Burger King Corp. v. Macshara
| Citation | 724 F.2d 1505 |
| Decision Date | 13 February 1984 |
| Docket Number | No. 82-5424,82-5424 |
| Parties | BURGER KING CORPORATION, a Florida Corporation, Plaintiff-Appellee, v. Brian MACSHARA, Defendant, John Rudzewicz, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
Thomas H. Oehmke, Oehmke & Richardson, Detroit, Mich., for defendant-appellant.
Podhurst, Orseck, Parks, Josefsberg, Eaton, Meadow & Olin, Joel S. Perwin, Miami, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before VANCE and JOHNSON, Circuit Judges, and PITTMAN *, District Judge.
In 1979, with the economy poised on the brink of recession, John Rudzewicz and Brian MacShara decided to purchase a Burger King restaurant franchise near Detroit, Michigan. This appeal, filed by Rudzewicz, 1 is the unforeseen outcome of their ill-timed venture.
Rudzewicz, a senior partner in a Michigan accounting firm, agreed to secure investment capital while MacShara was to handle day-to-day operations. MacShara's experience included stints as a supervisor in his father's Michigan construction firm and as a onetime assistant at a Burger King restaurant. Both were and are residents and citizens of the state of Michigan.
The Burger King Corporation is incorporated in Florida and headquartered in Miami. The company maintains a district office in Birmingham, Michigan. During the course of negotiations, which lasted five months, the Michigan district office was Burger King's sole representative in dealings with Rudzewicz and MacShara. H.G. Hoffman, the Michigan district manager, evaluated their proposal and wrote them on the company's behalf to convey approval of their franchise application. Following lengthy discussions, Hoffman persuaded them to acquire an existing store in Drayton Plains, Michigan to avoid the higher rent that would be entailed if they insisted upon construction of a new building. He also convinced them to purchase and install $165,000 worth of equipment before the final rental charge had been computed.
At the conclusion of each round of Michigan negotiations, the Miami office mailed Rudzewicz printed documents for his signature. The documents, once signed, were returned to Burger King headquarters in Miami for completion. 2 Following corporate approval, headquarters then mailed Rudzewicz copies of the completed documents for his files.
After granting initial approval, Burger King decided to schedule the grand opening for May 31, 1979, the close of its fiscal year, to ensure that the sale appeared in the company's year-end statement. On May 29, the day the final agreements arrived for signature, Rudzewicz and MacShara finally learned what rent Burger King expected them to pay. The figure was far in excess of the amount Rudzewicz had projected. 3 He telephoned Hoffman and demanded a lower figure. According to Rudzewicz, Hoffman replied that the rent computation was out of his hands. If Rudzewicz was unwilling to accept the figure Burger King proposed, Hoffman continued, he was always free to decline the franchise, rip out the fixtures he had installed at his own expense, and resell them at a loss. On June 4 Rudzewicz and MacShara signed the lease and franchise agreements in their individual capacities at a Michigan closing ceremony attended by employees of the local district office.
In the lease agreement, Burger King agreed to lease the Drayton Plains store for a term of twenty years. Rent was set at a monthly minimum of $4,166.66 in the first two years and $5,286.58 thereafter or 8 1/2% of monthly gross sales, whichever was greater. 4 The franchisees were required to remit rent, as well as royalties, tax refunds and other designated fees to Burger King headquarters in Miami. 5
In return Burger King promised use of the Burger King mark, architectural advice, advertising services, financial counseling, and operations consultation. At trial, an executive from the Miami headquarters office testified that the Michigan district office was administratively responsible for all of the supervision, advertising and consultation due under the contract. With the exception of a Burger King University management course which MacShara attended in Florida and the Miami payment obligation, the contracts provided for no contact of any kind between the Florida headquarters and the franchisees.
Within weeks of opening, the store had fallen behind in payments. Rescheduling negotiations broke down, and Burger King sued Rudzewicz and MacShara in diversity in the Southern District of Florida for breach of contract and trademark infringement. Defendants entered a special appearance to contest personal jurisdiction. After losing this motion, they filed a counterclaim seeking damages under the Michigan Franchise Investment Act. 6 A bench trial ensued and Judge Kehoe entered judgment for Burger King on both the contract claim and the counterclaim. Damages of $228,875.40 were assessed against defendants in their individual capacities. In addition, Burger King was awarded costs of $2,151.06 and $30,000 in attorneys fees.
