its third-party action against KPMG and refile in California. If that happens, CalFed fears that the potential applicability of California's statute of limitations may bar its claims because the third-party action has been pending in this district since July, 1994.
The court recognizes that the settlement agreement is a self-imposed constraint on CalFed and not one binding on the court. Where CalFed chooses to fence itself in, it cannot cast the court as the gatekeeper faced with two choices: transfer or doom. Moreover, CalFed is not completely barred by California's statute of limitations if faced with filing anew in California. The indemnification claim would survive; a claim for indemnification or contribution does not accrue until CalFed pays the settlement amount to plaintiff.
CalFed would be barred from asserting its negligence claim,
however, and possibly the breach of contract claim.
Lastly, CalFed's characterization of a potential limitations bar, perhaps solely affecting the negligence claim, is not absolute. CalFed may litigate here in New York
or in England.
The court also may grant a § 1404(a) motion by a plaintiff if the court believes that it would be in the interests of justice to do so, even if CalFed can show no change in circumstance. CalFed directs the court to Gipromer v. SS Tempo, 487 F. Supp. 631 (S.D.N.Y. 1980) (MacMahon, J.), where the court decided that the transfer requested by the plaintiff was appropriate although the plaintiff could show no change in circumstances after the filing of the complaint. In that case, the court relied on Corke v. Sameiet M.S. Song of Norway, 572 F.2d 77 (2d Cir. 1978), where the Second Circuit reversed a dismissal based on lack of personal jurisdiction and ordered transfer where plaintiff had chosen the wrong forum. The Second Circuit court did not cite any change of circumstance but instead balanced relative hardships--including a clear limitations bar if plaintiff were to file a new action--entailed in granting or denying transfer. After balancing the hardships to the parties before it, the Gipromer court transferred the case because it would serve the interest of justice since a dismissal would subject the plaintiff to a statute of limitations bar in Maine.
KPMG is incorrect that Spar, Inc. v. Information Resources, Inc., 956 F.2d 392 (2d Cir. 1992) requires a different result. Firstly, the Circuit panel declined to accept the Fourth Circuit's analysis, not the Corke court's analysis, that "in all cases in which there is a procedural bar to suit in the transferor district, but not in the transferee district, the action should be transferred." Id. at 394. Secondly, while the Circuit court denied the transfer request by plaintiffs who failed to timely pursue their claim and failed to research the applicable statute of limitations, the court reaffirmed that the guiding principle behind the decision to transfer is whether the decision is "in the interests of justice." Id. at 395.
In addition, KPMG refutes CalFed's reliance on Gipromer and Corke and points out that transfer was premised on § 1406 rather than § 1404(a). However, "a district court need not elect between [§ 1404(a) and § 1406(a)]; it 'has power to transfer the case even if there is no personal jurisdiction over the defendants, and whether or not venue is proper in [the] district, if a transfer would be in the interest of justice.'" Fresca v. Arnold, 595 F. Supp. 1104, 1105 (E.D.N.Y. 1984).
KPMG also argues that CalFed decidedly chose this forum at least twice in the past--to file the complaint and the amended complaint. CalFed decidedly chose to bring an action against KPMG to recoup any damages paid out to the plaintiffs when CalFed filed its complaint in New York nearly one year after the alleged breach by KPMG. In other words, KPMG argues, the settlement agreement has not raised anew the issue of a procedural bar because CalFed knew that California would be its best place to file the suit since it knew where the convenience of witnesses lay and knew that personal jurisdiction over KPMG in New York was not a certainty because KPMG was not a party to the sales agreement. The question becomes whether the court should overlook the fact that the plaintiff chose this forum and that now, because of the parties' litigation strategies, the interest of justice necessitates transfer.
In this case, the court finds that the settlement negotiations and the agreement are a sufficient change in circumstance to warrant the court's consideration of a § 1404(a) motion by third-party plaintiff CalFed.
The court is pleased with the mostly successful efforts of the parties to resolve their dispute through negotiation rather through litigation even more protracted than it currently appears. Furthermore, the interests of justice--the court's role in ordering mediation--lend support to consideration of the transfer motion. Thus, if CalFed satisfies the remaining requirements for transfer, the court will grant this motion--in the interests of justice.
II. Could the Action Have Been Brought In Transferee District
To transfer under § 1404(a), the movant must show that the action at bar could have been brought in the proposed transferee district. CalFed must show that venue is proper in the Central District of California and that the district has personal jurisdiction over KPMG on the date of the commencement of this claim. Wils v. Schulman, No. 91-2078, 1991 U.S. Dist. LEXIS 10173, 1991 WL 143444, at *1 (S.D.N.Y. July 24, 1991) (Carter, J.); Gipromer, 487 F. Supp. at 633.
