Haisten v. Grass Valley Medical Reimbursement Fund, Ltd.

• Decision Date: 17 March 1986
• Docket Number: No. 85-1876,85-1876
• Citation: 784 F.2d 1392
• Parties: Mitchell B. HAISTEN, individually and as the Administrator of the Estate of Jean E. Haisten, Plaintiff-Appellee, v. GRASS VALLEY MEDICAL REIMBURSEMENT FUND, LTD., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1392

784 F.2d 1392

54 USLW 2485

Mitchell B. HAISTEN, individually and as the Administrator of the Estate of Jean E. Haisten, Plaintiff-Appellee, v. GRASS VALLEY MEDICAL REIMBURSEMENT FUND, LTD., Defendant-Appellant.

No. 85-1876.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 11, 1985.

Decided March 17, 1986.

C. Jean Cain, Freidberg Law Corp., Sacramento, Cal., for plaintiff-appellee.

Allan S. Haley, Steven T. Spiller, Berliner & Spiller, Nevada City, Cal., for defendant-appellant.

Appeal from the United States District Court for the Eastern District of California.

Before CHOY, Senior Circuit Judge, SKOPIL and SCHROEDER, Circuit Judges.

CHOY, Senior Circuit Judge:

This appeal concerns the ability of the district court, sitting in California under diversity jurisdiction, to assert personal jurisdiction and to apply California regulations against a foreign insurance company which was designed not only to indemnify California physicians, but also to avoid the reach of California law. The district court, concluding that personal jurisdiction could be exercised and that the state's regulations were applicable, granted summary judgment against the insurer. The court also ordered the insurer to pay attorney's fees under California Insurance Code Sec. 1619. We affirm the grant of summary judgment and the award of attorney's fees.

I BACKGROUND

In early 1977, Harold Nachtrieb, attorney for the Sierra-Nevada Memorial Miners' Hospital ("Hospital"), went to the Cayman Islands to arrange for the formation of the Grass Valley Medical Reimbursement Fund, Ltd. ("Fund"). The purpose of the Fund was to provide self-funding indemnity insurance for doctors at the Hospital. Approximately twenty-two of the Hospital's physicians were insured by the Fund. The Hospital is located in Nevada City, California. The insureds are California residents. Among those insured was Dr. C.G. McClure.

The Fund was carefully and deliberately established to appear to be doing business only in the Cayman Islands. The Fund was incorporated in the Cayman Islands, where it maintains its sole office. Its directors meetings are held there. All transactions and communications (e.g. the issuance and delivery of the policy, the payment of premiums and claims) are conducted in the Cayman Islands. The insureds work through an attorney-in-fact or agent in the Cayman Islands. The Fund contends that it does not solicit business or advertise in California. By this elaborate structure, the Fund deliberately intended to avoid California insurance regulations, while at the same time, providing physicians at the Hospital with malpractice insurance.

The Fund contends that the type of insurance that it provides is a form of self-funding reimbursement, or indemnity, insurance. Premiums from the California doctors are the sole source of funds to pay out claims. The Fund is obligated to pay only if the doctor has first paid pursuant to a judgment or if the Patient Care Committee of the Grass Valley Medical Quality Association ("Association") (a unit of the Hospital under which staff physicians were organized) has approved a settlement.

The insurance contract provides that it would be governed by Cayman Island law. However, disputes between the insured and the Fund are to be determined in arbitration, following California arbitration law.

In 1978, the plaintiff's wife, Jean Haisten, commenced a malpractice action against Dr. McClure and ultimately was awarded $185,000 in binding arbitration. In 1983, Dr. McClure filed for bankruptcy, and was granted discharge from his obligation to Mrs. Haisten. The plaintiff, Mitchell Haisten, administrator of his now deceased wife's estate, brought action against the Fund for satisfaction of the prior judgment in accordance with California law, which requires the insurer to pay the outstanding judgments of a bankrupt insured. The district court granted Haisten's

motion for summary judgment, and also ordered the Fund to pay attorney's fees under Cal.Ins.Code Sec. 1619. The Fund appeals.

