Link to Mo. Sup. Ct. Opinion
The Supreme Court of Missouri reviewed an action to register a foreign default judgment against the guarantor of a loan. The guarantor filed a limited appearance in order to quash the foreign judgment for a lack of personal jurisdiction. The court held that the guarantor had sufficient minimum contacts for the foreign state to properly exercise personal jurisdiction over the defendant.
I. Facts and Holding
Peoples Bank, located in Oklahoma, extended a loan to H.L Frazee’s grandson Stephen Frazee and his wife Jennifer, who were both domiciled in Oklahoma. “When Stephen and Jennifer defaulted on the loan, Bill Burnett, executive vice president of Peoples Bank, met with Stephen and informed him that Peoples Bank was calling the promissory note due to the default.” After receiving this information, Stephen told Mr. Burnett that his grandfather, H.L. Frazee, would be willing to help him resolve the situation.
Mr. Burnett placed a call to H.L. Frazee and informed him of the situation. After speaking with Stephen and Jennifer, H.L. Frazee telephoned Mr. Burnett at Peoples Bank and agreed to sign a guaranty on the promissory note. The bank sent a guaranty note to H.L. Frazee at his Missouri address, which he signed and returned to the bank’s Oklahoma address. After the guaranty was returned, Stephen and Jennifer executed a new promissory note. Stephen and Jennifer also defaulted on the second note. The bank demanded payment from Stephen, Jennifer, and H.L. Frazee; however, a payment for the note was never received.
Peoples Bank filed a petition in Tulsa County, Oklahoma, asserting breach of the promissory note against Stephen and Jennifer, and breach of obligation upon guaranty against H.L. Frazee. The court clerk sent a summons to the Missouri address of H.L. Frazee, but he refused service. “None of the defendants filed answers in the Oklahoma action,” and the court entered a default judgment against the parties. All of the parties were found “jointly and severally liable for $72,520.84 plus interest, attorney fees, and costs.”
The current action was filed in Missouri by Peoples Bank for registration of the Oklahoma judgment. In response, H.L. Frazee appeared and presented a motion to quash the registration of the foreign judgment, arguing that the judgment was unenforceable against him because the Oklahoma court lacked personal jurisdiction. The Missouri circuit court heard arguments and sustained the motion to quash, holding that Peoples Bank had not met its burden of showing personal jurisdiction over H.L. Frazee.
Peoples Bank appealed the circuit court ruling, asserting that the court erred when it placed the burden on the bank to prove that the Oklahoma court had personal jurisdiction over H.L. Frazee. The bank also asserted that the Missouri court erred in finding that the Oklahoma court lacked personal jurisdiction.
A. Burden of Proof
Article IV, Section 1 of the United States Constitution requires state courts to “give full faith and credit to the valid judgment of a sister state unless there is (1) a lack of subject matter jurisdiction, (2) a lack of personal jurisdiction, or (3) fraud in the procurement of the judgment.” The Supreme Court of Missouri additionally highlighted that a foreign judgment carries with it a “strong presumption” that jurisdiction over the parties was proper and the court followed the proper law. The court held that, in order to overcome the presumption of validity, the party alleging invalidity of the prior judgment must advance “‘the clearest and most satisfactory evidence.’” Therefore, because H.L. Frazee was challenging the validity of the Oklahoma judgment the burden was on him to prove that jurisdiction in the foreign court was not proper.
However, the court also held that incorrectly placing the burden on Peoples Bank did not automatically entitle it to relief. The determination of which party has the burden of proof is a legal conclusion that is subject to de novo review when appealed. The court declares that “de novo review eliminates any prejudice to Peoples Bank from the circuit court’s erroneous assignment of the burden of proof to Peoples Bank.”
B. Personal Jurisdiction over Defendant
Peoples Bank also cited error in the circuit court’s holding that the Oklahoma court lacked personal jurisdiction over H.L. Frazee. Oklahoma’s long-arm statute allows Oklahoma courts “to exercise jurisdiction ‘on any basis consistent with the Constitution of [Oklahoma] and the Constitution of the United States.’” Therefore, the courts of Oklahoma have jurisdiction over non-residents to the extent allowed by the Oklahoma Constitution and the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. Because Oklahoma’s jurisdiction extends to the extent allowed by the U.S. Constitution, “the inquiry is whether the Oklahoma court’s exercise of personal jurisdiction over [H.L.] Frazee comports with federal due process.”
