An out-of-state tech firm that allegedly made disparaging statements about a Massachusetts competitor to companies with locations in Massachusetts was not subject to jurisdiction under the state’s long-arm statute, G.L.c. 223A, §3, a trial court judge has decided.

Plaintiff SCVNGR, a Massachusetts-based maker of software applications for restaurant chains, claimed that defendant Punchh, a California-based competitor, repeatedly made knowingly false statements about its clients and potential clients.

The plaintiff, which conducted its business under the name LevelUp, alleged that those statements, though not made in Massachusetts or directly to Massachusetts companies, nonetheless caused it harm in the state. LevelUp also asserted that Punchh marketed its apps to companies with Massachusetts locations from which it derived revenue.

Accordingly, LevelUp argued, Punchh had sufficient contacts with Massachusetts for long-arm jurisdiction to apply.

But Judge Mitchell H. Kaplan, sitting in the Business Litigation Session, disagreed.

“The fact that some of Punchh’s customers operated restaurants in Massachusetts and therefore used Punchh’s apps in Massachusetts, does not translate into Punchh transacting business in Massachusetts,” Kaplan said, dismissing the suit. “It also does not mean that when Punchh allegedly disparaged LevelUp to customers or potential customers outside of Massachusetts that constitutes a tort arising out of Punchh’s having transacted business in the Commonwealth.”

The 10-page decision is SCVNGR, Inc. v. Punchh, Inc.

New reality

Plaintiff’s counsel, Joshua A. Lewin of Boston, declined to comment, as did Jeffrey J. Pyle of Boston, who represented the defendant.

But Boston business litigator Eric P. Magnuson said the case reflects the reality that the state’s trial courts now must first address whether the exercise of jurisdiction over a defendant comports with the Massachusetts long-arm statute before addressing whether constitutional due-process standards are satisfied.

Magnuson was referring to the fact that Kaplan had initially ruled that due-process concerns were not satisfied and then, when LevelUp appealed, the Supreme Judicial Court found that the trial judge first had to engage in a long-arm analysis before deciding that issue.

Accordingly, Magnuson said, “counsel should structure their briefing to address the two inquiries in that order: statutory first, constitutional second.”

Meanwhile, Magnuson said he found it interesting that Kaplan initially found that the constitutional due-process standard was not met and then, as part of the long-arm analysis on remand, allowed additional jurisdictional discovery before arriving at the same result.

“Therein lies the oddity,” he said. “A defendant was subjected to more litigation in this forum in the form of more discovery, even though Judge Kaplan had decided without that discovery, before appeal and remand, that it would violate the defendant’s due-process rights to exercise jurisdiction over the defendant.”

Boston attorney Evan M. Fray-Witzer, who handles defamation suits as part of his business litigation practice, said the ruling adheres to what is emerging as the modern view of personal jurisdiction: that the focus must be on the defendant’s connections to the forum state as opposed to the plaintiff’s connections. The U.S. Supreme Court has emphasized that a number of times in recent cases, and the LevelUp case shows the viewpoint filtering down to the state level, he said.

“A lot of the cases around the country recently have also focused on the idea that the court is supposed to look at the defendant’s connections to the state itself and not just the fact that the defendant may have entered into agreements with people who happen to be in the state,” Fray-Witzer said.

He noted that that was exactly the situation Punchh faced in that its clients were not based in Massachusetts but simply had opened restaurants here, which was completely outside Punchh’s control.

Richard J. Peltz-Steele, a media law professor at the University of Massachusetts School of Law in Dartmouth, said the decision may not make new law but is still significant in that the long-arm statute is potentially narrower than what might be permissible for jurisdiction under the Constitution.

“What struck me was that Punchh was doing business with these companies that had locations in Massachusetts, and that wasn’t enough to connect Punchh with Massachusetts,” he added. “Even if LevelUp has a physical base in Boston, it’s really two entities doing business in the internet ether. And a connection to companies that themselves have locations in various states won’t draw an internet company into those states. This may be nothing new, but it’s informative to see this play out.”

Peltz-Steele further noted that there is a trend internationally to allow jurisdiction to lie where the injury occurs in defamation cases, but the LevelUp case indicates that the trend does not apply in the U.S. and that it cannot apply under the current 14th Amendment due-process analysis.

Media law professor Richard J. Peltz-Steele said the decision may not make new law but is still significant in that the long-arm statute is potentially narrower than what might be permissible for jurisdiction under the Constitution.

Alleged defamation

LevelUp, a Delaware corporation headquartered in Massachusetts, designs and markets applications for restaurants to engage with their customers and gather information about customer behavior.

Through use of the apps, customers of LevelUp’s clients can earn and redeem rewards at the clients’ restaurants while making purchases with their phones at the point of sale.

Punchh, also a Delaware corporation but headquartered in California, provides similar apps to restaurant chains.

According to Punchh, it is not registered to do business in Massachusetts and has no offices, employees or property in the state.

It also maintained that no Punchh employee had ever traveled to Massachusetts for business.

Nonetheless, Punchh, which charges clients a onetime set-up fee before the client can utilize Punchh’s app, has contractual relations with a number of restaurant chains that operate Massachusetts locations.

And though Punchh apparently did not track revenue on a state-by-state basis between January 2015 and February 2016 (the time period covering events leading to LevelUp’s defamation action), and although Punchh had no input into where its clients established restaurants, it apparently generated $12,000 in revenue attributable to Massachusetts locations during the operative time period.

On Feb. 19, 2006, LevelUp brought a defamation action in Superior Court against Punchh. The plaintiff alleged that, in 2015 and 2016, Punchh made false, disparaging statements to LevelUp clients and kept making such statements, even after LevelUp confronted Punchh and demanded that it stop doing so.

In spring 2016, Kaplan dismissed LevelUp’s claim for lack of jurisdiction, citing constitutional due-process grounds. LevelUp appealed, and in November 2017, the SJC found that Kaplan should have conducted an analysis under the long-arm statute before addressing constitutional issues and remanded the case for such a finding.

On remand, Kaplan ordered further discovery on jurisdictional issues. Meanwhile, Punchh moved to dismiss the claim for lack of jurisdiction under the long-arm statute.

Insufficient contacts

Kaplan found there was, indeed, lack of jurisdiction under the long-arm statute.

First, he found that neither Punchh nor its agents were “transacting business” in the commonwealth within the meaning of §3(a) of the statute.

“The court finds no support in [prior] Massachusetts decisions … for the proposition that a non-resident transacts business in Massachusetts because its customer has some contact with the forum,” the judge said. “LevelUp makes no argument that Punchh’s customers were acting as Punchh’s agent in deciding to open restaurants in Massachusetts and then having those restaurants employ Punchh’s app.”

Similarly, Kaplan found no jurisdiction under §3(c), which he described as being meant to apply only when the act causing injury occurs within the commonwealth.

“In this case … there is no allegation that Punchh’s offending statements were delivered into the Commonwealth or that anyone relied on them in the Commonwealth,” the judge said.

Finally, Kaplan found that §3(d) of the long-arm statute, which creates jurisdiction over acts outside the commonwealth by those regularly soliciting business or deriving substantial revenue by providing goods and services in Massachusetts, did not apply.

In particular, the $12,000 in revenue that could be traced to non-Massachusetts clients’ Massachusetts operations was not enough to establish jurisdiction under §3(d), he said.

Accordingly, Kaplan concluded, Punchh’s motion to dismiss for lack of personal jurisdiction should be granted.