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Circuits Split on Computer-Based Personal Jurisdiction

By Henry R. Chalmers, Litigation News Associate Editor – March 11, 2013

 

At first blush, two personal jurisdiction decisions, issued on the same day by different federal circuit courts, seem at odds with one another. The defendants in both lived in Canada and had no connections with the forum states other than a few discrete electronic interactions. Yet in one, the U.S. Court of Appeals for the Eighth Circuit affirmed dismissal for lack of personal jurisdiction, while in the other, the U.S. Court of Appeals for the Second Circuit found personal jurisdiction to be present, reversing the district court’s finding to the contrary.


“I think the rulings can be reconciled by a closer examination of the underlying facts and the long-arm statutes involved,” says Betsy Collins, Mobile, AL, cochair of the ABA Section of Litigation’s Pretrial Practice and Discovery Committee.


Eighth Circuit
In Dairy Farmers of America, Inc. v. Bassett & Walker Int’l, Inc., the Missouri-based plaintiff sold dairy products to Bassett, a Canadian company. The Dairy Farmers of America (DFA) agent with whom Bassett’s representative communicated worked out of Michigan, and the products at issue never entered Missouri. Bassett did communicate routinely with DFA’s headquarters in Missouri regarding delivery and billing, and twice sought and received credit increases from DFA’s Missouri office. But it had no other connections with Missouri, asserting that none of its employees had ever even entered the state. When Bassett failed to pay several invoices, DFA sued for breach of contract.


The district court found that Bassett was immune to specific jurisdiction in Missouri, and the Eighth Circuit affirmed, agreeing that Bassett was beyond the reach of Missouri’s long-arm statute. Although Missouri courts had ruled that the statute extends jurisdiction to the limits of the Due Process Clause, the Eighth Circuit instructed that “it does so only for acts within its enumerated categories,” finding the two inquiries to be separate. The court then noted that, under Missouri case law, “Bassett’s communications with DFA’s Missouri headquarters by phone, email, and fax alone do not amount to the transaction of business,” rendering Bassett outside “the reach of Missouri’s long-arm statute.”


Even if Bassett had transacted business within the state, however, it still would have lacked sufficient minimum contacts with the forum to satisfy the Due Process Clause, according to the Eighth Circuit. Importantly, Bassett’s contract with DFA did not contemplate coordinating or processing orders in Missouri. Rather, the product was to be prepared in Colorado and sent directly to Mexico, with invoice payments remitted to Illinois. Against this backdrop, Bassett’s scattered emails and phone calls to Missouri were not enough to satisfy the constitutional requirement.


“The fact that DFA had its headquarters in Missouri seemed to be little more than a random fact in this case,” says Collins. “Practically everything of any importance happened elsewhere; in fact, DFA wasn’t even a Missouri corporation.”


Second Circuit
The corporate plaintiff in the Second Circuit case, MacDermid, Inc. v. Deiter, had stronger ties to the forum state Connecticut. It not only maintained its principal place of business there but it also housed its computer servers in the state. In contrast, the defendant, Jackie Deiter, worked for MacDermid’s subsidiary in Canada, where she lived. When she caught wind of her impending termination, she used her work computer to access some of MacDermid’s confidential and proprietary documents—all of which resided on the Connecticut servers—which she then sent from her work email account to a personal account.


MacDermid brought tort claims against Deiter in federal court in Connecticut, but the district court dismissed the claims, ruling that Connecticut’s long-arm statute did not reach Dieter’s conduct in Canada. The Second Circuit reversed.


Of particular importance to the court was a provision in the long-arm statute that allowed a court to exercise personal jurisdiction over any nonresident individual who “uses a computer [or] a computer network [that is] located within the state.” According to the court, “A computer server meets the Connecticut long-arm statute’s definition of a computer,” and it was “not material that Deiter was outside of Connecticut when she accessed” the servers.


Turning to the minimum contacts analysis, the court noted that, as a condition of employment, MacDermid informed its employees, including Deiter, that the company’s email system and confidential documents were housed on the Connecticut-based servers. It also observed that Deiter had agreed, in writing, to use those documents properly and not to transfer such information to a personal email account.


With the minimum contacts requirement satisfied, the court addressed whether the exercise of personal jurisdiction would be reasonable under the Due Process Clause. Despite the burden imposed on Deiter by forcing her to defend her conduct in Connecticut, the court found that “both Connecticut and MacDermid have significant interests in resolving the matter in Connecticut.”


Tort versus Contract Claim
“Whereas the DFA case involved a simple breach of contract, the defendant in MacDermid was accused of committing a tort and specifically accomplishing her tort though use of the forum-based servers,” notes Joan Archer, Kansas City, MO, cochair of the Section of Litigation’s Pretrial Practice and Discovery Committee. “That, as much as anything, may account for the divergent outcomes.”


The presence of computer-specific language in Connecticut’s long-arm statute was another key factor, according to Jessica Hew, Orlando, FL, cochair of the Section’s Pretrial Practice and Discovery Committee. A clear takeaway is to “always evaluate the forum’s long-arm statute closely before you file any case in which personal jurisdiction could be questioned,” says Hew.


Keywords: personal jurisdiction, long-arm statute, minimum contacts, computer-based jurisdiction


 
Related Resources

  • » Dairy Farmers of America, Inc. v. Bassett & Walker Int’l, Inc., 702 F.3d 472 (8th Cir. 2012).
  • » MacDermid, Inc. v. Deiter, 702 F.3d 725 (2nd Cir. 2012).
  • » Mo. Rev. Stat. § 506.500.1(1), (2).
  • » Conn. Gen. Stat. § 52-59b(a).

 

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