Pacific Atlantic Trading Co., Inc. v. M/V Main Exp.

Citation758 F.2d 1325
Decision Date22 April 1985
Docket NumberNo. 84-1719,84-1719
PartiesPACIFIC ATLANTIC TRADING CO., INC., a corporation, Plaintiff, v. The M/V MAIN EXPRESS, her engines, tackle, machinery and equipment; Hapag- Lloyd Aktiengeselleschaft, a corporation, Defendants/Third-Party- Plaintiffs/Appellees, and C.F. Merchant Sdn. Bhd. and Kwong Yik Bank, Bhd., Third-Party/Defendants- Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

James R. Nebel, Graham & James, San Francisco, Cal., for defendants/third-party-plaintiffs/appellees.

John E. Droeger, Beverly D. Clement, Hall, Henry, Oliver & McReavy, San Francisco, Cal., for third-party/defendants-appellants.

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

Before KENNEDY, ALARCON and NELSON, Circuit Judges.

NELSON, Circuit Judge.

C.F. Merchant Sdn. Bhd. ("Merchant") and Kwong Yik Bank, Bhd. ("Bank") appeal from a district court order denying a motion to vacate a default judgment for lack of personal jurisdiction. Merchant and Bank were named as third-party defendants in an action by Pacific Atlantic Trading Co. ("PATCO") against Hapag-Lloyd Aktiengeselleschaft ("Hapag") based on admiralty and maritime jurisdiction under 28 U.S.C. Sec. 1333(1) (1982). A default judgment was entered against them when they failed to appear. We reverse and remand with instructions to set aside the default judgment as void for lack of personal jurisdiction.


Hapag, a West German common carrier operating between Long Beach, California and Port Kelang, Malaysia, carried a shipment of root beer to Port Kelang for PATCO, a corporation with its principal place of business in San Francisco, California. Since Merchant was named as the party to be notified on the bill of lading, Hapag contacted Merchant on arrival. Merchant had expected to receive endorsed bills of lading from PATCO as a partial settlement, negotiated in San Francisco, of a previous unpaid debt for services Merchant performed for PATCO in Malaysia. There is some conflict in the affidavits as to whether Merchant's representatives visited San Francisco to solicit business or were invited by PATCO. The district court left the conflict unresolved as irrelevant to its decision.

When Hapag refused to surrender the cargo without the bills of lading, Merchant and Bank co-signed a letter of guarantee indemnifying Hapag against any losses resulting from the delivery. PATCO never endorsed the bills of lading to Merchant, and sold the goods to another party. When PATCO brought suit in the United States District Court in San Francisco against Hapag for conversion, Hapag filed a third-party complaint against Merchant and Bank under the indemnity agreement. PATCO and Hapag settled the underlying claim, but Merchant and Bank failed to answer the third-party complaint. After a default judgment was entered against them, Merchant and Bank unsuccessfully moved to vacate the judgment on the basis of lack of personal jurisdiction. In their timely appeal, they contend that the district court erred in exercising limited jurisdiction over them.

A. Standard of Review

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. Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985). In an unpublished memorandum decision, the district court based its finding of limited jurisdiction on the execution of the indemnity agreement alone, leaving unresolved the disputed facts in the affidavit. In Data Disc., Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280 (9th Cir.1977), this Circuit formulated a standard

                for reviewing conflicting affidavits when the district judge makes no findings of fact.   Id. at 1283.  The court concluded that since there is no basis upon which a district judge can resolve disputed issues in affidavits unless the facts are inherently incredible, the plaintiff need only establish a prima facie case to support a finding of personal jurisdiction.   Id. at 1285 & n. 2.  The Seventh Circuit has extended this standard by resolving all factual disputes in the plaintiff's favor.   Neiman v. Rudolf Wolff & Co., 619 F.2d 1189, 1190 (7th Cir.) cert. denied, 449 U.S. 920, 101 S.Ct. 319, 66 L.Ed.2d 148 (1980)
B. Analysis of Limited Jurisdiction

In a suit that arises under the district court's admiralty jurisdiction, the due process clause of the fifth amendment determines whether the court has personal jurisdiction over the defendant. DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 283 (3d Cir.), cert. denied, 454 U.S. 1085, 102 S.Ct. 642, 70 L.Ed.2d 620 (1981). In addition, the state long-arm statute must be applied to determine the defendant's amenability to suit in the forum. Id.

