Dealer Sued Out-Of-State Based On Internet Transaction

August 2006, Auto Dealer Today - WebXclusive

by Thomas B. Hudson, Esq. - Also by this author

So you’ve decided that you’ll do business over the Internet, have you? Make sure, if you do, that you understand what the ramifications of that decision. One result may be that someone you sell to over the Internet can haul you into court in a state you’ve never set foot in. How so, you ask? Read on.

Taig Stewart, a Utah resident, sued John Hennesey, a Texas resident doing business in Texas at Hennessey Motorsports, Inc. Stewart brought his suit not in Texas, but in the U.S. District Court for the District of Utah.

It seems that Taig had contacted Hennessey through Hennessey’s Web site and then engaged in e-mail and telephone communications, eventually contracting with Hennessey for custom modifications to a Dodge Viper automobile. The contract was worth $122,500 initially, and the modifications were due to be completed in mid-July 2001. As of the writing of the court’s opinion, the work had not been completed.
In this decision, the court addressed Hennessey’s motion to dismiss the complaint based on lack of personal jurisdiction. Hennessey was essentially saying, “Hey, I’m a Texas business – you can’t sue me in Utah.” In response, Stewart claimed that the court had both general and specific jurisdiction based on Hennessey’s Internet presence and activities conducted over its Web site.

The district court denied Hennessey’s motion to dismiss. The court declined to find “general” jurisdiction, but it did find that Hennessey was subject to “specific” jurisdiction based on the specific transaction between the two parties.

Most states have so-called “long-arm” statutes that provide that persons outside of the state may be sued in the state under certain circumstances. In some states, only specific actions will subject someone from out-of-state to suit, while in others, very minimal contacts will suffice, although even in these states the U.S. Constitution requires that the contacts meet a minimum threshold. The Utah long-arm statute is interpreted as limited only by the due process requirements of the 14th Amendment to the U.S. Constitution.

So next, the court considered the contacts Hennessey had with the state of Utah. The court characterized the level of Hennessey’s Web site activity as falling in the middle of the spectrum between completely passive Web sites and Web sites through which business is conducted and contracts entered into. The court took into consideration the e-mail and telephone communications that culminated in the parties’ contract and ultimately concluded that Hennessey purposely availed himself of the privileges and protections of the state. As a consequence, Hennessey subjected himself to the state’s jurisdiction.

If you’re nervous about being sued out of state based on your Web site and the transactions that it generates, you better schedule an appointment with your friendly local lawyer and have the site and your related operations reviewed with this case in mind.

Stewart v. Hennesey d/b/a Hennessey Motorsports, Inc., 2002 WL 1832840 (D. UT August 2, 2002)

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