The Planning Group of Scottsdale, L.L.C. v. Lake Mathews Mineral Props., Ltd. (5/6/2010)

May 10, 2010

Arizona Court of Appeals Division One Holds That Arizona Has Specific Personal Jurisdiction over a Defendant in a Contract Case if the “Purposeful Availment” Standard, Rather Than the “Purposeful Direction” Standard, Is Satisfied.

Defendant, a California company, owned mining rights in California.  In 2005, an Arizona resident provided Plaintiff, an Arizona Company, information about Defendant’s mining project.  Defendant subsequently communicated directly with Plaintiff via telephone, email, and fax about investing in the mining project, and the parties later agreed to meet at LAX to discuss the investment.  After the LAX meeting, Defendant drafted and executed in California an agreement outlining the terms of Plaintiff’s investment in the mining project, and faxed it to Plaintiff in Arizona.  A dispute later arose, and Defendant contacted Plaintiff and its attorney in Arizona via telephone, email and fax.  In December 2005, the parties again met at LAX, and following that meeting Defendant sent a letter to Plaintiff in Arizona outlining several alternatives to resolve the dispute.  The dispute, however, was not resolved and Plaintiff filed a complaint in Maricopa County.  Defendant filed a motion to dismiss for lack of personal jurisdiction, which the trial court granted.  Plaintiff timely appealed.         

The Arizona Appeals Court affirmed.  Specific personal jurisdiction exists when (1) a defendant performs some act or transaction with Arizona by which it purposefully avails itself of the privilege of conducting business in the state, (2) the claim arises from the defendant’s activities related to Arizona, and (3) the exercise of jurisdiction would be reasonable.  In construing the first requirement, the Court distinguished between “purposeful availment” and “purposeful direction,” explaining that purposeful availment applies in contract actions while purposeful direction applies in tort actions.  Citing Boschetto v. Hansing, 539 F.3d 1011 (9th Cir. 2008) and Meyers v. Hamilton Corp., 143 Ariz. 249, 693 P.2d 904 (1984), the Court applied the purposeful availment standard in this case because the substance of Plaintiff’s claims were based in contract rather than tort. 

Under this standard, the Court held that Defendant did not “purposefully avail” itself of doing business in Arizona.  Defendant’s communications with Plaintiff via telephone, email and fax were insufficient by themselves to confer jurisdiction, especially where Defendant did not actively seek negotiations with Plaintiff, and those negotiations it did engage in took place in California.  Furthermore, the terms of the contract and course of dealing did not create a substantial connection with Arizona because the underlying transaction – the mining operation – was to take place in California.  Finally, the transaction did not create an ongoing and continuous relationship between the parties sufficient to create jurisdiction because the transaction was based in California, not Arizona. 

The Court rejected Plaintiff’s argument that jurisdiction is proper because Defendant caused damages in Arizona, explaining that injury alone does not establish personal jurisdiction.

Judge Kessler authored the opinion; Presiding Judge Irvine and Judge Brown concurred.