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.