Court of Appeals Rejects Claim of Internet-Based Jurisdiction

December 16, 2014 | Intellectual Property

Long-arm jurisdiction over non-domiciliaries is an issue that continues to  bedevil practitioners and litigants in the Internet age. In New York, CPLR  302(a)(1)1 authorizes jurisdiction over a non-domiciliary that  “transacts any business” within the state. The test, however, can be difficult  to apply when a commercial entity uses technology to project itself into New  York to conduct business transactions and otherwise lacks an in-state physical  presence.

Consider that it was only a few years ago when the New York Court of Appeals  ruled that §302(a)(1) conferred long-arm jurisdiction over an out-of-state  institutional investor who called the plaintiff, a New York securities firm, to  make a trade, and the suit arose from that transaction.2 Only one  year later, the court decided that California defendants had “transacted  business” where they had formed an attorney-client relationship with the  plaintiff attorney in New York through numerous telephone calls, faxes, mail  contacts, and emails.3

Now, the court again has interpreted §302(a)(1) in a non-“bricks and mortar”  context—that is, in a case in which the defendants were not physically present  in New York and the Internet was involved. This time, in late November, in  Paterno v. Laser Spine  Inst.,4 the court determined that the defendants’ contacts  with New York were insufficient to confer long-arm jurisdiction under  §302(a)(1). The decision by Associate Judge Jenny Rivera, writing for a  unanimous court, undoubtedly will help clarify the long-arm jurisdiction rules  in New York.

Background

The case arose in May 2008 when Frank Paterno, a New York state resident  suffering from severe back pain, went on the Internet and asserted that he  discovered an advertisement for Laser Spine Institute (LSI), a surgical facility  specializing in spine surgery based in Tampa, Fla. As he alleged in the lawsuit  he later filed against LSI and various LSI professionals, Paterno clicked on the  LSI advertisement and viewed a five minute video presentation of a testimonial  from a former LSI patient and professional golfer, extolling LSI’s medical  services. The advertisement appeared to hold out the promise of relief for  Paterno’s back problems and, he alleged, he communicated with LSI by telephone  and over the Internet to inquire about possible surgical procedures to alleviate  his pain.

After his initial inquiries in May 2008, Paterno sought a medical assessment  of his condition by LSI, and sent certain magnetic resonance imaging (MRI) films  of his back to LSI’s Florida facility. LSI sent Paterno an email letter,  describing preliminary surgical treatment recommendations and orders, based on  its doctors’ professional evaluation of the MRI. The letter indicated that the  recommendations and suggested procedures were not final, and that Paterno would  be “evaluated by [LSI] surgeons upon arrival so therefore these orders will be  subject to change by the surgeon while in consultation.”

According to Paterno, on May 30, 2008, the same day that he received the  letter, LSI informed him that there had been a cancellation and that Paterno  could take the open spot and have the surgery performed at a significant  discount due to the short notice. LSI offered a June 9, 2008 surgery date,  Paterno said.

Paterno contended that, in preparation for his surgery, he had several  additional email contacts with LSI from June 2 through June 6, 2008 to address  registration and payment issues and generally to facilitate his arrival at LSI’s  Florida facility. For example, Paterno asserted that he sent his completed  registration and private insurance forms and engaged in correspondence with LSI  related to payment arrangements to be made upon his arrival in Florida, and that  LSI sent Paterno a list of hotels in Tampa that offered discounted rates to LSI  patients.

In addition to these administrative matters, Paterno said that he forwarded  his blood work, which had been completed in New York, to LSI. He also said that  an LSI doctor called his own New York physician and briefly discussed his  scheduled surgery.

Paterno traveled from New York to Tampa on June 6 and underwent surgery at  the LSI facility on June 9. Paterno alleged that he experienced extreme pain  following the surgery and complained to LSI staff, who advised him that this was  due to the procedure and could last for two weeks. Paterno underwent a second  surgical procedure at LSI on June 11 and asserted that he again experienced  severe pain afterwards.

