Limitations on Jurisdiction

OK, in the last post we discussed the long arm statutes of various states and if you were left with anything at all, it was that states try to exert their jurisdiction to the maximum extent possible. 

Conceivably, if one reads some of the long arm statutes literally you could find yourself in court in a different state simply because you have a website that someone in that state visited. 

Surely there has to be some limit to this kind of unbridled exercise of jurisdiction, because if not, we would find ourselves embroiled in lawsuit all over the country.

Actually there are some very good limitations in the form of the due process clause of the fourteenth amendment to the Constitution. Stated differently, the federal courts have developed a long history of judicial decisions that sharply limit when and how states can impose personal jurisdiction upon non-residents.

The United States is really a bit unusual compared to other countries in that the states under the Constitution retain a considerable amount of power, independent of the federal government. Because of this, as soon as interstate commerce developed in the early United States, it became quickly obvious that there were going to be conflicts between the laws of different states and even between state and federal law. There was, early on, a need to sort out where and how disputes would be resolved in situations that involved several states. With the development of railroads, which astronomically accelerated interstate commerce, the need became even greater. 

A man in Colorado orders a machine that is made from steel forged in Ohio, but is assembled with other parts from Pennsylvania. The seller of the final machine is in New York. Upon delivery and installation in Colorado the machine breaks because of a crack in the steel. The buyer wants refuses to pay the balance of what he owes, and demands refund of what he has already paid. It becomes the classic case of everyone pointing fingers at everyone else, and of course no one wants to pay.

Where do you go to resolve this? Does the buyer have to go to New York? Can the seller be required to litigate in Colorado. What about the steelmaker in Ohio who had no idea the steel would end up in a machine on its way to Colorado? As you can see, the issues are endless, but to resolve this, somebody is going to end up in court outside of where they do business.

In reality, at least two states in this scenario could try to impose personal jurisdiction. Colorado because that’s where the machine ended up, and the seller knew that he was shipping to Colorado, or, New York, because the seller will argue that that was where the contract was entered into.

Early on this issue hit the U.S. Supreme Court which, in the case of International Shoe v. Washington, held that notwithstanding state long arm statutes, a state court could only exercise personal jurisdiction over a non-resident defendant that had minimum contacts with the forum state. 

Of course, if you’ve been reading this blog at all, you can appreciate how that kind of decision could only result in endless litigation over issues like “what are minimum contacts”, does it matter who initiated the contact, who must the minimum contacts be with and so forth.

The result is the inevitable chain of federal court decisions, which today leave us with the premise that in order for a non-resident defendant to be subject to the jurisdiction of the courts of a state, they must not only have had minimum contacts with that states, but they must have purposely availed themselves of the right to do or conduct business in the state.

Sounds simple – but as with most things legal, it’s not.

The federal decisions, and the state’s responses in the form of different legislation have also left us with the somewhat twisted dichotomy of general versus specific jurisdiction.

We’ll talk about that and some specific considerations regarding jurisdiction soon.

Long Arm Statutes or Why Selling on the Internet Can be Harmful to your mental well-being!

So far we’ve talked about the general idea of a court exercising jurisdiction over a non-resident, and I think by now you understand the issues that creates. So now, let’s look at some specific circumstances where you might find yourself hauled into court in a different state, or conversely, if you’re doing the suing, how you can get someone from another state into court in your state.

In the last post I talked about two concepts – long arm statutes and due process. Quick recap, and to put things into perspective….  Long arm statutes are the state laws that give courts of a state the power to exercise jurisdiction over a non-resident. Due process refers to the constitutional limitations on the exercise of the power. It will make more sense, and be easier to understand if we look first at the long arm statutes and then, later look at the limitations on jurisdiction that courts have imposed on it.

Every state in the country has some form of long arm statute. These statutes set forth the circumstances under which a person or company not resident in the state can nonetheless be made a defendant in a lawsuit in the state. They are not identical from state to state, but are always very broad.

   

The long arm statutes of states fall into two broad categories. Those that specify the acts and conduct that will subject a non-resident to jurisdiction. Others simply say that the courts of the state have as much extra-territorial jurisdiction as the constitution allows.

Here are a couple of examples:

Utah’s long-arm statute goes into detail:

§ 78-27-24. Jurisdiction over nonresidents – Acts submitting person to

jurisdiction.

Any person, notwithstanding Section 16-10a-1501, whether or not a citizen

or resident of this state, who in person or through an agent does any of the following

enumerated acts, submits himself, and if an individual, his personal representative,

to the jurisdiction of the courts of this state as to any claim arising out of or related

to:

(1) the transaction of any business within this state;

(2) contracting to supply services or goods in this state;

(3) the causing of any injury within this state whether tortious or by breach of warranty;

(4) the ownership, use, or possession of any real estate situated in this state;

(5) contracting to insure any person, property, or risk located within this state at the time of contracting;

(6) with respect to actions of divorce, separate maintenance, or child support, having resided, in the marital relationship, within this state notwithstanding subsequent departure from the state; or the commission in this state of the act giving rise to the claim, so long as that act is not a mere omission, failure to act, or occurrence over which the defendant had no control; or

(7) the commission of sexual intercourse within this state which gives

rise to a paternity suit under Title 78, Chapter 45a, to determine paternity for the purpose of establishing responsibility for child support.

