Practical Insights for Business Owners
Client Q & A: Why am I in a Lawsuit in New York?
Why am I in a lawsuit in New York?
By Vitali Rosenfeld.
If you get sued, one of the first questions to ask yourself is whether you are being sued in the right place. A lot of commercial lawsuits involving out-of-state parties are filed in New York for various reasons – but not always are there legitimate grounds for a New York court to exercise judicial authority over all defendants. Such authority, referred to as “personal jurisdiction,” is a prerequisite for any civil lawsuit. Does the court have personal jurisdiction over you or your business?
Where a party’s contacts with New York are so strong that it may be considered essentially at home in this state, New York courts (both state and federal) may exercise so-called “general jurisdiction,” i.e. jurisdiction that covers any and all claims against that party. That will normally be the case with an individual who lives in New York, or a company that has its primary place of business in New York.
General jurisdiction can also be based on more attenuated contacts: for instance, a company may be incorporated in Delaware and have its main office in New Jersey, but nevertheless do continuous and systematic business in New York. The general jurisdiction analysis may include such inquiries as whether the party has an office or employees in the state, whether it solicits or conducts business in the state, and whether it has bank accounts, real estate or other property in the state.
Where a party’s contacts with New York are insufficient to establish general jurisdiction, it may still be subject to “specific jurisdiction” – which means that the court may exercise its authority over such defendant only with regard to the subject matter of a specific dispute. By definition, the defendant’s contacts with New York that give rise to specific jurisdiction must be related to the events giving rise to the plaintiff’s claim.
For instance, if a foreigner comes to New York and commits some wrongdoing here, he may be sued in New York for the damages caused by that specific wrongful conduct. Likewise, a foreign business may be sued in New York for damages arising from its ownership of real property in this state. But in both examples, the court’s jurisdiction will be limited to the particular claims with a New York nexus, and the non-resident defendant should be able to resist a plaintiff’s attempt to include other claims, for which such a nexus is lacking. There are particular rules for establishing specific jurisdiction depending on the type of claims involved; for some claims, the inquiries are more nuanced and complex than for others.
Forum Selection Clauses
One of the most common grounds for specific personal jurisdiction in commercial matters is a contractual provision in which the parties consented in advance to jurisdiction of a particular court or courts of a particular state. Such a provision is commonly referred to as a forum selection clause. New York courts usually give effect to such provisions, under the principles that the parties are in the best position to determine where they would want to litigate a potential dispute and that enforcement of forum selection clauses provides certainty and predictability, especially in international cases. Indeed, there is a statute precluding a New York court from declining jurisdiction in high-stakes commercial disputes even where the parties’ only connection to New York is the forum selection clause in their agreement.
There are exceptions, however. As any other contractual provision, a forum selection clause may be invalidated if it is found to have been procured by fraud, contrary of public policy, or otherwise unreasonable or unjust.
It is also important to distinguish between exclusive and non-exclusive forum selection. In the first scenario, the parties agree that any dispute arising from their contract may be litigated only in a particular forum; in the second, they consent to a certain forum’s jurisdiction without ruling out the possibility of litigating elsewhere. Suppose that a plaintiff files his contractual claims in New York, even though the agreement contemplates jurisdiction of foreign courts. If the forum selection clause is exclusive, the defendant will have a much better argument for dismissal of the New York action than with a non-exclusive forum selection clause.
But where the forum selection clause is found to govern, there are further questions. Does it cover all of plaintiff’s claims, and does it apply to all defendants? A plaintiff who wants to sue in New York will rely on a forum selection clause in favor of New York courts, but may try to include claims that are extraneous to the contract and to name defendants who did not sign it, such as the contracting party’s affiliates or executives. A lot of care should be exercised in interpreting forum selection clauses and determining their proper scope. Of course, it is better to pay careful attention to such clauses when signing a contract, to ensure that there are no jurisdictional surprises down the road – in other words, that you do not suddenly find yourself required to litigate in a state or country with which you have no connection.
What to Do if You are Sued in New York
Once you are sued in New York, however, the important thing is to determine whether you have a jurisdictional defense before you make any court appearance or filing – because such a defense may be easily waived if it is not timely and properly raised. For that reason, you should consult with competent counsel as soon as you are served. We have extensive experience in analyzing jurisdictional issues and effectively asserting jurisdictional defenses on behalf of individual and corporate clients.