On appeal, Rudzewicz contests his judgment for lack of personal jurisdiction as well as on substantive grounds. He further appeals the ruling on the counterclaim. Because we conclude that the trial court lacked personal jurisdiction over Rudzewicz, we do not reach the merits.
In a diversity case, a federal district court must exercise its jurisdiction in accordance with due process and the law of the state in which the court sits. Bankhead Enterprises, Inc. v. Norfolk & Western Ry., 642 F.2d 802, 804 (5th Cir. Unit B 1981). Although Rudzewicz concedes that his activities fall within the reach of the Florida long-arm statute, Fla.Stat. Sec. 48.193(1)(g), 7 he argues that invocation of that statute under these circumstances exceeds the bounds of due process.
No defendant can be compelled to answer in a state's courts unless minimum contacts exist among defendant, the forum state and the litigation such that maintenance of the suit does not offend traditional notions of fair play and substantial justice. Shaffer v. Heitner, 433 U.S. 186, 203, 97 S.Ct. 2569, 2579, 53 L.Ed.2d 683 (1977); International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). In deference to the sovereignty of the forum's sister states, due process requires "that there be 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." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958). See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 293-94, 297, 100 S.Ct. 559, 565-66, 567, 62 L.Ed.2d 490 (1980); International Shoe, 326 U.S. at 319, 66 S.Ct. at 159-60.
This case presents the question whether a Florida court can exercise jurisdiction over a non-resident purchaser by virtue of his contract with a Florida corporation obligating him to remit payments to Miami. This is a subtle and difficult problem. As Mr. Justice White has noted, "the question of personal jurisdiction over a nonresident corporate defendant based on contractual dealings with a resident plaintiff," a question which applies a fortiori to individual defendants, "has deeply divided the federal and state courts." Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 445 U.S. 907, 909, 100 S.Ct. 1087, 1089, 63 L.Ed.2d 325 (1980) (White, J., joined by Powell, J., dissenting from denial of certiorari); see also Baxter v. Mouzavires, 455 U.S. 1006, 102 S.Ct. 1643, 71 L.Ed.2d 875 (1982) (White, J., joined by Powell, J., dissenting from denial of certiorari); Chelsea House Publishers v. Nicholstone Book Bindery, Inc., 455 U.S. 994, 102 S.Ct. 1623, 71 L.Ed.2d 856 (1982) (White, J., joined by Burger, C.J. and Powell, J., dissenting from denial of certiorari). Cf. Lakeside Bridge & Steel Co. v. Mountain State Construction Co., 597 F.2d 596, 601-02 & n. 9 (7th Cir.1979). Mindful of this confusion and the continuing uncertainty as to the meaning of Hanson v. Denckla and its progeny, we focus our analysis on the guidelines set forth in Supreme Court precedent and the case law of this circuit.
Due process restrictions Hanson v. Denckla, 357 U.S. at 251, 78 S.Ct. at 1238. Hence, the minimum contacts measure is not a question of the laws of the forum state. International Shoe, 326 U.S. at 319, 66 S.Ct. at 160. A state cannot justifiably assert jurisdiction over an individual with whom it has no constitutionally cognizable contacts or ties. World-Wide Volkswagen, 444 U.S. at 294, 100 S.Ct. at 565-66.
The Hanson requirement of purposeful activity within the forum state reflects two contrasting considerations. Particularly in the commercial context, fairness dictates that a defendant who derives profits from deliberate contacts within the forum state should be responsible for the costs such activities incur. On the other hand, due process abhors the unfair surprise that results when a party is haled into court in a state with which he lacks deliberate connections. World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567; Product Promotions, Inc. v. Cousteau, 495 F.2d 483, 496 (5th Cir.1974).
The interplay of these considerations--responsibility and preparedness--can plainly be seen in the leading Supreme Court cases of Shaffer v. Heitner, World-Wide Volkswagen, and McGee v. International Life Insurance Co. In Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977), plaintiff predicated Delaware jurisdiction in part on the fact that defen...
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