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Federal personal jurisdiction and choice of law

Author: LegalEase Solutions

QUESTION PRESENTED

Whether the Eastern District of Michigan would have personal jurisdiction over Victory IT on the facts, and whether California law must be considered in that analysis?

SHORT ANSWER

A court may exercise personal jurisdiction over an out-of-state defendant if the defendant has certain minimum contacts with the forum state and the court’s exercise of jurisdiction satisfies due process requirements. The 6th Circuit has established a three part test to determine the personal jurisdiction over an out of state defendant. They are (1) the defendant purposefully availed himself of the privilege of acting in the forum state, (2) the cause of action arise from defendant’s activities in the forum state, and (3) the act of the defendant or its consequences have a substantial connection with the forum state which make the exercise of personal jurisdiction reasonable. Further, Michigan courts exercise limited personal jurisdiction over corporations that transact any business within the state.

In the instant case, Defendant Victory IT Services is a global entity with offices in different parts of the world, including Michigan. The Defendant entered into a contract with TekWissen, which also has an office in Ann Arbor. The contract was negotiated through phone and fax, in Ann Arbor, Michigan. The Defendant satisfies the first two requirements of the three part test: (1) it purposefully availed itself to do business in the forum state and (2) the cause of action arises from Defendant’s activities in the forum state.  Assuming the financial impact of the breach is also in Michigan, the third part of the test – the act or its consequences have a substantial connection with the forum state – is also satisfied.  Thus, the Defendant satisfies the ‘minimum contact requirement’ also. Accordingly, the Eastern District of Michigan may constitutionally exercise personal jurisdiction over Victory IT Services.

The choice of law question will arise only after personal jurisdiction of the Defendant in the forum state is established. Therefore, California law need not be considered in the analysis of personal jurisdiction.

RESEARCH FINDINGS

  1. Personal Jurisdiction Overview

The Sixth Circuit has set forth the following rule: “A court’s exercise of personal jurisdiction over a nonresident defendant is appropriate only if it meets the state’s long-arm statute and constitutional due process requirements.” Intera Corp. v. Henderson, 428 F.3d 605, 615 (6th Cir. 2005). According to the U.S. Supreme Court, “[a] state court’s assertion of jurisdiction exposes defendants to the State’s coercive power, and is therefore subject to review for compatibility with the Fourteenth Amendment’s Due Process Clause.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2850, 180 L. Ed. 2d 796 (U.S. 2011).

The leading case involving personal jurisdiction is International Shoe. “[T]he terms present or presence are used merely to symbolize those activities of the corporation’s agent within the state which courts will deem to be sufficient to satisfy the demands of due process.” Int’l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316-17 (1945) (internal quotations omitted).

The U.S. Supreme Court set out the test for personal jurisdiction as follows in International Shoe:

But now that the capias ad respondendum has given way to personal service of summons or other form of notice, due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’

Id., 326 U.S. at 316 (quoting Milliken v. Meyer, 311 U.S. 457, 463).

Further, “the commission of certain ‘single or occasional acts’ in a State may be sufficient to render a corporation answerable in that State with respect to those acts, though not with respect to matters unrelated to the forum connections.” Goodyear, supra, 131 S. Ct. at 2853, 180 L. Ed. 2d 796 (U.S. 2011) (quoting International Shoe, supra, 326 U.S. at 318, 66 S.Ct. 154).

Following International Shoe, the 6th Circuit has established a three part test to determine personal jurisdiction:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant’s activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Air Products & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 550 (6th Cir. 2007) (quoting S. Mach. Co. v. Mohasco Indus., Inc., 401 F.2d 374, 381 (6th Cir.1968)).

The elements of the three part test are explained further in the following cases.

“[The] purposeful availment requirement ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts …” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S. Ct. 2174, 2183, 85 L. Ed. 2d 528 (1985) (internal quotations omitted).