Paterno said that for two weeks following his return to New York on June 12,  he contacted LSI physicians on a daily basis to discuss his medical status and  to complain about his post-operative pain. Paterno asserted that LSI doctors and  staff addressed his request for pain medication by calling prescriptions into  local pharmacies in his home city, which he then filled.

In mid-July, Paterno alleged that he still was in severe pain and that he  went to New York-based physicians to discuss his medical status and the results  of the out-of-state surgeries. He underwent an MRI that, according to one of his  New York-based doctors, revealed the same disc herniations the doctor had  observed prior to the surgery. Paterno said that, in response to his request for  consultation with LSI, LSI physicians held a conference call with this New  York-based doctor to discuss his condition.

According to Paterno, after further telephone and email communications with  LSI, and after Paterno demanded that LSI address his condition, he returned to  Florida on August 6, where he underwent a third surgery. Paterno contended that,  as before, he was in severe pain following the surgery and, as before, he  returned to his home in New York state days after the procedure.

For approximately the next three months, until Oct. 31, 2008, Paterno  claimed, he communicated daily with LSI staff via text messages, emails, and  telephone calls. He also said that he spoke directly by telephone with one LSI  physician regarding his back pain and headaches; that the physician discussed  ways to alleviate the pain; and that the physician ordered an MRI that was  performed in New York. Paterno contended that the LSI doctor also spoke by  telephone with another of Paterno’s New York-based doctors concerning his  condition, and that when his condition did not improve, the LSI doctor told him  he could return to LSI for another surgical procedure to address what appeared  to be fluid accumulation from a spinal dura leak. After several consultations  with New York-based doctors, Paterno said, he underwent another surgery, but  this time in New York, performed by a New York-based doctor not connected with  LSI.

Paterno subsequently commenced a medical malpractice action in New York  against LSI and several LSI doctors. The defendants moved to dismiss for lack of  personal jurisdiction.

The New York Supreme Court, Westchester County, granted the motion. The  Second Department affirmed in a split decision. The majority concluded that the  trial court lacked personal jurisdiction over LSI and the doctors because they  had not transacted business in New York within the meaning of §302(a)(1); two  dissenting justices concluded that the contacts demonstrated the “purposeful  creation of a continuing relationship” sufficient to establish jurisdiction  under §302 (a)(1).

The dispute reached the Court of Appeals.

The Court’s Decision

The court affirmed.

In its decision, the court explained that whether a non-domiciliary was  transacting business within the meaning of §302(a)(1) was a fact-based  determination and required a finding that the non-domiciliary’s activities were  purposeful and established “a substantial relationship between the transaction  and the claim asserted.” The court continued by observing that purposeful  activities were “volitional acts” by which the non-domiciliary availed itself  “of the privilege of conducting activities within the forum State, thus invoking  the benefits and protections of its laws.” More than “limited contacts” were  required for purposeful activities sufficient to establish that the  non-domiciliary transacted business in New York, the court added.

The court then explained that a non-domiciliary transacted business when, on  its own initiative, the non-domiciliary projected itself into New York to engage  in a “sustained and substantial transaction of business.” Thus, according to the  court, where a non-domiciliary sought out and initiated contact with New York,  solicited business in New York, and established a continuing relationship, the  non-domiciliary could be said to transact business within the meaning of  §302(a)(1).

With that said, the court rejected Paterno’s contention that the totality of  the defendants’ contacts established that LSI had conducted business in New York  through its solicitation and communications related to LSI’s medical treatment  of Paterno. According to the court, to satisfy the “overriding criterion”  necessary to establish a transaction of business within the meaning of  §302(a)(1), a non-domiciliary had to commit an act by which it “purposefully”  availed itself of “the privilege of conducting activities within [New  York].”

The court pointed out that Paterno had admitted that he was the party who had  sought out and initiated contact with the defendants after viewing LSI’s  website. The court said that although Paterno asserted that the website informed  viewers about LSI’s medical services and its professional staff, he had not  asserted that it “permitted direct interaction for online registration, or that  it allowed for online purchase of LSI services.” Rather, the court declared, the  LSI website was a “[p]assive website” that merely imparted information without  permitting a business transaction, which generally was “insufficient to  establish personal jurisdiction.” Thus, the court decided, the mere fact that  Paterno viewed LSI’s website in New York was “insufficient” to establish CPLR  302(a)(1) personal jurisdiction over the LSI defendants.

