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Personal Jurisdiction over Foreign Defendants

Mark T. Butler
The issue
For the typical business, litigation is an expensive and time-consuming proposition. In addition to the obvious financial costs — attorney fees, expert witness fees and the like — there are substantial non-financial costs as well, such as the lost productivity resulting from employees spending their time gathering company records, meeting with counsel and testifying at deposition or trial.

These costs may increase dramatically when a company is compelled to litigate in a foreign jurisdiction. The retention of local counsel may result in an unavoidable duplication of effort and expense. Lost time and travel expenses can multiply the cost of an employee’s attendance at a deposition or hearing which otherwise would have taken only a few hours. Invariably, the “home” litigant will enjoy a substantial advantage in the form of convenience and reduced expense.

Accordingly, whether a company has been sued or is contemplating filing suit, the appropriate forum will be one of its first considerations. The resolution of that issue may well mean the difference between success and failure in the ensuing litigation.

The law
Depending on a foreign defendant’s contacts with this state, jurisdiction may be established in Michigan on either a “general” or “limited” basis. Where general personal jurisdiction exists, a defendant may be sued in Michigan without regard to the nature of the underlying dispute. Where only limited jurisdiction exists, however, the suit must arise out of the specific acts which subject the defendant to jurisdiction in this state.

For general jurisdiction to exist, a foreign corporation must have “continuous and systematic” contacts with Michigan. Essentially, a company is subject to the general jurisdiction of the Michigan courts if it regularly operates here in the ordinary course of its business.

Limited personal jurisdiction may be exercised over a foreign corporation in litigation that arises out of the following:

(i).    The transaction of business in Michigan;
(ii).   The commission of a tort within the state or causing damage to occur within the state;
(iii).  The ownership, possession or use of real or tangible personal property within the state;
(iv).   Contracting to insure any person or property in Michigan; and/or
(v).    Contracting to perform services or furnish materials in Michigan.

While any of these actions may subject the corporation to suit in Michigan, it is important to note that limited personal jurisdiction will extend only to disputes arising out of those specific actions.

Practical suggestions
1.    Anticipate potential forum selection problems before they arise. If possible, negotiate a forum selection clause in your contract that requires any future dispute to be litigated in your desired forum, rather than Michigan. Such agreements are typically enforceable unless determined to be unreasonable or unjust.

2.    Keep accurate and complete records of your communications with other parties, during both the negotiation and performance of the contract. Include in your records the location any meetings between the parties. In the event of a dispute, a detailed history of the party’s dealings — including who, what, when and particularly where — may prove extremely valuable.

3.    Retain counsel as soon as a dispute arises or suit is filed. The sooner legal advice is received, the greater your opportunity to shape the facts in such a way as to avoid litigation or, at least, to minimize your exposure.

4.    A defense based on lack of personal jurisdiction may be waived. Thus, if a defendant does not challenge personal jurisdiction in its initial responsive pleadings, it may be deemed to have consented to litigating in Michigan. Once again, it is imperative that counsel be retained as soon as suit is filed, in order to ensure that there is sufficient time to investigate the circumstances surrounding the dispute, determine if personal jurisdiction exists and prepare the appropriate responsive pleadings.

Mark T. Butler has successfully represented foreign individuals and corporations in challenging the personal jurisdiction of the Michigan state and federal courts. As a result of these efforts, the cases against our clients have been dismissed, at a fraction of the cost that would have been incurred had they proceeded in this state.