Consider this scenario. Plaintiff ABC Corp., a Colorado corporation, sues XYZ Corp., a California corporation, in Colorado state court for breach of contract. The contract at issue was about a project in Massachusetts. XYZ Corp. maintains a registered agent to accept service of process in Colorado and has worked with Colorado companies in the state, but has its headquarters in San Diego. May a Colorado court exercise personal jurisdiction over XYZ Corp.?
Having flashbacks to your 1L Civil Procedure final or the bar exam? It turns out personal jurisdiction is not just the stuff of hypotheticals. Recently, the Colorado Supreme Court has cracked down on the exercise of general personal jurisdiction over out-of-state defendants. The Court’s latest case, In re Clean Energy Collective LLC v. Borrego Solar Systems, Inc.,1 is an instructive reminder to be sure to spot this issue in litigation.
A Personal Jurisdiction Refresher
In order to be able to sue someone in Colorado, there has to be personal jurisdiction. Hearkening back to the days of International Shoe, the familiar verbiage from your law school days is that “a state may exercise personal jurisdiction over a nonresident defendant if the defendant has ‘certain minimum contacts with [the state] such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”’”2 Out of this standard come two distinct concepts of jurisdiction: general and specific.
General personal jurisdiction is “all-purpose” jurisdiction. If a defendant is subject to general jurisdiction, it can be sued for any and all causes of action arising out of any of its activities—even those that don’t occur in the forum state. Because it is so expansive, general jurisdiction is not available in every forum. Specific jurisdiction, on the other hand, allows a court to exercise jurisdiction over a nonresident defendant if the suit arises out of activities that occurred in the state. While the first is broader, either will work for your case.
The Clean Energy Collective Case
Our case involved a breach of contract suit between a Colorado energy company and two out-of-state solar development companies, who were both doing business out of California (although one was registered in Delaware). The dispute arose out of a disagreement around a power-generation project in Massachusetts. The Colorado company sued the out-of-state companies in a Colorado state district court. When an out-of-state company moved to dismiss the suit for lack of personal jurisdiction, the district court disagreed. Though the court agreed that the out-of-state company was not subject to specific personal jurisdiction (requiring activities that occurred in the state, the court found the company was subject to general jurisdiction. The court listed the following facts in support of its finding:
- The out-of-state company had maintained an agent in Colorado;
- It had contracted with a company in Colorado;
- It had successfully bid on several of the Colorado company’s projects; and
- It had hired a Colorado employee specifically to facilitate business with the Colorado Company.
Continuous and systematic contacts with Colorado sufficient for general jurisdiction, right?
Not so fast, said the Colorado Supreme Court.
Last year, the Court had announced a test in a case called Magill v. Ford Motor Co. There, the court explained that general jurisdiction is appropriate only when a nonresident corporate defendant’s connections with the forum state are so continuous and systematic as to render it “essentially at home in the forum State.” In doing so, the Court created a new test that Colorado trial courts must apply before holding that a nonresident corporate defendant is subject to general jurisdiction. The test requires the court to consider: (1) whether the nonresident corporate defendant’s contacts with Colorado are continuous, and systematic or significant; and (2) whether that defendant is “essentially at home in Colorado.” To determine if a defendant is “essentially at home” in Colorado, the court must determine whether the defendant’s “continuous and systematic contacts” “amounted to more than a ‘relatively small portion of the company’s national or international reach.’”3
The out-of-state company appealed the decision on jurisdiction under Rule 21. And in fact, the trial court had performed the first half of the analysis (finding continuous and systematic contacts), but had not conducted the latter half of the analysis. The Court took the opportunity to reiterate that both parts of the inquiry are necessary in order to find general jurisdiction. And, in conducting the inquiry for itself, the Court determined that the out-of-state corporation’s contacts with Colorado were simply too slim to support a finding that it was essentially at home in Colorado. So no personal jurisdiction.
In Litigation, Take Personal Jurisdiction Seriously
While it may feel like you are back in law school when talking about personal jurisdiction, it is an important issue to spot in litigation. For out-of-state defendants, it is very important not to concede personal jurisdiction, particularly general jurisdiction. As this recent case makes clear, general jurisdiction is rarely justified for nonresident defendants. But when it is, trial courts must use the Magill test.
When the issue arises in a motion to dismiss, both parties should be sure to present the Magill standard to the trial court when they are arguing it. Of course, it is the proper legal standard. But making sure the trial court gets it right is critical because of how these issues are normally resolved by the Supreme Court.
As these latest cases demonstrate, when there is jurisdictional error alleged, the Supreme Court may take the case up under C.A.R. 21 as an exercise of its original jurisdiction. Rule 21 cases, as they are often called, don’t proceed like a normal appeal, and so the parties don’t have the freedom to make all the arguments they might otherwise make on appeal. For example, in this case, the Colorado company conceded that the trial court had misapplied the standard and asked the Supreme Court to nevertheless find that the record demonstrated specific jurisdiction. While in a normal appeal, the court might consider an alternate argument for affirming the result below, a C.A.R. 21 proceeding is not a normal appeal, and the Court would not do so in this case. So if you pursue a Rule 21 proceeding to correct an error about jurisdiction because the trial court did not apply the right test, both parties are likely to expend a lot of resources fighting out this battle, because you may need multiple appeals.
The Clean Energy Collective case is a good reminder of the importance of getting jurisdiction right at the beginning of the case and signals that the Magill test is here to stay.
1 2017 CO 27.
2 Magill v. Ford Motor Co., 2016 CO 57, ¶ 15 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
3 In re Clean Energy Collective LLC v. Borrego Solar Sys., Inc., 2017 CO 27, ¶ 14.
Featured Image: ”Solar Cells” by Pixabay.
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