Halyard Health, Inc. v. Kimberly-Clark Corporation

Filed 12/6/19; Modified and Certified for Pub. 1/2/20 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
HALYARD HEALTH, INC., B294567
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC659662)
v.
KIMBERLY-CLARK CORP.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of Los
Angeles County, Ann I. Jones, Judge. Affirmed.
Munger, Tolles & Olson, George M. Garvey, Mark R.
Yohalem, Jordan D. Segall, and Lauren C. Barnett, for Plaintiff
and Appellant.
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr.,
Julian W. Poon, Theane Evangelis, and William F. Cole, for
Defendant and Respondent.
1
When Delaware corporation Kimberly-Clark (Kimberly-
Clark) spun off its healthcare division to create a new Delaware
company, Halyard Health (Halyard), the two companies agreed
Halyard would indemnify Kimberly-Clark for any liability
resulting from many litigation matters. Among the matters was
a recently filed class action in the Central District of California
concerning surgical gowns sold by Kimberly-Clark. Punitive
damages were ultimately awarded against Kimberly-Clark in
that class action, and Halyard later filed suit in Los Angeles
Superior Court seeking a declaratory judgment that it (Halyard)
did not have to provide indemnity for the punitive damages
award. The merits of whether indemnity is required is not the
question before us. Instead, we consider a logically prior
question, namely, whether the indemnification dispute is
sufficiently related to California for courts of this state to exercise
personal jurisdiction over Kimberly-Clark.
I. BACKGROUND
A. Halyard and Kimberly-Clark’s Dueling Complaints
for Declaratory Relief
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
2
traded entity.”1 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.2
1
Halyard later changed its name to Avanos Medical, Inc.
Following the parties’ practice, we continue to refer to the
company as Halyard.
2
The list of assumed actions is not exhaustive. The
Distribution Agreement defines “‘assumed actions’” to mean
“those cases, claims and investigations, whether arising before or
after [midnight on the distribution date] (in which any Kimberly-
Clark Party or any Affiliate of a Kimberly-Clark Party, other
than Halyard and its Subsidiaries, is a defendant or the party
against whom the claim or investigation is directed), primarily
related to the Halyard Business, including those listed on
Schedule 6.11(a) as ‘assumed actions,’ but expressly excluding
3
Dr. Shahinian’s class action complaint asserted claims
against Kimberly-Clark for fraudulent concealment, fraud,
negligent misrepresentation, unfair business practices (Bus. &
Prof. Code, § 17200), and false advertising (Bus. & Prof. Code,
§ 17500) based on the company’s misrepresentations regarding
the protection afforded by its MicroCool Breathable High
Performance Surgical Gowns. Halyard was subsequently added
as a defendant based on its continued marketing of MicroCool
gowns. The parties refer to this case as Bahamas after Bahamas
Surgery Center, LLC, which ultimately took over as lead
plaintiff.3
The Bahamas court certified damages/restitution and
injunctive relief classes of “entities and natural persons in
California who purchased the MicroCool Gowns from February
12, 2012 up to and including January 11, 2015 . . . .” Following a
jury trial, the court entered a judgment for the plaintiffs,
including punitive damages awards of $350 million against
Kimberly-Clark and $100 million against Halyard.4 The district
court denied various posttrial motions filed by Kimberly-Clark
and Halyard (an appeal is now pending in the Ninth Circuit) but
those listed on Schedule 6.11(a) as ‘excluded actions’ . . . .”
(Emphasis added.)
3
Bahamas Surgery Center, LLC, et al. v. Kimberly-Clark
Corporation and Halyard Health, Inc. (C.D.Cal. No. 2:14-cv-
08390-DMG-PLA).
4
The judgment also awarded $3,889,327 in compensatory
damages and $1,062,391.75 in prejudgment interest against
Kimberly-Clark, and $261,445 in compensatory damages and
$43,788.99 in prejudgment interest against Halyard.
4
reduced the punitive damages awards to roughly $19 million
against Kimberly-Clark and $1 million against Halyard.
After the Bahamas jury returned its verdict (and before the
district court reduced the punitive damages awards), Halyard
“notified Kimberly-Clark that [it was] reserv[ing] [its] rights to
challenge any purported obligation to indemnify Kimberly-Clark
for the punitive damages awarded against them.”5 Kimberly-
Clark responded that any such reservation of rights would
constitute an actual or anticipatory breach of Halyard’s
obligations under the Distribution Agreement.
Halyard then commenced this action seeking a declaratory
judgment that it has no obligation to indemnify Kimberly-Clark
for punitive damages awarded in the Bahamas litigation or any
“[e]xpenses or [l]osses . . . associated with an award of punitive
damages.” Halyard alleges it is not obligated to pay such
indemnification because “California law and public policy
prohibit indemnification for punitive damages” and because
“rules of contract construction under both California and
Delaware law require particularly clear, explicit, and
unmistakable language before imposing on one party an
obligation to indemnify the other for the wrongful acts of the
indemnitee.”
The day after Halyard filed its California declaratory relief
action, Kimberly-Clark filed a mirror-image complaint in
Delaware seeking a declaration that Halyard must indemnify it
for all damages, including punitive damages; that Halyard had
anticipatorily breached the Distribution Agreement; and that
5
Halyard conceded its obligation to indemnify Kimberly-
Clark for compensatory damages.
5
Halyard should be estopped from asserting it is not required to
indemnify Kimberly-Clark for all damages. Later, on May 8,
2017, Kimberly-Clark sent Halyard a letter demanding Halyard
advance Kimberly-Clark’s legal fees in the Bahamas litigation, in
certain legal proceedings filed against Kimberly-Clark in other
states, and in the dueling declaratory relief suits in California
and Delaware. Kimberly-Clark also demanded, among other
things, that Halyard confirm it would take no positions adverse
to Kimberly-Clark in the assumed actions, that Halyard file no
papers in these cases without Kimberly-Clark’s written consent,
and that Halyard provide Kimberly-Clark “with all files and work
product” in these cases upon request.
Halyard amended its complaint to address the demands
made by Kimberly-Clark in the May 8th letter. That is, in
addition to seeking a declaration that it is not required to
indemnify Kimberly-Clark for punitive damages, Halyard’s
operative complaint also seeks a declaration that it is not
required to comply with any of the other demands presented in
the May 8th letter.
