Burger King Corp. v. Rudzewicz

471 U.S. 462 (1985)

What's Going On?

Appellant (franchisor) seeks review of a decision holding that the Florida courts did not have jurisdiction over Appellee (franchisee) in a suit for breach of contract.

Who's Who?

Appellant :

Burger King Corp. – fast food franchisor, Florida citizen (original plaintiff).

Appellee  :

John Rudzewicz – franchisee of Appellant, a Michigan citizen and resident (original defendant).

Facts:

Michigan residents, Appellee John Rudzewicz and Brian MacShara, entered into a franchise agreement with Appellant, Burger King, a Florida corporation, under which it was agreed that Appellee and MacShara would operate a fast food facility in Michigan. Appellee provided the investment capital, and MacShara was intended to manage the franchise. MacShara attended management courses in Florida, and the franchisees purchased $165,000 worth of restaurant equipment from Appellant's subsidiary in Florida. The contract between Appellee, MacShara, and Appellant obligated Appellee Rudzewicz personally to pay Appellant Burger King payments exceeding $1 million over a 20-year relationship. After Appellee fell behind in rent payments, Appellant Burger King sued Appellee in a federal district court in Florida, invoking diversity and trademark jurisdiction. The district court rejected Appellee's and MacShara's challenge to personal jurisdiction, and awarded Appellant damages and injunctive relief. The appellate court reversed, holding that the exercise of personal jurisdiction was improper because Appellee did not receive reasonable notice and was financially unprepared for franchise litigation in Florida.

Issue:

May a nonresident defendant's contractual relationship with an in-state plaintiff provide the “minimum contacts” required to subject the defendant to the exercise of personal jurisdiction by the out-of-state forum?

Decision:

Yes. An individual must have fair warning that a particular activity may subject them to the jurisdiction of a foreign state. This fair warning requirement is satisfied if the defendant has purposefully directed his activities at residents of the forum, and the litigation arises from those activities. There is substantial evidence in this case to support the district court's conclusion that the assertion of personal jurisdiction over Appellee in Florida, for the alleged breach of his franchise agreement, did not offend due process. Although there are no significant physical ties between Appellee and Florida, this franchise dispute grew directly out of a contract which had a substantial connection with Florida. Appellee reached out beyond Michigan to enter into long-term agreement with a Florida corporation for the purchase of a franchise, and the benefits derived from association with Appellant, a nationwide organization. Appellee's relationship to Appellant is not random, fortuitous, or attenuated. The language of the contract itself emphasizes that Appellant's operations are conducted from Florida, and it was obvious to Appellee, who dealt extensively with Appellant's Florida headquarters, that the power of the corporation was concentrated in Florida. Appellee purposefully availed himself of the benefits and protections of Florida laws by entering into contracts providing that those laws would govern franchise disputes. Exercise of personal jurisdiction by the Florida courts in this case would be consistent with fair play and substantial justice. Reversed.

Basic Rule:

A nonresident defendant's contractual relationship with an in-state plaintiff may provide the “minimum contacts” required to subject the defendant to the exercise of personal jurisdiction by the out-of-state forum if, by signing the contract, the nonresident defendant has availed himself of the benefits and protections of the laws of the forum state.

Dissent:

Requiring Appellee to defend this case in Florida is unfair. Appellee maintained no place of business in Florida, had no license to do business there, nor had any employees in that state. In addition, Appellee did not prepare his products with the expectation that they would be consumed in Florida. Appellee's business was conducted in Michigan, and the Court errs in concluding that he purposefully availed himself of the benefits and protections of Florida's laws.

Terms:

Diversity jurisdiction :

The authority of a court to hear a case in which the adversarial parties are citizens of different states, and there is an amount in controversy greater than the statutory minimum. See 28 U.S.C. § 1332.

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