The world has gotten a lot smaller these days. Say you search the internet and find a nice-looking, numbers-matching 1964 Porsche 356SC advertised by a dealer 2,000 miles away. The car looks great, all the right boxes are checked, and there are 85 pictures of every nook and cranny. You call the dealer to talk about it, and he says all the right things, so you agree to buy the car. You wire $125,000 to the dealer, arrange transport and eagerly await its arrival. When the car arrives, you are immediately disappointed by the paint blemishes and worn interior. Your trusted […]
The world has gotten a lot smaller these days. Say you search the internet and find a nice-looking, numbers-matching 1964 Porsche 356SC advertised by a dealer 2,000 miles away. The car looks great, all the right boxes are checked, and there are 85 pictures of every nook and cranny. You call the dealer to talk about it, and he says all the right things, so you agree to buy the car. You wire $125,000 to the dealer, arrange transport and eagerly await its arrival.
When the car arrives, you are immediately disappointed by the paint blemishes and worn interior. Your trusted Porsche mechanic tells you the engine is not original to the 356, and the car needs $20,000 of work to be dependably drivable. You contact the dealer, who tells you, “I’m sorry you’re disappointed, but you had the opportunity to come inspect the car, and you agreed to buy it as-is.”
You explain all this to your attorney, who gives you the bad news. Sure, you have a great misrepresentation claim, and you can get your money back, but you are going to have to sue the dealer in his state, as that is where the sale and fraud occurred.
This is not a happy situation. You have to find a capable lawyer in a different state, and it’s hard to do that from half a country away. Communications are going to be more difficult, resulting in higher legal fees. You are going to have to travel back and forth multiple times for all the litigation events. The expense and risks just keep coming! If only you could sue in your own state…
Jurisdiction
Most every lawyer has had this difficult conversation with a client. Our country is a republic, a union of 50 independent, autonomous states. Each state has sovereign jurisdiction within its borders. Since the dealer stayed in his home state throughout the entire transaction, he is therefore beyond the jurisdictional reach of your state’s courts.
States do have what lawyers refer to as “long-arm jurisdiction” statutes. These laws can extend the reach of their state courts’ jurisdiction as far as constitutionally permissible. However, the constitutional limit is that the defendant must have had the “minimum contacts” with your state that justify jurisdiction over him. As the dealer in our hypothetical situation never set foot in your state — he posted on the internet in his state, you called him, you sent him the money, your transport company picked up the car — it’s hard to see that he had enough of a connection with your state to create jurisdiction.
Phone bidder disappointed
A recent Appellate Court of Illinois decision shows how subtle differences in the facts can make a huge difference. “John Bidder,” an Illinois resident, saw a really great-looking classic truck offered in an auction advertisement on a car-related website. The truck was going on the block in a live-streamed collector-car auction to be held on the East Coast.
Bidder emailed the auction company, requesting more information about the truck, including how to bid on it. The company responded by email, inviting him to bid and explaining how he could participate “via live simulcast bidding or on the telephone via phone bidding.” The auction company added that Bidder could find more information about the truck on its website. Bidder, via email, asked for pictures of the engine. The auction company again responded by email that it would send him pictures of the engine once it received the truck from its owner. The auction company told Bidder that the auction estimate was $30,000–$40,000.
He called the auction company to discuss registration, and the agent offered to email the forms. In another phone call, the company reaffirmed the representations it made in the advertisement, that the owner had the truck “frame-off restored” with “new brakes and tires,” and that the truck was “garage kept and frequently driven since restoration.” The auction company agent added that the truck was rated “4.5 out of 5.”
The auction company telephoned Bidder at his Illinois number to enable him to bid on the truck as he was watching the simulcast. He was eventually the high bidder and bought the truck. When it arrived in Illinois, however, Bidder claimed it was not in the condition advertised. Unable to get the auction company to take the truck back, he filed suit in Illinois. The auction company immediately moved to dismiss the lawsuit on the basis that the Illinois court had no jurisdiction over the auction company, as the company was not based in Illinois nor was the auction held there.
Every rule has exceptions
Irrespective of the claims about the condition of the truck, this was not an easy case to decide. The trial court agreed with the auction company and dismissed the lawsuit. Bidder appealed.
The Appellate Court recognized that the internet has blurred the lines in jurisdictional cases: “The type of Internet activity that is sufficient to establish personal jurisdiction remains an emerging area of jurisprudence… Generally, a website that provides only information does not create the minimum contacts necessary to establish personal jurisdiction over a defendant.”
That was basically the auction company’s view of the case. However, the Appellate Court explained that there were many exceptions to that rule when a defendant goes beyond such a passive role.
In another Illinois case, an online cigarette sales company created several commercial interactive websites through which customers could purchase cigarettes, and held itself out as open to do business with every state except New York, which included Illinois. It was the cigarette company reaching out to residents of Illinois, and not the residents reaching back, that created the sufficient minimum contacts with Illinois that created jurisdiction in Illinois. This highlights the complexities of jurisdiction in e-commerce, where the actions of a business can significantly impact legal considerations across state lines.
The emails sent by the collector-car auction company to Bidder raised another Illinois decision, where emails were found critical since they were purposefully sent to an Illinois resident knowing that they would be read in Illinois. The phone calls, wherein the auction company represented the condition of the truck, raised another Illinois case where fraudulent statements made in a phone call to an Illinois resident created jurisdiction.
There’s more, but you should be seeing the picture. Our opening example of the Porsche 356 purchase was simplistic. But once the seller starts doing more than just responding to inquiries — when the seller starts reaching out to the buyer — the seller starts crossing the jurisdictional line. It’s hard to define exactly where that line gets crossed, and different states may draw that line in different places. Illinois seems to be willing to draw that line quickly to protect its residents.
An ace in the hole
The auction company thought it had the situation covered. Bidder had agreed, in the bidder registration form that he signed, that any litigation would be conducted in the auction company’s home state. Generally, a party to a contract can agree to such a “choice of forum” provision, and the agreement will be enforced. However, on closer inspection, the Appellate Court concluded that no such agreement was actually made.
The bidder registration form stated that the signatory had read and agreed to the auction company’s “Terms & Conditions.” The T&C document contained the choice of forum provision. This is what the law refers to as “incorporation by reference.” There is no question that a contract can simply refer to another document and specifically make that other document part of the contract. Basically, it’s just a rule that saves a lot of typing.
However, the auction company did not send the T&C document to Bidder or mention it in its communications. The bidder registration form included some, but not all, of the same matters that were in the T&C document, but it did not mention that the “Terms & Conditions” were to be found in a separate document. Thus, the auction company’s bidder registration form did not actually incorporate the T&C document by reference, and Bidder was not bound by the choice of forum provision to litigate in the auction company’s home state.
Lucky break
Call that a lucky break for Bidder, who after appeal was able to proceed with his case in Illinois. But don’t expect to get the same break yourself. Multi-state sellers are easily capable of making sure their paperwork covers this point completely. However, this case does point out that, in some situations, it is possible for a disappointed buyer to sue in their home state, making the seller’s defense more difficult on the buyer’s home turf. ♦