B. Kimberly-Clark Contests Personal Jurisdiction in
California
Halyard moved to stay or dismiss the declaratory relief
action Kimberly-Clark filed in Delaware regarding the
Distribution Agreement (the mirror-image of this case). The
Delaware Court of Chancery granted the request for a stay of the
Delaware declaratory relief action. The Delaware judge
expressed “significant doubts that Kimberly-Clark will be able to
prevail on a personal jurisdiction defense in the California
indemnity action,” but concluded “whether or not my doubts are
6
justified, fundamental principles of comity suggest that the
California court and not this court should make the
determination whether it has personal jurisdiction over
Kimberly-Clark in the first instance. [¶] If it turns out that my
doubts were incorrect and the California court declines to
exercise personal jurisdiction, no significant harm will be done
because this case, which I am staying . . . can be reactivated after
the California court rules on that issue . . . .”
Soon after the Delaware Court of Chancery imposed its
stay, 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 trial court (with a substitute judge presiding in place of
the originally assigned judge) prepared a tentative order denying
Kimberly-Clark’s motion to quash. The court’s tentative
reasoned there was personal jurisdiction over Kimberly-Clark
because, in the tentative’s words, Halyard’s declaratory judgment
action “is related to [Kimberly-Clark’s] in-state activity (i.e., its
sale of surgical gowns). Such in-state activity is the basis for
Bahamas and the ensuing punitive damages award, for which
[Kimberly-Clark] has sought indemnification pursuant to the
Distribution Agreement. [Halyard], in turn, now seeks a
declaration of the parties’ rights and duties under the
Distribution Agreement, which specifically lists Bahamas in the
attached schedule of ‘Assumed Actions.’” The trial court,
however, did not immediately adopt its tentative order as its final
ruling. Instead, it permitted the parties to submit supplemental
7
briefing on whether specific jurisdiction is reasonable and
whether narrowing the case to address indemnification only in
the Bahamas litigation would violate the rule against claim-
splitting.
When the parties returned for further argument after
supplemental briefing, the trial court (with the originally
assigned judge again presiding) viewed the matter differently.
The trial court granted Kimberly-Clark’s motion to quash
because it believed “there is no connection between the forum and
the specific claim at issue, and thus, it is irrelevant that
[Kimberly-Clark] sold ‘millions’ of surgical gowns in California
and earned ‘millions’ in sales revenues.” The trial court found it
unimportant that Halyard “partly seeks a declaration of its
obligation to indemnify [Kimberly-Clark] for punitive damages
awarded in Bahamas.” This was so, the trial court reasoned,
“because Bahamas (a class action by California plaintiffs[ ] for
torts arising from the sale of [Kimberly-Clark’s] surgical gowns in
California) is distinct from the present indemnity action.”
II. DISCUSSION
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 ‘aris[e] out of or relat[e] 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
8
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.
A. General Legal Framework
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
9
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 ‘aris[e] out of
or relat[e] 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
10
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.)
B. This Litigation Does Not Arise Out of or Relate to
Kimberly-Clark’s Medical Gown Sales and Marketing
in California
Kimberly-Clark does not dispute it sold millions of surgical
gowns in California. The issue is whether this conduct, which
was sufficient to support personal jurisdiction in a case alleging
fraud in the manner by which Kimberly-Clark marketed the
gowns in California (Bahamas), is sufficient to support personal
jurisdiction in a case concerning whether Halyard may be
required to indemnify Kimberly-Clark for punitive damages.
Halyard contends there is a “clear relationship” between
Kimberly-Clark’s California gown sales and Halyard’s action to
prevent Kimberly-Clark from evading payment of a punitive
damages judgment resulting from those sales. Halyard’s
11
characterization of this action, however, implicitly if not explicitly
presumes that enforceability of the Distribution Agreement’s
indemnification provision will be governed by California law.6
Even if this presumption were well-founded—and we do not hold
that it is—it has no place in our jurisdictional analysis.
In Keeton, supra, 465 U.S. 770, the United States Supreme
Court considered whether the defendant publisher could be sued
for defamation in New Hampshire (despite the fact that “the
bulk” of the plaintiff’s alleged injuries were sustained outside
New Hampshire) when New Hampshire was the only state in
which the action was not time-barred and the plaintiff would be
able to recover for damages caused in all other states. (Id. at p.
773.) Addressing the purported unfairness of permitting New
Hampshire personal jurisdiction in these circumstances, the
Court explained that “[t]he question of the applicability of New
Hampshire’s statute of limitations to claims for out-of-state
damages presents itself in the course of litigation only after
jurisdiction over [the defendant] is established, and we do not
think that such choice-of-law concerns should complicate or
distort the jurisdictional inquiry.” (Id. at p. 778.) These choice of
6
Halyard, for instance, writes in its opening brief that
“Kimberly-Clark established minimum contacts with California
when it expressly crafted the Distribution Agreement to shift
liability that it knew would be imposed in California should
Kimberly-Clark be found liable for its allegedly tortious
California conduct.” The same brief also maintains “Kimberly-
Clark availed itself of forum benefits again when it demanded
that Halyard pay the punitive damages in [the Bahamas]
judgment, in contravention of California public policy.”
12
law concerns, in the high court’s view, have “nothing to do with”
the jurisdictional analysis. (Ibid.)
Halyard’s presumption that California substantive law will
apply in resolving this declaratory relief action is not identical to
the position of the publisher in Keeton, but the impermissible
complicating effect is similar. In Keeton, choice of law concerns
were a distraction from the “proper[ ] focus[ ] on ‘the relationship
among the defendant, the forum, and the litigation’” and were
therefore put aside for purposes of analyzing personal
jurisdiction. (Keeton, supra, 465 U.S. at p. 775.) Here, it is more
difficult to disentangle the choice of law issue from the
jurisdictional analysis because Halyard suggests California’s
public policy regarding indemnification of punitive damages is
what establishes the relationship between the defendant, the
forum, and the litigation.
