Ostrem v. Prideco Secure Loan Fund, LP

• Citation: 841 N.W.2d 882
• Decision Date: 10 January 2014
• Docket Number: No. 12–1708.,12–1708.
• Parties: A. David OSTREM, Sr., Appellant, v. PRIDECO SECURE LOAN FUND, LP, Appellee.
• Court: United States State Supreme Court of Iowa

841 N.W.2d 882

A. David OSTREM, Sr., Appellant,

v.PRIDECO SECURE LOAN FUND, LP, Appellee.

No. 12–1708.

Supreme Court of Iowa.

Jan. 10, 2014.

William B. Ortman (until withdrawal), Mark E. Weinhardt, Danielle M. Shelton, P. Gail Brashers–Krug, and Todd M. Lantz of Weinhardt & Logan, P.C., Des Moines, for appellant.

Todd A. Strother and Bradley M. Beaman of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, for appellee.

ZAGER, Justice.

In this case we are asked to decide an issue of first impression involving personal jurisdiction. Specifically, we must determine whether for purposes of obtaining personal jurisdiction over a party, a contractual assignor's contacts with the State of Iowa should be imputed to its assignee for claims relating to the contract. For the reasons set forth below, we hold that an assignor's contacts with the State of Iowa are not automatically imputed to the assignee for purposes of obtaining personal jurisdiction over the assignee. However, we hold that this assignee is subject to personal jurisdiction in Iowa based on its own contacts with this forum through the contractual relationships it assumed by the assignment. We also decline to affirm the district court on alternative grounds. Therefore, we reverse the district court and remand for further proceedings.

I. Background Facts and Proceedings.

A. David Ostrem, Sr. (Ostrem) resides in Iowa and Florida during parts of each year. Although Ostrem currently spends more time in Florida than in Iowa, he resided in Iowa when the parties allegedly formed the contract at issue in this case.

In 2006, Ostrem learned of a product called no-cost life insurance. Under such an arrangement, a third-party lender finances the premiums for the no-cost life insurance policy. The insured bears no responsibility for the premiums or the loan; the loan is repaid from the death benefit, with the remainder paid to the designated beneficiary. Ostrem asked his son, A. David Ostrem, Jr. (David), an insurance agent associated with AIP Group–IA, LLC (AIP) in Iowa, to obtain a no-cost insurance policy on Ostrem's life. David enlisted the help of Richard Kobernusz (Kobernusz), an insurance broker associated with AIP in Iowa.

Ostrem wanted no-cost life insurance. From the first time Ostrem worked with David and Kobernusz, Ostrem told the two he did not want to pay premiums or assume responsibility for a loan. David and Kobernusz contacted Finance for Life, LLC (Finance for Life), which was based in Tennessee, for help finding a lender to finance the premiums.

David and Kobernusz submitted life insurance applications to several insurance carriers. They submitted an application in Iowa to Indianapolis Life Insurance Company, which was later acquired by Aviva USA Corporation (Aviva). In March 2007, Aviva preliminarily approved Ostrem's application. Finance for Life then arranged for Imperial Premium Finance, LLC (Imperial),a Florida company, to finance the premiums once Aviva approved the policy. Because of the financing arrangement, however, Aviva ultimately rejected the first insurance application.

During August and September 2007, there were email communications among Finance for Life, Imperial, and David and Kobernusz, who were in Iowa, regarding the insurance policy and finance arrangement. Eventually, David and Kobernusz submitted a second application to Aviva. Although they still planned to use Imperial to finance the insurance premiums, David and Kobernusz did not disclose this to Aviva, representing instead that Ostrem would personally pay the insurance premiums. Ostrem had no knowledge of this false statement. Although Imperial knew that Aviva would not approve a policy supported by financed premiums, Imperial assured Kobernusz it would not disclose its involvement in this transaction to Aviva. With the understanding the premiums would not be financed, Aviva issued a $10 million life insurance policy on Ostrem.

Ostrem established the A. David Ostrem Sr. 2007 Irrevocable Trust in September 2007. This Georgia trust was created to own the life insurance policy on Ostrem's life and to pay the premiums for this policy. Imperial loaned money to the trust, and the trust used the loaned money to pay the life insurance premiums. Ostrem's wife, Mary Ann C. Ostrem (Mrs. Ostrem), who had an Iowa address and presumably was also an Iowa resident, served as a cotrustee. To serve as the other cotrustee, Imperial recommended James R. Kelley, a Georgia-based certified public accountant unknown to Ostrem. Kobernusz approved Kelley's appointment as cotrustee without Ostrem's knowledge or approval.

