BURGER KING CORP. v. RUDZEWICZ
Legal provision: Due Process
ORAL ARGUMENT OF JOEL S. PERWIN, ESQ., ON BEHALF OF THE APPELLANT
Chief Justice Warren E. Burger: We will hear arguments next in Burger King against Rudzewicz.
Mr. Perwin, I think you may proceed whenever you are ready.
Joel S. Perwin: Thank you.
Mr. Chief Justice, and may it please the Court, the first question is whether this Court's jurisdiction is conferred by direct appeal under Subsection 1254.2.
We submit that the Circuit Court declared unconstitutional as applied a provision of Florida's long arm statute which confers jurisdiction over one who breaches a contract in Florida by failing to perform acts required by the contract to be performed in Florida, in this case, by failing to make payments under a franchise lease and purchase and sales agreement connected with a Burger King franchise in a suburb of Detroit, Michigan.
Under Subsection 1254.2, the answer to that question depends upon the Circuit Court's chosen resolution of the issue.
In this case, as the Circuit Court's opinion states, both parties agree that by its plain language the jurisdictional statute in question plainly reached the conduct at issue.
Rather than revisiting that assumption, the Circuit Court proceeded to consider the constitutional question, and concluded that the District Court's exercise of jurisdiction was inconsistent with minimal constitutional requirements.
We suggest that on that basis, given that resolution, the prerequisites for the acceptance of a direct appeal under Subsection 1254.2 were satisfied.
As this Court said in its 1984 Franchise Tax Board decision, a necessary predicate to the Court of Appeals' holding is that enforcement of the state statute would be inconsistent with federal law, hence invalid under the Constitution.
Accordingly, we have jurisdiction under Section 1254.2.
We also argued that the parties' stipulation in the District Court was an appropriate one in light of the plain language of this statute and its interpretation by a clear majority of Florida appellate courts.
And finally, we argued that independent of the question of direct appeal, the case is one of far-ranging and far-reaching importance.
It implicates a way of doing business which is increasingly pervasive in our society, and therefore renders appropriate the acceptance of jurisdiction by this Court.
My intention would be to rest with that, to submit the position of our brief on that issue, and in the absence of any inquiries, to proceed to the merits.
The question on the merits is whether the Circuit Court erred in holding that Florida's exercise of jurisdiction was inconsistent with the minimal requirements of due process, and that requires, of course, that we aggregate the contacts between these franchisees in Detroit and Burger King's headquarters in Miami and determine whether or not there were sufficient affiliating circumstances to put the franchisees on notice that they might be called to answer in a Florida court for any breach of contract or trademark infringement.
The contacts in this case can be abrogated under two general categories.
The first might be applicable to a case in which all we had was an arm's length contract for the purchase and sale of goods, independent of the intimacy of the franchise relationship which we have in this case.
In other words, even in the abstract there are a category of signals in the course of this relationship and in the contracts that were created between the parties, which we submit were independently sufficient to put the franchisees on notice of the possibility of a defense.
For example, three separate contracts, the lease agreement, the franchise agreement, and the purchase and sale agreement for equipment all called for the application of Florida law, creating an unmistakable signal of Florida's interest in the case, and under this Court's pronouncement in the International Shoe case, suggesting that the franchisees avail themselves of the protection and benefits of the forum.
Second, the lease agreement called for arbitration to be held in Florida if necessary, which this Court has at least acknowledged might represent a forum of implicit consent to jurisdiction of the Florida courts.
Third, the contracts are replete with references to Miami as Burger King's headquarters and as the locus of decisionmaking in this case.
They identify Burger King as a Florida corporation.
The initial franchise offering circular informed the franchisees that Burger King conducts its business in Miami, that that is the locus of decisionmaking.
All notices were required to be sent by the franchisees to Miami.
All payments were required to be sent by the franchisees to Miami.
Payments for rent, for royalties, advertising, real estate taxes, and that, incidentally or parenthetically, should have made very clear to the franchisees that a default in their payments would necessarily cause economic injury in Miami.
Indeed, in its recent decision in the Calder case, this Court in a footnote adopted the "effects" test which had been utilized by the Circuit Court for the proposition that the defendant should have realized that the effects of his conduct would be felt most deeply in the forum.
Unidentified Justice: That would be true of just a sale of a particular piece of equipment that is payable in Florida.
So you don't argue that this last item you mentioned would be enough in itself.
Joel S. Perwin: I don't, although as we have indicated, the clear majority of Circuit Court decisions appear to indicate that it might be sufficient in a pure arm's length purchase and sale agreement which calls for the application of the substantive law of the forum.
I don't contend that that alone is sufficient.
It was, however, it seemed, however, to be sufficient in the torts context in the Calder case, in which the Enquirer article in question was aimed at a resident of California who suffered the injury in California.
I don't contend that that is independently sufficient in this case and need not be so in--
Unidentified Justice: I don't think you would really argue that just a requirement that Florida law be applied to resolve any disputes would in itself be enough to confer jurisdiction in Florida.
Joel S. Perwin: --I think I agree.
I don't think it would be independently sufficient, and again, I need not take that position in light of the plethora of other contacts.
Finally, the franchise--
Unidentified Justice: Your other two contracts really are the headquarters and an arbitration provision.
Is that right?
Joel S. Perwin: --Well, there was the requirement of all the payments that he made to--
Unidentified Justice: Right.
Supposing I opened a bank account in a Florida bank, and they said any disputes would be resolved under Florida law, and if we can arbitrate, we will arbitrate here at headquarters.
Could they sue me for amounts above what I had on deposit?
Joel S. Perwin: --If the cause of action grew out of the contact, I would suggest that they could.
That is a tougher case than this one.
Unidentified Justice: Why is it tougher?
Why isn't it exactly the same case?
Joel S. Perwin: Because... it is not exactly the same thing.
Because this case involves a far more symbiotic business relationship.
This case involves a degree... that was the second point I was about to get to.
This case involves a degree of intimate control by the franchisor of the quality of the franchisee's enterprise and operation.
Unidentified Justice: But that is control exercised in Michigan.
Joel S. Perwin: No, I would respectfully disagree.
I would assert as strongly as I can that the control was exercised from Miami.
