Opinion ID: 779064
Heading Depth: 2
Heading Rank: 3

Heading: Personal Jurisdiction over Froyer USA and FSN Top Secret

Text: 42 Defendants FSN Top Secret and Froyer USA argue that the district court lacked personal jurisdiction over them for claims stated in the Third Amended Complaint because they were not served with a summons. Plaintiffs contend that despite any technical defect in failure to serve a summons with the Third Amended Complaint, the district court did have personal jurisdiction over FSN Top Secret and Froyer USA. FSN Top Secret and Froyer USA were added as Defendants in the Third Amended Complaint, which was served on the attorney of record for all Defendants in the consolidated action. Although these were the first claims stated against FSN Top Secret and Froyer USA, no summons was served on either party. 43 Froyer USA explicitly joined in a motion under Rule 12(b) after service of the Third Amended Complaint. Under Rule 12(h)(1), Froyer USA has waived any defense of lack of personal jurisdiction, insufficiency of process, or insufficiency of service of process, by failing to raise the defense in its first motion under Rule 12(b). See Fed.R.Civ.P. 12(b), (h)(1)(A). We therefore need only examine whether the exercise of personal jurisdiction was proper as to FSN Top Secret. 44 Plaintiffs argue that FSN Top Secret also waived any defense under Rule (h)(1), by failing to join in the first 12(b) motion brought by codefendants Lui and Froyer USA, where all Defendants were represented by one attorney. Specifically, under Rule 12(g), when any motion is brought under Rule 12, all Rule 12 defenses must be raised in the motion, unless exempt from waiver under Rule 12(h)(2). Fed.R.Civ.P. 12(g); 12(h)(2). Plaintiffs ask us to adopt a rule that when the same counsel appears for all Defendants of record, one party should not be allowed to circumvent the consolidation requirements of Rule 12(g) by failing to join in the Rule 12(b) motions of its codefendants. See Church of Scientology v. Linberg, 529 F.Supp. 945, 966-67 (C.D.Cal.1981). 45 In Church of Scientology, two defendants argued that the defense of lack of personal jurisdiction was not waived by the failure to raise it in the Rule 12(b) motions of the remaining codefendants. Id. at 966. The same attorney represented all codefendants, but filed a Rule 12(b) motion only on behalf of those defendants herein who have been properly served with process. Id. Because counsel could cite no legitimate reason why the remaining two defendants could not have raised their defenses in the same motion, the district court held that the defenses were waived. Id. at 966-67. The practical effect of permitting defendants to raise the defense in a second Rule 12(b) motion would have been circumvention of the consolidation requirements of Rule 12(b), (g) and (h). Id. Given the purpose of consolidation, to prevent the dilatory tactic of filing a series of 12(b) motions, the district court held that the defense of lack of personal jurisdiction was waived by failing to join in the 12(b) motion of codefendants. Id. Despite the policy concerns underlying the waiver provisions of Rule 12, nothing in the rule requires codefendants represented by the same counsel to raise or waive all their defenses together. 4 We decline to read this requirement into the rule, and reject Church of Scientology's contrary conclusion. 46 Plaintiffs next argue that the voluntary appearance of FSN Top Secret and Froyer USA in the removed action through counsel waives any attack on personal jurisdiction in the original federal action. Plaintiffs contend that when actions are consolidated under the Federal Rules of Civil Procedure, the suits are merged, and become one form of action. See Roden v. Empire Printing Co., 135 F.Supp. 665, 667 (D.Alaska 1955)(citing Fed.R.Civ.P. 42(a)). In Roden, three actions were consolidated, and plaintiffs were entitled to attorneys' fees under Alaska law. Id. If the actions were treated as separate actions, plaintiffs would have been entitled to a substantially larger award of fees. The district court rejected the award of fees, holding that [w]hen so consolidated the suits are merged and constitute thereafter but one action. Id. 47 In response to this authority, FSN Top Secret counters that it cannot lose its right to raise its individual defenses in the original federal action, because consolidation does not impact its separate and distinct rights. See J.G. Link & Co. v. Continental Cas. Co., 470 F.2d 1133, 1138 (9th Cir.1972). In Link, the injured party sued the insured, who brought a third party complaint against the insurer. Id. at 1134. The insurer removed the case to federal court, and the court remanded the original action, but retained jurisdiction over the third party complaint. Id. The injured party prevailed in state court, obtained a final judgment, and brought suit to enforce the judgment against the insurer in federal court. Id. Upon motion of the insured and the injured party, the actions were consolidated for trial. Id. at 1135. After a misrepresentation by the insured, the insured was estopped from asserting coverage under