SUTRA

2005 | Cited 0 times | D. Massachusetts | July 14, 2005

MEMORANDUM AND ORDER

Sutra, Inc. ("Sutra"), a Massachusetts application serviceprovider software company, brought this action against IcelandExpress, EHF ("Iceland Express"), an Icelandic airline operator,for breach of contract and misappropriation of Sutra's tradesecrets arising out of an agreement for Sutra to license itscomputerized flight reservation system, Airkiosk, to IcelandExpress. Iceland Express moves to dismiss Sutra's suit for lackof personal jurisdiction. I will deny the motion.

I. Background

The parties do not dispute the facts underlying this motion. InJuly 2002, Iceland Express contacted Sutra in Massachusetts bytelephone to discuss procuring Airkiosk for the operation of itsthree flight routes, which service Europe exclusively. Theparties negotiated, via telephone, e-mail and facsimile, thedetails of their December 10, 2002 agreement to grant IcelandExpress access to Airkiosk for one year. The contract — which provided that it be governed byMassachusetts law — required Iceland Express to buy and maintainhardware in Iceland to remotely access the Airkiosk system hostedon Sutra's computer servers in Massachusetts. Sutra wouldinitially load data into the Airkiosk system. Thereafter, IcelandExpress would input and manage the data.

As an essential prerequisite to Iceland Express's use of thesystem, Sutra required two Iceland Express employees to undergoformal training by Sutra. To alleviate scheduling constraints onIceland Express's end, Sutra offered to send staff to Iceland toconduct the mandatory training in lieu of requiring IcelandExpress to travel to Massachusetts. Ultimately, however, IcelandExpress sent two staff members to Sutra's headquarters for threeto four days of instruction.

Sutra would render any necessary functional and technicalsupport to Iceland Express via e-mail and telephone fromMassachusetts. Pursuant to this agreement, Iceland Expressrepresentatives continued to contact Sutra after Airkiosk'simplementation for operational support.

In addition, Iceland Express continued to send payments to Sutra inMassachusetts in accordance with the terms of the contract.

On June 26, 2003, approximately six months after the Airkiosk'sinitialization, Iceland Express executed an external script thataccessed portions of Airkiosk on Sutra's server computers in Massachusetts. Sutra claims that Iceland Expresssought illicit access to Airkiosk's core systems and data inorder to obtain and exploit Sutra's trade secrets.

Iceland Express seeks dismissal of Sutra's complaint on personaljurisdiction grounds arguing that it has never advertised in, nor derivedrevenue from activities in, Massachusetts. Iceland Express has never ownedor occupied real property in Massachusetts. Moreover, Iceland Expressmaintains no offices outside of Iceland, and its shareholders are Icelandicnationals.

Sutra argues in opposition that Iceland Express has established sufficientminimum contacts with Massachusetts to subject it to personal jurisdiction.Sutra cited specifically that Iceland Express initiated contact with Sutra,a Massachusetts company, directed communications to Massachusetts in thecourse of negotiating the contract and seeking technical support andaccessed Sutra's server computers in Massachusetts by way of an externalscript.

II. Discussion

A. Standard of Review

A plaintiff bringing a diversity suit bears the burden of establishing theforum state's prima facie personal jurisdiction over a non-residentdefendant. Foster-Miller, Inc. v. Babcock & Wilcox Canada, 975 F.Supp. 30,37 (D. Mass. 1997). In assessing the sufficiency of the plaintiff's evidentiary showing, the Courtmust presume the truth of properly supported facts presented bythe plaintiff. The Court must view this evidence along with anyfacts put forward by the defendant, to the extent they areuncontested, in the light most favorable to establishingjurisdiction. Workgroup Tech. Corp. v. MGM Grand Hotel, LLC,246 F.Supp. 2d 102, 108 (D. Mass. 2003).

A federal court must apply state law in the personaljurisdiction analysis as if it were functionally equivalent to astate court sitting in the forum state. Daynard v. Ness, Motley,Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 51 (1st Cir.2002), cert. denied, 537 U.S. 1029 (2002).

B. Analysis

Personal jurisdiction over a non-resident defendant isavailable only as provided by the Massachusetts long-arm statute,Mass. Gen. Laws ch. 223A, § 3. A-Connoisseur Transp. Corp. v.Celebrity Coach, Inc., 742 F.Supp. 39, 42 (D. Mass. 1990).Moreover, even if the long-arm statute allows personaljurisdiction, the Court may only uphold the state's researchwhere it comports with 14th Amendment due process constraints.Lyle Richards Int'l, Ltd. v. Ashworth, Inc., 132 F.3d 111, 112(1st Cir. 1997).

