Klenz v. AVI International

2002 SD 72, 647 N.W.2d 734, 2002 S.D. LEXIS 81

Opinions

SABERS, Justice.

[¶ 1.] Ivana Klenz commenced a lawsuit against AVI International (AVI) after it refused a demand for payment of legal expenses incurred in a wrongful death suit initiated by Klenz. AVI moved for summary judgment and the trial court granted the motion on the basis that 2) there was no personal jurisdiction over AVI.. Klenz appeals. We reverse Issue 2), but affirm Issue 3) on the basis that there is no sufficient showing that the'forum selection clause is invalid.

FACTS

[¶ 2.] In August 1996, Jan Wunderlich, a seventeen-year-old foreign exchange student from Germany, was placed by AYU-SA International in a host home in Newell, South Dakota. As a foreign exchange student in the AYUSA International program, Wunderlich was insured through AVI under the “Security Pass’Port” program, specifically Policy No. 290-682 ' AVI/AYU. Wunderlich received an AVI insurance identification card, identifying him as an insured participant. AVI obtained this insurance policy through Chubb Insurance of Europe, which was referred to as the insurer. AVI was denominated a broker, AYUSA International was denominated the policy holder and Jan Wunderlich was denominated the beneficiary.

[¶ 3.] The insurance policy was effective for the 1996-97 academic year and provided worldwide coverage for medical/accident, dental, travel expense, death benefits, disability, third party liability and legal expenses. Specifically, with respect to legal expense coverage, the policy covered necessary and reasonable attorney and litigation expenses incurred by the insured as a plaintiff or defendant in a legal action. Coverage began when Wun-derlich departed from Germany and would have ended when he returned to Germany.

[¶ 4.] On October 12, 1996, Wunderlich was killed in a car accident on Highway 79, near rural Newell, Butte County, South Dakota, while a passenger in a friend’s vehicle. On March 25, 1999, Klenz, Wun-derlich’s mother, was appointed as special administratrix of his estate in Butte County. Klenz brought a wrongful death suit against the host family, the driver of the vehicle and AYUSA International. At the conclusion of. the suit, Klenz demanded payment of legal expenses from AVI. AVI refused, causing Klenz to bring this action against AVI for legal expenses in Butte County.

[¶ 5.] AVI is a French corporation with its principal place of business in France. It- maintains a claims office at 26 Third Street, San Francisco, California, 94103. Klenz served AVI through its claims office in San Francisco with a summons and complaint on August 2, 2000. On January 16,. 2001, AVI filed a motion to dismiss asserting lack of personal jurisdiction over AVL Following a hearing on March 12, the trial court denied AVI’s motion to dismiss on March 16. AVI then filed a motion to reconsider and a hearing was held on April 12. At that meeting the parties agreed to convert the motion to dismiss into a motion for -summary judgment, with the understanding that any order- of summary judgment would be appealed to this Court. The trial court granted summary judgment in favor of AVI on May 8, 2001.

STANDARD OF REVIEW

[¶ 6.] Our standard of review for summary judgment is well established and is “whether a genuine issue of material fact exists and whether the law was correctly applied.” Manuel v. Wilka, 2000 SD 61, ¶ 17, 610 N.W.2d 458, 462 (citing Parmely v. Hildebrand, 1999 SD 157, ¶7, 603 N.W.2d 713, 715-16 (citations omitted)).

[¶ 7.] 1. WHETHER KLENZ’S APPEAL IS BARRED BECAUSE OF THE AGREEMENT TO CONVERT A MOTION TO DISMISS INTO A MOTION FOR SUMMARY JUDGMENT.

[¶ 8.] AVI argues that this appeal is barred by the parties’ agreement for summary judgment. During the April 12, 2001 hearing on the motion to dismiss, the trial court made the following statements.

[Wje’ve got a very unique set of geographic circumstances, I am still dumfounded that no place in the entire world has made the determination that each of you is asking me to make, and I think that that’s something that should be decided before you guys spend thousands of dollars on trial preparation and then we try the case and maybe end up with a verdict that gets tossed. So I’m inclined at this point to treat it as a summary judgment, grant it as a summary judgment, dismiss the case and rule on everything that’s been presented so that you get it decided once on jurisdiction issues, the forum selection clause, and the policy, and anything else that’s being raised, so if you proceed- with trial, you know that at least you don’t have that issue gnawing at you.

