State Farm General Insurance v. JT's Frames, Inc.

Opinion

—In an Illinois lawsuit, appellant JT’s Frames, Inc. (JT’s), obtained a settlement on behalf of itself and a class of similarly situated entities based on defendant’s transmission of over 74,000 unsolicited faxes to class members. In the underlying lawsuit, respondent State Farm General Insurance Company (State Farm) sought a declaration that JT’s claims were not covered as “advertising injury” or “property damage” under policies State Farm allegedly issued to the Illinois defendant. JT’s moved to quash service of State Farm’s complaint on the ground JT’s was not subject to personal jurisdiction in California. The trial court denied the motion to quash, and JT’s sought a writ in this court. While the writ petition was pending, the parties moved forward with the litigation, and the trial court granted summary judgment in favor of State Farm shortly before the writ was summarily denied.

JT’s appeals both the judgment entered and the order denying its motion to quash. We conclude the order denying the motion to quash is not appealable where, as here, the party contesting jurisdiction enters a general appearance and litigates the merits. We further conclude that the claims asserted in the Illinois action were not covered by the State Farm policies. Accordingly, we affirm the judgment.

A. Personal Jurisdiction

Pursuant to California’s long-arm statute, California courts may exercise jurisdiction on any basis not inconsistent with the California or United States Constitutions. (Code Civ. Proc., § 410.10.) “A state court’s assertion of personal jurisdiction over a nonresident defendant who has not been served with process within the state comports with the requirements of the due process clause of the federal Constitution if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate 1 “traditional notions of fair play and substantial justice.” ’ ” (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434 , 444 [ 58 Cal.Rptr.2d 899 , 926 P.2d 1085 ], quoting Internal Shoe Co. v. Washington (1945) 326 U.S. 310 , 316 [ 90 L.Ed. 95 , 66 S.Ct. 154 ].)

JT’s contends that it is not susceptible to suit in California and that the trial court erred in denying its motion to quash for lack of personal jurisdiction. We conclude the issue is not cognizable on appeal.

1. Traditional Rule

It has long been the rule in California that a defendant who chooses to litigate the merits of a lawsuit after its motion to quash has been denied has no right to raise the jurisdictional question on appeal. (Jardine v. Superior Court (1931) 213 Cal. 301 , 304 [ 2 P.2d 756 ]; accord, Remsberg v. Hackney Manufacturing Co. (1917) 174 Cal. 799 , 801 [ 164 P. 792 ]; Olcese v. Justice’s Court (1909) 156 Cal. 82 , 87 [ 103 P. 317 ].) It was said that by contesting the merits, “ ‘the defendant made a general appearance and submitted itself to the jurisdiction of the court’ ” and “ ‘thereby waived any right it may have had to insist that jurisdiction of its person had not been obtained.’ ” (Jardine v. Superior Court, supra, 213 Cal. at p. 304, quoting Remsberg v. Hackney Manufacturing Co., supra, 174 Cal. at p. 801.) As one court explained, to leave the door open for a later appeal of the jurisdictional issue after resolution of the merits would give the defendant an “unconscionable advantage”: “[I]f the determination of the court [on the merits] be in his favor he may avail himself of it, while, if it be against him, he may fall back upon his plea of lack of jurisdiction of the person.” (Olcese v. Justice’s Court, supra, 156 Cal. at p. 87.)

As a result of this rule, a defendant who believed that a motion to quash for lack of personal jurisdiction had been wrongly decided by the trial court could either waive the lack of jurisdiction and litigate the merits, or submit to default on the merits and appeal the jurisdictional issue. (See Jardine v.

In 2002, the Legislature added subdivision (e) to section 418.10. (See Stats. 2002, ch. 69, § 1.) Under subdivision (e), a defendant may move to quash and “simultaneously answer, demur, or move to strike the complaint or cross-complaint” and “no act” by a party who first makes a motion to quash, “including filing an answer, demurrer, or motion to strike,” constitutes an appearance “unless the court denies the motion.” (§418.10, subd. (e)(1).) If the court denies the motion, the defendant is deemed to have generally appeared on “entry of the order denying the motion.” (Ibid.) If the party whose motion to quash is denied files a timely petition for writ of mandate, “the defendant or cross-defendant is not deemed to have generally appeared until the proceedings on the writ petition have finally concluded.” (§ 418.10, subd. (e)(2).)

