Decision should guide cases involving Internet advertising

Internet advertising is commonplace. But what happens when the sale of advertised goods goes awry and an advertiser from one state is sued in another?

The question is whether Internet advertising is sufficient to meet due process requirements for conferring personal jurisdiction over the advertiser. The Court of Appeals recently looked into this issue in Carlson v. Fidelity Motor Group Inc.

The contacts

Eric Carlson, a Wisconsin resident, saw a 2006 BMW advertised by Fidelity Motor Group LLC on cars.com. He called the toll-free number listed on the website and spoke for about four minutes to a Fidelity representative. Two hours later the representative called Carlson back and spoke to him for about a minute.

The next day Carlson and his wife traveled to Fidelity's only location, an automobile dealership in Illinois. He test drove the car and agreed on a purchase price.

Before purchasing the car, Carlson asked that the car's oil be changed. Fidelity took the car to its service center, after which the representative indicated that the oil had been changed, and the sale was then effectuated.

Just five months later in Wisconsin, there was damage to the BMW's engine. The examining mechanic told Carlson that the oil had not been changed for "tens of thousands of miles."

Carlson sued Fidelity in Ozaukee County for "fraud by wire" and "negligent representation." Fidelity challenged personal jurisdiction.

Attached to Carlson's affidavit on the issue were screen shots of Fidelity's website and its advertisements on 14 other websites including cars.com. Also attached was a copy of pertinent cellphone records to show the two calls between Carlson and Fidelity.

Fidelity's point of view

Fidelity asserted in its affidavit that it has no facilities or employees in Wisconsin. It does not deliver, solicit or advertise in Wisconsin except to the extent that Fidelity's website is accessible to Wisconsin residents.

It has not performed any contract nor conducted any business here. It never before sued or been sued in Wisconsin.

Specific to the BMW sale, Fidelity averred that the contract was entered into in Illinois and delivery was taken there. Pre-sale inspections, repair and maintenance were all performed in Illinois.

Ozaukee County Circuit Judge Paul Malloy agreed with Fidelity that its contacts with Wisconsin were insufficient to satisfy personal jurisdiction requirements. Accordingly, he dismissed the suit. Carlson appealed.

Court of Appeals analysis

District 2 Court of Appeals Judge Mark Gundrum authored the court's unanimous decision. He began his analysis not with Wisconsin's long-arm statute but with 14th Amendment due process.

That analysis is two-pronged: (1) whether the defendant purposefully established minimum contacts in the forum state and (2) if so, whether the conferral of personal jurisdiction comports with fair play and substantial justice.

Plaintiff bears the burden on the first prong to prove that "the defendant's conduct and connection with the forum state are such that [the defendant] should reasonably anticipate being haled into court there." The Court of Appeals focused on this prong.

Carlson invoked Kopke v. A. Hartrodt SRL, a 2001 Wisconsin Supreme Court case on personal jurisdiction over an out-of-state defendant. But Kopke involved "a regular course of dealing that results in deliveries of multiple units of product into this forum over a period of years."

Carlson's purchase from Fidelity was a one-time transaction. Moreover, the delivery was in Illinois, not Wisconsin.

Carlson next argued that Fidelity's internet advertising formed the basis for personal jurisdiction. No Wisconsin case addresses this issue, so the court turned for persuasive authority to a 2004 federal case from the Western District of Wisconsin, as well as two cases from South Dakota and Michigan, respectively.

The federal court declared that personal jurisdiction may obtain over a defendant that uses its website to engage in repeated commercial transactions only if "there is a corresponding finding that the defendant is expressly targeting residents of the forum state and not just making itself accessible to everyone regardless of location."

A 2007 case involved a South Dakotan's purchase of a vehicle from a Montana used car dealership that advertised a Fiat on eBay. This, too, was a "one shot deal" where the defendant had no physical contact with South Dakota before, during or after the sale, and the plaintiff initiated the telephone calls to the dealer. The South Dakota court found insufficient contacts.

Lastly, a 2000 case from Michigan centered on two sales to Michigan residents via eBay. The court concluded the seller did not target the state and did not purposefully avail herself of doing business there. Rather, the sales constituted "random" and "attenuated" contacts.

Since Carlson's purchase was a sole transaction with Fidelity, Fidelity had no physical presence in Wisconsin and Carlson could not show that Fidelity's internet advertising targeted Wisconsin residents more than any other state, the Court of Appeals concluded that there were insufficient contacts to confer personal jurisdiction over Fidelity in a Wisconsin court.

Commentary

This case tackled an issue of first impression: a sale stimulated by Internet advertising by an out-of-state company. The court used persuasive authority well in shaping a template for courts to follow.

The case mirrors societal changes in purchasing that the Internet has wrought. Not only are clothing and hard-to-find objects purchased via the Internet but also large items such as furniture, cars and appliances.

Online advertising leads to a national, if not international marketplace, not state- or locale-specific purchase points. The traditional contacts with the forum state that have traditionally underlain the exercise of personal jurisdiction are simply nonexistent in cyberspace.

This is good news for companies' websites and other online advertising. It is not such good news for consumers if they end up needing to sue since seeking legal redress in another state can be challenging and cost-prohibitive.

Published: Wed, Feb 04, 2015