Both parties agreed with the trial court’s comments and the trial court converted the motion to dismiss to a motion for summary judgment and granted summary judgment.

[¶ 9.] AVI asserts that when Klenz agreed to the conversion of the motion to dismiss, she was not entitled to appeal the trial court’s decision. This argument is without merit. The parties’ agreement to convert AVI’s motion to dismiss to a motion for summary judgment is not a stipulation for summary judgment. The agreement to convert the motion was done with the intent of appealing the case to this Court. It was not an agreement that summary judgment was appropriate on the merits.

[¶10.] 2. WHETHER THE TRIAL COURT ERRED IN GRANTING SUMMARY JUDGMENT ON THE BASIS THAT IT LACKED PERSONAL JURISDICTION OVER AVI.

[¶ 11.] ■ AVI asserts that it lacked sufficient minimum contacts with South Dakota to subject it to personal jurisdiction. AVI argues that, because it is an insurance broker, and not an insurer, the trial court had no way of obtaining jurisdiction over it. Specifically, AVI contends that it could not have anticipated being haled into court in the state because it did not issue the insurance policy and merely found a company to underwrite the policy.

[¶ 12.] This Court has set out the principles for- determining when circumstances provide sufficient contacts between -a nonresident defendant and this state to support personal jurisdiction. These principles are well established.

First, the defendant must purposefully avail himself of the privilege of acting in the forum state, thus invoking the benefits and protections of its law. Second, the cause of the action must arise from defendant’s activities directed at the forum state. Finally, the acts of defendant must have substantial connection with the forum state to make the exercise of jurisdiction over defendant a reasonable one. An important factor bearing upon reasonableness of asserting jurisdiction is to determine if defendant’s conduct and connection with the forum state are such that he would have reasonably anticipated being brought into court there.

Miller v. Weber, 1996 SD 47, ¶8, 546 N.W.2d 865, 867 (quoting Opp v. Nieuwsma, 458 N.W.2d 352, 355-56 (S.D.1990)).

[¶ 13.] While AVI may not be the primary insurer, it did issue the Security Pass’Port, which is an insurance policy. The Security Pass’Port information provided to the student as beneficiary includes: (1) an AVI insurance policy number; (2) an AVI International insurance I.D. card; (3) the address for the AVI Insurance Claim Service; (4) the events that trigger insurance coverage; and, (5) the limits of the AVI insurance policy coverage. And, as the issuer of this Security Pass’Port policy, AVI is a broker and a guarantor or insurer of the policy.

[¶ 14.] Personal jurisdiction may be obtained over a foreign defendant if the plaintiffs claim arises out of or relates to the defendant’s contacts with the forum. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 2181-82, 2185, 85 L.Ed.2d 528, 540-41 (1985). Furthermore, a single contact with the-forum ⅛ sufficient if the plaintiffs claim arises out of that contact. See McGee v. Int’l Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223, 226 (1957).

[¶ 15.] Wunderlich was a foreign exchange student in South' Dakota. During this time he was covered by the provisions of the Security Pass’Port. The accident in which he was killed occurred in South Dakota and the subsequent wrongful death suit was brought in South Dakota. The purpose of the insurance policy or Security Pass’Port policy issued by AVI is to provide worldwide coverage for the foreign exchange student while he/she is away from home. As the broker, guarantor, and insurer of the policy, AVI should have anticipated that it could be brought into court wherever the insured foreign exchange student resided or traveled.

[¶ 16.] AVI, as a broker, guarantor and insurer, did have a substantial connection with South Dakota and exercising personal jurisdiction over it is not improper. Under these circumstances, AVI cannot persuasively argue that it could not have reasonably anticipated being brought into court in this state.

[¶ 17.] 3. WHETHER THE FORUM SELECTION CLAUSE IN THE AVI INTERNATIONAL SECURITY PASS’PORT IS SHOWN TO BE UNFAIR OR UNREASONABLE IN THIS ACTION FOR ATTORNEY’S FEES, MAKING IT INVALID.