1. Massachusetts Long-Arm Statute Under Massachusetts law, a forum court may exercise personaljurisdiction over a person or corporation that, inter alia,"transact[s] any business" in Massachusetts. Mass. Gen. Lawsch. 223A, § 1, 3(a) (2000).1 In this connection, the cause ofaction underlying the parties' dispute must arise from thattransaction of business.

Courts have construed the above transacting business provisionbroadly to reach any purposeful personal, private or commercialact committed by a non-resident defendant. Foster-Miller, Inc.,975 F.Supp. at 37; Boudreau v. Scitex Corp. Ltd., 1992 WL159667 *2 (D. Mass. 1992). In fact, a defendant need only reachinto Massachusetts once or twice by way of telephone, facsimile,or e-mail to transact business. Workgroup Tech. Corp.,246 F.Supp. 2d at 110-11; Boudreau, 1992 WL 159667 *2 (negotiatingan employment contract by telephone, e-mail and facsimile with aMassachusetts plaintiff constituted transacting business); Hahnv. Vermont Law School, 698 F.2d 48, 51 (1st Cir. 1983) (mailingof application information and an acceptance letter toMassachusetts satisfied the Commonwealth's transacting businessrequirement). However, where two parties have contracted for services, communications to the forum state mustbe instrumental in — rather than "purely incidental" to — theformation of the contract to reach the threshold necessary toconstitute transacting business. Workgroup Tech. Corp.,246 F.Supp. 2d at 111.

Here, Iceland Express negotiated the parties' contract withSutra in Massachusetts via telephone, e-mail and facsimile.Iceland Express's communications included initiating contact,expressing interest in Airkiosk, requesting detailed informationon the functionality of Airkiosk and scheduling implementationand training. These communications were instrumental in formingthe parties' agreement and constitute purposeful acts by IcelandExpress to transact business in the Commonwealth. SeeBoudreau, 1992 WL 159667 *2.

Where the dispute centers on an isolated transaction, such as asingle purchase of goods, without additional contractualobligations, a few communications directed by the defendant intothe forum state may not necessarily suffice to establish personaljurisdiction. Automatic Sprinkler Corp. of America v. SenecaFoods Corp., 361 Mass. 441, 445 (1972) (holding a defendant'saffirmance of a contract and making payments through the mailinsufficient to confer personal jurisdiction); Droukas v. DiversTraining Academy, 375 Mass. 149, 154 (1978) (holding adefendant's placement of an advertisement in the Commonwealth,correspondence with the plaintiff in Massachusetts regarding the purchase and the shipment of the product to Massachusettsinsufficient to subject defendant to personal jurisdiction).

Defendant argued at the hearing on this motion that a recentcase, Intech v. Triple "C" Marine Salvage, Inc., 444 Mass. 122(2005), is the harbinger of a new, more austere, approach to theMassachusetts long-arm statute when the dispute arises out oflimited contractual relations between the parties. But, onexamination, Intech falls within the established Massachusettsline. Intech involved two isolated transactions and "contactsthat are essentially indistinguishable from those in theDroukas case." Id. at 127. By contrast to this line of casesinvolving an isolated transaction (or two) by a non-residententity, the Airkiosk transaction involved a one-year relationshipand sustained performance under the contract, specificallyongoing e-mail and telephone support to be rendered by Sutra fromMassachusetts.

Moreover, Iceland Express made especially purposeful contactwith the forum state when it sent two employees intoMassachusetts for formal training by Sutra staff. Iceland Expresscontends, relying primarily on Lyle Richards, that these visitsto Massachusetts do not rise to the significance of transactingbusiness. But the visits to Massachusetts by the Lyle Richardsdefendant consisted of attending three trade shows unrelated, orat best "incidental," to the business it conducted with theplaintiff. Here, however, Iceland Express's employee travel to Massachusetts was expressly stipulated under theparties' contract and essential to their business dealings.

Defendant advanced the overly formalistic argument at hearingthat because Iceland Express's visits were undertaken fortraining rather than discussion or endorsement of the agreement,they were incidental to the parties' contract. As demonstrated inthe record, however, Sutra made clear that the training wasrequired of any Airkiosk licensee. Without assent to the trainingprovision, which the parties contemplated would occur inMassachusetts, the agreement would ultimately have failed. Infunction, therefore, Iceland's presence in Massachusetts wasessential to the contractual undertaking.

Iceland Express's presence in the forum state, taken with itsremote communications and ongoing contractual obligations, morethan adequately satisfies the long-arm statute's transactingbusiness requirement.

