Rice Growers Assn. v. First National Bank

• Decision Date: 30 April 1985
• Court: California Court of Appeals Court of Appeals
• Parties: RICE GROWERS ASSOCIATION OF CALIFORNIA, Plaintiff and Appellant, v. FIRST NATIONAL BANK OF MINNEAPOLIS et al., Defendants and Respondents. A014819.

Page 468

214 Cal.Rptr. 468

167 Cal.App.3d 559

RICE GROWERS ASSOCIATION OF CALIFORNIA, Plaintiff and Appellant, v. FIRST NATIONAL BANK OF MINNEAPOLIS et al., Defendants and Respondents.

A014819.

Court of Appeal, First District, Division 3, California.

April 30, 1985.

Joseph L. Alioto, Joseph M. Alioto, John I. Alioto, Patricia Sturdevant, Alioto & Alioto, San Francisco, for plaintiff and appellant.

Michael Brooks Carroll, Scott H. Miller, Carroll, Weller & Haines, San Francisco, Charles Lee Eisen, Robert C. Eager, Kirkpatrick, Lockhart, Hill, Christopher & Phillips, Washington, D.C., Vincent O'Gara, P.C., Gilmore F. Diekmann, Joan Irion Thompson, Bronson, Bronson & McKinnon, San Francisco, for defendants and respondents. ANDERSON, Associate Justice. ^*

This is an appeal from the trial court's orders granting motions to quash service of process for lack of personal jurisdiction and/or for improper venue.

The litigation at hand revolves around the construction of an allegedly defective ocean-going vessel built elsewhere, but primarily used in California. Plaintiff, Rice Growers Association of California (hereafter RGA or appellant), is a California agricultural cooperative corporation with its principal place of business in West Sacramento, California. RGA, which is comprised of approximately 2,000 rice growers throughout California, deals in the milling, processing and marketing of California rice in both domestic and foreign commerce. Defendants to the action are several California and out-of-state corporations. The California defendants are: DeLaval Turbine, Inc. (DeLaval); Bulk Food Carriers, Inc. (BFC); Intercoastal Bulk Carriers, Inc. (IBC); Security Pacific Leasing Corporation (Security Pacific); and Crocker National Bank (Crocker). The nonresident defendants are: First National Bank of Minneapolis ^B; Connecticut Bank and Trust Company (CBT); Breit Engineering, Inc. (Breit); Southern Shipbuilding Corporation (Southern); and Maryland Shipbuilding & Drydock Company (Maryland Shipbuilding). DeLaval's principal place of business is Oakland, California, and its primary business is in the manufacture of diesel powered engines, including ones used in ocean-going vessels and tugboats. BFC's principal place of business is San Francisco, and its primary business is to own, charter and operate ocean-going barges. IBC is a wholly owned subsidiary of BFC with its principal place of business in San Francisco. Security Pacific and Crocker are California banks which are also engaged in owning and leasing equipment, including tugboats and barges.

Outside of California defendant FNB is a national banking association, with its principal place of business in Minneapolis, Minnesota, whose business involves not only banking, but also owning and leasing equipment including tugboats and barges; CBT is a Connecticut banking corporation, dealing with banking and trust matters; Southern is a Louisiana corporation engaged in constructing ocean-going tugboats and vessels; Maryland Shipbuilding is also a shipbuilder with its principal place of business in Baltimore; and lastly, Breit, a Louisiana corporation with its principal place of business in New Orleans, Louisiana, is a designer of ships providing professional naval architect services. ¹

Since the 1960's RGA had shipped approximately 100,000 tons of rice per year from Sacramento, California, to San Juan, Puerto Rico. In 1972 BFC approached RGA with a proposal to build a new ship, an integrated tug-barge combination vessel which would have greater cargo capacity, greater speed and better fuel economy than the previous rice-carrying ship, named "Rice Queen." As a result of an initial understanding between the two, in November 1972 BFC proceeded with the project and contracted with Breit to design an integrated tug-barge vessel (hereafter "Valerie F") which had a 25,000 dwt cargo capacity, configured to carry lumber, bulk liquid chemical, phosphate rock and rice; developed 16 kph speed and propelled by diesel engines capable of burning heavy fuel. In January 1973 BFC entered into a contract with DeLaval for the construction of two diesel powered engines fit for "Valerie F". In August 1973 IBC, a wholly owned subsidiary of BFC, contracted with Southern to build the tug portion of the ocean-going vessel at a contract price of $4,565,000. In September 1973 IBC entered into a contract with Maryland Shipbuilding for the construction of the barge portion of the vessel for the price of $10.4 million.

