Court Opinion

ID: 9553246
Source: CourtListenerOpinion
Date Created: 2023-08-07 19:26:25.352156+00
Date Added: 2024-06-11T15:30:31.378713
License: Public Domain

MONTGOMERY, Chief Justice (dissenting). In Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985), one of the most recent of the “recent seminal Supreme Court cases” cited in footnote 3 to the majority’s opinion, the Court said: “[T]he Due Process Clause may not readily be wielded as a territorial shield to avoid interstate obligations that have been voluntarily assumed.” Id. at 474, 105 S.Ct. at 1283.. The Court continued: Thus where the defendant “deliberately” has engaged in significant activities within a State, or has created “continuing obligations” between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by “the benefits and protections” of the forum’s laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well. Id. at 475-76, 105 S.Ct. at 2184 (emphasis added; citations omitted). And: [Wjith respect to interstate contractual obligations, we have emphasized that parties who “reach out beyond one state and create continuing relationships and obligations with citizens of another state” are subject to regulation and sanctions in the other State for the consequences of their activities. Id. at 473, 105 S.Ct. at 2182 (quoting Travelers Health Ass’n v. Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950) (emphasis added)). In the present case, the trial court concluded — upon an admittedly sparse record — that by entering into the loan agreement and personal guaranties with the Bank, the Hiatts purposely availed themselves of the privilege of conducting business in New Mexico. I believe the court was correct in so concluding, based on the following facts (which do appear in the record): In early 1982, the Hiatts were requested by Mr. David, an officer of Deerfield, to guarantee a loan to Deerfield in connection with a development project in Hobbs. They agreed to guarantee the loan, and the loan agreement they signed contemplated that the loan was to be secured by various items of collateral, including their personal guaranties and the guaranties of Mr. and Mrs. David. The guaranty that the Hiatts signed, at the same time as they signed the loan agreement in July 1982, recited that they desired that the Bank extend credit to Deerfield and acknowledged that the Bank was unwilling to extend such credit unless they executed the guaranty. The guaranty was a continuing obligation (up to $735,500), to last at least until the loan or loans made pursuant to the loan agreement were paid or until the Hiatts gave notice that they would no longer be liable on the guaranty (with respect to loans made after such notice was given). The promissory notes executed pursuant to the loan agreement were payable at the Bank’s offices in Hobbs and were secured by a mortgage on real estate in Lea County. In sum, we have here a loan, made possible in part by the Hiatts’ guaranty, to a New Mexico borrower from a New Mexico bank, payable in New Mexico, secured by a mortgage on New Mexico realty, made for the purpose of carrying out a development in a New Mexico community, and guaranteed by New Mexico residents (in addition to the Hiatts). There is no indication that the Hiatts’ guaranty was not executed “voluntarily” or “deliberately,” and their affidavits affirmatively establish that they executed it through their own volition in response to a Deerfield officer’s request. Thus, the Hiatts’ contact with New Mexico certainly cannot be characterized as “random” or “fortuitous”— nor, I submit, as “attenuated” either. See Burger King, 471 U.S. at 475, 105 S.Ct. at 2183 (“[The] ‘purposeful availment’ requirement [of Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-40, 2 L.Ed.2d 1283 (1958)] ensures that a defendant will not be haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts, or of the ‘unilateral activity of another party or a third person.’” (citations omitted)). Haling the Hiatts into New Mexico because they facilitated the Deerfield-Bank loan transaction clearly would not be a result of either the Bank’s or Mr. David’s “unilateral activity.” As noted above, when the activities of a defendant who has availed himself of the privilege of conducting business in a forum “are shielded by ‘the benefits and protections’ of the forum’s laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.” Burger King, 471 U.S. at 476, 105 S.Ct. at 2184. See also Hanson, 357 U.S. at 253, 78 S.Ct. at 1239-40 (“[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.”). It cannot be denied that by signing the loan agreement and guaranty in this case the Hiatts invoked a number of benefits and protections under New Mexico law. These protections relate primarily to rights and remedies against the principal obligor, Deerfield, and against their co-guarantors, Mr. and Mrs. David.1 Under Section 103 of the Restatement of Security (1941) (the Restatement), the principal obligor on a debt has a duty to the surety (the guarantor)2 as well as to the creditor. When the surety pays out on the guaranty, it has the right to reimbursement against the principal. Id. § 104. Under Section 141, the surety who has paid out can be subrogated to the rights of the creditor against the principal, against any property that stands as security, and against any co-sureties. See In re Flores de New Mexico, Inc., 134 B.R. 433, 437 (Bkrtcy.D.N.M.1991) (“ ‘The familiar rule is that, instanter upon the payment by the guarantor of the debt, the debtor’s obligation to the creditor becomes an obligation to the guarantor, not a new debt, but, by subrogation, the result of the shift of the original debt from the creditor to the guarantor who steps into the creditor’s shoes.’ ” (quoting Putnam v. Commissioner, 352 U.S. 82, 85, 77 S.Ct. 175, 176, 1 L.Ed.2d 144 (1956))). See also State Farm Mut. Auto. Ins. Co. v. Foundation Reserve Ins. Co., 78 N.M. 359, 363, 431 P.2d 737, 741 (1967) (“The remedy [of subrogation, in the insurance context] is for the benefit of one secondarily liable who has paid the debt of another and to whom in equity and good conscience should be assigned the rights and remedies of the original creditor.”); Fireman’s Fund Am. Ins. Cos. v. Phillips, Carter, Reister & Assocs., 89 N.M. 7, 9, 546 P.2d 72, 74 (Ct.App.) (“New Mexico has allowed subrogation where one secondarily liable pays a debt and then proceeds against one primarily liable, stating that it is allowed in such a case because the one secondarily liable had a ‘legal interest to protect.’ ”), cert. denied, 89 N.M. 5, 546 P.2d 70 (1976). Under Section 112 of the Restatement, a surety also has the right to exoneration against its principal if the surety has a current obligation to pay out on a guaranty of the principal’s obligation. Although I know of no New Mexico case that applies this right of exoneration, I see no reason why we would not adopt the law as contained in the Restatement and hold that, where the principal obligor can satisfy the obligation himself or itself, “[i]t is inequitable for the surety to be compelled to suffer the inconvenience and temporary loss which a payment by him will entail if the principal can satisfy the obligation.” Id. § 112, cmt. a; Gardner v. Bean, 677 P.2d 1116, 1119 (Utah 1984) (“Exoneration permits a guarantor to compel a principal to pay an entire obligation then due.”) (citing Restatement § 112). With respect to the right of contribution from co-sureties, Section 149 of the Restatement gives the surety the right to such contribution if the surety has paid more than the surety’s proportionate share. See First Nat’l Bank v. Energy Equities, Inc., 91 N.M. 11, 17, 569 P.2d 421, 427 (Ct.App.1977) (recognizing right of guarantor to contribution against co-guarantors); see also Gardner, 677 P.2d at 1118 (same) (citing Restatement § 149 cmt. a). Thus, under generally accepted principles of suretyship and in light of existing New Mexico caselaw, I surmise that the Hiatts would have, under New Mexico law, the rights of reimbursement and exoneration against their principal, Deerfield, as well as the right of subrogation to the Bank’s interest in any assets that stood as security and the right of contribution against their co-guarantors, Mr. and Mrs. David. Section 164 of the Restatement, comment a, states: “Payment by a surety gives rise to rights of reimbursement and contribution. In the ultimate settlement the rights of several parties must be adjudicated. If possible, in order to avoid needless litigation, these rights should be determined in one action.” Similarly, the Court in Burger King noted that a factor in determining whether the assertion of personal jurisdiction would comport with “fair play and substantial justice” is “the interstate judicial system’s interest in obtaining the most efficient resolution of controversies.” Burger King, 471 U.S. at 477, 105 S.Ct. at 2184 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 564, 62 L.Ed.2d 490 (1980)). In light of the foregoing considerations, I suggest that New Mexico is the only place where all the rights of the various parties could be adjudicated in a single action. Ironically, statute of limitations considerations aside, the majority’s holding requires the FDIC to sue the Hiatts in California and, if the FDIC recovers, the Hiatts to sue Deerfield (if it still exists and has assets) and the Davids in New Mexico for reimbursement and contribution. I see no justification for imposing this circuitous and inefficient, multiple-litigation requirement on the parties to resolve a dispute over what was unquestionably (insofar as the Hiatts were concerned) an interstate commercial transaction — with, however, no feature outside New Mexico other than the fortuitous circumstance that the Hiatts signed the guaranty in California and then “mechanically” mailed it back to New Mexico. In these days of computers and modems, cellular phones and fax machines, overnight courier services and fiber optic networks, I cannot see why the majority balks at the reality that this nation is not a collection of fifty balkanized republics but is rather an integrated, highly commercialized, free (at least in theory) market, in which territorial divisions operate under the Due Process Clause to protect individual rights — not, as Burger King said, to act as a shield against interstate obligations voluntarily assumed. See also Burger King, 471 U.S. at 476, 105 S.Ct. at 2184 (“[I]t is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted.”); but see Hanson v. Denckla, 357 U.S. at 251, 78 S.Ct. at 1238 (“[Territorial] restrictions are more than a guarantee of immunity from inconvenient or distant litigation. They are a consequence of territorial limitations on the power of the respective States.”); and compare Burger King, 471 U.S. at 472 n. 13, 105 S.Ct. at 2184 n. 13 (“Although th[e] protection [of due process] operates to restrict state power, it ‘must be seen as ultimately a function of the individual liberty interest preserved by the Due Process Clause’ rather than as a function ‘of federalism concerns.’ ” (quoting Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702-03 n. 10, 102 S.Ct. 2099, 2105 n. 10, 72 L.Ed.2d 492 (1982))). The majority’s footnote 3 denigrates the precedential value of our own case of Hunter-Hayes Elevator Co. v. Petroleum Club Inn Co., 77 N.M. 92, 419 P.2d 465 (1966). In that case we upheld personal jurisdiction over individual nonresident defendants who executed, outside New Mexico, personal guarantees of promissory notes executed by a New Mexico corporation and secured by New Mexico real estate — but payable in Oklahoma. The proceeds from the notes were to be used for construction of a building in New Mexico on the mortgaged land. In a guaranty transaction — where the contacts with New Mexico were certainly more “attenuated” than they are here, since the guaranteed notes were payable in another state— we found that “traditional notions of fair play and substantial justice [were] not offended” by the exercise of personal jurisdiction over the guarantors in New Mexico. Id. at 96, 419 P.2d at 467. Similarly, there are various eases around the country in which, in different contexts, minimal commercial activity within a state has been deemed sufficient for an exercise of personal jurisdiction. See, e.g., FDIC v. O’Donnell, 136 B.R. 585, 591 (D.D.C.1991) (personal jurisdiction exercised over nonresident defendants who guaranteed a promissory note; no “substantive identity” between guarantor and obligor indicated by opinion); Panos Investment Co. v. District Court, 662 P.2d 180, 182 (Colo.1983) (en banc) (jurisdiction over nonresident guarantors upheld: “a guarantee by its very nature is a purposeful act. The obligation to which the guarantee relates is payable in Colorado---- It is not unreasonable to subject a guarantor to the jurisdiction of courts in the very state where an obligation is specifically payable when the makers fail to perform their obligations and the guarantee becomes operable.”); Van Schaack & Co. v. District Court, 189 Colo. 145, 538 P.2d 425 (1975) (en banc) (personal jurisdiction over nonresident issuer of letter of credit upheld based in part on issuer’s inducing conduct in forum state); Stephenson v. Barringer, 758 F.Supp. 657, 662 (D.Kan.1991) (personal jurisdiction sustained over nonresident insurance agency that insured risk in forum state; “an insurance company that reaches across state boundaries and contracts with residents of a foreign state to provide insurance makes itself and its agents amenable to personal jurisdiction in that state”); Jeffreys v. Exten, 784 F.Supp. 146, 153 (D.Del.1992) (personal jurisdiction over nonresident mortgagee of forum state property upheld; mortgagee had “affirmatively taken an interest in [the forum state’s] real property and would presumably invoke the protection and benefit of its laws if the mortgage terms were not complied with”). Finally, I wish to register my continuing objection to this Court’s rigid adherence3 to the lex loci contractus choice-of-law rule for deciding which state’s law will govern a dispute over a contract. Cf. Nez v. Forney, 109 N.M. 161, 164-65, 783 P.2d 471, 474-75 (1989) (Montgomery, J., specially concurring) (criticizing distinction between “substance” and “procedure” in selecting choice-of-law provision in contract case and advocating approach based on respective states’ interests in issues involved in controversy). There is no issue in this case concerning the applicability of California or New Mexico law to the Hiatts’ guaranty, and I doubt that, even if there were such an issue, there is any conflict between the laws of the two states. In any event, I cannot conceive of a case in which the forum state (here New Mexico) would have a stronger interest in applying its law to the facts of the case — i.e., a more significant relationship with the dispute— than exists in this ease. For the foregoing reasons, I would affirm the trial court’s order refusing to set aside the default judgment against Mr. and Mrs. Hiatt.  . Under principles of suretyship, the Hiatts as guarantors would also have had rights and remedies against the Bank, such as the right to require the Bank to marshall its assets and exhaust its rights with respect to the collateral before resorting to their obligations as guarantors. However, the Hiatts waived or relinquished most or all of such rights in the guaranty they signed.   . Section 82, comment g, of the Restatement states: "The term 'guaranty' is used in this Restatement as a synonym for suretyship. 'Guarantor' is used as a synonym for surety. 'Guarantee' is used as a verb meaning to assume a suretyship obligation.”   . In State Farm Mutual Insurance Co. v. Conyers, 109 N.M. 243, 246-48, 784 P.2d 986, 989-91 (1989), authored by Justice Baca, author of today's majority opinion, this Court displayed a willingness to consider an approach, such as that embodied in Section 6 of the Restatement (Second) of Conflict of Laws (1971), other than the strict lex loci contractus rule.