[¶ 18.] AVI argues that Klenz is bound by the forum selection clause included- in the Security Pass’Port. The AVI International Security Pass’Port provides in part:

This contract has been signed in France by the policy holder [AYUSA International] as the insurance companies un derwriting the contract are located in Paris, France.

According to the French insurance regulation and the French consumer act, all disputes between the policyholder or the insured and the insurance companies must be brought to court in France.

Accordingly, AVI argues that Klenz is required to bring her action in France.

[¶ 19.] As indicated, a hearing was held on April 12, 2001, to consider AVI’s motion to dismiss and determine whether that motion should be converted into a motion for summary judgment. During the hearing, the trial court stated:

If I grant the motion to dismiss for lack of jurisdiction over the person, and further find that there is insufficient evidence of an adhesion contract, therefore, the forum selection clause in the policy is valid, then you have a final judgment from which you can appeal and the Supreme Court has to hear it, and then they have to tell us whether or not there is jurisdiction over the person before we try this case.

Because I could see the Supreme Court saying there is no activity by the Defendant, whether it’s the insurance company or just a broker, that subjects this Defendant to jurisdiction in this state or creates the sufficient minimum contacts. Or they may say even if there was, there is a valid forum selection clause, so you people wasted a year and a half of your time getting this case to a verdict.

Then I can see them on the other hand maybe coming back and thinking like I was thinking, and that is when you write a policy of insurance good all over the world that provides coverage for up to $600,000 in legal expenses that are going to be incurred outside of the country in which this policy is written and can only occur outside that country, therefore, under these unique circumstances, there is sufficient minimum contact with any country or state in which this foreign exchange student travels to create minimum contacts with that forum and subjects the company to liability.

I could see the Court saying that as a matter of public policy, that this is totally useless, worthless insurance coverage to the extent of $600,000 because nobody can 'afford to go to France to litigate the policy. That’s where Fm at with this thing:

(emphasis added)'.

[¶ 20.] The trial court granted summary judgment because of lack of jurisdiction. It heard no .evidence regarding the unfairness or unreasonableness of the forum selection clause and made no specific determination or, findings on the issue. Despite the statements of the trial court set forth above in ¶ 19, it did not make a ruling as to the invalidity of the forum selection clause.

[¶ 21.] This Court has stated that “when the parties to a contract agree that actions arising from that contract will be brought in a particular jurisdiction, that agreement should be given effect unless it is shown that to do so would be unfair or unreasonable.” Green v. Clinic Masters, Inc., 272 N.W.2d 813, 815 (S.D.1978). In Green, this Court cited the following authority:

The modern cases say that contracts limiting judicial jurisdiction will be respected if there is nothing unfair or unreasonable about them, but will be disregarded if they are unfair or unreasonable. They are more likely to be sustained if they related to disputes already arisen or contemplated, but that is not a rigid limitation. They are less likely to be sustained if they appear in adhesion1 contracts' prepared-in advance by one of the parties, and will generally be disregarded if genuine inconvenience or inadequacy of remedy would ensue from them.

272 N.W.2d at 815 (citing R. Leflar, American Conflicts Law, 3d ed., § 52, p. 100-101) (footnotes omitted). The “party seeking to obviate the agreement has the burden of proving its unreasonableness.” Green, 272 N.W.2d at 816 (citing Cent. Contracting Co. v. C.E. Youngdahl & Co., 418 Pa. 122, 209 A.2d 810, 816 (1965)). See, e.g., Rozeboom v. Northwestern Bell Tel. Co., 358 N.W.2d 241, 243 (S.D.1984) (holding that a limitation of liability clause in a standardized contract was unreasonable and unconscionable in light of the facts of the case).

