Olivier v. Merritt Dredging Co.

954 F.2d 1553, 1992 WL 28200

• Court: Court of Appeals for the Eleventh Circuit
• Decided: March 6, 1992
• Docket: No. 91-7078
• Status: Published

Opinions

JOHN W. PECK, Senior Circuit Judge:

Sherman J. Olivier, a resident of Louisiana and a seaman injured aboard a vessel in Alabama, appeals the dismissal of writs of garnishment issued to the Louisiana Insurance Guaranty Association [LIGA] and the South Carolina Property and Casualty Insurance Guaranty Association [SCIGA]. The district court in Alabama dismissed the writs on the ground that the court lacked personal jurisdiction over the garnishees. The court held that LIGA and SCIGA did not have sufficient minimum contacts with Alabama in order to be subject to personal jurisdiction within the state. Because we find that SCIGA and LIGA had sufficient minimum contacts with Alabama and we believe that judicial economy would best be served by keeping this litigation within that forum, we reverse the district court’s order.

I. FACTS

On August 1, 1983 Sherman J. Olivier sustained personal injuries while employed by the Merritt Dredging Company [Merritt] as a sailor aboard a vessel in Alabama on the Alabama River. At the time of his injuries, Olivier was a resident of Louisiana. Merritt was a South Carolina corporation with its principal place of business in South Carolina.

On March 30,1984 Merritt filed for bankruptcy in South Carolina. In order to protect the bankruptcy estate, the bankruptcy court temporarily stayed the personal injury suit Olivier had brought against Merritt in Alabama. The bankruptcy court lifted its stay on September 26, 1985.

To provide insurance for its various operations including its activity in Alabama, Merritt contracted with the Midland Insurance Company [Midland]. Like Merritt, Midland faced financial difficulties. On April 3,1986 Midland, a New York corporation, was liquidated pursuant to an order of the Supreme Court of New York. The liquidation proceedings once again stayed Olivier’s personal injury suit against Merritt.

The second stay was lifted on May 22, 1987. In December 1988 a jury in Alabama awarded Olivier $507,340.00. On February 14, 1989 Olivier received a judgment against Merritt of $522,190.00, interest from the date of the judgment, and costs.

Due to the insolvency of both Merritt and its insurer, Midland, Olivier requested that the district court in Alabama issue writs of garnishment to LIGA, SCIGA, and the Alabama Insurance Guaranty Association [AIGA]. On July 21, 1989 the district court issued the writs.

AIGA, LIGA, and SCIGA are unincorporated associations created by state statutes. See Ala.Code §§ 27-42-1 et seq. (1975), La.Rev.Stat.Ann. §§ 22:1375 et seq. (West Supp.1991), S.C.Code Ann. §§ 38 — 31— 10 et seq. (Law.Co-op. 1976).¹ The AIGA writ is not at issue in this appeal. The guaranty associations were established for the purpose of avoiding financial loss or excessive delay in payment to claimants or policyholders due to the insolvency of an insurer. See La.Rev.Stat.Ann. §§ 22:1376, 22:1382, S.C.Code Ann. § 38-31-60; see also Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass’n, 896 F.2d 674, 676 (2d Cir.1990). Insurance companies that underwrite risks in the state in which the guaranty association exists are required to pay assessments necessary to fund the guaranty association. See La.Rev.Stat.Ann. §§ 22:1380, 22:1382, S.C.Code Ann. §§ 38-31-40, 38-31-60. Prior to its liquidation, Midland was subject to assessments by LIGA and SCIGA. Pursuant to LIGA’s and SCIGA’s motions, on December 21, 1990 the district court in Alabama dismissed the writs of garnishment it had previously issued on the ground that the court lacked personal jurisdiction over the garnishees. Olivier appeals the district court’s order of December 21, 1990.

II. DISCUSSION

A. ALABAMA LONG ARM JURISDICTION

This circuit conducts de novo review of a district court’s dismissal of an action for lack of personal jurisdiction. Madara v. Hall, 916 F.2d 1510, 1514 (11th Cir.1990). We begin our inquiry into whether the district court properly refused to assert personal jurisdiction with a two-part analysis. First, we consider whether the district court could obtain personal jurisdiction over the defendants pursuant to the applicable state long-arm statute. Second, we consider whether the exercise of personal jurisdiction would violate the due process clause of the Fourteenth Amendment to the United States Constitution.

In interpreting the reach of the state’s long-arm statute, the Supreme Court of Alabama has extended the jurisdiction of Alabama courts to the extent permissible under the due process clause of the Fourteenth Amendment. See Alabama Waterproofing Co., Inc. v. Hanby, 431 So.2d 141, 145 (Ala.1983). Thus, in order to determine whether the district court in Alabama properly refused to exercise personal jurisdiction, we need only consider whether the exercise of jurisdiction would have satisfied the requirements of due process.