the insurance policy. Id. at 1138. The insurer argued that, because of the consolidation, the injured party should also be estopped from asserting policy coverage. Id. As a preliminary matter, the court noted that an act of consolidation does not affect any of the substantive rights of the parties. Id. (citing 5 J. Moore's Federal Practice § 42.02 (2d ed.1971)). Applying state law, the Ninth Circuit rejected the argument that the injured party was subject to estoppel, and held that the insured had rights vested under the terms of the policy which entitled them to coverage.... Id. 48 At first glance, the holdings in Roden and Link appear to be in conflict regarding the nature of consolidation. Consolidation as a term of legal procedure is generally used in three different contexts: (1) when several actions are stayed while one is tried, and the judgment in the case tried will be conclusive as to the others; (2) when several actions are combined and lose their separate identities, becoming a single action with a single judgment entered; and (3) when several actions are tried together, but each suit retains its separate character, with separate judgments entered. 9 Wright & Miller, Fed. Practice & Procedure: Civil 2d § 2382 (1995). The language of Rule 42(a) seems to authorize consolidation either as merger or as retaining separate character, but the majority of courts have held that consolidated actions retain their separate character. See id. at n. 9 (citing cases from Second, Third, Fifth, Sixth, Seventh, and Eighth circuits); Fed.R.Civ.P. 42(a). However, the primary source of the majority rule is a decision which predates the adoption of Rule 42 on July 1, 1966. See id. (citing Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496-97, 53 S.Ct. 721, 77 L.Ed. 1331 (1933)). 49 In Johnson, the Court examined consolidation under 28 U.S.C. § 734, which has since been repealed and replaced by Rule 42(a). Under the statute, 28 U.S.C. § 734, consolidation was permitted as a matter of convenience and economy in administration, but did not merge the suits into a single cause, nor change the rights of the parties, nor make those who are parties in one suit parties in another. 289 U.S. at 496-97, 53 S.Ct. 721. The Second and Fifth Circuits have questioned the viability of this holding in Johnson after the repeal of the statute, and enactment of Rule 42(a). See Sandwiches, Inc. v. Wendy's Int'l, Inc., 822 F.2d 707, 709-10 (7th Cir.1987); Road Sprinkler Fitters Local Union v. Continental Sprinkler Co., 967 F.2d 145, 149 (5th Cir.1992); Ringwald v. Harris, 675 F.2d 768, 770-71 (5th Cir.1982). In Road Sprinkler Fitters, the Fifth Circuit rejected Johnson in the context of analyzing whether or not final judgment had been entered under Rule 54(b). Road Sprinkler Fitters, 967 F.2d at 149-50. The Fifth Circuit applied a case-by-case approach to merger, examining the nature of the consolidation and the relationship of the consolidated actions, to determine whether the cases were merged for purposes of applying Rule 54(b). Id. at 151 (citing Ringwald, 675 F.2d at 771). In Ringwald, the Fifth Circuit examined the language of Rule 42(a), and compared the rule with the pre-rules statute cited in Johnson. 675 F.2d at 770 n. 4. Specifically, the repealed statute did not contain an express provision for a joint hearing or trial, as does the first clause of Rule 42(a). Id. Further, the Advisory Committee Notes on Rule 42(a) indicate that in so far as the statute differs from this rule, it is modified. Id. 50 In the context of merger of consolidated actions for purposes of Rule 54(b), we have adopted a stronger rule which is in accord with those circuits rejecting Johnson, rather than the case-by-case approach of Ringwald. In Huene, for example, we held that entry of judgment disposing of one of two consolidated cases was not an appealable judgment under 28 U.S.C. § 1291, absent a Rule 54(b) certification. Huene v. United States, 743 F.2d 703, 705 (9th Cir.1984). We considered adopting the flexible test of Ringwald, but held that [t]his has the disadvantage of leaving the finality of the judgment hazy and subject to varying interpretations, and concluded that the best approach is to permit the appeal only when there is a final judgment that resolves all of the consolidated actions unless a 54(b) certification is entered by the district court. Id. at 704-05. While Huene did not expressly conclude that Rule 42(a) supersedes Johnson, Huene implicitly rejects some consequences of Johnson by treating consolidated actions as merged for purposes of appeal. That said, Huene is not in conflict with Link. 51 At the same time, Johnson maintains viability in other contexts. See, e.g., Continental Airlines v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1523 n. 1 (9th Cir.1987) (for purposes of diversity jurisdiction, consolidation of cases does not make parties in one suit parties in another); In re U.S. Financial Securities Litig., 609 F.2d 411, 428 n. 58 (9th Cir.1979) (discretionary consolidation under Rule 42 cannot alter right to jury trial); Geddes v. United Financial Group, 559 F.2d 557, 561 (9th Cir.1977) (consolidation for purposes of discovery does not merge suits into single cause of action). 