JT’s contends that section 418.10, subdivision (e) permits parties to seek postjudgment appellate review of an order denying a motion to quash under the circumstances presented here. Noting that the order denying the petition for writ of mandate was filed after the order granting summary judgment, JT’s asserts that because it “scrupulously followed Code of Civ. Proc. §418.10” it “never generally appeared before the Superior Court” and, therefore, “never waived its right to object to personal jurisdiction.” In JT’s view, as long as writ review of the order denying a motion to quash is pending at the time of final resolution of the case, a defendant who initially contests jurisdiction and thereafter fully litigates the merits of the case has never made a general appearance and therefore never waived the alleged jurisdictional defect for purposes of seeking appellate review.

JT’s misinterprets the impact of section 418.10, subdivision (e). Prior to its existence, practice under section 418.10, was accurately described as “ ‘a quagmire filled with traps for the unwary.’ ” (Assem. Com. on Judiciary, Analysis of Sen. Bill No. 1325 (2001-2002 Reg. Sess.) Apr. 9, 2002, p. 3, quoting State Bar Conf. of Delegates.) Whatever the merits of a defendant’s jurisdictional contest, courts held that the defendant had made a general appearance and waived the jurisdictional issue if he or his counsel answered the complaint, even where the answer included a disclaimer of jurisdiction (Terzich v. Medak (1978) 78 Cal.App.3d 636 , 639 [ 144 Cal.Rptr. 323 ]); entered into a stipulation extending time to answer, demur or otherwise plead (General Ins. Co. v. Superior Court (1975) 15 Cal.3d 449 , 453-54 [ 124 Cal.Rptr. 745 , 541 P.2d 289 ]); stipulated to continue a hearing (Kriebel v. City Council (1980) 112 Cal.App.3d 693 , 700 [ 169 Cal.Rptr. 342 ]); prepared a joint case management statement and participated in an evaluation conference before the trial court (Mansour v. Superior Court (1995) 38 Cal.App.4th 1750 , 1757-1758 [ 46 Cal.Rptr.2d 191 ]); or appeared at a hearing on a temporary

Three factors inform our decision. First, the Legislature made no reference to the right of appeal and changed none of the provisions governing writ review. We do not believe the Legislature intended to overturn, sub silentio, over a century of California procedural law precluding appeal of orders denying motions to quash once the defendant makes a general appearance. (See Gaetani v. Goss-Golden West Sheet Metal Profit Sharing Plan (2000) 84 Cal.App.4th 1118 , 1127 [ 101 Cal.Rptr.2d 432 ] [in interpreting statutes, courts presume “the Legislature is aware of appellate court decisions” and do not presume that “the Legislature, in the enactment of statutes, intends to overthrow long-established principles of law unless such an intention is made clear by declaration or necessary implication”]; Estate of McDill (1975) 14 Cal.3d 831 , 837-838 [ 122 Cal.Rptr. 754 , 537 P.2d 874 ] [“ ‘The failure of the Legislature to change the law in a particular respect when the subject is generally before it and changes in other respects are made is indicative of an intent to leave the law as it stands in the aspects not amended.’ [Citations.]”].)

Second, the Legislature included the term “generally appeared” in the language of section 418.10, subdivision (e), continuing the distinction between special and general appearances, which federal courts have not recognized for some time. (See, e.g., SEC v. Wencke (9th Cir. 1986) 783 F.2d 829 , 832, fn. 3 [“Federal Rule of Civil Procedure 12 abolished the distinction between general and special appearances when the Federal Rules were adopted in 1938.”].) By retaining this distinction and fixing the point at which a defendant who litigates the merits will be deemed to have “generally appeared”—either on entry of the order denying the motion to quash or when the proceedings on the writ petition have finally concluded—the Legislature made clear that subdivision (e) does not implement the federal procedure under which the defendant can, by raising an objection to personal jurisdiction at an early stage, avoid waiving the jurisdictional issue through the end of the litigation. (See SEC v. Wencke, supra, 783 F.2d at pp. 832-833, fn. 3 [noting that the abolition of the distinction between special and general

