Personal Jurisdiction Law: Entrepreneurs Beware

So you’re an eager entrepreneur, expanding into new geographic territories as your business expands.  Be careful – your exposure to litigation in other states is also going to increase as you cast a wider net.  Good news: you can take precautions to minimize the growing pains.    

“Personal jurisdiction” law dictates where your business can file a lawsuit and, on a related note, where your business can be sued. In a nutshell, your business must have sufficient contacts with a state before you can be hauled into court in that particular state.  Determining whether you have sufficient contacts with a particular state is a fact-based question, but suffice to say if you are working on a project in another state, and a lawsuit arises out of your activities in that state, you are probably going to be subject to personal jurisdiction in that state. Problem?  Maybe, maybe not.  Maybe a little.  

As you enter into foreign lands, whether it be California or Iowa or New York, there are some things you can do to protect yourself from getting dragged into a courthouse (1) 1,000 miles from your home; and (2) in the backyard of the party who sued you.

First, you can include a provision in your contracts to control where you can be sued.  These types of “forum selection clauses” are generally enforceable. For example, if you are a Minneapolis-based architectural firm and you are going to work on a construction project in Sioux City, Iowa, you can include a provision in your contract specifying that any disputes related to the project will be resolved in a Minneapolis courtroom.

Second, you can include an “alternative dispute resolution” clause in your contract.  For example, you could include a provision which requires the party to resolve any disputes before an arbitrator.  Many businesses believe they will get a “fair shake” with an arbitrator in comparison to a jury full of their opponent’s peers.                                         

Third, and speaking of juries, you could include a provision in your contract which requires the parties to waive their right to a jury if a dispute arises.  Not only does this reduce your anticipated litigation costs (jury trials typically cost a lot more than non-jury trials), but it eliminates the possibility of getting “home-towned” by a local jury standing up for its local business who sued an out-of-town business (that would be you).

Don’t be afraid to grow your business. Do that.  It’s a good thing.  But be proactive and think of ways to minimize your risks along the way.  

For more information on this article or the other articles in this series, be sure to check the Trial Lawyer on Your Side blog next week or contact the Goosmann Law Firm at info@goosmannlaw.com or (712) 226-4000.