The Louisiana Court of Appeal, First Circuit, recently concluded that Louisiana courts did not have personal jurisdiction over a nonresident television production company that owned intellectual property that was solely distributed in Louisiana by third parties.1 Because the television production company did not have the necessary minimum contacts with Louisiana, the state could not impose corporate income and franchise taxes.
The taxpayer, Jeopardy Productions Inc. (“Jeopardy”), is part of the television division of Sony Entertainment Group with a principal place of business in Culver City, California. Jeopardy licenses distribution of the Jeopardy! television show to the CBS Television Distribution Group (“CBS”) and use of the trademark and logo to International Gaming Tech (“IGT”) and various other third-party manufacturers. All of Jeopardy’s revenue is earned as royalties from licensing and distribution agreements.
CBS, which has exclusive sublicensing and distribution rights across the country, sublicenses the broadcasting rights to Jeopardy! to multiple local television stations in Louisiana. IGT places the Jeopardy name and logo on gaming machines and places those consoles in venues across the country, including casinos and truck stops in Louisiana. Finally, other third-party manufacturers place the trademarked “Jeopardy!” name on merchandise and distribute it across the country.
The Louisiana Department of Revenue filed suit to collect corporate income and franchise taxes for Jeopardy’s 2011-2014 tax years on over $3.6 million of royalty income from the licensing agreements attributable to Louisiana. Jeopardy filed a declinatory exception and raised the objection of lack of personal jurisdiction. According to Jeopardy, it did not transact any business in Louisiana and its contacts through unrelated third parties in the state did not rise to the level of minimum contacts required by due process of law.
When the Louisiana trial court heard the matter, Jeopardy argued that it had no control over where CBS and IGT distributed the Jeopardy! game show or its other intellectual property. Jeopardy further argued that: (i) all of Jeopardy’s business decisions concerning its licensing activities are made in California; and (ii) the licensing agreements make clear that Jeopardy is not in partnership with the third-party licensees and that there is no privity of contract with those licensees.
The trial court found that Jeopardy had no direct contacts with Louisiana as it had no physical presence, made no business decisions, had no employees, and did not carry out any direct business activity in Louisiana. As a result, the trial court ruled that Jeopardy did not purposefully direct business on its own behalf in Louisiana and that for Louisiana to maintain personal jurisdiction over Jeopardy “would violate the notions of fair play and substantial justice.” The trial court granted Jeopardy’s exception raising the objection of lack of personal jurisdiction and dismissed the Department’s petition. The Department appealed the trial court’s decision.
No minimum contacts with Louisiana
The Court of Appeal affirmed the trial court’s judgment that Louisiana did not have personal jurisdiction over Jeopardy. In reaching its decision, the Court considered the Louisiana long-arm statute, which allows a court to exercise personal jurisdiction over a nonresident, who acts directly or by an agent, as to a cause of action arising from: (i) transacting business in the state; or (ii) contracting to supply services or things in the state.2 Also, a court may exercise personal jurisdiction over a nonresident on any basis consistent with the U.S. or Louisiana Constitutions.3 The Court explained that jurisdiction is allowed “as long as due process is not offended.”4 Due process requires a nonresident to have “minimum contacts” with a state so that the “notions of fair play and substantial justice” are not offended.5
The minimum contacts test is satisfied if a defendant “purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.”6 For a defendant to purposely avail itself of the privilege of conducting activities in the state, the actions must be of a nature that the defendant would reasonably anticipate being haled into court in Louisiana and not brought to court simply because of a “random, fortuitous, or attenuated contact, or by the unilateral activity of another party or third person.”7
The two types of personal jurisdiction are specific jurisdiction and general jurisdiction.8 The Court ruled that the state did not have specific jurisdiction, which is jurisdiction arising out of the nonresident taxpayer’s contacts with the state and purposeful availment of the privilege of conducting business in Louisiana. Also, the Court found that Louisiana did not have general jurisdiction, which is jurisdiction arising from a taxpayer being domiciled in the state or having substantial and continuing activities in Louisiana.