According to United States Supreme Court precedent, in order to comply with the Due Process Clause of the Fourteenth Amendment, the defendant must have “minimum contacts with the forum state so that ‘maintenance of the suit does not offend traditional notions of fair play and substantial justice.’” Peoples Bank alleges that H.L. Frazee’s action in signing a guaranty on the loan established the necessary minimum contacts with Oklahoma. However, the court notes that a guaranty is a contract, which cannot be used per se to establish the necessary minimum contacts in the plaintiff’s home forum. Whether a contract establishes minimum contacts requires a fact-specific inquiry.
The court held that there were sufficient contacts to allow the Oklahoma court to properly exercise jurisdiction over the non-resident guarantor, because H.L. Frazee played an active role in the process and his execution of the guaranty induced Peoples Bank to extend credit. The court also highlighted that H.L. Frazee was aware that his grandson lived in Oklahoma and that the bank was also located in Oklahoma.
H.L. Frazee argued that because he derived no pecuniary gain from the transaction that jurisdiction over him in the foreign state was improper. However, the court held that pecuniary gain is not necessary for a finding of personal jurisdiction. The court then noted that because Mr. Frazee purposely availed himself to suit in Oklahoma, the next inquiry was whether the exercise of jurisdiction by the court was reasonable.
The court noted that H.L. Frazee should have been aware that, by becoming a guarantor of the promissory note, he was voluntarily subjecting himself to litigation in Oklahoma courts. The court also pointed out that Oklahoma has a strong interest in the ability to enforce agreements that its citizens rely upon. The court ultimately held that because Mr. Frazee “purposefully directed activity into the forum and purposefully availed himself to the protections of the [sic] Oklahoma, [he] should not be able to avoid his interstate obligation by asserting that lack of personal jurisdiction.”
II. Legal Background
H.L. Frazee and his counsel attempted to rely on the First Circuit’s decision in Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc. for the proposition that a nonresident guarantor must be seeking a pecuniary gain from the executed guarantee. In Bond, the First Circuit examined an action where the plaintiff sought to enforce a judgment in a foreign jurisdiction against a party who had written four separate letters evidencing a guarantee of payment for goods sold. The court stated that the “contract plus” approach should be applied to cases when deciding whether jurisdiction is proper over a non-resident guarantor.
The court focused on “whether the commercial action taken, in light of the contacts with the forum state it entailed, amounts to a purposeful decision by the nonresident to ‘participate’ in the local economy and to avail itself of the benefits and protections of the forum.” The court rejected Q.T. Shoe Manufacturing’s argument that jurisdiction was proper over Bond Leather because their guarantee of payment allowed the transaction to move forward.  The court found that guarantee of payment was not sufficient on its own to support jurisdiction over Bond Leather.
The court in Bond examined the record, which provided no contacts linking the foreign defendant to the court. Additionally, the guaranty agreement did not call for an active role by the foreign party, who did not participate directly in negotiating the terms of the agreement. Moreover, none of the contract rights would have allowed the plaintiff to “reap the benefits of Massachusetts law.” The record also lacked any indication that the guarantor actually reaped benefits as a result of his guaranty. “Rather than marking any move . . . into the [foreign] marketplace, [defendant’s] action represented an apparently isolated attempt to assist . . . [a] flagging corporation.” The First Circuit held that, “absent any intent . . . to exploit the local economy,” forcing the defendant to assert his rights in a foreign jurisdiction “would violate the traditional notions of fair play and substantial justice.”
The Supreme Court of Missouri also discussed the Third Circuit case of Mellon Bank (East) PSFS, Nat’l Ass’n v. Farino. In Mellon, the court decided whether a state court had personal jurisdiction to enforce a guarantee and suretyship agreement against a foreign defendant. The court held that the defendants had “purposefully availed themselves of the privilege of conducting business in the Commonwealth.” All of the defendants were aware that they were guaranteeing a Pennsylvania entity. They provided personal net worth documentation to the bank in Pennsylvania in order to get the financing approved. Additionally, the defendants also approached the bank and “established a business relationship” with the foreign entity.