II PERSONAL JURISDICTION

A. Standard of Review

Haisten bears the burden of proving by preponderance of the evidence facts which substantiate the exercise of jurisdiction by the district court. Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1286 n. 2 (9th Cir.1977). ¹ A district court's determination that personal jurisdiction can be properly exercised is a question of law, reviewable de novo when the underlying facts are undisputed. Pacific Atlantic Trading Co. v. M.V. Main Express, 758 F.2d 1325, 1326 (9th Cir.1985). However, the Fund presented evidence and filed affidavits challenging the existence of jurisdiction. Nevertheless, the district court granted Haisten's motion for summary judgment, apparently disregarding the facts contested by the Fund. ² We review de novo the district court's grant of summary judgment, and must affirm the implicit finding of personal jurisdiction if, after viewing the evidence in the light most favorable to the defendant, we find that there exists no genuine issue of material fact. Ramirez v. National Distillers and Chemical Corp., 586 F.2d 1315, 1318 (9th Cir.1978).

B. The Due Process Test

In order to establish the existence of personal jurisdiction in a diversity of citizenship case, the plaintiff must show, first, that the state statute of the forum confers personal jurisdiction over the nonresident defendant and, second, that the exercise of jurisdiction accords with federal constitutional principles of due process. Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1392 (9th Cir.1984). However, because in this case California permits the exercise of jurisdiction "on any basis not inconsistent with the Constitution ... of the United States," Cal.Civ.Proc.Code Sec. 410.10 (West 1973), the state and federal limits are coextensive. Data Disc, 557 F.2d at 1286. Thus, the only issue presented is whether the exercise of jurisdiction complied with due process.

It is axiomatic that due process "does not contemplate that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations." International Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 159, 90 L.Ed. 95 (1945). This case is unique in that we are presented with a defendant who has made a tremendous effort to construct a transaction in such a way as to avoid the appearance of contacts with California, and thus the reach of the California courts. Nonetheless, its only purpose was to provide insurance for California doctors treating California patients and to avoid requirements imposed by California law.

A state may assert either general or specific jurisdiction over a nonresident defendant. If the defendant's activities in the state are "substantial" or "continuous and systematic," general jurisdiction may be asserted even if the cause of action is unrelated to those actvities. Data Disc, 557 F.2d at 1287. Haisten does not argue If the defendant's activities are not so pervasive to subject him to general jurisdiction, then a court may still assert jurisdiction for a cause of action which arises out of the defendant's forum-related activities. We have established a three-part test for determining whether such limited jurisdiction may be exercised:

that the Fund is subject to general jurisdiction.

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.

Pacific Atlantic, 758 F.2d at 1327. The plaintiff bears the burden of proving the existence of jurisdiction, see Forsythe v. Overmyer, 576 F.2d 779, 781 (9th Cir.), cert. denied, 489 U.S. 864, 99 S.Ct. 188, 58 L.Ed.2d 174 (1978), including the element of reasonableness, see Insurance Company of North America v. Marina Salina Cruz, 649 F.2d 1266, 1273 (9th Cir.1981).

However, recent Supreme Court cases indicate that modification of our three-prong test is appropriate. In particular, within the rubric of "purposeful availment" the Court has allowed the exercise of jurisdiction over a defendant whose only "contact" with the forum state is the "purposeful direction" of a foreign act having effect in the forum state. See, e.g., Calder v. Jones, 465 U.S. 783, 789, 104 S.Ct. 1482, 1487, 79 L.Ed.2d 804 (1984). Moreover, jurisdiction may be exercised with a lesser showing of minimum contact than would otherwise be required if considerations of reasonableness dictate. Burger King Corp. v. Rudzewicz, --- U.S. ----, 105 S.Ct. 2174, 2184, 85 L.Ed.2d 528 (1985). Finally, there is a presumption of reasonableness upon a showing that the defendant purposefully directed his activities at forum residents which the defendant bears the burden of overcoming by presenting a compelling case that jurisdiction would be unreasonable. Id. 105 S.Ct. at 2185. We turn now to a discussion of these modifications and their implications with respect to the case at bar.

1. Act Requirement

This case for the most part turns on a finding that the Fund performed some act by which it purposefully availed itself of the privilege of conducting activities in California. The Fund correctly contends that it did everything "humanly possible" to avoid the benefits and protection of California's laws. It maintains no offices in California. Directors' meetings and decision-making are conducted outside the state. Moreover, the Fund argues that its policies of insurance have not been solicited, issued, delivered, or paid for in California. In short, no part of the transaction for insurance took place in the forum state.

However, activity by ...