As you can see, this statute spells out in detail the things that will subject a non-resident to jurisdiction. Compare this to Arizona’s statute which simply states:

A court of this state may exercise personal jurisdiction over parties, whether found within or outside the state, to the maximum extent permitted by the Constitution of this state and the Constitution of the United States. Service upon

any such party located outside the state may be made as provided in this Rule 4.2, and when so made shall be of the same effect as personal service within the state

Within the statutes that are more detailed, there are of course differences from state to state. In some states, owning property in the state is in and of itself enough to confer jurisdiction, while in other states, property ownership, without more, is not enough. The thing to remember about all of the long arm statutes however is that they are always written as broadly as possible. If you take time to study some of these statutes you will see that virtually anything that you do that even remotely affects the state or a resident of the state could subject you to jurisdiction there.

This overly broad exercise of personal jurisdiction by states was historically troublesome enough, but today, with internet marketing and transactions the norm rather than the exception, it becomes even scarier.

For example, taking the long arm statute literally, you could fi yourself as a defendant in a state hundreds of miles away because you had sold a resident of that state something on ebay, and shipped it to that state.

As you can see, jurisdiction is not an academic issue to be pondered abstractly by legal scholars. It can affect all of us and potentially have serious consequences.

Personal Jurisdiction

Time to explore this concept of “jurisdiction” of state courts a little more.

First, it will help to understand where it comes from. All states, just like the United States have some form of constitution that creates and empowers their court system. The original problem is that states by definition are limited in their authority to what lies within the geographical borders of that state. It is fundamentally clear for example that the legislature of California cannot pass a law that governs the citizens of another state, say Georgia. So too, the courts of  a state are initially limited in their power and authority to things within the state.

Of course we all know and understand that in order to effectively function, a court system must in certain circumstances be allowed to reach beyond the borders of their state or country. A motorist from California for example that comes to Nevada and causes injury must be answerable in the courts of Nevada. It would be neither just, or realistic to require an injured Nevada citizen to travel to California to seek justice simply because the car that struck him, in Nevada, was being driven be a California resident.

There is nothing illegal, unfair or wrong with a state court exercising jurisdiction upon residents of other states who commit acts within the forum state. That principle has been upheld by the federal courts as far back as 1842. The questions that matter to you is not whether a state court can exercise jurisdiction of residents of another state – they clearly can – but instead when, how and under what circumstances?

That’s what we’re going to discuss.

And do not for one minute think that this is an unimportant issue. As I said in the previous post, as people interact more and more on the internet, and things are marketed all over the country, where disputes are resolved becomes more and more important.

Why?

Because the cost and trouble of litigating in another state can give one party a decided advantage in a dispute. In extreme cases, that factor alone can decide the outcome of a dispute. Years ago I had a client in South Carolina come to me with a contract dispute arising out of the leasing of credit card processing machines. He had been sold the a crappy deal by people travelling through the state and wanted to see what could be done. The problem was that the agreement he signed specified that any disputes would be resolved in Massachusetts.  The jurisdiction issue killed his ability to resolve his dispute given the amount if money involved and the potential costs.

So yes, jurisdiction can be a significant factor and is not to be taken lightly.

Now that we know it’s an important issue in potential disputes, and a big consideration when we do business across state lines, let’s look at how it can be addressed.

There are two sources of law when it comes to thinking about personal jurisdiction – state laws commonly referred to as “long arm statutes”; and federal court decisions that govern the exercise of personal jurisdiction in the context constitutional limitations; and more specifically,  due process requirements.

In terms of limiting the exercise of personal jurisdiction over non-residents, the long arm statutes are universally useless. Virtually every state’s long arm statute – the laws that define when a state can exercise jurisdiction over a non-resident – are written so that virtually anything that one does that affects the state, or the citizens of that state, no matter how indirectly, will subject a non-resident to jurisdiction. Most even contain language to the effect that the statute is to be construed so as to confer jurisdiction to the limits of constitutional due process limitations. Thus things like writing a business letter a resident of a state, owning property in the state, being an officer of a corporation that has done any business in the state, or entering into a contract with someone in the state have all been construed by state courts as sufficient to subject a non-resident to jurisdiction of the courts in that state.

Bottom line – if personal jurisdiction is going to be an issue in your court case, and it is becoming an issue more and more frequently - the determining factor will almost always be whether or not the exercise of personal jurisdiction complies with federal due process requirements. More on that in the next post.