The long-arm's second "arising from" requirement is alsosatisfied where Sutra's complaint against Iceland Express forbreach of contract stems from Iceland Express's agreement tolicense Sutra's Airkiosk software. Hahn, 698 F.2d at 51(holding a breach of contract dispute between resident andnon-resident satisfies the "arising from" requirement); Tatro v.Manor Care, Inc., 416 Mass. 763, 770 (1994) (holding that"arising from" requirement is fulfilled if plaintiff would nothave been injured "but for" defendant's transaction of businessin the Commonwealth). Thus, Iceland Express is subject to reach pursuantto the long-arm statute of Massachusetts.

2. Constitutional Due Process

In addition to establishing that personal jurisdiction isauthorized under state law, Sutra must demonstrate that statutoryjurisdictional reach over Iceland Express comports with dueprocess. See A-Connoisseur Transp. Corp., 742 F.Supp. at 42.Due process requires a foreign defendant to have minimum contactswith the forum state such that maintenance of a suit in thatjurisdiction does not offend notions of fair play and substantialjustice. Id. at 43.

The Court's measurement of a defendant's minimum contacts inthe forum state cannot be "simply mechanical or quantitative,"Int'l Shoe Co. v. Washington, 326 U.S. 310, 319 (1945), but,rather, because the criteria to make that determination is highlyidiosyncratic, must engage in a case-by-case factual analysis.Pritzker v. Yari, 42 F.3d 53, 60 (1st Cir. 1994), cert.denied, 514 U.S. 1108 (1995). To aid in the minimum contactsinquiry, the First Circuit has developed a tripartite analysis.Workgroup Tech. Corp., 246 F.Supp. 2d at 112. Under thisrubric, the claim underlying Sutra's suit must first arise outof, or relate to, Iceland Express's activities in Massachusetts.Next, Iceland Express must have purposefully availed itself ofthe privilege of conducting business in Massachusetts, invokingthe benefits and protections of its laws, such that being haled into state courtis foreseeable. Finally, personal jurisdiction over IcelandExpress must be reasonable in light of the so-called Gestaltfactors. See Id.

a. Relatedness. The relatedness prong of this three-partanalysis is a "flexible, relaxed standard," which is satisfied bythe transacting business inquiry above where Iceland Express'scommunications were found to have arisen directly out of, and tohave been instrumental in, the formation of the Airkioskcontract. See Pritzker, 42 F.3d at 61.

b. Purposeful Availment. The notion of fairness intrinsic todue process presumes that a non-resident "shielded by the`benefits and protections'" of Massachusetts state laws inconducting business activities ought to be exposed to the burdenof litigation by Massachusetts citizens injured by thoseactivities. Burger King Corp., 471 U.S. at 479. IcelandExpress, however, must have availed itself of the privilege ofconducting business in Massachusetts to the extent that it couldhave foreseen suit in the forum state.

The existence of a contract between the parties, by itself, isnot enough to demonstrate purposeful availment. Id. at 479. TheCourt must scrutinize "prior negotiations and contemplated futureconsequences, along with the terms of the contract and theparties' actual course of dealing" to make a full assessment of Iceland Express's connection with the forum state. New EnglandWelding Contractors, Inc., 704 F.Supp. at 317 (quoting BurgerKing Corp., 471 U.S. at 478-79).

Iceland Express initiated contact with Sutra in Massachusettsand systematically negotiated to obtain a license for Sutra'ssoftware application. In so doing, Iceland Express knowinglyreached out of Iceland, making itself vulnerable to anotherjurisdiction's authority. See Burger King Corp.,471 U.S. at 479 (granting personal jurisdiction where defendant "deliberately`reach[ed] out beyond' its home state of Michigan to negotiatewith a Florida corporation).

Further, Iceland Express agreed to a choice of law provisionthat provided its contract would be governed by the laws ofMassachusetts. Assent to regulation by Massachusetts supports thecontention that Iceland Express foresaw the possibility of suithere. Champion Exposition Servs., Inc. v. Hi-Tech Elec., LLC,273 F.Supp. 2d 172, 176 (D. Mass. 2003) (holding a choice of lawsprovision probative of whether a defendant deliberately chose toavail itself of the rights and protections afforded by state lawin dealing with the plaintiff).

