Old Republic, New World – Personal Jurisdiction Trending Defendant Friendly

by Morrison & Foerster LLP
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In a recent decision regarding the scope of personal jurisdiction, the Tenth Circuit Court of Appeals extended the recent trend of limiting the reach of personal jurisdiction over out-of-state defendants.  Old Republic Insurance Co. v. Continental Motors, Case No. 16-1408, (10th Cir. Dec. 15, 2017).

In Old Republic, plaintiff insurance company sued after one of its insured aircraft crashed in Colorado. Plaintiff alleged that the crash was the result of a negligent or otherwise faulty repair of the aircraft’s engine. Plaintiff further alleged that the maintenance company that repaired the engine followed the guidance provided by the engine manufacturer, Alabama-based Continental Motors.

Continental challenged the plaintiff’s attempt to subject it to the jurisdiction of the District of Colorado. The plaintiff alleged that the service—online aircraft engine repair manuals—offered through Continental’s subscription-based website and used by aircraft repair shops in Colorado was a basis for its harm. For purposes of the opinion, the Court accepted plaintiff’s allegations as true and assumed that Continental’s contacts with the forum included: (1) providing approximately 20 Colorado-based companies a subscription service through its website; (2) offering the same Colorado-based companies incentives to promote and use its products (aircraft engines); and (3) providing supplementary training courses and dedicated support to these companies. These contacts were held to be insufficient for purposes of exercising personal jurisdiction over Continental.

Continental Motor’s FBO Program

The central question of Old Republic revolved around the relationship between Continental and Colorado-based Arapahoe Aero, the fixed-base operator (FBO)—an entity located at an airport that provides aeronautical services, such as aircraft maintenance and repair—whose conduct allegedly contributed to the accident. This relationship was created through Continental’s subscription-based FBO program that was created to support Continental’s primary business of manufacturing and selling aircraft engines. In total, 20 Colorado-based FBOs subscribed to Continental’s FBO program.

Under the FBO program, Continental charged interested FBOs an annual fee for the right to access its maintenance manuals via an online portal. Subscribers were entitled to a rewards and incentive program, a free week-long training session for two representatives, and unlimited dedicated technical support. Arapahoe Aero, a subscriber since 1996, accessed the maintenance manuals through the online portal. It is unclear whether Arapahoe Aero took advantage of any of the other services, but it is undisputed that they remained available to Arapahoe Aero during the subscription.

A Brief Primer on Specific Personal Jurisdiction

One of the threshold questions for a plaintiff in bringing a lawsuit is whether a defendant is subject to the court’s jurisdiction. Personal jurisdiction is broken down into two analyses: general and specific. In the corporate context, “general” jurisdiction is limited, for all intents and purposes, to the state in which the defendant is incorporated or the state in which the defendant is headquartered. “Specific” jurisdiction looks to whether the defendant had sufficient “minimum contacts” with the forum state—as it relates to the issues raised in the complaint—such that it would “not offend traditional notions of fair play and substantial justice” to require the defendant to defend the lawsuit in that state. Only specific jurisdiction was at issue in Old Republic.

A defendant’s relationship with the plaintiff is not sufficient, in and of itself, to establish the requisite minimum contacts. Instead a defendant must “reach out beyond” their own state and create continuing relationships and obligations in the forum state. In Old Republic, because the jurisdictional analysis was based on a contract, the court looked to established Supreme Court precedent in analyzing four different factors: prior negotiations, contemplated future consequences, terms of the contract, and actual course of dealing.

In the past few years, the Supreme Court has reined in personal jurisdiction and made clear that non-resident defendants must engage in concerted and significant conduct if they are to be subject to a state’s jurisdiction. Old Republic is the latest example of a court looking beyond formalistic contacts with a state and instead focusing its analysis on the true nature of the contact between the non-resident defendant and the forum state (as opposed to the forum-based plaintiff).

Continental’s Relationship with Colorado Examined

The Court found that Continental was not subject to personal jurisdiction in Colorado. The Court acknowledged that Continental and Arapahoe Aero had a 20-year relationship that was renewed annually. The Court also acknowledged that Continental’s relationship with Arapahoe Aero (and the other FBOs) expressly contemplated customer support, financial incentives, and other continued contact with the FBOs. In years past, these contacts would likely have been sufficient to hale Continental into Colorado court.

The Old Republic Court, however, also noted that there were no alleged prior negotiations between Continental and Arapahoe; that the one-year agreements created minimal obligations for either side; and that Continental never sought Arapahoe Aero’s business. And there were no allegations that Continental ever had any direct communications with Arapahoe Aero (other than an initial email telling Arapahoe Aero to activate its account). After examining several prior personal jurisdiction decisions, the Court concluded that it would be unreasonable (and unconstitutional) to exercise jurisdiction over Continental.

The Takeaway

The latest shoe to drop in the recent trend of making it more difficult to hale non-resident defendants into court, Old Republic makes clear that peripheral arrangements between parties that involve little communication and minimal obligations are insufficient for personal jurisdiction. It also strongly suggests that contacts established passively over websites are going to be insufficient to find that a non-resident defendant purposefully availed itself of the forum state. This is true even if the relationship is long standing, has future consequences, and is alleged to be the basis for the injury.

Products manufacturers, especially those who manufacturer highly mobile products, should find solace in Old Republic. It appears that the expense and inconvenience of litigating in an out-of-state forum based on minimal, passive conduct may be less problematic than it used to be. We will continue to monitor these developments.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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