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This article by Greene Espel attorney Kevin Zhao first appeared on Law.com on April 22, 2020.
In Calder v. Jones, a California plaintiff sued two Florida defendants for libel based on an article that they had written in Florida that was circulated in California, which caused her to suffer reputational harm. Applying what is now commonly referred to as the “effects test,” the Supreme Court held that “because California [was] the focal point both of the story and 8th Circuit Spotlightof the harm suffered,” “[j]urisdiction over [the defendants] [was] proper in California based on the ‘effects’ of their Florida conduct in California.” 465 U.S. 783, 789 (1984).
Thirty years later, the Supreme Court clarified the effects test in Walden v. Fiore, 571 U.S. 277 (2014). There, a police officer confiscated $97,000 from a Nevada couple at an airport in Georgia, suspecting that the money was drug related. After the money was returned to the couple a few months later, the couple sued the officer in Nevada, asserting violations of the Fourth Amendment. Distinguishing Calder, the Supreme Court rejected the argument that jurisdiction was proper because the plaintiffs suffered an injury while living in Nevada. The court explained that “an injury is jurisdictionally relevant only insofar as it shows that the defendant has formed a contact with the forum State,” and therefore “[t]he proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant’s conduct connects him to the forum in a meaningful way.” Id. at 290. Because the officer’s only connection to Nevada was through the plaintiffs, the court held that a Nevada court may not constitutionally exercise jurisdiction over the officer.
The Eighth Circuit recently applied the effects test in a pair of personal-jurisdiction decisions: Whaley v. Esebag, 946 F.3d 447 (8th Cir. 2020), and Pederson v. Frost, 951 F.3d 977 (8th Cir. 2020). In Whaley the plaintiffs passed the “effects” test, but in Pederson the plaintiff failed it. Read together, the decisions reflect there is a narrow, but conceivably navigable, path to establish personal jurisdiction in the Eighth Circuit based on effects in the forum state.
In Whaley, several Arkansas plaintiffs brought a lawsuit against a California man and his California-based business, asserting various fraud claims, in federal court in the Western District of Arkansas. The lawsuit arose following a dispute concerning the parties’ investment agreement about the marketing of a new dietary supplement. The parties executed the investment agreement after three in-person meetings in California and a number of Skype, email, and text-message conversations between the plaintiffs (in Arkansas) and the defendants (in California).
The district court granted the defendants’ motion to dismiss for lack of personal jurisdiction. See Whaley v. Esebag, No. 5:18-CV-05123, 2018 WL 4924025 (W.D. Ark. Oct. 10, 2018). Citing the Supreme Court’s decision in Walden, the court held that the defendants’ contacts with Arkansas were insufficient. The court discounted the fact that the defendant traveled to Arkansas after the agreement was signed, finding that the lawsuit did not relate to that travel. The court also concluded that the text messages, emails, and calls “were targeted at Plaintiffs [who happened to live in Arkansas]”, and “not at Arkansas” itself, again citing Walden. Id. at *4.
The Eighth Circuit reversed. Whaley, 946 F.3d at 453. As an initial matter, the court summarized its view of the Supreme Court’s jurisprudence concerning the effects test. While Calder explained that “personal jurisdiction was established where the nonresident defendant committed a tort and the associated harm was felt primarily within the forum state,” the Supreme Court “narrowed its holding in Calder” in two respects. Whaley, 946 F.3d at 451 (citing Walden, 571 U.S. at 284). As the court explained, “first, the relationship must arise out of contacts that the defendant himself created with the forum state.” Id. (quotation marks omitted). And second, the court must “look to the defendant’s contacts and conduct with the forum state itself, not the defendant’s contacts with persons who reside there.” Id. (quotation marks omitted).
Turning to the facts of the case, the court found that, unlike the officer in Walden, the defendants targeted the state of Arkansas, as opposed to simply the plaintiffs. The court found that, viewing the facts in the light most favorable to the plaintiffs, the defendant traveled to Arkansas to further the fraudulent scheme; shipped samples of the dietary supplements to Arkansas, and tried to capitalize on the plaintiffs’ prior relationship with Walmart, located in Bentonville, Arkansas. Id. at 452-53. Because the defendant’s “actions in and affecting Arkansas are central to the plaintiffs’ allegations of fraud and misrepresentation,” the court had specific jurisdiction over the defendant (and his California-based company). Id. at 453.
In Pederson, a Minnesota attorney sued several non-Minnesota defendants in Minnesota state court, alleging common-law fraud and tortious interference. The defendants removed the lawsuit to federal court and then moved to dismiss for lack of personal jurisdiction. The district court granted the motion. The court found that most of the meeting and events that occurred between the parties did not occur in Minnesota. Although the defendants communicated with the plaintiff in Minnesota via email and phone calls, those communications “largely reflect contacts between Defendants and Pederson rather than contacts between Defendants and Minnesota.” Pederson v. Frost, No. 17-CV-5580, 2018 WL 4358193, at *1 (D. Minn. Sept. 13, 2018) (emphasis in original).
The Eighth Circuit affirmed. Pederson, 951 F.3d at 980. The court explained that while “calls, emails, and text message directed a plaintiff can be relevant contacts,” they are not sufficient “when the only connection between the defendants and the forum state is the plaintiff himself.” Id. (quotation marks omitted). In so ruling, the court noted that “[b]ecause Pederson just happens to work and maintain an office in Minnesota, these contacts fit into the ‘random, fortuitous, or attenuated’ category.” Id. at 98-81 (quoting Walden, 571 U.S. at 285-86).
The court also specifically rejected the plaintiff’s argument that jurisdiction was proper under Calder because the effect of the defendants’ intentional torts was primarily felt in Minnesota, where he lived and worked as an attorney. Noting again that the Supreme Court had limited the reach of Calder in Walden, the court concluded that, because the defendants’ only contact with Minnesota was through the plaintiff himself, the Minnesota court lacked jurisdiction over the defendants. Id. at 981. In other words, while the plaintiff certainly had significant contacts with Minnesota, those contacts “‘cannot be decisive in determining whether the defendant[s’] due process rights are violated.’” Id. (quoting Walden, 571 U.S. at 285).
While the Eighth Circuit’s recent decisions applying the effects tests provide helpful guidance, questions nonetheless remain, especially as the effects test relates to email, text, and telephone communications between out-of-state defendants and in-state plaintiffs. For example, if an out-of-state fraudster intentionally solicits via phone calls, text messages, and emails an in-state victim and defrauds the victim, must the fraudster be sued in his home state as opposed to the victim’s home state? In this example, the only connection between the fraudster and the forum may be the victim himself. Yet it is hard to characterize the fraudster’s intentional solicitation of the victim as “random, fortuitous, or attenuated.” Further, would the answer to the jurisdictional question be different depending on whether the fraudster traveled to the victim’s state to collect the check? What if the victim sent the fraudster the money via PayPal? One would think that, notwithstanding the Supreme Court’s narrowing of the effects test, the victim who is “injured in [his home state] need not go to [the fraudster’s home state] to seek redress from [the fraudster] who, though remaining [at home], knowingly cause the injury in [the victim’s home state].” Calder, 465 U.S. at 790.
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