To wit, Halyard asserts the indemnification dispute is
related to the forum because denying indemnity impermissibly
undercuts a judgment rendered in the forum for Kimberly-Clark’s
activity in the forum. Keeton instructs, however, that this is not
the right framing for analyzing personal jurisdiction. 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.7
7
We do not make choice of law assumptions, but we note
Halyard’s assumption is not one that leaps off the pages of the
Distribution Agreement. The parties agreed there that the
agreement “shall be governed by and construed and enforced in
accordance with the substantive laws of the State of Delaware
13
Halyard nonetheless offers two alternative theories as to
how this litigation arises out of or relates to Kimberly-Clark’s
conduct in California that do not depend on a choice of law
assumption. Halyard argues (1) the indemnification dispute
arises out of Kimberly-Clark’s participation in California court
proceedings in Bahamas, and (2) if Kimberly-Clark had never
sold gowns in California, there would be no California judgment
to indemnify.
The first of these theories can be dismissed out of hand.
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’”].)
The second theory rests on the observation that the
indemnification dispute is an integral part of a causal chain that
includes the Bahamas judgment and the gown sales that
prompted it—in Halyard’s words, that “[b]ut for the punitive
damages awarded in Bahamas, this action would not exist.” The
suggestion that this “but for” causal link provides the nexus
required for personal jurisdiction, however, represents a
“mechanical” approach at odds with our obligation to consider
“the quality and nature of [forum contacts] in relation to the fair
and orderly administration of the laws which it was the purpose
of the due process clause to insure.” (International Shoe, supra,
and the federal laws of the United States of America applicable
therein, as though all acts and omissions related hereto occurred
in Delaware.”
14
326 U.S. at p. 319; see also Jayone Foods, Inc. v. Aekyung
Industrial Co. Ltd. (2019) 31 Cal.App.5th 543, 561 [“The
California Supreme Court has made clear . . . that neither a
‘proximate cause’ test nor a ‘but for’ test is the proper standard
for evaluating whether a cause of action is sufficiently related to
a defendant’s forum contacts to warrant the exercise of
jurisdiction”].)
This case is not primarily about Kimberly-Clark’s
representations to California consumers. (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”].)
It is about how two non-California corporate entities intended to
(or were legally permitted to) allocate risk associated with
various pending and contemplated lawsuits as they parted ways.
That a judgment was entered in California in favor of certain
third parties (the Bahamas plaintiffs), and that this judgment
conceivably could have played some role (along with litigation in
other jurisdictions in which assumed actions were pending) in
prompting Kimberly-Clark to seek a declaration regarding its
indemnification obligations, does not establish the requisite
connection between this forum and the specific claims at issue in
this suit. (Bristol-Myers, supra, ___ U.S. at p. ___ [137 S.Ct. at p.
1781]; see also id. at p. ___ [137 S.Ct. at p. 1783] [“‘[A]
defendant’s relationship with a . . . third party, standing alone, is
an insufficient basis for jurisdiction’”].)
Halyard resists this conclusion, citing several out-of-state
insurance cases in support of its view that indemnification
disputes necessarily arise out of forum contacts on which the
15
insured’s liability to third parties is premised. But these cases
are unreliable guides because they do not 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.
In St. Paul Surplus Lines Insurance Co. v. International
Playtex, Inc. (Kan. 1989) 777 P.2d 1259 (St. Paul Surplus), for
instance, an insurer sought a declaratory judgment that it was
not obligated to indemnify its insured for punitive damages
awarded in a product liability action. (Id. at p. 1261.) The
product liability case was adjudicated in Kansas, but the insured,
Playtex, contended Kansas lacked personal jurisdiction in the
declaratory judgment action. (Id. at p. 1262.) The Kansas
Supreme Court acknowledged “no activity took place in Kansas
with regard to the formation of the insurance contracts” but
emphasized “the parties anticipated that claims under the
policies might arise in Kansas” because “a number of provisions
[were] designed to comply with various insurance laws and
regulations” of Kansas and other states. (Id. at p. 1265.) The
Kansas court further emphasized “Playtex purposefully
advertised and sold its tampons in Kansas.” (Id. at p. 1266.)
The reasoning in St. Paul Surplus does not address the
relationship between the indemnification dispute and Playtex’s
distribution of tampons in Kansas. Rather, it suggests that
notwithstanding the attenuated relationship, Playtex’s other
Kansas-directed activities justified personal jurisdiction.
Similarly, in Capitol Specialty Insurance Corp. v. Splash
Dogs, Inc. (S.D.Ohio 2011) 801 F.Supp.2d 657 (Capitol Specialty),
a federal district court in Ohio determined a declaratory
judgment action brought by an insurer against its insured arose
16
from the insured’s forum activities that supported specific
jurisdiction in an underlying lawsuit. (Id. at pp. 666-667, 670.)
Applying a proximate cause test, the court reasoned “if an
insured either transacts business in a state other than the one in
which he or she resides, or tortiously injures someone in such a
state, it is reasonably foreseeable that insurance coverage issues
may arise from that conduct.” (Id. at p. 666.) Insofar as the
specific claims at issue in such insurance coverage disputes may
have little or nothing to do with the forum conduct that prompted
them, however, this mode of reasoning is not consistent with the
rule articulated in Bristol-Myers.
In Employers Mutual Casualty Co. v. Bartile Roofs, Inc.
(10th Cir. 2010) 618 F.3d 1153 (Employers Mutual), an insurer
sought a declaratory judgment that it was not obligated to defend
and indemnify its insured, a Utah corporation, in connection with
the insured’s work on a resort in Wyoming. (Id. at pp. 1156-
1157.) The Tenth Circuit held the insured was subject to
personal jurisdiction in Wyoming under either a “but for” or
“proximate cause” approach. As to the latter, the Employers
Mutual court reasoned “[the insured’s] allegedly negligent work
[was] relevant to the merits of the declaratory judgment action.”
(Id. at p. 1161.) This is no more accurate, however, than
suggesting the permeability of MicroCool gowns is somehow
relevant to the merits of this indemnity dispute. The allegedly
negligent work prompted the declaratory judgment action, but it
did not give rise to the indemnification rights at issue in the
declaratory judgment action.
Finally, Halyard tries to pull too much out of the partially-
overruled Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14
Cal.4th 434 (Vons), a case in which Jack-in-the-Box’s California-
17
based parent company sued Vons in California for supplying its
restaurants with contaminated beef. (Vons, supra, 14 Cal.4th at
p. 440.) Vons filed a cross-complaint against non-California Jack-
in-the-Box franchisees, among others, alleging they did not
properly cook the beef and seeking damages and indemnification.
