2013 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-7-2013

Flaghouse Inc v. Prosource Development Inc

Precedential or Non-Precedential: Non-Precedential

Docket No. 12-2521

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2013

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2013 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Flaghouse Inc v. Prosource Development Inc" (2013). 2013 Decisions. Paper 721.

http://digitalcommons.law.villanova.edu/thirdcircuit_2013/721
NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________

No. 12-2521

_________

FLAGHOUSE, INC.,

Appellant

v.

PROSOURCE DEVELOPMENT, INC.;

RICK ZIPF, individually,;

ABC CORPS.1-10 (names being fictitious and unknown)

JOHN DOES 1-10 (names being fictitious and unknown)

________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 2-11-cv-05406)

District Judge: Honorable Susan D. Wigenton

_______

Submitted Under Third Circuit LAR 34.1(a)

May 10, 2013

Before: SLOVITER, FUENTES, and ROTH, Circuit Judges

(Filed: June 7, 2013) 

______________

O P I N I O N

_______________
2

SLOVITER, Circuit Judge.

FlagHouse, Inc. (“FlagHouse”) appeals from the District Court’s dismissal of its

complaint against Appellees ProSource Development Inc. (“ProSource”) and Rick Zipf 

(“Zipf”). For the reasons that follow we will vacate the District Court’s orders 

dismissing FlagHouse’s complaint and submitting the matter to arbitration, and will 

remand the matter to the District Court.

1

I.

 

In January 2009 FlagHouse began discussions with nFocus Technologies to 

implement a system to streamline FlagHouse’s accounts payable, billing, warehouse 

management, accounting, and finance software. During negotiations, nFocus 

Technologies was acquired by ProSource, with whom FlagHouse continued to negotiate. 

As part of these negotiations, ProSource’s CEO, Zipf, made representations about 

ProSource’s capabilities at FlagHouse’s place of business in New Jersey. In September 

2009 FlagHouse entered into a “Master Services Agreement” with ProSource, which 

called for ProSource to complete the project by October 1, 2010. 

The project took longer than expected, and ProSource discontinued work in 

February 2011, leaving the project unfinished. ProSource claims that FlagHouse owes it 

$459,822.09. In order to recover the balance of the contract price, ProSource issued a 

demand for arbitration pursuant to the arbitration clause in the Master Services 

 1 The District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and we have 

jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review over the grant of a 

motion to dismiss, and we apply the same standard applicable in the district court. See 

Connelly v. Steel Valley Sch. Dist., 706 F.3d 209, 212 (3d Cir. 2013). 
3

Agreement. The arbitration clause requires the parties to resolve any dispute “arising out 

of or relating to [the Master Services Agreement] or to its breach” through arbitration.2

In response to ProSource’s demand for arbitration, FlagHouse filed a complaint in 

New Jersey state court, alleging that ProSource and Zipf intentionally misrepresented 

ProSource’s experience, expertise, and ability to complete the project in a timely manner.

The complaint included claims against ProSource and Zipf for legal fraud, equitable 

fraud, negligent misrepresentation, breach of express and/or implied warranties, breach of 

contract, and violation of the New Jersey Consumer Fraud Act (“NJCFA”), N.J. STAT.

ANN. § 56:8-1 et seq. FlagHouse sought rescission of the Master Services Agreement 

and damages. In addition, FlagHouse moved the court to enjoin the arbitration pending 

resolution of its suit.

 

App. at 52. 

ProSource subsequently removed the case to federal court. The District Court 

dismissed FlagHouse’s claims against Zipf for lack of personal jurisdiction. It found the 

remaining claims subject to arbitration, and dismissed those as well. FlagHouse now 

appeals. 

II.

A federal court sitting in New Jersey has jurisdiction over the parties to the extent 

provided under New Jersey state law, and New Jersey law provides for personal 

jurisdiction coextensive with that allowed by the United States Constitution. See Fed. R. 

 2 The only exceptions to the general requirement for arbitration are for temporary 

equitable remedies “to preserve the status quo or prevent irreparable harm.” App. at 52.
4

Civ. P. 4(e); N.J. Court Rule 4:4-4; Charles Gendler & Co. v. Telecom Equip. Corp., 508 

A.2d 1127, 1131 (N.J. 1986). Due process requires that a defendant have “minimum 

contacts” in the forum state, and that the exercise of jurisdiction comport with “traditional 

notions of fair play and substantial justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 

316 (1945) (internal quotation marks omitted). The Supreme Court has stated that 

“minimum contacts must have a basis in ‘some act by which the defendant purposefully 

avails itself of the privilege of conducting activities within the forum State, thus invoking 

the benefits and protections of its laws.’” Asahi Metal Indus. Co. v. Superior Court, 480 

U.S. 102, 109 (1987) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 

(1985)). Personal jurisdiction is present if the plaintiff’s cause of action arises out of a 

defendant’s forum-related activities, such that the defendant “should reasonably 

anticipate being haled into court” in that forum. World-Wide Volkswagen Corp. v. 

