Where in the World You Can Get Sued – Personal Jurisdiction and the Internet

Editor’s Note: Jason T. Strickland is a member of the Litigation Section at Ward and Smith, P.A.

RALEIGH – You receive a notice in the mail. The Canadian Province of Quebec is fining you because the products you sell violate Quebec regulations requiring all goods marketed there to be labeled in French. You’ve never been to Quebec, and your products aren’t sold there. You have a webpage that advertises your products and that webpage is accessible in Quebec. Can Quebec really fine you?

Quebec almost certainly can fine its own citizens and companies for selling products that violate its regulations. However, any government that is subject to a system of laws cannot indiscriminately reach out and fine someone outside its territory without establishing some connection between the person and the territory.

The same limitation is true of courts. The power of a court to reach out and impose its authority on someone is known as “personal jurisdiction.” If the court has no personal jurisdiction over you, then you cannot be sued in that court. The concept of personal jurisdiction also applies to corporations and other forms of business, even though they are not "persons." The existence or lack of personal jurisdiction determines whether you can be compelled to litigate in another state or require others to litigate in your home state.

Background

Within certain limits, the law of a given state determines under what circumstances that state’s courts can assert personal jurisdiction. Those laws vary by state, but typically follow substantially the same rules:

● A person always is subject to the personal jurisdiction of the state where that person resides or is a citizen.

● A corporation is subject to personal jurisdiction in the state of its principal place of business and the state where it is incorporated.

Beyond these situations, the individual or corporate defendant must have some "minimum contact" with the state in which the court asked to assert its jurisdiction sits. A "contact" can be residency or a place of business, a physical presence, the ownership of property in the state, goods sent into the state, or perhaps even a letter sent to someone in the state. Even if the contacts are minimal, if they are related directly to the matter the court is asked to decide, then the court probably has personal jurisdiction. If the contacts are not related directly to the matter the court is asked to decide, then those contacts must be more substantial before personal jurisdiction can be established.

The Internet

Today, many, if not most, businesses transact business through the Internet and have some form of a webpage. These Internet transactions can be considered "contacts" for purposes of personal jurisdiction. Thus, the Internet can create contacts in every state. Understanding what types of Internet contacts can establish personal jurisdiction is crucial in determining what kind of Internet presence a business should have and how it should be established.

"Passive" vs. "Interactive" Internet Presence

Most courts look at the level of interaction available on a website to determine whether the website affords sufficient contacts with another state to establish personal jurisdiction. The general rule in most states, including North Carolina, is that a mere Internet presence is not enough, by itself, to establish personal jurisdiction. Thus, if a business has a "passive" website which only provides information and allows the site owner to receive emails, the fact that the website can be viewed by persons within a particular state would not, without more, subject the owner to personal jurisdiction in that state.

At the other end of the scale is the "interactive" situation where the website or Internet activities allow the business to enter into contracts or sell goods over the Internet. In this situation, personal jurisdiction almost always exists in the states where the interactivity is directed or occurs. A website that allows the business to receive orders for products over the Internet qualifies as "interactive." Thus, the business will be subject to personal jurisdiction in any state where an order originates and to which the subject of the order is shipped or services are performed, at least when the lawsuit involves that order.

Between these two extremes is a "semi-interactive" Internet presence. As the level of interaction increases, the likelihood that the activity can subject the business to personal jurisdiction in another state increases. The level of interactivity and the commercial nature of the exchange of information are used by the courts to determine whether sufficient contacts exist to establish personal jurisdiction. Some activity actually needs to occur. Even if a website has the ability to allow interactivity, unless some of that interactivity actually occurs, the mere potential, without more, generally will not establish personal jurisdiction.

Further, while a person or business may conduct a substantial amount of business through the Internet, such Internet transactions will create personal jurisdiction only in those states where the other end of those transactions occurs and not every state generally. For example, a business may use an interactive website and email to enter into contracts with parties in Delaware, Pennsylvania, and New Jersey. The business clearly will be subject to personal jurisdiction in Delaware, Pennsylvania, or New Jersey for lawsuits involving those contracts. However, if based on nothing more than that Internet activity, the business would not be subject to personal jurisdiction in other states.

In one recent case decided by a federal court in North Carolina, the court relied on a semi-interactive website to establish personal jurisdiction. The California website owner made no direct sales to North Carolina. However, the website directed users to North Carolina retailers who sold the website owner’s products. The court found that the owner had clearly targeted North Carolina consumers by providing them with locations where the owner’s products could be purchased and, therefore, was subject to personal jurisdiction in North Carolina.

Common Factors

The following factors frequently are relied upon by the courts to determine whether the level of interactivity over the Internet is sufficient to establish personal jurisdiction:

• Whether contracts are entered into through the Internet;

• Whether business is conducted through the Internet;

• Whether the exchange of information through the Internet is commercial in nature;

• Whether there are repeated transmissions of computer files through the Internet;

• Whether customers in other states are actively targeted;

• Whether there is a clear intention by the website owner to conduct business in the state asserting jurisdiction; and,

• Whether the transactions being relied upon relate to the subject of the lawsuit in the other state.

Conclusion

Everyone who transacts business through the Internet or maintains a presence on the Internet should be aware of the ramifications of personal jurisdiction and plan their Internet presence accordingly. Whether you can be forced to defend claims in another, perhaps distant state, is an important consideration in deciding whether and how to establish your website and any business that might be done through it. Litigation in other states increases the cost to defend, both in dollars and time, and there is always a question as to whether the home-town party is preferred by the jury. Thus, in planning and maintaining a website or conducting business through the Internet, you should carefully plan the process to decrease the likelihood that you will be required to defend a lawsuit in another state.

© 2007, Ward and Smith, P.A.

This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.