Every dealer magazine I read touts selling over the Internet as the pot of gold at the end of the rainbow. Maybe it is. Maybe it isn’t, but dealers are beginning to find out that the pot of gold isn’t free. One of the costs of doing business over the Internet may be that the dealer finds that he or she is subject to suit in the buyer’s home state. That’s the lesson a Connecticut dealer learned in a recent case.

Joseph Malcolm, a Virginia resident, sued Prestigious Motor Sales, Inc., a Connecticut car dealership, and two of its agents in Virginia state court. Neither the dealership nor the individual defendants had an office in Virginia or transacted business in the state. Aside from the transaction at issue in this case, the dealership never sold a vehicle to anyone in Virginia.

The defendants advertised a car for sale on eBay. Malcolm submitted the winning bid for the car, and the defendants arranged to have it shipped from California to Virginia.

Malcolm then allegedly discovered a defect in the car and tried to rescind the purchase. When the defendants refused to rescind the transaction, Malcolm sued. The defendants entered a special appearance to contest the Virginia court’s in personam jurisdiction.

The Circuit Court of Virginia ruled that it had jurisdiction over the defendants based on the single sale transaction over the Internet. The court found that the contract for the sale was formed in Virginia, and that the terms of the eBay sale mirrored Virginia law regarding auctions.

The court explained, quoting case law precedent, 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 found that the exercise of jurisdiction satisfied due process requirements, particularly because 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 noted 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. However, the court grounded its decision on the terms of the Internet auction sale transaction.

Yikes! Does that mean that a dealer could get hauled into court in every state in which its eBay buyers live? The short answer seems to be yes, provided the other states have laws like Virginia’s that get interpreted in the same way. As always, get the straight skinny from your lawyer.

And while you’re at it, ask the lawyer a few more questions, such as

That ought to be enough to keep your shyster in tasseled loafers for awhile.

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