Court of Appeal of the State of California, Second Appellate District, Halyard Health, Inc., v. Kimberly-Clark Corp., B294567, Order Modifying Opinion and Certifying Opinion for Publication

Jurisdiction

Personal Jurisdiction

Specific Jurisdiction

California’s Long-Arm Statute

Due Process Clause of the Fourteenth Amendment

Motion to Quash Service of Summons

California Law

Kimberly-Clark is a Delaware corporation with its principal place of business in Texas. Approximately 350 of its 42,000 employees work in California, and approximately six percent of its global net sales in 2017 were in California. Its consumer brands include Kleenex, Scott, and Huggies diapers. Until October 2014, Kimberly-Clark also had a healthcare division that produced, among other things, surgical gowns.

In October 2014, Kimberly-Clark’s healthcare division was spun off into Halyard, “a newly created, standalone, publicly traded entity.” Halyard is a Delaware corporation with its principal place of business in Georgia. The terms of the spinoff transaction were memorialized in a “Distribution Agreement” negotiated and executed in Texas. The Distribution Agreement contains a Delaware choice of law provision and further provides that both parties agreed to submit to the non-exclusive jurisdiction of state and federal courts in Delaware.

The Distribution Agreement requires Halyard to indemnify Kimberly-Clark for specified liabilities related to its former healthcare division. Section 6.11(a) of the Distribution Agreement provides, with certain exceptions we need not describe, that “[Halyard] shall assume and pay all Liabilities that may result from the Assumed Actions and all fees and costs relating to the defense of the Assumed Actions.” An accompanying schedule of “Assumed Actions” lists 27 litigation matters, including a complaint filed by Dr. Hrayr Hrayr Shahinian against Kimberly-Clark in the Central District of California two days before Halyard and Kimberly-Clark executed the Distribution Agreement.

(…) The trial court in this case heard argument on a motion Kimberly-Clark filed to quash service of summons for lack of personal jurisdiction. Halyard conceded California courts do not have general jurisdiction over Kimberly-Clark, but the parties disagreed over whether there is a proper basis for specific jurisdiction.

(…) The United States Supreme Court recently set the ground rules for our resolution of the key issue presented in this appeal: “In order for a state court to exercise specific jurisdiction, ‘the suit’ must ‘arise out of or relate to the defendant’s contacts with the forum’”; in other words, there must be “a connection between the forum and the specific claims at issue.” (Bristol- Myers Squibb Co. v. Superior Court (2017) ___ U.S. ___, ___ [137 S.Ct. 1773, 1780-1781] (Bristol-Myers).) That is easier said than applied because personal jurisdiction does not turn on “‘mechanical’ tests” (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 478 (Burger King)) and there is room for reasonable disagreement about what it means for one thing to arise out of or relate to another.

Ultimately, we are convinced Kimberly-Clark has the better view of the limits of due process as most recently described by the high court. Halyard identifies two respects in which, it says, Kimberly-Clark purposefully availed itself of California as a forum: first, by selling surgical gowns in this state, and second, by executing the Distribution Agreement, which Halyard characterizes as a “California-directed contract.” These theories of purposeful availment define the universe of relevant contacts with California, which are insufficient to confer jurisdiction here. As to the former, Kimberly-Clark’s gown sales are not sufficiently connected to the gist of this declaratory relief action, namely, the meaning and enforceability of the Distribution Agreement. The connection is too attenuated because we cannot presume, when undertaking our jurisdictional analysis, that California substantive law (e.g., the asserted rule against indemnification of punitive damages) will apply when resolving the merits of the dispute. (Keeton v. Hustler Magazine, Inc. (1984) 465 U.S. 770, 778 (Keeton).) Second, listing the California action in the Distribution Agreement as one among a number of others to be indemnified does not suffice to make the agreement “California- directed” in any meaningful sense.

