New England Biz Law Update
A Canadian company was subject to personal jurisdiction in Massachusetts even though its direct contacts with the state essentially consisted of emails and phone calls to the plaintiff in the breach of contract suit, the 1st U.S. Circuit Court of Appeals has decided.
The defendant, Bioriginal Food & Science Corp. in Canada, argued that its contacts with Massachusetts were insufficient to support the exercise of personal jurisdiction consistent with due process.
But the 1st Circuit disagreed, reversing a dismissal by U.S. District Court Judge Denise J. Casper.
“It is not true that interstate remote communications are, by their nature, per se insufficient to constitute contacts that sustain personal jurisdiction,” Chief Judge Sandra L. Lynch wrote for the unanimous court.
The 22-page decision is C.W. Downer & Company v. Bioriginal Food & Science Corporation.
‘Active’ purchaser of services
Boston attorney Steven J. Torres represented plaintiff C.W. Downer & Co., a Boston investment bank that had been retained by the defendant for the purpose of finding a buyer for the Canadian producer of omega-based nutritional supplements.
Torres said the 1st Circuit’s ruling takes account of the reality of modern business practices.
“In a global economy in which geographically distant entities conduct business by email and teleconference, this decision reinforces the notion that a company can seek redress within the jurisdiction in which it negotiated and performed its contracts,” said Torres, a lawyer at Torres, Scammon & Day.
The possibility that the defendant could be sued in a Massachusetts court was certainly foreseeable for purposes of jurisdictional analysis, he added.
“They understood that they were retaining an investment bank in Massachusetts that would be undertaking significant activities within this particular forum,” Torres said.
Alan D. Rose Jr. of Boston defended Bioriginal. The Rose, Chinitz & Rose attorney did not respond to a request for comment prior to deadline.
But Matthew T. Oliverio, a civil litigator in Providence, Rhode Island, said the 1st Circuit’s decision in Downer is an important ruling on the issue of personal jurisdictional, albeit not a surprising one.
“It’s not so unreasonable to hale [into court] a party from a foreign jurisdiction who makes a conscious decision to reach out to another country in which they’re seeking the assistance to market themselves,” Oliverio said.
Noting that the parties’ contract contained a Saskatchewan choice-of-law provision, Oliverio said it would have been relatively simple for the defendant to keep itself from being sued in Massachusetts courts.
“What they could have done to really protect themselves is include a provision giving Canadian courts exclusive jurisdiction,” Oliverio said.
Tanya J. Monestier, a professor at Roger Williams University School of Law in Bristol, Rhode Island, said the 1st Circuit decision makes “perfect sense” given the contractual nature of the parties’ relationship.
“If you have a four-year relationship, be it actual or virtual, there’s going to be personal jurisdiction in the place where you are having the relationship,” she said. “When you’re dealing with breach of contract and someone is acting in the jurisdiction pursuant to the arrangements under the contract, you can get there both for relatedness and purposeful availment.”
Meanwhile, Daniel L. McFadden, a commercial litigator at Foley Hoag in Boston, said it is important to understand that the decision addresses the jurisdictional significance of electronic communications in the context of a lengthy contractual relationship.
“The court did reference electronic communications extensively, but apparently as evidence of that long-term commercial relationship, which was really the thing that conferred jurisdiction in the 1st Circuit’s view,” McFadden said. “The 1st Circuit certainly did not say that merely communicating electronically with the forum would always, or even often, be a proper basis for the assertion of jurisdiction.
Civil litigator Steven G. Vanden-Eykel of Barton Gilman in Boston agreed.
“At the end of the day, this is just a breach-of-contract case that happened to have Internet dealings as opposed to old-fashioned in-person dealings or standard mail communications,” Vanden-Eykel said.
But he cautioned that personal jurisdiction statutes are evolving with modern business practices.
“Corporations need to be aware that they may be subject to jurisdiction from activities that they feel are entirely removed from the subject forum,” he said. “Because of today’s technology, it is as if they are at home in that forum.”
Investment banking services
In September 2008, Downer was visited at its offices in Boston by Christopher Johnson, who sat on Bioriginal’s board of directors and was recognized as the board’s de facto chairman. Johnson revealed to Downer that Bioriginal would be offered for sale.
