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Bar Journal - September 1, 2003

E-Bay Deals Gone Bad: Can You Get Personal Jurisdiction in NH Over a Seller Using an Internet Auction Website?

By:

I. INTRODUCTION

The analysis for personal jurisdiction in New Hampshire is well established. But what happens when a transaction is conducted on an online auction web site such as eBay?

Personal jurisdiction as it relates to the Internet has been a hot topic since commerce in cyberspace began. Courts across the country have struggled to fit this unique way of doing business, which knows no borders, into the traditional personal jurisdiction test.1 These cases typically involve people or organizations conducting traditional commercial transactions over the Internet.2 On June 25, 2002, the New Hampshire Supreme Court issued the Metcalf v. Lawson, 148 N.H. 35 (2002), decision based on an appeal from a denial of personal jurisdiction.

The underlying issue in Metcalf involved a contract dispute over the plaintiff's purchase through the eBay web site. Neither of the parties in Metcalf was regularly engaged in commercial business. The conduct complained of in Metcalf was a dispute on a private contract that happened to be formed in cyberspace. The New Hampshire Supreme Court distinguished Metcalf from "traditional" Internet cases because neither party involved was a commercial entity. The Court declined to apply the sliding scale test articulated in Zippo Mfg. Co., v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Penn. 1997),3 used by some courts in addressing internet jurisdiction cases.4

In Metcalf, the defendant, a New Jersey resident, offered a John Deere excavator at the auction web site eBay. The plaintiff, after sending an email about the condition of the item and receiving assurances from the defendant that the item was in good condition, bid on and won the item. More emails were exchanged and the plaintiff traveled to New Jersey to finalize the purchase. Sometime before turning over the excavator, but after the contract was formed, the defendant learned that the plaintiff was from New Hampshire. After returning to New Hampshire with the excavator, the plaintiff discovered problems with it and contacted the defendant in an attempt to get a partial refund. The defendant did not respond and the plaintiff filed a small claims complaint. The defendant moved to dismiss on personal jurisdiction grounds. The motion was denied, and the defendant appealed to the Supreme Court.5

The Supreme Court reversed the lower court stating the defendant did not engage in sufficient activity in New Hampshire to make it "fair and reasonable for purposes of due process to require her to defend [the] claim" in New Hampshire.6 The Court analyzed this case using the traditional personal jurisdiction test. It also looked at Winfield Collection, Ltd. v. McCauley, 105 F. Supp. 2d 746 (E.D. Mich. 2002), which, although not a contract dispute, involved transactions on eBay.7

Internet auction contract cases involving individual users, rather than commercial sellers, are rare.8 Although at the time of this writing there are no reported cases like Metcalf v. Lawson, these cases may become more frequent if Internet auction sites continue to operate. How the courts address the issue of personal jurisdiction is of import to any non-commercial user of an online auction site.

This article examines the analysis used by the Supreme Court in Metcalf and the implications it may have on future cases involving eBay and other online auction sites.

II. TRADITIONAL PERSONAL JURISDICTION ANALYSIS IN NEW HAMPSHIRE

Personal jurisdiction in New Hampshire involves both statutory and constitutional analysis. The New Hampshire Supreme Court has read the state's long-arm statute fairly liberally.9 Taking this liberal view in the Metcalf case, the Court relies on the traditional due process analysis to determine personal jurisdiction in such cases where it is not obvious, based on the facts presented, that jurisdiction may be exercised solely under the long-arm statute.10 The constitutional analysis involves looking at the contacts the defendant has with the state and determining whether those contacts are "sufficient to ensure" that a suit brought in the state does not offend "traditional notions of fair play and substantial justice".11 In determining personal jurisdiction, the burden lies with the plaintiff, who is required to produce factual evidence "sufficient to establish personal jurisdiction over the defendant".12

In addressing the constitutional standards of personal jurisdiction issues, the court starts with a determination of the defendant's actions in or toward the state. If the actions "are such that he should reasonably anticipate being haled into court" in the forum state, then the threshold question of minimum contact has been met.13 Further, if the cause of action comes from or relates to the defendant's contact with the state, those contacts must be "purposefully directed ...at residents of the forum".14