“The second element evaluated in the personal jurisdiction inquiry is whether the current controversy is related to Defendant’s forum-related activities.” Audi AG & Volkswagon of Am, Inc v D’Amato, 341 F Supp 2d 734, 748 (ED Mich 2004)

“Where the first two elements of the test for personal jurisdiction are met, there is an inference that the exercise of jurisdiction is reasonable.” Id. (citing CompuServe, Inc. v. Patterson, 89 F.3d 1257, 1268 (6th Cir.1996)).

The facts of Air Products illustrate the three part test as follows:

Safetech, [the defendant] opened a credit account with Air Products and purchased goods on credit from Air Products over the course of almost nine years, [1993-2002]. Air Products alleges that, over the course of those years, Davenport contacted Air Products in Michigan on several hundred occasions through telephone, email, fax, and ordinary mail, and that the cumulative value of the goods purchased exceeded several hundred thousand dollars. The goods purchased by Safetech were manufactured in Michigan and sent to Safetech in Kansas or directly to Safetech’s customers. Between 2001 and 2002, Safetech failed to make payments to Air Products for goods purchased, and, in 2002, their business relationship ceased … On June 22, 2004, the district court in Kansas entered judgment in favor of Air Products and against Safetech …

Air Products, supra, 503 F.3d at 548 (6th Cir. 2007).

Air Products further alleges that Safetech has engaged in a fraudulent transfer of assets and filed the present action in Michigan state court asserting, inter alia, fraudulent transfer and unjust enrichment. Id. at 549 (6th Cir. 2007).

The 6th Circuit held that “[t]he facts of this case satisfy the ‘purposeful availment’ requirement for several reasons.” Id., at 551 (6th Cir. 2007). The Courts of Appeal quoting Burger King, observed that when the defendant “‘has created continuing obligations between himself and residents of the forum, he manifestly has availed himself of the privilege of conducting business there’” Id., (quoting Burger King Corp., supra, 471 U.S. at 476).

Further, the court held that the presence of certain factors such as “‘prior negotiations and contemplated future consequences, along with the terms of the contract and the parties’ actual course of dealing.’” constitute purposeful availment. Id. (quoting Burger King, supra, 471 U.S. at 479).

With regard to the second prong, the court held that “Air Products need only make a prima facie showing of jurisdiction under the procedural posture of this case, [and] this prong is satisfied.” Id., at 554 (6th Cir. 2007).

The third prong of reasonableness is explained as:

In determining whether the exercise of jurisdiction is reasonable, the court should consider, among others, the following factors: (1) the burden on the defendant; (2) the interest of the forum state; (3) the plaintiff’s interest in obtaining relief; and (4) other states’ interest in securing the most efficient resolution of the policy.

Id., at 554-55 (6th Cir. 2007) (quoting Intera Corp., supra, 428 F.3d at 618 (6th Cir.2005)).

The court found that “[b]ecause there is an inference of reasonableness when the first two Southern Machine prongs are satisfied, and because there are no considerations put forward by Defendants to overcome or contradict that inference, the exercise of jurisdiction is reasonable under the circumstances of this case.” Id., at 555 (6th Cir. 2007).

The Air Products court reversed the district court’s judgment “dismissing [the case] for lack of personal jurisdiction and remanded for further proceedings.” Id.

  1. Phone calls in determining personal jurisdiction

The phone calls made by defendant to the plaintiff in forum state are also considered to satisfy personal jurisdiction. “The acts of making phone calls and sending facsimiles into the forum, standing alone, may be sufficient to confer jurisdiction on the foreign defendant where the phone calls and faxes form the bases for the action.” Neal v. Janssen, 270 F.3d 328, 332 (6th Cir.2001).

In Neal, “the sole issue raised by defendant on appeal is whether his contacts [through telephone] with Tennessee are sufficient to support the exercise of personal jurisdiction.” Id, 270 F.3d at 331 (6th Cir. 2001). “Defendant argue[d] that he did not have sufficient minimum contacts with Tennessee because he never was physically present in the state and only made phone calls and sent facsimiles to Tennessee regarding the sale of [the dressage horse].” Id., at 332 (6th Cir. 2001).

