Article

Dealers, Be Prepared to Defend Outside Your State

July 2011, Auto Dealer Today - WebXclusive

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


Dealers do it every day. They post an advertisement on the Internet for a car, then sit back and wait for responses. Sometimes the responses are from potential buyers who live right around the corner, but other times the potential buyer lives halfway across the country. Do you suppose the dealer even considers the possibility that placing the ad exposes him to the risk of being sued in a courtroom far, far from home? Let’s look at a similar case.

Back In Time Classic, Street & Muscle Cars, Inc. and Stanley Johnson, both Georgia residents, sold a 1957 Thunderbird to William Hyndman, a Pennsylvania resident, after advertising the car in Hemmings Motor News, a publication dealing with classic and antique cars. Hyndman and the sellers negotiated the transaction, agreeing on a price of $125,000. Before the sale, Hyndman had the vehicle examined by an inspector recommended by the sellers. The inspector assured him that the car was authentic.

Hyndman then arranged for the shipment of the T-Bird from Georgia to Pennsylvania, electronically transferred his payment and took possession of the vehicle. After receiving the car, Hyndman determined that the T-Bird was a counterfeit. Hyndman sued in Pennsylvania state court, alleging breach of contract, intentional misrepresentation, negligent misrepresentation, a violation of the Pennsylvania unfair/deceptive trade practices statute, and conversion. The defendants removed the case to federal court and moved to dismiss, claiming a lack of personal jurisdiction (lawyer talk for “you have no authority over me”) and improper venue (lawyer talk for “you can’t sue me in this court”).

In support of their personal jurisdiction argument, the defendants contended they did not reside or do business in Pennsylvania, Hyndman was the one who initiated the contract negotiations and they never met with Hyndman in Pennsylvania. They also argued that “minimum contacts” necessary for the exercise of personal jurisdiction, did not exist merely because the defendants exchanged phone calls with Hyndman, entered into a contractual relationship with him and accepted funds from a Pennsylvania bank.

The defendants also contended that exercising jurisdiction in this case would conflict with notions of fair play and substantial justice. They argued that the distance between Georgia and Pennsylvania would make litigating in Pennsylvania “an unnecessary hardship,” Pennsylvania had only a minimal interest in the litigation and “the resolution of the case would almost certainly require significant amounts of time in Georgia.”

Hyndman argued that the U.S. District Court for the Eastern District of Pennsylvania had personal jurisdiction over both defendants under a Pennsylvania statute that authorizes its courts to exercise jurisdiction over those who cause “harm or tortious injury in this Commonwealth by an act or omission outside this Commonwealth.” Hyndman contended that the harm he suffered in connection with the counterfeit T-Bird “began with the Defendants outside of Pennsylvania ... [but] the Commonwealth is where the Plaintiff suffered damages.” As such, Hyndman asserted that the defendants’ activities satisfied Pennsylvania’s personal jurisdiction statute.

In case that argument wouldn’t fly, Hyndman also argued that the defendants’ contacts with Pennsylvania established jurisdiction pursuant to the Calder “effects test.” Calder v. Jones, a 1984 U.S. Supreme Court case, held that when a plaintiff has alleged an intentional tort, courts should consider the impact of the “effects test” on their minimum contacts analysis. Hyndman contended that: (1) the defendants committed the tort of intentional misrepresentation; (2) he felt the brunt of the harm in Pennsylvania, where he took possession of the vehicle and discovered it was counterfeit; and (3) this tortious conduct was aimed at him in Pennsylvania.

The court found that sufficient minimum contacts existed to establish specific personal jurisdiction over Back In Time and concluded that the Eastern District of Pennsylvania was the proper venue for the case because that is where the T-Bird was located and where a significant part of the events leading up to the litigation occurred. However, the court determined that it lacked personal jurisdiction over Johnson because Hyndman’s allegations referred only to activities he undertook as an agent or officer of Back In Time, and dismissed the claims against him.

So Hyndman wins, but the dealership loses and must defend a lawsuit in Pennsylvania.

This case didn’t involve the Internet, but I’ll bet that the analysis that the court would have applied had it been an Internet case would have been no different. The lesson? If you advertise far afield, be prepared to defend far afield.

Vol. 8, Issue 5

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