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Running an online business can have a variety of hidden legal dangers. When you decide to create a website and open an online business, you are setting shop to the world. Your customers can be anywhere.
Recently, one of my clients opened a vintage jewelry shop online. Her office is based in Manhattan. A customer residing in California purchased an antique engagement ring from her site. The customer claimed that the ring was not authentic and started a lawsuit in California. Does the California court have lawsuit jurisdiction of the case?
There is no foolproof way of avoiding being subject to the jurisdiction of a foreign court in a lawsuit. However, there a number of ways that you can minimize the risk of being sued in another state:
- Draft a Terms of Use and Privacy Agreement. On your website, you need two agreements, a Terms of Use and Privacy Agreement. You need to have two clauses drafted within these agreements: a forum selection and a choice of law. I drafted a forum selection clause for my client stating that jurisdiction is in the County of New York, State of New York. The choice of law was New York.
- Draft a specific contract with each customer. If possible, draft a contract tailored to the services provided for each customer. When negotiating, you may be able to also obtain pertinent information about the customer, such as if they have an office in New York State. If your customer provides a contract to you, make sure that you review the forum selection clause and choice of law.
- Be aware of where you do business. If you do significant business in another state, the court in foreign jurisdiction may rule that you have enough minimum contacts so that you can be subject to a lawsuit in that state.
- Choose a Country. On your website, you should have users pick a country where they reside. If they reside in a country that you may suspect fraud and are unaware of the court system, such as Nigeria, simply do no allow customers to purchase your goods or services from there.