After establishing purposeful in-state contacts, the court then turns to the sufficiency of those contacts to determine if the contacts rise to a level that would give notice to the defendant of potential suit in the forum state. This is referred to as the fair play and substantial justice portion of the test. In determining fair play and substantial justice, the court may also look at "other factors relevant to affording substantial justice". These factors include: the burden on the defendant if forced to litigate in the forum state; the State's interest in adjudicating the dispute; the plaintiff's interest in obtaining convenient and effective relief; the interstate judicial system's interest in obtaining the most efficient resolution of controversies; and the shared interest of the several states in substantive social policies.15 If the court determines that these criteria are met, it may exercise jurisdiction over the defendant pursuant to the Due Process Clause of the 14th Amendment.

In situations where the alleged activity involves use of the Internet, several courts across the country have also focused on the type of activity used on the Internet in deciding whether to apply personal jurisdiction analysis. This focus stems from Zippo Mfg, Co. v. Zippo Dot Com, Inc. 952 F. Supp. 1119 (W.D. Penn. 1997). In Zippo, the court stated that in determining if personal jurisdiction can be exercised, the activities must be "directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet".16 The court in Zippo goes on to articulate a sliding scale of Internet activity stating that an interactive web site, where the defendant actively engages in commercial activity on the Internet, justifies applying personal jurisdiction. A passive web site (one on which a person merely posts information) does not justify personal jurisdiction. The middle ground, those web sites that are more than informational but less then purely commercial, require an examination of "the level of interactivity and the commercial nature of the exchange of information that occurs on the web site."17

Put into plain language, after deciding that the injury stems from the defendant's activities, the court uses a three-part test to determine if exercising personal jurisdiction is appropriate:

  1. The court must determine if it would be reasonable for the defendant to come to the state to defend himself,
  2. It must examine the quantity/quality of the contacts the defendant makes in New Hampshire, and
  3. It must examine if and how the defendant knows he is conducting a transaction in the state or with a state resident.18

Even if all of these factors are met, the court may look to the fairness of requiring the defendant to travel to the forum state. If the court finds that this travel requirement is unfair or over-burdensome to the defendant, it may decline to allow jurisdiction. Additionally, if the activity stems from the use of an Internet web site, the court may also look at the type of web site to establish personal jurisdiction.

III. THE ANALYSIS AS APPLIED IN METCALF

In applying the test articulated above, the court must find that there was some contact between the parties in order to go forward with the jurisdictional analysis.19 The court must then examine the quantity and/or quality of the contact to determine that the defendant's contacts in New Hampshire are sufficient to establish that she purposefully availed herself of the privileges and protections of the state.20

Taking the facts from Metcalf, as stated in the introduction, the Court assumed, as it was not contested, that there was contact between the parties.21 It then decided that the defendant did not avail herself of the privileges and protections of the state. The court arrived at this conclusion by pointing out that the defendant had no control over who would win the auction and had no way of filtering out bidders from particular jurisdictions.22 The court states that although the defendant may have been able to foresee that a person from New Hampshire could be one of the bidders, this foreseeability alone is not enough to establish jurisdiction.23

Further, the Court determined that the email between the plaintiff and defendant are not sufficient contacts to establish that the defendant knew or should have known the plaintiff was from New Hampshire. First the Court points out that the plaintiff initiated the first email communication. There is no evidence in the record as to whether the defendant ever initiated subsequent emails.24 There is no evidence in the record as to whether the defendant became aware of the plaintiff's New Hampshire residency prior to the completion of the transaction (although it is not clear that such knowledge would have made a difference). Finally the Court states the transaction between the plaintiff and defendant is an isolated incident and the quantity of contact was low.