It is true, and the record certainly supports the contention that the immediate physical contact between the franchisees and Burger King was their contact with the Michigan regional office, but the control that we have been discussing was exercised exclusively from Miami, both in terms of the documents that were created and in terms of more occasional or ad hoc exercises of control from Miami.
I would be happy to--
Unidentified Justice: You have international franchisees, as I understand the record, London and some other places.
Could you get jurisdiction over a London franchisee in Miami the same way?
Joel S. Perwin: --I don't know that we have ever attempted to do so, but I think the same arguments would apply.
Unidentified Justice: Your theory would apply, wouldn't it?
Joel S. Perwin: I think it would.
It might be argued in that case, it may turn out in that case that Burger King operates in connection with its overseas outlets from some central depository overseas, which would be a policymaking--
Unidentified Justice: But that would be no different from your Michigan branch office, would it?
Joel S. Perwin: --It would be if it were a policymaking body with independent decisionmaking authority.
Unidentified Justice: Oh, I see.
Joel S. Perwin: In this case, we do not have that.
Not only does the evidence, taken in the light most favorable to the trial court's exercise of jurisdiction to make that clear, the uncontradicted evidence makes clear that it was the Miami headquarters which had total decisionmaking authority in this case, and that the franchisees knew it.
There were two or three occasions in which the franchisees, as was an appropriate practice, took a complaint or grievance or request to the Michigan headquarters and were told that they were powerless to adjudicate or respond to the request because all decisionmaking was reposited in the Miami headquarters.
Unidentified Justice: Mr. Perwin, just as a matter of curiosity, where was the defendant served?
How was he served?
Joel S. Perwin: He was served under Florida's long arm statute by direct personal service in Michigan.
Unidentified Justice: In Michigan?
Joel S. Perwin: Yes, Your Honor.
Unidentified Justice: Mr. Perwin, it isn't clear to me, at least, whether Florida itself would apply the standards for personal jurisdiction that you apparently stipulated would be sufficient.
What is the Florida law on the personal jurisdiction standard?
Aren't the courts in that state in some disagreement?
Joel S. Perwin: Yes, there is some disagreement, Your Honor.
We have abrogated 13 intermediate appellate court decisions representing all five of the intermediate appellate districts, in the absence of a dispositive ruling by the Florida Supreme Court, all of which hold that this statute means what it says, and that the mere failure to perform an act, including the failure to make payments, required to be performed in Florida, is independently sufficient to invoke the long arm statute.
Unidentified Justice: Well, I guess the Court of Appeals itself recognized that it isn't clear in Florida law.
Joel S. Perwin: I would argue exactly the opposite.
The Court of Appeals accepted the parties' agreement that--
Unidentified Justice: The Court of Appeals accepted the parties' stipulation in lieu of a determination of what Florida law provides.
Isn't that correct?
Joel S. Perwin: --Yes, Your Honor.
Unidentified Justice: Do you think you can just stipulate to jurisdiction?
Joel S. Perwin: No, Your Honor, I do not think--
Unidentified Justice: For our purposes?
Joel S. Perwin: --There certainly can be no stipulation to the jurisdiction of this Court.
It might be a different question as to whether in the posture of the constitutional question as presented to the Circuit Court the parties might stipulate that Florida law is X or Y.
I would not question the Circuit Court's prerogative to revisit that stipulation and to undertake an independent inquiry of the Florida cases.
Unidentified Justice: It could make our decision just advisory if we are deciding it on the basis of your stipulation as to what Florida law is.
Joel S. Perwin: I would respectfully submit that the decision would not be on the basis of the parties' stipulation but on the basis of the Circuit Court's holding that given that stipulation the statute was unconstitutional as applied.
I agree that the Circuit Court had the prerogative to revisit that assumption.
My position is that because the Circuit Court did not do so, but accepted the stipulation, and proceeded to find that invocation of the statute was inconsistent with the requirements of due process, that the Circuit Court necessarily declared the statute unconstitutional as applied.
Unidentified Justice: Well, the Court of Appeals I thought did not hold that as a matter of state law the Florida statute would allow state courts to exercise jurisdiction.
Joel S. Perwin: That's correct.
There is no formal holding to that effect.
The Circuit Court merely begins its opinion by acknowledging the parties' stipulation and then declines to revisit it, not expressly, but by effectively proceeding to the constitutional question.
Unidentified Justice: Mr. Perwin, why don't we call it the Court of Appeals?
That has been the name for years now, not Circuit Court.
Joel S. Perwin: I apologize, Your Honor.
The Court of Appeals.
In addition, Your Honor, I would respectfully submit that the case, regardless of the posture in which it reaches this Court, has far-reaching implications for the nature of franchise relationships.
It implicates the franchise relationship as it exists in the United States.
It implicates other forms of relationships in which a central manufacturer deals with a number of disparate enterprises, and therefore is appropriate for review in that context.
Unidentified Justice: Just to make sure I understand what you and Justice O'Connor have been talking about, the Court of Appeals majority opinion says that Rudzewicz concedes that his activities fall within the reach of the Florida long arm statute.
Now, there may have been a stipulation, but the Court of Appeals talks about in terms of a concession.
Joel S. Perwin: Yes, Your Honor, that is what I am referring to, and what I find significant in that is that the Court of Appeals appeared to have accepted that concession rather than undertaking any scrutiny of the Florida decisions in this area, and thus far we have undertaken such scrutiny in our briefs and we have suggested that the clear majority of Florida decisions comport with the parties' agreement below.
There was a second set of contacts in this case independent of the disparate and abstract references to Florida as the center of decisionmaking for Burger King which are perhaps even more significant, and that is that this was not an arm's length purchase and sales agreement, which is the subject matter of the many Circuit Court opinions that we have discussed in this case in our briefs.
This was a 20-year interdependent franchise agreement, a lease and sublease agreement whose purpose was to create a continuing relationship between the parties, not to separate them at some arm's length, but a continuing relationship between the parties in which the franchisees willingly subjected themselves to a degree of intimate control over the quality and the very finest details of the franchise operation, and received substantial consideration for that agreement, the consideration of minimizing the risk of failure and of maximizing the chances of success by trading on a national reputation, a national marketing structure, and a built-in clientele.
That, it seems to me, is a central distinguishing feature of your typical purchase and sales agreement in which you have parties from two jurisdictions, and which it calls for the application of the law of one of them.