Third, the Assembly Committee on the Judiciary, in explaining how the 2002 amendment would “conform California procedure to federal procedure,” discussed only preliminary objections to the complaint. Its report stated: “Since [1937], federal rule 12(b) has provided that the defenses of lack of jurisdiction over the person, insufficiency of process, or insufficiency of service of process may be made by motion in conjunction with a motion to dismiss for lack of subject-matter jurisdiction, the federal equivalent of the California’s demurrer. This procedure allows consolidation of these preliminary objections in a single motion, avoiding confusion and inadvertent error, as well as the expense, burden and delay of successive filings.” (Assem. Com. on Judiciary, Rep. on Sen. Bill No. 1325 (2001-2002 Reg. Sess.) as amended Apr. 9, 2002, pp. 3-4.) “Statements of legislative committees pertaining to the purpose of legislation are presumed to express the legislative intent of statutes as enacted,” (Altaville Drug Store, Inc. v. Employment Development Department (1988) 44 Cal.3d 231 , 238 [ 242 Cal.Rptr. 732 , 746 P.2d 871 ].) The statements of the Assembly Committee on the Judiciary attest to the intent of the Legislature to bring California procedure in line with federal procedure only to the extent that litigation of the merits is permitted during the “preliminary objection” stage of the litigation.

Our conclusion respecting the limited nature of the 2002 amendment is supported by Roy v. Superior Court, where the defendants filed an answer raising the alleged lack of personal jurisdiction as an affirmative defense rather than immediately moving to quash. Thereafter, the defendants actively participated in the litigation, propounding discovery, filing motions to compel and filing a motion for summary judgment, finally moving to quash just before the summary judgment motion was scheduled to be heard. The trial court concluded that the defendants’ objection to jurisdiction had been waived. In a subsequent writ proceeding, the defendants contended that they followed proper procedure and that the Legislature intended by the 2002 amendment to preserve jurisdictional objections for later determination. Addressing the “extent [to which] California practice [has] been conformed to federal,” the court concluded that the Legislature did not intend to “establish[] an entire set of new procedures sub silentio” or to “implied[ly] invalidate] literally decades of established practice.” (Roy v. Superior Court, supra, 127 Cal.App.4th at pp. 342, 344.) Moreover, the court saw no advantage in adopting the federal practices as a whole, practices which would permit defendants to “ ‘bur[y]’ ” their jurisdictional challenges in the middle of “boilerplate ‘defenses’ ” and to then “vigorously, and no doubt expensively” litigate the action. (Id. at p. 343.) By requiring that the issue of

We find the reasoning of the court in Roy persuasive. If the Legislature intended attacks on jurisdiction in California to track federal procedure in all respects, it would have adopted far more extensive revisions to the Code of Civil Procedure and particularly to section 418.10. The Legislature could not have intended to “implied[ly] invalidate] . . . literally decades of established practice” sub silentio. (Roy v. Superior Court, supra, 127 Cal.App.4th at p. 344.) The addition of section 418.10, subdivision (e) permits litigation of personal jurisdiction to be combined with other issues that may dispose of the case at an early stage. Under the procedures set forth in section 418.10, JT’s could have demurred or moved to strike State Farm’s complaint, which would have been deemed a general appearance after the jurisdictional issue was finally resolved. But it was not obligated to undertake any action that would constitute a general appearance until after its writ was resolved, as its time for pleading would not have expired until 10 days after written notice of the final judgment in the mandate proceeding. (§ 418.10, subd. (c).) JT’s freely chose to involve itself in the merits of the action, and even stipulated to have the court decide the summary judgment motion before the time prescribed by statute. (See § 437c, subd. (a) [motion for summary judgment cannot be made until “60 days have elapsed since the general appearance in the action or proceeding of each party against whom the motion is directed.”].) JT’s cannot now be surprised that its jurisdictional objections are deemed waived.

B. Advertising Injury

We now turn to the merits. JT’s contends the trial court erred in interpreting the insurance policy provision at issue. JT’s maintains that the provision defining advertising injury as “oral or written publication of material that violates a person’s right of privacy” is broad enough to cover fax blasting. We disagree.

1. Rules of Construction

It has been said that in interpreting insurance policies, “doubts as to meaning must be resolved against the insurer.” (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263 , 269 [ 54 Cal.Rptr. 104 , 419 P.2d 168 ].) The Supreme Court has made clear, however, that an abstract ambiguity based on a semantically permissible interpretation of a word or phrase cannot create coverage where none would otherwise exist. “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties.

