The internet continues to lead to interesting issues of personal jurisdiction arising in cases in New York courts. For instance, the New York Court of Appeals has granted leave to appeal in a case in which the plaintiff is asserting claims for defamation and argues that the trial court should assert long-arm jurisdiction over the defendants at least in part because the allegedly defamatory statements had been placed on a website.[FOOTNOTE 1]
Even questions that seemingly have been resolved continue to arise and to be analyzed. In one recent case, the U.S. District Court for the Eastern District of New York examined whether two websites subjected the defendants to personal jurisdiction in New York. The court declined to exercise jurisdiction over the defendants after determining that the plaintiff had failed to establish a prima facie case that they had transacted business through the two websites or that the websites had a substantial relationship to the underlying action.[FOOTNOTE 2]
Another technology-related personal jurisdiction issue recently was addressed for the first time in New York: whether the presence of an employee telecommuting from home could result in jurisdiction over the employer as to third-party claims. The court, in Zibiz Corp. v. FCN Technology Solutions,[FOOTNOTE 3] determined that it could not assert personal jurisdiction over the defendant in this case on that basis. The court's analysis serves as a good roadmap for analyzing questions of personal jurisdiction in technology-related cases.
SECTION 301
The plaintiff in the case, Zibiz Corporation, is a Delaware company with its principal place of business on Long Island, in Ronkonkoma, New York. Zibiz brought a diversity suit[FOOTNOTE 4] in a New York federal district court, asserting claims for breach of contract, tortious interference with business opportunity/contract, and misappropriation of trade secrets, against FCN Technology Solutions, a Maryland company with its principal place of business in Rockland, Md. FCN moved to dismiss the complaint for lack of personal jurisdiction.
In its decision on the motion to dismiss, the court explained that, to determine whether there is a basis to exercise personal jurisdiction over a defendant in a diversity case, it had to look to the law of the forum state (here, New York).[FOOTNOTE 5] It then explained that, to establish personal jurisdiction over a defendant under New York Civil Procedure Law and Rules (CPLR) §301, a plaintiff must demonstrate that the defendant was "present" and "doing business" in New York.
As the court explained, under §301, a defendant is "doing business" and is "present" in New York within the section's meaning, and therefore is subject to personal jurisdiction with respect to any cause of action, related or unrelated to the New York contacts, if it does business in New York "not occasionally or casually, but with a fair measure of permanence and continuity." The court added that the factors to be considered in determining whether personal jurisdiction lies under §301 include whether the defendant:
(1) maintains an office in New York;
(2) has any bank accounts or other property within the state;
(3) has a telephone listing in the state;
(4) does public relations work or solicits business within the state; and
(5) has employees or agents located within the state.
The court noted that an FCN vice president had submitted an affidavit that declared that FCN was a Maryland corporation with a principal place of business in Maryland; had no offices or registered agents in New York; was not registered to do business in New York; derived no substantial revenue from New York customers; did not solicit customers who live in New York, market its services in New York, or conduct any other work aimed at attracting or securing New York customers; did not own real property in New York; did not maintain a bank account, mailing address, or telephone listing in New York; did not have any individual permanently located in New York to promote FCN's business interests in New York; and never visited New York for the purposes of negotiating or executing any agreement with the plaintiff. The vice president's affidavit indicated that FCN had some business in New York, but asserted that it was insubstantial compared with FCN's total annual sales. Significantly, however, the affidavit also acknowledged that FCN had one employee who lived in New York, but declared that he "telecommuted" from home, worked on projects throughout the United States, and did not solicit customers or sales opportunities in New York.
As a preliminary matter, the plaintiff contended that FCN's website listed a New York address for FCN, but the court found that the address actually was the home of the telecommuting employee who resided in New York. It then decided that FCN had no property interest in that home absent any evidence that FCN had any ownership or leasehold interest in the employee's home, paid the employee rent, or otherwise used the home for its own purposes. Moreover, the court pointed out that the plaintiff had offered no evidence indicating that FCN had an office, property, bank account, or telephone listing in New York other than the residence of the telecommuting employee.