The Court declined to apply the Zippo sliding scale test because the Internet transaction at issue did not stem from the defendant's activities on her own web site. The Court distinguishes this case from the line of cases following Zippo because the defendant's activities were conducted through a third-party online auction site.25

Relying instead on Winfield, the court finds that the defendant had no control over who participated in the auction or a means to filter out particular states' residents from bidding on her item.26 The court in Winfield articulated that the defendant's sales in the forum state were random and attenuated contacts. These random contacts did not support a finding that the defendant purposefully availed herself of the privilege of doing business in the forum state.27

On these bases the Court held that personal jurisdiction does not apply. The court does not address the additional factors relative to fair play and substantial justice in its decision, presumably because the court found the defendant's contacts through the Internet were not sufficient to justify the exercise of jurisdiction.28

The Court's reasoning is sound and sends the message that one-time transactions via eBay will not confer personal jurisdiction over a defendant in a contract dispute. The most notable aspect of this case is the Court's avoidance of the Zippo test. Metcalf points to the problematic issue of fusing traditional personal jurisdiction analysis with particular Internet activity. Although Zippo may be useful in addressing established businesses activities on the Internet, it does not encompass dealings between individuals utilizing a pass-through web site to conduct private transactions.29

Many eBay auctions are just like the transaction in Metcalf - some eBay users make isolated transactions and do not fall into the realm of commercial sellers. It is doubtful that the defendant in Metcalf sold another excavator on eBay. In those situations, the New Hampshire courts, following the precedent set in Metcalf, will dismiss for lack of jurisdiction. The value of the Metcalf decision is limited, however, to situations of non-commercial and infrequent sellers. It is also unlikely that the court would use the Zippo test in cases involving transactions on eBay (or similar auction web sites) even if conducted by a regular user of the auction venue.30

IV. BUT WHAT IF....?

The court stated that in using eBay as the conduit for selling her excavator the defendant did not have control over where the product was ultimately sold, nor could she exclude bidders from a particular jurisdiction.31 Although from the facts presented, this appears to be true in the Metcalf case, it is not always so. According to the eBay user rules, a seller can prohibit a bidder from participating in an online auction by creating a list of pre-approved buyers. If the seller utilizes this feature of eBay, a non-approved buyer must email the seller for permission to bid on that item.32 Thus, within the eBay auction world, a seller can exercise some control over where and to whom she sells an item.

The reality of eBay and similar auction web sites is that individual sellers often repeatedly conduct auctions on the web sites. These sellers may develop a relationship with particular bidders through past sales. Although the residence of a buyer is not disclosed on the web site, if a buyer consistently wins a particular seller's auctions, the seller will be aware of the buyer's location. Buyers obviously must disclose their address in the more common case to receive the item purchased. The court in Metcalf stated "the isolated nature of [the] transaction and the absence of any evidence that the defendant was a commercial seller militates against a finding of jurisdiction".33 The following questions arise: Do repeated sales on eBay constitute commercial transactions? How many offerings are allowed before a transaction is not isolated? Does the "pre-approved buyer" feature create the type of control the New Hampshire Supreme Court found lacking in Metcalf? Would the answer to any of the questions change the result in future cases?

V. CHANGING THE FACTS

Suppose Joe, a resident of New York, has a large collection of baseball cards in his basement. Joe believes they are of value to someone, so he decides to auction off parts of his collection on eBay. Joe starts out selling his 1982 Topps complete set. The auction goes off without a hitch and Joe feels confident that this is a good venue to dispose of his collection. Joe then conducts several more auctions, selling one set of cards at a time. He sends a few sets to Steve, a buyer in New Hampshire. Joe and Steve begin to exchange emails regarding Joe's collection. At some point the relationship breaks down and Joe elects to use eBay's pre-approved buyer function. He excludes Steve from the list. Steve sends Joe an email asking for permission to bid in an auction for a rare and expensive 1952 Bowman baseball card set, and Joe agrees to add Steve to the list. Steve wins the auction, paying a considerable amount of money for the baseball cards, which Joe never delivers. Steve wants to sue Joe for non-performance.

Joe has now conducted more than one sale on the Internet with a New Hampshire buyer. He has move out of the realm of isolated transactions present in Metcalf. Joe's repeated sales may rise to the level of commercial activity; however, it is not logical to assume that you would be able to drag Joe into a New Hampshire court on that fact alone. The fundamental principles of fairness would not be forwarded by subjecting the New York resident to litigation in a foreign state. Although Joe has knowledge that Steve is located in New Hampshire and has actively engaged in communications with Steve, those communications are not central to Joe's commercial activity. General communications directed at the forum state will not garner jurisdiction there.34 To meet the threshold requirements of minimum contacts, the communications would have to be part of the commercial-like activity on eBay or similar web sites. Further the commercial activity must be directed at the forum state and be central to the issue being litigated. Just being engaged in a commercial activity does not justify an exercise of jurisdiction.