In determining whether CalFed can show that KPMG is subject to jurisdiction in California, the court follows California law. CalFed moves to transfer the action to California prior to discovery on the issue of jurisdiction. As a result, CalFed need make only a prima facie showing of jurisdiction. Pacific Atlantic Trading Co., Inc. v. The M/V Main Express, 758 F.2d 1325, 1326-27 (9th Cir. 1985) (when "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"); Data Disc, Inc. v. Systems Technology Assocs., 557 F.2d 1280, 1285 (9th Cir. 1977). The court will construe the facts in the light most favorable to CalFed and resolve all doubts in its favor. Pacific Atlantic, 758 F.2d at 1327.
For a California district court sitting in diversity, jurisdiction must comport with the constitutional requirement of due process and with California's long-arm statute, Cal. Code Civ. P. § 410.10. Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1484 (9th Cir. 1993) ("California's long-arm statute allows courts to exercise personal jurisdiction over defendants to the extent permitted by the Due Process Clause of the United States Constitution"); Vibration Isolation Prods., Inc. v. American National Rubber Co., 23 Cal. App. 3d 480, 100 Cal. Rptr. 269, 271 (Ct. App. 1972). We need only determine whether personal jurisdiction would meet the requirements of due process because the state and federal limits to jurisdiction are coextensive. Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 269 (9th Cir. 1995); Core-Vent Corp., 11 F.3d at 1484.
The due process clause prohibits the exercise of jurisdiction over nonresident defendants unless those defendants have "minimum contacts" with the forum state so that the exercise of jurisdiction "does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 90 L. Ed. 95, 66 S. Ct. 154 (1945) (citations omitted). Where the nonresident defendant has not had "continuous and systematic" or "substantial" contacts with the state sufficient to subject it to general jurisdiction, the court may exercise specific or limited jurisdiction if the specific cause of action arises out of a defendant's more limited contacts with the state. Richard Roth v. Gabriel Garcia Marquez, 942 F.2d 617, 620 (9th Cir. 1991) (citing Data Disc, 557 F.2d at 1287).
Here, CalFed alleges that California has limited jurisdiction over KPMG. Therefore, CalFed must satisfy the following three-part test to show that KPMG has sufficient "minimum contacts" with the forum: (1) the nonresident defendant purposefully directed his activities or consummated some transaction with the forum or residents thereof, or performed some act by which he purposefully availed himself of the privilege of conducting activities in the forum, thereby invoking the protection of its law; (2) the claim arises out of or is related to the defendant's forum-related activities; and (3) the exercise of jurisdiction comports with fair play and substantial justice, i.e., it is reasonable. 942 F.2d at 620-21; Lake v. Lake, 817 F.2d 1416, 1420-21 (9th Cir. 1987).
1. Purposeful Availment
The first prong of the test, purposeful availment, requires that the defendant engage in some act purposefully to avail himself of the benefits and protection of the forum state to ensure that a person is not haled into court as the result of random, fortuitous, or attenuated contacts or on account of the unilateral activities of third parties. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 85 L. Ed. 2d 528, 105 S. Ct. 2174 (1985) (citations and internal quotations omitted). Thus the court's inquiry is whether the defendant's contacts with the forum are attributable to his actions or are solely the actions of the plaintiff; the defendant must have performed some type of affirmative conduct which allows or promotes the transaction of business with the forum state. Roth, 942 F.2d at 621; Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1419 (10th Cir. 1988) (citing Burger King, 471 U.S. at 474-75, "jurisdiction is proper, however, where the contacts proximately result from actions by the defendant himself that create a 'substantial connection' with the forum State").
In examining a defendant's purposeful availment, California distinguishes contract from tort actions. Ziegler v. Indian River County, 64 F.3d 470, 473 (9th Cir. 1995); Core-Vent Corp., 11 F.3d at 1486. In contract actions, a party may not solely rely upon a contract between the nonresident defendant and a party in the forum state to demonstrate sufficient minimum contacts for jurisdiction; the court must also evaluate "prior negotiations . . . contemplated future consequences . . . the terms of the contract and the parties' actual course of dealing." Burger King, 471 U.S. at 479; Ziegler, 64 F.3d at 473. In tort cases, however, jurisdiction may attach if an out-of-state defendant merely engages in conduct aimed at, and having effect in, the situs state. Calder v. Jones, 465 U.S. 783, 789-90, 79 L. Ed. 2d 804, 104 S. Ct. 1482 (1984); Ziegler, 64 F.3d at 473 (citing Roth, 942 F.2d at 621) ("'within the rubric of 'purposeful availment'[,] the Court has allowed the exercise of jurisdiction over a defendant whose only 'contact' with the forum state is the 'purposeful direction' of a foreign act having effect in the forum state.'")).
