Businesses Quake Over California Case
Friday July 2, 3:01 am ET
Mike McKee, The Recorder
Wine. Avocados. Litigation?
The state Supreme Court has agreed to weigh in on a case that could determine whether 17200 suits become another California export.
The justices voted unanimously Wednesday to decide whether companies based outside California can be sued under the state's unfair competition laws if they advertise in-state via billboards, newspapers and the Internet.
Several Nevada casino hotels, including Harrah's, had petitioned the court for review after a Los Angeles appeal court ruled in March that they could be sued by a man seeking class action status on behalf of all California residents hit with a $3-per-night energy surcharge while staying in Las Vegas, Reno or other gambling towns.
The ruling sent a shudder through the gaming and hotel industries, which envisioned thousands of lawsuits by residents of California, which, according to published reports, is Nevada's top market. But attorneys for the casino hotels said the decision also should worry businesses nationwide.
"This issue has far-reaching implications, particularly in the travel and entertainment industries," Robert Fischer Jr., a partner in the L.A. office of Fulbright & Jaworski, wrote in his petition to the court. "It may affect any hotel, cruise ship, club, theater, museum, sporting venue, rental car company, restaurant, etc., operating exclusively outside of California, but accepting online reservations."
L.A. County Superior Court Judge Peter Lichtman dismissed the suit in 2002. But the 2nd District Court of Appeal reinstated it on March 11, holding that hotel advertisements, toll-free numbers and interactive Web sites provided sufficient contact to give Los Angeles-area resident Frank Snowney jurisdiction to sue in California.
"By soliciting and receiving the patronage of California residents through these activities and to this extent," Justice Patti Kitching wrote for a three-judge panel, "the hotel defendants have purposefully directed their activities at California residents, have purposefully derived benefit from their contacts with California, and have established a substantial connection with this state."
The court rejected 1981's Circus Circus Hotels Inc. v. Superior Court, 120 Cal.App.3d 546, in which the 4th District ruled that advertising and toll-free numbers do not confer personal jurisdiction allowing suits in California. The justices called the 23-year-old ruling a "narrow interpretation" that was "unwarranted."
The attorneys representing the hotels in Wednesday's case argue that Circus Circus is the better holding.
The issue of hotel Web sites creating a connection with California is one of first impression, according to the hotel attorneys.
"The court of appeal," Fischer wrote, "did not, and could not, cite a single case supporting its conclusion that the hotel defendants' maintenance of a Web site capable of processing the online reservations of California residents constitutes purposeful availment of the privilege of doing business in California. No such case exists."
The 2nd District, however, did point to Pavlovich v. Superior Court, 29 Cal.4th 262, a 2002 ruling by the California Supreme Court that said the state did not have personal jurisdiction over an out-of-state individual who had posted programming code on his Web site.
The court interpreted that ruling to mean that a suit can be filed against an out-of-state party if the defendant had "minimum contacts" with California so that jurisdiction does not offend justice.
"In other words," Justice Kitching wrote, "the defendant's contacts with the forum state must be such that the defendant had ‘fair warning' that its activities may subject it to personal jurisdiction in the state."
The case is Snowney v. Harrah's Entertainment, S124286.
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