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INSIGHT: Virtual Business Contacts Can Create Virtual Personal Jurisdiction

May 21, 2020, 8:00 AM

During Covid-19 quarantining, people are reaching out to businesses in other states through various technology platforms and conducting business without stepping foot outside their homes. This new reality has implications for personal jurisdiction and the accompanying minimum contacts analysis.

Are you unknowingly subjecting yourself to the jurisdiction of another state, even though you are not leaving your home? The answer may surprise you and your clients. A defendant can be subject to personal jurisdiction by projecting themselves into another state through technology.

In this respect, social distancing and stay-at-home orders will test the limits of virtual contacts for personal jurisdiction and may have far-reaching implications for clients’ actions during this difficult time.

Internet Activity and Virtual Contacts

The U.S. Supreme Court no longer requires physical presence in the forum state for personal jurisdiction and instead instructs courts to focus on whether a nonresident has “certain minimum contacts…such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” Walden v. Fiore (2014) (quoting Int’l Shoe Co. v. Washington (1945)).

This minimum contacts analysis applies to specific jurisdiction, which requires a nexus between a defendant’s contacts with a state and the underlying controversy giving rise to the lawsuit. For a court to properly exercise specific jurisdiction, the out-of-state defendant must “purposefully avail itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Goodyear Dunlop Tires Operations S.A. v. Brown (2011).

The analysis of internet contacts relates primarily to specific jurisdiction and the actions out-of-state defendants take to electronically project themselves into another state.

In Walden, the Supreme Court declined to opine on whether minimum contacts may be satisfied by internet-based contacts, explaining that “[w]e leave questions about virtual contacts for another day.” However, some state courts have addressed this issue and relied on electronic and technological contacts to establish personal jurisdiction.

New York, for example, has found personal jurisdiction where a securities broker used instant messaging to project himself into the state. Deutsche Bank Sec. Inc. v. Montana Bd. of Invs. (N.Y. 2006). And Florida has determined that telephonic and electronic communications may form the basis for personal jurisdiction if the cause of action arises from those communications. Wendt v. Horowitz (Fl. 2002).

One court created a persuasive sliding-scale test to assess when internet-based contacts establish personal jurisdiction. Under the sliding scale, “the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.” Zippo Mfg. Co. v. Zippo Dot Com Inc. (W.D. Pa. 1997). This test measures both the quantity of contacts occurring over the Internet and whether these contacts are purposeful.

Quarantine Realities Assessed for Minimum Contacts

The District of New Jersey analyzed personal jurisdiction in the context of an employee who began working from home after becoming ill. Christie v. Nat’l Inst. for Newman Studies (D.N.J. 2017). The court determined that “Defendants actively communicated with Plaintiff in New Jersey, and affirmatively directed tortious conduct via the Internet at Plaintiff who they knew was located in New Jersey at that time.”

The defendants’ knowledge that the plaintiff was working from home in New Jersey played a pivotal role in finding personal jurisdiction, as the court explained that “an act performed over the Internet—without specifically targeting a forum—cannot confer nationwide jurisdiction.” But in this case, the tortious conduct “was not projected aimlessly into cyberspace (i.e., posted on a blog or website),” rather the defendants knew the plaintiff was in New Jersey and therefore they “should have reasonably anticipated being haled into court in New Jersey.” Such purposeful virtual contact was sufficient to support a finding of personal jurisdiction.

New York courts have analyzed the extent to which business conducted virtually is sufficient to establish personal jurisdiction. In one case, the court declined to exercise personal jurisdiction over an out-of-state company that negotiated a contract by video-conference, finding that the defendant “did not ‘project’ itself into New York for jurisdictional purposes via the 45-minute video-conference.” Libra Global Tech. Servs. (UK) v. Telemedia Int’l (1st Dep’t 2001).

Other cases, however, have found that repeated communications by an out-of-state defendant that form a relationship with a party in New York create sufficient minimum contacts for personal jurisdiction. See Fischbarg v. Doucet (N.Y. 2007) (finding personal jurisdiction based on repeated “calls, faxes and e-mails that [were] projected into this state over many months”); see also High Street Capital Partners LLC v. ICC Holdings LLC (Sup. Ct. N.Y. Cty. May 14, 2019) (“Defendants’ digital dealings fit into a long line of case law which predicates personal jurisdiction on remote—but purposeful—contact.”).

Preparing for Litigation in a Post-Pandemic World

When people communicate and transact business virtually while quarantined, they certainly may be subjecting themselves to personal jurisdiction in other states. Many of the relevant cases require purposeful conduct and emphasize the defendant’s knowledge of where the other party resides. Therefore, knowing the people and entities you are conducting business with and where they are located may inform you as to the states in which you may be subjecting yourself to personal jurisdiction through virtual contacts. Drafting contracts to include forum selection clauses and personal jurisdiction waivers may also provide a means to add certainty and predictability for where you can be sued.

The available case law could suggest that courts will find personal jurisdiction more based on virtual contacts. But on the other hand, courts may consider the minimum contacts analysis differently given the exigent circumstances of the pandemic.

While working from home and communicating over the Internet during a pandemic will expand our notions of virtual presence, courts will continue to assess whether it is foreseeable and fair to be sued in a state.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Thomas O’Rourke is a member at Cozen O’Connor in the Philadelphia office and practices in the commercial litigation group.

William Lesser is an associate at Cozen O’Connor in the New York office and practices in the commercial litigation group.

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