Hammond v. Florida Asset Financing Corp.

• Decision Date: 08 April 2005
• Docket Number: No. 03-2040.,03-2040.
• Citation: 695 N.W.2d 1
• Parties: Brian and Toni HAMMOND, George and Nadine Hess, Don and Donna Gerbeling, Individually and on Behalf of All Other Persons Similarly Situated, Appellants, v. FLORIDA ASSET FINANCING CORPORATION, Appellee, and Northeast National Bank, Northwest National Bank of Arlington, First Family Financial Services, and Calvary Investments, L.L.C. f/k/a Zirmack Investments, L.P., Defendants.
• Court: Iowa Supreme Court

695 N.W.2d 1

Brian and Toni HAMMOND, George and Nadine Hess, Don and Donna Gerbeling, Individually and on Behalf of All Other Persons Similarly Situated, Appellants, v. FLORIDA ASSET FINANCING CORPORATION, Appellee, and Northeast National Bank, Northwest National Bank of Arlington, First Family Financial Services, and Calvary Investments, L.L.C. f/k/a Zirmack Investments, L.P., Defendants.

No. 03-2040.

Supreme Court of Iowa.

April 8, 2005.

Douglas H. Napier of Napier, Wolf & Napier, Fort Madison, for appellants.

Scott L. Long and Sean P. Moore of Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C., Des Moines, and Michael E. Schoeman of Schoeman, Updike & Kaufman, LLP, New York, NY, for appellee.

CARTER, Justice.

Plaintiffs, Brian Hammond, Toni Hammond, George Hess, Nadine Hess, Don Gerbeling, and Donna Gerbeling, who brought a proposed class action against defendant, Florida Asset Financing Corporation (FAF), and other financial institutions,¹ appeal by permission from a ruling of the district court that it lacked personal jurisdiction over FAF. After reviewing the record and considering the arguments presented, we uphold the district court's ruling on personal jurisdiction. We modify the court's judgment, however, because it improperly dismissed the action with prejudice rather than ordering dismissal without prejudice.

The Hammonds are residents of Iowa. The Hesses are residents of Arkansas. The Gerbelings are residents of Nebraska. FAF is a Florida corporation with its principal place of business in that state. The claims advanced by plaintiffs grow out of the purchase of campground memberships from a company known as Thousand Adventures, Inc. (TAI). Those memberships purported to entitle the members to the use of campground facilities throughout the United States. Four of these campgrounds were located in Iowa.

The plaintiffs' memberships were purchased pursuant to an installment financing agreement that called for ten percent of the cost to be paid at the time of purchasing the memberships. The balance was to be paid in monthly installments over periods ranging from twelve to sixty months.² Plaintiffs allege that the retail installment contracts for TAI memberships were assigned to third parties, including the several defendants in this action.

With respect to FAF, the record indicates that its only interest in the TAI installment agreements was in the nature of a security interest in which some of the installment agreements served as collateral for loans FAF made to TAI. These loans, which at one time involved as much as $1,500,000, were fully repaid by TAI sometime in 1995.

The TAI installment contracts that served as collateral for FAF's loan were delivered to Travelers Data Services of Carlsbad, California, and Comerca Bank-Texas of Dallas, Texas, who served as escrow agents. The monthly payments due on these agreements were directed to the escrow agents and were deposited in a special account. The escrow agents then issued checks on that account to FAF to be applied on the unpaid balance of its loans to TAI.

The membership agreements at issue in the present action purport to be for the lifetime of the members and, depending on the amount paid, may be extended to younger generations of the buyers' families. Plaintiffs allege that TAI breached the membership agreements in several respects, including failing to provide the number of campgrounds promised, failing to properly service and maintain the campgrounds that were provided, failing to honor cancellation and refund provisions of the agreement, and failing to cooperate in the transfer of memberships. Plaintiffs ask for money damages including a disgorging of the funds collected from them for the memberships. They assert that the defendants named in the action, including FAF, are liable for such disgorgement pursuant to the provisions of the Federal Trade Commission Act and trade regulation rules promulgated pursuant thereto. In particular, plaintiffs rely on section 433.2 of subchapter D Trade Regulation Rules, 16 C.F.R. § 433.2 (1975) (preservation of consumers' claims and defenses), which makes it an unfair practice to fail to provide the following provision in a consumer sales agreement:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

Notices that substantially comply with that provision were included in TAI's installment contracts. Plaintiffs have asked that the action they have commenced against the named defendants, including FAF, be maintained as a class action on behalf of all persons who have purchased campground membership from TAI and whose memberships were financed in whole or in part by executing a consumer retail installment contract.

