Opinion
G053882 c/w G054659
07-27-2018
J P H CONSULTING, INC., et al., Plaintiffs and Appellants, v. UNIVERSAL REINSURANCE COMPANY, LTD., et al., Defendants and Respondents.
Enenstein Pham & Glass, Teri T. Pham and Tony J. Cheng for Plaintiffs and Appellants. Lee Hong Degerman Kang & Waimey, Douglas Smith and Nathaniel J. Tarvin for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00823625) OPINION Appeal from orders of the Superior Court of Orange County, John C. Gastelum, Judge. Affirmed. Enenstein Pham & Glass, Teri T. Pham and Tony J. Cheng for Plaintiffs and Appellants. Lee Hong Degerman Kang & Waimey, Douglas Smith and Nathaniel J. Tarvin for Defendants and Respondents.
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This case arises out of the formation of a self-insurance plan created for a group of related healthcare facilities operating mostly in California and managed by J P H Consulting, Inc. (JPH) (collectively referred to as Appellants). Two Bermuda-based insurance companies, Universal Reinsurance Company, Ltd (Universal Reinsurance) and Universal International Reinsurance Company, Ltd (Universal International) (collectively referred to as Universal), with their purported agents, designed and facilitated a self-funded insurance program (Program) for Appellants.
Unhappy with the Program, Appellants sued Universal and others in 2015, seeking recovery for tort, breach of contract, and breach of fiduciary duty causes of action. Universal Reinsurance and Universal International filed separate motions to quash service of summons for lack of personal jurisdiction.
The trial court granted both motions, concluding Appellants failed to carry their burden to demonstrate California properly could exercise jurisdiction over Universal. We consolidated the appeals of both motions. Finding no error, we affirm.
I
FACTUAL AND PROCEDURAL BACKGROUND
Universal International and Universal Reinsurance were both organized under the laws of Bermuda, which was their sole place of business. Neither has offices or employees in California, neither hold assets in California, and neither advertises or solicits business in California. Universal Reinsurance's sole contact with California was as a signatory on a single checking account in California to benefit a client that is not a party to this action.
One aspect of Universal's business operations is to facilitate efforts by businesses to self-insure. Some businesses prefer to self-insure because it allows them to set premiums based on their own risk experience and gives them the option to invest their premium payments and earn extra income. A company formed by a business to administer a self-insurance program is called a "'captive.'" Universal facilitates the rental of an existing Bermuda insurance company business structure to businesses wishing to self-insure, but not wanting the burden of administering their own captive, in exchange for a percentage of the funds which the self-insured places in reserve as premiums. Companies like Universal that provide this function are sometimes known as "'Rent-A-Captives.'"
Beginning in 2003, Appellants engaged Gary Jarvis, a licensed California insurance broker, and his brokerage, Care West Insurance Risk Management, LLC, a California limited liability company (collectively referred to as Jarvis) as their insurance broker and agent. Jarvis advised Appellants they were uninsurable by conventional commercial insurance policies. Jarvis recommended Appellants create a self-funded insurance program rather than purchasing a traditional insurance policy.
To create the Program, Jarvis reached out to Michigan-based Chelsea Rhone Captive Services, LLC (Chelsea Rhone). Chelsea Rhone contacted Universal Reinsurance in Bermuda regarding a self-insurance inquiry by Jarvis on behalf of his clients.
Gary Jarvis and Chelsea Rhone are not parties to this appeal.
Neither Universal entity had any prior contact with Jarvis before establishing the Program. Universal disavowed any agency relationship with Jarvis.
Ultimately, Universal International entered into a service agreement (Agreement) with JPH. The Agreement provided, in pertinent part, that (1) there was no insurance agency or broker relationship between JPH and Universal International; (2) a Custodial Account would be established with Comerica to administer the Program; (3) Universal International would receive 20 percent of the gross contribution to the Custodial Account; (4) Universal International's liability under the Agreement was limited to the funds in the Custodial Account; and (5) the law of Bermuda governed the Agreement.
Universal International also provided Appellants with master declarations setting forth the scope of coverage and detailing circumstances under which Appellants could withdraw funds. The agreement specifically excluded Universal from any claims adjustment or claims settlement services.
