Colonial Leasing Co. of New England, Inc. v. Pugh Bros. Garage
735 F.2d 380 (1984)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A non-negotiated forum selection clause in a standard form contract is unenforceable if it is unfair or unreasonable. Furthermore, personal jurisdiction cannot be established over a non-resident defendant whose only contacts with the forum state are signing a contract with and mailing payments to a resident company, as such contacts do not constitute purposeful availment.
Facts:
- Defendants Pugh Brothers Garage (Georgia), Edward Jones (Nevada), and Harold Best (Missouri) each contacted a local representative of Major Muffler, a New York corporation, to acquire a pipe-bending machine.
- Major Muffler had the defendants complete financial statements, which it submitted to Colonial Leasing Company, an Oregon-based corporation, for financing approval.
- Colonial approved the lease applications, purchased the equipment from Major Muffler, and arranged for the equipment to be shipped to the defendants.
- The defendants believed they were dealing solely with Major Muffler, the New York corporation, and were unaware of Colonial's involvement until they received lease agreements from Oregon.
- Colonial sent each defendant a standard form lease agreement, which they signed.
- The back of the form contract contained a non-negotiated clause in small print stating that the lessee consented to jurisdiction in Oregon for any lawsuits.
- The defendants subsequently defaulted on their lease payments to Colonial.
Procedural Posture:
- Colonial Leasing Company filed separate complaints for breach of contract against Pugh Bros., Best, and Jones in the U.S. District Court for the District of Oregon.
- The trial court granted motions to dismiss filed by Pugh Bros. and Best for lack of personal jurisdiction.
- The trial court initially denied a similar motion from Jones and granted summary judgment for Colonial.
- Colonial moved for reconsideration in the Pugh Bros. and Best cases, leading the court to reconsider its ruling in the Jones case as well.
- The three cases were consolidated, and the district court ultimately dismissed all three actions for lack of personal jurisdiction.
- Colonial Leasing Company (appellant) appealed the dismissals to the United States Court of Appeals for the Ninth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a federal court in Oregon have personal jurisdiction over out-of-state defendants based on either a non-negotiated forum selection clause in a form contract or the defendants' acts of signing that contract and mailing payments to Oregon, when the defendants did not initiate contact with the Oregon-based plaintiff?
Opinions:
Majority - Ferguson, J.
No, the court does not have personal jurisdiction because it would be unfair and unreasonable to enforce the forum selection clause, and the defendants lack the minimum contacts with Oregon required by due process. The forum selection clause is unenforceable because it was a non-negotiated, 'take-it-or-leave-it' term buried in fine print within a form contract. Separately, the defendants' contacts with Oregon are insufficient to establish jurisdiction under the constitutional minimum contacts test. The defendants did not purposefully avail themselves of the privilege of conducting business in Oregon; their contacts were limited to signing a contract with an Oregon corporation and mailing payments there, which they did only after a third-party company initiated the relationship. These passive acts do not meet the 'fair play and substantial justice' standard required by International Shoe and its progeny.
Analysis:
This decision reinforces that courts will critically scrutinize 'boilerplate' forum selection clauses in adhesion contracts, refusing enforcement where there is no genuine bargaining and enforcement would be unreasonable. It clarifies that merely entering into a contract with a forum-state entity and sending payments, without more direct and purposeful contact initiated by the defendant, is insufficient to establish personal jurisdiction. The ruling protects out-of-state small business owners and consumers from being haled into distant forums by national companies that structure transactions through local agents, thereby limiting the jurisdictional reach of corporations in interstate commerce.
Unlock the full brief for Colonial Leasing Co. of New England, Inc. v. Pugh Bros. Garage