But, the court found that the defendant:

[E]ngaged in a business transaction with plaintiffs that went on over a substantial period of time. He established a relationship with plaintiffs from which he hoped to profit financially. He then defrauded plaintiffs, altering the amount of money to be sent to them in Tennessee. These facts are sufficient to make it reasonable for Tennessee to exercise personal jurisdiction over defendant.

Id., at 333 (6th Cir. 2001).

Further, “‘[t]he quality of the contacts as demonstrating purposeful availment is the issue, not their number or their status as pre- or post-agreement communications.’” LAK, Inc. v. Deer Creek Enterprises, 885 F.2d 1293, 1301 (6th Cir. 1989) (quoting Stuart v. Spademan, 772 F.2d 1185, 1194 (5th Cir.1985)).

  1. The Michigan Long Arm statute in personal jurisdiction

“With personal jurisdiction, Michigan’s Long Arm Statute applies.” Audi AG & Volkswagon, supra, 341 F Supp 2d at 741 (ED Mich 2004). “Michigan’s long-arm statute extends limited jurisdiction over nonresident corporations pursuant to Mich. Comp. Laws § 600.715, and general jurisdiction pursuant to Mich. Comp. Laws § 600.711. Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 888 (6th Cir. 2002) (citing Third Nat’l Bank in Nashville v. WEDGE Group Inc., 882 F.2d 1087, 1089 (6th Cir.1989)) (internal quotations omitted).

“Limited jurisdiction extends only to claims arising from the defendant’s activities that were either within Michigan or had an in-state effect.” Neogen Corp., supra, 282 F.3d at 888.  General jurisdiction “enables a court in Michigan to exercise jurisdiction over a corporation regardless of whether the claim at issue is related to its activities in the state or has an in-state effect.” Id.

The two step analysis to determine whether jurisdiction attaches under M.C.L. § 600.711 and § 600.715 are – “First, whether the exercise of limited personal jurisdiction violates the Due Process Clause of the Fourteenth Amendment of the United States Constitution. If not, then whether the rule of statutory construction supports such an exercise of jurisdiction over defendants.” Audi AG & Volkswagon, supra, 341 F Supp 2d at 741-42 (ED Mich 2004).

“Under Michigan’s Long–Arm Statute, the state’s jurisdiction extends to the limits imposed by the Due Process Clause, and thus, the two questions become one.” Id., 341 F Supp 2d at 742 (ED Mich 2004).

In Michigan, limited personal jurisdiction may be exercised over a corporation, if one of the following relationships with the state is satisfied:

(1) The transaction of any business within the state.

(2) The doing or causing any act to be done, or consequences to occur, in the state resulting in an action for tort.

(3) The ownership, use, or possession of any real or tangible personal property situated within the state.

(4) Contracting to insure any person, property, or risk located within this state at the time of contracting.

(5) Entering into a contract for services to be performed or for materials to be furnished in the state by the defendant.

Children’s Legal Servs., PLLC v. Shor Levin & Derita, PC, 850 F. Supp. 2d 673, 680-81 (E.D. Mich. 2012) (quoting Mich. Comp. Laws § 600.715).

Neogen explains the limited personal jurisdiction exercised by Michigan courts. The facts of the case are as follows:

Neogen Corp. (Neogen), a Michigan corporation, filed suit in the Western District of Michigan against Neo Gen Screening, Inc. (NGS), a Pennsylvania corporation, alleging, interalia, trademark infringement, and unjust enrichment. The district court dismissed the suit for lack of personal jurisdiction over NGS pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. Neogen appealed. The 6th Circuit reversed the judgment of the district court and remanded the case for further proceedings.

Neogen Corp., supra, 282 F.3d at 886 (6th Cir. 2002).

