Unpublished Disposition, 895 F.2d 1416 (9th Cir. 1985)

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U.S. Court of Appeals for the Ninth Circuit - 895 F.2d 1416 (9th Cir. 1985)

Howard A. ASHBY, individually and dba: Dormar Company;Margaret K. Ashby; John S. Stewart; Edith A.Stewart; Robert Barrie, dba: DormarCompany, Plaintiffs-Appellants,v.FLETCHER BRIGHT COMPANY, Defendant-Appellee.

No. 88-6496.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 3, 1989.Decided Feb. 13, 1990.

Before WILLIAM A. NORRIS, REINHARDT and TROTT, Circuit Judges.


MEMORANDUM* 

Plaintiffs, California residents, brought suit against defendant Fletcher Bright Company ("Fletcher Bright"), a Tennessee corporation, for breach of fiduciary duty, breach of contract and constructive fraud based on defendant's management of property (owned in part by plaintiffs) located in Gassaway, West Virginia. Plaintiffs filed this action in federal district court in the Central District of California, alleging diversity jurisdiction. Defendant moved for dismissal under Fed. R. Civ. P. 12(b) (2), arguing that the court lacked personal jurisdiction. The court granted defendant's motion, dismissing plaintiffs' claims without prejudice. Plaintiffs appeal. We now reverse.

The district court had subject matter jurisdiction (diversity jurisdiction) pursuant to 28 U.S.C. § 1322. This court has appellate jurisdiction under 28 U.S.C. § 1291, because the district court's dismissal was a final decision. The plaintiffs' appeal is timely under Rule 4(a) (1) of the Federal Rules of Appellate Procedure.

The district court ruled on defendant's motion to dismiss on the basis of the pleadings and declarations and without making any findings of fact. Under such circumstances, to prevail plaintiffs only need to make a prima facie showing of jurisdiction; they need not establish personal jurisdiction by a preponderance of the evidence. Fields v. Sedgwick Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986) ("Where, as in this case, the trial court ruled on the issue relying on affidavits and discovery materials without holding an evidentiary hearing, dismissal is appropriate only if the plaintiff has not made a prima facie showing of personal jurisdiction."); see also Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). Essentially, the parties do not dispute the underlying facts. However, to the extent any material dispute exists we must accept plaintiffs' factual assertions. Fields, 796 F.2d at 301; Pacific Atlantic Trading Co. v. M/V Main Express, 758 F.2d 1325, 1327 (9th Cir. 1985). The district court's determination that it did not have personal jurisdiction over Fletcher Bright is a question of law reviewable de novo. Fields, 796 F.2d at 301; Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986).

Defendant Fletcher Bright is a Tennessee corporation with its principal place of business in Tennessee. The company develops and manages property throughout the southeastern United States. Defendant has no other contacts with California outside of the events of this dispute.

The property involved in the dispute, a shopping center in West Virginia, was initially acquired by a limited partnership named Gassaway Associates ("Gassaway") in 1980. The record is unclear as to the relationship between Fletcher Bright and Gassaway, but it is clear that when Gassaway acquired the property, Fletcher Bright became part owner.1  In March of 1981, Gassaway sold its interest in the shopping center to Midwood, a California corporation, taking back a $200,000 second trust deed. Midwood essentially simultaneously sold 94% of its interest in the property to plaintiffs. Plaintiffs and Midwood held the property as tenants in common.

According to plaintiffs, as a condition on Gassaway's sale of the property, Midwood and the plaintiffs were required to enter into an agreement with Fletcher Bright by which Fletcher Bright would manage the property. Therefore, on February 13, 1981, before actually purchasing the property, plaintiffs entered into a management agreement with Fletcher Bright. Fletcher Bright both prepared and executed the agreement in Tennessee. Defendant managed the property for plaintiffs pursuant to the agreement from March 13, 1981, until May 31, 1985. During that four-year period, defendant sent monthly management reports originally to Midwood, and later to plaintiffs, in California. All of Fletcher Bright's other management activities took place exclusively in West Virginia.