Iceland Express not only deliberately reached intoMassachusetts but agreed to contractual provisions requiringongoing contact with Massachusetts. An agreement betweendefendant and plaintiff for maintenance or service indicates acontemplation of activity within the forum beyond an isolated transaction. New England Welding Contractors, Inc.,704 F.Supp. at 317. Such a "continuing relationship" represents purposefulavailment of the privilege of conducting business inMassachusetts. Energy Capital & Services LP v. HillRefrigeration, Inc., 989 F.Supp. 353, 355 (D. Mass. 1997)(holding that "continuing obligations" and routine communicationsdirected to Massachusetts constitute constitutionally acceptable"minimum contacts"). Iceland Express contracted for ongoingfunctional and technical support and accessed data on Sutra'sserver computers in Massachusetts via use of the Airkioskapplication. Although the parties' agreement did not explicitlycall for continuing performance of activities withinMassachusetts, any presumption that Sutra would have providedtelephone and e-mail support from a location outside of itsfacilities in Massachusetts is wholly unsupported. NicholsAssocs., Inc. v. Starr, 4 Mass. App. Ct. 91, 96 (1976) (findingcontemplation by the parties that plaintiff would perform anyportion of agreed work in Massachusetts, rather than in someother state, an indicator of a defendant's purposeful involvementin state commerce).

Furthermore, Iceland Express plainly must have contemplatedthat ongoing use of Airkiosk's data and systems would requireregular access to Sutra's server computers in Massachusetts.See Lyle Richards Int'l, Ltd., 132 F.3d at 113 (finding adefendant's knowledge of plaintiff's intention to performresponsibilities in Massachusetts relevant to establishing purposeful availment);Plus Sys., Inc. v. New England Network, Inc., 804 F.Supp. 111(D. Colo. 1992) (holding that a foreign subscriber's regularcommunication with an automated teller machine network provider'scentral computer in Colorado was a factor in finding personaljurisdiction amounting to purposeful availment of Colorado lawwhen considered with visit and payments made to Colorado). Underthe terms of the contract, therefore, Iceland Express should haveforeseen its continued contacts with the forum state, which layat the core of the business relationship.

Taken as a whole, Iceland Express's contacts with Massachusettsreflect a purposeful intent to avail itself of the privilege ofconducting business here that satisfies "minimum contacts."

c. The Gestalt Factors. Where a defendant has been found tohave directed activities purposefully at the forum state, todefeat jurisdiction, the defendant must present a compelling casethat some other considerations render jurisdiction unreasonable.Burger King Corp., 471 U.S. at 477. In my evaluation ofreasonableness, I must weigh "(1) the defendant's burden ofappearing; (2) the forum state's interest in adjudicating thedispute; (3) the plaintiff's interest in obtaining convenient andeffective relief; (4) the judicial system's interest in obtainingthe most effective resolution of the controversy; and (5) the common interests of all sovereigns in promoting substantivepolicies." Workgroup Tech. Corp., 286 F.Supp. 2d at 114-15;see also Burger King Corp., 471 U.S. at 477.

Iceland Express has presented no evidence to speak of inresponse to this burden. It has not demonstrated that litigationin the Commonwealth would present circumstances "onerous in aspecial, unusual, or other constitutionally significant way"beyond the expected inconvenience and cost of appearing in aforeign jurisdiction. Workgroup Tech. Corp.,286 F.Supp. 2d at 115.

As to the state's interest, there is no doubt thatMassachusetts has an interest in protecting the intellectualproperty of its corporate citizens. Foster-Miller, Inc.,975 F.Supp. at 38; McGee v. Int'l Life Ins. Co., 355 U.S. 220, 223(1957) (noting that the State has a "manifest interest" inproviding an effective means of legal redress for its residents).And regarding the plaintiff's interest, Sutra's choice of forumin the instant suit is accorded substantial deference as ameasure of its own convenience and interest in obtainingeffective relief. See Workgroup Tech. Corp.,286 F.Supp. 2d at 115.

With respect to the fourth and fifth factors, Iceland Expresshas presented no argument for another jurisdiction having agreater interest in obtaining the most effective resolution of this dispute nor has it proffered any considerations of socialpolicy which suggest Massachusetts would be an inappropriateforum.

Iceland Express has failed to present any meaningful grounds todefeat personal jurisdiction.

III. Conclusion

For the reasons set forth more fully above, I find adequategrounds for the Commonwealth to assert personal jurisdiction overIceland Express. Accordingly, Iceland Express's Motion to Dismissis DENIED.

1. Sutra does not contest Iceland Express's assertion that itneither "contract[ed] to supply services or things" inMassachusetts nor "ha[d] any interest in, using or possessingreal property" in Massachusetts as required respectively by §§3(b) and 3(e) of Mass. Gen. Laws ch. 223A. Consequently, analysishere will focus on § 3(a).

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