Beware of the Long Arm of the Law, p.5
DON’T IGNORE A LAWSUIT
Although a court may ultimately determine that it does not have jurisdiction over you or your beauty business, you can’t afford to ignore a lawsuit. If you or your business fail to contest a lawsuit, the court may enter a default judgment, which means that the plaintiff wins simply because no one answered to contest the case. You should consult your lawyer about answering the complaint promptly for the purpose of challenging the court’s exercise of personal jurisdiction over you or your business.
There is no federal law that controls when a court has personal jurisdiction over an out-of-state company. Each state has established its own laws and rules about long-arm jurisdiction, and the courts apply the law of the state in which they are located. Just because you are an Iowa company doesn’t mean that a court in California will follow Iowa law on this issue. As a result, it is important to consult the laws in any state in which you may be sued to determine how that state’s laws will apply to the specific facts of your situation.
LIMIT WHERE YOU CAN BE SUED
In some cases, you can limit where you can be sued by having your customers enter into a contract that requires all lawsuits to be brought in your home state. Courts will generally enforce a contract that limits where suits can be brought so long as it is not unfair or unreasonable. Showing unfairness or unreasonableness can be very difficult. To show that your contract is unfair or unreasonable, the plaintiff would have to demonstrate that the state you selected is so inconvenient that he or she is deprived of the right to sue at all. If the agreement is made in good faith, the parties are usually entitled to select any state they agree on.
Conversely, if you sign someone else’s contract that says that suits must be brought in a state that is inconvenient for you, you should assume that a court will require you to go to that state to defend yourself or enforce your contractual rights if you think the other party has breached your agreement. If you are asked to sign a contract that specifies an inconvenient location for litigation, you should do your best to negotiate a different location. Many companies will agree to remove or modify those provisions. On the other hand, not every contract poses enough risk of litigation that it is worth negotiating every detail.
A provision limiting lawsuits to a convenient state can only help you if you are sued based on a contract that contains this provision. In the case of the Arizona moonlighter sued for trademark infringement discussed earlier, the parties had never done business with each other and so there wouldn’t have been any opportunity to implement a contractual limitation on the location of lawsuits.
This copyrighted article is intended to help make you aware of some of the issues that you may face, but it is not exhaustive and does not constitute legal advice. You should consult your lawyer for legal advice about the particular circumstances of your beauty business.
Jean Warshaw is a lawyer in private practice in New York City. She provides advice on business and environmental law. She can be reached at 212.722.2240.
[Image: thinkstock.com/Stockbyte collection]