Ins. Co. of Ireland v. Compagnie Des Bauxites
456 U.S. 694 (1982)

Annotate this Case

U.S. Supreme Court

Ins. Co. of Ireland v. Compagnie Des Bauxites, 456 U.S. 694 (1982)

Insurance Corporation of Ireland, Ltd. v.

Compagnie des Bauxites de Guinee

No. 81-440

Argued March 23, 1982

Decided June 1, 1982

456 U.S. 694

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

Syllabus

Federal Rule of Civil Procedure 37(b)(2)(A) provides that a district court, as a sanction for failure to comply with discovery orders, may enter

"[a]n order that the matters regarding which the [discovery] order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order."

Asserting diversity jurisdiction, respondent, a Delaware corporation with its principal place of business in the Republic of Guinea, filed suit against various insurance companies in the United States District Court for the Western District of Pennsylvania to recover on a business interruption policy. When certain of the defendants (a group of foreign insurance companies, including petitioners) raised the defense of lack of personal jurisdiction, respondent attempted to use discovery in order to establish jurisdictional facts. After petitioners repeatedly failed to comply with the court's orders for production of the requested information, the court warned them that, unless they complied by a specified date, it would assume, pursuant to Rule 37(b)(2)(A), that it had personal jurisdiction. When petitioners again failed to comply, the court imposed the sanction, and the Court of Appeals affirmed, concluding that imposition of the sanction fell within the trial court's discretion under Rule 37(b)(2)(A) and that the sanction did not violate petitioners' due process rights.

Held:

1. Rule 37(b)(2)(A) may be applied to support a finding of personal jurisdiction without violating due process. Unlike subject matter jurisdiction, which is an Art. III as well as a statutory requirement, the requirement that a court have personal jurisdiction flows from the Due Process Clause and protects an individual liberty interest. Because it protects an individual interest, it may be intentionally waived, or, for various reasons, a defendant may be estopped from raising the issue. Due process is violated by a rule establishing legal consequences of a failure to produce evidence only if the defendant's behavior will not support the presumption that

"the refusal to produce evidence material to the administration of due process was but an admission of the want of merit in

Page 456 U. S. 695

the asserted defense."

Hammond Packing Co. v. Arkansas,212 U. S. 322, 212 U. S. 351. A proper application of Rule 37(b)(2)(A) will, as a matter of law, support such a presumption. Pp. 456 U. S. 701-707.

2. The District Court did not abuse its discretion in applying Rule 37(b)(2)(A) in this case. The record establishes that imposition of the sanction here satisfied the Rule's requirements that the sanction be both "just" and specifically related to the particular "claim" that was at issue in the discovery order. Pp. 456 U. S. 707-709.

651 F.2d 877, affirmed.

WHITE, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, MARSHALL, BLACKMUN, REHNQUIST, STEVENS, and O'CONNOR, JJ., joined. POWELL, J., filed an opinion concurring in the judgment, post, p. 456 U. S. 709.

JUSTICE WHITE delivered the opinion of the Court.

Rule 37(b), Federal Rules of Civil Procedure, provides that a district court may impose sanctions for failure to comply with discovery orders. Included among the available sanctions is:

"An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order."

Rule 37(b)(2)(A). The question presented by this case is whether this Rule is applicable to facts that form the basis for personal jurisdiction over a defendant. May a district court, as a sanction for failure to comply with a discovery order directed at establishing jurisdictional facts, proceed on the basis that personal jurisdiction over the recalcitrant party has been established?

Page 456 U. S. 696

Petitioners urge that such an application of the Rule would violate due process: if a court does not have jurisdiction over a party, then it may not create that jurisdiction by judicial fiat. [Footnote 1] They contend also that, until a court has jurisdiction over a party, that party need not comply with orders of the court; failure to comply, therefore, cannot provide the ground for a sanction. In our view, petitioners are attempting to create a logical conundrum out of a fairly straightforward matter.

I

Respondent Compagnie des Bauxites de Guinee (CBG) is a Delaware corporation, 49% of which is owned by the Republic of Guinea and 51% is owned by Halco (Mining) Inc. CBG's principal place of business is in the Republic of Guinea, where it operates bauxite mines and processing facilities. Halco, which operates in Pennsylvania, has contracted to perform certain administrative services for CBG. These include the procurement of insurance.

