Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—3rdCir: Personal Jurisdiction Could Be Based on CEO’s Sales Pitch, (Jun 10, 2013)

By Jeffrey May, J.D.

The U.S. Court of Appeals in Philadelphia has vacated the dismissal of a New Jersey Consumer Fraud Act (NJCFA) action for lack of personal jurisdiction. The Third Circuit also ruled that the lower court incorrectly concluded that the NJCFA claim had to be submitted to arbitration (FlagHouse, Inc. v. ProSource Development Inc., June 7, 2013, Sloviter, D.).

A complaining supplier of physical education equipment, FlagHouse, Inc., brought an action against ProSource Development Inc. and its CEO, asserting violations of the NJCFA and other causes of action. The suit followed ProSource’s demand for arbitration of a contract dispute.

FlagHouse had entered into a contract with ProSource to implement a system to streamline FlagHouse’s accounts payable, billing, warehouse management, accounting, and finance software. During the contract negotiations, ProSource’s CEO allegedly made misrepresentations about ProSource’s capabilities during a sales pitch at FlagHouse’s place of business in New Jersey.

FlagHouse alleged sufficient contact between the CEO of ProSource and New Jersey to warrant personal jurisdiction over him, the appellate court ruled. The CEO availed himself of the benefits and protection of New Jersey during his sales visit. As a result, the CEO should have reasonably anticipated that, by making representations at the headquarters of a company in New Jersey, he could be haled into court in that forum.

The appellate court rejected the defending CEO's contention that personal jurisdiction could not be based solely on his contacts with New Jersey that were made in his official capacity as the CEO of ProSource. New Jersey law provided for personal jurisdiction to the fullest extent allowed by the Due Process Clause, and it did not violate due process to find personal jurisdiction based solely on contacts made in an employee’s official capacity, the court explained.

Arbitration. Although the agreement between the parties included an arbitration clause that was to be construed in accordance with New York law, both parties had proceeded as if New Jersey rather than New York law applied. Thus, the appellate court interpreted the contract in accordance with New Jersey law.

The lower court erred in finding “clear and unambiguous” intent to subject FlagHouse’s NJCFA claim to arbitration. The appellate court explained that New Jersey courts have generally found that statutory remedies not explicitly included in an arbitration clause were not subject to arbitration.

The case was remanded to the district court for further proceedings.

The case is No. 12-2521.

Attorneys: David M. Kupfer (Carroll, McNulty & Kull) for FlagHouse, Inc. Michael J. Barrie (Benesch, Friedlander, Coplan & Aronoff) for ProSource Development Inc.

Companies: FlagHouse, Inc.; ProSource Development Inc.

Cases: StateUnfairTradePractices DelawareNews NewJerseyNews PennsylvaniaNews