B. DUE PROCESS

The determination of whether a district court can exercise personal jurisdiction over a non-resident defendant is itself a two-part inquiry. In the first prong of our due process inquiry, we consider whether the defendants, LIGA and SCIGA, engaged in minimum contacts with the State of Alabama. In the second prong of our inquiry, we consider whether the exercise of personal jurisdiction over the defendants would offend “traditional notions of fair play and substantial justice.” Madura, 916 F.2d at 1516 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)).

1. Minimum Contacts

In analyzing the parties’ arguments we are guided by the language of several Supreme Court opinions. As the Supreme Court has stated:

[MJinimum-contacts analysis presupposes that two or more States may be interested in the outcome of a dispute, and the process of resolving potentially conflicting “fundamental substantive social policies” can usually be accommodated through choice-of-law rules rather than through outright preclusion of jurisdiction in one forum, (citations omitted) Burger King Corp. v. Rudzewicz, 471 U.S. 462, 483 n. 26, 105 S.Ct. 2174, 2188 n. 26, 85 L.Ed.2d 528 (1985).

In 1989 Olivier, a resident of Louisiana, received a judgment in Alabama (the place where he sustained his injuries) against Merritt, a South Carolina corporation. Olivier contends that the judgment entitled him to proceed against Merritt's bankrupt insurer, Midland. Olivier maintains that his claim is a “covered claim” within the meaning of the Louisiana and South Carolina statutes governing the respective state insurance guaranty associations; Midland is an insolvent insurer and the claimant or insured was a resident of either Louisiana or South Carolina at the time of the insured event. See La.Rev.Stat.Ann. § 22:1379(3)(a)², S.C.Code Ann. § 38-31-20(6)³.

Furthermore, Olivier argues that since his claim is a “covered claim”, according to the respective statutes LIGA and SCIGA are deemed insurers to the extent of Midland’s obligations. See La.Rev.Stat.Ann. §§ 22:1382 A(l) and (2)⁴, S.C.Code Ann. §§ 38-31-60(a) and (b)⁵.

Olivier contends that Midland is subject to personal jurisdiction in Alabama because it provided insurance coverage for Merritt for accidents that occurred while operating its vessel in Alabama waters. By guaranteeing payment of Midland’s policies that provided insurance for claimants who are state residents or insureds who are state residents, Olivier contends LIGA and SCI-GA should reasonbly have foreseen that they would be subject to suit in other jurisdictions. Olivier claims that the statutes, which place LIGA and SCIGA in the position of an insolvent insurer, impose affirmative, extraterritorial obligations upon them. Because Midland is subject to personal jurisdiction in Alabama, Olivier argues that both LIGA and SCIGA are subject to personal jurisdiction in Alabama as well. Olivier argues that LIGA’s and SCI-GA’s statutory obligations establish minimum contacts with Alabama sufficient to justify the district court’s exercise of personal jurisdiction over them.

As mere creations of their respective state statutes, LIGA and SCIGA claim they have not purposefully directed any activity toward the State of Alabama. Neither LIGA nor SCIGA maintains any offices or agents in Alabama. The associations contend that Midland’s contacts with Alabama are not at issue since personal jurisdiction is not being sought after Midland, but after LIGA and SCIGA. LIGA and SCIGA claim that they will be denied due process if they are subject to legal liability in Alabama on account of the unilateral activity of a third party — Midland.

In addition, LIGA and SCIGA argue that although it might have been foreseeable that the associations could become involved in litigation in Alabama, such foreseeability alone is insufficient to confer personal jurisdiction. LIGA and SCIGA maintain that foreseeability is only one factor to be considered in an analysis of a defendant’s minimum contacts with a forum.

LIGA and SCIGA note that neither of the state insurance guaranty acts specifically authorizes suit against an insurance guaranty association outside the state which created the association. The associations argue that this conspicuous absence indicates that it was not the intent of the state legislatures to permit LIGA and SCI-GA to be subject to suit in other jurisdictions.

In support of their arguments, LIGA and SCIGA rely upon the reasoning of the district court in Rhulen Agency, Inc. v. Alabama Ins. Guar. Ass’n, 715 F.Supp. 94, 97 (S.D.N.Y.1989), aff'd, on other grounds, 896 F.2d 674 (2d Cir.1990). We are not persuaded by the court’s reasoning in Rhu-len. Indeed, we believe the district court decision concerning personal jurisdiction over AIGA and other state insurance guaranty associations is entitled to no weight since the Second Circuit held that the district court lacked subject matter jurisdiction; this holding precluded any consideration of the existence of personal jurisdiction over the defendants. Rhulen, 896 F.2d at 675-676.

