Years ago, many companies dealt with vendors, suppliers, customers and others that were located in the same geographic area. Today, the Internet has made the business world a much smaller place, and it’s not unusual to engage in transactions with entities in multiple states and even countries.
While doing business outside your area may open up new markets and help your bottom line, it can also make your company vulnerable to a potential trap. Always pay attention to clauses that lay out the choice of law and venue when signing contracts. These clauses state what law applies and the location where disputes related to the contract will be resolved.
If you file a lawsuit or your business gets sued, the matter may not necessarily be resolved in your closest courtroom. A decision is not legally valid unless the court has both personal jurisdiction over the parties and subject matter jurisdiction, which means the court has the power to hear the type of case.
Remember that if a contract does not include a choice of law provision or a venue provision, courts will decide where the case will be heard based on personal jurisdiction and subject matter jurisdiction. Obviously, being forced to conduct litigation or arbitration in another state or country is both inconvenient and costly.
As an example, consider the case of a Colorado man who invested in a South African mining company owned by a British company. A dispute ensued over how the mining company used the funds and the Colorado investor sued. Because he held business meetings with representatives from the British company in New York, the courts decided that’s where the litigation would take place. No settlement was reached for 18 months, adding a large amount of travel expenses on top of the investor’s legal expenses.
As you can see, determining jurisdiction can be complicated when there are multiple locations involved in one contract. It’s even more complex when business is conducted over the Internet. The law is continually evolving in this area, and courts must examine Web sites, e-mail messages and other technology issues.
When determining personal jurisdiction, some of the things the courts must examine are where the business is located, including offices, employees, retailers and distributors, if the defendant resides or maintains a bank account in the state, if the defendant has engaged in a significant amount of activity in the state, or if the defendant has used advertising to target residents of the state.
The bottom line is that business owners should always be aware of the “choice of law” clauses and “venue” provisions in all contracts. Reconsider the contract if they involve locations where being in court would be costly and time consuming. Generally, you want the law in your jurisdiction to apply. For more information, consult with Filler & Associates.