In April of 1982, Midwood filed for bankruptcy and plaintiffs took over as the representative owner of the property. Plaintiffs allege that they learned at this time that Midwood had defaulted on a second loan on the property and that the lender was Fletcher Bright, under a different name. After Midwood filed for bankruptcy, Gassaway began foreclosure proceedings in West Virginia against the subject property. These proceedings were stayed when a plaintiff in the instant case filed for bankruptcy in federal bankruptcy court in California. According to the declaration of Fletcher Bright's president,

both Gassaway and FBC [ (Fletcher Bright) ] retained attorney Marc Smith to represent them regarding the pending bankruptcy and settlement negotiations regarding the Shopping Center. Mr. Smith was retained to protect the interests of Gassaway and FBC in the bankruptcy proceeding which was necessitated due to the filing of Dormar Company of its bankruptcy petition in the State of California.

Gassaway appeared in the California bankruptcy proceedings through California counsel, Marc Smith, and obtained relief from the stay.

After obtaining this relief, Marc Smith, on behalf of Fletcher Bright and Gassaway, entered into settlement negotiations with plaintiffs. Smith drafted a proposed settlement in which defendant would purchase the property from plaintiffs in lieu of foreclosure. Plaintiffs were required to acquire the remaining 6% interest in the shopping center and to dismiss the pending bankruptcy proceeding. According to plaintiffs, Smith represented that the agreement would be performed in his California offices on a specified date. In reliance on this representation, plaintiffs expended $40,000 to acquire the remaining 6% (a transaction which occurred in California), voluntarily dismissed the bankruptcy proceeding, and executed and delivered copies of the settlement agreement and the deed to the property. Despite these actions, defendant failed to execute a settlement agreement and instead resumed foreclosure proceedings in West Virginia. Fletcher Bright acquired the property at the foreclosure sale. Defendant's negotiations with the plaintiffs, foreclosure, acquisition of the property, and application of funds for its own benefit rather than for plaintiffs' benefit constitute the basis for plaintiffs' substantive claims in this action.

To determine if it has personal jurisdiction over a defendant, a federal court sitting in California in a diversity proceeding applies California's long arm statute, California Code of Civil Procedure, Sec. 410.10.2  California's statute grants California courts jurisdiction coextensive with the limits of federal due process. Data Disc, 557 F.2d at 1286; Paccar International, Inc. v. Commercial Bank of Kuwait, S.A.K., 757 F.2d 1058, 1062 (9th Cir. 1985). Therefore, to assert jurisdiction over Fletcher Bright, Fletcher Bright must have sufficient minimum contacts with California such that maintenance of the suit would not offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945); Data Disc, 557 F.2d at 1287. The only question in the instant dispute is whether the nature and quality of Fletcher Bright's activities in relation to the three causes of action is sufficient to support the exercise of "specific" jurisdiction over the defendant.3 

We have developed a three-part test to determine whether specific jurisdiction is proper:

(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, 557 F.2d at 1287. The district court's dismissal of the action was based solely on the first prong, that Fletcher Bright's activities did not constitute purposeful availment.

Ordinarily, specific jurisdiction must exist for each cause of action. Data Disc, 557 F.2d at 1289 n. 8 ("Where, as here, a plaintiff raises two separate causes of action, the court must have in personam jurisdiction over the defendant with respect to each claim."). Accordingly, a court must distinguish between the various causes of action in assessing the basis for the court's jurisdiction over the defendant. In the instant case, however, the causes of action are intimately related, and essentially merge into one.4  Plaintiffs' third cause of action based on the settlement negotiations in California alleges that Fletcher Bright, acting in its capacity as manager through representative Marc Smith, breached its duty under the management agreement by inducing the plaintiffs to take action to their detriment. This cause of action merges with plaintiffs' first two claims alleging that Fletcher Bright's actions in this dispute constitute a breach of its fiduciary and contractual duties to plaintiffs under the management contract.5  We will therefore consider all three causes of action together in determining whether there is personal jurisdiction over Fletcher Bright.

