New England Biz Law Update
An out-of-state corporation could not reasonably anticipate being subject to personal jurisdiction in Rhode Island based on its Internet marketing and a sales contract derived from that advertising, a U.S. District Court judge has ruled.
The Rhode Island plaintiff brought suit against the South Carolina defendant asserting various claims related to the sale of an allegedly defective construction crane.
Arguing a lack of personal jurisdiction, the defendant moved to dismiss.
Chief Judge William E. Smith agreed that the plaintiff failed to provide sufficient evidence of the defendant’s contact with Rhode Island to satisfy personal jurisdiction.
But, having found “no factors that favor dismissal over transfer,” Smith decided rather than dismiss the complaint, instead to transfer the case to the U.S. District Court in South Carolina.
The 12-page decision is Diving Services, Inc. v. BTM Machinery, Inc., et al.
Minimum contacts
Stacey P. Nakasian, a Providence attorney who represented defendant BTM Machinery, said the “primary significance” of the case was Smith’s holding that BTM’s marketing of its equipment over the Internet, which led to a sale in Rhode Island, was not sufficient without more to give rise to personal jurisdiction in the state.
“The court found that such activity did not make it foreseeable to BTM that it would be subject to suit in Rhode Island,” she said.
Viewing the case in a broader context, Nakasian said “there has been a larger arc of cases from the District Court on personal jurisdiction with an out-of-state defendant marketing through the Internet without being physically present. And the decisions haven’t always been completely consistent. This area of law has raised a lot of jurisdictional challenges for the courts, and it’s evolving.”
For now, though, there is a definitive holding that website advertising “plus a subsequent sale is just not enough for personal jurisdiction,” Nakasian said. “Judges will be looking for some other contact and involvement in the state, such as the presence of a sales representative.”
Nakasian also said she fully expected the transfer of venue.
“The court will generally transfer rather than dismiss, unless the circumstances are such that, once transferred, the case would likely be dismissed — such as in the case of a frivolous suit.”
Boston commercial litigators William P. Breen and Ryan M. Murphy represented plaintiff Diving Services.
Breen said he thought there were sufficient contacts so that BTM could have expected to be called into court in Rhode Island.
“From our perspective, the ‘something more’ is satisfied by the sales contract and the parties’ course of conduct, such as their actions going back and forth to secure financing,” he said.
Breen pointed to communications between the parties that were aimed at completing the sale, such as the exchange of an invoice and inspection reports “to induce Diving Services to borrow money to pay for the crane,” and argued in his brief that “Rhode Island has a significant interest to ensure that its residents are not taken advantage of by unfair and deceptive business practices.”
BTM should have reasonably foreseen that its actions in the case would bring it within the jurisdictional reach of the Rhode Island courts, Breen added.
“It’s a very fact-based analysis, and it’s a modern-day issue. BTM puts itself out there and claims to be a national seller of equipment, in effect inviting anyone to buy their materials, and then it’s determined they don’t have to show up in court. But we will pursue justice in South Carolina,” Breen said.
“[Website advertising] plus a subsequent sale is just not enough for personal jurisdiction. Judges will be looking for some other contact and involvement in the state, such as the presence of a sales representative.”
— Stacey P. Nakasian, Providence
Contractual dispute
Defendant BTM Machinery, a South Carolina company, is a seller of large machinery and equipment to the construction industry.
Plaintiff Diving Services, a Rhode Island business, contracted with BTM to purchase a construction crane that BTM had advertised through the Internet. Diving Services agreed to pay a $5,000 deposit, with the remaining $80,000 to be paid after BTM made agreed-upon repairs.
Diving Services paid for and took possession of the crane in South Carolina before transporting it to Pennsylvania, but later brought suit against BTM, alleging that the crane was not operational.
BTM moved to dismiss on three grounds: that the court lacked personal jurisdiction over BTM because the company had almost no purposeful contacts with Rhode Island; that the contract’s forum selection clause required the claim to be litigated in South Carolina; and that Rhode Island was the improper venue because the alleged events making up the claim did not occur in Rhode Island.
Foreseeability factor
Smith reviewed the required three prongs of “relatedness, purposeful availment, and reasonableness” that a plaintiff must establish for specific jurisdiction.
As defendant BTM conceded that the sale of the crane to a Rhode Island company satisfied the “relatedness” requirement, the judge proceeded to the “purposeful availment” prong and its two elements of voluntariness and foreseeability.
Quickly dispatching with any objections to voluntariness, Smith turned to what he viewed as the “real issue” of the case: foreseeability.
Setting forth the applicable law, Smith wrote that the plaintiff had “the burden of demonstrating that BTM purposefully availed itself of the privilege of conducting activities in [Rhode Island], thereby invoking the benefits and protections of that state’s laws and making the defendant’s involuntary presence before the state’s courts foreseeable.”
Foreseeability “requires that BTM’s contact with Rhode Island was such that it could reasonably anticipate being haled into court there,” the judge continued.
Smith noted that the evidence presented by the plaintiff on the issue of foreseeability was limited to a copy of the crane’s sales contract and several pages from the defendant’s website, where it advertised its machinery for worldwide sale.
“This sort of advertising does not, without more, establish personal jurisdiction in Rhode Island,” Smith said.
The 1st Circuit has made clear “that ‘the mere existence of a website does not show that a defendant is directing its business activities towards every forum where the website is visible,’” Smith pointed out.
“Where, as here, a defendant has merely advertised its services to the general public, ‘something more is necessary’ to establish personal jurisdiction,” the judge stated.
But Smith was unwilling to find that the sales contract between parties qualified as “something more.”
Drawing from 1st Circuit precedent, Smith said the fact that a plaintiff entered into a contract with a defendant in the forum state is not in and of itself dispositive of the personal jurisdiction question.
“The fact that BTM emailed a contract to Diving Services with the knowledge that Diving Services was located in Rhode Island is not enough to establish personal jurisdiction in Rhode Island,” Smith concluded.
