Water West, Inc., a Nevada Corporation v. Entek Corporation, a Texas Corporation, and James Edward Turner

788 F.2d 627, 1986 U.S. App. LEXIS 24772

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 29, 1986
• Docket: 84-5513
• Status: Published

Opinions

HUG, Circuit Judge:

James Turner and Entek Corporation (collectively “Entek”) appeal from an order of the district court granting Water West, Inc. (“Water West”) summary judgment in its action to enforce a Nevada state court judgment for breach of an exclusive distribution agreement against Entek. Entek challenges the propriety of venue in the Southern District of California. The district court ruled that there were sufficient contacts between Water West’s claim and the Southern District to justify venue. We disagree and reverse.

FACTS

Appellant James Turner is president and owner of appellant Entek Corporation. Turner invented, and Entek manufactures, a porous irrigation tubing known as “Leaky Pipe.” In February 1982, Entek entered into an agreement with Water West, granting Water West exclusive distribution rights for “Leaky Pipe” in 11 western States.¹

In March 1983, Water West sued Entek in Nevada state court, alleging that Entek had breached the distribution agreement by selling to persons in its territory, and by entering into a distributorship agreement with John R. “Chip” Bridges in California. Entek failed to appear, and on May 11, 1983, a default judgment was entered. En-tek's motion to set aside the default judgment and quash service of process was denied, and Entek appealed to the Nevada Supreme Court.

This action, in which Water West seeks to enforce the Nevada judgment in California under 28 U.S.C. § 1738, was filed on May 16, 1983, in the United States District Court for the Southern District of California. In September 1983, Water West moved for summary judgment. The court granted a preliminary injunction against Entek on October 17,1983, but denied summary judgment because of uncertainty whether venue was proper.

On the court’s order, Entek moved to dismiss for improper venue under Fed.R. Civ.P. 12(b)(3), or transfer under 28 U.S.C. § 1406(a). The district court, however, denied Entek’s motion for change of venue, and Water West again moved for summary judgment. This time, on December 19, 1983, the district court granted summary judgment enforcing the Nevada judgment. Entek filed a timely notice of appeal.

After the appeal was filed, the Nevada Supreme Court heard argument on Entek’s motion to set aside the May 1983 default judgment against Entek; on January 2, 1985, the Nevada Supreme Court refused to do so and dismissed Entek’s appeal. We had deferred submission pending decision by the Nevada Supreme Court and now consider whether the district court erred in granting Water West summary judgment enforcing the Nevada judgment in the Southern District of California.

STANDARD OF REVIEW

In reviewing the propriety of a grant of summary judgment, our task is identical to that of the trial court. M/V American Queen v. San Diego Marine Construction Corp., 708 F.2d 1483, 1487 (9th Cir.1983). That is, we must view the evidence and inferences de novo, in the light most favorable to the non-moving party, in this instance, Entek, to determine whether the district court correctly found that there was no genuine issue of material fact and that the moving party, herein Water West, was entitled to judgment as a matter of law. Id. The facts are not disputed; the only issue for our consideration is whether, as a matter of law, venue for Water West’s enforcement action lies in the Southern District Court of California.

This is a diversity action brought in the State of California to enforce a judgment issued by a state court in the State of Nevada on May 11, 1982. The Nevada judgment permanently enjoined Entek from selling “Leaky Pipe” within the 11 States covered by the distribution agreement and ordered Entek to comply with all terms and conditions of that agreement. In addition, the court awarded Water West compensatory damages of $1,000 per day commencing on the date of the prohibited sale of “Leaky Pipe” to any person and ending on the date that violations of the agreement cease. The court ruled that Water West was also entitled to an accounting from Entek of pipe sales within the 11 States since February 3, 1982, the date of the distribution agreement.

Water West could have brought an action to enforce the Nevada judgment in a California state court. Instead, Water West chose to bring a diversity action in federal court. The federal courts are courts of limited jurisdiction. There is diversity of citizenship because plaintiff, Water West, is a Nevada corporation; defendant, Entek, is a Texas corporation; and defendant, Turner, is a resident of Texas. Assuming that the business conducted by Entek in the State of California is sufficient to afford jurisdiction for an action based on a Nevada judgment, the plaintiff must also satisfy the venue requirements. If these cannot be satisfied, the federal diversity action cannot be brought in California; however, the plaintiff can still bring its action in the California state court. Venue in a diversity action is governed by 28 U.S.C. § 1391(a), which states:

A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose.

It is apparent that none of the plaintiffs or defendants reside in California, thus the only basis upon which venue can be founded is that the claim arose in the State of California. The claim upon which this action is founded is the Nevada judgment; it is not the underlying claim for the breach of the distributorship agreement. That underlying claim was merged into the Nevada judgment and is extinguished.

Under 28 U.S.C. § 1738, a state court judgment is entitled to the same preclusive effect in federal court as it would be accorded by a state court in the state of rendition. Americana Fabrics, Inc. v. L & L Textiles, Inc., 754 F.2d 1524, 1529 (9th Cir.1985). In the present case, the res judicata effect of the Nevada default judgment is determined by Nevada law. Under Nevada law, “ ‘[t]he doctrine of res judiciata precludes parties or their privies from relitigating a cause of action that has been finally determined in a court of competent jurisdiction.’ ” Paradise Palms Community Ass’n v. Paradise Homes, 89 Nev. 27, 30, 505 P.2d 596, 598 (1973) (quoting Bern-hard v. Bank of America Nat. Trust and Sav. Ass’n, 19 Cal.2d 807, 122 P.2d 892, 894 (1942)). Res judicata applies to default judgments. Kernan v. Kernan, 78 Nev. 93, 97, 369 P.2d 451 (1962).

The two acts relied upon by the dissent to uphold the finding that the claim arose in California are a consignment agreement consummated in March of 1983 and a sale made in April of 1983. These were acts out of which the claim litigated in the Nevada court arose, but they were merged into the Nevada judgment entered May 11, 1983. It is the Nevada judgment that is the claim in this action, not the acts that constituted the claim litigated in Nevada and merged into that judgment. The present claim, based on the Nevada judgment, arose in Nevada.

A holding that venue is improper in this case does not mean that the Nevada judgment is unenforceable in California or that full faith and credit is denied to the Nevada judgment. A state court action is the appropriate method by which these objectives are served. The fact that venue is improper in this case simply means that this is one of the diversity actions that cannot be brought in this federal court, rather than the state court, because it does not meet the statutory venue requirements. The district court’s judgment is reversed.

REVERSED.

1 . The 11 States comprising Water West’s territory are Washington, Oregon, California, Nevada, Idaho, Montana, Wyoming, Colorado, Utah, Arizona, and New Mexico.