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A Lesson on Jurisdiction from the Basketball Courts



When can my Utah business be forced to litigate in another state? 

This is a simple question with a not so simple answer.  In fact, any discussion about this question can easily—and quickly—get very technical and very complicated.  Suffice it to say for now that one of the things that a court in another state will need in order to enter a judgment involving your business is personal jurisdiction.

Personal jurisdiction has been defined as “[a] court’s power to bring a person into its adjudicative process.”[1]  In plainer language, personal jurisdiction is the power that a court has over a particular party to a case.  If a court does not have personal jurisdiction over your business, it cannot enter a judgment against your business.

How does this work when someone files a lawsuit against my Utah business in another state? 

Often the answer will depend on where the plaintiff has filed suit.  For instance, if your business was incorporated in Delaware and your principal place of business is in Utah, the plaintiff is very likely to be able to sue your business in Delaware if he wants to.  If the plaintiff wants to sue in a different state, however, the courts will generally look to certain state laws known as long-arm statutes to determine whether the courts have personal jurisdiction over your business.  They will also look at the nature and amount of the contacts between your business and the state in which the plaintiff is suing. [2]  If the court decides that the contacts between the state and your business are numerous enough and related closely enough to the plaintiff’s claims, then you will probably have to litigate in that state.  Otherwise, you can insist that the plaintiff file his lawsuit in another state.

How does this work with internet-based businesses?

The answer to this question is not simple.  However, an influential opinion written by Neil Gorsuch[3] shows that in the internet age it may be easier than you think to create enough contacts with another state to justify that state in asserting jurisdiction over your business.

In Dudnikov v. Chalk & Vermillion, the British owners of copyrights in certain Erte images (SevenArts), through their U.S. agent (Chalk & Vermillion), sent a notice of copyright infringement to eBay asking eBay to prohibit a seller (Dudnikov) from selling certain fabrics on eBay because of alleged copyright infringements involving pictures of a woman and a dog. SevenArts also sent an email to Dudnikov which threatened her with a copyright infringement lawsuit.  In response, Dudnikov filed a preemptive case in Colorado seeking a declaratory ruling from the court that she had not infringed any of SevenArts’ copyrights.

For their part, SevenArts wanted to litigate in California, not Colorado, and so they argued that the Colorado court did not have personal jurisdiction over them because they had essentially no contacts with Colorado.  Their notice of copyright infringement had been sent to eBay in California, not Colorado, and their email to Dudnikov was not sufficient by itself to create personal jurisdiction in the Colorado courts.

The Tenth Circuit disagreed with SevenArts and allowed the case to go forward in Colorado.  In his opinion explaining their decision, Judge Gorsuch emphasized that SevenArts knew that it was dealing with a Colorado business when it sent its notice of copyright infringement to eBay and its email to Dudnikov.

Using a basketball analogy, Gorsuch further explained that SevenArts’ notice of copyright infringement worked a bit like a bank shot in a basketball game.  Though the notice was sent to eBay in California, SevenArts intended for the primary effect of the notice to be felt not in California but in Colorado—much the same way that a basketball player who tries to score by bouncing the ball off of the backboard is primarily concerned not with hitting the backboard but with making a basket.

Using this rationale, the Tenth Circuit ruled that the nature and amount of the contacts between SevenArts and Colorado was enough to subject SevenArts to the personal jurisdiction of the Colorado courts even though SevenArts was not incorporated in Colorado and did not have its principal place of business in Colorado.

What does this all mean for my Utah business?

That depends.  But one thing to remember is that even relatively small amounts of contact with people or companies in other states could result in your business being forced to litigate in that state.

 

© 2017 Kevin R. Worthy. All rights reserved.

[1] JURISDICTION, Black’s Law Dictionary (10th ed. 2014)

[2] Walden v. Fiore, 134 S.Ct. 1115, 1122 (2014).

[3] Dudnikov v. Chalk & Vermillion, 514 F.3d 1063 (2008).

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