By
Michael Tarrant
Yanmar American Corp. v. Crean
Equipment Co., 2012 VT
35 (mem.).
Back
in 2006 and 2008, Defendant, an equipment company located in Pittsford,
Vermont, entered into dealer agreements with Plaintiff—an equipment supplier
and a corporation registered in the state of Georgia—to purchase equipment and
display it for sale in Vermont.
In 2007, Defendant purchased some equipment
from the Georgia Supplier, financed through a third party. In 2009, Defendant
fell on hard economic times and defaulted on its loan. This resulted in the
Georgia Supplier canceling Defendant’s contract and repossessing the equipment
purchased through the agreement.
After repossession, Georgia Supplier realized
that the equipment had been put to heavy use, which Defendant did not dispute. Georgia
Supplier thus billed Defendant $40,200 for the depreciated value of the
equipment. No surprise, Defendant did
not pay this either.
This
is where today’s case takes a twist from the ordinary and wanders off into Personal
Jurisdiction Land, where it ventures into the Deep South and gets arrested for
a crime it didn’t commit and has to call its fresh-out-of-law-school, well
intentioned, yet hopelessly clueless cousin from New York to come defend it.
Well actually, that’s just the plot of My
Cousin Vinny. Today’s case is somewhat different.
Georgia
Supplier filed suit in Bartlow County, Georgia, alleging breach of contract and
seeking to recover the lost value of its equipment. But, wait a minute, Defendant
is located in Vermont, and apart from ordering equipment from Plaintiff, had no
significant contacts with the state of Georgia. How did we end up down there? The
answer like all good contract disputes lies in the language of the
agreement. In this case, the contract
had a “forum-selection clause,” which provided that any action arising out of
the agreement be brought exclusively in a state or federal court located in
Bartlow County, Georgia—conveniently the same county where Georgia Supplier’s
corporate offices are located.
Defendant,
filed a motion to dismiss for failure to state a claim, but it never answered
the underlying complaint. Importantly, Defendant also never challenged the
Georgia court’s jurisdiction over it. For an unexplained reason, the Georgia
court never addressed Defendant’s motion to dismiss and because Defendant never
filed an answer, in April 2010, the court entered a default judgment in favor
of Georgia Supplier for the full $40,200. Defendant did not seek
reconsideration or file an appeal.
In
July 2010, Georgia Supplier headed north and brought suit in Vermont to enforce
the Georgia judgment against Defendant. Georgia Supplier filed for summary
judgment, arguing that the Full Faith and Credit Clause of the United States
Constitution required the Vermont court to enforce the Georgia court’s order. Defendant,
on home turf, elected to argue that the order from Georgia was invalid because
that court lacked personal jurisdiction over him.
This
is a bit of law school 101, but it is worth mentioning. For the Georgia court
to assert jurisdiction, that is the right to judge and enter judgment against
it, Defendant needed to either (a) have significant contacts with the State of
Georgia such that the assertion of jurisdiction was reasonable and fair or (b)
to be deemed to have waived the issue by behaving in a manner consistent with
accepting the jurisdiction of Georgia.
Not
surprisingly, the Vermont court agreed with Georgia Supplier and concluded that
Defendant had waived his personal jurisdiction argument by appearing in the
Georgia court. This time, however, Defendant filed a timely appeal to the SCOV.
On
appeal, Defendant’s main argument is, once again, that the Georgia court never
had personal jurisdiction over it, and therefore any order coming out of that
court is invalid.
Unfortunately
for Defendant, the SCOV disagrees—concluding that because Defendant opted to
file that ill-fated motion to dismiss, it availed itself of the Georgia court’s
power, and because Defendant did not challenge personal jurisdiction then, it
waived the right to do so now.
Of
course, to say that a decision of one state’s court is entitled to be enforced
in another state’s court requires that certain guarantees of due process be
met—where these guarantees are missing, such an order is not entitled to full
faith or credit. But, what does that mean? Well, essentially it means that the
person being sued must be given adequate notice of the claim and that the court
hearing the matter have personal jurisdiction over the person. Also, due
process requires that a defendant have “minimum contacts” with the state where
the suit is being brought so as not to “offend traditional notions of fair play
and substantial justice.”
Of
course, notwithstanding the complications of untangling exactly what that lofty
language means, all of it is set aside when a defendant attempts to make an
appearance and litigate the issues. That is exactly what happened when Defendant
filed that go-nowhere motion to dismiss, and it is ultimately devastating to Defendant.
By filing that motion—and by failing to argue its personal jurisdiction defense
in the first instance—Defendant effectively subjected itself to the Georgia
court’s power.
Because
the SCOV concludes that the Georgia court did indeed have personal jurisdiction
over Defendant, it does not address any of Defendant’s additional arguments.
So,
aside from yet another reason to hire a lawyer before you do anything rash, what’s
the moral of today’s story? Well, contrary to that old adage, “it’s better to
do something than nothing at all,” here, Defendant would have been better of availing
itself of some of that nothing.
Of
course, none of this makes it any more likely that Georgia Supplier will be
paid. If Defendant is out of money, a
Vermont judgment is no better than a Georgia one, but today’s case does give credence
to the other old chestnut—when it comes to debts, “you can run, but you can’t
hide.”
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