Last week the First Circuit Court of Appeals reversed a trial court’s dismissal of a contract suit against a foreign corporation that had no physical presence in the United States. The contract between the plaintiff, an investment bank based in Massachusetts, and the defendant, a Canadian corporation that produces nutritional supplements, provided that the plaintiff would serve as the defendant’s exclusive financial advisor for the sale of defendant’s corporate assets. The parties never had an in-person meeting and all of their communications took place through mail, telephone, and electronic means. Moreover, no representative of the defendant was ever present in the U.S. in connection with the contractual relationship. When the alleged breach of contract took place – the defendant was sold without the involvement of the plaintiff and no transaction fee was paid – the plaintiff initially filed suit in Massachusetts state court, and the defendant later removed the action to federal court. The application of Massachusetts’ long-arm statute to provide grounds for jurisdiction over the case was analyzed by the district court, and later de novo by the First Circuit, for its constitutionality under the Due Process clause.
The questions at issue were whether the claim arose from the defendant’s activities in Massachusetts, whether the defendant’s contacts with Massachusetts “represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state’s laws and making the defendant’s involuntary presence before the state’s courts foreseeable,” and whether the exercise of jurisdiction is reasonable. It is this last prong – reasonableness – that the First Circuit focused on after holding that the other two prongs were clearly met given the specific and intentional nature of the defendant’s contractual relationship with the Massachusetts-based plaintiff. (It should be noted, though, that the district court – despite a great deal of evidence and case-law to the contrary, including the defendant’s decision not to even contest the first prong at the district court level – found all three prongs to be lacking.)
The First Circuit considered five factors in determining the reasonableness of finding jurisdiction in this case, as have been outline by the Supreme Court: 1) the burden on the defendant, 2) the forum state’s interest in adjudicating the case, 3) the plaintiff’s interest in litigating in the forum state, 4) whether the forum provides the most effect resolution of the controversy, and 5) overriding social policy. The First Circuit held that the fact that the defendant corporation was based in a foreign nation, and not just in another state, was not in and of itself a critical factor; though, the court did consider how – if at all – this fact might impact the burden on the defendant of litigating in the U.S. In this instance, the Court found the effect on the defendant’s burden to be nominal because the area of Canada where the defendant is located is not a great distance from Massachusetts geographically, there were no language or cultural barriers, and there were no other international policies implicated since Canadian law can be applied to the substantive issues even in the Massachusetts forum. In this way, the First Circuit held that this case is very different from the seminal Supreme Court case Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), where jurisdiction over a Japanese company was denied given the unreasonableness of forcing the defendant to travel to California and litigate in English a dispute that arose primarily from transactions that took place in Asia, where most of the witnesses and evidence were located.
Finding that the burden on the defendant was low, coupled with its finding that Massachusetts has a strong interest in adjudicating a claim that arises entirely from business conducted with a resident bank, the First Circuit held that jurisdiction over the defendant was reasonable and not in violation of Due Process. The precedential case-law on personal jurisdiction over foreign defendants has generated as many questions as it has answered, and courts continually grapple with the reach of the authority of U.S. forums. While in many ways this case was more clear-cut than others since it involved an intimate transaction between two parties with limited evidence overseas, perhaps rendering the outcome not surprising, what is interesting about this opinion is that it did not grant much weight, if any, to the defendant’s alien status as a de facto policy consideration. This suggests that while there are clearly limits on the scope of U.S. jurisdiction, there are also limits on the significance of a defense based on nationality alone. Defendants seeking to avoid the jurisdiction of a U.S. forum need to focus primarily on the facts of the case that render jurisdiction unreasonable or otherwise unconstitutional, and not rest on the fact of foreign citizenship alone, particularly where – as here – other factors weigh in favor of extending jurisdiction. In addition, foreign defendants seeking to avoid American courts should also consider choice of venue – in addition to choice of law – provisions in their contracts with U.S. entities as a means to bolster their arguments that they should not be subject to personal jurisdiction in the United States.