The Planning Group of Scottsdale, L.L.C. v. Lake Mathews Mineral Properties, Ltd (1/21/2011)
Arizona Supreme Court Holds That A Single Test Governs Whether a Court May Exercise Personal Jurisdiction over an Out-of-State Defendant, Regardless of Whether the Plaintiff Has Asserted Tort Claims, Contract Claims, or Both.
The Planning Group of Scottsdale, L.L.C. is an Arizona limited liability company that sells life insurance and makes investments. Clark, an employee of The Planning Group, met with Subke, an Arizona resident, to sell him life insurance. During the meeting, Subke mentioned an investment opportunity involving a mining venture in California, called Lake Mathews Mineral Properties, Ltd., which was represented by a California attorney named Smith.
After speaking with Clark, Subke contacted Smith, who in turn contacted Holmes, Lake Mathews Mineral’s general partner, and a California resident. Holmes authorized the mailing of a due diligence report to Subke in Arizona for delivery to The Planning Group. The due diligence report had been prepared by Evers, Lake Mathews Mineral’s project manager, and mining expert, who also owned Integrated Resources, Inc., a California corporation. Subke brought the report to Clark.
After Clark and The Planning Group’s general counsel reviewed the report, Smith, and Holmes communicated with them extensively by phone, email, letter, and fax in an effort to sell the venture. Clark then went to Los Angeles to meet with Holmes, Smith, and Evers.
After Clark returned to Arizona, Holmes faxed a preliminary agreement to him, which contemplated a more formal agreement, but provided that The Planning Group would advance funding for the venture in installments. The owner of The Planning Group sent a letter accepting the preliminary agreement and noting that the more formal agreement would provide for appropriate security. Holmes approved of this arrangement by sending another letter in response. The Planning Group sent two installment payments, but the parties never reached a final agreement.
The Planning Group sued Subke, Lake Mathews Mineral, Holmes, Smith, Evers, and Integrated Resources for breach of contract and violations of Arizona’s securities laws. It also sought a declaratory judgment that it owned an interest in Lake Mathews Mineral’s mineral deposits and an accounting. All the defendants except Arizona resident Subke filed a motion to dismiss for lack of personal jurisdiction, which the trial court granted. The Court of Appeals affirmed.
The Supreme Court affirmed the dismissal as to Evers and Integrated Resources but reversed as to Lake Mathews Mineral, Holmes, and Smith. In reaching its conclusion, the Supreme Court disapproved of the Court of Appeals’ reasoning, which followed the Ninth Circuit’s approach to personal jurisdiction over out-of-state defendants.
The Ninth Circuit applies a “purposeful availment” test to contract claims and a “purposeful direction” test to tort claims. If a complaint contains both contract and tort claims, the Ninth Circuit determines which test to apply by asking whether the suit sounds primarily in contract or in tort. The Arizona Supreme Court found this analytical framework “problematic in some respects,” noting that the United States Supreme Court has never itself recognized two distinct tests for analyzing questions of personal jurisdiction. Instead, “the Supreme Court cases embody a holistic approach, which in the end poses a single . . . question: Considering all of the contacts between the defendants and the forum state, did those defendants engage in purposeful conduct for which they could reasonably expect to be haled into that state’s courts with respect to that conduct?” If a defendant’s contacts with the forum are sufficient, the plaintiff may bring suit in the forum based on those contacts, regardless of the theory of recovery. The Court also noted the importance of viewing all a defendant’s contacts in their totality, which the Court of Appeals had failed to do.
Applying this approach, the Court concluded that Lake Mathews Mineral, Holmes, and Smith had sufficient minimum contacts with Arizona to authorize jurisdiction. Smith, Holmes, and Lake Mathews Mineral had directed repeated communications to Arizona, attempting to convince The Planning Group to provide funding, and these communications contained the alleged misrepresentations that formed the basis of the securities claims. The defendants’ purposeful direction of these communications to individuals and entities they knew to be in Arizona established sufficient minimum contacts.
Because The Planning Group’s contract claims arose “from the same set of operative facts” as the misrepresentation claims, jurisdiction existed for those claims, as well. Alternatively, however, Lake Mathews Mineral, Holmes, and Smith purposefully availed themselves of Arizona’s benefits and protections because they actively sought out a loan from an Arizona company with repayment to be made in Arizona. The Court also found that the exercise of jurisdiction over these defendants was reasonable because the plaintiff was an Arizona company, the claims were based on Arizona law, and the defendants were residents of a neighboring state.
With respect to Evers and Integrated Resources, the Court reached the opposite conclusion. Evers had prepared the due diligence report before Subke’s contact with Clark, and there was no evidence that Evers knew the report would be sent to Arizona. Further, Evers had not directed any communication into Arizona himself. He was involved in the face-to-face negotiations in California and stood to profit off the venture, but these facts did not establish purposeful conduct directed toward Arizona. Mere knowledge that he was dealing with an Arizona resident was insufficient to establish jurisdiction. “Otherwise, a California resident who collides on the highways of that state with a car that he knows to have an Arizona license plate would subject himself to personal jurisdiction here, despite the lack of any other contact with this state.”
PRACTICE NOTE: The superior court decided the defendants’ motion to dismiss based on affidavits submitted by the parties without holding an evidentiary hearing. On that factual record, the Supreme Court reviewed the trial court’s ruling de novo, viewing the facts in the light most favorable to the plaintiffs but accepting the uncontradicted facts put forth by the defendants as true
Vice Chief Justice Hurwitz authored the opinion for a unanimous Court.