Woodson, 444 U.S. 286, 297 (1980). 

FlagHouse has alleged sufficient contact between Zipf and New Jersey to warrant 

personal jurisdiction over Zipf in this case.3

 3 The District Court erred when it concluded that FlagHouse “[did] not address or engage 

in a personal jurisdiction analysis in its brief.” App. at 10. FlagHouse provided a 

minimum contacts analysis both before the District Court and on appeal. 

 FlagHouse’s claims arise out of 

“misrepresentations” made by Zipf during his “sales-pitch” at “FlagHouse’s place of 

business in New Jersey.” App. at 25; Appellant’s Br. at 23. Zipf availed himself of the 

benefits and protection of New Jersey during his sales visit; he should have reasonably 

anticipated that, by making representations at the headquarters of a company in New 

Jersey, he could be haled into court in that forum. 
5

Zipf contends that he does not meet the minimum contact requirement, because his 

contacts with New Jersey were made in his capacity as the CEO of ProSource. Although 

it is true that “jurisdiction over an employee does not automatically follow from 

jurisdiction over the corporation which employs him,” Keeton v. Hustler Magazine, Inc.,

465 U.S. 770, 781 n.13 (1984), as long as a defendant has sufficient contacts with the 

forum state, he can be subject to personal jurisdiction in that state. See id. (“[W]e . . . 

reject the suggestion that employees who act in their official capacity are somehow 

shielded from suit in their individual capacity.”) (citing Calder v. Jones, 465 U.S. 783, 

789 (1984)); Nicholas v. Saul Stone & Co., 224 F.3d 179, 184 (3d Cir. 2000). Zipf made 

such contacts when he visited New Jersey to make a sales pitch to FlagHouse. The 

District Court therefore erred when it concluded that it did not have personal jurisdiction 

over Zipf.4

III.

 We will vacate the District Court’s dismissal of FlagHouse’s claims against 

Zipf. 

When deciding whether an arbitration agreement applies, courts first look to the 

relevant state law of contracts. See Spinetti v. Service Corp. Int’l, 324 F.3d 212, 214 (3d 

Cir. 2003).5

 4 Because New Jersey law provides for personal jurisdiction to the fullest extent allowed 

by the Due Process Clause, and because the Supreme Court has held that it does not 

violate due process to find personal jurisdiction based solely on contacts made in an 

employee’s official capacity, there is no basis for the fiduciary shield doctrine to apply in 

this case and no need to undertake the participation theory analysis engaged in by the 

District Court. 

 Under New Jersey law, agreements to arbitrate with “arising out of” 

5 The Master Services Agreement, which includes the arbitration clause at issue in this 

case, provides that the Agreement should be “construed in accordance with the laws of 
6

language are typically construed broadly in favor of arbitration. See EPIX Holdings 

Corp. v. Marsh & McLennan Cos., 982 A.2d 1194, 1205 (N.J. Super. Ct. App. Div. 

2009). The arbitration agreement between FlagHouse and ProSource contains such 

language, as it calls for “any controversy or claim arising out of or relating to this 

Agreement or to its breach [to] be settled by arbitration.” App. at 52. 

New Jersey courts, however, have found that statutory remedies not explicitly 

included in an arbitration clause are not subject to arbitration. See Garfinkel v. 

Morristown Obstetrics & Gynecology Assoc., 773 A.2d 665, 672 (N.J. 2001). The 

arbitration clause here does not mention statutory claims, nor does it contain other 

indications that such claims are subject to arbitration. See Martindale v. Sandvik, Inc., 

800 A.2d 872, 883 (N.J. 2002); Curtis v. Cellco P’ship, 992 A.2d 795, 801-02 (N.J. 

Super. Ct. App. Div. 2010). The District Court therefore erred in finding “clear and 

unambiguous” intent to subject FlagHouse’s NJCFA claim to arbitration. App. at 13. We 

will vacate its order to submit this claim to arbitration. 

III.

For these reasons, we will vacate the orders of the District Court and remand for 

further proceedings consistent with this opinion. 

 

the State of New York.” App. at 53. Both the parties and the District Court have 

proceeded as if New Jersey rather than New York law applies. The parties have therefore 

waived the application of New York law and we will interpret the contract in accordance 

with New Jersey law. See Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001, 

1005 n.1 (3d Cir. 1980).