Flaghouse, Inc. v. Prosource Development, Inc., 528 F. App'x 186

FlagHouse engaged ProSource (via its acquisition of nFocus) to implement an integrated accounts payable, billing, warehouse management, and finance system, with representations made by Zipf in New Jersey.
The Master Services Agreement (Sept 2009) set a completion deadline of Oct 1, 2010, but ProSource discontinued work in Feb 2011 and the project remained unfinished.
ProSource demanded arbitration for approximately $459,822.09 under the arbitration clause covering disputes arising out of or relating to the Master Services Agreement.
FlagHouse filed a New Jersey state court complaint alleging misrepresentation (legal and equitable), negligent misrepresentation, breach of contract and warranties, and NJCFA violations, seeking rescission and damages, and sought to enjoin arbitration.
The case was removed to federal court; the District Court dismissed FlagHouse’s claims against Zipf for lack of personal jurisdiction and dismissed remaining claims as arbitrable, prompting this appeal.
On appeal, the Third Circuit vacated the District Court’s dismissal of Zipf, held Zipf’s New Jersey contacts sufficient for jurisdiction, vacated the order to arbitrate the NJCFA claim, and remanded for further proceedings under New Jersey law.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Zipf is subject to New Jersey personal jurisdiction	Zipf volunteered sales activities in New Jersey thus minimum contacts exist.	Zipf acted as ProSource CEO; such contacts should not automatically bind Zipf personally.	Zipf is subject to New Jersey personal jurisdiction.
Whether the NJCFA claim is subject to arbitration under the Master Services Agreement	Arbitration clause broadly covers disputes arising out of or relating to the agreement, including NJCFA claims.	Statutory claims are not necessarily subject to arbitration absent explicit language.	NJCFA claim is not compelled to arbitration; vacate arbitration submission for that claim.
What law governs the contractual interpretation and arbitration issues	New York law governs due to contract language and forum posture.	New Jersey law should apply as the governing contract law and governing forum analysis.	New Jersey law applies; New York law is waived.

Int'l Shoe Co. v. Washington, 326 U.S. 310 (U.S. 1945) (defines minimum contacts for jurisdiction)
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (U.S. 1980) (arises when defendant should reasonably anticipate being haled into court)
Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102 (U.S. 1987) (basis for purposeful availment in forum-related activities)
Burger King Corp. v. Rudzewicz, 471 U.S. 462 (U.S. 1985) (purposeful availment and fair play and substantial justice in jurisdiction)
Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (U.S. 1984) (employee jurisdiction doctrine not shielded from suit in individual capacity)
Calder v. Jones, 465 U.S. 783 (U.S. 1984) (jurisdiction based on acts within official capacity)
Spinetti v. Service Corp. Int’l, 324 F.3d 212 (3d Cir. 2003) (state law governs arbitration applicability; broad vs narrow arbitration language)
Garfinkel v. Morristown Obstetrics & Gynecology Assoc., 773 A.2d 665 (N.J. 2001) (statutory remedies not necessarily subject to arbitration)
Martindale v. Sandvik, Inc., 800 A.2d 872 (N.J. 2002) (arbitration scope and contract interpretation under New Jersey law)
Curtis v. Cellco P’ship, 992 A.2d 795 (N.J. Super. Ct. App. Div. 2010) (arbitration-related interpretation under New Jersey law)
Mellon Bank, N.A. v. Aetna Bus. Credit, Inc., 619 F.2d 1001 (3d Cir. 1980) (choice-of-law and contract interpretation in federal court)