The court added that even if the employee's home constituted a local FCN "office," the presence of an office was not dispositive, given FCN's "relatively insubstantial sales to New York."
THE TELECOMMUTING EMPLOYEE
The court next examined whether FCN had employees or agents within New York.
The court acknowledged that FCN had conceded that one of its employees resided in New York, but noted that it asserted that that employee merely telecommuted to work from his residence and did not specifically direct his business activities to New York. The court pointed out that the plaintiff had not alleged that FCN's New York-based employee was involved in any way with the agreements between the parties that were at the heart of lawsuit's claims.
As the court explained, neither party had identified any New York law or case determining the specific issue of whether general jurisdiction under §301 may be maintained solely because an out-of-state corporation employed an individual who resided in New York and who "telecommuted" from his or her home. The court then decided that, in its view, the mere presence of an employee within a forum state was insufficient to confer general personal jurisdiction over an out-of-state corporate defendant. Accordingly, it held that the fact that one of FCN's employees resided in New York and telecommuted from his home, without more, was "insufficient to confer general personal jurisdiction" over FCN pursuant to §301.
The court therefore concluded that because there was no evidence that FCN had any "continuous and systematic" contact with New York, the plaintiff had not made a prima facie showing that FCN was "present" and "doing business" in New York sufficient to confer personal jurisdiction over FCN pursuant to §301.
CONCLUSION
The "telecommuting employee" issue has arisen a number of times in courts in other states.
In one case, a federal district court in Idaho declared that the employment of one telecommuting resident was not sufficient "to tip the scales in favor of asserting general jurisdiction" under Idaho law.[FOOTNOTE 6] > Similarly, a Colorado district court found that a defendant's ties with Colorado "f[e]ll far short" of the "continuous and systematic" connections necessary to support general jurisdiction where, among other things, the defendant had only six employees based in Colorado, all of whom telecommuted, where the defendant's business in Colorado represented less than .1 percent of its overall national revenue, and where the defendant had no local office in Colorado, owned no property in Colorado, did not have a registered agent in Colorado, and owned no bank or brokerage accounts in Colorado.[FOOTNOTE 7]
By contrast, the court in an older Oregon case, Sheets v. Integrated Information Utility Systems Inc.,[FOOTNOTE 8] refused to dismiss a case for lack of personal jurisdiction brought by a former telecommuting employee against his former employer, in which the former employee asserted claims for breach of his employment contract. The court bemoaned the fact that there were no decisions on point by the 9th U.S. Circuit Court of Appeals and recognized that another judge had reached a different conclusion, but decided that the defendant in that case had "purposefully availed itself of the privilege of conducting activities in Oregon," thus allowing the court to exercise personal jurisdiction over it.
It would seem that the more recent decisions, including in Zibiz Corp., are the guidance that other courts in New York, and perhaps elsewhere around the country, will follow in the future. If they do, courts will refuse to find personal jurisdiction merely where an out-of-state defendant has a telecommuting employee, or employees, in a state.
::::FOOTNOTES::::
FN1 SPCA of Upstate N.Y. Inc. v. American Working Collie Assn., 74 A.D.3d 1464 (3d Dept.), leave to appeal granted, 2010 N.Y. Slip Op. 90750 (Dec. 15, 2010).
FN2 See Skrodzki v. Marcello, 2011 U.S. Dist. Lexis 92963 (E.D.N.Y. Aug. 19, 2011).
FN3 2011 U.S. Dist. Lexis 21738 (E.D.N.Y. March 2, 2011).
FN4 28 U.S.C. §1332.
FN5 See, e.g., D.H. Blair & Co. Inc. v. Gottdiener, 462 F.3d 95 (2d Cir. 2006).
FN6 Wood v. Kinetic Systems Inc., 2010 U.S. Dist. Lexis 21125 (D. Idaho March 9, 2010).
FN7 Ladd v. Research Triangle Institute, 2006 U.S. Dist. Lexis 66781 (D. Colo. Sept. 18, 2006).
FN8 1999 U.S. Dist. Lexis 9719 (D. Ore. June 17, 1999).
Shari Claire Lewis, a partner in the Long Island office of Rivkin Radler, can be reached at shari.lewis@rivkin.com.
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