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Personal Jurisdiction From E-Contacts Remains an Unpredictable Issue

By Robert S. Friedman and Mark E. McGrath Contact All Articles 

New York Law Journal

February 25, 2013

Advances in technology continue to have an interesting and quixotic effect on the way in which courts grapple with personal jurisdiction. Commercial interaction across state and international borders continues to challenge the traditional analysis of minimum contacts and purposeful availment. Since our 2009 article¹ updating the jurisprudence relating to electronic contacts, New York courts have continued to use the sliding scale of interactivity to determine whether websites can provide a basis for personal jurisdiction, along with the traditional indicia of doing business, namely, the totality of connections with New York. The result is that personal jurisdiction analysis has become even more fact specific and unpredictable.

Updated Progeny of 'Fischbarg'

The New York Court of Appeals' decisions in Fischbarg v. Doucet² and Deutsche Bank Securities v. Montana Board of Investments³ remain the seminal cases in New York on whether electronic communications are sufficient to exercise personal jurisdiction over a non-domiciliary.

Golden Archer Investments v. Skynet Financial Systems⁴ is another example of how an out-of-state defendant can be subject to personal jurisdiction based on communications with New York residents. In Golden Archer, the plaintiff, a New York entity, began negotiating the terms of a contract to develop a securities-trading program that would be hosted on the plaintiff's servers in New York. The negotiations were done through email, Internet-based video chats and telephone calls as well as an in-person meeting in Chicago.⁵ Ultimately, the parties executed a contract for the development of the software program in September 2010. The parties also negotiated a confidentiality agreement containing an arbitration clause designating New York as the forum in the event of a breach of that agreement.⁶ Between Oct. 1, 2011 and April 2011, the parties communicated regularly about the project via email, Internet-based video conference and telephone. Skynet's programmers regularly logged onto the plaintiff's servers to upload, edit and test the software. Other than remotely accessing the plaintiff's servers, the defendants never visited New York to meet with the plaintiff or work on the project.⁷ In April 2011, Skynet estimated it would take an additional four months to complete the project. The plaintiff refused to make any further payments, so Skynet ceased working on the project.

Subsequently, plaintiff commenced the action in the New York Supreme Court and the defendants removed the case. Thereafter, the defendants moved for lack of personal jurisdiction. Relying on Fischbarg, Judge Richard J. Sullivan held that Skynet "projected itself into New York 'to engage in a sustained and substantial transaction of business.'"⁸ Skynet argued that remote communications are generally not sufficient to sustain personal jurisdiction. The court held, however, that "[w]hen a defendant's remote communications effectuate some purposeful business in New York, personal jurisdiction will be found."⁹ Sullivan found that the emails, video conferences and telephone calls between the plaintiff and Skynet "go beyond mere 'conduits' to contract formation and instead go to the heart of the commercial transaction between the parties."¹⁰ The court also found that even though Skynet performed all of the development for the software in Chicago, Skynet knew the project was for a New York entity and that the software would be hosted on servers in New York. Accordingly, Skynet's process of logging onto the plaintiff's servers to upload, edit and test the software also provided a basis to exercise personal jurisdiction.¹¹

Another illustrative case is Three Five Compounds v. Scram Technologies.¹² There, the defendant was based in Maryland and produced advanced projector displays. In 2009, the defendant decided to increase production of these displays and contacted the manufacturer of the LED chips it used to see if the manufacturer could meet the demand. The manufacturer referred the defendant to the plaintiff, who was based in New York and was the manufacturer's exclusive LED chip distributor. The defendant contacted the plaintiff by telephone regarding the LED chips and the plaintiff confirmed it could provide chips that met the required specifications. The parties subsequently communicated via email and telephone for several weeks, resulting in a contract. Thereafter, the defendant issued a purchase order to the plaintiff for the chips.¹³ The plaintiff delivered samples of the LED chips in October 2009 and February 2010. It is not clear what happened next but the parties ultimately met twice in New York in March and April 2010 to discuss issues relating to the LED chips. The parties were unable to resolve the issues and the plaintiff subsequently commenced the action against the defendants for breach of contract.¹⁴

Defendants moved to dismiss the action for lack of personal jurisdiction, which Judge Richard J. Holwell granted. In reaching that conclusion, the court evaluated, among other things, the hundreds of telephonic and email communications between the parties and the two meetings in New York. After discussing the law relating to communications, Holwell held that those communications were an insufficient basis to exercise personal jurisdiction over the defendant because those communications related to a single order and lasted less than a year. The court noted that the "order, as distinguished from the parties' interaction about it via telephone and e-mail, had little connection to New York other than the fact that the goods were to be shipped from New York. That is insufficient to establish jurisdiction under New York law."¹⁵ Accordingly, the court granted the motion to dismiss.¹⁶

Websites: Interactivity and Connection

Since 2009, a number of courts have addressed the issue of whether personal jurisdiction exists based on connections arising out of a website. While New York has never expressly adopted the sliding scale enunciated in Zippo Mfg. v. Zippo Dot Com,¹⁷ New York courts have continued to use a Zippo-type analysis to evaluate whether personal jurisdiction exists.

