Where to Sue an Internet Business

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.

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.

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.