Protorae Law
Mike Holm | LeClairRyan | UBP Team

Unfair Business Practices



This blog focuses on unfair business and trade practices such as business conspiracy, breach of fiduciary duty, misappropriation of trade secrets and other proprietary information, fraud, tortious interference with contracts and other unfair business practices that are not neatly defined. Since we are located in Tysons Corner, Virginia, many of the cases discussed will come from Virginia, Maryland and the District of Columbia courts. We hope the reader finds this blog instructive.

Tuesday, July 6, 2010

Eastern District of Virginia Holds that Minimum Contacts Must be Demonstrated for Each Count in Complaint

Your Virginia company has been damaged by unfair business activities of another individual or business that is located outside of Virginia. You file a multi-count suit in federal court alleging both breach of contract and tort causes of action based upon diversity of citizenship. The defendant moves to dismiss the suit on the basis that the court lacks personal jurisdiction over the nonresident defendant for some, if not all of the counts. What test does the court employ in resolving that motion?

Under the Constitution, a court may exercise personal jurisdiction over an out of state defendant in two situations: (1) where the defandant has "systematic and continuous" contacts with the forum state; or (2) where the contacts with the forum state "give rise to the liabilities sued on." International Shoe v. State of Washington , 326 U.S. 310,317,320 (1945). The first situation is referred to as "general jurisdiction," It is a hard test to meet and generally requires significant contacts over a period of several years. Most cases proceed based upon the second situation that is referred to as "specific jurisdiction."

A threshold question where "specific jurisdiction" is alleged, is whether, once a plaintiff proves minimum contacts with the forum state related to one cause of action, he may add other claims to the suit that do not arise out of those contacts? For example, assume that the parties negotiated and executed a contract in Virginia and the plaintiff sues in Virginia for breach of that contract. But in addition to that count, the plaintiff adds tort counts that are based upon actions that took place in the state where the defendant is located. The plaintiff asserts that the effects of those actions were felt in Virginia. Can all of the claims constitutionally proceed in Virginia where the action was filed? The Fourth Circuit Court of Appeals has never directly addressed these issues. Recently, a district court in the Eastern District of Virginia did.

In Gatekeper. Inc. v. Stratech Systems, Ltd., 2010 U.S. Dist. LEXIS 56625 (June 9, 2010), click here, the district court found that "specific jurisdiction" requires proof that the defendant's contacts with the forum state give rise to each claim alleged in the complaint. Thus, using the example above, it is the plaintiff's burden to demonstrate that each tort claim is supported by the requisite minimum contacts with Virginia. That there were sufficient contacts to support the breach of contract claim is not enough to save the tort claims. According to the court, if the plaintiff cannot meet that requirement, the unsupported claims must be dismissed for lack of personal jurisdiction. Moreover, that the effects of the bad acts were felt in Virginia, while relevant, is not dispositive.

This is an important decision, not only in the Eastern District of Virginia, but throughout the Fourth Circuit, given that it is a matter of first impression in this Circuit.

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