The Court reasoned that since Jeopardy has no privity of contract and no partnership agreement with the third-party distributors who act separately from Jeopardy, the state could not assert jurisdiction. Jeopardy had no contact with Louisiana other than the activities of unrelated third parties. Furthermore, Jeopardy had no control over where the third parties decided to market and negotiate distribution of the game show and merchandise. Each licensing agreement specifically provided that Jeopardy is not in a partnership, joint venture or agency with CBS or IGT. The Court determined that “the random, fortuitous, and attenuated contacts with Louisiana, that were initiated by the independent activities of third parties, were simply not sufficient to establish personal jurisdiction over Jeopardy in Louisiana.” Also, the Court explained there was no reason for Jeopardy to have anticipated being brought into a Louisiana court. Therefore, the Court concluded that the trial court correctly decided that Jeopardy was not subject to the jurisdiction of Louisiana.
The Court found that Jeopardy had an attenuated connection with Louisiana because its contact ran through several third parties who ultimately licensed the broadcast of Jeopardy! in Louisiana and placed products using Jeopardy’s intellectual property in the state. The Court determined that Jeopardy did not have any control over the activities of the third parties and, therefore, did not control if and to what extent the Jeopardy intellectual property was utilized within the state. The Court’s conclusion, however, was based solely on the testimony of the company before the trial court and the language in the contracts between Jeopardy and its distributors. The Court did not analyze these relationships to determine if an agency relationship existed, despite what was stated in the contracts. This is significant since the Louisiana long-arm statute extends the state’s jurisdiction to nonresident taxpayers that transact business in the state either directly or through an agent. It seems logical that Jeopardy would contract with large, multinational companies like CBS and IGT simply so that the Jeopardy! game show and its related intellectual property could be distributed nationally. While Jeopardy did not plan to directly target the Louisiana market versus other markets, it was relatively clear that intellectual property reached Louisiana viewers through the relationships Jeopardy had with CBS and IGT.
It is also interesting to note that while the entire basis of the Court’s decision centered around the concept of when a nonresident is subject to the jurisdiction of Louisiana courts, the Court never expressly discussed the wording of the statute. While the Court referred to the statute and provided the relevant statutory language in a footnote, it did not base its decision on the language of the long-arm statute. Instead, the Court cited language from Louisiana and U.S. Supreme Court cases to discuss the general principles of general jurisdiction over nonresident taxpayers.
Finally, it is noteworthy that the Court never analyzed the state’s income tax nexus rules. There is no reference to any of the state’s nexus statutes or regulations, and there is no discussion of the types of activities that typically would create nexus within the state. If the Court had examined the state’s nexus rules, the Court might have reached a different conclusion.
As a result of the analysis performed by the Court, the holding in this case should be limited to the specific facts of the case. Because the Court did not examine the state’s nexus rules, it is difficult to conclude that the Department would not be able to successfully assert nexus against a taxpayer that directly markets its intellectual property within Louisiana.
1 Robinson v. Jeopardy Productions, Inc., Louisiana Court of Appeal, First Circuit, No. 2019 CA 1095, Oct. 21, 2020.
2 LA. REV. STAT. ANN. § 13:3201.A.
3 LA. REV. STAT. ANN. § 13:3201.B.
4 Northshore Regional Medical Center, LLC v. Dill, 94 So.3d 155, 162 (La. App. 2012).
5 International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
6 Broussard v. Diamond Aircraft Industries, Inc., 65 So.3d 187, 190 (La. App. 2011), quoting A&L Energy, Inc. v. Pegasus Group, 791 So.2d 1266, 1271 (La. 2001), cert. denied, 534 U.S. 1022 (2001) (citations omitted).
7 Id. (Emphasis added by Louisiana Court of Appeal.)
Jamie C. Yesnowitz
Jamie Yesnowitz, principal serving as the State and Local Tax (SALT) leader within Grant Thornton's Washington National Tax Office, is a national technical resource for Grant Thornton's SALT practice. He has 22 years of broad-based SALT consulting experience at the national and practice office levels in large public accounting firms.
Washington DC, Washington DC
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