In November 1973 FNB, Security Pacific and Crocker entered into an owner participation agreement whereby they agreed to invest at least $19.8 million in the ownership of the "Valerie F." This agreement specifically contemplated that the vessel would be chartered by a California corporation. In addition, the owner participants entered into a second contract, i.e., an "Owner Trust Agreement" with CBT. Under the latter contract CBT agreed to own and charter the "Valerie F" as a trustee for the benefit of FNB and the two California banks.

In the wake of the above agreements CBT, on behalf of the owner participants, contracted with IBC ² whereby the banks agreed: (a) to become the owners of the vessel and charter it to IBC for 15 1/2 years; (b) to take an assignment and novation of the construction contracts set out above; (c) to assume the obligation of IBC to oversee and supervise the construction of the "Valerie F"; (d) to purchase the vessel for $30.8 million; and (e) to receive the tax benefits therefrom (i.e., investment tax credit, accelerated depreciation, capital gain treatment, and the like). It was likewise agreed that after delivery IBC would charter the "Valerie F" to RGA and that RGA guaranteed the rental payments IBC owed to the banks over the period of the charter.

The tugboat was delivered and accepted by the president of IBC as an agent for CBT on December 30, 1976, and was then chartered to RGA. The ensuing use of the vessel by RGA, however, showed that the "Valerie F" did not fulfill the purpose for which it was constructed inasmuch as it could not carry the cargo load which was contemplated, nor could it develop the requisite speed or burn the heavy fuel oil as set out in the plans and specifications.

Based upon these facts, RGA brought a suit against the above-named defendants alleging causes of action, inter alia, for breach of contract, breach of express and implied warranty, negligent construction and negligent supervision. Following the filing of the first amended complaint defendants FNB, CBT, Southern and Breit (hereafter respondents) moved to quash the service of process for lack of personal jurisdiction. ³ The trial court granted the motions without stating the reasons therefor and dismissed the complaint against respondents. ⁴

Appellant's principal contention on appeal is that due to substantial contacts and massive commercial involvement with California, respondents are subject to personal jurisdiction in this state and as a consequence the quashing of the service of process against respondents was prejudicially erroneous. For the reasons which follow we agree with appellant and reverse the orders.

Basis for Exercising Jurisdiction

Under the long-arm statute, Code of Civil Procedure section 410.10, a California court may exercise jurisdiction over a nonresident defendant on any basis not inconsistent with the United States or California Constitutions. This section manifests an intent to exercise the broadest possible jurisdiction, limited only by constitutional considerations. (Sibley v. Superior Court (1976) 16 Cal.3d 442, 445, 128 Cal.Rptr. 34, 546 P.2d 322.) As a general constitutional principle, a court may exercise personal jurisdiction over a nonresident defendant as long as the defendant has such minimum contacts with the forum that the maintenance of the suit does not offend the " 'traditional notions of fair play and substantial justice.' " (Internat. Shoe Co. v. Washington (1945) 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95; Secrest Machine Corp. v. Superior Court (1983) 33 Cal.3d 664, 668, 190 Cal.Rptr. 175, 660 P.2d 399.) If a nonresident's activities in the forum are extensive or wide-ranging, or substantial, continuous and systematic, there is constitutionally sufficient relationship to warrant jurisdiction for all causes asserted against him. (Perkins v. Benguet Mining Co. (1952) 342 U.S. 437, 447-448, 72 S.Ct. 413, 419-420, 96 L.Ed. 485; Buckeye Boiler Co. v. Superior Court (1969) 71 Cal.2d 893, 898-899, 80 Cal.Rptr. 113, 458 P.2d 57.) However, if the defendant's activities in the forum are not so pervasive as to justify the exercise of general jurisdiction over him, then the jurisdiction depends upon the quality and nature of his activity in the forum relative to the particular cause of action. In such a situation the cause of action must arise out of an act done or transaction consummated in the forum, or the defendant must perform some other 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. (Hanson v. Denckla (1958) 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283; Cornelison v. Chaney (1976) 16 Cal.3d 143, 147-148, 127 Cal.Rptr. 352, 545 P.2d 264.) A defendant obtains the benefits and protections of the forum if as a matter of "commercial actuality," he engages in economic activity within the state. (McGee v. International Life Ins. Co. (1957) 355 U.S. 220, 222-223, 78 S.Ct. 199, 200-201, 2 L.Ed.2d 223.) The defendant conducts economic activity within the state as a matter of "commercial actuality" whenever the purchase or use of his product within the state generates income for the defendant and it is not so fortuitous or unforeseeable as to negative the existence of intent on his part to bring about this result. (Buckeye Boiler Co. v. Superior Court, supra, 71 Cal.2d at pp. 901-902, 80 Cal.Rptr. 113, ...