Contracting with Massachusetts Resident Not Sufficient for Jurisdiction

Businesses frequently contract with other businesses on the other side of the country, or even on the other side of the world. Although most business arrangements do not result in litigation, jurisdiction can be very important when they do. Litigants often prefer a local venue, for convenience and familiarity with the courts.

The U.S. District Court for the District of Massachusetts recently had to decide whether it had jurisdiction over a defendant with a principal place of business in Oregon. In Baskin-Robbins Franchising, LLC v. Alpenrose Dairy, Inc., the parties had entered into a Territorial Franchise Agreement in 1965. The agreement allowed the defendant to recruit franchisees to sell the plaintiff’s products. It also authorized the defendant to manufacture, distribute, and act as wholesaler for the products. The agreement originally included only Oregon and Washington but subsequently expanded to Idaho and Montana. The agreement did not include Massachusetts.

The defendant’s principal place of business was in Oregon. The plaintiff had relocated to Massachusetts from California while the agreement was in effect. The defendant continued to renew the contract after the plaintiff’s move. The agreement was renewed every six years until the defendant gave notice that it would not renew the agreement after it expired in December 2014.

The plaintiff filed a declaratory judgment action, seeking a declaration that the agreement had expired at the end of the most recent term. The defendant filed a motion to dismiss for lack of jurisdiction or, alternatively, to transfer the case to Washington.

The court noted that Massachusetts courts read the Massachusetts long-arm statute to reach the limits allowed by the Constitution, and therefore it analyzed the constitutional requirements. The plaintiff had to show that its claim arose out of the defendant’s activities in Massachusetts and that the defendant purposely availed itself of the privilege of conducting business in the state and, in doing so, sought the benefits and protections of Massachusetts laws, such that an involuntary appearance in Massachusetts courts would be foreseeable. Furthermore, subjecting the defendant to jurisdiction in the state must be reasonable under the “Gestalt Factors.”

The way the parties carried out the agreement must be considered. Simply entering into a contract with a Massachusetts resident is not sufficient to subject a defendant to personal jurisdiction in Massachusetts. In this case, the defendant actually entered into an agreement with a California company to be carried out in the Pacific Northwest. The parties simply continued that agreement after the plaintiff relocated. The court found no evidence that the defendant purposely availed itself of the benefits of conducting business in the state. It simply sought to continue doing business as it had been in other states.

The court also found that the “Gestalt factors” did not support jurisdiction in Massachusetts. Massachusetts did not have a strong interest in adjudicating a case involving a contract that was performed in other states. Furthermore, the court found there would be a significant burden on the defendant. The interests of justice were not better served if Massachusetts exercised jurisdiction.

The court therefore granted the defendant’s motion to dismiss.

Parties to a contract may avoid disputes over jurisdiction by including a venue provision in the contract. While parties from different locations may not be able to agree to a particular venue on the front end, doing so can spare them from litigating the issue.

If you have a business dispute, a skilled Massachusetts business litigation lawyer can evaluate your case. Call the Law Offices of Richard Mucci at (781) 729-3999 to set up an appointment.