Flaghouse, Inc. v. Prosource Development, Inc. , 528 F. App'x 186 ( 2013 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________
No. 12-2521
_________
FLAGHOUSE, INC.,
Appellant
v.
PROSOURCE DEVELOPMENT, INC.;
RICK ZIPF, individually,;
ABC CORPS.1-10 (names being fictitious and unknown)
JOHN DOES 1-10 (names being fictitious and unknown)
________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2-11-cv-05406)
District Judge: Honorable Susan D. Wigenton
_______
Submitted Under Third Circuit LAR 34.1(a)
May 10, 2013
Before: SLOVITER, FUENTES, and ROTH, Circuit Judges
(Filed: June 7, 2013)
______________
OPINION
_______________
SLOVITER, Circuit Judge.
FlagHouse, Inc. (“FlagHouse”) appeals from the District Court’s dismissal of its
complaint against Appellees ProSource Development Inc. (“ProSource”) and Rick Zipf
(“Zipf”). For the reasons that follow we will vacate the District Court’s orders
dismissing FlagHouse’s complaint and submitting the matter to arbitration, and will
remand the matter to the District Court. 1
I.
In January 2009 FlagHouse began discussions with nFocus Technologies to
implement a system to streamline FlagHouse’s accounts payable, billing, warehouse
management, accounting, and finance software. During negotiations, nFocus
Technologies was acquired by ProSource, with whom FlagHouse continued to negotiate.
As part of these negotiations, ProSource’s CEO, Zipf, made representations about
ProSource’s capabilities at FlagHouse’s place of business in New Jersey. In September
2009 FlagHouse entered into a “Master Services Agreement” with ProSource, which
called for ProSource to complete the project by October 1, 2010.
The project took longer than expected, and ProSource discontinued work in
February 2011, leaving the project unfinished. ProSource claims that FlagHouse owes it
$459,822.09. In order to recover the balance of the contract price, ProSource issued a
demand for arbitration pursuant to the arbitration clause in the Master Services
1
The District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and we have
jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review over the grant of a
motion to dismiss, and we apply the same standard applicable in the district court. See
Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013).
2
Agreement. The arbitration clause requires the parties to resolve any dispute “arising out
of or relating to [the Master Services Agreement] or to its breach” through arbitration. 2
Ohio App. at 52.
In response to ProSource’s demand for arbitration, FlagHouse filed a complaint in
New Jersey state court, alleging that ProSource and Zipf intentionally misrepresented
ProSource’s experience, expertise, and ability to complete the project in a timely manner.
The complaint included claims against ProSource and Zipf for legal fraud, equitable
fraud, negligent misrepresentation, breach of express and/or implied warranties, breach of
contract, and violation of the New Jersey Consumer Fraud Act (“NJCFA”), N.J. STAT.
ANN. § 56:8-1 et seq. FlagHouse sought rescission of the Master Services Agreement
and damages. In addition, FlagHouse moved the court to enjoin the arbitration pending
resolution of its suit.
ProSource subsequently removed the case to federal court. The District Court
dismissed FlagHouse’s claims against Zipf for lack of personal jurisdiction. It found the
remaining claims subject to arbitration, and dismissed those as well. FlagHouse now
appeals.
II.
A federal court sitting in New Jersey has jurisdiction over the parties to the extent
provided under New Jersey state law, and New Jersey law provides for personal
jurisdiction coextensive with that allowed by the United States Constitution. See Fed. R.
2
The only exceptions to the general requirement for arbitration are for temporary
equitable remedies “to preserve the status quo or prevent irreparable harm.” App. at 52.
3
Civ. P. 4(e); N.J. Court Rule 4:4-4; Charles Gendler & Co. v. Telecom Equip. Corp., 508
A.2d 1127, 1131 (N.J. 1986). Due process requires that a defendant have “minimum
contacts” in the forum state, and that the exercise of jurisdiction comport with “traditional
notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310,
316 (1945) (internal quotation marks omitted). The Supreme Court has stated that
“minimum contacts must have a basis in ‘some act by which the defendant purposefully
avails itself of the privilege of conducting activities within the forum State, thus invoking
the benefits and protections of its laws.’” Asahi Metal Indus. Co. v. Superior Court, 480
U.S. 102, 109 (1987) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475
(1985)). Personal jurisdiction is present if the plaintiff’s cause of action arises out of a
defendant’s forum-related activities, such that the defendant “should reasonably
anticipate being haled into court” in that forum. World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 297 (1980).