In 1973, Halco instructed an insurance broker, Marsh & McLennan, to obtain $20 million worth of business interruption insurance to cover CBG's operations in Guinea. The first half of this coverage was provided by the Insurance Company of North America (INA). The second half, or what is referred to as the "excess" insurance, was provided by a group of 21 foreign insurance companies, [Footnote 2] 14 of which are petitioners in this action (the excess insurers). [Footnote 3]

Page 456 U. S. 697

Marsh & McLennan requested Bland Payne to obtain the excess insurance in the London insurance market. Pursuant to normal business practice,

"[i]n late January and in February, 1974, Bland Payne presented to the excess insurer [petitioners] a placing slip in the amount of $10,000,000, in excess of the first $10,000,000. [Petitioners] initialed said placing slip, effective February 12, 1974, indicating the part of said $10,000,000 each was willing to insure. [Footnote 4]"

Finding 27 of the District Court, 2 App. 347a. Once the offering was fully subscribed, Bland Payne issued a cover note indicating the amount of the coverage and specifying the percentage of the coverage that each excess insurer had agreed to insure. No separate policy was issued; the excess insurers adopted the INA policy "as far as applicable."

Sometime after February 12, CBG allegedly experienced mechanical problems in its Guinea operation, resulting in a business interruption loss in excess of $10 million. Contending that the loss was covered under its policies, CBG brought suit when the insurers refused to indemnify CBG for the loss. Whatever the mechanical problems experienced by CBG, they were perhaps minor compared to the legal difficulties encountered in the courts.

Page 456 U. S. 698

In December, 1975, CBG filed a two-count suit in the Western District of Pennsylvania, asserting jurisdiction based on diversity of citizenship. The first count was against INA; the second against the excess insurers. INA did not challenge personal or subject matter jurisdiction of the District Court. The answer of the excess insurers, however, raised a number of defenses, including lack of in personam jurisdiction. Subsequently, this alleged lack of personal jurisdiction became the basis of a motion for summary judgment filed by the excess insurers. [Footnote 5] The issue in this case requires an account of respondent's attempt to use discovery in order to demonstrate the court's personal jurisdiction over the excess insurers.

Respondent's first discovery request -- asking for "[c]opies of all business interruption insurance policies issued by Defendant during the period from January 1, 1972, to December 31, 1975" -- was served on each defendant in August, 1976. In January, 1977, the excess insurers objected, on grounds of burdensomeness, to producing such policies. Several months later, respondent filed a motion to compel petitioners to produce the requested documents. In June, 1978, the court orally overruled petitioners' objections. This was followed by a second discovery request in which respondent narrowed the files it was seeking to policies which "were delivered in . . . Pennsylvania . . . or covered a risk located in . . . Pennsylvania." Petitioners now objected that these documents were not in their custody or control; rather, they were kept by the brokers in London. The court ordered petitioners to request the information from the brokers, limiting the request to policies covering the period from 1971 to date. That was in July, 1978; petitioners were given 90 days to produce the information. On November 8, petitioners

Page 456 U. S. 699

were given an additional 30 days to complete discovery. On November 24, petitioners filed an affidavit offering to make their records, allegedly some 4 million files, available at their offices in London for inspection by respondent. Respondent countered with a motion to compel production of the previously requested documents. On December 21, 1978, the court, noting that no conscientious effort had yet been made to produce the requested information and that no objection had been entered to the discovery order in July, gave petitioners 60 more days to produce the requested information. The District Judge also issued the following warning:

[I]f you don't get it to him in 60 days, I am going to enter an order saying that, because you failed to give the information as requested, that I am going to assume, under Rule of Civil Procedure 37(b), subsection 2(A), that there is jurisdiction.

1 App. 115a. A few moments later, he restated the warning as follows:

"I will assume that jurisdiction is here with this court unless you produce statistics and other information in that regard that would indicate otherwise"

Id. at 116a.

On April 19, 1979, the court, after concluding that the requested material had not been produced, imposed the threatened sanction, finding that,

"for the purpose of this litigation, the Excess Insurers are subject to the in personam jurisdiction of this Court due to their business contacts with Pennsylvania."

Id. at 201a. Independently of the sanction, the District Court found two other grounds for holding that it had personal jurisdiction over petitioners. First, on the record established, it found that petitioners had sufficient business contacts with Pennsylvania to fall within the Pennsylvania long-arm statute. Second, in adopting the terms of the INA contract with CBG -- a Pennsylvania insurance contract -- the excess insurers implicitly agreed to submit to the jurisdiction of the court. [Footnote 6]

Page 456 U. S. 700

Except with respect to three excess insurers, the Court of Appeals for the Third Circuit affirmed the jurisdictional holding, relying entirely upon the validity of the sanction. [Footnote 7] Compagnie des Bauxites de Guinea v. Insurance Co. of North America, 651 F.2d 877 (1981). That court specifically found that the discovery orders of the District Court did not constitute an abuse of discretion, and that imposition of the sanction fell within the limits of trial court discretion under Rule 37(b):

"The purpose and scope of the ordered discovery were directly related to the issue of jurisdiction, and the rule 37 sanction was tailored to establish as admitted those jurisdictional facts that, because of the insurers' failure to comply with discovery orders, CBG was unable to adduce through discovery."

