Fireman's Fund Insurance v. National Bank of Cooperatives
Docket: No. 95-16252
Court: Court of Appeals for the Ninth Circuit; December 25, 1996; Federal Appellate Court
Aldus Marketing Association (Aldus), a Texas corporation, appeals a district court ruling that granted summary judgment to Fireman’s Fund Insurance Company, Interstate Fire and Casualty Company, and Federal Insurance Company, collectively known as the insurers. The insurers sought declaratory judgments asserting that Aldus has no claims against them regarding coverage on policies issued to Lawrence Warehouse Systems or its successor, XLS, Inc. (Lawrence/XLS), a defunct California inventory control company against which Aldus has an arbitration award and judgment. Aldus argues that the district court lacked personal jurisdiction due to insufficient minimum contacts with California and claims there is a genuine issue of material fact regarding whether Lawrence/XLS caused "property damage" as defined in the insurers' policies. Additionally, Aldus contends that the district court incorrectly deemed its motion to dismiss for failure to join Lawrence/XLS as an indispensable party as untimely. The court affirms its jurisdiction under 28 U.S.C. 1291.
Factual background reveals that in 1986, Aldus entered into the Certified Inventory Control Agreement (CICA) with Lawrence and CoBank, which involved the certification of Aldus's peanut inventory. Lawrence misrepresented the inventory value, leading CoBank to extend credit based on these inaccuracies. Following Lawrence's Chapter 11 bankruptcy in 1988, CoBank initiated arbitration against XLS in 1992, which resulted in a $10,000,000 award that was later reduced to judgment in bankruptcy court. The insurers subsequently sought a declaratory judgment against CoBank, asserting non-liability for the arbitration award, which the district court granted, determining CoBank had not suffered "property damage" under the applicable insurance policies. Meanwhile, Aldus filed a case against Lawrence/XLS in Texas state court under the Texas Deceptive Trade Practices Act, which was stayed in favor of arbitration in California.
Aldus initiated a legal action against Lawrence/XLS in Texas, which coincided with an injunction from the U.S. Bankruptcy Court for the Northern District of California that prevented Aldus or CoBank from enforcing judgments against Lawrence/XLS but allowed claims against its insurers. On September 14, 1994, arbitrators awarded Aldus $3,752,456.90 in actual damages due to Lawrence/XLS's deceptive practices, doubled the award to $7,505,913.80 because the misconduct was knowing, and added over $1.5 million in costs and fees, leading to a total Texas judgment of $13,665,139.02 against Lawrence/XLS.
During the arbitration, Lawrence/XLS’s insurers sought to join Aldus as a defendant in a declaratory relief action against CoBank, a move Aldus contested based on lack of personal jurisdiction. However, the district court joined Aldus, citing its consent to arbitration in California. Aldus subsequently moved to dismiss the insurers' action on multiple grounds, including lack of personal jurisdiction, but the motion was denied by District Judge Vaughn R. Walker, who upheld that Aldus consented to jurisdiction through the arbitration clause.
Judge Walker expressed concerns about Aldus's attorney, Paul Miller, and ordered him to justify why Rule 11 sanctions should not be imposed for the frivolous nature of Aldus's motion. Following the judge's review, sanctions were indeed imposed. The insurers then amended their complaints to seek declaratory judgments against Aldus regarding its claims. Aldus continued to deny personal jurisdiction and filed a motion to dismiss for failing to join Lawrence/XLS as an indispensable party, arguing that the lawsuit impacted Lawrence/XLS's interests and that complete relief required its presence.
On May 12, 1995, Judge Walker addressed the insurers' motions but deemed Aldus's motion to dismiss untimely due to local rules, focusing instead on whether Aldus could enforce its arbitration award against the insurers based on the coverage of Lawrence/XLS's policies.
Judge Walker ruled in favor of insurers in the CoBank litigation, determining that Lawrence's intentional misrepresentations did not constitute 'property damage' as defined in the insurance policies, thus barring Aldus from recovery under those policies. He upheld Rule 11 sanctions against Miller, equating them to the costs incurred by insurers due to Miller's frivolous motion, and issued a final judgment on May 30, 1995, granting summary judgment to the insurers. Aldus subsequently appealed on June 29, 1995.
The insurers must establish personal jurisdiction over Aldus, which is assessed based on California's long-arm statute and federal constitutional due process principles. Aldus contends that it lacks sufficient contacts with California for jurisdiction. The court may exercise jurisdiction if Aldus has 'minimum contacts' with California, ensuring fairness and justice. The required nature of these contacts varies depending on the type of jurisdiction asserted. Neither the insurers nor the district court argue that Aldus has substantial or systematic contacts with California for general jurisdiction.
Judge Caulfield ruled that Aldus consented to personal jurisdiction by participating in the CICA, and Judge Walker similarly denied Aldus’s motion to dismiss based on this consent. The insurers assert that even without consent, specific jurisdiction exists due to Aldus's agreement with a California entity that includes arbitration in California. If Aldus consented to jurisdiction through the arbitration clause, it may have waived its objection to jurisdiction in this case. Alternatively, specific jurisdiction may be justified if the insurers' claims arise from Aldus's California activities.