In this case the franchisees had the unilateral power to reject the formation of that relationship.
They had the perfect option, had they desired, to create a purely local enterprise to control it 100 percent free of any or almost any connection with interstate commerce and to do so free of any control by anyone else.
They made the decision to reject that option.
Instead they applied to Burger King Corporation for franchise operation.
Mr. Rudzewicz is and was the senior partner in an accounting firm.
He had no expertise or knowledge in the restaurant business.
He did this because by subjecting himself to such rigid standards and controls, he was able to achieve or seek an investment success in an area in which he might not otherwise have been able to do so.
He made that affirmative voluntary decision, and that seems to us to be the most significant character of this relationship.
He purposefully entered into a meaningful business relationship with a corporation which he knew to be centered in another jurisdiction, and there are a plethora of decisions by this Court on both sides of the issue which seem to make that a controlling factor.
For example, in the McGee case, it was the insurer who had solicited the business of the insured by sending voluntarily and unilaterally a reinsurance certificate into his state.
In Keeton, it was the magazine who had made the purposeful decision to disseminate in the jurisdiction.
In Calder, it was the newspaper which purposefully directed its article toward the plaintiff.
All cases in which the defendant had the unilateral ability to avoid the contact which he voluntarily created, and on the other side of the ledger, in, for example, the Hanson case, it was because the trustee had undertaken no unilateral activity of his own which might have subjected himself to jurisdiction that this Court denied Florida's jurisdiction.
In the Kulko Case, it was because the wife had moved voluntarily to California and the husband had no control over that activity and had undertaken no unilateral contact of his own, that this Court held that the exercise of jurisdiction was inappropriate.
In the Rush case, it was because the insured had no control over the ubiquity of his insurer, State Farm, and over its presence in some other jurisdiction, that this Court held that the exercise of jurisdiction over the insured was inappropriate.
And it was in the Worldwide Volkswagen case that the Court held that the regionally focused retail and wholesale outlet had no control over the decision of a purchaser to create a contract with a jurisdiction 1,500 miles away.
In every one of those cases, the dispositive observation seems to have been that the defendant purposefully engaged in activity which he had the unilateral control or ability to avoid, and that is precisely what we have in this case.
In addition, the cause of action grew out of that activity.
There is no question that the requirement of a connection for the exercise of specific jurisdiction was satisfied, and finally, it seems to us that there is no significant unfairness in Florida's exercise of jurisdiction under those circumstances.
We listed five factors which we thought relevant to the issue of fairness.
I would like to mention all five, and then come back to two, with your permission.
One, Florida of course has an interest in protecting a Florida corporation.
That encompasses the notion of sovereignty.
It also reflects... it reflects at the deepest sense the state's interest in prescribing a statute which reaches as far as possible to protect the contractual expectations of Florida residents.
As I mentioned, or may have mentioned, in the Keeton case this Court seemed to place dispositive reliance upon New Hampshire's interest in adjudicating a libel action even for the benefit of a New York resident against a California publisher primarily because New Hampshire had an interest in protecting its own residents from the exposure to libelous material, and it was the interest of the forum that seemed to be important.
So, there are cases which stress this, and Florida has an undeniable interest in protecting the business expectations of its residents in the context of a contractual obligation.
We will hear a lot of talk about the inconvenience of the franchisees having to travel to Florida and about the interest of Michigan.
That kind of argument works both ways, and it is equally relevant to emphasize that Burger King had a contractual expectation in Miami that Florida by the plain language of its jurisdictional statement sought to accommodate that expectation, and that the inconvenience of having to prosecute the suit in Michigan would have been comparable.
Second, Florida has an interest, of course, in enforcing its own law, and that interest is magnified in this case by the assertion that the law of some other jurisdiction might apply.
Third, Burger King has an interest in a convenient forum and in some consistency of result across a regulatory system which depends for its economic success upon the adherence by franchisees to a rigid and exacting set of operating requirements.
Unidentified Justice: Don't some states have some laws about franchises that Burger King would have to abide by if it was going to franchise?
Joel S. Perwin: Yes, Your Honor.
Unidentified Justice: Well, in that respect there wouldn't be any national uniformity.
Joel S. Perwin: The only laws of which I am aware are comparable to that in Michigan, in which the--
Unidentified Justice: Comparable, but not the same.
Joel S. Perwin: --Not the same, no.
They are all--
Unidentified Justice: And there are some states that don't have them at all.
Joel S. Perwin: --Yes, Your Honor, some states don't have them at all.
But most of them, as Michigan's does, appears to focus on the relationship between the parties before a contract is formed, on the offer and acceptance, the disclosure of information, and to that extent of course Burger King has to comply with the laws of any jurisdiction.
Unidentified Justice: And whatever its contract said.
Joel S. Perwin: Well, I suppose that's a choice of--
Unidentified Justice: Well, I mean, absent that law, the validity of the contract would be governed by Florida law.
Joel S. Perwin: --Perhaps in the--
Unidentified Justice: Is that right?
Joel S. Perwin: --Yes, Your Honor.
Unidentified Justice: And under Michigan's law, under the franchise law in Michigan, it would be settled under Michigan law.
Is that right?
Joel S. Perwin: Yes, Your Honor.
Unidentified Justice: All right.
Joel S. Perwin: But in this case my position is that there is no conflict between Florida law and Michigan law.
In a case in which... and therefore both can apply undisturbed.
In a case in which there is such a conflict, I would argue that the parties' voluntary choice of substantive law should override the franchise law of any interested jurisdiction unless under the typical choice of law analysis the application of the law chosen by contract is so fortuitously related to the cause of action as to render its application unfair, and if the law, franchise law of the other interested jurisdiction is so fundamental to its policy that the Florida court might agree to yield, it is unclear that either criteria is satisfied in this case.
Unidentified Justice: That in any event is a choice of law question rather than a jurisdictional question.
Joel S. Perwin: Yes, it is, Your Honor, and what is relevant for the purposes of jurisdiction is not so much the question of what substantive law might apply as a product of that process, but rather that the parties put in their contract that they agree to comply with the law of the state of Florida, and therefore had reason to know that they were both invoking the benefits of Florida law and might be called to answer for breach of contract in a Florida court.
