Commerce on the Internet: “I’ve Been Sued Where?”

By Curt Graham

The Internet Age has opened up a world of possibilities for small business owners. “I can do business all over the country now!” The ambitious entrepreneur exclaims. “Heck, I’m worldwide!” However, this opportunity for higher sales does not come without unexpected risks. Imagine the entrepreneur’s surprise when she later receives a summons and complaint requiring her to appear in the court of a state she has never even visited. She feels certain she cannot be sued somewhere she has never been. Is she correct?

Answering this question requires analysis of a legal doctrine called “personal jurisdiction.” Simply put, personal jurisdiction is the power of a particular court over the parties in a lawsuit. Personal jurisdiction can be contrasted with “subject matter jurisdiction,” which is the power of a court to hear certain types of cases.  In order for a court to exercise personal jurisdiction over any party, the general rule is that the party must have had at least some level of contact with the state where the court sits. This requirement arises out of state long-arm statutes and the United States Constitution (through the Due Process Clause).

As you might imagine, the existence of the Internet raises new and interesting questions about when personal jurisdiction over a defendant arises. For example, will you subject yourself to the courts of another state simply by conducting one simple business transaction online with a distant customer? Although the law continues to develop and is not completely settled, a few important cases are worthy of discussion.

One of the most well-known and important cases addressing these issues is Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997). This case is a good starting point for anyone interested in this topic. In Zippo, a manufacturing company based in Pennsylvania filed suit in Pennsylvania against a California corporation. However, the California company’s only contacts with Pennsylvania occurred online. The issue facing the Court was whether the California entity could be “hailed into” a Pennsylvania court based solely on those online contacts. The Court ultimately held the exercise of jurisdiction in Pennsylvania was reasonable because the defendant had “purposefully availed” itself of doing business in Pennsylvania. Essentially, the rationale was that if a company gets the benefit of doing business out-of-state, it must also accept the risk.

Perhaps the most important rule found in Zippo – and a statement still cited by courts today – is this: “the likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet.” Id. at 1124 (emphasis added). This rule produced what is known as the “sliding scale test,” which generally means that a website with a higher level of interactivity is more likely to provide the basis for jurisdiction over the site’s owner. In other words, a site merely providing information in the form of advertisements (considered “passive” in nature) is treated much differently than a site that actively engages with customers. The latter likely gives rise to personal jurisdiction.

More recent Kentucky cases suggest the Zippo test is still utilized. In QSR Automations, Inc. v. KRS Corp. LLC, Civil Action No. 3:09-CV-242, 2010 WL 1416700 (W.D. Ky. Mar. 31, 2010), a Kansas business argued it should not be required to appear in a Kentucky federal court because it did not sell any products in Kentucky and did not have any employees there. The plaintiff disagreed, noting the defendant offered its products to Kentucky purchasers through its interactive website. The court sided with the defendant and dismissed it from the case, finding that no sales had ever been made to Kentucky purchasers online. The court properly observed that “the maintenance of a website in and of itself does not constitute purposeful availment” to doing business in Kentucky. Id. at *3.

To see how the issue plays out under Ohio law, the cases of Malone v. Berry, 2007-Ohio-6501 and Parshall v. PAID, Inc., 2008-Ohio-3171 are instructive. In Malone, the court held there were insufficient contacts made with Ohio when a nonresident seller simply placed an advertisement on an Internet auction site in order to sell his vehicle. The court noted the site was not maintained by the seller and the seller never entered Ohio as part of the sales transaction. Similarly, the Parshall court found personal jurisdiction was lacking when there was no evidence of an actual purchase by an Ohio customer through the defendant’s website, despite the fact that there was promotional material on the site. Both opinions are from the 10th District Court of Appeals, which is generally a fairly good predictor of later Ohio Supreme Court decisions.

Despite its impact, the Zippo analysis offers little help when the Internet activity is “non-commercial” in nature. Kauffman Racing Equip., L.L.C. v. Roberts, 126 Ohio St.3d 81 (2010). For example, in Roberts the Court was analyzing the question of where allegedly defamatory Internet postings were “published,” and ultimately held the statements had been published in Ohio because several Ohio residents had seen the comments there. The Court did not have to resort to using the Zippo sliding scale.