(Id. at pp. 440-444.) The non-California franchisees contested
personal jurisdiction in California, and our Supreme Court ruled
the franchisees “purposefully availed themselves of benefits in
the forum by reaching out to forum residents to create an ongoing
franchise relationship” (id. at p. 449) and this relationship “in the
forum drew these defendants and Vons into a relationship as
alleged joint tortfeasors, with some joint liability and rights of
indemnification” (id. at p. 456). The Vons court further held “the
franchise relationship, with its uniform standards for cooking
food, training employees, and buying equipment, itself was a
source of injury to Vons,” such that Vons’s cross-claims “arose out
of the contractual relationship between [the franchisees and
franchisor], a relationship that had a substantial connection to
California.” (Id. at p. 457.)
Halyard contends that “if an indemnification relationship
forms a substantial relationship between the parties’ conduct
[outside of California] and their contract [with California
residents], the relationship necessarily runs in both directions.”
But that is not the right view of the role of the indemnification
relationship discussed in Vons. The indemnification relationship
did not “form” a substantial connection between the franchisees’
preparation of contaminated beef and their franchise agreements.
Rather, the indemnification relationship was itself a product of
the franchisees’ franchise agreements such that Vons’s claims
based on the indemnification relationship arose out of the contract
18
activity that created it. Here, by contrast, 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.
C. The Distribution Agreement Is Not a “California-
Directed” Contract Conferring Personal Jurisdiction
A defendant need not ever “physically enter the forum
[s]tate” 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] ha[s] consistently rejected the notion
that an absence of physical contacts can defeat personal
jurisdiction there. [Citations.]” (Ibid.)
In Burger King, the Supreme Court ruled the business
endeavors of a Michigan resident who purchased a Burger King
franchise were purposefully directed toward Florida, even though
the franchise owner had never been to Florida, because “he
entered into a carefully structured 20-year relationship that
envisioned continuing and wide-reaching contacts with” Burger
King Corporation, the franchisor headquartered in Florida. (Id.
at pp. 479-482.) The Court also emphasized that the franchise
agreement at issue in that case included a Florida choice of law
19
provision. (Id. at pp. 481-482.) Distinguishing Keeton and other
cases holding that a choice of law analysis or determination is not
relevant to personal jurisdiction, the Court explained that
contracting parties’ choice (right or wrong) of the substantive law
that would apply was relevant and “reinforced [the defendant’s]
deliberate affiliation with the forum State and the reasonable
foreseeability of possible litigation there.” (Id. at p. 482.)
Halyard contends Kimberly-Clark’s execution of what
Halyard says is a “California-directed” Distribution Agreement
supports personal jurisdiction in this state. There is no
similarity, however, between Kimberly-Clark and the out-of-state
franchise owner in Burger King. Unlike the Burger King
Corporation that was incorporated in the forum state (Florida),
neither Kimberly-Clark nor Halyard are California corporations.
The Distribution Agreement was negotiated and executed
entirely in Texas, not California in any part. Kimberly-Clark did
request that Bahamas be included among the 27 expressly
assumed actions in the Distribution Agreement, but nothing
suggests Kimberly-Clark was then aware (two days after the
complaint was filed) that the Bahamas case was more likely than
any other to prompt Halyard to dispute its indemnification
obligations. And the parties’ choice of law selection here (again
quite the opposite of Burger King) reflects a deliberate affiliation
with Delaware—Kimberly-Clark and Halyard’s state of
incorporation—not California.
Halyard nevertheless cites several unpublished district
court cases for the proposition that “courts have repeatedly held
that a defendant purposefully avails itself of the forum by
contracting for coverage in that forum.” (National Casualty Co. v.
National Association of Intercollegiate Athletics (C.D.Ill., Mar. 6,
20
2017, No. 16-CV-2145) 2017 WL 6945571, Massachusetts Bay
Insurance Co. v. Portland Water Dist. (D.N.H., May 10, 2000, No.
CIV. 99-487-M) 2000 WL 1499493, and United Services Auto
Assn. v. Cregor (N.D.Ill. 1985) 617 F.Supp. 1053. But see, e.g.,
Hiscox Insurance Co., Inc. v. Bordenave (S.D.N.Y. June 26, 2019,
No. 18 Civ. 10222) 2019 WL 2616338, *8 [New York long-arm
statute did not provide personal jurisdiction over non-New York
defendants in declaratory judgment action based on insurance
contract even though insurance claim arose from litigation in
New York]; National Indemnity Co. v. Pierce Waste Oil Services,
Inc. (E.D.Mo. 1990) 740 F.Supp. 721, 724 [Missouri long-arm
statute did not provide personal jurisdiction over non-Missouri
defendant in declaratory judgment action based on insurance
contract even though insurance claim arose from litigation in
Missouri]). The non-binding cases Halyard cites, which concern
insurance relationships different from the indemnity agreement
at issue here, do not persuade us the Distribution Agreement is
California-directed in any meaningful sense.
Rather, considering the “prior negotiations and
contemplated future consequences, along with the terms of the
contract and the parties’ actual course of dealing” (Burger King,
supra, 471 U.S. at p. 479), the pertinent aspect of the
Distribution Agreement is best described as indemnity-directed,
not California-directed. That is, Kimberly-Clark wanted
assurance that liability arising from the acts of its former
healthcare division would be compensated wherever it might
arise (other than as specified in the list of excluded actions) and
there was no particular focus on California over any other
litigation forum. The parties’ agreement to define the universe of
required indemnity so broadly does not create jurisdiction to
21
determine the meaning and enforceability of the Distribution
Agreement everywhere around the world that liability might be
had and indemnity required. To the contrary, the
constitutionally required minimum contacts between the forum
and the litigation must be present, and—as to this specific
dispute—such contacts with California are lacking.
DISPOSITION
The trial court’s order is affirmed. Kimberly-Clark shall
recover its costs on appeal.
BAKER, J.
I concur:
KIM, J.
22
Halyard Health, Inc. v. Kimberly-Clark Corp. – B294567
RUBIN, P.J. – Dissenting:
Does a cause of action for declaratory relief regarding
contractual indemnification solely arise from or relate to the
contract itself, or does it also arise from or relate to the
underlying injury-producing conduct for which indemnification is
sought? The answer, I believe, is “Yes.” The majority disagrees.