The court found that “Neogen has presented a prima facie case that NGS transacted business in Michigan when it accepted blood for testing from Michigan, mailed the test results to Michigan, made the results accessible to its Michigan customers on its website, and accepted payment through the mail from Michigan.” Id., 282 F.3d at 888 (6th Cir. 2002). Thus, Neogen satisfied the “‘transaction of any business’ necessary for limited personal jurisdiction under § 600.715(1) is established by ‘the slightest act of business in Michigan.’” Id., (quoting Lanier v. Am. Bd. of Endodontics, 843 F.2d 901, 906 (6th Cir.1988)).

Further, “[t]he ‘arising out of’ requirement of § 600.715 is satisfied because the alleged economic harm and trademark infringement that form the basis of Neogen’s suit were directly related to NGS’s transaction of business in Michigan.” Id.

“In addition, Neogen has presented a prima facie case that limited jurisdiction exists under § 600.715(5) because NGS’s blood-test transactions with Michigan residents constitute ‘entering into a contract for services to be performed or for materials to be furnished in the state by the defendant.’” Id., at 889 (6th Cir. 2002).

The court found that ‘purposeful availment’ test is affirmed by the conduct of NGS. “When NGS mails [the] test results to its Michigan customers, or sends them a password to be used interactively on its website, NGS reaches out to Michigan to perform its services there.” Id., at 892 (6th Cir. 2002). This “support a finding that NGS purposefully availed itself of the privilege of doing business in Michigan.” Id.

Finally, “[b]ecause NGS knew that it was doing business with Michigan customers, and performed part of its services in Michigan by mailing test results there and providing special passwords to Michigan customers, NGS could reasonably anticipate being haled into a court in Michigan.” Id., at 892-93 (6th Cir. 2002).

The Children’s Legal Servs., PLLC  is another case from ED Michigan explaining the limited personal jurisdiction. The facts of the case are as follows:

[The] plaintiff Children’s Legal Services, PLLC, a Michigan law firm, filed the present lawsuit … against defendant Shor, Levin, & DeRita, P.C., a Pennsylvania law firm, alleging breach of a settlement agreement, fraud, promissory estoppel, and unjust enrichment. At the core of the dispute is a marketing plan designed to attract families with children suffering from cerebral palsy and other birth trauma related ailments, and the division of attorney’s fees generated by the prosecution of medical malpractice cases involving those victims. The defendant has moved to dismiss on the ground of lack of personal jurisdiction. Alternatively, the defendant would like the case transferred to the Eastern District of Pennsylvania.

Children’s Legal Servs., PLLC, supra, 850 F Supp 2d at 675 (ED Mich 2012).

“[T]he Court [found] that Shor Levin purposely availed itself of the privilege of doing business in Michigan.” Id., at 684 (ED Mich 2012). The court held that the defendant “agreed with Korn & Stern to pay advertising fees …” Id.  Further, the defendant “admitted that the advertisements would result in phone calls, and that those phone calls would be answered by Michigan employees …” Id. “Finally, the Court [found] that the defendant’s alleged conduct is connected to Michigan sufficiently enough to make the exercise of jurisdiction over it to be reasonable.” Id., at 685 (ED Mich 2012).

Denying request for change in venue, the court held that “a plaintiff’s choice of forum should rarely be disturbed, and that only a strong showing of inconvenience to a defendant would be enough to necessitate venue transfer.” Id., at 686 (ED Mich 2012) (citing Nicol v. Koscinski, 188 F.2d 537 (6th Cir.1951)). Further, “[u]nder 28 U.S.C. § 1391(c) (2), a corporation is deemed to reside ‘in any judicial district in which such defendant is subject to the court’s personal jurisdiction.’” Id., at 685 (E.D. Mich. 2012).

The court concluded “that it has personal jurisdiction over the defendant because the plaintiff has established a prima facie case that satisfies Michigan’s long-arm statute defining limited personal jurisdiction over corporations and the Due Process Clause. The Court also finds that transferring the case out of this district is not appropriate.” Id., at 686 (ED Mich 2012).

