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Unexpected Burdens Of Virtual Offices
Law360, New York (November 17, 2015, 10:01 AM ET) -- Recently, the United States Court of Appeals for
the First Circuit fired a shot across the bow in the “virtual office” world in the case of Cossart v. United
Excel Corp., No. 14-2144 (1st Cir. Sept. 30, 2015). In a cautionary tale for employers utilizing a remote
workforce, the First Circuit reversed the district court’s dismissal for lack of personal jurisdiction in a
manner that could have significant ramifications for employers eschewing brick and mortar offices.
The underlying controversy arose in a context that is increasingly familiar: United Excel Corporation, a
Kansas company that provides architectural and construction management services for hospitals,
recruited William Cossart as a sales representative. Cossart, a Massachusetts resident, at some point
determined that he wished to work from his home. Obliging, the company agreed to provide Cossart
with the tools of his trade, i.e., a computer, printer, cellphone and video conference equipment, to be
used in Massachusetts while soliciting business that was not geographically circumscribed to
Massachusetts. Other than taking the prudent step of registering a “general contracting sales office” in
Massachusetts, United Excel was apparently benignly indifferent to Cossart’s physical location.
In his three years of employment, Cossart never closed any business in Massachusetts. However, he
fared better elsewhere; and it was Cossart’s imminent securing of a lucrative contract with a California
hospital that led to the demise of the employment relationship. Accepting Cossart’s allegations as true,
as the First Circuit was required to do in reviewing the lower court’s decision to dismiss, Cossart was
entitled to a $219,000 commission, the company was only willing to pay $62,000, the contract fell
through, and United Excel fired Cossart as a result.
Cossart sued in state court, alleging that United Excel’s conduct violated the commonwealth’s Wage Act.
United Excel removed to federal court on diversity grounds and promptly moved to dismiss, arguing that
assertion of personal jurisdiction over the company and its principal in Massachusetts would violate
both the Massachusetts long-arm statute and the constitution’s due process clause.
The district court looked no further than the state statute, holding that the state long-arm requirement
that a defendant “transact … business” in the commonwealth had not been met. United Excel argued,
and the district judge agreed, that the Massachusetts Supreme Judicial Court’s opinion in Tatro v. Manor
Care Inc., 625 N.E.2d 549 (Mass. 1994), required dismissal. In Tatro, the state high court held that
“[g]enerally the purposeful and successful solicitation of business from residents of the Commonwealth
... will suffice to satisfy” (emphasis added) the “transact[ing] business” requirement. Because Cossart did
not successfully solicit any business in Massachusetts, the district court ruled that the requirement had
not been met.
The First Circuit Disagrees
The First Circuit made short shrift of the argument, holding that Tatro merely described one form of
conduct sufficient to satisfy the “transact[ing] of any business” standard, and did not hold that
“successful solicitation of business from residents of the Commonwealth” constitutes a required form of
contact.
The First Circuit then turned to United Excel’s constitutional argument that its Massachusetts-based
activities were not sufficient to confer jurisdiction under the due process clause. Noting that it need look
no further than the requirements for proving specific (as opposed to general) jurisdiction, the court
skillfully adapted the traditional three-part test to Cossart’s circumstances, in an analysis that appears
on its face to be straightforward:
With respect to relatedness, the court noted that the issue presented was whether the defendant
breached its employment contract with a Massachusetts resident who had “performed a substantial
portion of the work that led to the potential California account from the Massachusetts sales office [in
Cossart’s home].” In addition, the court noted, United Excel called and emailed Cossart in Massachusetts
with regard to the commission dispute and to the termination of his employment. Under the
circumstances, the court expressed no difficulty in holding that the claim and the challenged conduct
were sufficiently related to satisfy the first specific jurisdiction requirement.
Nor was the First Circuit troubled by the second specific jurisdiction requirement, i.e., that “the
defendant’s in-state contacts represent a purposeful availment of the privilege of conducting activities
in the forum state.” The court noted that United Excel recruited Cossart at his home in Massachusetts,
entered into an employment contract that contemplated Cossart’s work occurring there as facilitated by
provision of the requisite office equipment and by registration of a sales office, and in fact allowed
Cossart to perform substantial work from his home in Massachusetts.
Finally, the court weighed the “gestalt” factors to determine whether it would be fair and reasonable to
subject United Excel to personal jurisdiction in Massachusetts. Once again, the court had no difficulty in
concluding that the requirement was met, noting that defendants had failed to show “some kind of
special or unusual burden” if the case remained in Massachusetts, and that the commonwealth had an
interest in assessing whether a Massachusetts-based employee has a meritorious claim under the
Massachusetts Wage Act.
Goodbye Bricks and Mortar, Hello Forum Issues
The First Circuit’s analysis treats the Cossart circumstances as a run-of-the-mill assessment of a
circumstance where a nonforum employer hires one or more employees in the forum state to perform
work on the employer’s behalf there. The analysis would be noncontroversial but for one overriding
fact: United Excel did not hire Cossart because he resided in or was to provide services specifically in the
commonwealth. Indeed, it appears that any state would have sufficed for his remote office. Rather,
United Excel’s objective was apparently to benefit from a virtual office that could be situated in any U.S.
locale where Internet and telephone service existed. Thus, while the relatedness prong of the
jurisdictional test might still be met, it is far less clear that United Excel “availed” itself of the privilege of
conducting activities specifically in the forum state, at least in the traditional sense. This in turn casts a
different glow on the “gestalt” reasonableness factors.
For now, at least, it appears that employers who eschew brick and mortar offices should expand their
cost/benefit analyses to consider whether they should (a) ensure that a forum selection clause is
included in their employment contracts; (b) add an arbitration clause that bolsters the forum selection,
e.g., a specific local arbitration service; and (c) knowingly assume, or avoid, the burden of potential
exposure to the wage and employment laws of each state in which their remote employees live.
Virtual offices and remote workforces may well be the wave of the future, but they may also expose an
employer to forum state litigation and laws that the employer did not build into its strategic plan.
At the end of the day, brick and mortar may not look so bad after all.
—By Joan A. Lukey and Jesse Siegel, Choate Hall & Stewart LLP
Joan Lukey is chairwoman of the complex trial and appellate litigation group at Choate Hall & Stewart in
Boston. She has served twice as Massachusetts Special Assistant Attorney General.
Jesse Siegel is an associate in the firm's complex trial and appellate litgiation group and former assistant
attorney general in the Criminal Bureau of the Attorney General’s Office in Boston.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general
information purposes and is not intended to be and should not be taken as legal advice.
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