What is important is that they contracted for the application of Florida law, and not simply that the substantive choice of law process might call for the application of Florida law.
Unidentified Justice: My I just ask this question, just again limited to your point about your client's interest in a consistent interpretation of the law.
In addition to different franchise law possibilities in different states, aren't there all sorts of things that may be governed by local law?
I mean, I suppose they have to comply with Michigan food and drug laws, Michigan zoning laws, usury laws.
There are all kinds of laws that might not be the same as they are in Florida, so it is really conceivable that everything can be done on a nationwide basis on this theory?
Joel S. Perwin: No, of course, it is not conceivable, but that does not undermine the objective of trying to create some centrality of decisions on the contract issues that exist between the parties, on the question of breach, on the measure of damages, on the expectations of the parties in a contractual relationship.
Obviously, if a franchisee fails to comply with some sanitary law which is in effect in the locality, it will be the operation of that law which determines the outcome.
But it seems to me that that observation does not undermine the central objective of Burger King in trying to obtain some substantive consistency in connection with the central relationship between... contractual relationship between the parties, and that is best served by... I mean, this Court has said in a variety of contexts that that is best served by adjudication of these issues in a single court.
That was first said in 1816 in Martin versus Hunters Lessee, in which this Court established the right of review over state decisions of constitutional dimension, and the central thesis of that opinion is that uniformity of decisionmaking in a judicial context is essential, and as recently as the M.S. Bremen case upholding the enforcement of a forum clause, the Court said the same thing about consistency of result.
With your permission, I would like to reserve the balance of my time for rebuttal.
Chief Justice Warren E. Burger: Very well.
ORAL ARGUMENT OF THOMAS H. OEHMKE, ESQ., ON BEHALF OF THE APPELLEE
Thomas H. Oehmke: Mr. Chief Justice, may it please the Court, an interesting aspect of this case, of course, is that the question of whether this is a direct appeal or not was suggested when the Court noted its probable jurisdiction.
We felt that that was an issue that deserved some briefing on our part, and indeed in our reply brief did spend some substantial time on that portion, but not to ignore the minimum contacts requirement, of course.
Obviously, this Court could elect not to take a direct appeal and certainly rule on the issues by petition for certiorari, but for just a moment I would like to comment on whether or not there is a direct appeal, knowing, of course, this Court's desire to, if it can, allow the--
Unidentified Justice: What do you mean, direct appeal?
Thomas H. Oehmke: --An appeal.
I am sorry.
Unidentified Justice: Just an appeal?
Thomas H. Oehmke: Yes, an appeal as opposed to a petition for cert. Thank you, Justice White.
In this case here--
Unidentified Justice: Did we not postpone jurisdiction?
Thomas H. Oehmke: --Yes.
I suppose we implied that that may have been a note of probable jurisdiction, but I think it meant that we needed to wrestle with that issue somewhat in our briefing, and we did that.
Unidentified Justice: At least not take it for granted.
Thomas H. Oehmke: That's right.
Thank you, Mr. Chief Justice.
Now, in this case here we think it was possible to read the Court of Appeals opinion and not necessarily come to the conclusion that the Court of Appeals ruled the Florida statute unconstitutional.
The Court of Appeals, we believe, could have said, but didn't, because it never made a pronouncement, that we are holding it unconstitutional or we are not--
Unidentified Justice: Didn't they at least hold it unconstitutional as applied?
Thomas H. Oehmke: --Yes, they did, Justice White.
Unidentified Justice: Isn't that the basis for an appeal?
Thomas H. Oehmke: I think not.
When we look at the word "as applied", we see some mention of it certainly in previous cases, but as applied to a particular defendant rather than as applied to everyone in a particular state.
Unidentified Justice: Can you point to a single case that suggests that a holding that a statute is unconstitutional as applied is not a basis for an appeal?
Thomas H. Oehmke: No, I can't, because we had some struggle as we looked for the term or the phrase "as applied", to try to learn and be educated what the Court has meant by that in the past.
Unidentified Justice: What about Donkey Walker?
Yes, the Donkey Walker case.
Thomas H. Oehmke: We think that if you apply it only to one--
Unidentified Justice: How about Donkey Walker?
Thomas H. Oehmke: --I can't respond to that case, Justice Brennan.
Unidentified Justice: Well, I am afraid you are wasting your time, counsel, because that case seems to settle it.
Thomas H. Oehmke: If that certainly is the sentiment of the Court, then it would settle it.
Unidentified Justice: You do what you want to.
Thomas H. Oehmke: Thank you.
We just think the Court did not declare the statute unconstitutional as it applied to everyone in the state.
We think what the Court said was that perhaps you may fall within the literal grasp or the literal meaning of the statute, but we are not going to declare the statute unconstitutional.
All we are going to say is that when we see whether this Court has jurisdiction over the defendant.
In this particular case it works a manifest injustice because it is unfair to him.
He has no minimum contacts in Florida.
I would like to move along if I can to the issue of minimum contacts and what we think is really happening here.
Burger King is actually asking this Court to allow it by means of this case to be able to take jurisdiction over a franchisee wherever that franchisee is found.
Mr. Perwin seemed to concede to Justice Stevens--
Unidentified Justice: What about the contract clause?
What do the contracts say about that?
Thomas H. Oehmke: --The contract had a choice of law provision, and it had a choice of forum provision for arbitration, but not for litigation.
With respect to the choice of law provision, we think that there is case law that says that when a state like Michigan has a comprehensive, systematic Franchise Act, as they do, that parties can't agree to disregard that and just apply any other law that they particularly would like to see applied.
So, we think that the choice of law provision here is inapplicable.
Parties can't contract to ignore a major piece of public policy legislation in a state.
But further, Burger King has admitted in their briefs and in court that Michigan law applies here.
In essence they are abandoning what the contractual language says.
We have cited many points in our... many times in our response brief--
Unidentified Justice: What if we disagree with you on that, and that there is a clause for the application of Florida law which is perfectly valid.
You haven't lost your case just because of that, have you?
Thomas H. Oehmke: --I don't think we have.
In this particular case here, even if we are going to choose to apply Florida law, there still has to be minimum contacts on the part of the defendant, who had absolutely no contacts with the State of Florida whatsoever.