With these considerations in mind, the answer to our entrepreneur’s question about whether she can be sued out-of-state is: “it depends.” Each case analyzing personal jurisdiction is decided on its own facts. In any event, it is safe to say that accepting orders or otherwise conducting business online brings with it the risk of having to defend against a lawsuit elsewhere. While this threat should not deter you from offering your products or services online, it pays to educate yourself in order to understand the risks involved.

For questions or additional information, please contact Curt Graham at cgraham@mrrlaw.com or 859.899.8516.

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Part 3: Customer Incident Reports and Investigations – A Two-Part Defense Strategy and Why You Need Both

This is the last in our series of articles by MRR attorney Elisabeth “Lisa” Gentile  describing a two-step defensive strategy for use by business owners and managers should guests or patrons suffer an injury on their premises. The time and money utilized in employing this two-part process far outweighs the risk of an adverse judgment should a business not have the proper tools to defend itself should an incident lead to litigation.

Part 3: The Investigation Report

The investigation process is a much more thorough analysis of not only what happened, but also why it happened.  It is imperative that an investigative report document be protected from the discovery process since it will likely contain conclusions and possible remedial actions. Therefore, it is highly recommended that an attorney be involved in this process in order to invoke the confidential attorney-client privilege and work product doctrines.

Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action.”[1]  Potentially applicable privileges include the attorney-client privilege, which “prevents the disclosure of certain communications made from a client to that client’s legal counsel,”[2]  and the work product doctrine, which protects from discovery “documents and tangible things prepared in anticipation of litigation.”[3]  Ohio courts have repeatedly held that the attorney-client privilege protects from discovery witness statements or reports that are given to one’s legal counsel for the purpose of preparing a defense to a lawsuit.  Therefore, it is important to obtain legal counsel’s involvement in this process.

An investigation should be conducted by legal counsel or a manager working under the guidance and instruction of legal counsel.  Once an incident occurs, legal counsel should be notified within 24 hours and the attorney or the designated agent in the company (such as an asset protection or loss prevention manager) should begin the investigative process within the following 24-48 hours.  It is imperative that any and all documents that are utilized in the investigation process contain language at the top of the document designating the document as attorney work product prepared in anticipation of litigation.  Although not a guarantee in every jurisdiction, this will make it more likely than not that the investigation conducted will not be subject to disclosure to the opposing party.

The investigation should include the following:

  • Incident report review with manager
  • Incident report review and interview with employee that completed the report
  • Analysis of what may have caused or contributed to the incident, including how the condition came to be and  how long the condition lasted
  • Procurement of all photographs taken
  • Procurement of all video surveillance (it is recommended that video is captured for 24 hours prior to AND 24 hours following an incident)
  • Clock report of all employees working at time of incident
  • Interview of each employee separately as to their knowledge of the incident and any interaction with the customer
  • Procurement of any company policies relevant to incident conditions (for example, how ice is handled, or, if the floor is wet due to mopping, obtain any current mopping procedure utilized by store)
  • Procurement of any physical evidence (i.e. falling object that struck customer or object that customer tripped over)
  • Identification of any other customers within incident area that may have knowledge and separate interviews of these individuals

Following the interviews, a statement should be drafted by counsel based upon each employee’s or witness’ recollection.  The statement will be sent directly to the employee or witness for their review of its accuracy and, if no changes are required, final signature.  Typically, the  statements are limited to factual observations or information within the direct knowledge of the employee or witness and should refrain from conclusory statements or opinions unless directly related to the condition of the premises.

The Ingredients of Success….

