Written by: Robert Wenzel
We receive questions routinely from new online businesses who plan to sell products in different states. E-commerce law can be quite complex. Say you have a traditional brick and mortar retail store, and end up in a legal dispute with a customer. Jurisdiction is not really a question at all.
However, many online shops will have a physical office in one state, be registered as a corporation in a second state, ship inventory from a warehouse in a third state to a customer in a fourth state. Needless to say, the question of jurisdiction can get very complicated.
When the shopper and business are located in different states, it could be difficult to determine jurisdiction and if the online retailer would be subject to a lawsuit in a given state.
Every state has what is called a “long arm statute”, which means that a company can be sued in the plaintiff’s state, regardless of where the defendant is located.
THE LONG-ARM STATUTE, THEORY AND EXAMPLE
What exactly is a “long arm statute”? The “long arm statute” is where the courts in a specific state, such as California, can exercise its jurisdiction over companies outside of the particular state in question provided that the company has “minimum contacts” with the state in question. In simple terms, minimum contacts can be established when a company in one state enters into a transaction with an individual person located in another state
The “long arm statute” applies because the out-of-state company is selling products within another state, they are availing themselves to the laws of the state. The transactions are considered to be sufficient contact to warrant jurisdiction.
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For example, let’s say an individual living in California makes an online purchase from ABCOfficeSupplies.com. ABCOfficesupplies.com may have its headquarters in Washington State and may ship the product from a warehouse in Kentucky. However, if the person making the purchase finds the need to sue ABCOfficesupplies.com for any reason, the “long arm statute” would apply.
The reason why the “long arm statute” applies is because ABCOfficesupplies.com has sold and shipped an item to a customer in the state of California, even though ABCOfficesupplies.com’s warehouse and corporate offices are located in other states.
EXCEPTION TO THE RULE
There are certain situations in which the long arm statute is not valid. If a company located in one state sells an item to an individual residing in another state and the item in question is in a third state.
This can happen if a resident of California purchased a vehicle from an auto dealership in New Mexico. While driving the new vehicle home to California, the vehicle catches on fire in Arizona.
In the case listed above, the “long arm statute” would not apply because the dealership does not have any contacts with the state of Arizona. The auto dealership is located in New Mexico. The individual who purchased the car is a California resident and was driving the vehicle through Arizona solely to get back to California.
(Can you provide other examples? Also, don’t keep repeating the same phrases.)
JURISDICTION AND FILING THE LAWSUIT
If the “long arm statute” applies and the minimum contacts have been determined, then the person who initiates the case can file the lawsuit in their state of residence. To use the ABCOfficesupplies.com example from above, the person making the online purchase would be able to file the lawsuit in California since California is their state of residence.
ABCOfficesupplies.com would be subject to the jurisdiction of the California court since the selling of the item constitutes minimum contacts with California.
ENFORCEMENT
Let’s say that a lawsuit is filed against an out-of-state company and the plaintiff wins. Could the plaintiff collect the verdict?
According to both Article IV, Section 1 of the United States Constitution (better known as the Full Faith and Credit clause) and the Implementing Act of 1790, 28 U.S.C. § 1738, a judgment awarded against the company is enforceable in every state in the nation.
What the rules listed above mean is that each state recognizes a judgment from the judicial system of another state.