Hence, my dissent.
FACTUAL SUMMARY
The relevant facts and procedure are not seriously in
dispute, and are fully described by the majority. Briefly,
Kimberly-Clark manufactured and sold a great many products,
among them medical gowns. It advertised its High Performance
Gowns as satisfying an industry standard known as “AAMI Level
4,” providing protection from the transfer of bodily fluids,
bacteria and infection between patient and health care
professional. Class plaintiffs in the underlying action alleged
that this representation was untrue; the medical gowns failed the
AAMI Level 4 test, many times catastrophically. Kimberly-Clark
knew this, and nonetheless continued to market the gowns, for
years, as meeting AAMI Level 4 standards.
The underlying action, known as the Bahamas case, was a
California federal class action brought by purchasers of the
gowns, alleging fraud.
Around the time the Bahamas case was filed, Kimberly-
Clark had spun off its health care business to Halyard, resulting
in Kimberly-Clark and Halyard both being named defendants in
the Bahamas case, although Kimberly-Clark’s liability was based
1
on years of selling the gowns and Halyard’s was based on only
weeks of sales.
As between Kimberly-Clark and Halyard, the contract
spinning off the health care business (known as the “Distribution
Agreement”) provided that Halyard would defend and indemnify
Kimberly-Clark in connection with a list of pending litigation,
including expressly the Bahamas case.
The Bahamas case ended with a verdict in favor of the
plaintiff class on its cause of action for fraudulent concealment.
Concluding Kimberly-Clark and Halyard had acted with malice,
oppression or fraud, punitive damages were awarded. Although
the punitive damage awards were later reduced, the jury initially
awarded $350 million against Kimberly-Clark and $100 million
against Halyard. The jury also awarded compensatory damages.
Faced with Kimberly-Clark’s request that Halyard
indemnify it for $350 million in punitive damages, and Halyard’s
belief that indemnification for punitive damages is against
California public policy, Halyard brought the current action
against Kimberly-Clark for declaratory relief. Believing that
punitive damages can be indemnified in Delaware, Kimberly-
Clark brought a competing declaratory relief action in Delaware.
The ultimate resolution of the liability for the punitive
damage award against Kimberly-Clark will likely turn on issues
of choice of law. Halyard prefers the law of California, as the
state in which the punitive damages were awarded, while
Kimberly-Clark prefers Delaware, as the state identified in the
choice of law provision in the Distribution Agreement. That issue
is not before us, although it apparently motivates the parties’
litigation strategies. The sole issue on this appeal is whether
2
California has personal jurisdiction over Kimberly-Clark in
Halyard’s declaratory relief action.8
It is undisputed that Kimberly-Clark and Halyard are not
California entities; it is also undisputed that there is no basis for
California to exert general jurisdiction over Kimberly-Clark. The
issue on appeal is whether California has specific jurisdiction
over Kimberly-Clark in this declaratory relief action, due to
Kimberly-Clark’s sale of the defective medical gowns in
California.
8
The declaratory relief complaint, as originally filed, sought
only declaratory relief that Halyard need not indemnify
Kimberly-Clark for the punitive damage award in the Bahamas
case. After it was filed, Kimberly-Clark made “additional
demands against Halyard with respect to the California punitive
damages award and various other pending lawsuits.” Halyard
believed these demands were inconsistent with the Distribution
Agreement and the parties’ obligations to each other, so amended
its declaratory relief complaint to seek declaratory relief with
respect to these demands as well. Because some of Kimberly-
Clark’s demands challenged by Halyard related to litigation
outside of California, Kimberly-Clark argues that the amended
complaint complicates the personal jurisdiction analysis, as the
declaratory relief action was now multi-jurisdictional. As I will
discuss, I believe that California courts do have personal
jurisdiction over Kimberly-Clark with respect to Halyard’s
complaint for declaratory relief regarding indemnity for the
Bahamas punitive damages. Whether California courts also have
specific jurisdiction over Kimberly-Clark with respect to
Halyard’s remaining claims for declaratory relief is beyond the
scope of this appeal; Kimberly-Clark did not move to quash
service on a case-by-case basis.
3
DISCUSSION
1. General Rules of Personal Jurisdiction
California’s long-arm statute provides California courts
may exercise jurisdiction as far as the limits of the due process
clause. (Code Civ. Proc., § 410.10; Asahi Metal Industry Co. v.
Superior Court of California (1987) 480 U.S. 102, 106.)
In general, “for a state court to exercise specific
jurisdiction, ‘the suit’ must ‘aris[e] out of or relat[e] 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 Squibb Co. v. Superior
Court (2017) ___ U.S. ___ [137 S.Ct. 1773, 1780] (Bristol-Myers).)
The exercise of jurisdiction comports with the requirements
of due process “ ‘ “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.” ’ ”
[Citation.]’ [Citation.] ‘[T]he minimum contacts test 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.” [Citation.] The test “is not susceptible of
mechanical application; rather, the facts of each case must be
weighed to determine whether the requisite ‘affiliating
circumstances’ are present.” [Citation.]’ [Citation.]” (Jayone
Foods, Inc. v. Aekyung Industrial Co. Ltd. (2019) 31 Cal.App.5th
543, 552-553 (Jayone).)
4
Foreseeability is relevant to the analysis; the defendant’s
conduct and connection with the forum State must be such that
the defendant “should reasonably anticipate being haled into
court there.” (World-Wide Volkswagen Corp. v. Woodson (1980)
444 U.S. 286, 297.)
2. The Three-Prong Test
The majority has set out the well-settled, three-prong, test
for specific jurisdiction. “ ‘When determining whether specific
jurisdiction exists, courts consider the “ ‘relationship among the
defendant, the forum, and the litigation.’ ” [Citation.] 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’ ” [citation]; and (3) “ ‘the assertion of personal jurisdiction
would comport with “fair play and substantial justice” ’ ”
[citation].’ [Citation.]” (Jayone, supra, 31 Cal.App.5th at p. 553.)
When there is no conflict in the evidence, as is the case here, the
question is one of the law and the reviewing court engages in an
independent review of the record. (Ibid.)
I now turn to an analysis of each of the three prongs.
