Exam 2 - Due 11-14-06 - answer

Question I: Donald, a North Dakota citizen, was a bright young man who had an idea for a business that might make him rich (he thought). After making a brief survey of the possible market opportunities in North Dakota, Donald decided that he could make a lot of money selling refrigerators during the months of November through February. He believed that North Dakota citizens, a populace known to look for bargains, would enjoy the novelty of buying refrigerators in those months. Further, Donald had seen an advertisement in a national trade journal in which Acme, Inc., a manufacturer of sma1l refrigerators in Alabama, had reported that it usually had refrigerators left over at the end of a year of production that it could not sell.

Acme was a profitable company with a good reputation in southern states, which it had developed by concentrating all its marketing efforts in Alabama, Georgia, Florida, North Carolina and South Carolina. In general, its customers bought the small refrigerators to use in local camping, fishing, and vacation lodges that the customers would normally visit in the summer. But because refrigerators changed from one year to the next (in much the same fashion that American automobile manufacturers change models every year), surplus refrigerators were usually just thrown away.

Donald's plan was to buy the refrigerators at a heavy discount on their price; ship them to North Dakota; and then make money by offering them to the local populace at a price just a little below the normal retail price. Donald also thought that if he sold the refrigerators on credit, he could make additional money on the interest he could charge the customers.

When Donald approached Acme (by telephone), the company's officers were intrigued. Donald was careful not to explain the details of his plan to the company. He insisted that he would take title to the refrigerators in Alabama and arrange for his own shipping so that Acme could not copy his plan and just "take over" the North Dakota market. Nevertheless, Acme's officers concluded that if Donald would pay, they could sell surplus refrigerators, even at a reduced price, and be much better off than if they simply destroyed the surplus products at the end of the year.

So the deal was made. Acme checked out Donald's credit references, which were good, and concluded that it made sense to sell him the refrigerators on credit, with payment to be made to Acme after Donald collected from his own customers. Acme was experienced in making deals without a formal written contract, so except for a few letters that went back and forth, the understanding was largely oral.

The small refrigerators got a very good reception in North Dakota. Customers visiting Donald's store (named "Donald's Store") were intrigued, and loved the prices and credit that Donald offered. Allover North Dakota and even into Minnesota, word of mouth spread that Donald might have something special.

But the problems came. It turned out that North Dakota citizens liked to use the small refrigerators when they did their cold weather camping and ice fishing -but this was happening in North Dakota in winter, not summer (as in Acme's normal sales area). In North Dakota people wanted small refrigerators to sit outside their huts and regulate the temperature of beer (to keep the beer cool without freezing it). Indeed, if they had wanted to freeze anything, they had only to put it outside their winter cottages without a refrigerator. But the refrigerators were not designed to resist such extreme cold as they faced in North Dakota. Some of them worked well, but enough failed so that Donald's reputation was in ruins and his unhappy customers began to refuse to pay him, telling him in very harsh terms that his refrigerators were a huge disappointment. He, in turn, stopped payments to Acme. Donald was not entirely sure that his customers were always telling him the truth, because he knew that at least some of the refrigerators were operating satisfactorily. But he felt caught between customers and Acme, and he also said he had been misled by the company's officers who promised him, orally and in writing, that the refrigerators could resist temperature extremes. The officers responded by saying they were talking about hot weather, not cold weather. In any case, Donald's reputation in North Dakota was so damaged that before any lawsuit occurred he moved to Montana.

The exchanges between Donald and Acme became ever more hostile, and eventually Acme sued Donald in an Alabama state court for $100,000. There were many reasons for their choice of Alabama, but two stood out: (1) they didn't want a jury of angry citizens of North Dakota, who might blame Acme for the refrigerator problem; and (2) Alabama law recognized and would enforce most oral contracts.

Two days after service of process, Donald's attorney responded with a motion to dismiss for failure of personal jurisdiction. In the motion, Donald's lawyer conceded that notice and service of process had been satisfied, and that venue and forum non conveniens were not issues. The lawyers for both sides agreed that Alabama ' s long arm statute: reached as far as constitutional due process would permit.

Evaluate the chances that Donald's motion to dismiss will be granted. Explain your answer.

Question II: Assume that all the facts laid out in Question I are still applicable, with the important exception that Donald never filed a motion to dismiss for failure of personal jurisdiction. Instead of that motion, assume that Donald filed an answer and counterclaim five days after he was served with process. The counterclaim alleged that Acme breached the contract and owed Donald $10,000 for losses he suffered because so many refrigerators proved unsatisfactory, plus punitive damages of $20,000 for deliberately misleading him. Ten days later, before Acme responded to the counterclaim, Donald petitioned for removal to federal court in Alabama.

First Problem: Should the entire case be removed to federal court pursuant to Donald's motion? Should any part of the case be remanded to state court? Explain.

Second Problem: Without regard to how you answered the first problem immediately above assume that the counterclaim was remanded to state court. With the benefit of hindsight, what could Donald's lawyer have done that would have made a remand less likely?

NOTE: For your information, you may assume that counterclaims in federal court are controlled by Rule 13 of the Federal Rules of Civil Procedure. You may also assume that Alabama's procedure uses the IDENTICAL Rule 13 for counterclaims. There is no reason for you to be concerned about the details of Rule 13. It is, however, up to you to r decide whether this information has any relevance to your answer to Question II.