Per a separate agreement between Universal International and Universal Reinsurance, the Appellants' loss reserves, less costs and taxes, were reinsured to a separate account of Universal Reinsurance to permit a three percent saving in otherwise applicable federal excise taxes. Thereafter, Universal Reinsurance acted only as an account holder whose sole function was to track the loss reserves others periodically deposited to and disbursed from the Custodial Account.
To establish the Program's Custodial Account, Universal Reinsurance signed a Custodial Account Agreement between itself and Comerica Bank in May 2003. Under the Program, Appellants would make certain contributions to the Custodial Account equal to the claim reserves fund and the Program's administrative expenses. Universal ceded control of the Custodial Account to JPH's principals the same day it was created. The relationships and agreements described above continued until the Program was terminated in December 2013.
Appellants filed a complaint against Jarvis, Chelsea Rhone, and Universal Reinsurance for tort, breach of contract, and breach of fiduciary duty. Universal Reinsurance responded with a motion to quash service of summons for lack of personal jurisdiction. The trial court granted the Universal Reinsurance motion, explaining the Appellants "failed to present evidence in support of their [o]pposition [to the Universal Reinsurance Motion]. [Appellants] did not file any declarations and did not offer any documents demonstrating facts necessary to establish jurisdiction over [Universal Reinsurance]. As such, [Appellants] failed to satisfy their initial burden of proof and the burden never shifted to [Universal Reinsurance] to present a compelling case why exercise of jurisdiction would be unreasonable."
The court observed Appellants relied only upon information contained in a declaration filed in support of the Universal Reinsurance's motion. The court noted "'[Appellants] contend Universal Re[insurance] knowingly provided their service to [Appellants] in exchange for substantial fees equal to 20 [percent] of the amount contributed to the Custodial Account.'" The court determined it was Universal International, not Universal Reinsurance, who executed the Agreement. The court went on to explain, "[Appellants] further contend that pursuant to [the parties' agreement] it was Universal Re[insurance], not Universal International, that agreed to provide the rental captive facility utilized by the [P]rogram." The court stated "the [] Agreement is executed by Universal International, not Universal Re[insurance] and California is not mentioned anywhere in [the section relied upon by Appellants]." Finally, the court noted Appellants argued "it was Universal Re[insurance] that entered into the Custodial Account Agreement for the account of JPH and who thereby manages the funds in that account." In response, the court stated "'Yes, it was Universal Re[insurance] that entered into [the Custodial Account Agreement], but this was with a bank in Michigan, not California.'" The court concluded the "'evidence'" presented by Appellants was insufficient to meet their burden.
After the trial court granted the Universal Reinsurance's motion, Appellants added Universal International as a Doe defendant to the action. Universal International also filed a motion to quash service of summons for lack of personal jurisdiction (Universal International Motion).
The trial court concluded no basis existed for general or specific jurisdiction over Universal International. The court further determined "Universal International is a Bermuda corporation; its sole place of business is in Bermuda; it has no offices or employees in California; it holds no assets in California; and does not advertise or solicit business in this state." The court noted Appellants provided "'no evidence to support the contention that the court has 'general jurisdiction' over Universal International and [Appellants' opposition to the Universal International Motion] was limited to arguments concerning specific jurisdiction. [¶] [Appellants] did not meet their burden of proving by a preponderance of the evidence that there are grounds for the [c]ourt to exercise specific jurisdiction over Universal International.'"
In rejecting Appellants' specific jurisdiction claim, the trial court offered the following explanation: "Here, [Appellants] contend[] Universal International purposefully and voluntarily directed its activities toward California based on the conduct and activities of Defendant Gary Jarvis that occurred in California. [Citation.] [Appellants] contend Defendant Gary Jarvis was/is Universal International's designated agent. [Citation.] However, [Appellants'] evidence is based on [JPH's principal's] 'understanding' only and [Appellants] ignored and failed to refute or object to the evidence presented by Universal International in its Motion that: [¶] It had and has no business or contractual relationship with Gary Jarvis; [¶] It never acted on behalf of or at the direction of Gary Jarvis; and [¶] Gary Jarvis never acted on behalf of or at its direction. [¶] [Citation.] [¶] [Appellants] also ignored Universal International's evidence that it was contacted by Chelsea Rhone [], a Michigan Corporation- not Jarvis--in Bermuda regarding a self-insurance inquiry by Jarvis; it received communications from and through Chelsea Rhone - not Jarvis -- in Bermuda in pursuit of an effort to effect a self-insurance relationship for the benefit of Jarvis' client(s); and that it never initiated contact with any person in California with regard to the proposed self-insurance transaction. [Citation.] [¶] Without first presenting evidence that Jarvis was Universal International's authorized agent, none of Jarvis' activities that occurred in California can be imputed to Universal International. [Appellant] presented no evidence that Universal International conducted any activity in California independent of Jarvis."