The applicable California jurisdictional statute, Cal.Civ.Proc.Code Sec. 410.10 (West 1973), states 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 jurisdiction of the California state courts has therefore been construed to be "coextensive with the outer limits of due process ... as ... defined by the United States Supreme Court." Threlkeld v. Tucker, 496 F.2d 1101, 1103 (9th Cir.), cert. denied, 419 U.S. 1023, 95 S.Ct. 499, 42 L.Ed.2d 297 (1974); see also Sibley v. Superior Court, 16 Cal.3d 442, 446, 128 Cal.Rptr. 34, 546 P.2d 322, cert. denied, 429 U.S. 826, 97 S.Ct. 82, 50 L.Ed.2d 89 (1976). As a result, jurisdictional inquiries under the state statute and due process principles can be conducted as a single analysis. Forsythe v. Overmyer, 576 F.2d 779, 782 (9th Cir.), cert. denied, 439 U.S. 864, 99 S.Ct. 188, 58 L.Ed.2d 174 (1978).

To exercise personal jurisdiction over a nonresident defendant, "due process requires ... certain minimum contacts with [the forum] such 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) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 342, 85 L.Ed. 278 (1940) ). If the nonresident defendant's activities in the forum are sufficiently substantial and continuous, general jurisdiction will lie even if the cause of action is not related to the defendant's activities in the state. Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 446-47, 72 S.Ct. 413, 418-19, 96 L.Ed. 485 (1952); Olsen By Sheldon v. Government of Mexico, 729 F.2d 641, 648 (9th Cir.), cert. denied, --- U.S. ----, 105 S.Ct. 295, 83 L.Ed.2d 230 (1984). But if the defendant's activities are not sufficiently pervasive to support general jurisdiction, the nature and quality of the forum-related activities must be evaluated in relation to the specific cause of action. Olsen, 729 F.2d at 648.

Hapag conceded that the district court could not exercise general jurisdiction over Merchant and Bank since they do not have sufficient minimum contacts with California. Therefore, the district court's order should be reviewed on the basis of whether limited jurisdiction was properly established.

Our circuit has adopted the following three-pronged approach to analyzing limited 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.

Data Disc, Inc., 557 F.2d at 1287.

Since questions of personal jurisdiction "must be decided on a case-by-case

basis," Forsythe, 576 F.2d at 783, each factor will be analyzed separately in the context of the facts of the instant case.

1. Purposeful Availment

The district court found that the execution of the indemnity agreement constituted a purposeful availment of the benefits and protections of California laws, citing Forsythe, 576 F.2d at 782-83. However, Forsythe is clearly distinguishable from the facts in the present case. The defendant, Overmyer, personally guaranteed his corporation's obligations in a contract with the plaintiff as a condition of completing a sale-lease agreement expressly subject to jurisdiction in California. Id. at 783. In contrast, the indemnity agreement between Merchant and Hapag was executed as a separate transaction in Malaysia, and played no part in the negotiation of the agreement between PATCO and Merchant.

In addition, the Forsythe court clearly did not base its finding of jurisdiction solely on the indemnity agreement. Overmyer had previously issued personal guarantees to ten other California residents as part of a negotiating package for his corporation. Overmyer met personally with California brokers several times in connection with these sale and lease-back contracts. The court noted that "this dispute does not arise from a single isolated transaction." Id. at 783 n. 6. Thus, the district court's reliance on Forsythe is unconvincing regarding not only Bank, which had no contacts of any kind with California, but also Merchant, whose contacts were much more limited than Overmyer's even from the most liberal reading of the affidavits.

A 1980 decision of the California Supreme Court interpreting the state long-arm statute is illustrative of the distinction between Merchant and Bank and Overmyer. In Sibley v. Superior Court, 16 Cal.3d 442, 128 Cal.Rptr. 34, 546 P.2d 322 cert. denied, 429 U.S. 826, 97 S.Ct. 82, 50 L.Ed.2d 89 (1976), a California partnership sued a Florida resident who had guaranteed the performance of a Georgia corporation. The court held it could not...

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