When you have a completed a concise incident report and a thorough investigation, you have the main ingredients for a solid defense or assessment should litigation be pursued.  In Ohio, a customer has two years to bring an action for an injury.  In that two year period, many personnel changes may occur within the business and the employees with knowledge of the incident may no longer be employed with the company or may not be able to recall with specificity what occurred. In that instance, you have a statement signed by the employee as to their recollection close in time to the event.  It is difficult to win a premise liability case if there are no defense witnesses to testify as to what occurred.  Further, the procurement of the evidence, such as photos and video, helps to protect against the customer changing their story as to what happened or the condition of the area at the time of the incident.  The time and money utilized in employing this two-part process far outweighs the risk of an adverse judgment should a business not have the proper tools to defend itself against this type of litigation.

[1] Civ.R. 26(B)(1)

[2] Hunter v. Wal-Mart Stores, Inc., 12th Dist. No. CA2001-10-035, 2002-Ohio-2604, ¶ 36

[3] Id., at ¶ 35; Civ.R. 26(B)(3)

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Potato, Potahto…Sexual Orientation as Sex Discrimination: A Review of Hively v. Ivy Tech Community College

By Tami Hannon

In recent years, the concept of “sex” discrimination under Title VII has been in the limelight.  Everyone agrees that discrimination based on “sex” is prohibited under the laws, but there has been much dissent over what is encompassed under the concept of “sex.”  Does sex discrimination cover appearance?  What about transgender status?  Does it cover sexual orientation?

Until recently, most courts agreed that “sex” was broader than just discrimination due to biological sex.  “Sex” was interpreted as encompassing sexual stereotyping and an employer’s perception of what behavior was appropriate for a male or female.  Despite this, the majority of courts resolutely held that concepts such as transgender and sexual orientation were not specifically protected under Title VII.  That perception is now shifting.

The 7th Circuit Court of Appeals recently held that discrimination based upon sexual orientation is a form of “sex” discrimination under Title VII.  In Hively v. Ivy Tech Community College, Ms. Hively was openly lesbian.  She was hired as a part-time professor in 2000.  Over the years, she applied for several full-time positions, but was never promoted.  In 2014, her part-time teaching contract was not renewed, resulting in her termination from the college.

Ms. Hively filed a discrimination charge with the Equal Employment Opportunity Commission alleging that the failure to promote her to a full-time position and the decision not to renew her contract was based on her sexual orientation.  The EEOC declined to pursue the case, and Ms. Hively filed a federal lawsuit under Title VII, alleging sexual discrimination.  The district court dismissed her case on the basis that sexual orientation was not a protected class under Title VII.

Ms. Hively appealed.  The three judge panel assigned to hear her case agreed that the district court had properly dismissed her case, though the panel believed the underlying law was in question given recent U.S. Supreme Court opinions.  Ms. Hively requested that the entire 11 judge panel of the 7th Circuit Court of Appeals review her case (what is known as an en banc hearing) and determine whether the underlying law was still valid.  The court accepted her petition and the entire 11 judge panel considered her claims.  The panel concluded that the past case law was no longer valid, and that sexual orientation is a form of “sex” discrimination under Title VII.

While the final outcome is a marked departure, the law used by the 7th Circuit in reaching this conclusion is not.  The court relied upon past U.S. Supreme Court cases prohibiting gender stereotyping and same sex harassment to find that Title VII applies to more than biological sex.  The Hively court also gave a nod to the recent U.S. Supreme Court case of Obergefell which recognized the constitutional right of same sex couples to marry.

The court held that beliefs as to with whom one should be intimate is the sine quo non of gender stereotypes.  The court further found that, under the allegations made by Ms. Hively, she would have received the promotions if she had been a man married to a woman.  As she did not receive the promotions because she was a female, the claim properly alleged sex discrimination.

Ms. Hively also alleged that she was discriminated against for associating with (i.e. marrying) a female.  Ms. Hively made her arguments under the now widely accepted case law that a person of one race cannot be discriminated against for marrying a person of another race.  The court found that discriminating against a woman who was married to a woman was no different than the laws prohibiting discrimination based on interracial marriages.  If the gender of one of the parties in the relationship was changed, so to would be the outcome.  The court found that was the very definition of discrimination based on gender.