JPH principal Jeoung Lee's declaration was the only piece of evidence appellants introduced to oppose Universal International's motion. Lee's self-serving statement failed to demonstrate his personal knowledge that Jarvis was Universal's agent or authorized representative in California.
Appellants timely appealed both orders granting Universal's motions. We granted the parties' stipulated request and consolidated the two appeals.
II
DISCUSSION
A. Governing Legal Principles for Exercising Personal Jurisdiction in California
California courts exercise jurisdiction "on any basis not inconsistent with the Constitution of this state or of the United States." (Code Civ. Proc., § 410.10.) The exercise of jurisdiction over a nonresident defendant is constitutional "'"if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate '"traditional notions of fair play and substantial justice."'" [Citations.]'" (Snowney v. Harrah's Entertainment, Inc. (2005) 35 Cal.4th 1054, 1061 (Snowney ).)
Under a minimum contacts test, the court asks "whether the 'quality and nature' of the defendant's activity is such that it is 'reasonable' and 'fair' to require him to conduct his defense in that State." (Kulko v. Superior Court of California (1978) 436 U.S. 84, 92.) "Personal jurisdiction may be either general or specific. A nonresident defendant may be subject to the general jurisdiction of the forum if his or her contacts in the forum state are 'substantial . . . continuous and systematic.' [Citations.] In such a case, 'it is not necessary that the specific cause of action alleged be connected with the defendant's business relationship to the forum.'" (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445.) Because Appellants concede there is no basis for general jurisdiction over Universal, we focus on specific personal jurisdiction.
"'When determining whether specific jurisdiction exists, courts consider the "'relationship among the defendant, the forum, and the litigation.'" [Citations.] A court may exercise specific jurisdiction over a nonresident defendant only if: (1) "the defendant has purposefully availed himself or herself of forum benefits" [citation]; (2) "the 'controversy is related to or "arises out of" [the] defendant's contacts with the forum'" [citations]; and (3) "'the assertion of personal jurisdiction would comport with "fair play and substantial justice."'"'" (Snowney, supra, 35 Cal.4th at p. 1062.)
"A plaintiff opposing a motion to quash service of process for lack of personal jurisdiction has the initial burden to demonstrate facts establishing a basis for personal jurisdiction. [Citation.] If the plaintiff satisfies that burden, the burden shifts to the defendant to show that the exercise of jurisdiction would be unreasonable. [Citation.] If there is no conflict in the evidence, the question whether a defendant's contacts with California are sufficient to justify the exercise of personal jurisdiction in this state is a question of law that we review de novo. [Citation.] If there is a conflict in the evidence underlying that determination, we review the trial court's express or implied factual findings under the substantial evidence standard. [Citation.]" (HealthMarkets, Inc. v. Superior Court (2009) 171 Cal.App.4th 1160, 1167-1168. B. Appellants Failed to Demonstrate Specific Jurisdiction Over Universal
In their briefs, both sides argue we should apply the substantial evidence standard of review. However, because Appellants presented no evidence of jurisdictional facts, there was no conflict in the underlying evidence. As such, we believe our standard is de novo. In any event, under either standard we find no error with the trial court's orders.
Appellants argue the trial court erred because Universal engaged in conduct toward California that constituted purposeful availment. We disagree.
