CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT.
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. 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?
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.*fn1 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.
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,*fn2 14 of which are petitioners in this action (the excess insurers).*fn3
Marsh & McLennan requested Bland Payne to obtain the excess insurance in the London insurance market. Pursuant to normal business practice
"[in] 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."*fn4 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.
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.*fn5 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 "[copies] 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
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:
"[If] 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.*fn6
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.*fn7 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 ...