E. Inc. v. Bank of Virginia

• Decision Date: 15 July 1980
• Citation: 108 Cal.App.3d 148,166 Cal.Rptr. 317
• Court: California Court of Appeals Court of Appeals
• Parties: , 9 A.L.R.4th 654 E.I.C., INC., Cross-Complainant and Appellant, v. BANK OF VIRGINIA, J. Robert Carlton, Cross-Defendants and Respondents. Civ. 57273.

Page 317

166 Cal.Rptr. 317

108 Cal.App.3d 148, 9 A.L.R.4th 654

E.I.C., INC., Cross-Complainant and Appellant, v. BANK OF VIRGINIA, J. Robert Carlton, Cross-Defendants and Respondents.

Civ. 57273.

Court of Appeal, Second District, Division 2, California.

July 15, 1980.

Hearing Denied Sept. 10, 1980.

Joseph W. Fairfield, Los Angeles, for appellant.

O'Melveny & Meyers, James W. Colbert, III, and Joseph L. Golden, Los Angeles, for respondent Bank of Virginia.

Lewis B. Kean, Los Angeles, for respondent J. Robert Carlton.

FLEMING, Associate Justice.

Cross-complainant E.I.C., Inc. appeals two superior court orders quashing service of process upon cross-defendants Bank of Virginia, a Virginia corporation, and J. Robert Carlton, a Virginia resident. The underlying action was brought by Lincoln Savings Bank, a New York corporation, to enforce a deficiency judgment obtained in Kentucky against E.I.C., a California corporation, and against PN Corporation, a Virginia corporation. E.I.C.'s cross-complaint alleged a conspiracy by Bank of Virginia, J. Robert Carlton, and others to defraud E.I.C.

In accordance with the usual rule of appellate review, we state the facts most favorably to the prevailing parties below.

In December 1972 E.I.C. purchased Kentucky property from PN Corporation, a Virginia corporation wholly owned by Carlton Industries, Inc., of which J. Robert Carlton was an officer and sole shareholder. Under the purchase contract E.I.C. agreed (1) to assume a pre-existing construction loan, (2) to execute a note payable to PN and secured by the Kentucky property (the PN mortgage), and (3) to pay PN $250,000. In the event PN failed to fulfill certain terms and conditions of the contract, it would repay the $250,000 to E.I.C. Repayment would be guaranteed by a letter of credit for $250,000 to be given E.I.C. In January 1973, at Carlton Industries' request and expense, Bank of Virginia, in Richmond, Virginia, issued an irrevocable letter of credit for $250,000 in favor of E.I.C. to secure full performance by PN of the terms and conditions of the purchase contract. The letter of credit, payable in Virginia, was mailed to E.I.C.'s office in Beverly Hills, California. The underlying funds, however, were never drawn upon, and in August 1974 the letter of credit was cancelled with E.I.C.'s consent.

The PN note and mortgage executed by E.I.C. as part of the purchase agreement were assigned by PN to Bank of Virginia as security for obligations which Carlton Industries owed the bank, including that for the letter of credit issued to E.I.C. Negotiations for assignment of the note and mortgage were conducted between the bank and Carlton Industries in Virginia, and the transaction was consummated by PN's delivery of the instrument of assignment to the bank at Richmond, Virginia.

In May 1976, Bank of Virginia began an action in Kentucky to foreclose the PN mortgage. A defendant in that action, Lincoln Savings Bank (Lincoln), cross-complained to foreclose its own mortgage on the same property held as security for a promissory note given to it by PN, which note had been personally guaranteed by J. Robert Carlton. The Kentucky court found Lincoln's mortgage superior to the PN mortgage held by Bank of Virginia, and in April 1978 it entered judgment in favor of Lincoln against PN and E.I.C. The proceeds from the subsequent sale of the property were less than the indebtedness owed to Lincoln on the note, and in June 1978 Lincoln obtained a deficiency judgment against PN and E.I.C. for the unpaid amount of the note.

In September 1978 Lincoln filed an action in the Superior Court in Los Angeles against E.I.C. and PN on the Kentucky deficiency judgment. E.I.C. cross-complained against Lincoln, PN, Bank of Virginia, J. Robert Carlton, and others, alleging that the cross-defendants conspired in 1972 to defraud and cheat E.I.C. by overstating the value of the Kentucky property, by concealing PN's assignment of its mortgage to Bank of Virginia, and by including terms not agreed to by E.I.C. in the deed conveying the Kentucky property to E.I.C. (All these alleged conspiratorial acts occurred outside California.) E.I.C. further alleged that Lincoln's deficiency judgment had been procured through extrinsic fraud and without due process of law and was void. Both Bank of Virginia and Carlton moved to quash service of process on the ground the California courts lacked personal jurisdiction over them. The trial court granted the motions to quash, and E.I.C. appealed.

Code of Civil Procedure section 410.10 provides that "a court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States." The due process clause, which protects a nonresident against inconvenient litigation in a distant forum, requires that a nonresident have at least "minimum contacts" with the forum state. (World-Wide Volkswagen Corp. v. Woodson (1980) --- U.S. ----, ----, 100 S.Ct. 559, 564, 62 L.Ed.2d 490, 498.) The United States Supreme Court, although recognizing that the limits imposed by the due process clause on a state's exercise of jurisdiction have been substantially relaxed as a result of the increasing nationalization of commerce, has recently reiterated that "state lines are (not) irrelevant for jurisdictional purposes," and that a state may not "make binding a judgment in personam against an individual or corporate defendant with which the state has no contacts, ties, or relations." (World-Wide Volkswagen Corp. v. Woodson, supra, --- U.S. p. ----, 100 S.Ct. p. 565, 62 L.Ed.2d p. 499; Kulko v. California Superior Court (1978) 436 U.S. 84, 92-93, 98, 98 S.Ct. 1690, 1697-98, 1700, 56 L.Ed.2d 132.) The general rule is that a forum court may not assume personal jurisdiction over a nonresident defendant unless his relationship with the state is such as to make the exercise of jurisdiction reasonable in the context of our federal system. (Cornelison v. Chaney (1976) 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 545 P.2d 264; International Shoe Co. v. Washington (1945) 326 U.S. 310, 320, 66 S.Ct. 154, 160, 90 L.Ed. 95; World-Wide Volkswagen Corp. v. Woodson, supra, --- U.S. p. ----, 100 S.Ct. 565, 62 L.Ed.2d p. 499.) When a nonresident's...