Universal Reinsurance and Universal International are both Bermuda companies with their principal places of business in Bermuda. After its initial activities in 2003, Universal had no active role in the Program. Universal did not evaluate claims against Appellants or provide management services concerning claims. Universal was never present in California, did not solicit business in California, did not render services to Appellants in California, and did not direct or manage activities of any person or entity in California. The sole evidence of Universal Reinsurance's contact with California was as a signatory on a single checking account created to benefit a client who is not a party to this action.
From Chelsea Rhone's initial contact with Universal Reinsurance to the Program's termination, Universal Reinsurance's activities consisted solely of (1) establishing the Custodial Account; (2) assigning authority over the Custodial Account to JPH's principals; and (3) monitoring JPH deposits to and disbursements from the Custodial Account. Universal Reinsurance did not direct the payment of money from the Custodial Account. It did not evaluate or defend claims against Appellants or perform claims management services. It was never present in California, and did not render services to Appellants in California, or direct or manage the activities of any person in California. Universal Reinsurance's sole function was to facilitate a Bermuda-domiciled Rent-A-Captive relationship. This relationship permitted Appellants to self-insure their own liabilities by depositing and withdrawing money into a Custodial Account, established in Michigan by Universal Reinsurance and controlled solely by JPH's principals. Once the Custodial Account was established, Universal Reinsurance did not control the account, and could not direct disbursements from the account.
Similarly, Universal International's only activity throughout the Program's lifespan was to facilitate appellant's self-insurance effort through Universal Reinsurance. Universal International also provided documents pertinent to setting up the Program with JPH. Like Universal Reinsurance, Universal International did not, indeed could not, direct payment of money from the Custodial Account. Universal International also did not evaluate or defend claims against Appellants or provide claims management services.
In sum, neither Universal entity took any affirmative action directed at California. There was no evidence Universal intended to avail itself of the benefits and protections of California laws. Universal International merely provided Appellants with the rules governing how Appellants would withdraw funds from their own Custodial Account. Universal Reinsurance simply set up the Custodial Account and immediately ceded control over the account to JPH. Neither Universal entity agreed to indemnify Appellants, nor did they provide insurance to Appellants.
Appellants rely almost exclusively on case law where the court determined jurisdiction was properly exercised over out of state insurers who insured obligations arising in California or assets located in California. (McGee v. International Life Ins. Co. (1957) 355 U.S. 220, 223; Southeastern Express Systems v. Southern Guaranty Ins. Co. (1995) 34 Cal.App.4th 1, 4; A.I.U. Ins. Co. v. Superior Court (1986) 177 Cal.App.3d 281;McClanahan v. Trans-America Ins. Co. (1957) 149 Cal.App.2d 171.)
Here, however, Universal did not act as an insurer. As this Court has observed, "[i]t is axiomatic that self-insurance is not insurance. An 'allegation of self-insurance, which is equivalent to no insurance, is repugnant to the concept of insurance which fundamentally involves the shifting to a third party, by contract, for a consideration, the risk of loss as a result of an incident or event.'" (Chambi v. Regents of the University of California (2002) 95 Cal.App.4th 822, 826.) Consequently, Appellants' reliance on cases dealing with an exercise of jurisdiction over foreign insurers are unavailing.
At oral argument, Appellants contended jurisdiction was proper over Universal because the insurance policy at issue was not truly self-insurance, but more akin to a traditional insurance policy. Appellants asserted their breach of the insurance contract claim against Universal was sufficient to establish a jurisdictional nexus to California. In its briefing on appeal, Appellants failed to raise this issue. In fact, Appellants implicitly conceded in their briefing that the underlying policy was self-insurance. We note Appellants' operative complaint contains a vague allegation that: "On or about June 26, 2012, each of the [Appellants] entered into an insurance policy agreement with Universal, through the efforts of Jarvis, Care West and Chelsea Rhone. Defendants breached these insurance policies by, among other things, failing to provide insurance coverage under Coverage A, Coverage B, and Coverage C." Other instances in the operative complaint, however, refer to the program as self-insurance or a "self-funded captive insurance program." In any event, because Appellants failed to raise this issue, we deem it forfeited. --------
Appellants failed to present any evidence, much less carry their burden, to demonstrate Universal purposely availed itself of the benefits of a California forum. As such, the burden never shifted to Universal to show why it would be unreasonable to exercise jurisdiction. The trial court correctly concluded jurisdiction over Universal did not comport with notions of fair play or substantial justice. C. Appellants Presented No Evidence Supporting Jurisdiction Based on Agency Principles
Appellants contend the trial court should have exercised jurisdiction over Universal because they purposefully availed themselves of California's jurisdiction through the actions of their purported agent, Jarvis. We do not find the argument persuasive.
