For small business owners, the growth of a startup business can cause you to overlook the legal minutiae that come along the way. It is not unusual to see small businesses that started out using form contracts or invoices that may have done the trick at the time, but ten or more years later they remain unchanged, without any new terms or conditions to accommodate the growth of the business. The business may have started selling goods or services in a relatively small, local area, then before they know it, especially in the digital age, they are selling goods or services across State borders. But have they considered whether those initial contract forms sufficiently address the needs of the expanded business? Or whether the contracts and business practices comply with the laws of the jurisdiction in which they are selling? As an example of unexpected issues that may arise, below are summaries of two interesting decisions that the Pennsylvania Courts have issued this year.
In February, the Pennsylvania Supreme Court issued a decision in Danganan v. Guardian Protection Services,[1] in which a customer (Danganan) purchased a home security system and services from Guardian Protection Services, a Pennsylvania business, for his residence in Washington, D.C. The service contract had an initial term of three years. Before the three years expired, Danganan moved and sold his residence in D.C., but Guardian continued to bill him and collect for the remainder due under the contract. Danganan sued Guardian in Pennsylvania and asserted a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), which allows consumers to pursue triple damages and attorney’s fees for deceptive business practices. Guardian tried to get the UTPCPL claim dismissed, arguing that the law did not apply to non-Pennsylvania residents or transactions outside of Pennsylvania. Ultimately the case was submitted to the Pennsylvania Supreme Court, which determined that a non-Pennsylvania resident may bring suit under the UTPCPL against a Pennsylvania business based on transactions that occurred out-of-state.
This decision should remind Pennsylvania business owners to confirm that its consumer contracts for transactions both inside and outside of Pennsylvania are compliant with the provisions of the UTPCPL and any regulations emanating from that law. For those newer businesses still filling out those initial forms from the startup days, it is time to have a qualified attorney take a look and make any necessary revisions to properly protect the business.
In addition, in June the Pennsylvania Superior Court issued a decision in Webb-Benjamin, LLC v. International Rug Group, LLC,[2] which involved a dispute over a commission payment. Webb-Benjamin, a Pennsylvania company, entered into a contract with International Rug Group, a Connecticut company, to provide services for a furniture sale in Canada. Before the furniture sale ended, the two parties decided to terminate their contract but agreed that Webb-Benjamin would be paid its final commission at the end of the Canadian furniture sale. Shortly after the termination, but before the end of the sale, International Rug registered to do business in Pennsylvania. When International Rug failed to pay the commission, Webb-Benjamin sued in Pennsylvania to collect. International Rug attempted to get the case dismissed on the grounds that the Pennsylvania Courts had no jurisdiction over the Connecticut company. The Pennsylvania Superior Court disagreed and ruled that when an out-of-state company registers to do business in Pennsylvania, it consents to the jurisdiction of the Pennsylvania Courts, even for disputes that arose before the company’s registration.
This decision is pertinent to both Pennsylvania businesses and out-of-state companies that do business in Pennsylvania. For Pennsylvania companies, the case may provide a basis to sue in Pennsylvania for disputes with out-of-state companies. For non-Pennsylvania companies, the case points out another factor to consider when deciding to register to do business in Pennsylvania.
For all companies, these cases are a reminder to: (1) research the legal requirements for expanding the company’s business into other States, and (2) always have an attorney review the company’s contracts and transaction documents to assure that they include provisions that will best allow the company to grow and avoid undesired consequences.
Decisions made and actions taken during the process of business formation will have a significant effect on the owner’s exposure to personal and professional liability and the company’s profitability. At High Swartz LLP our attorneys have extensive experience in a wide range of industries, and provide investors, entrepreneurs and businesses in transition with sophisticated legal counsel designed to protect and promote the new and restructured businesses. As your counsel, we will help you make the right decisions and will implement necessary legal measures on your behalf, allowing you to focus on business management. For more information or if you have any questions, please contact Mark R. Fischer, Jr. at 610-275-0700 or mfischer@highswartz.com.
The information above is general: we recommend that you consult an attorney regarding your specific circumstances. The content of this information is not meant to be considered as legal advice or a substitute for legal representation.
[1] 179 A.3d 9 (Pa. 2018).
[2] 2018 WL 3153602 (2018 PA Super 187).