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Provident National Bank v. California Federal Savings & Loan Association

argued: March 16, 1987.

PROVIDENT NATIONAL BANK
v.
CALIFORNIA FEDERAL SAVINGS & LOAN ASSOCIATION V. LEHMAN MANAGEMENT CO., INC. AND STATE STREET SECURITIES SERVICE CORPORATION; CALIFORNIA FEDERAL SAVINGS & LOAN ASSOCIATION, APPELLANT



Appeal form the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 85-1963.

Higginbotham, Mansmann, and Rosenn, Circuit Judges.

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge.

This appeal in a diversity action between two large financial institutions, each having headquarters in opposite sections of the country, raises a not uncommon question of how much contact a modern lending institution must have within the forum state to confer in personam jurisdiction. The United States District Court held in the instant case that California Federal Savings & Loan Association (California Federal) had sufficient "continuous and systematic general business contacts" within Pennsylvania to confer personal jurisdiction over an action filed against it by Provident National Bank (Provident) to recover a claim for money due it under the terms of a certificate of deposit. The court therefore denied California Federal's motion to dismiss the complaint for lack of in personam jurisdiction. The parties tried the case before a panel of arbitrators, who awarded Provident the full amount of its claim, plus interest. The parties stipulated to entry of a final judgment in order that this appeal, limited to the jurisdictional issue, could be taken. California Federal accordingly now appeals from the judgment. We affirm.

I.

The plaintiff, Provident, is a national banking association with its principal place of business in the Commonwealth of Pennsylvania. California Federal is a savings and loan association federally chartered and headquartered in California with 138 branch offices in California, 37 branch offices in Florida, 13 branch offices in Georgia, and 6 branch offices in Nevada.

During the relevant period, between 700 and 1000 of California Federal's depositors resided in Pennsylvania, representing only about.066% of its almost one million depositors. The Pennsylvania depositors contributed about $10 million to California Federal's total of $14 billion in deposits (about.071 %). Only about $10 million of California Federal's total outstanding loans of $12 billion (about .083 %) were traceable to Pennsylvania residents.

California Federal maintained no Pennsylvania office, employees, agents, mailing address, or telephone number. It had not applied to do business in Pennsylvania, did no advertising in Pennsylvania, and paid no taxes there. Three Pennsylvania financial institutions, however, serviced $10.2 million of loans for California Federal.

California Federal also continuously maintained a "controlled disbursement account" with Mellon Bank in Pittsburgh. This account was a "zero balance" arrangement under which Mellon Bank notified California Federal every business day of the total amount of checks cleared through the account that day, and California Federal wired a transfer of funds for that amount to Mellon Bank the same day. There is also evidence that in 1985 California Federal sold certificates of deposit on sixteen separate occasions aggregating $144,500,000 to mutual funds for which Provident acted as custodian.

Although only properties in California, Nevada, Georgia, or Florida could be used to secure loans made by California Federal, California Federal purchased mortgages in the secondary market, and these mortgages could be secured by property located in Pennsylvania. The record does not disclose the total value of California Federal's security interest in property located in Pennsylvania.

In the transaction giving rise to this dispute, California Federal agreed to sell a $5 million negotiable certificate of deposit to Asset Management Fund for Savings Institutions, Inc., one of the mutual funds for which Provident acted as custodian. Under the terms of the agreement, Provident was to transfer funds for payment for the certificate to State Street Boston Securities Service Corporation, located in New York. California Federal was to arrange for physical delivery of the certificate by its transfer agent, Manufacturers Hanover Bank, also located in New York.

Provident provided the funds on January 9, 1985, but the certificate was not delivered. At the certificate's maturity, California Federal made a repayment which Provident asserted was $54,180.56 less than the amount due.

Provident brought this action for damages in the amount of $54,180.56 plus interest and costs in the United States District Court for the Eastern District of Pennsylvania. California Federal responded with a motion to dismiss for, inter alia, lack of in personam jurisdiction. The district court denied the motion and ordered the matter to proceed to arbitration. Provident Nat'l Bank v. California Fed. Sav. & Loan Ass'n, 624 F. Supp. 858 (E.D. Pa. ...


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