Interestingly, the choice of forum provision in the contract only applied to arbitration, not to litigation, so we think that the choice of law forum here not only should not be applied, because we have a Michigan comprehensive statute that regulates franchises that Florida doesn't have, but we also think that Burger King has abandoned that argument.
As we take a look at the issue of whether or not Mr. Rudzewicz did have minimum contacts, we find a whole host of things that he never did in Florida.
We find that he didn't incorporate his business there, but rather, in Michigan.
He had no employees in Florida.
All employees were in Michigan.
That he had no business location or site for doing business in Florida, only in Michigan.
That he didn't have an agent in the forum.
He promulgated no advertisements directed to a Florida market.
He did not solicit business within the State of Florida, either in person or by mail or by TV or radio or periodical.
He did not do anything deliberate and purposeful in Florida to avail himself of the market in Florida or the benefits and protections of the laws of the State of Florida.
Unidentified Justice: Except to sign the contract.
Thomas H. Oehmke: Except to sign the contract, Justice Marshall, the contract which did say that it was entered into and made in Florida, when the reality of the situation was, physically it was signed in Michigan, and Burger King then mailed it down to its headquarters people for signing.
That was the only thing that he did, was to sign a contract with a Florida-based corporation, and perhaps secondly, as Burger King has argued, he failed to mail a check to the State of Florida, or failed to mail his checks for royalty and for advertising payments.
So, Burger King suggests that a non-act, a failure to do an act, a failure to mail a check in and of itself is a contact if the state law requires you to do that.
We think the Florida law can be construed quite well constitutionally.
Unidentified Justice: But, of course... I think the argument is a little bit different.
They say that where you contracted to perform an act that is to be... where the effect is to take place in Florida, and fail, then that is an act within the state.
Thomas H. Oehmke: We have to believe that this... Justice Rehnquist, that this is not a substantial enough contact to elevate itself to the level of a constitutionally imagined minimum contact.
Failure to mail a check standing by itself flies in the face of the history of decisions that have said you ought to have a purposeful, an affirmative act, where you deliberately intend to invoke the benefits and protections of the laws, and that should probably lead one to conclude that you have a continuous and systematic doing of business in a state.
There was no continuous and systematic doing of business in Florida.
Unidentified Justice: Well, isn't it relevant in that regard that the contract envisioned a 20-year relationship with the Florida corporation, and the length and the detail of the involvement with that corporation seemed to make it foreseeable that your client might be hauled before the Florida court?
Thomas H. Oehmke: I think not for this reason, Justice O'Connor.
All of the contacts between Mr. Rudzewicz and Burger King were contacts with the Burger King office in Birmingham, Michigan, a suburb of Detroit, where Burger King had dozens of staff and a fully furnished office.
The contacts with Rudzewicz were there.
They interviewed him there to see if they liked him as a franchisee.
They blessed and approved him as a franchisee there.
Correspondence arrived from that particular office.
He went and visited that office during the course of the negotiations, never visited Florida, and every single contact he had was with the Birmingham, Michigan, office of Burger King.
When it came time to sign the contract, they brought the contract to him in Michigan.
He signed it and gave them his $40,000 check in Michigan, plus another five for a site development fee.
So, I think that the mere fact that one contracts with a corporation that may be headquartered elsewhere or doing business elsewhere does not put one on notice that they are necessarily going to be sued there.
Unidentified Justice: Can you assume that your client had legal advice before he signed this contract?
Thomas H. Oehmke: In fact, our client did not have legal advice, but that is not in the record, Justice Marshall.
We have evidence in the record that says there is a state requirement that you give a contract seven days in advance for the obvious purpose so one can think about it and cogitate about it.
This contract was given to Mr. Rudzewicz four days in advance, and he was told to either sign it or rip out all of his $180,000 worth of furniture, fixtures, and equipment, so I think one can conclude from the record that--
Unidentified Justice: He was in this to the extent of $180,000 and didn't have a lawyer?
Thomas H. Oehmke: --That's right.
Well, he didn't have a lawyer advising him at that time, Your Honor.
There is nothing in the record about that.
Justice O'Connor, I would like to go back and share something with the other justices that we did not put in our reply brief that has to do with notice.
In the joint appendix is the Burger King prospectus, which was the document that they used to encourage people to take the franchise up.
At Pages 17 through 21 in the prospectus, Burger King is required by Michigan law to list all of the litigation that it is involved in.
When you look at Page 17 to 21, there are seven cases that Burger King disclosed.
Six out of the seven of those cases are not in Florida.
There is only one case in Florida.
So, if one takes a look at the prospectus, which lists cases in Colorado and New Jersey, Indiana, Connecticut, Georgia, and then one in Florida, certainly--
Unidentified Justice: Maybe it was the pendency of those cases that led them to draft a form of contract that required application of Florida law.
Thomas H. Oehmke: --I think in part it was, Justice Rehnquist, but I think what Burger King has had in mind--
Unidentified Justice: Also, it may have been that they were being sued.
Thomas H. Oehmke: --As a matter of fact, in all of those cases they were defendants, Justice White.
Unidentified Justice: That doesn't prove anything.
Thomas H. Oehmke: To we as lawyers it doesn't, and as the Court, but to a Certified Public Accountant who doesn't understand the difference between defendant and plaintiff, for him to read the fact that there are six out of seven cases in other states, I think, doesn't put him on notice that he could only expect to be used in Florida.
Unidentified Justice: Are you serious in saying a Certified Public Accountant doesn't know the difference between a plaintiff and a defendant?
Thomas H. Oehmke: I am not serious in only stopping at that point.
I am not trying to be facetious.
He doesn't understand what that means when you look at where you are going to sue somebody or where you are not going to sue somebody.
In this particular case, in the appendix, Burger King was the defendant in every case, and they were being sued where they were found.
I just don't think he understands the implication of that when it comes to jurisdiction and being put on notice where he is going to be sued.
So, in this particular case here, he was not put on notice.
To come back to Justice Rehnquist's question for just a moment, I think that Burger King has finely tuned and finely honed a contract to the point where they have invoked every incantation that they can to be given the best possible chance of suing people in Florida, where they are filing.
Burger King does business in the State of Michigan.
It has some 60 restaurants there, and it has a Michigan regional office.
Unidentified Justice: It may well be that had your client chosen to initiate litigation, he could have sued in Michigan.