The defendant in Metcalf did not exercise any control over the participants in the auction for her excavator. Joe did exercise some control. However, this control is minimal. While Joe can give Steve permission to participate in the auction (and conversely, exclude him based on his location), Joe cannot control the outcome of the auction. It is ultimately Steve's actions that will determine whether or not Steve will win. However, the ability to exercise control over auction participants is not a defining act that should warrant jurisdiction, because the control is limited. The seller and the winner of the auction create contracts realized on eBay. The seller cannot control the outcome of the auction; therefore the seller has no control over whom he will have to contract with at the end of the auction.

Although the Metcalf court suggested that the absence of evidence pointing to multiple transactions and commercial activity might have hindered the plaintiff's case, had that evidence been present, it may not have made any difference. In the isolated world of eBay auctions, there is no added benefit to establishing that an individual is conducting commercial-like activities on a regular basis. The outcome will be the same. In the scenario above, Joe will argue that his contact with Steve was a unilateral contact, initiated by Steve, like that in Metcalf. He will argue that although he added Steve to his pre-approved buyer list, this does not rise to the level of purposeful contact with the forum state. Until Steve wins the auction (which is not a given outcome) and enters into an agreement to pay for the item, Joe hasn't had any direct contact with the forum state to give rise to Joe receiving the benefits and privileges of doing business in any state. But for Steve's email and Steve's bidding on the item, Joe would never have occasion to conduct business with a New Hampshire resident. The quality of Joe's contact with Steve in New Hampshire is not sufficient to establish jurisdiction.

Finally, the additional factors relating to fair play and substantial justice, not addressed in Metcalf, give further credence to the outcome in Metcalf, and in the hypothetical proposed above.35 eBay is akin to a giant tag sale. It is not reasonable to expect that every person offering items for sale on eBay be subject to every foreign jurisdiction in which a successful buyer resides. The court should look at the burden on the defendant, the State's interest in adjudicating the suit, the plaintiff's interest in obtaining convenient and effective relief and the shared interest of the States in obtaining the most efficient resolution of controversies as well as an interest in social policies.

VI. CONCLUSION

The New Hampshire Supreme Court's decision in Metcalf v. Lawson is of precedential value to anyone seeking to litigate a claim in New Hampshire against a buyer or seller on an Internet auction web site, such as eBay. Personal jurisdiction analysis in that situation is done using the clearly defined and time tested steps laid out since International Shoe. The relatively new test relating to Internet transactions referred to as the Zippo test does not apply in this type of situation. Transactions on eBay do not fit into the sliding scale articulated in Zippo. An individual, not engaged in commercial activity on eBay, who has had little or no contact with the plaintiff, and who has not exercised control over the auction process will not be hauled into this state's courts to litigate a contract claim stemming from a single transaction.

It is unclear how the court would determine any other situation involving eBay transactions since personal jurisdiction analysis is conducted on a case-by-case basis. However, it is unlikely that an individual engaging in commercial-like activities and exercising the limited control over the auction process available on eBay would have the contacts the court is looking for to establish personal jurisdiction. So buyers beware. When engaging in online auctions remember: in New Hampshire your only legal recourse may involve traveling to the home state of the seller.

ENDNOTES

1.

For a general discussion of personal jurisdiction cases involving the internet see Roy S. McCandless and Melissa Guldbrandsen, Personal Jurisdiction and the Internet, N.H. Bar J. December 2000.

2.

See generally e.g., Bird v. Parsons, 289 F.3d 965 (6th Cir. 2002); Hall v. LaRonde, 56 Cal. App. 4th 1242, 66 Cal. Rptr. 2d 399 (2d Dist. 1997); Dagesse v. Plant Hotel N.V., 113 F. Supp., 2d 211 (D. N.H. 2000); Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F.Supp 1119 (W.D. Pa. 1997); People by Vacco v. Lipsitz,174 Misc. 2d 571, 663 N.Y.S.2d (Sup. Ct. 1997).

3.

Infra, sec. II (discussing background of personal jurisdiction in New Hampshire).

4.