On or around September 14, 2007, James R. Kelley and Mrs. Ostrem, as cotrustees, executed the loan application and agreement, the promissory note, and other closing documents on behalf of the trust. Also on September 14, 2007, as part of the closing documents, Ostrem executed a personal guaranty for the benefit of Imperial. Under the terms of the personal guaranty, Ostrem took responsibility for the loan in the event the trust defaulted on its obligations under the “credit agreement” or the “Secured Promissory Note.” The closing documents do not include documents entitled “credit agreement” or “Secured Promissory Note.” While Ostrem does not dispute that he may have executed the personal guaranty, he did not thoroughly examine the documents and did not realize he had signed a personal guaranty. Many of the closing documents select Iowa as the forum for any disputes. The personal guaranty, however, selects Georgia as the nonexclusive forum for disputes concerning the guaranty.

On September 26, 2007, Imperial began paying the life insurance premiums by loaning money to the trust.¹ These advances continued for three additional years. On or about October 15, 2010, Imperial assigned its interest in the premium financing arrangement to PrideCo Secure Loan Fund, LP (PrideCo). PrideCo was aware of the premium financing arrangement prior to the assignment. Beginning in May 2009, PrideCo loaned money to Imperial to continue funding insurance premiums through the trust. A PrideCo employee later acknowledged that PrideCo had been involved in the financial transactions from 2007.

PrideCo is a limited partnership with its principal place of business in California. PrideCo has never been licensed to do business in Iowa; it has never been registered with the Iowa Secretary of State; and it has never had an agent for service of process in this state. PrideCo has never had any place of business or office in Iowa; it has never owned, rented, leased, or occupied any real estate in Iowa; and it has never had an Iowa phone number or listed a phone number in any Iowa telephone directory. Its representatives do not reside in Iowa, they do not travel in Iowa for business purposes, and they have not traveled to Iowa in relation to this dispute or any transaction underlying this dispute. PrideCo has never performed services or shipped goods in this state, and it never has had any interest in any trust administered in Iowa. It has never had a bank account or property in Iowa, nor has it owed or paid any taxes in this state. PrideCo has no affiliations with any entity located or incorporated in Iowa. PrideCo has not committed nor has it ever been accused of committing any torts in Iowa. It has never made or performed any other contracts substantially connected with Iowa. Other than the personal guaranty at issue in this case, executed by Ostrem for the benefit of Imperial and assigned to PrideCo, it has no contracts with any person or entity in Iowa.

On June 10, 2011, PrideCo sent Ostrem an update on the loan. This update included a copy of the personal guaranty. It was by receipt of this update that Ostrem first learned about the personal guaranty, and that PrideCo may be looking to him to satisfy the outstanding loans.

Also in June 2011, Brandon Small, a Fund Manager for PrideCo, and David spoke over the telephone about the assignment and other matters related to the loan agreement and the insurance policy. In September 2011, Small contacted Aviva regarding the life insurance policy. To continue concealing from Aviva the premium financing arrangement, Small falsely told Aviva he was calling from the office of cotrustee James R. Kelley.

On December 9, 2011, PrideCo explicitly informed Ostrem it would seek funds from Ostrem personally if the trust defaulted on its payment obligations. On December 19, 2011, Ostrem filed a petition for declaratory judgment in Iowa on the personal guaranty. Ostrem claimed the personal guaranty refers to nonexistent documents, and therefore, it is not a valid contract. Ostrem claimed that if the contract is valid, PrideCo cannot enforce it under the doctrine of in pari delicto. Ostrem also sought rescission based on an alleged civil conspiracy, and he claims Kobernusz and AIP committed negligent misrepresentation, fraudulent misrepresentation, professional negligence, and breach of fiduciary duty. Later, Kobernusz and AIP filed a cross-petition against PrideCo seeking indemnity and contribution from PrideCo.

In January 2012, PrideCo filed a complaint in Georgia state court. Ostrem's defenses in that case are essentially identical to his claims in this case. The Georgia case was removed to federal court, but subsequently remanded on a finding of lack of diversity.

On January 26, 2012, PrideCo filed a motion to dismiss Ostrem's claims. On February 24, PrideCo moved to dismiss the cross-petitions of Kobernusz and AIP. In both motions, PrideCo argued the Iowa district court lacked personal jurisdiction because PrideCo lacks sufficient minimum contacts with Iowa. Alternatively, PrideCo argued that Ostrem, Kobernusz, and AIP failed to state claims on which relief could be granted. Ostrem, Kobernusz and AIP resisted.

After a hearing, the district court granted PrideCo's motion to dismiss for lack of personal jurisdiction. The district court reasoned that because...