2. Right of Privacy: Secrecy Versus Seclusion

The language of the provision at issue states that advertising injury includes “oral or written publication of material that violates a person’s right of privacy.” “[R]ight of privacy” is commonly understood to mean the right to keep personal information confidential or secret. It may also refer to the right to seclusion or to be free from unwanted intrusions. (See American States Ins. Co. v. Capital Associates Jackson Co. (7th Cir. 2004) 392 F.3d 939 , 941 (American States) [“A person who wants to conceal a criminal conviction, bankruptcy, or love affair from friends or business relations asserts a claim to privacy in the sense of secrecy. A person who wants to stop, solicitors from ringing his doorbell and peddling vacuum cleaners at 9 p.m. asserts a claim to privacy in the sense of seclusion.”]; ACS Systems, Inc. v. St. Paul Fire & Marine Ins. Co. (2007) 147 Cal.App.4th 137 , 148-149 [ 53 Cal.Rptr.3d 786 ] (ACS Systems) [“[A] person claiming the privacy right of seclusion asserts the right to be free, in a particular location, from disturbance by others. A person claiming the privacy right of secrecy asserts the right to prevent disclosure of personal information to others.” (Italics omitted.)].) “Invasion of the privacy right of seclusion involves the means, manner, and method of communication in a location (or at a time) which disturbs the recipient’s seclusion. By contrast, invasion of the privacy right of secrecy involves the content of communication that occurs when someone’s private, personal information is disclosed to a third person.” (ACS Systems, supra, at p. 149, italics omitted.)

In American States, supra, 392 F.3d 939 and Auto-Owners, supra, 580 F.3d 543 , the Seventh Circuit, construing the same language at issue here in context with the policies’ coverage of advertising injury as a whole, concluded that fax blasting was not covered. The policies at issue in American States and Auto-Owners contained the same four definitions of advertising injury as are found in State Farm’s policies. Noting that “[t]he other three provisions of the advertising-injury definition focus on harm arising from the content of an advertisement rather than harm arising from mere receipt of an advertisement” (italics omitted) and “require the examination of the content of the offending advertisement,” the Seventh Circuit concluded: “It is therefore reasonable to infer that [the second definition of advertising injury] also concerns harm emanating from the content of an advertisement; that is, it is reasonable to read [the second definition] to refer only to violations of secrecy interests.” (Auto-Owners, supra, 580 F.3d at p. 551; accord, American States, supra, 392 F.3d at p. 943 [structure of policy indicated that “advertising-injury coverage deals with informational content”].)

In ACS Systems, 147 Cal.App.4th 137 , the court likewise found that the policy’s definitions of advertising injury “provide a context that clarifie[d] the meaning of the provision at issue” and undertook a similar analysis: “As stated, the St. Paul policy defines four ‘advertising injury offenses.’ The first, ‘libel or slander,’ involves a publication of defamatory content about someone to a third person. [Citations.] The second, ‘[m]aking known to any person or organization written or spoken material that belittles the products, work or completed work of others,’ likewise involves a publication to a third person of content that belittles someone’s products, work or completed work. The fourth advertising injury offense involves the unauthorized taking or use of content—of someone else’s ‘advertising idea, material, slogan, style or title.’ These three advertising injury offenses therefore all involve the insured’s making known or unauthorized taking or use of content which injures someone.” (147 Cal.App.4th at p. 151.) It followed that construing the provision “ ‘[m]aking known to any person or organization written or spoken

In sum, we are persuaded that the interpretation of the policy provision at issue, when read under the applicable rules of construction, does not cover the claims asserted by JT’s against defendant in the Illinois lawsuit.

C. Property Damage

Finally, we address JT’s contention that fax blasting was covered by the policies’ property damage provision. The State Farm policies covered “property damage caused by an occurrence,” with “occurrence” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions which result in bodily injury or property damage.” State Farm does not dispute that a fax blaster’s unauthorized use of the injured parties’ fax machines and toner could constitute “property damage.” (See Destination Ventures v. Federal Communications Com. (9th Cir. 1995) 46 F.3d 54 , 57 [finding that “unsolicited fax advertisements shift significant advertising costs to consumers” based on cost of paper and use of victims’ fax machines]; American States, supra, 392 F.3d at p. 942 [TCPA “keeps telephone lines from being tied up and avoids consumption of the recipients’ ink and paper”].) The issue is whether the damage was caused by an “accident.”

The issue of coverage under a property damage provision was resolved in ACS Systems, where the policy covered property damage caused by “an ‘event’ ” and event was defined as “ ‘an accident, including continuous or repeated exposure to substantially the same general harmful conditions.’ ” (ACS Systems, supra, 147 Cal.App.4th at p. 154.) The court

The judgment is affirmed. State Farm shall recover its costs on appeal.

Willhite, Acting P. J., and Suzukawa, J., concurred.

Appellant’s petition for review by the Supreme Court was denied April 28, 2010, S180357.