The court also was not persuaded by Paterno’s argument that LSI was subject  to the jurisdiction of New York courts because it did more than just post an  online advertisement. Declaring that it was not the quantity but the quality of  the contacts that mattered, the court found that LSI’s contacts with Paterno  were “responsive in nature, and not the type of interactions that demonstrate  the purposeful availment necessary to confer personal jurisdiction over these  out-of-state defendants.” According to the court, after Paterno initially sought  out LSI, LSI merely responded with information designed to assist Paterno in  deciding whether to arrange for LSI medical services in Florida.

Then, once Paterno confirmed his interest, and the initial surgery date was  set, he “fully engaged with defendants” to ensure that all pre-surgical matters  were completed, the court noted. Paterno’s communications with LSI served his  convenience, the court ruled, and failed to establish that the defendants had  “avail[ed] [themselves] of the privilege of conducting activities” within New  York.

The court similarly was not persuaded that the contacts between Paterno and  LSI after he returned to New York following the first two Florida surgeries were  sufficient to establish personal jurisdiction over the defendants, explaining  that §302(a)(1) required that the cause of action arise from the  non-domiciliary’s actions that constituted its transaction of business. In other  words, post-surgery contacts could not serve as the basis to establish the  defendants’ relationship with New York where Paterno was asserting a medical  malpractice claim stemming from the surgeries. Moreover, the court found, the  defendants’ contacts with New York “at the behest of” Paterno after the first  two Florida surgeries but before the third also could not be used to demonstrate  that the defendants actively had projected themselves into New York.

Conclusion

It is worth noting that although at least one other court has found that the  LSI website was passive and insufficient to establish personal  jurisdiction,5 two courts have subjected LSI to long-arm  jurisdiction.6 Both of these latter cases, however, involved more  extensive contacts than existed in the Paterno case and both relied on state  personal jurisdiction statutes that were coextensive with the federal Due  Process Clause, unlike CPLR 302(a)(1).7

For purposes of New York’s long-arm jurisprudence, the court’s decision in  Paterno is a welcome reiteration that CPLR 302(a)(1) is not unlimited.  Indeed, given the ease with which individuals may travel across state  lines—whether for medical treatment or other services—the court’s decision  should help to re-balance the jurisdictional scale for Internet-related  cases.

Endnotes:

1. CPLR 302(a)(1) provides in relevant part:

(a) Acts which are the basis of jurisdiction. As to a cause of action arising  from any of the acts enumerated in this section, a court may exercise personal  jurisdiction over any non-domiciliary, … , who in person or through an  agent:

1. transacts any business within the state or contracts anywhere  to supply goods or services in the state….

2. Deutsche Bank Sec. v. Montana Bd. of  Invs., 7 N.Y.3d 65 (2006).

3. Fischbarg v. Doucet, 9 N.Y.3d 375  (2007).

4. 2014 N.Y. Slip Op. 08054 (N.Y. Nov. 20, 2014).

5. See Morilla v. Laser Spine Inst., No. 2:10-CV-01882 (WHW) (D.  N.J. Aug. 16, 2010).

6. See Henderson v. Laser Spine Inst., 815 F.  Supp. 2d 353 (D. Me. 2011); Bond v. Laser Spine Inst., No. 10-1086  (E.D. Pa. Aug. 11, 2010).

7. See Kreutter v. McFadden Oil, 71 N.Y.2d 460  (1988) (New York’s long-arm statute “does not confer jurisdiction in every  case where it is constitutionally permissible”).

Read more: http://www.newyorklawjournal.com/id=1202679055440/Court-of-Appeals-Rejects-Claim-of-InternetBased-Jurisdiction#ixzz3MAzVslko

Reprinted with permission from the December 16, 2014 issue of the New York Law Journal.  All rights reserved.

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