CalFed brings this action for breach of contract,
negligence, and indemnification or contribution. (Am. 2d Third-Party Compl. PP 22-25, 26-29, 30-31). CalFed will have satisfied the purposeful availment prong of the test if the court finds that KPMG purposefully availed itself of the privileges and protection of California under alleged contacts that sound either in contract or tort.
However, the court does not reach a decision on the contacts sounding in tort because the court finds that the alleged contract contacts constitute purposeful availment.
CalFed argues that the relationship between CalFed and KPMG constitutes purposeful minimum contacts with California sufficient for the exercise of jurisdiction over KPMG. Construing the facts in favor of CalFed, Pacific Atlantic, 758 F.2d at 1327, a verbal contract arose between CalFed and KPMG
when CalFed engaged KPMG to perform complete and independent audits of its wholly owned, London-based subsidiary, Anglo; to render business advice concerning the London insurance market; to report to CalFed, PMM and Anglo any market problems that might affect CalFed's investment; and, to advise CalFed on potential investments in related companies. (Am. 2d Third-Party Compl. P 9).
However, as noted above, CalFed must show more than the existence of a contract with a resident of the forum state for California to exercise jurisdiction over nonresident KPMG. Burger King, supra, 471 U.S. at 478. The court must look to "prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing" to determine if the defendant's contacts are "substantial " and not merely "random, fortuitous, or attenuated." Id. at 479, 480 (internal quotations omitted).
With regard to contemplated future consequences, i.e., whether continuing contacts with California were envisioned, FDIC v. British-American Ins. Co., Ltd., 828 F.2d 1439, 1443 (9th Cir. 1987), the alleged contract clearly contemplated interaction between CalFed and KPMG for an unspecified amount of time. By its terms--rendering business advice to CalFed, reporting market problems that might affect CalFed's investment, and, advising CalFed on potential investments--the contract indicated continuing contacts with CalFed in California.
Furthermore, CalFed alleges that both parties agreed to the contract with an understanding that KPMG's role was important for CalFed's year-end consolidated financial statements and CalFed's overall financial health--two facets of CalFed's operations that necessarily imply future contact with CalFed and California.
The parties' actual course of dealing, as alleged by CalFed, illustrates this alleged understanding: one meeting in California between Tom Allen, a partner of KPMG, and CalFed's senior management, including the chief financial officer, the president, and the chairman of the board, on September 20, 1988; two meetings in California between Tom Allen and CalFed's account team at PMM on September 21, 1988 and September 22, 1988;
contact through written and telephone communication between CalFed and KPMG; and KPMG's use of PMM in Los Angeles as its agent for the purpose of both initiating the relationship with CalFed and facilitating the performance of KPMG's responsibilities on behalf of CalFed.
KPMG counters that even within the parameters of CalFed's allegations, CalFed initiated all of the contacts with KPMG by going to London to avail itself of London's insurance market, auditors and advisors. The court recognizes that CalFed's alleged contacts, disputed by KPMG, have been found insufficient indicators of purposeful availment when offered without other supporting contacts.
Here, however, the verbal contract alleged by CalFed imposed an obligation upon KPMG larger than KPMG asserts. It is this alleged obligation--supported by allegations that KPMG affirmatively offered its opinion and expertise beyond an auditing function related to Anglo--that leads the court to conclude that KPMG would not be haled into California because of "random, fortuitous, or attenuated" contacts. Burger King, 471 U.S. at 475.
In satisfying this Burger King standard, CalFed has alleged that the third-party defendant has performed affirmative conduct--rendering business advice on potential purchases by CalFed and advice as to how CalFed could better understand the London insurance market--which allows or promotes the transaction of business with California, i.e., CalFed's financial growth. Roth, 942 F.2d at 621.
The court finds that based on the affidavits and submissions to the court, CalFed has made a prima facie showing of purposeful availment. See also id. (finding personal jurisdiction even though the plaintiff had initiated contact with nonresident defendants because there was enough purposeful availment based on the future consequences of negotiated contract).
2. Arising Out of Forum-Related Activities
CalFed's claims against KPMG arise out of KPMG's alleged breach of the duty of good faith inherent in the verbal contract with CalFed. Because the contract and the continuing obligation between the parties comprise KPMG's contacts with California, CalFed satisfies this element of the limited jurisdiction test. Hirsch v. Blue Cross, Blue Shield of Kansas City, 800 F.2d 1474, 1480-81 (9th Cir. 1986).
Finally, the limited jurisdiction test requires that the exercise of jurisdiction be reasonable. Reasonableness is considered as a separate factor in determining the existence of limited personal jurisdiction, rather than, for example, as part of determining whether purposeful availment is reasonable. Sinatra v. National Enquirer, Inc., 854 F.2d 1191, 1198 (9th Cir. 1988). Seven factors have emerged as relevant to this inquiry:
(1) The extent of purposeful interjection into the forum state;
(2) The burden on the defendant of defending in the forum;