A. Prefatory Statement – Observations of the Delaware
Court
In response to Halyard filing this declaratory relief action,
Kimberly-Clark responded with a counter declaratory relief
lawsuit in Delaware. Halyard successfully stayed the Delaware
action on the basis that the California action had been first filed.
In opposing Halyard’s motion to stay, Kimberly-Clark
argued that the California courts were not capable of doing
prompt and complete justice in this matter because California
5
lacked personal jurisdiction over Kimberly-Clark. The Delaware
court rejected the argument, stating in words that resonate, “As
an initial matter, although I am not deciding that issue . . . , the
argument seems to strain credibility to my eyes as a Delaware
judge. [¶] The California federal court clearly was willing to
exercise personal jurisdiction over Kimberly-Clark in the
Bahamas action. The jury award in that action was based on
Kimberly-Clark’s sales of nearly 3 million surgical gowns
. . . resulting in nearly $18 million of revenue. The underlying
disputes here arise over the indemnification obligations triggered
by the Bahamas action. Then it dips into the other actions,
which are related as well. When Kimberly-Clark and Halyard
entered into the distribution agreement, it was certainly
foreseeable that Halyard would have to indemnify Kimberly-
Clark for events occurring in California, as Kimberly-Clark
purposely availed itself of that state’s jurisdiction. [¶] For these
reasons, . . . I have significant doubts that Kimberly-Clark will be
able to prevail on a personal jurisdiction defense in the California
indemnity action.”
While the Delaware court stated it was not deciding the
issue, the court’s analysis addressed all three elements of the
three-prong test, and reached what I believe to be the clear,
logical result, as I shall next discuss.
B. Prong One – Purposeful Availment
It is not disputed that prong one is established. Prong one
requires that the defendant purposefully avail itself of forum
benefits. Here, Kimberly-Clark purposefully availed itself of
forum benefits by selling millions of dollars of apparently
defective medical gowns in California.
6
C. Prong Two – Arising Out of or Relating To
My parting of ways with the majority is founded on my
view that the current litigation – seeking declaratory relief
regarding indemnification for the punitive damages in the
Bahamas case – arises out of, or is related to, the sale of the
defective medical gowns. Halyard takes the position that the
relation is clear; Kimberly-Clark argues that the sale of medical
gowns is irrelevant to this action, which arises only from the
Distribution Agreement between Kimberly-Clark and Halyard. I
believe Halyard has the better argument. This is supported by
both the interpretation of broad language of the test and the
limited case authority the parties have supplied.
1. “Arising Out of or Relating To”
The second prong does not require that the current
litigation arise out of the defendant’s contacts with the forum
state; instead, the test is in the disjunctive, and jurisdiction may
be found also if the litigation is sufficiently related to the
contacts. (Jayone, supra, 31 Cal.App.5th at pp. 559-560.) The
most recent United States Supreme Court case on specific
jurisdiction is Bristol-Myers which restated the “arise out of or
relate to” test from two of its earlier jurisdiction opinions, Burger
King Corp. v. Rudzewicz (1985) 471 U.S. 462, 472–473; and Helicopteros
Nacionales de Colombia v. Hall (1984) 466 U.S. 408, 414. “In order for a
state court to exercise specific jurisdiction, ‘the suit’ must ‘aris[e] out
of or relat[e] to the defendant’s contacts with the forum.’ ” (Bristol-
Myers, supra, 137 S.Ct at p. 1780.)
Nothing in Bristol-Myers suggests the high court has narrowed
or otherwise changed the “arise out of or relate to” standard. Rather,
Bristol-Myers’s express holding is that the California Supreme Court’s
application of a “sliding scale” approach to specific jurisdiction
7
(Bristol-Myers Squibb Co. v. Superior Court (2016) 1 Cal.5th 783)
was inconsistent with prior United States Supreme Court precedent.
The high court found that the sliding scale standard resembled “a
loose and spurious form of general jurisdiction.” (Bristol-Myers, supra,
137 S.Ct at p. 1776). We have nothing of the sort here.
Applying the Bristol-Myers arise out of/relate to test, I focus
on “relate to,” which in my view, is significantly broader than
“arising out of.” In one sense, it is difficult to imagine a more
“related to” action than an indemnification claim between the two
defendants in the very action that gave rise to the
indemnification claim.
In determining the meaning of “related to,” courts have
generally chosen one of three different standards: proximate
cause, but-for causation, or substantial connection. (Emplrs.
Mut. Cas. Co. v. Bartile Roofs, Inc. (10th Cir. 2010) 618 F.3d
1153, 1160-1161.) California uses the substantial connection
test. “ ‘A claim need not arise directly from the defendant’s forum
contacts in order to be sufficiently related to the contact to
warrant the exercise of specific jurisdiction. Rather, as long as
the claim bears a substantial connection to the nonresident’s
forum contacts, the exercise of specific jurisdiction is appropriate.’
[Citation.]” (Jayone, supra, 31 Cal.App.5th at p. 560.) “ ‘ “ ‘Only
when the operative facts of the controversy are not related to the
defendant’s contact with the state can it be said that the cause of
action does not arise from that [contact.]’ ” [Citation.]’
[Citations.]” (Ibid.)
This broad construction of “relating to” is in line with the
interpretation given the phrase in other contexts. A series of
cases cited by our colleagues from the Fourth District makes the
8
point: “The Legislature’s use of the phrase ‘relating to’ compels
our conclusion. (See Altria Group, Inc. v. Good (2008) 555 U.S.
70, 85, 129 S.Ct. 538, 172 L.Ed.2d 398 [meaning of the key
phrase ‘relating to’ is broad]; Morales v. Trans World Airlines,
Inc. (1992) 504 U.S. 374, 383–384, 112 S.Ct. 2031, 119 L.Ed.2d
157 [the ‘ordinary meaning of [“relating to”] is a broad one—“to
stand in some relation; to have bearing or concern; to pertain;
refer; to bring into association with or connection with,” Black’s
Law Dictionary 1158 (5th ed. 1979)’]; Bono v. David (2007)
147 Cal.App.4th 1055, 1067, 54 Cal.Rptr.3d 837 [interpreting
arbitration clause language ‘ “any claim arising from or related to
this agreement” ’ as broad].)” (San Diego Unified School Dist. v.
Yee (2018) 30 Cal.App.5th 723, 733.)