Appellants contend that "Universal's relationship with Appellants was specifically directed toward California entities and California's insurance market. . . . Universal issued insurance policies, insurance declarations, and other insurance documents. . . . Universal worked through their agents both in Michigan and California to administer claims against Appellants, including litigating claims in California courts, as well as paying out judgments/settlements to California plaintiffs." Appellants fail to cite any evidence in support of their assertions. Similarly, in the trial court Appellants presented no evidence at all in opposition to the Universal Reinsurance's motion to quash and did not present admissible evidence of agency in response to the Universal International motion.
The lack of evidence was fatal to the Appellants' agency argument. As the trial court observed, "[w]ithough first presenting evidence that Jarvis was [Universal's] authorized agent, none of Jarvis' activities that occurred in California can be imputed to [Universal]. [Appellants] presented no evidence that [Universal] conducted any activity in California independent of Jarvis."
The record supports the trial court's conclusion Appellants failed to present admissible evidence that Jarvis was Universal's authorized agent. Because, as discussed above, Appellants also failed to demonstrate Universal conducted any activity in California independent of Jarvis, the trial court did no err in granting the motions to quash. D. Universal's Economic Benefit from the Program by Itself Does Not Support Jurisdiction
Appellants contend jurisdiction is "particularly appropriate where a defendant has derived substantial economic benefit from doing business with a California plaintiff." Jurisdiction is not appropriate here.
Appellants rely on Moncrief v. Clark (2015) 238 Cal.App.4th 1000 (Moncrief), to argue that Universal may be brought into a California court based on its receipt of bargained-for consideration from California-based Appellants. The underlying dispute in Moncreif involved the sale of farm equipment from an Arizona-based seller to a California-based buyer. (Id. at p. 1003.) A malpractice suit emerged from the transaction, based upon the Arizona attorney's (Clark) fraudulent representation to the buyer's California-based attorney (Moncreif) that the farm equipment to be sold was free and clear. (Id. at p. 1004.) The trial court granted the Arizona lawyers motion to quash for lack of personal jurisdiction, but the Court of Appeal reversed. (Id. at p. 1008-1009.)
In determining an exercise of personal jurisdiction in California was appropriate over Clark, the Court of Appeal stated: "Here, while Moncrief and Clark engaged in a single transaction, Clark targeted Moncrief with the specific purpose of inducing Moncrief's client to finalize the purchase of farm equipment. . . . [¶] We find that Moncrief has established that Clark purposely availed himself of the benefits of California such that California can exercise personal jurisdiction over Clark. Clark's representations were made with the sole purpose of facilitating the sale between Moncrief's California client and Clark's Arizona client. Clark's communications with Moncrief were purposely and voluntarily directed toward California '""so that he should expect, by virtue of the benefit he receive[d], to be subject to the court's jurisdiction based on" his contacts with the forum. [Citation.]'" (Moncrief, supra, 238 Cal.App.4th at p. 1007.)
Here, unlike in Moncrief, Appellants presented no evidence that Universal made any statement to induce Appellants to create the Program. Indeed, there was no evidence whatsoever that Universal made any statements to anyone located in California. To the contrary, the evidence demonstrated all of Appellants' communications to Universal were through Jarvis and all of Universal's communications were through Michigan-based Chelsea Rhone.
Universal, unlike the attorney defendant in Moncreif, did not reach out to California. Instead, Appellants reached out to Michigan-based Chelsea Rhone, who then reached out to Universal in Bermuda. Universal received money from California entities through the Program. Because Appellants presented no additional facts supporting purposeful availment, exercise of jurisdiction over Universal was inappropriate based on its receipt of money alone. The trial court did not err.
III
DISPOSITION
The orders are affirmed. Universal is awarded costs on appeal.
ARONSON, J. WE CONCUR: BEDSWORTH, ACTING P. J. MOORE, J.