Many preliminary concerns are involved when deciding whether or not to institute a collection lawsuit. One of the foremost is the decision of where to file that lawsuit. Any evaluation of where to file includes a discussion of jurisdiction.
Jurisdiction involves the court’s ability to determine the dispute at hand. There are two types of jurisdiction that must be present before a court can hear a dispute, subject matter jurisdiction and personal jurisdiction. Subject matter jurisdiction speaks to the power of the court over the nature of the case and the court’s ability to grant the type of remedy that is demanded. Personal jurisdiction speaks to the power of the court over the parties.
For purposes of this article, we can assume that the trial court of any state is going to have subject matter jurisdiction to handle the type of contract disputes that are often at the root of a collection lawsuit. For example, the Court of Common Pleas in Pennsylvania and Ohio; Circuit Courts in Florida and West Virginia; Superior Court in California; and Supreme Court in New York, are all trial courts of general subject matter jurisdiction in their respective states that could hear a collections dispute. The question then becomes whether the particular court has personal jurisdiction over the parties. There are two types of personal jurisdiction, general and specific jurisdiction. This article will focus on specific jurisdiction. Without personal jurisdiction over a defendant, a court cannot adjudicate the plaintiff’s (i.e. creditor) claims.
Most of the time, personal jurisdiction is not considered in a collection lawsuit. The debtor is not paying, so the creditor files suit where the debtor is located. This is done because that is where the debtor is likely to have its assets. Obtaining a judgment where the debtor is located makes enforcement against any assets easier. Personal jurisdiction is not an issue in this instance because the court of the debtor’s locale will have personal jurisdiction over its residents.
Does this mean that a creditor must always sue in the debtor’s home state? What about the expense of sending witnesses to the debtor’s forum? Are the laws of the debtor’s home state more favorable to the debtor or to a creditor? Can a debtor be forced to defend in the creditor’s home state?
The latter question involves the court’s ability to pull those outside of its physical bailiwick into a lawsuit. Over the past sixty plus years there has been an evolution of case law throughout the United States regarding the ability of respective states to bring non-resident defendants into their states.
The United States Supreme Court has interpreted the United States Constitution to require that before a court can exercise personal jurisdiction it must be found that sufficient “minimum contacts” exist between the defendant and the forum where suit is filed. International Shoe v. Washington, 326 U.S. 310 (1945). These minimum contacts must have a basis in some act by the defendant whereby the defendant is purposefully availing itself of the privilege of conducting activities within the forum State, thereby invoking the benefits and protections of its laws.” Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102, 109, 107 S. Ct. 1026, 94 L.Ed.2d 92 (1987). Simply put, if the defendant came into the forum State looking to taking advantage of the State’s opportunities, then the defendant should expect to be held subject to the forum State’s jurisdiction and the forum State’s laws.
The analysis for long arm jurisdiction is very fact intensive. Most states have enacted long-arm jurisdiction statutes that set forth some of the specific grounds by which jurisdiction may be obtained over a non-resident defendant. This help to provide guidance as to what parties can expect the law to do in certain situations. Keep in mind that the grant of jurisdiction by these state statutes cannot extend beyond that authorized by the United States Constitution. In other words, the evaluation of a state long arm statue is also going to include an analysis of whether the ‘minimum contacts’ are established.
Pennsylvania Long Arm Statute
Pennsylvania’s Long Arm Statute, 42 Pa.C.S.A § 5322, is illustrative of such state statutes and provides as follows:
(a) General rule.–A tribunal of this Commonwealth may exercise personal jurisdiction over a person (or the personal representative of a deceased individual who would be subject to jurisdiction under this subsection if not deceased) who acts directly or by an agent, as to a cause of action or other matter arising from such person
(1) Transacting any business in this Commonwealth. Without excluding other acts which may constitute transacting business in this Commonwealth, any of the following shall constitute transacting business for the purpose of this paragraph:
- The doing by any person in this Commonwealth of a series of similar acts for the purpose of thereby realizing pecuniary benefit or otherwise accomplishing an object.
- The doing of a single act in this Commonwealth for the purpose of thereby realizing pecuniary benefit or otherwise accomplishing an object with the intention of initiating a series of such acts.
- The shipping of merchandise directly or indirectly into or through this Commonwealth.
- The engaging in any business or profession within this Commonwealth, whether or not such business requires license or approval by any government unit of this Commonwealth.
- The ownership, use or possession of any real property situate within this Commonwealth.
(2) Contracting to supply services or things in this Commonwealth.
(3) Causing harm or tortious injury by an act or omission in this Commonwealth.
(4) Causing harm or tortious injury in this Commonwealth by an act or omission outside this Commonwealth.
(5) Having an interest in, using, or possessing real property in this Commonwealth.
- Contracting to insure any person, property, or risk located within this Commonwealth at the time of contracting.
- Being a person who controls, or who is a director, officer, employee or agent of a person who controls, an insurance company incorporated in this Commonwealth or an alien insurer domiciled in this Commonwealth.