  1. Choice of law considerations: California analysis for personal jurisdiction?

“The Court in Hanson and subsequent cases has emphasized that choice-of-law analysis —which focuses on all elements of a transaction, and not simply on the defendant’s conduct—is distinct from minimum-contacts jurisdictional analysis—which focuses at the threshold solely on the defendant’s purposeful connection to the forum.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 481-82 (1985) (citing Hanson v. Denckla, 357 U.S., 253–254,. See also Keeton v. Hustler Magazine, Inc., 465 U.S., at 778, 104 S.Ct., at 1480; Kulko v. California Superior Court, 436 U.S., at 98,; Shaffer v. Heitner, 433 U.S., at 215).

The questions “presented by the choice–of–law issue arise only after it is assumed or established that the defendant’s contacts with the forum State are sufficient to support personal jurisdiction.” Allstate Ins. Co. v. Hague, 449 U.S. 302, 320, n3  (1981).

“[T]he Court has made it clear over the years that the personal jurisdiction and choice–of–law inquiries are not the same.” Allstate Ins. Co. v. Hague, 449 U.S. 302, 320, n3 (1981) (See, Kulko v. California Superior Court, 436 U.S. 84, 98, (1978); Shaffer v. Heitner, 433 U.S. 186, 215, (1977); id., at 224–226, (BRENNAN, J., dissenting in part); Hanson v. Denckla, 357 U.S. 235, 253–254 (1958); id., at 258 (Black, J., dissenting)).

“The existence of a choice-of-law provision, standing alone, is insufficient to establish jurisdiction, but such a provision may ‘reinforce [a] deliberate affiliation with the forum State and the reasonable foreseeability of possible litigation there.’” Intera Corp., supra, 428 F.3d at 618-19 (6th Cir. 2005) (quoting Calphalon Corp. v. Rowlette, 228 F.3d 718, 723 (6th Cir. 2000)).

“Further, ‘a federal court in a diversity action is obligated to apply the law it believes the highest court of the state would apply if it were faced with the issue.’” Standard Fire Ins. Co. v. Ford Motor Co., 723 F.3d 690, 692 (6th Cir. 2013) (quoting Mahne v. Ford Motor Co., 900 F.2d 83, 86 (6th Cir.1990)).

CONCLUSION

In the instant case, the defendant Victory IT Services satisfies the requirements for limited personal jurisdiction set out in MCL § 600.715. The company has an office in Michigan and it transacted business in Michigan. The defendant negotiated the contract through phone and fax. The Neal court held that “making phone calls and sending facsimiles into the forum, standing alone, may be sufficient to confer jurisdiction on the foreign defendant where the phone calls and faxes form the bases for the action.” Neal v. Janssen, 270 F.3d 328, 332 (6th Cir.2001). The Defendant’s phone calls to negotiate and conclude the contract were not random or fortuitous. Moreover, the Defendant, having purposefully availed himself of the transaction in Michigan and this cause of action arising out of its activities in Michigan, satisfies the first two parts of the test for personal jurisdiction. The acts of the Defendant which have substantial connections with Michigan entitle the Michigan courts to its exercise of personal jurisdiction over the Defendant.

Further, the choice of law question will be determined only after establishing personal jurisdiction. Hence, California law need not be taken into consideration for analyzing personal jurisdiction over the Defendant in Eastern District of Michigan.

 

References

  1. Air Products & Controls, Inc. v. Safetech Int’l, Inc., 503 F.3d 544, 550 (6th Cir. 2007)
  2. Neal v. Janssen, 270 F.3d 328 (6th Cir.2001).
  3. Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883 (6th Cir. 2002)
  4. Children’s Legal Servs., PLLC v. Shor Levin & Derita, PC, 850 F. Supp. 2d 673 (E.D. Mich. 2012)