The ease of conducting business in multiple states not only exposes your business to new markets, customers and suppliers, but the obligation to comply with other states’ laws and answer lawsuits in other states. Neither your lack of knowledge of local laws nor your national presence is a defense.
Engaging in business in another state generally obligates you to comply with its laws. The penalty for non-compliance could be drastic, and this risk should always be investigated, evaluated and discussed with counsel familiar with the foreign jurisdiction. State statutes and regulations frequently involve employee relations, environment regulations, consumer protection, financing, collection activity, taxation, property transfers, franchising and licensing. Failure to comply could result in monetary fines and penalties, injunctive relief, punitive damages and the payment of attorney’s fees.
Traditional defenses used by multi-state businesses to avoid penalties for non-compliance with local laws have fallen into disfavor. The argument that federal statutes and regulations preempt state laws has worn thin, as has the claim that state regulatory statutes conflict with the Interstate Commerce Law. Local regulators and courts often focus on protecting their citizens and markets.
Actions you can take to protect your business and limit its exposure include using your written documents for all contracts and transactions, providing a dispute resolution mechanism of your choice, and requiring that disputes be resolved in your home state, where resolution is more convenient and less costly. Contractual requirements that out of state agents, distributors, brokers and suppliers ensure compliance with local and state laws can help shift some of the responsibility and risk to them. Trade or industry associations, as well as the state’s economic development agency are good sources to learn about applicable local laws and regulations. Overall, evaluating the risks, benefits and costs of actions to minimize your risk is generally your best course.
Brooks, Tarulis & Tibble, LLC counsels clients regarding conducting business in multiple states including conducting business on the internet, and can help you locate local counsel if advice is needed. If we can assist you in this matter, please do not hesitate to contact me.