Courts may be willing to exercise jurisdiction over a foreign entity in a civil action based solely on a website that solicits sales throughout the United States without specifically targeting one state or its residents. Recently, a trial court denied a motion to dismiss by foreign entity defendant despite the fact that the foreign entity did not maintain an office in the state, specifically target the state, or ever have any employees in the state. The decision may signify a trend towards a common sense approach to the jurisdictional issue that considers today’s web based economy.
The decision is a trial court decision. Whether the foreign entity appeals the decision remains to be seen. However, the decision shows a willingness by at least one trial court to consider common sense arguments. Other courts may eventually follow the same reasoning. The decision is positive for United States consumers and their subrogating property insurance carriers. Hopefully, appellate courts, and perhaps, the United States Supreme Court will address the issue in consideration of how retail business is conducted today.
There are a number of situations in which a foreign entity may be the only third-party potentially liable for damages. However, a foreign entity can’t be held liable for damages if a court refuses to exercise jurisdiction over the foreign entity. It sometimes seems, frustratingly so, that courts look for reasons not to exercise jurisdiction over foreign entities instead of looking for reasons to exercise jurisdiction. Courts have been reluctant to exercise jurisdiction over foreign entities based solely on websites generally available to anyone with an internet connection. (See, generally, Boppy Co. v. Luvee Products Corp. 2004 WL 2608265 (D. Colo. 1997)). Courts have been reluctant to exercise jurisdiction over foreign entities based solely on the grounds that the stream of commerce might cause a product to land in the state where the damage occurred. (See, generally, Asahi Metal Industry Co. Ltd. V. Superior Court of Calif. 480 US 102 (1978)).
State courts may typically exercise jurisdiction over non-resident defendants to the extent permitted by the Due Process clause of the United States Constitution. In International Shoe v. Washington, 326 US 310 (1945), the U.S. Supreme Court held that a state court may exercise personal jurisdiction over a nonresident defendant only if the defendant has sufficient contacts with the state such that the lawsuit does not offend “traditional notions of fair play and substantial justice.” The International Shoe jurisdictional test is often referred to as the minimum contacts test and is obviously vague.
In cases where the foreign entity really has no presence in a state, the challenge is to convince the court to exercise specific jurisdiction over the foreign entity. Specific jurisdiction may be exercised, in a particular matter, if the foreign entity has sufficient contacts with the state to make the exercise of jurisdiction reasonable and just with respect to the claim in issue. Specific jurisdiction must be distinguished from general jurisdiction which can be exercised over a foreign entity that has systematic and continuous contacts with a state. Examples of systematic and continuous contacts may include ownership of property and maintaining offices.
Two tests have been applied to determine whether the exercise of personal jurisdiction is reasonable in a matter; the purposeful availment test and the purposeful direction test. The purposeful availment tests considers whether the foreign entity purposefully availed itself of the privilege of doing business in the state and is typically the more appropriate analysis in a contract claim. The purposeful direction test considers whether the foreign entity purposefully directed activity at the state and its residents and is typically the more appropriate test to apply in a tort claim. The purposeful direction test is typically the most appropriate test to apply in a property damage subrogation claim.
States have begun to adopt what is described as the holistic approach to resolving the jurisdictional issue. The holistic approach considers whether the foreign entity engaged in purposeful conduct for which it could reasonably be expected to be subject to the jurisdiction of the state. The holistic approach considers the totality of the specific facts and circumstances of the case.
Arguably, a foreign entity that maintains its own sales website is purposefully directing advertising and marketing material to consumers 24 hours a day 365 days a year for the specific purpose of completing transactions and establishing relationships with the targeted consumers. If the foreign entity collectively refers to a group of targets as the United States or the USA, each individual member of the group should be considered a target unless specifically excluded. Arguably, the foreign entity need not list each and every state individually for each and every state to be a target. The fact that the foreign entity refers to the group of targets collectively should not mean that each and every member of the group is not a specific target. A foreign entity that maintains a website that sells products to state residents, invites residents to develop sponsorship opportunities, and recruits prospective employees may be purposefully directing activities to the state sufficient for the exercise of specific jurisdiction in litigation alleging damages caused by the foreign entity.
At least one court has found that a website maintained by a foreign entity that is generally directed to the entire United States is sufficient for an exercise of personal jurisdiction if there exists a connection between the purpose of the website and the circumstances of the claim. Hopefully, other courts will follow as the reasoning makes sense in today’s world. Foreign entities are now able to use the internet to sell to anywhere in the United States at any time. These foreign entities should not escape accountability for damages caused by their negligence or defective products merely because they don’t target a state individually. A website open 24 hours a day 365 days a year should not be any less of a presence in, or an intent to sell to residents of, a state than a brick-and-mortar store.
Courts should be expected, however, to remain reluctant to exercise personal jurisdiction over foreign entity corporations that sell products on third-party websites over which the foreign corporation has no control or that ship products to third-party distributors without retaining any control over where the products eventually land.
