Shipley Co., Inc. v. Clark, Civ. A. No. 89-2609-T.

• Decision Date: 16 January 1990
• Docket Number: Civ. A. No. 89-2609-T.
• Citation: 728 F. Supp. 818
• Parties: SHIPLEY COMPANY, INC., Plaintiff, v. Andrew CLARK and Stanley Nolan, Defendants.
• Court: U.S. District Court — District of Massachusetts

728 F. Supp. 818

SHIPLEY COMPANY, INC., Plaintiff, v. Andrew CLARK and Stanley Nolan, Defendants.

Civ. A. No. 89-2609-T.

United States District Court, D. Massachusetts.

January 16, 1990.

Paul W. Johnson, Smith, Duggan & Johnson, Boston, Mass., for plaintiff.

Edward Barshak, Sugarman, Rogers, Barshak & Cohen, Boston, Mass., for defendants.

MEMORANDUM

TAURO, District Judge.

Plaintiff, Shipley Company, Inc. ("Shipley"), is a Massachusetts corporation engaged in the manufacture and sale of specialty chemical products. Shipley hired defendants Clark and Nolan, both Michigan residents, to work in its Michigan office as account managers and salesmen.

Shortly after Clark and Nolan commenced their employment in 1977 and 1978, respectively, Shipley presented them with new employment contracts containing two restrictive covenants that are at the heart of this case. The first provided that, for one year after their termination, defendants would not compete with Shipley for customers anywhere in the Michigan area.¹ The second prohibited defendants from using or disclosing Shipley's trade secrets and confidential information.² The new employment contracts also contained an express choice-of-law provision requiring that they be construed in accordance with Massachusetts law.³ Defendants signed the new employment contracts on September 25, 1978 and, as directed by Shipley, mailed them to Shipley's Massachusetts headquarters.

Nolan and Clark left Shipley's employ in September and October 1989, respectively, and have since formed their own corporation, Independent Specialty Chemicals, Inc. ("Independent"). Independent distributes plating-on-plastics products manufactured by MacDermaid, Inc., a direct competitor of Shipley's.

Shortly after it was formed, Independent acquired the business of Lacks Industries Inc. ("Lacks"), a Michigan manufacturer of metal-plated plastic parts for cars and appliances, and one of Shipley's largest former clients.⁴ According to Shipley, both Nolan and Clark were extensively involved with the Lacks account during their employment with Shipley.

On November 1, 1989, the Vice President of Lacks notified Shipley that it would no longer purchase materials from Shipley and would instead purchase from Independent. Thereafter, Shipley filed this fourcount complaint against defendants alleging 1) breaches of the 1-year "no-compete" covenants;⁵ 2) breaches of the covenants prohibiting disclosure of trade secrets; 3) common-law misappropriation of trade secrets; and 4) intentional interference with contractual relations.

Presently at issue are Shipley's request for injunctive relief and defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2) or, in the alternative, to transfer this case to the United States District Court of Michigan, Western District.

I.

Defendants contend that dismissal is required here, because they did not transact sufficient business in Massachusetts to justify personal jurisdiction. Shipley argues, however, that jurisdiction over defendants is proper because, in the course of their employment, defendants made regular trips, telephone calls, and mailings to Massachusetts in order to confer with Shipley personnel.

In a diversity case, a federal court has jurisdiction only if a court of the state in which the federal court sits would have jurisdiction. Ealing Corp. v. Harrods Ltd., 790 F.2d 978, 981 (1st Cir.1986); Gray v. O'Brien, 777 F.2d 864, 866 (1st Cir.1985). A Massachusetts court may only exercise personal jurisdiction over a foreign defendant when it is authorized by state statute, and jurisdiction is consistent with due process. Ealing Corp., 790 F.2d at 981.

The applicable statute is Mass.Gen.L. ch. 223A, § 3, which provides, in relevant part:

A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's

(a) transacting any business in this commonwealth;

(b) contracting to supply services or things in this commonwealth;

(c) causing tortious injury by an act or omission in this commonwealth;

(d) causing tortious injury in this commonwealth by an act or omission outside this commonwealth if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in this commonwealth....

Mass.Gen.Laws Ann. ch. 223A, § 3 (West 1985).

