One of the biggest risks for any Minnesota company that sells products to out-of-state customers, is collecting money owed if the nonresident company fails to pay as agreed. Without a mandatory forum selection contract provision, a Minnesota company may have to go to the state of residence of the nonresident company in order to collect money owed. This could mean that company witnesses would have to travel to the other state or country to testify in a collections case, making collection so costly that it might cause the Minnesota company to abandon collection altogether.
Minnesota has a law that allows Minnesota companies who conduct business with nonresident companies to force those companies to appear in Minnesota courts to resolve disputes.[i] However, there are limits to this law. In order to force a nonresident company to appear in a Minnesota court, the nonresident company must have sufficient minimum contacts with Minnesota.[ii] This has been interpreted to mean that a nonresident company must conduct enough business in Minnesota, that it should reasonably anticipate being hailed into court in Minnesota should there be a dispute.[iii] This entire area of law is called personal jurisdiction.
When it comes to a Minnesota court having personal jurisdiction over a nonresident company, courts have decided that a contract between a Minnesota company and a nonresident company is not sufficient, in and of itself, to establish personal jurisdiction over the nonresident company.[iv] This is especially true when the nonresident company is the buyer rather than the seller and the product is being delivered to the nonresident company’s state.[v] This really stinks for Minnesota companies.
There is no reason that any company should take the chance on losing the personal jurisdiction fight. In order to establish that all collection of amounts owed will occur in a Minnesota court, the contract between companies should have a mandatory forum selection clause.[vi] A typical forum selection clause might read “all disputes between the parties to this agreement must be filed and decided in the Minnesota State District Court in Hennepin County, Minnesota.”
This mandatory forum selection clause will require that collection lawsuits will be filed and decided by a Minnesota court, thus avoiding the expense of litigating a case in another state or country. Once the Minnesota court decides the case, then that judgment can be enforced in the nonresident company’s home state by asking that state to recognize the Minnesota judgment pursuant to uniform laws in place for that purpose.
About the Writer: Patrick Noaker is a business attorney in Minnetonka, Minnesota who aggressively represents businesses in the courtroom and arbitration. Find and follow him at NoakerLaw.com, LinkedIn, Facebook, Twitter and Pinterest.
[i] Minn. Stat. § 543.19
[ii] Int’l Shoe Co. v. Washintgon, 326 U.S. 310, 316 (1945)
[iii] Pecoraro v. Sky Ranch for Boys, Inc., 340 F.3d 558, 562 (8th Cir. 2003) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985).
[iv] K-V Pharm. Co. v. J. Uriach & CIA, S.A., 648 F.3d 588, 593 (8th Cir. 2011).
[v] Bell Paper Box, Inc. v. Trans W. Polymers, Inc. 53 F.3d 920, 922 (8th Cir. 1995)
[vi] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972).