Under this test, I have no difficulty concluding that the
complaint – seeking a resolution of the dispute over which party
is responsible for the punitive damages awarded against
Kimberly-Clark in the Bahamas action – is related to the
California conduct for which punitive damages were awarded
against Kimberly-Clark in the first place. This case is not simply
a forward-looking hypothetical dispute regarding whether the
Distribution Agreement provides for indemnification of punitive
damages; it is a tangible controversy regarding whether there is
indemnification, born out of a California federal court’s award of
punitive damages for fraudulent conduct which took place in
California.
To look at this case from the obverse, the second prong is
not established only when the operative facts of the controversy
are not related to the defendant’s forum conduct. Here, the
operative facts of the controversy are (1) Kimberly-Clark got hit
with a $350 million punitive damage award (later reduced) in the
9
Bahamas action; and (2) there was a contract by which Halyard
agreed to indemnify Kimberly-Clark for damages in the Bahamas
action. Even if Kimberly-Clark is correct that the second fact –
the contract – is, on its own, unrelated to the company’s
California conduct, the first fact – the punitive damage award in
the Bahamas action – is. The relation is not merely tangential or
but-for; the massive punitive damage award is inextricably
intertwined with the advertising and sale of defective medical
gowns in California which prompted it, and which the
indemnification agreement contemplated.
2. Case Law is in Accord
Neither party has cited to any California authority that
applied the related to test to an indemnification claim. Bristol-
Myers itself was not an indemnification case. Although
significant case law in other jurisdictions holds that an
indemnification action is related to the underlying judgment to be
indemnified, the majority finds these cases “unreliable guides.” I
disagree.
In St. Paul Surplus Lines Inc. v. International Playtex, Inc.
(Kan. 1989) 777 P.2d 1259 (St. Paul), the defendant tampon
manufacturer, Playtex, was sued in products liability in federal
court in Kansas, resulting in a $10 million punitive damage
award. When it sought to recover the punitive damages from its
excess insurers, the insurers brought a declaratory relief action
in Kansas state court seeking (and obtaining) a ruling that
Kansas public policy prohibited indemnification for punitive
damages. Playtex appealed, arguing that the Kansas court had
no personal jurisdiction over it in the declaratory relief action,
despite the fact that its sale of tampons in Kansas justified
personal jurisdiction in the underlying products liability action.
10
(Id. at pp. 1263-1264.) In an argument identical to that made by
Kimberly-Clark in this case, Playtex argued that “the current
claim does not arise out of the use of its products sold in this
state, but rather out of an insurance contract between
nonresident corporations which have no connection to the State of
Kansas.” (Id. at p. 1264.) The Kansas Supreme Court rejected
the argument, explaining, “It was not error for the trial court to
find that the declaratory judgment action was sufficiently
connected to the sale of Playtex products in Kansas to warrant
personal jurisdiction over Playtex. The declaratory judgment
action requires us to determine whether coverage for punitive
damages exists to protect Playtex in the underlying . . . damage
action. The question of coverage arises from the actions taken by
Playtex in selling its product in Kansas, which subsequently
caused the death of a Kansas resident. The plaintiff insurers’
claim for an insurance coverage determination lies in the wake of
the commercial activities of Playtex in Kansas.” (Ibid.)
The majority dismisses the St. Paul case by stating that it
“does not address the relationship between the indemnification
dispute and Playtex’s distribution of tampons in Kansas,” and
instead suggesting St. Paul found jurisdiction based on Playtex’s
“other Kansas-directed activities.” (Maj. Opn., p. 16.) As I have
quoted, the St. Paul court did address the relationship, and found
it sufficient. To the extent the St. Paul court mentioned any of
Playtex’s other Kansas-directed activities, the court simply noted
that there was language in the insurance policies specifically
directed toward complying with Kansas law, which suggested
that “the parties anticipated that claims under the policies might
arise in the State of Kansas.” (St. Paul, supra, 777 P.2d at
p. 1265.) Foreseeability of being haled into a forum’s court is
11
relevant to the personal jurisdiction inquiry. (World-Wide
Volkswagen Corp. v. Woodson, supra, 444 U.S. at p. 297.)
St. Paul is in no way an outlier. In Employers Mutual
Casualty Co. v. Bartile Roofs, Inc., supra, 618 F.3d 1153, the
Tenth Circuit reached the same result, using the stricter
probable cause test. In that case, a construction project in
Wyoming went wrong, and lead to litigation. A Utah roofing
subcontractor, who had worked on the project in Wyoming, was
brought into the litigation, and tendered the dispute to its (Iowa)
insurer. The insurer defended under a reservation of rights, and
brought a declaratory relief action in federal court in Wyoming,
arguing that it had no obligation to defend or indemnify its
insured roofing subcontractor. The subcontractor challenged
personal jurisdiction in Wyoming, on the basis that the dispute
arose from the (non-Wyoming) insurance contract, rather than
the Wyoming construction project. (Id. at pp. 1156-1158.) In
determining the proper test to use for the second prong of specific
jurisdiction, the Tenth Circuit declined to use substantial
connection, and instead concluded that under either proximate
cause or but-for causation, the element was satisfied. (Id. at
p. 1161.) As to proximate cause, the court explained that the
defendants’ allegedly negligent work on the Wyoming roof “is
relevant to the merits of the declaratory judgment action. In the
declaratory judgment action, [the insurer] seeks to avoid having
to defend or indemnify [the roofer] for injuries arising out of the
allegedly negligent work on the luxury hotel in Wyoming.” (Ibid.)
Lastly, in Capitol Specialty Ins. Corp. v. Splash Dogs, LLC
(S.D. Ohio 2011) 801 F.Supp.2d 657, the defendant in a federal
action in Ohio sought insurance coverage, and the insurer
brought a declaratory relief action, also in federal court in Ohio,
12
seeking a declaration that it had no indemnification obligation.
The defendant challenged personal jurisdiction, arguing that the
declaratory relief action did not arise from any of the business it
had transacted in Ohio which led to the underlying action. The
court disagreed, even under the strict proximate cause standard,
explaining, “[T]here is a proximate, and not just a ‘but-for,’ causal
connection between the actions that give rise to an underlying
lawsuit and insurance coverage questions pertaining to that case.
