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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Tags: choice of law, commercial activity, contract, contract forms, corporate law, Diamond Group, dispute resolution, dispute resolution clause, e-commerce, forum selection, Inc., Inc. v. Selective Distribution International, international shoe, massachusetts appeals court, Massachusetts law, massachusetts supreme judicial court, minimum contacts, motion to dismiss, personal jurisdiction, purposeful availment, Selective Distribution, traditional notions of fair play, traditional notions of fair play and substantial justice

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.

If you have any questions about this topic, please feel free to email us.

Tags: articles of incorporation, Boilermakers Local 154 Retirement Fund, Chevron Corporation, choice of law, corporate bylaws, corporate governance, corporate law, Delaware Chancery Court, Delaware General Corporation Law, delaware law, DGCL, forum selection, multiforum litigation, stockholder litigation