Astro-Med, Inc. v. Nihon Kohden Am., Inc. - 591 F.3d 1 (1st Cir. 2009)

Rule:

In assessing personal jurisdiction over a non-resident defendant, a federal court exercising diversity jurisdiction is the functional equivalent of a state court sitting in the forum state. To establish personal jurisdiction over a nonresident defendant, a plaintiff must demonstrate that a state's long-arm statute grants jurisdiction and that the exercise of jurisdiction under the statute is consistent with the Due Process Clause of the United States Constitution.

Facts:

Astro-Med, Inc. and Nihon Kohden America, Inc. were rivals in the highly competitive life sciences equipment market, and in October 2006, when Nihon Kohden hired away Kevin Plant, a valuable Astro-Med employee, Astro-Med reviewed its legal options. When first hired at Astro-Med in 2002, Plant signed an employee agreement that contained non-competition and non-disclosure provisions. Relying in large part on those provisions, in December 2006, Astro-Med filed suit against Plant alleging breach of contract and misappropriation of trade secrets. Astro-Med later added a third claim of unfair competition against Plant and joined Nihon Kohden as a defendant, against whom it alleged claims of tortious interference and misappropriation of trade secrets. The jury returned a verdict in favor of Astro-Med, awarding the latter $375,800 in damages. Nihon Kohden and Plant challenged the decision, arguing that the non-competition provision was unenforceable until it was modified by the district court, that changes in Plant's employment status voided the agreement, that Astro-Med's own breach of the employment agreement voided Plant's obligations under the agreement, that the non-competition provision was unenforceable since it did not protect legitimate business interests, and that Nihon Kohden cannot be liable for interfering with an unenforceable contract. Nihon Kohden also argued that, as a California business, it should not have been hailed into court in Rhode Island to defend its hiring of a Florida resident to sell its product in Florida.

Issue:

1. Did the U.S. District Court for the District of Rhode Island have jurisdiction over Nihon Kohden? 
2. Was the non-competition provision in Plant’s employee agreement with Astro-Med unenforceable? 

Answer:

1) Yes. 2) No.

Conclusion:

The court held that the district court had personal jurisdiction over defendant Nihon Kohden, a California company, because its conduct in Florida and California was a cause of the breach of contract that occurred in Rhode Island, the in-forum injury was clearly related to the tortious interference claim, it was foreseeable that the competitor could be accountable for its actions in Rhode Island, and the gestalt factors militated strongly in favor of jurisdiction there. Rhode Island was the district where the tortious interference and misappropriation of trade secrets occurred and where the harms were felt, and the at-issue employment agreement selected Rhode Island as the forum to resolve disputes; thus, venue was proper in Rhode Island. Contrary to defendants' arguments, the non-competition provision could be breached before modification, neither changes in defendant employee's status nor plaintiff's alleged breach voided the agreement, the agreement was enforceable since it protected legitimate business interests, and Nihon Kohden was subject to liability for interfering with it. Accordingly, the judgment of the district court was affirmed.