The Court noted, in addition, that if an insured either transacts
business in a state other than the one in which he or she resides,
or tortiously injures someone in such a state, it is reasonably
foreseeable that insurance coverage issues may arise from that
conduct.” (Id. at p. 666; see also United Servs. Auto. Ass’n v.
Cregor (N.D. Ill. 1985) 617 F.Supp. 1053, 1055 [declaratory relief
coverage action arises from the policy which insured the allegedly
covered acts, and therefore arises out of the covered acts
themselves].)9
9
The majority cites to two cases which reach different
results under state laws that have a narrower reach than the
California long-arm statute. National Indem. Co. v. Pierce Waste
Oil Service, Inc. (E.D. Mo. 1990) 740 F.Supp. 721, 722-723 found
no personal jurisdiction over a declaratory relief coverage action
under the Missouri long-arm statute, which extends jurisdiction
only to actions that “arise[] from” forum contacts, and does not
contain “relating to” language. Significantly, the court also found
the coverage action in that case was forward-looking, as there
had not yet been a finding of liability in the underlying action.
The court noted, “Absent a finding of liability against the . . .
defendants, plaintiffs cannot be called upon to indemnify
defendants under the insurance policy. Thus, the only issues
with respect to liability that this lawsuit seeks to resolve or can
resolve are question of potential liability. Questions of potential
13
A series of unpublished federal cases are also in accord,
finding personal jurisdiction over declaratory relief coverage
actions based on the defendant insured’s underlying conduct in
the forum, without focusing solely on the state of the insurance
contract. (National Casualty Company v. National Association of
Intercollegiate Athletics (C.D. Ill. 2017) 2017 WL 6945571, *3, [“If
the parties anticipated that Defendant could be sued in Illinois,
the parties would have anticipated that Plaintiff’s duty to defend
could be triggered by an Illinois lawsuit. If the parties
anticipated that Plaintiff’s duty to defend could be triggered in
Illinois, then they must have anticipated that they could be haled
into an Illinois court in order to determine their rights and
obligations under the insurance policy.”]; Evanston Insurance Co.
v. Honso USA, Inc. (N.D. Cal. 2011) 2011 WL 1362071, *5
[personal jurisdiction exists in California over the coverage action
because of the insured’s participation in the California
underlying action and his California conduct challenged in it];
Massachusetts Bay Ins. Co. v. Portland Water Dist. (D.N.H. 2000)
2000 WL 1499493, *4 [personal jurisdiction exists in New
Hampshire over the declaratory relief coverage action because of
the defendant’s tortious conduct in New Hampshire and having
obtained an insurance policy intended to cover it]; but see
Northland Insurance Co. v. Berkebile Oil Co. (W.D. Va. 2003)
2003 WL 22995127, **4-5 [no personal jurisdiction over the
liability can only be answered by reference to the parties’
contract.” (Id. at p. 724, fn. 4.) Hiscox Ins. Co. v. Bordenave
(S.D.N.Y. 2019) 2019 WL 2616338, **7-8 similarly found that an
indemnity action did not “arise from” the insured’s underlying
New York conduct, when the New York long-arm statute did not
include a “relating to” standard.
14
coverage action, because the coverage action arises only from the
insurance contract, not the underlying tortious activity].)
Given the broad “substantial connection” test used for the
second prong in California, it is clear to me that a declaratory
relief coverage action both arises out of, and relates to, more than
the contract itself, but also to the underlying tortious activity.
Each is essential. As a jury found that Kimberly-Clark
committed tortious activity in California, for which it seeks
indemnification from Halyard, I would conclude the second prong
is established.
D. Prong Three – Fair Play and Substantial Justice
The final prong asks that the court consider whether the
exercise of personal jurisdiction is reasonable, that is, that it
comports with fair play and substantial justice. “[T]he
determination of the reasonableness of the exercise of jurisdiction
in each case will depend on an evaluation of several factors. A
court must consider the burden on the defendant, the interests of
the forum State, and the plaintiff’s interest in obtaining relief. It
must also weigh in its determination ‘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.’ [Citation.]”
(Asahi Metal Industry Co. v. Superior Court of California, supra,
480 U.S. at p. 113.) Where a defendant who purposefully has
directed activities at forum residents seeks to defeat jurisdiction,
it must present a compelling case that the presence of some other
considerations would render jurisdiction unreasonable. (Jayone,
surpa, 31 Cal.App.5th at p. 564.)
Kimberly-Clark has not met this burden. While Kimberly-
Clark argues that the costs of litigating the coverage dispute in
15
California is great, it is difficult to perceive how this is so when
the issue presented by this declaratory relief action is not
particularly fact-dependent, but is largely an issue of law as to
whether indemnification for punitive damages is legally
permissible. It certainly is less burdensome than the underlying
action in which Kimberly-Clark unsuccessfully defended itself
from costly class action products liability claims. The interest of
the forum state, California, is strong, in that California has a
public policy interest in determining whether punitive damage
awards imposed for reprehensible tortious conduct in California
can be passed off onto other entities. (See St. Paul, supra,
777 P.2d at p. 1266 [“Where an award of punitive damages is
made in Kansas, pursuant to the laws of Kansas, Kansas public
policy should control the determination of who will pay those
damages.”].)
Nor is there any aspect of the interstate judicial system’s
interest in obtaining the most efficient resolution of controversies
that weighs against personal jurisdiction in this case. There is no
reason that a California court should not determine the effect of a
California punitive damage award. Whether the California court
decides the indemnification action should be adjudicated under
California, Delaware or Texas law, or some other, is of no
moment to whether there is personal jurisdiction over Kimberly-
Clark.
I would reverse the trial court’s order granting
Kimberly-Clark’s motion to quash.
RUBIN, P. J.
16
Filed 1/2/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
HALYARD HEALTH, INC., B294567
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC659662)
v.
ORDER MODIFYING
KIMBERLY-CLARK OPINION AND CERTIFYING
CORPORATION, OPINION FOR PUBLICATION
Defendant and Respondent.
THE COURT:
It is ordered that the opinion filed on December 6, 2019, be
modified as follows:
In the case caption, Kimberly-Clark Corp. is changed to
read Kimberly-Clark Corporation.
So modified, and good cause appearing, it is ordered that
the opinion be published in the official reports.
There is no change in judgment.
____________________________________________________________
BAKER, J. RUBIN, P. J. KIM, J.