Michigan could have claimed minimum contacts.
It would be upheld.
Thomas H. Oehmke: I agree.
Unidentified Justice: But that doesn't mean that only Michigan could take jurisdiction.
Thomas H. Oehmke: You are right in your analysis that we could have sued in Michigan had we been quicker to the draw, but we don't think that Florida should take jurisdiction here because there is no continuous and systematic doing of business in the State of Florida.
He didn't go there and didn't do anything there, and I don't think that as a CPA he is put on notice by the mere fact that he is dealing with a Florida headquarters corporation, that he can be expected to be sued there.
Other cases that we have heard, cases where corporations are incorporated in Delaware, just the mere fact that that is where they are incorporated doesn't necessarily mean that one can be expected to be sued where it is incorporated or where its headquarters.
You know, if that is true, just because one does business with a corporation that is headquartered or located in another state, you can be expected to sue there, be sued there, if that alone is enough, then everyone who does business with another corporation ought to find out where they are incorporated, and where they are located, and they ought to build into the cost of the operation of their business enough money to go to that state and defend.
One of the themes that has come through some of these cases is that Burger King is in a better position economically to build into the cost of their doing business enough money to finance litigation for them to go where they are doing business.
Unidentified Justice: Does that theme come through from any of the cases of this Court?
Thomas H. Oehmke: No, they haven't.
They have come through from some of the Court of Appeals cases.
Unidentified Justice: If they had gone to arbitration, where would the arbitration have been conducted?
Thomas H. Oehmke: In Florida, as far as we can tell, Mr. Chief Justice, because of the choice of forum provision, because parties can contract, of course, to go to a different state.
They could contract to go to Germany or Guam, we suppose, to arbitrate, but we don't think the parties can contract and confer jurisdiction on a state by the mere pledge that that is where they are going to go.
We think the choice of law provision is different than a choice of forum provision, and we don't think that you can choose a forum to litigate in if there is no minimum contact of a defendant there.
Unidentified Justice: Are you contending this is a contract of adhesion?
You are not doing that, are you?
Thomas H. Oehmke: We have made that allegation throughout our litigation at every level, Justice Blackmun.
Unidentified Justice: Are you arguing that here?
Thomas H. Oehmke: Yes, we have argued that in our brief.
We have used that phrase.
And the reason why we argue that in part is because this is a some... I can't tell you the exact number of pages, 10 or 12 or 14-page franchise agreement that is typeset in single space.
It has two variables, I believe, that you can put in the contract, the date it it signed in the franchise agreement and the jural form of who the franchisee is going to be.
Unidentified Justice: You have an experienced businessman with a substantial amount of money invested, and a Certified Public Accountant on top of that.
Thomas H. Oehmke: That is right.
The facts, Justice Blackmun, will indicate here that Mr. Rudzewicz was orally told throughout the entire six-month negotiation process with the Detroit Burger King people that he could do business as a franchisee in a corporate forum, and it was only when four days before the franchise was to open that Burger King said, we are not going to let you do business in the form of a corporation, you must be individually liable.
He screamed surprise, and they said, through Mr. Hoffman, their regional manager, fine, you are surprised, tear out the $180,000 worth of equipment or sign the contract.
We feel that it was not only the nature of the contract but the way the economic gun was pointed to his head that forced him in that four-day period, less than what the state statute requires, to sign it.
Those are facts in the record.
Unidentified Justice: You say that... you contend this is a contract of adhesion.
What significance do you think that has under our minimum contacts jurisdiction cases?
Thomas H. Oehmke: Only this, Justice Rehnquist.
To the extent that one wishes to give some credence to a choice of law provision, I think if there is any weight to that or weight to arbitrating in Florida versus Michigan, I think one can ignore that because of the nature of this contract.
There was nothing to be bargained in this contract by Mr. Rudzewicz.
Unidentified Justice: You say you should ignore it.
I don't believe I follow your argument.
Thomas H. Oehmke: First of all, we have argued that we think it is unlawful to force the parties to go to Florida just because... because Michigan law... because there are no contacts there, but to the extent you wish to give some weight to the fact that the parties openly and voluntarily negotiated and agreed on a choice of law forum... choice of law provision, we don't think there was any... there was no bargaining, and so I think you can ignore giving any weight to that aspect of the contract.
Unidentified Justice: So you say then perhaps there should be a trial, I suppose... perhaps your opponent would dispute what you say... on the issue of whether there was some sort of economic duress in signing a... before you decide whether a state could take jurisdiction or not?
Thomas H. Oehmke: No, we don't say that.
We are saying that the Court ought to do a test and at least check and see whether there are minimum contacts of a particular defendant in a state, and the District Court in this case said, yes, Florida law applies here.
It did the first prong of a test, but it didn't do the second prong of the test.
All we are saying is, if one wishes to invoke the good services and offices of a Federal District Court as a trial court, that trial court not only looks at the state long arm statute, but ought to do a check and see whether the second prong of that test is met.
Namely, does the defendant have some contact in that state, some minimum contact.
Unidentified Justice: Yes, but going back to your contract of adhesion argument, the District Court in this case found that there was no economic duress.
Thomas H. Oehmke: That's right.
Unidentified Justice: Doesn't that blow that out of the water?
Because we are not going to review findings of fact.
Thomas H. Oehmke: No, and we are really not asking you to take that up as an issue.
Justice Blackmun asked me if we are contending it.
Yes, we have contended it throughout, but it is not an issue that we are presenting to this Court.
We have talked about a theme, not in this Court but in some Courts of Appeals, where it is Burger King who can build into the cost of their doing business the money it takes to do a litigation like this.
The record below does indicate that at this point in time Burger King has been paid more than $30,000 in legal fees.
At this point in time... that is just for the District Court action.
Rudzewicz is liable personally not only for his own attorney fees if he should not prevail, but the attorney fees for Burger King.
Unidentified Justice: Well, you feel it would be different then if instead of a franchise agreement this were... all the facts, but it were a merger agreement between Wendy's, which was doing business only in Michigan but had a huge net worth, and Burger King?
Thomas H. Oehmke: I am sorry, I don't follow you, Justice Rehnquist.
