The Long Arm Of The Law: Interstate Internet Retailing Creates Legal Chaos

Long arm statues, or similar laws, are enforced in every state, according to Tom Hudson, author of a recent book “CARLAW” and senior partner with Hudson Cook law firm. These laws allow a state to exercise jurisdiction over an out-of-state defendant(s). The catch is the defendant must have “minimal contacts” within the buyer’s state to warrant jurisdiction, and this is where the line in the sand is drawn. Long arm statutes are state laws, so even though each state’s long arm statue is based on the same principle, they are not written or interpreted exactly the same. That means the definition of “minimal contacts” could and does vary.

Hudson said what constitutes minimal contacts is the main battle in this type of case. According to Barron’s Law Dictionary the definition of minimal contacts is, “That degree of contact with a forum state sufficient to maintain a suit there and not offend traditional notions of fair play and substantial justice which are part of the constitutional guarantee of due process of law.” It’s up to each state to decide what “that degree of contact” is. The law dictionary said “traditional” business practices, advertising or accepting insurance payments in a foreign state could constitute minimal contacts.

“What constitutes minimal contacts? Is it sufficient to just post a car on eBay Motors or AutoTrader.com and transact business over the Internet … or do you have to deliberately advertise in the foreign state? The body of law is still developing as to what constitutes minimal contacts,” said Hudson. For now, it’s too early to tell determine a court ruling trend. There have only been a handful of cases where an out-of-state Internet buyer took a dealer to court in the buyer’s home state, and the industry has carefully watched these cases to see how the jurisdiction issues were decided.

You Win Some
A recent case involved Sanfer Sports Cars, Inc. in Miami, Fla., and Bryan Shisler, a California resident. Shisler purchased a vehicle from Sanfer Sports Cars he initially saw advertised online, but once the car was delivered to him, he was unsatisfied.

The dealership advertised a 2002 BMW M5 on their Web site. Shisler called and wrote the dealership to inquire about the vehicle. After Shisler decided to purchase, the dealership mailed the contract, which was drawn up in Florida, to him. Shisler arranged for his own financing and chose a shipping company from a list referred to him by the dealership to ship his newly purchased BMW to California. The title of the vehicle passed to Shisler in Florida, which was undisputed by either party. After the sale was complete and the car delivered, Shisler contended that the vehicle he purchased was misrepresented by the online listing. When negotiations failed, Shisler filed suit against Sanfer Sports Cars in California.

According to the opinion from California’s Sixth District Court of Appeals published in January, in trial court, Carlos Santisteban, owner of Sanfer Sports Cars, “moved to quash service of the summons on the grounds that the defendant lacked minimal contacts with the State of California.” The trial court granted Santisteban’s motion, so Shisler appealed. His appeal also failed. Even though the California court decided it didn’t have jurisdiction, Shisler could attempt to sue Sanfer Sports Cars in Florida, but for now Santisteban and Sanfer Sports Cars have won this battle.

You Lose Some
Another similar case ended quite differently. In the case Malcolm v. Esposito, one of the many cases Hudson covered in “CARLAW”, Joseph Malcolm, a Virginia resident, purchased a vehicle from Connecticut-based Prestige Motor Sales, Inc.

The vehicle involved in this case, which also happened to be a BMW, was listed on eBay Motors. Malcolm submitted the winning bid, and at that point both parties traded information over the telephone and via e-mail communication. The dealership then had the vehicle shipped to Malcolm. Once he received the car, Malcolm found what he claimed to be a “manufacturing defect” and tried to rescind his purchase. When the dealership refused, Malcolm filed suit in Virginia against Chris and Thomas Esposito of Prestige Motor Sales.

The Espositos argued that a Virginia court didn’t have jurisdiction over them. However the court ruled differently. The court found that, “as commercial sellers of automobiles on a well-known, national auction website, the Defendants must have been able to foresee the possibility of being haled into court outside the State of Connecticut.”

Similar Cases with Opposite Outcomes
The difference in these two cases was what constituted minimal contacts in the different states—one took place in Virginia, the other in California. In some states, such as Virginia, one business transaction is enough to meet that states minimal contacts requirement. In Virginia, Prestige Motor Sales and the Espositos only needed to sell one car to justify jurisdiction. In other states like California, continued and systematic contact is required to substantiate minimal contacts. Since Sanfer Sports Cars did not target California residents, the court decided it did not have jurisdiction.

Avoiding Long Arm Statutes
Your first line of defense is to always accurately represent the vehicles you post online. Whether your vehicles are listed on your dealerships Web site or you utilize online auctions, it’s your job to ensure accuracy of every listing, but even the best dealerships will occasionally miss things in their listings.

If you choose to sell out of state, educate yourself on what constitutes minimal contacts in those states you’re selling in. If you’re taken to court in a state like Virginia, you might be wasting your time and money litigating the issue of jurisdiction. In other states, it will be worth the effort.

Hudson’s best suggestion to avoid being taken to court in another state: Insist that every customer wanting to buy a vehicle advertised online come to the physical dealership to sign documents and take delivery of the vehicle. He said a dealer that takes those precautionary measures is “less likely to be successfully attacked than a dealer who is willing to ship deal documents by Federal Express, get them back the next day and then ship the car to a customer in a foreign state.” However, that’s not going to be possible with every Internet transaction. That’s why it’s important to know the markets you’re selling to—even if you only sell one vehicle there. 

Another way to minimize courtroom issues is to include an arbitration agreement in your deal documents. Require customers to sign an arbitration agreement allowing a third party to negotiate problems. With this in place, customer disputes are likely to be resolved less expensively than through the normal legal channels.

The old adage, “Knowledge is power,” is true. When it comes to legal liabilities there is no such thing as knowing too much, being too careful or being too prepared. Know how the buyer’s state interprets minimal contacts before you sell.  Based on current rulings sales to residents of Virginia may be at a higher legal risk than sales to residents of California.  Only you (and maybe your attorney) can decide if the sale is worth the risk.

Vol 4, Issue 5