FAF filed a motion to dismiss the claims brought against it by plaintiffs on the ground that the Iowa court lacked jurisdiction over its person. It supported that motion with an affidavit of the company president, asserting that the corporation had no presence in Iowa sufficient to render it subject to suit here. The affidavit further asserted that no aspect of the transactions between FAF and TAI concerning the installment contracts on which plaintiffs' claims are founded took place in Iowa. The district court found that the necessary minimum contacts for personal jurisdiction over FAF were lacking and sustained the motion to dismiss. Other facts that relate to the issues will be considered in our discussion of the legal claims that have been presented on the appeal.

I. Scope of Review.

In reviewing rulings on preanswer motions asserting jurisdictional infirmities, 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. Meyers v. Kallestead, 476 N.W.2d 65, 66 (Iowa 1991); Percival v. Bankers Trust Co., 450 N.W.2d 860, 861 (Iowa 1990). We are not bound, however, by the trial court's application of legal principles in deciding the motion. Meyers, 476 N.W.2d at 66.

II. Whether the District Court Correctly Found an Absence of Sufficient Contact to Confer Personal Jurisdiction Over FAF.

Plaintiffs urge that the district court improperly determined FAF's amenability to suit in Iowa by concentrating on plaintiffs' contacts with FAF rather than FAF's contacts with the forum state. FAF asserts that the district court considered the proper factors in its ruling. It points out that there are two distinguishable bases for personal jurisdiction: general amenability to suit because of a continuing presence in the state and specific amenability to suit because the claim being made is based on some act or omission of the defendant that produced consequences in the forum state. FAF argues that no basis exists for an Iowa court to assert either general or specific jurisdiction over its person. Iowa Rule of Civil Procedure 1.306 provides in pertinent part:

Every corporation, individual, personal representative, partnership or association that shall have the necessary minimum contact with the state of Iowa shall be subject to the jurisdiction of the courts of this state.

This rule expands Iowa's jurisdictional reach to the widest due process parameters allowed by the United States Constitution. Hodges v. Hodges, 572 N.W.2d 549, 552 (Iowa 1997).

In analyzing the due process principles relevant to this case, five factors should be considered:

(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) the convenience of the parties.

Id. (quoting Larsen v. Scholl, 296 N.W.2d 785, 788 (Iowa 1980)). The third factor is of significant importance because it concerns the distinction drawn between "general" and "specific" jurisdiction. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404, 411 (1984)

(explaining that the distinction between "general" and "specific" jurisdiction is based on the nature of the contacts with the forum state). This understanding was further explained in Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985), wherein the United States Supreme Court stated:

[W]here 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.

Burger King Corp., 471 U.S. at 472, 105 S.Ct. at 2182, 85 L.Ed.2d at 540-41 (citations omitted); see also State ex rel. Miller v. Baxter Chrysler Plymouth, Inc., 456 N.W.2d 371, 377 (Iowa 1990)

(following the principles espoused in Burger King Corp.); Roquette Am., Inc. v. Gerber, 651 N.W.2d 896, 900 (Iowa Ct.App.2002) ("Specific jurisdiction refers to jurisdiction over causes of action arising from or related to a defendant's actions within the forum state, while general jurisdiction refers to the power of a state to adjudicate any cause of action involving a particular defendant, regardless of where the cause of action arose." (quoting Bell Paper Box, Inc. v. U.S. Kids, Inc., 22 F.3d 816, 819 (8th Cir.1994))).

The district court's ruling that no general personal jurisdiction exists over FAF is not challenged on appeal. With respect to that court's rejection of specific personal jurisdiction over FAF based on acts in Iowa on which plaintiffs' claims are based, the district court found that there were no such acts by FAF. The evidence supports that finding. Although the installment contracts of the...