651 F.2d at 885. Furthermore, it held that the sanction did not violate petitioners' due process rights, because it was no broader than "reasonably necessary" under the circumstances.

Because the decision below directly conflicts with the decision of the Court of Appeals for the Fifth Circuit in Familia de Boom v. Arosa Mercantil, S.A., 629 F.2d 1134 (1980), we granted certiorari. 454 U.S. 963 (1981). [Footnote 8]

Page 456 U. S. 701

II

In McDonald v. Mabee,243 U. S. 90 (1917), another case involving an alleged lack of personal jurisdiction, Justice Holmes wrote for the Court, "great caution should be used not to let fiction deny the fair play that can be secured only by a pretty close adhesion to fact." Id. at 243 U. S. 91. Petitioners' basic submission is that to apply Rule 37(b)(2) to jurisdictional facts is to allow fiction to get the better of fact, and that it is impermissible to use a fiction to establish judicial power where, as a matter of fact, it does not exist. In our view, this represents a fundamental misunderstanding of the nature of personal jurisdiction.

The validity of an order of a federal court depends upon that court's having jurisdiction over both the subject matter and the parties. Stoll v. Gottlieb,305 U. S. 165, 305 U. S. 171-172 (1938); Thompson v. Whitman, 18 Wall. 457, 85 U. S. 465 (1874). The concepts of subject matter and personal jurisdiction, however, serve different purposes, and these different purposes affect the legal character of the two requirements. Petitioners fail to recognize the distinction between the two concepts -- speaking instead in general terms of "jurisdiction" -- although their argument's strength comes from conceiving of jurisdiction only as subject matter jurisdiction.

Federal courts are courts of limited jurisdiction. The character of the controversies over which federal judicial authority may extend are delineated in Art. III, § 2, cl. 1. Jurisdiction of the lower federal courts is further limited to those subjects encompassed within a statutory grant of jurisdiction. Again, this reflects the constitutional source of federal judicial power: apart from this Court, that power only

Page 456 U. S. 702

exists "in such inferior Courts as the Congress may from time to time ordain and establish." Art. III, § 1

Subject matter jurisdiction, then, is an Art. III, as well as a statutory, requirement; it functions as a restriction on federal power, and contributes to the characterization of the federal sovereign. Certain legal consequences directly follow from this. For example, no action of the parties can confer subject matter jurisdiction upon a federal court. Thus, the consent of the parties is irrelevant, California v. LaRue,409 U. S. 109 (1972), principles of estoppel do not apply, American Fire & Casualty Co. v. Finn,341 U. S. 6, 341 U. S. 17-18 (1951), and a party does not waive the requirement by failing to challenge jurisdiction early in the proceedings. Similarly, a court, including an appellate court, will raise lack of subject matter jurisdiction on its own motion.

"[T]he rule, springing from the nature and limits of the judicial power of the United States, is inflexible and without exception, which requires this court, of its own motion, to deny its jurisdiction and, in the exercise of its appellate power, that of all other courts of the United States, in all cases where such jurisdiction does not affirmatively appear in the record."

Mansfield, C. & L. M. R. Co. v. Swan,111 U. S. 379, 111 U. S. 382 (1884). [Footnote 9]

None of this is true with respect to personal jurisdiction. The requirement that a court have personal jurisdiction flows not from Art. III, but from the Due Process Clause: the personal jurisdiction requirement recognizes and protects an individual liberty interest. It represents a restriction on judicial power not as a matter of sovereignty, but as a matter of individual liberty. [Footnote 10] Thus, the test for personal jurisdiction

Page 456 U. S. 703

requires that "the maintenance of the suit . . . not offend traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington,326 U. S. 310, 326 U. S. 316 (1945), quoting Milliken v. Meyer,311 U. S. 457, 311 U. S. 463 (1940).

Because the requirement of personal jurisdiction represents first of all an individual right, it can, like other such rights, be waived. In McDonald v. Mabee, supra, the Court indicated that, regardless of the power of the State to serve process, an individual may submit to the jurisdiction of the court by appearance. A variety of legal arrangements have been taken to represent express or implied consent to the personal jurisdiction of the court. In National Equipment Rental, Ltd. v. Szukhent,375 U. S. 311, 375 U. S. 316 (1964), we

Page 456 U. S. 704

stated that "parties to a contract may agree in advance to submit to the jurisdiction of a given court," and, in Petrowski v. Hawkeye-Security Co.,350 U. S. 495 (1956), the Court upheld the personal jurisdiction of a District Court on the basis of a stipulation entered into by the defendant. In addition, lower federal courts have found such consent implicit in agreements to arbitrate. See Victory Transport Inc. v. Comisaria General de Abastecimientos y Transportes, 336 F.2d 354 (CA2 1964); 2 J. Moore & J. Lucas, Moore's Federal Practice

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