Unidentified Justice: Let's assume that your client, instead of being a CPA who didn't know the difference between a plaintiff and a defendant, was actually a very, very substantial Michigan businessman who had a net worth of millions in all sorts of business enterprise all through Michigan, but the facts of this case were exactly the same.
Thomas H. Oehmke: Yes.
Unidentified Justice: You say the result should be different.
Thomas H. Oehmke: Yes, I think the result should be different in this sense, that just because someone has a great net worth and happens to be a CPA doesn't necessarily put him on notice about the fine points of jurisdiction or venue.
Unidentified Justice: But I thought your argument a moment ago was that because Burger King was able to have such a big operation, it could pay attorneys' fees much more easily than your client.
Is that a factor in your argument?
Thomas H. Oehmke: Yes, it is, and build into their cost of running the franchise enough money to pay for their going to Michigan, because they are already in Michigan and they have local attorneys in Michigan anyway.
This case is being... we are... on this particular case in Michigan District Court on enforcement of the judgment.
They have attorneys in Michigan, and an office there.
We think they should build into the cost of franchises another penny a Whopper or whatever it costs to build up the funds they need to go to Michigan and to sue their franchisees where their franchisees are found.
Unidentified Justice: Now, is there any one of our cases on minimum contact that supports that view?
Thomas H. Oehmke: No, there is not, Justice Rehnquist.
We just think that Burger King is in a better position.
We suggest that as some logic that may offer some fruit here.
In this particular case--
Unidentified Justice: Do I understand your theory that when a fat cat is sued by a small cat, the fat cat has to pay?
Thomas H. Oehmke: --No, we are just saying that when the fat cat sues the small cat, the fat cat is in a better position to build into the cost of taxing the franchisee enough money to pay for the litigation.
Unidentified Justice: And therefore he has to pay.
Thomas H. Oehmke: No, not that he has to pay.
Only that he is in a better position.
What we are suggesting is--
Unidentified Justice: So What?
Thomas H. Oehmke: --This is... I guess this gets us down to the... who pays?
In this case the defendant has paid.
But our thinking is that the nature of a franchise relationship is a new type of doing business.
Unidentified Justice: Is it any different from any other contract?
You put in a contract what you want.
Thomas H. Oehmke: Right, sir.
Unidentified Justice: And if you fail to put in your protection, you are unprotected.
Thomas H. Oehmke: That's right.
That would be right.
But this Court still applies.
Unidentified Justice: If you fail to put in there that you should be tried in Michigan only, you have lost it.
Thomas H. Oehmke: Only if one can agree that people can contract jurisdiction away.
We don't think there are any minimum contacts in Florida, and we think even if the parties put a bold face choice of forum provision in there, since there were no minimum contacts in Florida, we think it would be contrary to public policy.
The parties can't confer jurisdiction by contract.
All I am suggesting with the economic argument is that Burger King franchises are small business operations essentially.
Mr. Rudzewicz, the investment for this particular franchise is around $225,000.
This is running a small hamburger operation serving essentially a community, serving essentially a neighborhood.
It is a new form and one of the new ways of doing business in this country.
The ma and pa grocery store have been substituted in large part by 7-11's.
The hamburger stands have been substituted by MacDonald's and Wendy's and Burger Kings.
But they are still... the nature of them is still a small restaurant, still serving a small community, run by small business people, and Burger King comes to the State of Michigan, it does business in the State Michigan by opening 16 restaurants and putting an extensive staff there.
We think they should opt to sue their franchisees in Michigan, too.
They haven't done that.
They have elected not do to that, not to sue their franchisees.
They want to bring them all to Miami, including, I guess, the ones from London and Spain and New Zealand and Guam, where they elsewhere have offices, and perhaps Alaska and Hawaii.
That would be manifestly unfair, to make a new rule in minimum contacts that says, just because you are dealing with a national business headquartered in one spot, you should go to them because you are put on notice they might sue you there, even if there are no minimum contacts.
We think it is manifestly unfair that he should have to travel the 1,200 miles to Miami to fight this lawsuit when he never set foot in Miami about this deal, and has no contact with that state.
And Burger King's new approach that they are suggesting here is wholly different from what it used to be, and from what is, from what is the state of law at this present time.
The Court of Appeals noted that all of the contacts were in Michigan.
They reviewed the record, and they noted the fact that Rudzewicz was interviewed there, and that the Michigan office discussed price terms, and that the Michigan office attended the final closing ceremony, and that there was no evidence that Rudzewicz bargained with anyone in Miami, only with people in Michigan.
So, every single contact with Burger King happened in the State of Michigan, with the Michigan staff, and the bargaining occurred there, and the acceptance of these gentlemen as franchisees occurred in the State of Michigan.
So we think that since all essential elements of the transaction are found in Michigan, that is where the lawsuit should be, and that is where the contacts are.
We feel there needs to be some protection of franchisees in order to protect it as a form of business.
If this Court were to rule that franchisees could be sued wherever the headquarters of the franchise was, then franchisees who do business in the future have to be able to say, I have to build into the cost of doing business enough reserve money to one day be able to go to Florida and defend myself against Burger King.
If you take a look at the normal profit on the sale of a hamburger, it is around ten cents on a $1.25 hamburger, and to finance a lawsuit like this, to pay both sides might cost a couple of hundred thousand dollars, which means selling about two million hamburgers in order to make enough profit to set them aside in reserves to defend a case like this.
The local business is not in a good position, is not well equipped in serving a small community to have to finance such distant litigation.
Of course, there is the inconvenience on the part of the franchisees, who had to either bring deposition testimony down or bring all of the live witnesses down.
All of the people that Mr. Rudzewicz dealt with were in Michigan.
Unidentified Justice: That may sound good, but what about arbitration?
He would have had to go to Florida to arbitrate.
Do you agree with that?
Thomas H. Oehmke: I agree that we would have to go to Florida to arbitrate.
Unidentified Justice: The 1,200 miles.
And you may need some witnesses.
Thomas H. Oehmke: That is right.
Yet one can make some distinction between the arbitration process and the litigation process.
It certainly is more expeditious, takes less time, doesn't require as many trips down.
Unidentified Justice: I don't know what you would say.
Suppose you went to... there was an arbitration.
You went to Florida to arbitrate, and you lost.
Thomas H. Oehmke: Yes.
Unidentified Justice: And you didn't live up to the arbitrator's award.
