"Long Arm" Laws and Internet Sales

August 2006, Auto Dealer Today - WebXclusive

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

When you sell cars over the Internet without limitation as to who can buy those cars, you had better be prepared to show up in court in any state in the country. Is it reasonable for a buyer in a state you’ve never set foot in to haul you into court when that buyer has a grievance about the sale? What if you’ve never sold any cars in that state, with the exception of the car you sold to this one buyer? Let’s take a look at what a court in Virginia had to say on this subject in 2003.

Prestigious Motor Sales, Inc., a car dealership located in Connecticut, advertised a 1995 BMW 530i on eBay. Joseph Malcolm, a Virginia resident, submitted the winning bid of $12,450.

The parties exchanged information over the phone and by e-mail, and Prestigious arranged to have the car shipped to Virginia. Malcolm allegedly discovered a defect in the car and attempted to rescind the purchase. Prestigious refused to rescind the sale, so Malcolm sued Prestigious and two of the dealership’s agents in Virginia state court.
Neither the dealership nor the individual defendants maintained an office in Virginia or transacted business there. Aside from the sale to Malcolm, the dealership had never sold a car to anyone in Virginia.

The defendants entered a special appearance to contest the court’s exercise of jurisdiction over them. The Circuit Court of Virginia ruled that it had jurisdiction over the defendants based on the single sale transaction over the Internet.

Every state has what is called a “long-arm statute,” under which the courts in that state assert jurisdiction (bring persons into their courtrooms) over non-residents who engage in some type of activity within the state’s borders. The state’s exercise of jurisdiction must also be permissible under the Due Process Clause of the U. S. Constitution.

The Virginia court found that the contract for sale of the BMW was formed in Virginia. The terms of the eBay sale mirrored Virginia law regarding auctions. The court explained that “in the case of ‘an auction without reserve, the announced terms of the sale constitute a continuing offer by the owner, subject to acceptance by the submission of a bid. Each bid is the consummation of a contract, subject only to the receipt of a higher bid.’”

Thus, the court found that the parties formed a contract in Virginia the moment Malcolm placed his bid. The Virginia long-arm statute, the court observed, is “a single act statute requiring only one transaction in Virginia to confer jurisdiction.” The court also found that the exercise of jurisdiction satisfied “due process” requirements.

A “due process” analysis gets into a lot of legal nitty gritty, but suffice to say that the defendant must have “minimum contacts” with the state attempting to exercise jurisdiction and one element of the analysis is the defendant’s ability to foresee the possibility of being sued in the forum state. In this case, the court concluded that the defendants could “reasonably foresee” being hauled into court in Virginia based on their conduct in selling the vehicle to a Virginia resident.

The court did note that the few courts that have addressed the question of jurisdiction in the context of eBay transactions have “generally declined to exercise personal jurisdiction” over non-resident defendants. Note, in this regard state long-arm statutes differ – in Virginia, the long-arm statute provides for jurisdiction based on a “single act” within the state.

The court noted the following in deciding to exercise jurisdiction in this case:

The defendants were commercial sellers of automobiles who were represented as “power sellers” on the eBay Web site.

The defendants represented that they had local, national and international eBay customers.

The defendants foresaw potential transactions with non-resident buyers based on the “winning bidder” e-mail it sent to Malcolm. The product in this case is an automobile, to be delivered to and driven in Virginia.

Under the terms of the sale, the choice of the buyer was beyond the defendants’ control.

Given all these factors, the court found that the defendants must have foreseen the possibility of being sued in a court outside of Connecticut.

The case is Malcolm v. Esposito, 2003 WL 23272406 (Va. Cir. Ct. December 12, 2003).

Now, fast forward two years. The Virginia court was again faced with the same issue. Well, not quite the same issue. This time the seller set a reserve on the car being offered. Did that one little fact make a difference? You betcha.

Wagner Zone, Inc., an Illinois corporation, listed a 2003 Subaru Legacy Wagon for sale on eBay’s Web site as an item “with reserve.” Under eBay rules, a seller is not obligated to sell an item to any buyer if the reserve price has not been met, and the winning bid must meet the reserve price and represent the highest bid on the item.

Irving, a citizen and resident of Virginia, contacted Wagner through the Web site’s e-mail server, bid the required reserve amount and was the accepted purchaser of the vehicle. After transporting the vehicle from Illinois to Virginia, as required by the purchase and sale contract, Irving determined that the car was defective and sought rescission of the contract with Wagner.

When Wagner refused to rescind the transaction, Irving sued Wagner in Virginia state court. Wagner contested the Virginia court’s exercise of jurisdiction.

The Circuit Court of Virginia agreed with Wagner, concluding that it did not have in personam jurisdiction over the company. The court explained that where an auction sale is conducted with reserve, a contract between the buyer and seller only forms upon the seller’s acceptance of a buyer’s bid. As such, the contract was consummated at the time of Wagner’s acceptance of Irving’s bid in Illinois, not Virginia. Thus, Irving failed to allege a business transaction in Virginia necessary to invoke Virginia’s long arm jurisdiction.

The court also rejected Irving’s argument that Virginia’s long arm statute should apply because Wagner used a computer or computer network located in Virginia. The court explained that Wagner did not “‘manifest an intent to target and focus on Virginia[n]’” buyers, and that Wagner stipulated on the Web site that Illinois pick-up was required. As such, in personam jurisdiction was inappropriate.

That’s one state’s take on whether an Internet seller can be subject to suit in the buyer’s state. Expect to see cases going both ways on this issue, depending on what the state’s “long arm” law looks like and how the courts interpret it.

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