September 14, 2010
In
State of Illinois v. Hemi Group LLC, 622 F.3d 754 (7th Cir. 2010), Case No. 09-1407, decided today, the 7th Circuit was asked to determine whether a court in Illinois could exercise personal jurisdiction over a corporation whose contacts with Illinois consisted of internet sales to Illinois residents. The 7th Circuit held that doing so was not inconsistent with principles of due process and affirmed the trial court's decision denying the corporation's motion to dismiss. Because Illinois's long-arm statute is as broad as Indiana's, this case will be of interest to Indiana lawyers.
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In this case, the state of Illinois sued Hemi Group LLC for selling cigarettes to Illinois residents in violation of state laws and for failing to report those sales in violation of federal law. Hemi, based out of New Mexico, sells discount cigarettes through its many websites. Customers may place orders online or through mail, telephone, or fax. Customers online may determine their shipping costs by inputting their zip codes on the website. On several of its websites, Hemi states that it will not sell cigarettes to New York residents. Hemi was neither a resident of Illinois, incorporated or organized under Illinois law, registered to do business in Illinois, have any offices or employees in Illinois, bank in Illinois, nor placed advertisements in print media in Illinois. Hemi moved to dismiss for a lack of personal jurisdiction and the district court denied that motion. Hemi appealed.
On appeal, the Court first concluded that Illinois long-arm jurisdiction is co-extensive with the jurisdictional aspect of the Federal due process clause. It then concluded that Hemi’s contacts with Illinois were sufficient to satisfy due process for the following reasons:
Hemi maintained commercial websites through which customers could purchase cigarettes, calculate their shipping charges using their zip codes, and create accounts. Hemi stated that it would ship to any state in the country except New York. This statement is important for two reasons. First, Hemi expressly elected to do business with the residents of forty-nine states. ... And Hemi, in fact, knowingly did do business with Illinois residents. In light of this, Hemi's argument that it did not purposefully avail itself of doing business in Illinois rings particularly hollow.
Second, the fact that Hemi excluded New York residents from its customer pool shows both that Hemi knew that conducting business with residents of a particular state could subject it to jurisdiction there and also that it knew how to protect itself from being haled into court in any particular state. [I]ts election not to do business with New York demonstrates that it should have foreseen being subject to litigation in Illinois as a result of its cigarette sales to Illinois customers.
The Court next concluded that Hemi's contacts will Illinois were related to the State's claims against Hemi, despite the fact that the legal location of the contracts to purchase the cigarettes in question may not have been in Illinois. Finally, the Court concluded that exercising personal jurisdiction over Hemi was fair.
Hemi set up an expansive, sophisticated commercial venture online. It held itself out to conduct business nationwide and was apparently successful in reaching customers across the country. It was savvy enough to at least try to limit its exposure to lawsuits in states in which it felt that the upside of doing business was outweighed by the risk of litigation. Hemi wants to have its cake and eat it, too: it wants the benefit of a nationwide business model with none of the exposure. There is nothing constitutionally unfair about allowing Illinois, a state with which Hemi has had sufficient minimum contacts, to exercise personal jurisdiction over Hemi.
As stated above, Indiana's long-arm statute,
Trial Rule 4.4(A), is just as broad as the Illinois statute described by the 7th Circuit. Therefore, the Court's analysis would apply to cases brought in Indiana just as strongly as it applies to cases brought in Illinois. What this case teaches us, therefore, is that someone who is selling products on a website exposes himself to being hauled into court anywhere he sells those products, as long as the plaintiff can demonstrate that there is some additional evidence (beyond the mere operation of the website) that the website operator knew it could be subject to the jurisdiction of those locations. While litigators will be fighting over precisely what that additional evidence is in particular cases, the Court's decision appears to endorse a fairly broad application of due process principles to these issues.
Lessons:
- A company that excludes sales to one jurisdiction implicitly subjects itself to the personal jurisdiction of other courts.
- The Seventh Circuit broadly applies principles of due process to those operating websites in oder to extend long-arm jurisdiction to those website operators.
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