Could you be sued in Florida to enforce the award?
Thomas H. Oehmke: I think so, Justice White.
I think it could be enforced in the State of Florida.
I would then have to argue to this Court about the nature of that contract of adhesion and get into that as an issue more solidly than we have brought that issue here.
We think that there should be a three-pronged test, in conclusion, to determining whether or not the... where a person should be sued.
We think the first test should be whether the defendant commits a purposeful act or an affirmative act to avail himself of the benefits and protections of the State of Florida.
We don't think Rudzewicz did any act in this particular case to do that, certainly not a substantial act.
Secondly, we think that it ought to be fair and reasonable that he be sued in Florida.
We don't think it is fair and reasonable in this case.
And thirdly, we think there should be some connection between the subject matter of the lawsuit, namely, the operation of a Burger King franchise, and the State of Florida, particularly in light of the fact that Michigan has passed comprehensive legislation regulating the behavior of franchisors and franchisees, legislation that would apply here.
Unidentified Justice: Wasn't he sued for failing to make payments?
Thomas H. Oehmke: --Yes, he was.
Unidentified Justice: And the payments were to be made in Florida?
Thomas H. Oehmke: Yes, he was, Justice O'Connor, and he was brought into Florida on the sole basis that he had failed to send his check.
And that was all that was done.
So we feel that that three-pronged test, were it adopted by this Court, reiterated by this Court, would certainly summarize a fair test that would show franchisees that you are not different from Sears Catalogue or from Volkswagen or from any other person who does business in this country, as this Court has passed for years and years on the issue.
You have to go find the franchise... the defendant, where the defendant was found, where there was some minimum contact, assuming, of course, we are not talking about a tort, but in a contract case, you have got to go where there is some minimum contact.
That law applies to franchisees as well as it applies to franchisors.
We think that there is no reason why Burger King should ask this Court to adopt a new philosophy of letting them for the sake of uniformity and national consistency sue every single person in the State of Miami.
That is unfair, and I think that if we look at what that will mean, it will mean, and Burger King conceded that, perhaps bringing franchisees from foreign countries to Miami, if they can get away with that, to sue people in Miami.
That is not the kind of fairness that we think the constitution contemplates.
If there are no questions, I thank you very much.
Chief Justice Warren E. Burger: Very well.
Do you have anything further?
ORAL ARGUMENT OF JOEL S. PERWIN, ESQ., ON BEHALF OF THE APPELLANT -- REBUTTAL
Joel S. Perwin: A few points, Your Honor, if I may.
Very briefly, a few disparate points.
Number One, Mr. Rudzewicz was represented by counsel throughout his dealings with Burger King.
His lawyer was out of town the weekend before the closing.
He did not ask for a delay in order to consult with his lawyer.
At the time of trial he had a net worth of $1 million and was making $170,000 a year.
The trial court... the District Court found that there was no economic duress or coercion in any form.
The Court of Appeals, of course, did not reach that issue.
Number Two, there were a fair number of contacts with the regional office.
We don't deny that.
On the other hand, it cannot be denied that there were substantial--
Unidentified Justice: May I just ask on this sort of fat cat-small cat argument, would it be a different case if he just owned a mom and pop grocery store?
Joel S. Perwin: --Yes.
Unidentified Justice: You think you would not have jurisdiction, even if you had all your other factors?
Joel S. Perwin: Well, a mom and pop grocery store is not a franchise.
Unidentified Justice: But they had a contract to be able to use the name, whatever, some franchise product, as a lot of them do, saying, and any dispute of it will be governed by Florida law, and we will arbitrate in Florida if we have to, and wouldn't it be the same case?
Joel S. Perwin: Yes, it would, if the plaintiff had the same measure of control over the activities of the enterprise.
Unidentified Justice: Correct, with respect to the product in dispute.
Joel S. Perwin: With respect to the product, and it weren't simply an arm's length purchase and sale agreement which included a license.
That is one of the keys to this case, is that from Miami, Burger King exercised intimate daily control over the quality of this franchise, not just through the manuals and the contracts, but through day-to-day contacts, and there weren't just contacts with the regional office on the policy questions, on the question that needed to be negotiated, there were direct contacts by telephone and by letter directly between Miami and the franchisees.
It is incorrect to say that their only expectation was that the sole physical embodiment of Burger King was in Michigan.
That is simply incorrect.
Unidentified Justice: Just to boil it down, you really don't rely on the fact that he had $1 million.
Joel S. Perwin: No, it is just rebuttal.
Unidentified Justice: If he were bankrupt, it would be the same case.
Joel S. Perwin: If he were--
Unidentified Justice: Or just on the fringe.
Joel S. Perwin: --If the facts were otherwise the same, yes.
I caution that--
Unidentified Justice: If the contractual relationship was otherwise the same.
Joel S. Perwin: --Yes.
I caution that as the Court has said repeatedly, every case should be cited on its own facts, but yes, if that were the only change, I submit, I agree that the burden of my position is that jurisdiction would be appropriate.
Unidentified Justice: It is quite important, because the question whether a wealthy man has a right to move for want of jurisdiction on a different standard than one who doesn't have much money is really a fairly important question of whether we administer the law with an even hand.
Joel S. Perwin: I agree, and a fairly disturbing implication.
It is equally disturbing from the other side that a corporation should somehow be at a disadvantage because of its net worth before this Court.
Unidentified Justice: I take your argument on that point to mean that a CPA making $170,000 a year with a net worth of $1 million is sufficiently sophisticated to have arm's length dealing with anybody.
Joel S. Perwin: I would agree, Your Honor, and I believe so, and in this case that arm's length dealing produced a contract which called for an intimate 20-year relationship controlled by a company whose finest details were controlled by a company based in Florida and entitled to the protection of a Florida law which sought to preserve its business, its legitimate business expectations.
The nature of that contract was inherent in Burger King's business relationship.
The due process clause should not be utilized to force Burger King to increase the price of its hamburgers and to pass them on to franchisees and on to the public in order to decentralize.
That is an internal business decision, and the due process clause should not reach that far.
The opinion of the Court of Appeals should be reversed, and the cause remanded with instructions to affirm the District Court's judgment.
Chief Justice Warren E. Burger: Thank you, gentlemen.
The case is submitted.