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June 21, 2002


The opinion of the court was delivered by: Claudia Wilken, United States District Judge


Defendant Household International, Inc. (HI) moves to dismiss for lack of personal jurisdiction. Fed.R.Civ.Proc. 12(b)(2). Defendants Household Finance Corporation of California (HFCC) and Beneficial California, Inc. (BCI) move to stay the claims of Plaintiffs Julio and Irene Reyes, Suzanne Alexander, and Sonya and Fredrick Byers and to compel arbitration of these claims. Plaintiffs oppose both motions. The matter was heard on May 24, 2002. Having considered all of the papers filed by the parties and oral argument on the motion, the Court denies Defendant HI's motion to dismiss (Docket #9) and denies Defendants HFCC and BCI's motion to compel arbitration (Docket #5)


A. Parties

Defendant HI is a Delaware corporation whose principal place of business is Illinois. HI is a holding company that holds stocks in various corporations which provide financial services and products to the general public. Except through the business activities of its subsidiaries, HI does not provide any financial services to the general public. HFCC and BCI are subsidiary corporations of HI. Neither HFCC nor BCI is directly owned by HI. HFCC is owned by Household Finance Corporation while BCI is owned by Beneficial Corporation. Both Household Finance Corporation and Beneficial Corporation are directly owned by HI. HI, through its subsidiaries, operates 1400 lending branches throughout the country. Fifteen percent of its business is in the State of California.

Plaintiff ACORN claims to be the nation's largest community organization of low and moderate-income families. One of the focuses of ACORN's activism is "predatory lending." This lawsuit is part of a larger campaign to stop Defendants from engaging in lending practices ACORN believes to be predatory.

The individual Plaintiffs are all customers of Defendants who consolidated their debt into loans with Defendants in 2000 or 2001.

B. Claims

In their complaint, Plaintiffs allege that Defendants engage, jointly and throughout the State of California, in a course of predatory lending to moderate-income homeowners. Plaintiffs claim that Defendants' corporate strategy is to a) target as potential customers homeowners who are struggling with high credit card debt, b) trick them into consolidating their debt into high-cost loans from Defendants, secured against their homes, and c) trap them into their new consolidated loans by "upselling" the loans to amounts so high in relation to the value of the borrowers' homes that the borrowers cannot refinance with Defendants' competitors.

Plaintiffs contend that these practices violate a number of California statutes and constitute common law fraud, deceit, negligent misrepresentation, and unjust enrichment. Plaintiffs seek class-wide damages and equitable relief.

C. Arbitration Agreements

On the same day that they executed certain loan agreements with Defendants, five of the seven individual Plaintiffs (Plaintiffs Julio and Irene Reyes, Suzanne Alexander, and Sonya and Fredrick Byers) also signed arbitration agreements. These agreements are identical and were written by and included in the loan agreements by Defendants. The relevant portions of these agreements state:

This Arbitration Rider is signed as part of your Agreement with Lender and is made a part of that Agreement. By signing this Arbitration Rider, you agree that either Lender or you may request that any claim, dispute, or controversy (whether based upon contract; tort, intentional or otherwise; constitution; statute; common law; or equity and whether preexisting, present or future) including initial claims, counter-claims and third party claims, arising from or relating to this Agreement or the relationships which result from this Agreement, including the validity or enforceability of this arbitration clause, any part thereof or the entire Agreement (Claim) shall be resolved, upon the election of you or us, by binding arbitration pursuant to this arbitration provision and the applicable rules or procedures of the arbitration administrator selected at the time the Claim is filed.
This Arbitration Rider is made pursuant to a transaction involving interstate commerce, and shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1-16 (FAA).
No class actions or joinder or consolidation of any Claim with the claim of any other person are permitted in arbitration without the written consent of you and us.
No provision of, nor the exercise of any rights under Arbitration Rider shall limit the right of any party during the pendency of any Claim, to seek and use ancillary preliminary remedies, judicial or otherwise, for the purposes of realizing upon, preserving, protecting or foreclosing upon any property involved in any Claim or subject to the loan documents.


Under Rule 12(b)(2) of the Federal Rules of Civil Procedure, defendant may move to dismiss for lack of personal jurisdiction. court may consider evidence presented in affidavits and declaration determining personal jurisdiction. Doe v. Unocal Corp., 248 F.3d 922 (9th Cir. 2001). Where allegations relevant to personal jurisdiction in the complaint are directly controverted by evidence the court may not assume the truth of the allegations. Data Disc, v. Systems Technology Assocs., 557 F.2d 1280, 1284 (9th Cir. 1977) the plaintiff brings forward evidence to rebut the defendant's affidavits, such evidence must demonstrate facts that, if true, would support a finding of jurisdiction. Id. at 1285. A case should not be dismissed for lack of personal jurisdiction if the plaintiff meets his or her burden of making a prima facie showing of jurisdiction. Fields v. Sedgwick Assoc. Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986) Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995); see also Myers v. The Bennett Law Offices, 238 F.3d 1068, 1071 (9th Cir. 2001) ("Thus, in order to defeat Bennett's motions to dismiss for lack of personal jurisdiction, at this stage, Plaintiffs only needed to make, through their pleadings and affidavits, a prima facie showing of the jurisdictional facts.")

