Its easy to be just a click away from a lawsuit

July 20, 2009
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Internet activities are often performed without thinking about the far-reaching legal consequences. Nevertheless, be forewarned: A recent case demonstrates how just a few clicks of a button may subject you to litigation hundreds of miles from home.

The story of Tim and Joseph

In January 2005, Tim Maloney and Joseph Dedvukaj did business the modern way — through an auction on eBay. Maloney is a New Yorker who sells items on eBay under the alias “mrlister.” Dedvukaj is a Michigan resident who successfully placed the highest bid for two paintings put up for auction by Maloney.

After winning the items, Dedvukaj sent Maloney a check and eagerly awaited the paintings' arrival. As for Maloney, perhaps seller’s remorse kicked in, because he never shipped the auctioned art. Instead, he apologetically offered Dedvukaj a full refund of $649.20.

A refund? Dedvukaj scoffed at the idea. After all, he was still celebrating his bidding triumph. The bids were a bargain, far below fair market value. He rejected Maloney’s offer, and demanded the paintings or, in the alternative, the fair market value of the originals.

When Maloney refused, Dedvukaj took him to court in Michigan.

Personal jurisdiction in Michigan

Maloney immediately opposed being forced to defend himself hundreds of miles from his home. He voiced this objection by filing a motion to dismiss for lack of personal jurisdiction.

Personal jurisdiction refers to a court’s ability to exercise authority over a person being sued — the defendant. This power is constricted by the Due Process Clause, which prohibits the unreasonable taking of life, liberty or property. If a court is without power over a defendant, the lawsuit must be dismissed. The defense of lack of personal jurisdiction normally allows people to rest assured they will not be obliged to respond to a lawsuit half-way across the country.

The United States Court of Appeals for the Sixth Circuit applies a three-part test to comply with the Due Process Clause. First, the plaintiff must prove that the defendant has “purposefully availed” himself of the privilege of acting or causing a consequence in the relevant state. Second, the lawsuit must arise from the defendant’s activities in that state. And third, the exercise of jurisdiction must be reasonable.

The test applied to Internet activities

The requirement of “purposeful availment” has traditionally prevented suits in states that a defendant has never visited, or states in which a defendant lacks any meaningful connection. However, the dawn of the Internet age has resulted in global "purposeful availment" with just the click of a button.

Michigan, like many states, utilizes a sliding-scale test to determine whether a defendant's Internet activities are sufficiently purposeful to establish personal jurisdiction. "Active" Web sites are at one end of the scale and their operation almost always results in purposeful availment. These sites clearly transact business or form contracts with residents of specific states. Thus, for example, Amazon.com is likely an active Web site that must defend itself across the nation.

At the other end of the scale, "passive" Web sites offer little more than basic information. These sites are unlikely to sustain personal jurisdiction, but this immunity is not absolute. For example, the online posting of defamatory material may result in liability in the state of the victim.

In the middle are "interactive" Web sites, which allow users to exchange information. An interactive Web site, such as eBay.com, may support personal jurisdiction if it is interactive to the extent of intending to specifically interact with residents.

Back to Tim and Joseph

As Maloney discovered, eBay creates a nearly borderless market and potential for liability across the United States. He sold his paintings to Dedvukaj in Michigan, but he was willing to ship them anywhere in the U.S. It did not matter that Maloney neither visited Michigan to secure the sale nor designated Michigan as his targeted location. Michigan became involved solely because Dedvukaj submitted the highest bids.

In August 2006, a court in Michigan denied Maloney’s motion to dismiss for lack of personal jurisdiction. In other words, Maloney was forced to come to Michigan to defend the merits of the case. Supporting this decision, the Michigan court found that he had welcomed business from Michigan. He had a toll-free number and an e-mail address to communicate with potential buyers. The court found that eBay is an "interactive" Web site because of its communication network between buyers and sellers. The site’s interactivity, combined with Maloney’s minimal outreach to all buyers, including those in Michigan, was enough to subject him to personal jurisdiction in Michigan. 

The bottom line

The Supreme Court itself has not yet addressed the question of personal jurisdiction based on Internet conduct, but this Michigan case and others suggest that online pursuits may easily support lawsuits across the country.

Avoiding Internet activity is almost certainly not the solution. One recommendation is that, until Internet liability rules are further clarified, a "forum selection" clause should be posted wherever possible. Forum selection clauses advise customers that all disputes will be settled in a specific state, such as Michigan. Although not always honored, the clause may be one way of maintaining the home state advantage.

Persons concerned about the potential legal consequences of their Internet activity should seek legal counsel for specific, fact-based advice.

Emily Hoort, who attends Harvard Law School, is a summer associate with the law firm of Varnum LLP.

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