[¶ 22.] As a member of the AYUSA International program, it appears Wunder-lich had little choice but to accept the terms and conditions of the program. He never negotiated the provisions of the Security Pass’Port, nor did he have the opportunity to negotiate them. Neither Wunderlich nor Klenz signed this contract. AVI argues that this forum selection clause is reasonable because it reduces the cost of the insurance to the insured. However, the provision requiring that any litigation must be pursued in France tends to defeat the purpose of sending the Security Pass’Port along with the student. The purpose of the Security Pass’Port is to provide the student with worldwide insurance coverage. Limiting the insured student’s forum for dispute resolution to France is somewhat contrary to providing worldwide coverage and to the purpose thereof.

[¶ 23.] However, AVI may be inconvenienced if it is required to litigate claims for attorney’s fees in any forum, worldwide. In Barnett v. Network Solutions, Inc., 38 S.W.3d 200 (Tex.Ct.App.2001), the Texas Court of Appeals addressed a similar situation. It stated:

We also disagree with [plaintiffs] claim that the forum selection clause was placed in the registration agreement only to discourage legitimate legal claims. Even though NSI does not have the burden on this issu^, the record reveals that there were legitimate rea^ sons for including the forum selection clause in the contract. .NSI has received more that 6,000,000 registration applications from throughout the world. Without a forum selection provision, NSI could be sued in forums, throughout the world. Furthermore, because NSI charged only $35 per registration, the forum selection clause was a reasonable way to keep the price of the service low and to eliminate uncertainties.

Id. at 204 (internal citations omitted) (emphasis added). Although not provided in the record, the number of students insured under the AVI Pass’Port would be substantial.

[¶ 24.] A forum selection clause may be unreasonable in light of this Court’s factors for determining reasonableness:

1. The law which governs the formation and construction of the contract;

2. The residency of the parties;

3. The place of execution and/or performance of the contract; and,

4.- The location of the parties and witnesses involved in the litigation.

Baldwin v. Heinold Commodities, Inc., 363 N.W.2d 191, 194 (S.D.1985).

[¶25.] Undfer these factors, the forum selection clause may be reasonable. First, the law governing the formation and construction of the contract is the law of France, not the law of South Dakota. Second, both parties are residents of Europe. Third, the place of execution and performance of the contract was Europe, if not France. Finally, the location of the parties and witnesses favors litigation in France. Klenz, AVI and Chubb are located in Europe and only Klenz’s attorney is located in South Dakota.

[¶ 26.] However, it remains difficult to determine whether the forum selection clause is unfair or unreasonable under South Dakota law because of the undeveloped record and incomplete reasoning'on the part of the trial court. The record does not specify the litigation expenses being sought by Klenz as administratrix or the amount thereof. Nor does the record disclose whether the expenses'incurred in the underlying wrongful death suit have been paid to trial counsel or whether Klenz is seeking reimbursement for litigation expenses already paid.

[¶ 27.] The policy provides in part on page 17:

IMPORTANT: Only the insurance company may appoint a legal counsel. No coverage will be provided if this right is in any way violated. If the company made any payments to you under this policy, it is entitled to pursue a legal settlement with the party responsible for the damage.

If only the insurance company may appoint legal counsel, and, presuming this provision has been waived or executed in the area where the beneficiary was injured, it may impose upon the beneficiary or his heirs the increased expense of hiring second appointed counsel. However, it may be equally inconvenient for AVI to hire counsel in a foreign forum.

[¶ 28.] These and other matters are important factors to consider in determining the reasonableness and validity of the forum selection clause in this case. As stated, from this record, it is difficult to determine whether the forum selection clause presents a “genuine inconvenience or inadequacy of remedy” to this plaintiff as required under Green.

[¶ 29.] We acknowledge that plaintiffs counsel may have felt compelled to agree to changing the dismissal motion to a motion for summary judgment without having all evidence admitted. However, the burden is upon the challenger to show that the forum selection clause is unreasonable or unfair and thereby invalid under the circumstances. This burden has not been met and we must affirm this issue.

[¶ 30.] Therefore, we reverse Issue 2 and affirm Issue 3.

[¶ 31.] GILBERTSON, Chief Justice, and GORS, Acting Justice, concurs. [¶ 32.] AMUNDSON and KONENKAMP, Justices, concur in part and concur in result in part. [¶ 33.] ZINTER, Justice, not having been a member of the Court at- the time this action was submitted to the Court, did not participate.