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E-commerce Expands Personal Jurisdiction for Businesses

Posted on Dec 3rd, 2013

A recent Massachusetts Appeals Court decision impacts businesses that deal with out of state companies, an issue that is much more common today thanks to the advent of e-commerce. Diamond Group, Inc. v. Selective Distribution International, Inc. expands personal jurisdiction and allows a Massachusetts business lawsuit to move forward against a Long Island company. The finding is based on the orders placed over emails between the two businesses.

Diamond, a Massachusetts company, sued Selective Distribution in a Massachusetts court for 45 unpaid invoices. Selective Distribution, a Long Island business, filed a motion to dismiss based on a lack of personal jurisdiction. The argument Selective made was the standard “minimum contacts” argument from the 1945 International Shoe case: the business had no presence in Massachusetts, and all deliveries it received came to its warehouses in New York and New Jersey.

The Court examined the International Shoe criteria and based its decision within them, albeit expanding them. First, the Court found that the series of email orders itself constitutes “purposeful availment” of Massachusetts commercial activity. Distinguishing this case from others in which personal jurisdiction was found absent based on the International Shoe standards, the Court explained that this ongoing pattern was far different than cases where single purchases or isolated transactions were involved. In contrast, Selective was a regular and active participant in Massachusetts commercial circles and this deliberate and routine involvement signaled that “traditional notions of fair play and substantial justice” would not be offended by the assertion of personal jurisdiction over the business.

Whether or not the Massachusetts Supreme Judicial Court will accept further appellate review is up in the air. For now, the clear take away is that doing business online with out of state companies can open your business up to liability in other states if this expanded understanding of personal jurisdiction holds up. This case is an important reminder of the benefits of including a governing law and dispute resolution clause in your contract forms to provide for a favorable locale as the exclusive forum for any proceedings to take place.

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Forum Selection Clause Valid in Delaware

Posted on Jun 29th, 2013

In a major win for corporations worried about choice of law, the Delaware Court of Chancery held that forum selection bylaws adopted by corporation boards are at least facially valid as a matter of contract under Delaware General Corporation Law (DGCL). Boilermakers Local 154 Retirement Fund v. Chevron Corporation stands for the proposition that bylaws which designate a specific forum for legal dispute resolution will stand up in court, taking some of the concern away for corporations in the realm of multiforum litigation.

In the case at bar, both Chevron and FedEx had adopted bylaws in their certificates of incorporation which indicated that Delaware would be the sole forum for any stockholder litigation. The court rejected the plaintiffs’ challenge of these forum selection provisions and held that the DGCL in fact does permit this kind of forum designation contractually.

The court’s reasoning was in part that the DGCL permits corporations to regulate themselves in order to function smoothly, and these kinds of bylaws assisted the smooth governance of the corporation. The court also found that both federal and Delaware law rendered forum selection bylaws contractually enforceable. This finding is based on the fact that the charters of the corporations in question granted unilateral power to the boards to adopt bylaws, and that this binding power was known to stockholders.

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Massachusetts Appeals Court Holds that Mass Wage Act Applies to Remote Employees

Posted on Jun 21st, 2013

A Massachusetts Appeals Court ruled today that an employee’s private right of action under the Massachusetts Wage Act under G.L. c. 149, § 148 did apply in the case of a traveling salesman who rarely set foot in the Commonwealth of Massachusetts. This choice of law case basically states that where the Commonwealth has a close connection to the employment relationship of the parties, local law should be applied to the claim.

In this case the plaintiff worked as a salesperson Starbak, Inc., a Delaware corporation that had its a sole place of business in Massachusetts. He resided in Florida and conducted most of his sales activity across the country for Starbal. When Starbak closed its doors, it terminated his employment with significant commissions outstanding. The plaintiff then brought suit against the company’s chief executive officer, a Massachusetts resident, seeking unpaid sales commissions of more than $100,000, certain unreimbursed expenses, wages in lieu of accrued vacation time, treble damages, and attorney’s fees. The question here was whether Massachusetts law would apply given that the plaintiff rarely visited the state.

The Court found that the nature of the plaintiff’s work was such that only Massachusetts was tied to it. The employment agreement governing the work relationship provided that Massachusetts law would be applied in the event of a dispute. Starbak was located there and as a result customers who dealt with the plaintiff entered into business with the company in Massachusetts. The plaintiff’s business cards identified his contact information as the same as Starbak’s, based in Massachusetts. His paychecks were issued from Massachusetts, and he communicated with the company daily. The plaintiff was in fact required to return to Massachusetts several times each year, and when he did return he would generally work in the same office space each time.

While distinguishing a case cited by the defendant where the Wage Act was not applied to an Australian employee operating outside the United States, importantly, the Court did acknowledge that the application of the Wage Act may be different in the case on a non-US employee.

This case should caution businesses that employ workers from a distance. While it does not seem to indicate that all remote employees will always be able to access remedies afforded by the local law of the businesses they work for, this is certainly something for businesses to consider when drafting employment agreements and establishing relationships with remote workers.

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