For the reasons outlined below we believe Olivier has the superior argument. In the seminal case, International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, the Supreme Court of the United States held that the due process clause of the Fourteenth Amendment requires that a defendant be subject to the personal jurisdiction of the court. See World-Wide Volkswagen Cory. v. Woodson, 444 U.S. 286, 291, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980). Thus, we recognize that even if the forum state is the most convenient location for litigation, the due process clause may act to divest a state’s courts of the power to render a valid judgment if a defendant does not have the requisite minimum contacts with the forum. World-Wide Volkswagen, 444 U.S. at 294, 100 S.Ct. at 566; Hanson v. Denckla, 357 U.S. 235, 251, 254, 78 S.Ct. 1228, 1238, 1240, 2 L.Ed.2d 1283 (1958).

The Supreme Court has opined that the due process clause of the Fourteenth Amendment requires that defendants have “fair warning” that particular activities may subject them to the jurisdiction of foreign sovereigns. Burger King, 471 U.S. at 472, 105 S.Ct. at 2182. One of the considerations important in assessing whether or not a defendant has fair warning is the foreseeability of suit within the jurisdiction. The foreseeability that is critical in an analysis of minimum contacts is whether “the defendant’s conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.” World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567. In attempting to define when a defendant should reasonably anticipate being haled into court, the Supreme Court has stated “... there must be some act by which the defendant purposefully availed itself of conducting activities within the forum state.” Hanson, 357 U.S. at 253, 78 S.Ct. at 1239-1240. This requirement exists to ensure that a defendant will not be subject to legal liability in a jurisdiction solely as a result of random, fortuitous, or attenuated contacts. Burger King, 471 U.S. at 475, 105 S.Ct. at 2183.

In the instant case, LIGA and SCI-GA are subject to legal liability in Alabama neither on account of random contacts nor on account of the unilateral activity of Midland Insurance. We hold that the acts of guaranteeing insurance obligations within the state and of assuming the role of insurer are of such a nature that they justify the legal fiction that LIGA and SCIGA have consented to service of process and suit in Alabama. Cf. International Shoe, 326 U.S. at 318, 66 S.Ct. at 159.

LIGA and SCIGA guaranteed payment of “covered claims”. See La.Rev.Stat.Ann. § 22:1379(3)(a), S.C.Code Ann. § 38-31-20(6). The “claimant”, Olivier, was a Louisiana resident. The “insured”, Merritt, was a South Carolina corporation. The insurance company, Midland, was an “insolvent insurer” authorized^ transact business in Louisiana and South Carolina at the time of Olivier’s accident. In Alabama, the state in which he suffered injuries, Olivier received a judgment against Merritt. Because neither Merritt nor its insurer, Midland, could meet its obligations to the appellant, Olivier proceeded against the associations that guaranteed payment.

Not only did LIGA and SCIGA guarantee payment of “covered claims”, but they also assumed all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent. See La.Rev. Stat.Ann. § 22:1382 A(2), S.C.Code Ann. § 38-31-60(b). By the language of the statutes that govern LIGA and SCIGA, we conclude that these associations had fair warning that they could be subject to suit for “covered claims” in jurisdictions outside of their respective states.

LIGA and SCIGA assessed Midland in order to have sufficient funds to guarantee “covered claims”. Midland insured Merritt’s operations in Alabama. By serving as guarantors of Midland’s obligation to Olivier, LIGA and SCIGA purposefully availed themselves of conducting activities within Alabama. Indeed, since the Supreme Court’s decision in McGee v. International Life Ins. Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957), it has been the law that when a party assumes insurance obligations in a state in which it has no other business, the party has submitted to the jurisdiction of the state’s courts.

In reaching our conclusion we draw upon the holding of the Supreme Court of Alabama in Keelean v. Central Bank of the South, 544 So.2d 153 (Ala.1989). In Keelean, non-resident defendants guaranteed payment of a promissory note of a foreign corporation issued to an Alabama bank. Even though the defendants signed the guaranties outside of Alabama, the court held that the guarantors should have foreseen in the event of a default the effects of their guaranties in the State of Alabama. The court concluded that execution of the guaranties constituted sufficient minimum contacts required by the due process clause. Keelean, 544 So.2d at 157-158.