California’s long-arm statute (Code Civ. Proc., § 410.10) authorizes California courts to exercise jurisdiction on any basis not inconsistent with the Constitution of the United States or the Constitution of California. “The Due Process Clause of the Fourteenth Amendment constrains a State’s authority to bind a nonresident defendant to a judgment of its courts. [Citation.] Although a nonresident’s physical presence within the territorial jurisdiction of the court is not required, the nonresident generally must have ‘certain minimum contacts . . . such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”’ International Shoe Co. v. Washington (1945) 326 U.S. 310, 316 (International Shoe) (quoting Milliken v. Meyer (1940) 311 U.S. 457, 463).” (Walden v. Fiore (2014) 571 U.S. 277, 283.).

Personal jurisdiction may be had on either a general (all-purpose) or specific (case-linked) basis. (Bristol-Myers, supra, ___ U.S. at p. ___ [137 S.Ct. at pp. 1779-1780].) A nonresident defendant is subject to the general jurisdiction of the forum if the defendant is “‘essentially at home in the forum State,’” which, for corporations, is commonly the place of incorporation or where the corporation maintains its principal place of business. (Daimler AG v. Bauman (2014) 571 U.S. 117, 137-139.) It is obvious California courts do not have general jurisdiction over Kimberly- Clark under this standard and Halyard does not contend otherwise.

“Specific jurisdiction is very different. In order for a state court to exercise specific jurisdiction, ‘the suit’ must ‘arise out of or relate to the defendant’s contacts with the forum.’ [Citations.] In other words, there must be ‘an affiliation between the forum and the underlying controversy, principally, an activity or an occurrence that takes place in the forum State and is therefore subject to the State’s regulation.’ [Citation.] For this reason, ‘specific jurisdiction is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.’ [Citation.]” (Bristol-Myers, supra, ___ U.S. at p. ___ [137 S.Ct. at p. 1780].)

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’”’ [citations].” (Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 269; see also Gilmore Bank v. AsiaTrust New Zealand Ltd. (2014) 223 Cal.App.4th 1558, 1568; Greenwell v. Auto-Owners Ins. Co. (2015) 233 Cal.App.4th 783, 792.)

(…) This Litigation Does Not Arise Out of or Relate to Kimberly-Clark’s Medical Gown Sales and Marketing in California.

(…) Here (…) Kimberly-Clark’s sales of surgical gowns in California did not create the indemnification relationship between it and Halyard. A separate act—the two non-California companies’ execution of the Distribution Agreement in Texas—created that relationship.

The bottom line is that Kimberly-Clark’s gown sales in California are insufficiently connected to the specific claim in this lawsuit, namely whether the Distribution Agreement’s indemnity obligation is enforceable. Personal jurisdiction therefore may not be had insofar as Halyard relies on the gown sales as the relevant purposeful availment.

(…)  Whether enforceability is governed by California law has nothing to do with whether enforceability may be determined by a California court. The required relationship among Kimberly-Clark, California, and this litigation cannot be based on what Halyard’s argument assumes, i.e., that California substantive law applies. (…) We do not make choice of law assumptions (…).

(…) Kimberly-Clark did not “purposefully avail itself” of the benefits of California law by defending a lawsuit here. (Burger King, supra, 471 U.S. at p. 475 [“the ‘purposeful availment’ requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of . . . the ‘unilateral activity of another party or a third person’”].)

(…) (See, e.g., Asahi Metal Industry Co., Ltd. v. Superior Court of California (1987) 480 U.S. 102, 114-115 [personal jurisdiction lacking in part because California had only a slight interest in a dispute that was “primarily about indemnification rather than safety standards”].)

(…) Identify a relationship between forum contacts and the specific claims at issue, which is what the high court’s most recent personal jurisdiction cases require.

(…) A defendant need not ever “physically enter the forum state” to be subject to personal jurisdiction. (Burger King, supra, 471 U.S. at p. 476.) “So long as a commercial actor’s efforts are ‘purposefully directed’ toward residents of another State, [the Supreme Court] has consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there. [Citations.]” (Ibid.)

(Court of Appeal of the State of California, Second Appellate District, Division Five, January 2, 2020, Halyard Health, Inc., v. Kimberly-Clark Corp., B294567, Order Modifying Opinion and Certifying Opinion for Publication (No Change in Judgment))