2007 Summer, Pg. 24. From Lumber to Local Area Network: The Impact of Vermont Wholesale on Internet Personal Jurisdiction.

• Author: By Nathaniel Lucek

New Hampshire Bar Journal

2007.

2007 Summer, Pg. 24.

From Lumber to Local Area Network: The Impact of Vermont Wholesale on Internet Personal Jurisdiction

New Hampshire Bar JournalSummer 2007, Volume 48, No. 2Annual Survey of New Hampshire LawFrom Lumber to Local Area Network: The Impact of Vermont Wholesale on Internet Personal JurisdictionBy Nathaniel LucekIntroduction

Nobody likes studying personal jurisdiction in law school. It baffles every first-year law student.(fn1) The cases are confusing to distinguished professors and respected attorneys alike.(fn2) Even judges have admitted that personal jurisdiction, at times, makes little sense.(fn3) Unless personal jurisdiction properly allows a suit against an out-of-state defendant, however, the merits of a lawsuit are inconsequential.(fn4) It alone governs when a plaintiff can haul an out-of-state defendant into state court.(fn5) As New Hampshire's economy becomes more global,(fn6) the question of when a New Hampshire plaintiff can invoke the court's jurisdiction over an out-of-state defendant will become even more important.

Until Vermont Wholesale Building Products, Inc. v. J.W. Jones Lumber Co., Inc.,(fn7) the extent to which an out-of-state business could place a product into the "stream of commerce" and not be subject to an exercise of personal jurisdiction was undecided in New Hampshire.(fn8) The question has resulted in divided opinions from the U.S. Supreme Court and created a quagmire in the lower courts.(fn9) This article discusses the competing theories of "stream of commerce" personal jurisdiction and explains the test adopted by the Vermont Wholesale Court. Finally, it discusses Internet-related personal jurisdiction cases consistent with New Hampshire's personal jurisdiction tests in Vermont Wholesale and Metcalf v. Lawson(fn10) and predicts how extensive the Internet-related contacts must be for a New Hampshire plaintiff to sue an out-of-state defendant in state court.

Personal Jurisdiction and Civil Procedure

Since Pennoyer v. Neff(fn11) in 1877, courts have struggled with the task of defining when a court may force a nonresident to appear and defend.(fn12) The Pennoyer Court borrowed from international law and principles of conflict of laws to mold personal jurisdiction doctrine based on a state's territorial power.(fn13) However, for another 68 years, the Court wrestled with the application of Pennoyer and the state's territorial power in the context of a growing mobile economy and the increasing predominance of national or trans-territorial corporations.(fn14) Eventually, in International Shoe Co. v. Washington,(fn15) the Court allowed a state court to extend its jurisdiction beyond the state's borders, abandoning the focus on whether actions occurred within the state's territorial power.(fn16) The Court instead began analyzing "minimum contacts," or the links and interactions that allow an out-of-state defendant to be sued without offending "traditional notions of fair play and substantial justice."(fn17) From International Shoe, the "minimum contacts" analysis was born.(fn18)

Personal jurisdiction reflects the geographic limitation of a state's sovereign judicial power.(fn19) Under International Shoe and its progeny, there are two types of personal jurisdiction: general and specific.(fn20) General jurisdiction exists when a defendant engaged in continuous and systematic activity in New Hampshire, but the litigation is not directly based on the defendant's New Hampshire contacts.(fn21) Although the litigation does not arise from anything the defendant did in the forum state, the defendant did such continuous and systematic business there that it would not be unfair to bring suit against him.(fn22) These continuous and systematic contacts could be, for example, conducting limited business activities and bank transactions in the forum state unrelated to the cause of action,(fn23) but need to be more than just purchases or business trips in the forum state unrelated to the litigation.(fn24)

Specific jurisdiction encompasses a narrower set of claims than general jurisdiction, and exists when the cause of action arises from the defendant's New Hampshire-based contacts that are specifically related to the matter in dispute.(fn25) Specific jurisdiction asks whether the out-of-state defendant's conduct and connection with the forum state would allow it to reasonably anticipate being sued there.(fn26) Both specific and general personal jurisdiction differ from subject matter jurisdiction(fn27) or forum non conveniens.(fn28)

Vermont Wholesale:

A Giant Civil Procedure Problem

Vermont Wholesale is something out of a civil procedure nightmare. It began when a contractor bought flooring from Central Building Supply, a retail store in Littleton, and installed it in a home in Whitefield.(fn29) Central Building Supply had bought the flooring from Vermont Wholesale Building Products, which distributes lumber in Massachusetts, New Hampshire, Vermont, and New York.(fn30) Vermont Wholesale bought the lumber from Jones Lumber, a North Carolina corporation that does not advertise in New Hampshire nor have any New Hampshire offices, assets, employees, or distributors.(fn31) However, Jones Lumber was aware that Vermont Wholesale did business in a four-state region that included New Hampshire.(fn32)

The Whitefield homeowners alleged that the flooring was defective and sued the contractor who installed it.(fn33) The contractor brought a third-party action against Vermont Wholesale, which, in turn, brought actions against Central Building Supply and Jones Lumber.(fn34) Jones Lumber moved to dismiss for lack of personal jurisdiction, lost in the trial court, and appealed.(fn35)

In New Hampshire, a two-part analysis governs specific jurisdiction.(fn36) First, New Hampshire's long-arm statute(fn37) must authorize the exercise of jurisdiction.(fn38) Second, an exercise of specific jurisdiction must comport with the Federal Due Process Clause.(fn39) In order to comply with due process, the contacts must "relate to the cause of action," the defendant must have "purposefully availed itself of the protection of New Hampshire's laws," and it would have to be "fair and reasonable to require the defendant to defend the suit in New Hampshire."(fn40) The issue for the Vermont Wholesale Court was whether New Hampshire could exert specific jurisdiction over Jones Lumber.(fn41)

The Vermont Wholesale Problem

New Hampshire's long-arm statute permits jurisdiction to the extent allowed under the Federal Due Process Clause, so the Vermont Wholesale Court moved on to the due process analysis.(fn42) The alleged contacts by Jones Lumber related to the cause of action, so the first specific jurisdiction factor was satisfied.(fn43) The flooring manufactured by Jones Lumber was alleged to be defective, and Jones Lumber was aware that the distributor, Vermont Wholesale, sold flooring in New Hampshire.(fn44) The Court, thus, next had to examine the second due process factor and determine whether Jones Lumber "purposefully availed itself of the protection of New Hampshire's laws" through examining its minimum contacts.(fn45)

To satisfy this due process factor, the defendant's minimum contacts in New Hampshire must demonstrate that it purposefully availed itself "of the privilege of conducting activities within [New Hampshire], thus invoking the benefits and protections of its laws."(fn46) The contacts that create a substantial connection to the forum state must proximately result from the defendant's actions,(fn47) so the defendant itself must have deliberately created the substantial connection with the forum state.(fn48) Thus, the question was not just whether the defendant's contacts with New Hampshire caused an injury there, but whether its contacts should have given the defendant notice that it should have reasonably anticipated being haled into a New Hampshire court.(fn49)

Vermont Wholesale argued that Jones Lumber placed its products into the "stream of commerce" with the knowledge that the products would be distributed in New Hampshire.(fn50) This, Vermont Wholesale claimed, established "minimum contacts" and demonstrated that Jones Lumber purposefully availed itself of New Hampshire's laws.(fn51) Jones Lumber countered that placing the flooring in the stream of commerce, knowing that the flooring may be used in New Hampshire, was not enough to satisfy "minimum contacts."(fn52) Jones Lumber claimed that some further activity aimed at New Hampshire was required.(fn53) Whether or not minimum contacts can be satisfied by placing a product into the stream of commerce was an issue of first impression in New Hampshire.(fn54)

Stream of Commerce and the U.S. Supreme Court

To determine whether Jones Lumber could be sued in New Hampshire, the Vermont Wholesale Court looked to two U.S. Supreme Court cases: World-Wide Volkswagen Corp. v. Woodson(fn55) and Asahi Metal Industry Co., Ltd. v. Superior Court of California, Solano County.(fn56) In World-Wide Volkswagen, the Supreme Court ruled that "foreseeability alone has never been a sufficient benchmark for personal jurisdiction under the Due Process Clause."(fn57) Furthermore, it is not the location of the incident or injury, but rather the defendant's conduct and connection to the forum state that allows the defendant to reasonably anticipate being haled into court in the forum state.(fn58)

The Vermont Wholesale Court agreed that foreseeability is relevant...