As a result of these actions, the court concluded that “the defendants ‘purposely directed’ their activities toward a [foreign] resident and thereby availed themselves of the opportunity to do business there.” By asking the foreign bank to lend money, the defendants had created a “continuing relationship” in the foreign jurisdiction. After examining the conduct of the defendants, the Third Circuit determined that the state court had proper jurisdiction over the defendants.
The Supreme Court of Missouri also looked to the Eighth Circuit’s decision in Arkansas Rice Growers Cooperative Ass’n v. Alchemy Industries, Inc., where the plaintiff sought to enforce contracts against a guarantor residing in a foreign jurisdiction. The defendants in this case were investors in a corporation, and the corporation’s debt was assured by a guarantor.
The Alchemy court held that the contacts between the foreign guarantors and the forum state were not sufficient for the court to exercise jurisdiction. In distinguishing other cases where jurisdiction was proper, Alchemy named three conditions for asserting jurisdiction over a foreign defendant: “ [if] there has been a substantive identity of the guarantors and the corporation whose obligation they guarantee, . . .  [if there is] evidence that the beneficiary of the guarantee contract would not have entered into the transaction without the guarantees of specific individuals, . . .  or [if] a provision in the guarantee contract of the underlying contract states that the law of the forum state would control.”
The Eighth Circuit said that they were not aware of any cases where a court asserted jurisdiction over a non-resident guarantor who is merely a passive investor in the entity whose debt the guarantor assures.
In Peoples Bank, the Supreme Court of Missouri faced a unique situation without any precedent exactly on point. The guarantor, H.L. Frazee, was much more than a passive investor. The actions of H.L. Frazee induced the Oklahoma bank to extend credit to his grandson and his grandson’s wife, but clearly his motivation was not an attempt to make a pecuniary gain off of the transactions. 
The defendant’s active role in helping his grandson get the loan made the Oklahoma court’s jurisdiction comport with the traditional notions of fair play and substantial justice. In order for banks to profit off of lending money, they rely on their state courts to enforce the obligation to repay. There was no deception about the location of H.L. Frazee’s grandson or the bank. By becoming a guarantor and taking an active role in the process, the Oklahoma court had a significant interest in asserting jurisdiction over the defendant.
This decision will have important precedential value for Missouri residents and businesses. Any actions taken in foreign jurisdictions where Missouri residents take a semi-active role in a business or financial transaction will subject Missourians to the rulings of foreign jurisdictions. Because the possibility of a pecuniary gain is not a requirement, many Missouri residents may not even realize that that they are bound by foreign judgments.
 318 S.W.3d 121 (Mo. 2010) (en banc).
 Id. at 125.
 Id. at 125-26.
 Id. at 126.
 Id. at 126-27; see also Phillips v. Fallen, 6 S.W.3d 862, 864 (Mo. 1999) (en banc).
 Id. at 127.
 Id. (quoting Phillips, 6 S.W.3d at 868).
 Id. at 128 (quoting Okla. Stat. tit. 12 § 2004(F) (1993)).
 Id. (citing Conoco, Inc. v. Agrico Chem. Co., 115 P.3d 829, 834 (Okla. 2004)).
 Id. (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
 Id. at 129.
 Id. at 129-30; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985).
 Id. at 130.
 Id at 131.
 Id. at 132.
 Id. at 133.
 Id. at 131 (citing Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., 764 F.2d 928 (1st Cir. 1985)).
 Bond, 764 F.2d at 929-30.
 Id. at 933.
 Id at 933-34.
 Id. at 934.
 Id. at 934-35.
 Peoples Bank v. Frazee, 318 S.W.3d 121 at 130 (Mo. 2010) (en banc) (citing Mellon Bank (East) PSFS, Nat’l Ass’n. v. Farino, 960 F.2d 1217 (1992)).
 Mellon Bank, 960 F.2d 1217 at 1219.
 Id. at 1223.
 Id. at 1227.
 People’s Bank v. Frazee, 318 S.W.3d 121 at 130 (Mo. 2010) (en banc) (citing Aransas Rice Growers Cooperative Ass’n v. Alchemy Industries, Inc., 797 F.2d 565 (8th Cir. 1986)).
 Arkansas Rice Growers, 797 F.2d at 567.
 Id. at 573.
 Id. at 573-74
 People’s Bank, 318 S.W.3d at 131.
 Id. at 125-26.