A federal court's analysis of a challenge for want of personal jurisdiction over a nonresident defendant "turns on two independent considerations: whether an applicable State rule or statute potential confers personal jurisdiction over the defendant, and whether assertion of personal jurisdiction accords with constitutional principles of process." Data Disc, 557 F.2d at 1286. The California long-arm statute provides that a court may exercise jurisdiction on any basis not inconsistent with the State constitution or the Constitution of United States. Cal. Code Civ. Proc. § 410.10. The Ninth Circuit consistently found that California's jurisdictional statute is coextensive with federal due process requirements; therefore, jurisdictional inquiries under State law and federal due process standards merge into one analysis. See e.g., Rano v. Sipa Press, 987 F.2d 580, 587 (9th Cir. 1993); FDIC v. British-American Ins. Co., 828 F.2d 1439, 1441 (9th Cir. 1987); Pacific Atlantic Trading Co. M/V Main Exp., 758 F.2d 1325, 1327 (9th Cir. 1985).

The exercise of jurisdiction over nonresident defendants violate the protections of the due process clause if those defendants do not have "minimum contacts" with the forum State such that the exercise jurisdiction "does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). "[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 law." Hanson v. Denckla, 357 U.S. 253 (1958). In World-Wide Volkswagen Corp. v. Woodson, the Court explained that "the foreseeability that is critical to due process analysis . . . is that the defendant's conduct and connection with forum State are such that he should reasonably anticipate being haled into court there." 444 U.S. 286, 297 (1980). Jurisdiction has been found to be properly exercised where the contacts proximately result from actions by the defendant that create a substantial connection the forum State. McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223 (1957).

The exercise of personal jurisdiction may be either general or specific. General jurisdiction can be asserted when the nonresident activities within a State are substantial or continuous and system If so, the relationship between the defendant and the State is sufficient for the exercise of jurisdiction even if the cause of action is unrelated to the defendant's forum activities. Data Disc, 557 at 1287. Specific jurisdiction, on the other hand, is found when cause of action specifically arises out of or relates to the defendant's activities within the forum. Id. The Ninth Circuit has held that a claim "arises out of" a defendant's conduct if the claim would not have arisen "but for" the defendant's forum related conduct Panavision Int'l v. L.P.U. Toeppa, 141 F.3d 1316, 1322 (9th Cir. 1998).

The Ninth Circuit has articulated a three-part test for specific jurisdiction: (1) the nonresident defendant must do some act or consummate some transaction with the forum or perform some act by it purposefully avails itself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or results from defendant's forum-related activities, and (3) the exercise of jurisdiction must be reasonable. Pacific Atlantic Trading Co., 758 F.2d at 1327. Each of these conditions is required for asserting jurisdiction. Insurance Co. of N. Am. v. Marina Salina Cruz, 649 1266, 1270 (9th Cir. 1981).

Specific jurisdiction may be exercised with a lesser showing minimum contacts than is required for the exercise of general jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-7 (1985); Haisten v. Grass Valley Medical Fund, Ltd., 784 F.2d 1392 (9th Cir. 1986). There is a presumption that the reasonableness presumption of the specific jurisdiction test is satisfied upon a showing that defendant purposefully directed its activities at forum residents, defendant bears the burden of overcoming the presumption by presenting a compelling case that specific jurisdiction would be unreasonable Id.

The Ninth Circuit has considered seven factors in assessing whether the exercise of jurisdiction over a nonresident defendant reasonable: (1) the extent of the defendant's purposeful interjection into the forum State's affairs, (2) the burden on the defendant, conflicts of law between the forum and the defendant's home jurisdiction, (4) the forum State's interest in adjudicating the dispute, (5) the most efficient judicial resolution of the dispute the plaintiff's interest in convenient and effective relief, and the existence of an alternative forum. Roth v. Garcia Marquez, 942 F.2d 617, 623 (9th Cir. 1991).


A. Personal Jurisdiction

Defendants HFCC and BCI are both wholly owned subsidiaries of Defendant HI. Declaration of Margo J. Hickman (Hickman Dec.) ¶ 14. Except through the activities of its subsidiaries, HI has no physical presence in California and conducts no business in California. Id. ¶¶ (5-7. It is not disputed, however, that HI's subsidiaries have contacts with the forum State sufficient to establish personal jurisdiction over those subsidiaries in this action. If, therefore, the activities of HFCC and BCI can be imputed to HI, the exercise of jurisdiction over HI would be consistent with the requirements of due process.

A subsidiary's contacts with the forum State can satisfy the minimum contacts test for the parent company if the subsidiary is the "general agent" for the parent in the forum State. Chan v. Society Expeditions, Inc., 39 F.3d 1398, 1405-06 (9th Cir. 1994). A subsidiary is a general agent where it performs services beyond "`mere solicitation'" that "`are sufficiently important to the [parent] that if it did not have a representative to perform them, the [parent's] own officials would undertake to perform substantially similar services.'" Id. at 1405 (quoting Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 423 (9th Cir. 1977)).*fn1

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