Long Arm Statute
The term “long arm statute” refers to the jurisdiction that one court can have over a defendant corporation that operates outside of the state. Any company that is located in one state, but does business in another, and hires people in yet another, can fall under the long arm statute.
For example, the long arm statute would apply to corporations like Walmart. Walmart’s headquarters is situated in Arkansas, but its locations, and those it employs, are located in cities across the country. This means that, according to the long arm statute, customers and employees can institute a lawsuit in their own state. To explore this concept, consider the following long arm statute definition.
Definition of Long Arm Statute
- The jurisdiction that a court can have over a company that conducts business in a different state.
What is Jurisdiction
The term “jurisdiction” is defined as the power of a court to hear a case and render a related decision. Several different categories of jurisdiction exist. In personam jurisdiction, for instance, is jurisdiction over a person. This means that a court has jurisdiction over a person when he has roots in a certain location. Those roots can include his residence, family members, or even just business contacts in that particular area. There are three types of jurisdiction that give a court the authority to hear a case.
“In personam” or “personal” jurisdiction used to be the go-to jurisdiction insofar as whether or not a court was legally allowed to hear a case. However, the concept of personal jurisdiction was expanded upon in 1945, when the Supreme Court held that, in order for a court to have personal jurisdiction over a person, he must have “certain minimal contacts” within the state where the lawsuit is being brought.
The long arm statute allows courts to obtain jurisdiction over an out-of-state corporation or person whom they might not otherwise have been able to preside over before the law was expanded in 1945. Typically, all that needs to be shown is that an accident or injury occurred within a particular state for a person to establish that he had “substantial contact” with that state.
For example, the long arm statute would apply in a case where a driver from New York is sued by someone in Ohio based on the damages that resulted from his negligence while driving in Ohio. Similarly, a company can be sued under the long arm statute upon shipping a product to a customer in another state that, upon the customer’s receipt, fails, explodes, or somehow causes damage to the customer upon arrival.
The laws governing long arm jurisdiction vary from state to state, and so state laws must be consulted upon filing a lawsuit to determine whether the long arm statute would apply.
In general, courts have jurisdiction over issues that occur within their territorial, or geographical, jurisdiction. For instance, if Jaime lives in State A, near the border with State B, and goes to a shopping mall in State B, and is involved in an accident near the mall, State B would have territorial jurisdiction over any pending legal action. This gives no regard to the fact that Jaime lives in another state.
Subject Matter Jurisdiction
Subject matter jurisdiction limits certain courts to hearing certain types of cases. For example, a bankruptcy court can only hear matters related to bankruptcy, and could not make decisions regarding a person’s criminal charges. Family court hears matters related to family issues, including divorce, child custody, child support, and spousal support.
Minimum Contact Rule
The minimum contact rule holds that, as long as a company has had some contact within the state where the lawsuit is being brought, the company is subject to the laws within that state. The company can legally be sued by a plaintiff within that state in a court of law. The law here is not cut and dry. While the minimum contact rule states that only minimal contact need to be established between the plaintiff and defendant in a particular geographical region, there are three factors necessary to extend the long arm statute and bring the defendant company to court:
- The level of closeness between the claimant and the contact
- The level of convenience in bringing the defendant to the claimant’s state
- The fact that a state has the right to fight back and protect the rights of its own citizens
In a nutshell, the minimum contact rule can be enforced, so long as it does not obstruct fair play and justice. In the U.S., enforcement of long arm statute jurisdiction is actually dependent on the type of case being brought, such as a tort or contract case, as opposed to other countries that enforce the concept more broadly.
Long Arm Statute Example Involving a Shoe Company
A good example of the long arm statute being brought before the Supreme Court involves a shoe company that operated out of one state while doing business in another. The case ultimately set precedent in 1945 by amending the long arm statute insofar as the minimum contact rule.
International Shoe Company was a manufacturer of shoes that principally operated out of Missouri. The company also employed salespeople who lived and worked within the state of Washington. These salespeople earned steady commissions each year and were reimbursed for their expenses, thereby establishing a continuous relationship with the company.
The employees were also not permitted to set their own prices, negotiate contracts, or to make collections from those who did not pay. This worked to make them entirely dependent on International Shoe insofar as how to proceed on a day to day basis, strengthening their relationship with the company even further. All decisions regarding the pricing and sales of shoes were made by International Shoe’s Missouri office, so it could not be argued that these employees were independent agents of any sort.
The state of Washington ultimately sued International Shoe for not paying unemployment taxes for employees who lived and worked for the company from their Washington homes. Even though International Shoe did not conduct business in Washington, the state could exercise the minimum contact rule to seek back taxes.
International Shoe’s Washington employees did not have their own offices and would often make sales presentations to customers in hotels. Allegedly, International Shoe had set up their out-of-state sales model in such a way as to deliberately avoid having an official location in another state so as to avoid being taxed.
International Shoe appeared before the office of unemployment to argue Washington’s jurisdiction over the company as a corporate “person.” The company argued that it was entitled to due process and personal jurisdiction under the Fourteenth Amendment. Specifically, it argued what exactly established minimum contact, and whether the long arm statute could be applied in this case.
The trial court, however, ruled that it did, in fact, have personal jurisdiction over the company, and so International Shoe lost at the lower court level. This decision was upheld on appeal, as well as by the Superior Court and the Supreme Court of Washington. International Shoe took the case to the Supreme Court, and the Court agreed to hear the case.
The Supreme Court ultimately held that just because International Shoe engaged in interstate commerce, this did not excuse the company from making the necessary payments to Washington state. The Court clarified that personal jurisdiction here had effectively been established and, relatedly, that such personal jurisdiction was legitimate, so long as a defendant had minimum contact with the territory in which he was being sued. The Court wrote:
“Historically, the jurisdiction of courts to render judgment in personam is grounded on their de facto power over the defendant’s person. Hence, his presence within the territorial jurisdiction of a court was prerequisite to its rendition of a judgment personally binding him…But now that the capias ad respondendum has given way to personal service of summons or other form of notice, due process requires only that, in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.'”
Justice Hugo Black authored a separate opinion wherein he agreed with the Court’s decision in part, and disagreed in part. Justice Black contended that the Court was excessive in its restriction of states’ power to seek jurisdiction over the companies they did business with, specifically:
“I believe that the Federal Constitution leaves to each State, without any ‘ifs’ or ‘buts,’ a power to tax and to open the doors of its courts for its citizens to sue corporations whose agents do business in those States. Believing that the Constitution gave the States that power, I think it a judicial deprivation to condition its exercise upon this Court’s notion of ‘fair play,’ however appealing that term may be. Nor can I stretch the meaning of due process so far as to authorize this Court to deprive a State of the right to afford judicial protection to its citizens on the ground that it would be more ‘convenient’ for the corporation to be sued somewhere else.”
Related Legal Terms and Issues
- Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
- Due Process – The fundamental, constitutional right to fair legal proceedings in which all parties will be given notice of the proceedings, and have an opportunity to be heard.
- Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.
- Tort – An intentional or negligent act, a civil wrong, as opposed to a criminal act, which causes harm to another.