The Hively case was decided by the 7th Circuit Court of Appeals, which does not have jurisdiction over Ohio.  Our own courts still hold that sexual orientation is not a separate protected class, though protection is granted to individuals who suffer discrimination if they do not conform to societal notions of “male” and “female.”  The opinion in Hively may signal a shift towards accepting sexual orientation as a protected class, which would likely also extend to transgender individuals under the more inclusive definition of gender stereotyping being applied.  Nevertheless, the Hively opinion was not unanimous, showing that there is still dispute as to whether sexual orientation is a form of sex discrimination.

The Hively case may find its way to the U.S. Supreme Court.  The sitting panel is largely the same as that which issued the opinion in Obergefell, such that Hively could find a friendly ear.  However, the Supreme Court has recently backed down from issuing opinions on what constitutes “sex” discrimination such that the Court may decline to hear the case.  Despite the unknowns one thing remains clear, “sex” discrimination under Title VII remains difficult to define.

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Part 2: Customer Incident Reports and Investigations – A Two-Part Defense Strategy and Why You Need Both

Over the next few weeks, we’ll be issuing a series of articles by MRR attorney Elisabeth “Lisa” Gentile that describes a two-step defensive strategy for use by business owners and managers should guests or patrons suffer an injury on their premises. The time and money utilized in employing this two-part process far outweighs the risk of an adverse judgment should a business not have the proper tools to defend itself should an incident lead to litigation.

Part Two – The Incident Report

The incident report should cover the following factual information and should, if at all possible, be completed by the customer (or at least from the customer’s perspective):

  • Date/Time
  • Specific location on premises
  • Customer name and contact information (address, email, phone number)
  • Customer date of birth
  • Customer recall of incident
  • Customer recall of injuries
  • Any witnesses’ names and contact information (particularly any individual with the customer when the incident occurred)
  • Witness recall of incident

It is important that the customer record in their own words what happened.  The best practice is to allow the customer to complete the form rather than the manager (as long as the writing is legible).  In those instances when a customer is unable or unwilling to complete the incident report, it is important to have another employee present to hear the customer explain what happened and to sign off on the incident report.  The report should reflect the customer’s statements such as, “Customer states she slipped on wet floor,” rather than, “Customer slipped on wet floor.”

Additional facts and observations of the manager or employee may be documented on an incident report as long as they reflect facts and not inferences, assumptions, or conclusions.  Examples of the observations that should be made by the manager or supervisor and documented accordingly on the incident report include:

  • Wet floor signs or other warning signs in the area (noting quantity, location, and duration)
  • Customer’s attire, including shoes, and their condition (i.e., jeans wet from right knee to bottom, flip-flops)
  • Customer pushing cart or carrying items
  • Whether photographs were taken of the alleged defect (i.e. substance on floor). When taking photographs it is important to take them from close range and also from farther away to depict the condition of the surrounding area. Do not take photos of the customer.
  • Video surveillance – whether it is available (yes/no) and if so, preserve accordingly.
  • Identification of associates in the area at the time of the incident
  • Weather conditions
  • Lighting conditions
  • If the incident involves products or merchandise, include a full description of the product including UPC codes, manufacturer, and photograph(s).

The incident report should have no assumptions, inferences, analyses, or conclusions about why or how the incident occurred or how to prevent another similar incident.  Most jurisdictions in Ohio will likely require the production and discovery of an incident report.  For this reason, it is important to limit the report to the facts.

A tailored incident report form and the training of personnel on completing the incident report are vital in addressing the risk of liability.  If the incident report form fails to ask direct and concise questions it could actually create liability where none may have existed before.  An example of this:

  1. Describe the condition of the floor where the incident occurred? Was the condition open and obvious?  Was the store on notice of the condition?

While from an investigative standpoint, these observations and conclusions may be important, they invite liability on an incident report that will likely be disclosed to the opposing party during litigation.  Further, two of the questions ask for arguably legal conclusions that employees typically are not equipped to render.  The better question would be:

  1. Describe the specific location of the incident in the store. Was there any foreign substance, liquid, or object within the area of the incident?

This question is more likely to elicit a “factual” response rather than an opinion.

Look for Part Three Next Week:  The  Investigation Report

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