Home > Uncategorized > Business Owners: Pitfalls of Doing Business over State Lines

Business Owners: Pitfalls of Doing Business over State Lines

I have a few business clients who are out of state corporations. They have never set foot in Grand Rapids, Michigan.

However, thanks to technology so much of business can now be done virtually.

There isn’t much that can’t be done with a computer, internet and phone.

The same can obviously be said with your business and businesses in every industry.

But the ease of communication with clients in other states comes with a few pitfalls, including complying with other state and federal laws.

However, one such pitfall that was once again brought to my attention is as follows:

What happens in the event of a dispute with an out of state business relationship?

a recent ABA Journal article illustrates the potential pitfalls of doing business “virtually”. You can see the article here

An Arizona Supreme Court ruled on Friday that Arizona residents could sue an out-of-state law firm that offered them legal tax shelter advice.

“I have never met the clients, so I can’t be sued in their state- right?”

The Law firm argued that it could not be sued in Arizona, since it did not have “sufficient purposeful conduct” in Arizona to be brought into the Arizona courts.

Essentially, the firm argued – we did all the legal research in Connecticut, the legal opinion we drafted was done in Connecticut, if the former clients have a dispute with our firm, they should bring it in Connecticut.

The trial court agreed. It found that the Arizona courts did not have “personal jurisdiction” over the law firm.

The Court of Appeals overturned that ruling, and indicated the out of state law firm could be sued in Arizona.

Personal Jurisdiction – Can A Court Require an out of state defendant to show up?

“A court may acquire personal jurisdiction over a nonresident when the nonresident defendant’s relationship with the forum is such that it is fair to require the defendant to appear before the court.” Jeffrey v. Rapid Am. Corp., 448 Mich. 178, 185, 529 N.W.2d 644, 649 (1995).
There is much analysis that goes into where an out of state party can be sued. That analysis is beyond the scope of my post.
However, to avoid this jurisdiction problem, I always recommend business clients consider including a “jurisdiction and venue clause” in business contracts. Such clauses would designate a specific state and county where disputes are to be resolved.

Take Away:

Without such contract language, you are leaving it up to a court to decide whether or not you have sufficient contacts with the state for you to be sued in that state. And in many instances, if you have a dispute with your out of state business relationship, you are likely forced with considering suing them in their home state, as opposed to yours. This obviously comes with inherent costs and inconveniences.

Questions? Comments?

Email me: Jeshua@dwlawpc.com

Visit David & Wierenga, P.C.

As always, nothing contained in my post constitutes legal advice. You should  consult with legal counsel to discuss any issue concerning contract law.

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