For a compilation of cases relying on Zippo Mfg. Co. v. Zippo Dot Com, Inc. see Michael A. Geist, "Is There a There There? Toward Greater Certainty for Internet Jurisdiction" 16 Berkley Tech. L.J. 1345 Fall, 2001.

5.

Metcalf v. Lawson, 148 N.H. 35, 36 (2002).

6.

Id. at 41.

7.

The New Hampshire Supreme Court states that Winfield is instructive because it involved a transaction on eBay. At issue in Winfield was a copyright infringement claim. The defendant purchased patterns from the plaintiff and created products from those patterns. The defendant then sold two of those products on eBay. Of particular note by the NH court was that the Winfield court took judicial notice that "the function of an auction is to permit the highest bidder to purchase the property offered for sale, and that the choice of the bidder is beyond the seller's control" Winfield Collections, Ltd. v. McCauley, 105 F. Supp. 2d 746, 749 (E.D. Mich. 2002).

8.

The cases relating to transactions on eBay include: Foster-Gwin, Inc. v. Fallwell, 2001 U.S. Dist. LEXIS 18151 (N.D. Cal. Nov. 6, 2001) (Motion to Dismiss for lack of personal jurisdiction in a trade-libel suit); Tamburo v. eBay, Inc., 2002 U.S. Dist. LEXIS 22686 (N.D. Ill. Eastern Div. Nov. 25, 2002) (Motion to Dismiss for lack of personal jurisdiction in a defamation suit); Machulsky v. Hall, 210 F. Supp. 2d 531 (D. N.J., 2002) (Motion to Dismiss for lack of personal jurisdiction in a defamation suit)

9.

See N.H. Rev. Stat. Ann. 510:4; Phelps v. Kingston, 130 N.H. 166, 171 (1987) and Alacron v. Swanson, 145 N.H. 625, 628 (2000) (both finding the state long-arm statute permits jurisdiction to the extent allowed under the Federal Due Process Clause).

10.

Metcalf, at 37.

11.

Phelps v. Kingston, 130 N.H. 168, 170 (1987) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

12.

Id.

13.

Id. at 171 (quoting Worldwide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).

14.

Id. at 171-172 (citing Burger King v. Rudzewicz, 471 U.S. 462, 472 (1985)).

15.

Phelps v. Kingston supra at 172 (citing Burger King, supra at 476-77)).

16.

Zippo Mfg. Co., v. Zippo Dot Com, Inc. 952 F. Supp. 1119, 1124 (W.D. Penn, 1997).

17.

Id.

18.

See Skillsoft Corp. v. Harcourt General, 146 N.H. 305, 308 (2001).

19.

Metcalf, at 40-41.

20.

See Hanson v. Denkla, 357 U.S. 235 (1957).

21.

Metcalf, at 38.

22.

Id. at 40.

23.

Id. "It is the conduct of the defendant, rather than the medium utilized by [her], to which the parameters of specific jurisdiction apply" quoting Millennium Enterprises v. Millennium Music, LP, 33 F.Supp 2d 907, 921 (D.Or. 1999).

24.

The court states that the plaintiff's email to the defendant cannot be grounds for supporting jurisdiction because "the contact was the result of his unilateral activity" Metcalf, 148 N.H. at 40 (citing to Hanson v. Denkla, 357 U.S. 235, 253 (1958) stating that "the unilateral activity of those who claim some relationship with a nonresident defendant cannot satisfy the requirement of contact with in the forum state").

25.

Metcalf, at 39

26.

See n.7 infra.

27.

Metcalf, at 39.

28.

Id. at 40.

29.

Id. at 39.

30.

Phelps v. Kingston, 130 N.H. at 171 (stating that personal jurisdiction elements must be applied on a case-by-case basis).

31.

Metcalf at 40.

32.

(accessed December 30, 2002).

33.

Metcalf at 40.

34.

See Skillsoft Corp. v. Harcourt General, Inc., 146 N.H. 305 at 309 (2001) (stating that the court must look to the defendants contacts that relate to the litigation, not those which only establish a general relationship between the parties).

35.

See Sec. II, supra.

The Author

Jocelyn Kennedy, Class of 2003, Franklin Pierce Law Center, Concord, New Hampshire.

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