52 Nonetheless, we do not resolve the issue of whether consolidated actions in general retain their separate character under Johnson and its progeny, or are merged for purposes of determining personal jurisdiction. We may affirm on any ground supported by the record, and do so based on the facts of this case. DP Aviation v. Smiths Indus. Aerospace & Def. Sys. Ltd., 268 F.3d 829, 846 n. 15 (9th Cir.2001); Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1077 n. 3 (9th Cir.1999). 53 The district court in this case ordered the two actions consolidated for all further proceedings, finding that the removed action appears to be a counterclaim to[the original federal action]. Because the Third Amended Complaint stated claims in the nature of compulsory counterclaims, no service of summons was necessary to effect personal jurisdiction. 54 In state court, Lui, FSN Top Secret, and Froyer USA filed their complaint against Marble and Catalyst, who removed the action to federal court. Under Rule 13, a counterclaim is compulsory in the responsive pleading if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim, and does not require joinder of parties over whom the court lacks jurisdiction. See Fed.R.Civ.P. 13(a). Consequently, when the state action was removed to federal court, Marble and Catalyst were required to raise as counterclaims any claims they had arising out of the same transaction or occurrence, against Lui, FSN Top Secret, and Froyer USA. 55 The day Marble and Catalyst removed the case to federal court, they also filed a notice of related case in the removed case. The district court later consolidated the cases, noting that the removed case appears to be a counterclaim to the original federal case, and ordered these cases consolidated for all further proceedings. Plaintiffs filed their Motion for Leave to file [Second] Amended Complaint or in the Alternative, a Counterclaim  in the consolidated action. Defendants Lui, Froyer USA and Froyer Trading then filed their Motion to Dismiss for Lack of Subject Matter Jurisdiction, arguing defect in pleading the basis for diversity jurisdiction in the Second Amended Complaint. Plaintiffs then submitted a Proposed Third Amended Complaint. The district court granted the Defendant's motion to dismiss, but permitted Plaintiffs to file the Third Amended Complaint, to cure the defects in pleading jurisdiction. The Third Amended Complaint added FSN Top Secret, and Froyer USA as Defendants to the original action. 56 Had Plaintiffs titled their Third Amended Complaint as Counterclaim, or Third Amended Complaint and Counterclaim, Defendants could not have raised a defect in summons, because it would have been clear that the claims were responsive to the complaint of FSN Top Secret as a plaintiff in the removed action. No summons is required with a counterclaim, as plaintiffs who avail themselves of the district court consent to personal jurisdiction. 5 When a state court action is removed to federal court, the removal is treated as if the original action had been commenced in federal court. Resolution Trust Corp. v. Bayside Developers, 43 F.3d 1230, 1239 (9th Cir.1994). Thus, when examining the court's exercise of personal jurisdiction and assuming removal is proper, the removed plaintiffs should be treated no differently from plaintiffs who file in federal court originally. 6 57 FSN Top Secret and other Defendants filed their complaint against Plaintiffs, who removed to federal court, where the two actions were consolidated. 7 Claims stated against FSN Top Secret and Froyer USA in the Third Amended Complaint were in the nature of compulsory counterclaims, because they arose from the same transaction or occurrence as the removed action. See Fed.R.Civ.P. 13(a), (f). FSN Top Secret, stating claims in the removed case, triggered Plaintiffs' obligation to raise all compulsory counterclaims, because FSN Top Secret was not a party in the original federal action. When a district court permits amendment to add omitted counterclaims in a consolidated action, the alignment of counterclaims in an amended complaint, as opposed to an answer and counterclaim should not generate a defense that is otherwise unavailable. We hold that in a consolidated action, a party cannot avail itself of the court's jurisdiction, bringing claims which mandate the filing of counterclaims, and thereafter attack personal jurisdiction when judgment is entered against the party on the counterclaims, even if those counterclaims are not so denominated. 58 In this case, where all parties appeared as plaintiffs, and all claims arose from the same transaction or occurrence, the district court properly exercised personal jurisdiction over all parties. 8 Therefore, the judgment entered against FSN Top Secret is affirmed, as the record supports the entry of judgment on compulsory counterclaims of the Plaintiffs. Regarding Froyer USA, we affirm the judgment because Froyer USA waived the defense by not raising it in its first Rule 12(b) motion after the Third Amended Complaint was filed and served. 59