Opinion ID: 2373925
Heading Depth: 1
Heading Rank: 1

Heading: BACKGROUND. A. Facts and Procedural History

Text: For purposes of this appeal, we adopt generally the procedural history and the facts of the case as set forth in the brief of defendant, Computer Curriculum Corporation (CCC). CCC is a Delaware corporation headquartered in Palo Alto, California. It produces and markets an integrated learning system that uses computer technology to teach and monitor a student's progress in such subjects as mathematics, reading, language skills, and computer-science education. From 1974 to 1989, plaintiff, Instructional Systems, Inc. (ISI), a New Jersey corporation with its primary place of business in New Jersey, has served as the exclusive distributor of products sold by CCC in the Northeast. ISI has done so pursuant to a series of written contracts negotiated between the principals of the two companies. On July 12, 1984, CCC and ISI entered into the contract at issue, entitled Reseller Agreement. Under that contract, CCC appointed ISI as the exclusive reseller of CCC products to certain categories of customers in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Washington D.C. The contract provided that the agreement shall    continue in effect until July 31, 1989. In the fall of 1988, ISI proposed that CCC extend the 1984 Reseller Agreement for one more year. CCC declined to do so. CCC believed that ISI was spending a disproportionate amount of its efforts selling in three states  New Jersey, New York, and Massachusetts  and was practically ignoring the rest of its sales territory. From 1985 to 1987, ISI's sales outside those three states accounted for only eleven percent of its total sales, notwithstanding the fact that thirty percent of the student population in ISI's territory resided there. In two states, Vermont and New Hampshire, ISI made no sales during that period. In Maine, ISI made no sales in either 1986 or 1987. In the District of Columbia, one of the principal population centers in ISI's territory, ISI's sales for the 1985-1987 time period were less than one percent of ISI's total revenues. When CCC approached ISI about its allegedly poor sales performance in those states, ISI claimed that its only obligation was to meet certain territory-wide sale quotas. In CCC's view, ISI had told CCC that it was none of CCC's business within which territory ISI concentrated its sale efforts. Instead of allowing the 1984 Reseller Agreement to lapse when it expired, CCC offered ISI a new two-year contract for the three states in which ISI had its major sales activity  New Jersey, New York, and Massachusetts. CCC decided to take over the marketing of its products in the former ISI territory. Following lengthy discussions, ISI and CCC entered into a new contract on January 30, 1989. On August 1, 1989, CCC began to distribute its products in the former ISI territory. ISI continues to sell CCC products in New Jersey, New York, and Massachusetts. The same day that ISI executed the new agreement with CCC, ISI filed suit against CCC in the Chancery Division. The complaint alleged that the 1984 Reseller Agreement contemplated renewal, that CCC had coerced ISI into signing the new contract, and that CCC had violated the Act by imposing unreasonable standards of performance on ISI. The complaint also set forth claims for breach of contract, breach of implied covenant, tortious interference with prospective economic advantage, unfair competition, unjust enrichment, and breach of fiduciary duty. CCC removed the suit to the United States District Court for the District of New Jersey on the basis of diversity of citizenship. Following discovery, ISI moved for a preliminary injunction enjoining CCC from enforcing the 1989 agreement and for partial summary judgment on its claims under the Act. CCC made a cross-motion for summary judgment, arguing that if the Act could be used to enjoin it from terminating ISI's purported franchise in states other than New Jersey, the Act would violate the Commerce Clause of the United States Constitution. U.S. Const. art. I, § 8, cl. 3. ISI responded to the cross-motion by moving before the District Court for an order remanding the state-law issues to the New Jersey courts under the Pullman abstention doctrine. See Railroad Comm'n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). The District Court retained jurisdiction over the case and [a]pplication of the principles of the law determined by the state court to the facts of this case, but administratively    terminated the matter and remitted to the New Jersey courts the following issues: (a) [w]hether the Act has extraterritorial reach beyond the State of New Jersey and, if so, to what extent; and (b) [w]hat are the definitions and standards of community of interest, license and place of business under the Act[?] After ISI protested that the limited scope of the remand instructions was tantamount to directing the state court to render an advisory opinion, the court clarified its order. That order authorized the New Jersey court to determine whether or not there is a community of interest between ISI and CCC, and whether ISI has a place of business within the meaning of the Act. The District Court acknowledged that the state court would have to consider the facts of the case in deciding those issues and whether the Act could be applied extraterritorially. When the matter was returned to the Chancery Division, ISI filed a new complaint alleging that the 1984 Reseller Agreement had created a franchise and that CCC had violated the Act by failing to renew the agreement without good cause and by imposing unreasonable standards of performance. The complaint sought a declaration of the rights and liabilities of CCC and ISI under their relationship, an order enjoining CCC from terminating its relationship with ISI, damages, attorneys' fees, and costs. Both parties agreed to submit the case to the Chancery Division based on the District Court's record and without further discovery. The Chancery Division issued a declaratory judgment that the relationship between the parties constituted a franchise and that that relationship was subject to the Act. The Chancery Division ruled first that the importance of New Jersey's interest in protecting its franchisees nullified the 1984 agreement's California choice-of-law provision. Next, the court found there could be no other reasonable conclusion but that CCC and ISI had contemplated that plaintiff would have a place of business in New Jersey as required by the Act for coverage. The court then found that CCC had granted to ISI a license to use its trade name. The court based that finding on the conclusions that the school districts buying CCC products had perceived ISI and CCC to be the same entities, and that CCC had vouched for ISI's competence by having ISI train customers to use CCC products. The court found further that there was unequal bargaining power and sufficient mutual dependence between the parties to form the Act's community-of-interest requirement. Finally, the court found that the Legislature had not sought to give the Act extraterritorial effect beyond New Jersey. Rather, it was the parties, by defining a market area in their contract which includes states beyond the State of New Jersey, who gave the Act the extraterritorial reach. The Appellate Division reversed, holding that the 1984 agreement does not constitute a franchise within the meaning of the Act because CCC did not grant a `license' to ISI as that term is used within the Act's definition of `franchise.' Instructional Systems, Inc. v. Computer Curriculum Corp., 243 N.J. Super. 53, 58, 578 A. 2d 876 (1990). The Appellate Division declined to consider whether the Act, if it had been applicable to the relationship between CCC and ISI, could have been applied extraterritorially. Id. at 61-62, 578 A. 2d 876. We granted ISI's petition for certification, 126 N.J. 318, 598 A. 2d 879 (1991). Because the Appellate Division had based its decision solely on the license issue, we asked the parties to brief the remaining issues of choice of law, place of business, community of interest, and extraterritoriality. We heard reargument on those issues. We now reverse.