INFORMATION & TECHNOLOGY LAW

State Lacks Jurisdiction to Hear
Internet Auction Dispute

June 27, 2002

By Dodd S. Griffith*

The New Hampshire Supreme Court has just released its first opinion on when an Internet transaction subjects an out-of-state defendant to the jurisdiction of a New Hampshire court. In its June 25, 2002 opinion overturning the District Court's opinion in Metcalf v. Lawson, the Court determined that New Hampshire had no jurisdiction over a contract dispute relating to a New Jersey man's sale of a used John Deere excavator to a New Hampshire resident using the eBay Internet auction service.

The District Court had determined that New Hampshire was entitled to exercise jurisdiction over the dispute because the defendant reasonably should have foreseen the potential for contact with New Hampshire residents. The District Court reasoned that the seller should have known that his offer of sale over the Internet would be broadcast to all fifty states, including New Hampshire.

The New Hampshire Supreme Court rejected this analysis, and applied a significantly narrower standard for claiming jurisdiction. Using the traditional "minimum contacts" analysis mandated by the Due Process Clause of the United States Constitution, the New Hampshire Supreme Court determined that the mere foreseeability of potential contact with New Hampshire residents was not sufficient to create jurisdiction in New Hampshire. The Court held that intentional contact with residents of the State of New Hampshire was also required before a New Hampshire court could claim jurisdiction over the dispute.

The Court noted that the constitutionality of a State's exercise of jurisdiction is proportionate to the nature and quality of the commercial activity a defendant conducts over the Internet. In reaching its decision, the Court acknowledged the general applicability of "sliding scale" tests such as the one provided in Zippo Mfg. Co. v. Zippo Dot Com, Inc., a recent Pennsylvania case. In that case, the Court stated that jurisdiction is warranted when a defendant clearly operates a business over the Internet, and in so doing, enters into contracts that cause the defendant to knowingly and repeatedly transmit computer files to a plaintiff via the Internet. Conversely, no jurisdiction is warranted where the defendant simply posts information on an Internet website which is accessible to users in other jurisdictions. The Court noted that the issue was less clear in situations where a user can exchange information with a host computer, and that in such cases jurisdiction would be determined on the basis of the level of interactivity and the commercial nature of the information exchanged.

While the New Hampshire Supreme Court seemed to endorse the general applicability of the sliding scale test used in the Zippo case, it found it inapplicable in the context of an Internet auction. The Court reasoned that since the function of an auction is to permit the highest bidder to purchase the property offered for sale, the seller essentially had no control over the choice of the ultimate purchaser. Thus, the Court determined that the defendant's contacts with New Hampshire were random and attenuated at best, and insufficient to support a finding that the defendant purposefully sought the privilege of doing business in New Hampshire.

In addition, the Court specifically held that the electronic mail communications between the parties were insufficient to create jurisdiction in the case under consideration. The initial contact was unilaterally initiated by the New Hampshire bidder. Further, there was no evidence to suggest that any subsequent communications were initiated by the New Jersey seller, or whether the New Jersey seller was ever made aware that the successful bidder was a New Hampshire resident.

In sum, the Court denied jurisdiction because it found no evidence that the New Jersey defendant intentionally directed business activities toward the State of New Hampshire or that the defendant was aware that he was contracting with a New Hampshire resident until after the transaction was completed. However, the Court's decision suggests that if a defendant engaged in more than the occasional isolated transaction or was a commercial seller, the result might have been different.

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