Suing an Out-of-State Party

Attorney Mark Hayes represented an out-of-state corporation in a recent breach of contract case. The case was eventually dismissed for lack of personal jurisdiction over the corporation, and on appeal Hayes defended the corporation’s trial win on the grounds of lack of jurisdiction.

As described in the July 30, 2015, post on jurisdiction over a custody order, jurisdiction essentially sets the boundaries to a court’s authority – what matters it can decide and what parties it can affect. For a court to be able to decide on a legal dispute, it must have both subject matter jurisdiction (the authority to rule on the specific legal question) and personal jurisdiction (the authority to rule on a matter involving the specific parties in the dispute). For disputes involving out-of-state parties, personal jurisdiction can present a significant hurdle.

International Shoe Co. v. Washington, the seminal United States Supreme Court case on personal jurisdiction over out-of-state parties, requires an out-of-state actor (particularly a corporation) to have “minimum contacts” with a state in order for that state’s courts to be able to decide a legal dispute in which the corporation is a party. If the out-of-state corporation does not have sufficient minimum contacts with the host state, exercising jurisdiction over the legal dispute would constitute an offense of “fair play and substantial justice.” This means that a New Mexico corporation, for example, needs to have some minimal relationship with North Carolina, by employing people in North Carolina, selling its products in North Carolina, or conducting some other significant business activity in this state. If such a relationship exists, the corporation is benefiting from the laws of North Carolina, and it would not be unfair to haul that New Mexico corporation into court in North Carolina.

Courts tend to look at the International Shoe test as being two-pronged, first addressing the minimum contacts requirement before considering fairness and justice. However, courts will treat the two as interdependent on a sliding scale. This means that stronger contacts with the host state will allow the court to exercise personal jurisdiction despite a weak showing that it would be fair and just. Conversely, if the corporation were in South Carolina rather than New Mexico, and thus questions of fair play and substantial justice are minimal due to the proximity between the corporation and the host state, a North Carolina court would not need as much of a showing in minimal contacts. Additionally, states also have their own laws on when jurisdiction can be asserted, adding yet another wrinkle to the issue – an assertion of personal jurisdiction must comply both with the International Shoe test and with the relevant state statute.

Personal jurisdiction is a complex concept that can be difficult for non-lawyers to grasp. Durham-based attorney Mark Hayes has helped his clients navigate its waters before, representing both in-state clients and out-of-state clients in cases which turned on the question of jurisdiction.

Posted on: 2 Apr, 2016