State Supreme Court Expands Jurisdiction Based on Web Site Use

While your interactive web site may assist your business in generating sales, did you know that it may also subject you to being sued in another state? In Snowney v. Harrah's Entertainment, Inc., 35 Cal.4th 1054 (June 6, 2005), the California Supreme Court recently ruled that out-of-state defendants conducting no business and having no bank accounts or employees in California can still be sued in our state courts. More particularly, the court held that California had jurisdiction over out-of-state defendants in a lawsuit arising out of the defendant's contact with California residents by way of an interactive web site that specifically targeted California residents.

In Snowney, a dispute arose over a $3 energy surcharge on plaintiff's hotel bill that was not included in the quoted price at the time he made his reservation. As a result, the plaintiff filed a class action lawsuit against several Nevada casinos for failing to notify patrons of this energy surcharge. The defendants are out-of-state corporations that advertise in California and obtain a significant percentage of their business from California residents. These advertising activities include billboards, newspaper advertisements, and ads aired on California radio and television stations, as well as Internet web sites and toll-free phone numbers where visitors or callers can obtain room quotes or make reservations.

After being served with the lawsuit compelling them to appear and provide for their defense in California, the casinos filed motions claiming California did not have jurisdiction over them. The California Supreme Court ultimately found that by purposefully soliciting business from California residents by way of its web sites, the casinos "purposefully availed" themselves of California's benefits such that the exercise of jurisdiction is proper. In particular, the Court observed that defendants' web sites, by touting the proximity of their hotels to California and providing driving directions from California to the hotels, specifically targeted residents of California. Additionally, because many of their patrons come from California and undoubtedly make reservations using the web sites, the Court found that the casinos purposefully derived a benefit from their Internet activities in California and that they have established a substantial connection with California through their web sites.

In reaching their ruling, you should know that California's highest court interpreted the same federal rules and cases that courts outside of California may apply to California businesses under similar circumstances. In other words, if your business has an interactive web site that specifically targets customers in another state, this could possibly subject you to being sued in that state.