A three-part test is applied to determine specific jurisdiction in relation to due process: 1) The defendant must purposefully avail themselves of the forum's privileges; 2) the claim must arise from the defendant's forum-related activities; and 3) the exercise of jurisdiction must be reasonable.
Aldus has purposefully availed itself of California's legal benefits by entering into an agreement with California-based Lawrence/XLS and consenting to arbitrate disputes in California. Although Aldus did not physically enter California to establish the CICA, it engaged in arbitration there and participated in bankruptcy proceedings in a California court, which indicates ongoing obligations with California residents.
For the lawsuit to support personal jurisdiction, it must arise from Aldus's California activities. The insurers seek a declaratory judgment regarding Aldus's claim to enforce an arbitration award obtained in California, establishing a direct nexus between Aldus’s California activities and the lawsuit.
Finally, the exercise of jurisdiction over Aldus must be reasonable, aligned with the principles of fair play and substantial justice. Factors considered include the extent of Aldus's involvement in California, any burden on Aldus to defend itself, the forum state's interest, and the efficiency of resolving disputes there. Aldus's agreement to arbitrate in San Francisco and participation in legal proceedings in California reflect its willingness to engage there. The district court's decision only declares that Aldus has no claim against the insurers, avoiding additional litigation burdens in California.
Dismissal and relitigation in Texas would impose a substantial financial burden on all parties, including Aldus. Aldus has attempted to file lawsuits in Texas against Lawrence/XLS and their insurers, but Texas courts have repeatedly dismissed or transferred these cases. Aldus failed to demonstrate that litigation in California poses significant difficulties or inconveniences that would make the court’s exercise of personal jurisdiction unreasonable. The district court's exercise of personal jurisdiction over Aldus is thus affirmed.
The review of the district court’s grant of summary judgment is de novo, requiring the evidence to be viewed in favor of Aldus, the nonmoving party. Summary judgment is upheld unless there are genuine issues of material fact for trial. The critical issue is whether Aldus's arbitration award and judgment include damages for "property damage" covered by the insurers' policies. Judge Caulfield determined that losses due to Lawrence/XLS’s misrepresentations did not qualify as "property damage" under the relevant policies. Although this ruling isn't res judicata for Aldus, Judge Walker concluded that it necessitated the same outcome regarding Aldus’s damages.
From 1984 to 1991, Fireman’s Fund insured Lawrence for general liabilities under six policies, with supplemental liability coverage provided by Interstate and Federal from 1986 to 1989. These policies cover property damage, bodily injury, personal injury, and advertising injury. Aldus's arbitration award and the subsequent Texas judgment affirm that Aldus’s damages were “actual damages” under the Texas Deceptive Trade Practices/Consumer Protection Act (TDPA). Aldus asserts that "actual damages" equate to "property damage," but this interpretation lacks support in the text of the TDPA. Additionally, under California law, determining insurance coverage requires a comparison of the judgment with the policies’ terms, which define "property damage" primarily as physical injury to or destruction of tangible property occurring during the policy period.
Lawrence/XLS lacked physical control, custody, or possession of Aldus’s peanuts, with arbitrators determining that Aldus incurred only actual damages due to Lawrence/XLS's misrepresentations. Judge Caulfield’s prior conclusion in the CoBank litigation is applicable to Aldus, confirming that the arbitration award does not indicate any property damage or loss of property use caused by XLS. As a result, XLS's insurers are not liable for property damage, leading to the district court’s proper summary judgment in their favor.
Aldus filed a motion to dismiss for failure to join Lawrence/XLS as an indispensable party just before the insurers’ summary judgment hearing, claiming that complete relief required their joinder and that it would jeopardize the litigation's diversity. The district court dismissed Aldus’s motion as untimely, given it was filed two weeks after Aldus opposed the summary judgment. Aldus contends this was an error, referencing F.R.Civ.P. 12(d), which allows for certain motions to be considered before trial. However, the merits of Aldus’s motion are not under review, and the district court's decision to disregard it is assessed for abuse of discretion. No legal precedent mandates that a 12(b)(7) motion be resolved prior to summary judgment, and the court has discretion regarding the timeliness of such motions. Additionally, Aldus's 12(b)(7) motion appears to lack merit, as Lawrence/XLS is defunct and exists solely through a court-appointed receiver. Aldus is also already barred from pursuing its arbitration award directly against Lawrence/XLS.
Issuance of the proposed declaration without Lawrence/XLS’s involvement is unlikely to prejudice their interests or hinder the court from providing complete relief to the current parties, as per Federal Rule of Civil Procedure 19(b). Lawrence/XLS’s interests have remained unchanged since Aldus’s joining in the lawsuit, and Aldus had opportunities to address the joinder issue earlier but did not. No new circumstances warrant a late motion following Aldus’s opposition to summary judgment. The district court's decision to grant summary judgment is upheld, rejecting Aldus’s untimely motion as potentially frivolous. Fireman’s Fund, an entity from California, and Interstate from Illinois, along with Federal from New Jersey and CoBank from Colorado, are involved in the case. Sanctions imposed totaled $1,960.25 for Fireman’s Fund, $1,365 for Interstate, and $1,000 for National Union Fire Insurance Company. Under Texas Business and Commerce Code Section 17.50(a), consumers can pursue actions based on false, misleading, or deceptive practices, or unconscionable acts leading to actual damages.