Moreover, other courts of appeals have reached conclusions similar to the one we reach today. In Forsythe v. Overmyer, 576 F.2d 779 (9th Cir.1978), cert. denied, 439 U.S. 864, 99 S.Ct. 188, 58 L.Ed.2d 174 (1978), the Ninth Circuit held that a nonresident third party’s personal guaranty of a lease contract to be executed in California constituted minimum contact sufficient to subject the third party to the jurisdiction of California courts. Forsythe, 576 F.2d at 783-784. See also National Can Corp. v. K Beverage Co., 674 F.2d 1134, 1137 (6th Cir.1982); Marathon Metallic Bldg. Co. v. Mountain Empire Constr. Co., 653 F.2d 921, 923 (5th Cir. Unit A Aug. 1981).

We conclude that the associations’ obligations to defend suits in other jurisdictions would not be unduly burdensome. Indeed, both LIGA and SCIGA may alleviate the cost of litigation in other jurisdictions by adjusting their insurance assessments. Or if the expenses are too great, they have the option of altering their obligations and coverage for claims. Cf. World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567.

2. Fair Play and Substantial Justice

Once a court has decided that a defendant has established minimum contacts within a forum state, these contacts may be considered in light of other factors to determine whether the assertion of personal jurisdiction would comport with “fair play and substantial justice.” Burger King, 471 U.S. at 476, 105 S.Ct. at 2184. As the Supreme Court has stated, other factors may serve to establish the reasonableness of personal jurisdiction upon a lesser showing of minimum contacts than would otherwise be required. Burger King, 471 U.S. at 477, 105 S.Ct. at 2184. Some of these factors include: the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several states in furthering fundamental substantive social policies. Id.

In addition, as the Supreme Court of the United States has noted “... modern transportation and communication have made it much less burdensome for a party sued to defend himself in a State where he engages in economic activity.” McGee, 355 U.S. at 222-223, 78 S.Ct. at 201. The Supreme Court subsequently stated that the historical developments noted in McGee have only accelerated in the generation since that case was decided. World-Wide Volkswagen, 444 U.S. at 293, 100 S.Ct. at 565. By guaranteeing payment of an insurance claim that arose out of an accident in Alabama and that went to judgment within the State, LIGA and SCIGA engaged in economic activity in Alabama. Due to the effects of their economic activity within the State, requiring LIGA and SCIGA to adjudicate in Alabama is not a substantial burden.

It would be unduly burdensome, however, to require Olivier to seek coverage for his claim from LIGA in Louisiana courts and from SCIGA in South Carolina courts. Such a requirement would spread thin his resources and would hamper Olivier’s ability to obtain quick, convenient, and effective relief. See McGee, 355 U.S. at 223, 78 S.Ct. at 201. Indeed, it would frustrate the very purposes of the state insurance guaranty associations. See e.g. La. Rev.Stat.Ann. § 22:1376. Furthermore, a requirement that Olivier sue in both Louisiana and South Carolina would pose an unnecessary waste of precious judicial resources. Separate litigations do not necessarily insure fairness; in this case they would inhibit it.

III. CONCLUSION

For the reasons stated above we REVERSE the order of the district court and REMAND the case for further proceedings consistent with this opinion.

1 . Property and liability guaranty funds, such as AIGA, LIGA and SCIGA, have been established by law in each of the fifty states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Most of these laws are based on the “Post-Assessment Property and Liability Insur-anee Guaranty Association Model Act” adopted by the National Association of Insurance Commissioners in December, 1969. See generally Reference Handbook on Insurance Company Insolvency 459 et seq. (Richard J. Marcus, ed., 2d ed. 1989).

2 .The text of this section after amendments in 1987 does not differ materially from the text as it existed at the time of Olivier’s accident and the date of insolvency of Midland Insurance.

The current text reads as follows:

"Covered claim” means an unpaid claim, including one for unearned premiums by or against the insured or agent, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Part applies issued by an insurer, if such insurer becomes an insolvent insurer after September 1, 1970, and: (i) The claimant or insured is a resident of this state at the time of the insured event; or (ii) The property from which the claim arises is permanently located in this state.

3 . For the sake of brevity, where the South Carolina statutes governing SCIGA do not contain any important differences from the Louisiana statutes governing LIGA, we have omitted from this opinion the texts of the South Carolina statutes.

4 . The relevant portions of these sections read as follows:

A. The association shall:

(1)(a) Be obliged to the extent of the covered claims....

(2) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent.

5 . S.C.Code Ann. § 38-31-60(b) corresponds to La.Rev.Stat.Ann. § 22:1382 A(2). The first sentence of the paragraph in the South Carolina Code is virtually identical to its Louisiana counterpart. The South Carolina Legislature, however, added the following to paragraph (b) of However, the Association has the right but not the obligation to defend an insured who is not a resident of this State at the time of the insured event unless the property from which the claim arises is permanently located in this State in which instance the Association does have the obligation to defend the insured.