We find that Fletcher Bright's alleged actions in California are sufficient to confer jurisdiction over the defendant. Plaintiffs allege that they relied to their detriment on the representations made in California by defendant's California attorney that defendant would purchase the property from plaintiffs. Because of the representations, plaintiffs allegedly spent $40,000 to acquire the remaining 6% interest in the shopping center and voluntarily dismissed the bankruptcy action. According to plaintiffs, Fletcher Bright's inducement of reliance constituted a breach of its duties to plaintiffs under the parties' management agreement. These allegations establish a prima facie showing of personal jurisdiction. In Data Disc, we held that, " [t]he inducement of reliance in California is a sufficient act within California to satisfy the requirement of minimum contact where the cause of action arises out of that inducement." Data Disc, 557 F.2d at 1288; see also Paccar, 757 F.2d at 1064 ("Paccint alleges that CBK's demand for payment in California induced reliance on the part of Chase. This allegation satisfies the first two requirements under Data Disc.").

It also appears that assertion of jurisdiction over Fletcher Bright would be reasonable, thus satisfying the third prong of the Data Disc test. This circuit examines seven factors in determining reasonableness: The extent of defendant's purposeful interjection into the forum state; the burden on the defendant to defend the suit in the chosen forum; the extent of conflict with the sovereignty of the defendant's state; the forum state's interest in the dispute; the importance of the chosen forum to the plaintiff's interest in convenient and effective relief; and the existence of an alternative forum. Federal Deposit Ins. Corp. v. British-American Ins. Co., Ltd., 828 F.2d 1439, 1442 (9th Cir. 1987). Once purposeful availment has been established, however, "the forum's exercise of jurisdiction is presumptively reasonable [, and to] rebut that presumption a defendant 'must present a compelling case' that the exercise of jurisdiction would, in fact, be unreasonable." Corporate Inv. Business Brokers v. Melcher, 824 F.2d 786, 790 (9th Cir. 1987) (quoting Burger King v. Rudzewicz, 471 U.S. 462, 476-77 (1985)).

Accordingly, we hold that the district court erred in dismissing plaintiffs' action for lack of personal jurisdiction. Defendant's actions in California are material to plaintiffs' causes of action for breach of duty under the management contract and are sufficient to confer jurisdiction over Fletcher Bright.

REVERSED AND REMANDED.

 *

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Circuit Rule 36-3

 1

Plaintiffs allege that Gassaway is simply Fletcher Bright under a different name, and that the two are legally indistinguishable for purposes of assessing jurisdiction. Fletcher Bright has tried to argue on appeal that, in counting minimum contacts, Gassaway's contacts with the forum state cannot be used to assert jurisdiction over Fletcher Bright, since Gassaway is a separate legal entity. At this stage of the proceedings, we treat plaintiffs' allegations as true. See Fields, 796 F.2d at 301 ("For the purposes of this appeal, we treat the plaintiff's allegations as correct."). We therefore will consider Gassaway's actions in assessing the court's jurisdiction over Fletcher Bright. It should be noted that certain actions taken by a California attorney in California are central to our determination of personal jurisdiction in this case. It is undisputed that the California attorney was hired to represent both Gassaway and Fletcher Bright; accordingly, for purposes of this appeal, his actions are clearly attributable to Fletcher Bright. Thus, they may be counted for purposes of determining minimum contacts

 2

Section 410.10 provides, "A court of this state may exercise jurisdiction on any basis not inconsistent with the constitution of this state or of the United States." Cal.Civ.Proc.Code Sec. 410.10

 3

The exercise of specific jurisdiction is proper when there is a sufficient connection between the defendant, the litigation and the forum. It is undisputed that Fletcher Bright's activities within California are not so systematic or pervasive as to allow the exercise of "general" jurisdiction over the defendant on a cause of action unrelated to defendant's forum-related activities

 4

In Data Disc, the court modified its statement that there must be jurisdiction over each separate count by adding: "However, if the court determines that there has been a sufficient showing of personal jurisdiction to reach trial with regard to one claim, but not the other, it may or may not be appropriate to assume jurisdiction over the other claim under principles analogous to the doctrine of pendent jurisdiction." Data Disc, 557 F.2d at 1289 n. 8. Were we not to find a showing of personal jurisdiction over all three of the counts but only one or two, we would conclude that this is an appropriate case for invoking those principles and assuming jurisdiction over the entire action

 5

At oral argument both parties characterized the third cause of action as a continuation or extension of the first two causes of action for breach of duty under the management contract