Monday, June 11, 2012

The Jurisdictions That Bind Us

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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