FlagHouse has alleged sufficient contact between Zipf and New Jersey to warrant
personal jurisdiction over Zipf in this case. 3 FlagHouse’s claims arise out of
“misrepresentations” made by Zipf during his “sales-pitch” at “FlagHouse’s place of
business in New Jersey.” App. at 25; Appellant’s Br. at 23. Zipf availed himself of the
benefits and protection of New Jersey during his sales visit; he 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.
3
The District Court erred when it concluded that FlagHouse “[did] not address or engage
in a personal jurisdiction analysis in its brief.” App. at 10. FlagHouse provided a
minimum contacts analysis both before the District Court and on appeal.
4
Zipf contends that he does not meet the minimum contact requirement, because his
contacts with New Jersey were made in his capacity as the CEO of ProSource. Although
it is true that “jurisdiction over an employee does not automatically follow from
jurisdiction over the corporation which employs him,” Keeton v. Hustler Magazine, Inc.,
465 U.S. 770, 781 n.13 (1984), as long as a defendant has sufficient contacts with the
forum state, he can be subject to personal jurisdiction in that state. See id. (“[W]e . . .
reject the suggestion that employees who act in their official capacity are somehow
shielded from suit in their individual capacity.”) (citing Calder v. Jones, 465 U.S. 783,
789 (1984)); Nicholas v. Saul Stone & Co., 224 F.3d 179, 184 (3d Cir. 2000). Zipf made
such contacts when he visited New Jersey to make a sales pitch to FlagHouse. The
District Court therefore erred when it concluded that it did not have personal jurisdiction
over Zipf. 4 We will vacate the District Court’s dismissal of FlagHouse’s claims against
Zipf.
III.
When deciding whether an arbitration agreement applies, courts first look to the
relevant state law of contracts. See Spinetti v. Service Corp. Int’l, 324 F.3d 212, 214 (3d
Cir. 2003). 5 Under New Jersey law, agreements to arbitrate with “arising out of”
4
Because New Jersey law provides for personal jurisdiction to the fullest extent allowed
by the Due Process Clause, and because the Supreme Court has held that it does not
violate due process to find personal jurisdiction based solely on contacts made in an
employee’s official capacity, there is no basis for the fiduciary shield doctrine to apply in
this case and no need to undertake the participation theory analysis engaged in by the
District Court.
5
The Master Services Agreement, which includes the arbitration clause at issue in this
case, provides that the Agreement should be “construed in accordance with the laws of
5
language are typically construed broadly in favor of arbitration. See EPIX Holdings
Corp. v. Marsh & McLennan Cos., 982 A.2d 1194, 1205 (N.J. Super. Ct. App. Div.
2009). The arbitration agreement between FlagHouse and ProSource contains such
language, as it calls for “any controversy or claim arising out of or relating to this
Agreement or to its breach [to] be settled by arbitration.” App. at 52.
New Jersey courts, however, have found that statutory remedies not explicitly
included in an arbitration clause are not subject to arbitration. See Garfinkel v.
Morristown Obstetrics & Gynecology Assoc., 773 A.2d 665, 672 (N.J. 2001). The
arbitration clause here does not mention statutory claims, nor does it contain other
indications that such claims are subject to arbitration. See Martindale v. Sandvik, Inc.,
800 A.2d 872, 883 (N.J. 2002); Curtis v. Cellco P’ship, 992 A.2d 795, 801-02 (N.J.
Super. Ct. App. Div. 2010). The District Court therefore erred in finding “clear and
unambiguous” intent to subject FlagHouse’s NJCFA claim to arbitration. App. at 13. We
will vacate its order to submit this claim to arbitration.
III.
For these reasons, we will vacate the orders of the District Court and remand for
further proceedings consistent with this opinion.
the State of New York.” App. at 53. Both the parties and the District Court have
proceeded as if New Jersey rather than New York law applies. The parties have therefore
waived the application of New York law and we will interpret the contract in accordance
with New Jersey law. See Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001,
1005 n.1 (3d Cir. 1980).
6