United States: Another Line Drawn To Limit Lawsuits Against Non-Resident Defendants

Last Updated: October 9 2018
Article by Camile Hart

Maintaining a website is a necessary and important aspect of many businesses.  A website can also impact where a business may be sued, even when the business has never stepped foot inside a foreign state.  Where a business is sued in a foreign state, the business may have an affirmative defense based on lack of personal jurisdiction Whether the creation and maintenance of a website subjects the business to a lawsuit in a foreign state depends on that state's personal jurisdiction laws, which typically includes a Long-Arm statute.  A Long-Arm statute roughly defines what circumstances the state courts may hear lawsuits against non-resident defendants.  However, the determination often includes a fact intensive analysis that makes it difficult for a non-resident business to predict what types of activities will subject it to a lawsuit in the foreign state.  A new holding from the Georgia Court of Appeals may limit what types of websites can be considered to subject a non-resident defendant to the jurisdiction of a foreign state.  Pascarelli v. Koehler, No. A18A0198, 2018 WL 3134876 (Ga. Ct. App. June 27, 2018).

In Pascarelli v. Koehler, the plaintiff Frank Pascarelli, who resided in Marietta, Georgia, was traveling to Casper, Wyoming on business for his employer, the Centers for Disease Control.  While searching for a hotel for the trip, Pascarelli found the Marriott franchise owned by Koehler, and made online reservations for his stay.  After checking into and spending the first night in the hotel, Pascarelli woke to find himself covered in bed bug bites.  Pascarelli sought treatment from urgent care on two occasions while in Wyoming.  Upon returning to Georgia, Pascarelli went to the hospital because his wounds had become infected with MRSA, requiring surgery and a two week stay hospital.  

Georgia's Long Arm Statute O.C.G.A. § 9-10-91 prescribes when a court in Georgia may exercise personal jurisdiction over a nonresident defendant, which is where the nonresident "transacts any business within this state."  The Supreme Court of Georgia held that this reaches only the maximum extent permitted by procedural due process.  Innovative Clinical & Consulting Svcs. v. First Nat. Bank of Ames, Iowa, 279 Ga. 672 (2005).  The Supreme Court of Georgia further defined a three part test for determining what constitutes transacting business within the state of Georgia including: (1) the nonresident defendant has purposefully done some act or consummated some transaction in this state, (2) if the cause of action arises from or is connected with such act or transaction, and (3) if the exercise of jurisdiction by the courts of this state does not offend traditional fairness and substantial justice.  Amerireach.com v. Walker, 290 Ga. 261 (2011).

What type of act constitutes business in the State of Georgia is not a simple question.  The physical presence of the defendant nonresident in Georgia is not required.  Georgia allows long-arm jurisdiction over nonresidents based on business conducted through postal, telephonic and internet contacts.  The sufficient minimum contact does not require a tangible contact with the state.  However, the analysis does not end here.   The quality and nature of the defendant's activity will be scrutinized to determine whether the defendant purposefully avails itself of the privilege of conducting activities within the foreign state.  

Georgia previously adopted the "sliding scale" analysis for analyzing personal jurisdiction based on online interactions through a website.  At one end of the spectrum are situations where the defendant enters into contracts with residents of the foreign state that involve the knowing and repeated transmission of computer files over the internet.  At this end of the spectrum, the defendant has made sufficient contacts with the foreign state and can be sued there.  At the opposite end of the spectrum are websites that simply make information available.   These types of websites are not considered grounds for personal jurisdiction.

However, many websites, as was the case here in Pascarelli v. Koehler, are interactive websites that fall somewhere between the two extremes.  A user can exchange information with the host computer.  There is no clear cut answer for these types of websites.  The court has to examine the level of interactivity and commercial nature of the exchange of information.

In Pascarelli v. Koehler, the Georgia Court of appeals made a helpful distinction in the level of interactivity of a defendant's website.  The Pascarellis argued that the website was extensively interactive because reservations could be made for the hotel through the website.  Plaintiffs argued that the website was as interactive as the website in Aero Toy Store v. Grieves. 279 Ga. App. 515 (2006).  In Aero Toy Store, the defendant advertised cars for auction on eBay's website.  Through the website, buyers purchased the cars, which the defendant personally shipped to the forum state.  

The Court disagreed with the Pascarellis that the hotel website was as interactive as the car auction eBay website.  Critical to the Court's holding in Aero Toy Store was the fact that the defendant had personally shipped a vehicle to Georgia to be operated in Georgia. 

In Pascarelli, the hotel website allowed an online reservation to be made, but this was preliminary to the individual traveling outside the forum state to use the service provided by the hotel.  The purpose of the hotel reservation was not fulfilled until the resident reached the hotel outside the forum state. 

It is important to note that other considerations besides the capabilities of the website could change the analysis, which includes the amount of business the defendant derives from the forum state and whether the defendant specifically advertises in the forum state through means beyond maintaining a website.  In Pascarelli, the court looked into the amount of business the defendant derived from the state of Georgia and found that from 2010 to 2013, Georgia residents generated around $40,000 in revenue which was less than one percent of the defendant's business.  There may be a point at which a business deriving a greater percentage of revenue from a state may tip the balance towards finding that a Georgia Court has personal jurisdiction over a defendant.  Ultimately, the Pascarelli case will limit the kinds of foreign businesses that may be sued in Georgia.  In addition to hotel websites, any activities tourists travel for that can be booked online may find an additional safeguard in getting a case kicked out of a Georgia Court where the service took place in another state.  Georgia joins several other states in limiting the jurisdictional reach of its courts even where an interactive website allows anyone within the United States to book a service.   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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