Where to Sue an Internet Business

Learn the rules about how to bring a lawsuit against an Internet business

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We love the Internet, don't we? We shop at home and have packages delivered to the front door. We create websites for our families or small businesses. And some of us do much of our work over the Internet, as well. Technology has definitely made things more convenient.

But what about when something goes wrong? The package doesn't arrive or is different than advertised. Or perhaps you agree via email to write a restaurant review for a local magazine, and you email the article on time to the editor, but never receive payment. Are these types of problems any different from the face-to-face disputes we've discussed in the rest of this book? Can you use small claims court to get compensation from a person or business you've dealt with only over the Internet?

The answer is, maybe. As with face-to-face disputes, your ability to sue in small claims court for a wrong you suffered via an Internet transaction depends on where the person or business you want to sue is located. You cannot automatically sue someone in small claims court when you have suffered an economic loss. The court has to have power over that particular party, which basically depends on where the person or business lives, works, or has an office. If your Internet-related dispute is with a person or business located in your state, then you shouldn't have a problem. However, only under specific circumstances can you sue a nonresident in your state's small claims court.

If the person or business does not regularly do business with state residents over the Internet (in other words, if the transaction at issue is a one-time event), then you will not be able to sue in your local small claims court, because that person does not live, work, or regularly do business in-state; it is therefore fundamentally unfair to ask that party to travel to your state to defend itself from a lawsuit.

If, however, the person or business regularly transacts with Internet customers in your state, then you should be able to bring your lawsuit in your local small claims court. In the context of Internet transactions, what does it mean to "regularly do business" in a state? The courts are actively discussing this issue, and different judges have different opinions, but here are some basic guidelines:

  • Does the website conduct direct sales over the Internet (versus referring customers to offline distributors, retail stores, or other resellers)?
  • At the time of the transaction, did the person or business know what state you were a resident of–for example, did you fill out a form with your address or have a package shipped to you?
  • Does the person or business do a lot of business with state residents?
  • Does the person or business have any offices or employees in-state, even though its main "location" is on the Internet?
  • Does the person or business send employees or agents into your state to conduct business?
  • Does the person or business advertise or solicit business in your state?
  • Does the person or business have a registered agent for service of process in your state? 

If your answer to all or most of these questions is yes, then you will probably be successful in bringing your case against the party in your local small claims court. The only other issue is whether, as a condition of your transaction, you entered into a "Terms and Conditions" agreement with the website owner that establishes where you can bring a dispute.

Example 1: Mary Mallone lives in Vermont and sells handmade jewelry to customers around the world via her website. She designed the website herself, and the computer files are stored on a web hosting company, Web-R-Us, located in Colorado. She signed a contract with Web-R-Us to provide her with this service and regularly uploads new files for her website to Web-R-Us's computers in Colorado from her computer in Vermont. The contract also requires that all disputes be resolved by arbitration in Colorado. When customers visit her website, they can make purchases online, and that information is temporarily stored on Web-R-Us's computers until it is transmitted to Mary. One day, due to the carelessness of a Web-R-Us employee, the office floods and the computers are ruined. As a result, Mary loses 15 jewelry orders that were stored on Web-R-Us's computers. Can Mary sue Web-R-Us in Vermont for losing $2,000 worth of jewelry orders even though its offices are in Colorado?

No. The contract establishes where all disputes must be brought. Mary will have to take her case to an arbitrator in Colorado.

An Internet business can also be subject to jurisdiction for purposefully causing an injury in the state. If someone uses the Internet to cause an injury in one state, the person causing the damage may be hauled into court in the state where the injury occurred. In cases where the connection between the activity and the injury is not completely clear, courts also look for evidence that the activity was "purposefully directed" at the resident of the forum state or that the person causing the injury had contacts with the state.

Example 2: James lives in California. He buys new gears for his brand new $3,000 bicycle from a bicycle parts distributor on eBay, Will Wheely. Will, who is based in Nevada, sells almost all his inventory via eBay. The gears are defective, and James crashes, ruining the bicycle. James finds out that Will Wheely bought the gears from Big Gear, Inc., a bicycle parts manufacturer in Florida that does occasional business in California. James later learns that both Will and Big Gear were aware that the gears had a defect. Can James sue either Will Wheely or Big Gear in California small claims court to get compensation for his busted bike?

Yes. James can sue both Will and Big Gear in California. Even though neither potential defendant is a California resident, they each purposefully caused an injury in the state by placing the gears in commerce in California.

Nonresidents will fight your attempt to sue them in your state's small claims court. It's a tremendous hassle for a nonresident to travel to defend a lawsuit, which is why the courts have strict rules stating that a person must already do regular business in a state in order to be sued there.

Consumer Complaints About Internet Transactions

If an Internet transaction goes wrong, you might consider filing an official complaint against the person or business, either in addition to or instead of filing a lawsuit. The Federal Trade Commission accepts complaints about consumer Internet transactions. 

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