Part (a) of the statute, the "transacting business" clause, is to be construed broadly. Nova Biomedical Corp. v. Moller, 629 F.2d 190, 193-94 (1st Cir.1980). Indeed, the First Circuit has held that mailing four letters and making one phone call to Massachusetts satisfied the "transacting business" requirement of § 3(a). See Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., 764 F.2d 928, 932 (1st Cir.1985). In order for such activity to satisfy the whole of § 3(a), however, the cause of action must have arisen from the transacted business. Marino v. Hyatt Corp., 793 F.2d 427, 428 (1st Cir.1986).⁶ Thus, § 3(a) requires both that defendants transact business in Massachusetts and that the cause of action at issue arose from that activity.

II.

Defendants concede that they made some visits and reports to Massachusetts to consult with Shipley personnel, and that they mailed back their employment contracts to Massachusetts after they signed them. Defendants argue that these activities were required by Shipley as employment duties and, therefore, they do not constitute the purposeful conduct that would satisfy § 3(a). In essence, defendants are relying on the "fiduciary shield" doctrine, that protects an individual from jurisdictional consequences because of acts performed in his capacity as a corporate representative. See Johnson Creative Arts, Inc. v. Wool Masters, Inc., 573 F.Supp. 1106 (D.Mass.1983).

Defendants' argument is unavailing. No Massachusetts court has ever recognized the fiduciary shield doctrine as a limitation on the reach of the long-arm statute. Id. at 1111. Indeed, no Massachusetts court has ever recognized the doctrine at all. See Yankee Group, Inc. v. Yamashita, 678 F.Supp. 20, 22 (D.Mass.1988) (noting "the absence of any authority indicating that Massachusetts recognizes the fiduciary shield doctrine ..."). Defendants' visits and reports to Shipley in Massachusetts, and the mailing of the employment contracts, qualify as "transacting business" for purposes of § 3(a).

The more difficult question is whether the cause of action arose out of defendants' "transaction of business." Although the term "arising from" does not have a precise meaning,⁷ one case held that the "arising from" requirement was not satisfied where the cause of action was for personal injuries and the business transacted was the formation of a contract. Marino v. Hyatt Corp., 793 F.2d 427 (1st Cir. 1986).⁸ On the other hand, another case held that the "arising from" requirement was satisfied where the cause of action was for breach of contract and the business transacted was the formation of the contract. Hahn v. Vermont Law School, 698 F.2d 48 (1st Cir.1983).⁹

The Hahn case is most directly applicable here. The cause of action is one for breach of contract. One of defendants' "business transactions" was the mailing of the contracts which, as in Hahn, was the basis of the underlying cause of action. Here, the cause of action arose from the business transacted, and the jurisdictional requirements of § 3(a) are satisfied.

III.

The inquiry into personal jurisdiction does not end there. For jurisdiction to be proper, constitutional requirements of due process must be met. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 2181-82, 85 L.Ed.2d 528 (1985). To satisfy these requirements, "defendant's conduct and connection with the forum state must be such that he should reasonably anticipate being hailed into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

For due process purposes, it is not necessarily enough that a nonresident enters into a single commercial contract with a resident of the forum state. Bond Leather Co., Inc. v. Q.T. Shoe Mfg. Co., Inc., 764 F.2d 928, 933 (1st Cir.1985). To justify jurisdiction, the defendant must "fairly be said to have participated in the economic life of Massachusetts." Id. Only when there are such contacts, in addition to the mere fact of the contract (a so-called "contracts-plus" requirement), is jurisdiction proper. Id.

Although defendants each entered into only one contract, there was enough additional activity to satisfy the "contracts-plus" requirement. In addition to their mailing of the contracts to Massachusetts, the very nature of the contracts — employment contracts — contributes to placing defendants on notice of the possibility of suit in Massachusetts. Defendants worked for a Massachusetts company, and this factor is more than that with which the Bond court was concerned when it created the "contracts-plus" requirement.¹⁰ The contract in this case even contained language that the laws of Massachusetts would govern the contract's interpretation, thus providing further notice of the possibility of suit here. Furthermore, by receiving salaries from a Massachusetts employer, defendants can fairly be said to have "participated in the economic life of Massachusetts." Indeed, the sole purpose of their employment was to generate revenue for a Massachusetts company. Finally, defendants' reports and visits to Massachusetts were done in furtherance of the contract. Rather than merely signing a contract with a Massachusetts resident, defendants actually visited the state in furtherance of that contract.¹¹ Taken together, these factors all suggest that defendants had reasonable notice that they might be sued in Massachusetts.¹² Therefore, due process is satisfied and jurisdiction pursuant to § 3(a) would...