In Chloé v. Queen Bee of Beverly Hills,¹⁸ the Second Circuit reversed the trial court's dismissal for lack of personal jurisdiction. The plaintiff alleged trademark infringement and unfair competition based on the sale of one counterfeit bag. The trial court found that the only evidence of an allegedly infringing sale was made to an employee of plaintiffs' counsel. The trial court held that since all of the relevant activity by defendants took place outside of New York, "it would be unreasonable to exercise personal jurisdiction over defendants in this district on the basis of a contact that would not have existed but for this litigation."¹⁹ The trial court also found that even though defendants' website was commercially interactive, the fact that the website did not target New York consumers specifically and there were no sales of the allegedly infringing bag other than the one to plaintiffs' counsel's employee were not enough to exercise personal jurisdiction over defendants.²⁰

On appeal, the Second Circuit found that the transaction at issue was "part of a larger business plan purposefully directed at New York consumers."²¹ In particular, Queen Bee's website was interactive because it offered Chloé bags for sale to New York consumers, permitted customers to purchase those bags and facilitated shipment into New York.²² Queen Bee engaged in 52 separate transactions involving New York consumers through its website and trunk shows, all of which did not involve the allegedly infringing product. The Second Circuit held that the trial court "too narrowly construed the nexus requirement, which merely requires that the cause of action 'relate to' defendant's minimum contacts with the forum."²³ Accordingly, the Second Circuit held that personal jurisdiction existed because the minimum contacts included the over 50 sales to New York consumers, not just the one sale to the plaintiff's law firm.

In Mrs. United States National Pageant v. Miss United States of America Organization,²⁴ the plaintiff asserted numerous claims based on the defendants' alleged use of the plaintiff's trademarks. The defendants were South Carolina residents who were formerly associated with the plaintiff as well as a South Carolina entity that the individuals set-up to compete with the plaintiff. The South Carolina entity established a website for its business.²⁵ The website contained numerous links, including one that allowed potential contestants to download forms to register as a contestant and provided information on where to submit the form. The website contained other links that allowed people to contact the defendants via email; provided defendants' email address and telephone number; permitted potential contestants to submit electronic payments along with an address to send payments via mail; and allowed the purchase of goods containing the logo and name of the defendant organization. There was also a link to a page entitled "2012 Contestants" containing the flags of all 50 states and three other jurisdictions.²⁶

The defendants moved to dismiss for lack of personal jurisdiction. After setting forth the Zippo sliding scale, the court found that the defendants' website occupied the middle ground of interactivity. The court focused on the fact that the defendants sought contestants from New York, provided the means for New York residents to become contestants, offered products for sale and were seeking directors for each state. The court concluded that "[s]uch activity indicates that defendants knowingly and purposefully reached out to New York residents in furtherance of their pageant business."²⁷ The court rejected the defendants' argument that they did not "target" New York because it would not "be sensible, or equitable, to interpret the references in the case law to 'targeting' a jurisdiction as meaning that the defendants must have singled out New York as a particular focus of their commercial activity."²⁸ Because the defendants' website seeks contestants from every state, the court concluded that "[i]f defendants choose to reach out in that way to each state, they should not be heard to complain if they are haled into court in one of those states as a result of that activity."²⁹ Accordingly, the court denied the motion to dismiss.

Courts have also addressed situations where the defendants did not operate a website, but either had a Facebook page or posted advertisements on websites operated by others. In Katiroll v. Kati Roll & Platters,³⁰ the plaintiff asserted service mark and trade dress infringement as well as unfair competition under the Lanham Act. Prior to opening a store in New Jersey, the officers of the defendant met with the plaintiff's president and sought a franchise. Plaintiff declined. The defendant subsequently set up the store and there were many comparisons of the parties' restaurants on websites as well as other alleged evidence of confusion. The plaintiff then sued the defendant, alleging that the defendant targeted New York residents and enthusiasts of New York restaurants by posting on Facebook and other websites, which posts promoted the defendant's business. The court held that those posts were insufficient to establish personal jurisdiction over the defendant because advertising without more is insufficient to establish personal jurisdiction.³¹ The court focused on the fact that the plaintiff failed to allege sales through any website and "has not alleged any facts from which it could be rationally inferred that Defendant's solicitation of New York residents to its restaurants via posting on various websites is supplemented by any transactions occurring in New York or any other indicia of Defendant's permanence and continuity in New York."³²

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