Not spelling out in your agreements, even in informal agreements, where disputes can be resolved and what law will govern them can lead to some unhappy results. That is exactly the position that United Excel Corporation and its president, Ky Hornbaker, now find themselves.
United Excel Corporation is a design and build company that provides architectural and construction services to hospitals. While UEC is headquartered in Kansas, it does work in other states. In 2010, UEC and Hornbaker recruited William Cossart to be a Vice President of Business Development for the company. Ultimately, UEC sent Cossart an offer letter, which would serve as his employment contract if he accepted, and Cossart countersigned that letter.
While Cossart never made any sales in Massachusetts, he was on the brink of closing a large deal with a hospital in California in the fall of 2013. Before the transaction was consummated, however, Cossart asked Hornbaker to confirm that a $219,000 commission would be paid after closing. In response, Hornbaker demanded that Cossart agree to accept $62,000 as full payment of any commission that might be owed. When Cossart refused, UEC failed to sign the contract with the California hospital and fired Cossart.
Cossart sued UEC and Hornbaker, personally, in Massachusetts for various claims, including violations of the Massachusetts Wage Act (which calls for mandatory treble damages and the reimbursement of attorneys’ fees). The defendants moved to dismiss Cossart’s claim, arguing that there was no personal jurisdiction over them in Massachusetts, and the Federal District Court agreed. The First Circuit reversed that ruling, however, holding that Cossart had met his burden of proving that the Massachusetts’ Long Arm Statute provided a basis for exercising jurisdiction over the defendants and doing so would not violate the Due Process Clause of the Fourteenth Amendment.
While the First Circuit’s decision might have legitimately surprised UEC and Hornbaker, they could have reduced, if not eliminated, the risk of any such adverse decision by plainly stating in the offer letter that all disputes arising out of it (i) would be governed by the law of the state of Kansas, and (ii) could be litigated only in a court in the state of Kansas. While such clauses are subject to challenge, they only are disavowed in very limited circumstances and usually are not even contested. Thus, instead of UEC and Hornbaker defending a garden variety breach of contract claim in Kansas, they will have to travel to Massachusetts to defendant against a claim for treble damages and attorneys’ fees.
For in-house counsel that work for companies with employees outside of the state in which the company is headquartered, Cossart v. UEC provides a very clear takeaway: think about where you might want disputes with your employees to be resolved and what state law you would want to apply to such disputes. Failing to do so can lead to your company being in the same unenviable position in which UEC and Hornbaker now find themselves.