and the "Security Agreement" which are central to this case. The Note, in which the Jacksons promised to pay Ganis $405,600, is on a preprinted form with "Ganis Corporation" and its logo printed at the top. It is dated December 15, 1984 and designates Newport Beach under the caption "City in California" as its place of origin. The Note provides, inter alia, that payment on the note will be made to Ganis at its main office in Newport Beach, California. Installment payments were due monthly for a period of five years, at the end of which the remaining balance was due in a final balloon payment. The Security Agreement, also on a Ganis form, granted to "Ganis Corporation, 620 Newport Center Drive, Newport Beach, CA 92660" a security interest in a 1984 Trans/Carib Yacht, model and serial number listed, moored in Boston, Massachusetts. The Security Agreement provides, in relevant part, that Ganis has "the rights and remedies of a secured party under the California Commerical Code" and that the agreement was "signed in, and shall be governed by the laws of, the State of California." Other documents sent by Garfinkel to the Jacksons included a "Truth in Lending Disclosure Statement" and a "Truth in Lending Disclosure Statement Itemization of Amount Financed;" both of these documents had Ganis' name and address at the top, and the latter authorized Ganis to pay the loan proceeds to Trans-Carib Yachts, Inc. The documents were either signed or initialed by both of the Jacksons. The executed documents were sent to Garfinkel in Florida and thereafter transmitted to Ganis in California.¹

Ganis first became involved in this transaction in November of 1984, when it received a request from a company known as Seagate, Inc. of League City, Texas ("Seagate") to provide financing before the end of the 1984 tax year for the Jacksons' purchase of a new boat. Seagate forwarded to Ganis financial information about the Jacksons, including a loan application form, and the Jacksons' 1981, 1982, and 1983 tax returns. Ganis then proceeded to verify this financial information. On November 29, 1984, Ganis mailed financial documents relating to the Jacksons' boat loan to a Mr. John LeBeau, a Massachusetts bank officer, who, Ganis believed, was representing the Jacksons in the matter. Finding the documents incomplete, LeBeau returned them to Ganis. Early in December 1984, Ganis forwarded another set of documents concerning the Jackson loan to Seagate for final completion and transmittal to the Jacksons. These documents were executed by the Jacksons.

Upon receipt of the documents signed by the Jacksons, Ganis sent a $390,000 check on December 21, 1984 to Trans-Carib Yachts, Inc. in Florida, as the Jacksons had directed it to do in the Truth in Lending Disclosure Statement Itemization of Amount Financed. On December 27, 1984, Peter Ceglio, a Ganis employee, telephoned Dr. Jackson at his home in Massachusetts to discuss the loan. During that conversation, Dr. Jackson told Ceglio to contact Garfinkel and Andrew Garcia, the persons in charge of the deal, in Florida with regard to matters concerning the boat.

On January 9, 1985, Ganis sent the Jacksons their first monthly statement, requesting the first payment on the loan by January 15, 1985. When it did not receive the payment, Ganis telephoned Jackson, who stated that Garfinkel's company, Inter Island Charters, Inc., was to make the installment payments and that he, Dr. Jackson, would find out why the first payment was late. According to Ganis, Jackson also stated that Garcia and Garfinkel were his financial advisors.² This was the first Ganis had heard of Garfinkel. After Jackson called Garfinkel, Ganis received a check to cover the payment, made on Inter Island Charter's account, signed by Garcia.

Late in January, 1985, Ganis learned from Seagate that the boat securing the Jackson loan possibly did not exist. Ganis therefore made a written demand on the Jacksons to produce the boat for inspection. A series of telephone calls ensued between Ganis and the Jacksons. Finally, on February 25, 1985, Ganis formally demanded full payment of the loan. Ganis subsequently discovered that the boat designated as security for the loan had never been completely built. Ganis instituted a suit against the Jacksons in the United States District Court for the Central District of California and obtained a default judgment.

The Jacksons contend that the California court lacked personal jurisdiction over them and that therefore the California judgment is void. In an action where a federal court's jurisdiction is based on diversity of citizenship, a party's amenability to suit is determined by reference to the law of the state in which the federal court sits. E.g. Thomas P. Gonzalez Corp. v. Consejo Nacional de Produccion de Costa Rica, 614 F.2d 1247, 1250 (9th Cir.1980). California law therefore governs whether the California district court had personal jurisdiction over the Jacksons. California's long-arm statute provides: "A court of this state may exercise jurisdiction on any basis not inconsistent with the constitution of this state or of the United States." Cal. Code Civ.P. § 410.10. California and federal limits on the exercise of personal jurisdiction are therefore coextensive, and the question is whether the California district court's exercise of jurisdiction over the Jacksons complied with due process. See Haisten v. Grass Valley Medical Reimbursement Fund, 784 F.2d 1392, 1396 (9th Cir.1986).

Consistent with principles of due process, a court may exercise jurisdiction over a nonresident defendant as long as the defendant has sufficient minimum contacts with the forum state that 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). Even if a nonresident defendant's activities in a forum are not pervasive enough to justify the exercise of general jurisdiction over him, a forum may still exercise specific personal jurisdiction over a nonresident who purposefully directs his activities toward residents of the forum and the cause of action results from alleged injuries that arise out of or relate to those activities. Burger King Corp. v. Rudzewicz, ___ U.S. ___, 105 S.Ct. 2174, 2182, 85 L.Ed.2d 528 (1985). Exercise of jurisdiction in such a case results from a state's interest in providing its residents with a convenient forum for redressing injuries inflicted by nonresidents. Id. 105 S.Ct. at 2183. It also reflects a sense that out-of-state individuals who derive economic benefit from their activites in a state should have to account for the consequences of their acts within that state. Id.

The...