With the prevalence of the internet and all of our information and communication technologies, it is increasingly common for individuals and businesses to enter into contractual relations across state lines. People buy and sell all manner of goods and services on-line, taking advantage of greatly expanded choice and markets. But there are risks and potential problems as well, as our business lawyers can attest, including the risks associated with having to litigate disputes outside of California.
While there are a myriad of legal issues which might arise in contract disputes involving out-of-state businesses, the legal principle of “personal jurisdiction” is primary, and often paramount, because it may determine whether you litigate in California or in another state. In order to make rulings that are binding on parties, including individuals, corporations or other entities, a court must have “personal jurisdiction”. So it is important to know, when you are contracting with a party in another state, whether you are submitting yourself to “personal jurisdiction” in that state. If not, then you cannot be successfully sued in that state, even if you breached a contract or engaged in fraud. If another state’s courts find that you did submit to personal jurisdiction in that state, then you can be sued in there. The same principles apply to the other party. You cannot sue them in California if there is no basis for “personal jurisdiction” against them in California.
The questions, then are: “How do I submit to personal jurisdiction in another state?” and, “What can I do to make sure the other party submits to personal jurisdiction in California?” There are typically two ways personal jurisdiction arises: generally or specifically. Personal jurisdiction can arise generally as a result of the sum total of your contacts, connections and activity within a state. Or, it can arise specifically by your express agreement to submit to the jurisdiction of a state, usually in a “forum selection clause” of a contract.
Personal Jurisdiction Based on Forum Selection Clauses
In contract disputes, personal jurisdiction frequently arises by express agreement, because many contracts include “forum selection clauses” which provide that, in the event there is a contract dispute, the parties agree to litigate the matter in a particular state, and to be bound by the decisions of the courts in that state. Forum selection clauses are routine in contracts, are fairly straight-forward, and are usually enforceable.
Personal Jurisdiction Based on “Minimum Contacts”
In the absence of an express agreement to submit to the jurisdiction of another state, personal jurisdiction can only arise where your relationship to that state is sufficiently substantial so as to justify, under common standards of fairness, the assertion of such jurisdiction. This is a matter decided by the U.S. Supreme Court, interpreting the “due process” clause of the United States Constitution, and is commonly referred to as the “minimum contacts” standard.
The “minimum contacts” standard looks to your overall connection with and activity in a state, particularly in reference to the legal dispute at issue. For example, if your primary residence is in Texas but for many years you have also owned a second home in Nevada where you have vacationed for several months each year, you can expect a Court in Nevada would find that it can assert personal jurisdiction over you for almost any matter without offending “…traditional notions of fair play and substantial justice”, as the standard was described in the now famous Supreme Court case of International Shoe Co. v. Washington 326 U.S. 310 (1945).
On the other hand, if your contacts with the State of Nevada are limited to a couple weekend vacations to Las Vegas over a 5 year period, the likelihood of personal jurisdiction being found on that basis, at least for a contract dispute unrelated to those visits, would be slim. However, it is important to understand that the determination of whether sufficient “minimum contacts” exist to justify a court’s finding of personal jurisdiction, in the absence of an express agreement to submit to such jurisdiction, is dependent on the specific facts of each case, and often cannot be predicted with certainty. An analysis by an experienced business litigation lawyer is highly recommended before determining the appropriate jurisdiction for legal action.
Be Aware of the “Personal Jurisdiction” Issue
For anyone doing business with parties in another state, it is important to be aware of the issue of personal jurisdiction. If you want to ensure that you can enforce a business contract in your own state in the event a dispute arises, then you need to confirm either: 1) that the contract includes a forum selection clause that specifies that any dispute will be litigated in your state, or, 2) if there is no forum selection clause, that the other party has a very substantial presence in your state, such that its “minimum contacts” are beyond dispute.
If you or your business is purchasing products or services on the internet, it is important to take care that you do not inadvertently agree to a forum selection clause that requires you to submit to jurisdiction in another state (and thereby, probably, prevents you from suing in your own state). If there is no forum selection clause in whatever contract you sign, and the other party does not have any substantial presence in your state, be aware that you may be unable to sue them in your state if a contract dispute arises. Fortunately, an out-of-state business which sells lots of products or services in your state may well be found to have sufficient minimum contacts to confer personal jurisdiction and provide personal jurisdiction over them in California. If you are a business owner which offers goods and services to out-of-state customers, you should definitely consider including a forum selection clause in your business contracts.
Consult an Experienced Business Litigation Lawyer
The experienced San Diego and Orange County business litigation attorneys at the Gehres Law Library can advise individuals and businesses on the legal issues surrounding the concept of personal jurisdiction, and on contract disputes generally with out-of-state parties. Whether you need help negotiating and drafting appropriate contracts, or representation in enforcing your existing contract rights, we look forward to helping you. Reach out to us for a free evaluation or browse our website for more information.