- Engaging in conduct described in section 504 of the act of May 17, 1921 (P.L. 789, No. 285), known as The Insurance Department Act of 1921.1
(7) Accepting election or appointment or exercising powers under the authority of this Commonwealth as a:
- Personal representative of a decedent.
- Guardian of a minor or incapacitated person.
- Trustee or other fiduciary.
- Director or officer of a corporation.
(8) Executing any bond of any of the persons specified in paragraph (7).
(9) Making application to any government unit for any certificate, license, permit, registration or similar instrument or authorization or exercising any such instrument or authorization.
(10) Committing any violation within the jurisdiction of this Commonwealth of any statute, home rule charter, local ordinance or resolution, or rule or regulation promulgated thereunder by any government unit or of any order of court or other government unit.
(b) Exercise of full constitutional power over nonresidents.–In addition to the provisions of subsection (a) the jurisdiction of the tribunals of this Commonwealth shall extend to all persons who are not within the scope of section 5301 (relating to persons) to the fullest extent allowed under the Constitution of the United States and may be based on the most minimum contact with this Commonwealth allowed under the Constitution of the United States.
(c) Scope of jurisdiction.–When jurisdiction over a person is based solely upon this section, only a cause of action or other matter arising from acts enumerated in subsection (a), or from acts forming the basis of jurisdiction under subsection (b), may be asserted against him.
(d) Service outside this Commonwealth.–When the exercise of personal jurisdiction is authorized by this section, service of process may be made outside this Commonwealth.
(e) Inconvenient forum.–When a tribunal finds that in the interest of substantial justice the matter should be heard in another forum, the tribunal may stay or dismiss the matter in whole or in part on any conditions that may be just.
42 Pa.C.S.A. § 5322.
As you can see, the Pennsylvania Long Arm Statute sets forth some specific instances where a party will be deemed to be “transacting any business” so that the party is subject to the jurisdiction of Pennsylvania courts. Note the ‘catch all’ provision set forth in Section 5322(b), which expands Pennsylvania’s long arm jurisdiction to the full extent allowed under the U.S. Constitution and the ‘minimum contacts’ test set forth in International Shoe. 42 Pa.C.S.A. § 5322 (b). It is under this ‘catch all’ where Pennsylvania case law is looked to for further guidance.
Pennsylvania Case Law
Since we are talking about collection disputes, a quick survey of some specific Pennsylvania cases regarding jurisdiction involving breach of contract causes of action is instructive as to how Pennsylvania courts are going to obtain long arm jurisdiction.
The mere entrance of a non-resident defendant into a contract with a Pennsylvania corporation does not bring the defendant within the jurisdiction of Pennsylvania courts. Mickleburgh Machinery Co., Inc. v. Pacific Economic Development Co., 738 F. Supp. 159 (E.D. Pa. 1990). Contrast that with the holding that, it was not necessary for jurisdiction that the contract with a Pennsylvania corporation be made in Pennsylvania where substantial performance of the contract was to take place in Pennsylvania. Inpaco, Inc. v. McDonald’s Corp. 413 F. Supp. 415 (E.D.Pa. 1976).
No personal jurisdiction existed over non-resident defendant company for carrier’ action to recover shipping charges when transported goods were purchased in Maryland; transported over Pennsylvania highways; contract was neither negotiated or executed in Pennsylvania; defendant never registered to do business in Pennsylvania; and defendant had not conducted any activity in Pennsylvania. George Transport & Rigging Co., Inc. v. International Publications Equipment Corp., 425 F. Supp. 1351 (E.D. Pa. 1977). Insufficient contacts to subject a West Virginia nonprofit corporation to personal jurisdiction in Pennsylvania lawsuit when: West Virginia corporation performed no acts in Pennsylvania and had no presence in Pennsylvania; contract was negotiated and approved in West Virginia; contract was to be performed in West Virginia; and plaintiff signed contract at its’ location in Pennsylvania. Swindell v. Guyandotte Water and Sewer Development Ass’n, 425 F. Supp. 830 (W.D.Pa. 1977).
Specific personal jurisdiction existed over a Louisiana corporation exists in Pennsylvania when Louisiana corporation took affirmative and voluntary actions toward Pennsylvania where representatives of Louisiana corporation attended meeting in Pennsylvania to negotiate the contract; Louisiana corporation knew that it was contracting with Pennsylvania corporation who would perform duties in Pennsylvania; Louisiana corporation sent employees to Pennsylvania to meet with Pennsylvania employees on five separate occasions; and Louisiana corporation directed communications and payments to Pennsylvania. DiMark Marketing, Inc. v. Louisiana Health Service and Indemnity Co., 913 F. Supp. 402 (E.D.Pa. 1996).
While there are certainly advantages to exercising a state’s long arm jurisdiction in a collection action, the analysis of whether a State is going to have personal jurisdiction is very fact intensive and hard to predict. However, a creditor can still obtain the benefits of litigating in its’ own forum through the use of a forum selection clause and a jurisdiction clause. Such clauses are negotiated when entering into a contract or forming a new business relationship, and are generally upheld by courts. These clauses allow a creditor to keep costs down and litigate in a convenient forum as long as certain precautions are taken. Look for our next article on forum selection clauses and jurisdiction clauses.