After the Boston meeting, representatives of Downer and Bioriginal negotiated an agreement under which Downer would act as the exclusive financial advisor for the potential sale of Bioriginal. The contract negotiations, which culminated with the execution of a letter agreement in March 2009, were conducted remotely by phone calls, emails and teleconferences.
Downer proceeded to contact hundreds of potential buyers for Bioriginal, regularly keeping Johnson, Bioriginal’s CEO and other members of the company’s management team abreast of progress toward a sale via email and teleconferences.
Although Downer identified several potential bidders for Bioriginal, the company ultimately was bought out in 2013 by a private equity firm that had partnered with Bioriginal’s management team.
Downer sued Bioriginal in Superior Court in Massachusetts for breach of contract after Bioriginal refused to pay Downer the transaction fee provided in the parties’ contract.
Bioriginal removed the case to federal District Court in Massachusetts and moved to dismiss for lack of personal jurisdiction.
Specific jurisdiction
Because it was undisputed that Bioriginal did not have systematic, continuous contacts with the commonwealth for the exercise of general jurisdiction, the question on appeal was whether the U.S. District Court judge correctly ruled that there was no specific jurisdiction based on the defendant’s suit-related conduct.
Under 1st Circuit precedent, in order to show that the Bioriginal’s suit-related conduct created the necessary minimum contacts with Massachusetts for specific jurisdiction, the plaintiff had to show: (1) the claim directly arose out of, or related to, the defendant’s forum state activities; (2) the defendant’s in-state contacts represented a “purposeful availment” of the privilege of conducting activities in the state; and (3) the exercise of jurisdiction was reasonable.
The court held that the plaintiff satisfied all three prongs of the test and that the defendant’s dealings with the plaintiff over a four-year period established the element of relatedness.
“Bioriginal had an ongoing connection with Massachusetts in the performance under the contract,” Lynch wrote. “Downer’s claims arise from the alleged breach of that contract. That is enough to establish relatedness.”
The court likewise had little trouble finding that the state’s exercise of jurisdiction was reasonable.
“Bioriginal identifies no special burden imposed by requiring it to litigate across the Canada-United States border, nor any international policy burdened by Massachusetts’s exercise of jurisdiction,” Lynch wrote.
The key issue on appeal was whether the plaintiff could satisfy the “purposeful availment” prong of the circuit’s test for specific jurisdiction.
The court concluded that the plaintiff met that burden.
“The contacts here clearly were not random, fortuitous, or attenuated,” Lynch said.
The judge pointed to the fact that the parties’ relationship, as opposed to starting with a “cold call” from the plaintiff, commenced when the plaintiff first learned of the defendant’s sale from Johnson, Bioriginal’s de facto chairman, in the plaintiff’s Boston offices.
The 1st Circuit also found critical the length of the parties’ relationship.
“Bioriginal had a four-year working relationship with Downer, including intense periods with many exchanges,” the judge wrote. “Bioriginal knew or should have expected Downer’s Boston office — its only North American office, and the one with which Bioriginal negotiated the Letter Agreement — to be the site of its partner team.”
The quality of the phone and email contacts by Bioriginal’s management team with the plaintiff also persuaded the court that the Canadian corporation had purposefully availed itself of the privilege of conducting activities in Massachusetts such that its “involuntary presence” before the state’s courts was foreseeable.
Lynch noted that Bioriginal and Downer “worked together on significant documents” pertaining to the potential sale while the plaintiff asserted it contacted hundreds of potential buyers on the defendant’s behalf.
Significantly, the 1st Circuit did not find it dispositive that many of the emails, phone calls and other activities at issue were originated by the plaintiff in Massachusetts and directed to the defendant and third parties elsewhere.
“[I]t makes little sense to focus too much on who initiated a particular contact in exploring a lengthy course of dealing in a services contract,” Lynch said. “By retaining Downer, Bioriginal actively caused Downer to undertake extensive activities on Bioriginal’s behalf within Mass-achusetts.”
While acknowledging a plaintiff’s “unilateral activity” cannot constitute a jurisdictional contact, Lynch said that Downer’s extensive Massachusetts activities, given the context, were not “unilateral.”
“They were undertaken at Bioriginal’s request and are attributable to Bioriginal,” she concluded.
