David J. GORMAN v. AMERITRADE
HOLDING CORPORATION
293 F.3d 506 (D.C. Cir. 2002)
GARLAND, Circuit
Judge:
In this
case, we consider whether the courts of the District of Columbia may assert
general jurisdiction over a defendant that is "doing business" in the
District through the medium of the Internet.
We hold that they may, although we ultimately affirm dismissal of the
complaint because service of process on the defendant was insufficient.
I
Plaintiff David
Gorman is the sole proprietor of Cashbackrealty.com, a real estate broker with
its principal place of business in McLean, Virginia. Defendant Ameritrade
Holding Corporation is a securities broker-dealer licensed in the District of
Columbia with its principal place of business in Omaha, Nebraska.
Ameritrade provides online brokerage services through its Internet site
to individuals across the country, including District residents. In November 1999, Ameritrade acquired
Freetrade.com, Inc., as well as its Internet domain name, "Freetrade.com." Like Ameritrade, defendant Freetrade has its
principal place of business in Omaha.
Gorman alleges that he had an agreement with the prior owner of
Freetrade, under which Cashbackrealty.com was entitled to a front-page link on
the Freetrade.com website. According to
Gorman, although Ameritrade assumed the obligations of this agreement when it
acquired the Freetrade.com domain name, it refused to provide a front-page link
for Cashbackrealty.com.
On June 2, 2000, Gorman filed a complaint in the
United States District Court for the District of Columbia, alleging that
Ameritrade and Freetrade (hereinafter referred to collectively as
"Ameritrade") were in breach of contract for refusing to honor the
front-page-link agreement. Without
permitting discovery, the district court dismissed Gorman's complaint for lack
of personal jurisdiction and insufficiency of service of process. With respect to personal jurisdiction, the
court held that a " company that acts to encourage or maximize the use by
District of Columbia residents of its website does not establish the necessary
'minimum contacts' with this forum through Internet accessibility," and
does not "operate so continuously and substantially within [the District]
that it is fair to allow anyone to sue the
enterprise in [the District] on any claim, without regard to where the claim
arose." Gorman v. Ameritrade
Holding Corp., No. 00-1259, Mem. Op. at 3 (D.D.C. Mar. 30, 2001) (internal
quotation marks omitted). The court
further held that Gorman's service of his complaint upon the Securities
Director of the District of Columbia was insufficient under District of
Columbia law. Id. at 2-3. We review the district court's grant of
Ameritrade's motion to dismiss de novo, see Second Amendment Found. v. United
States Conference of Mayors, 274 F.3d 521, 523 (D.C.Cir.2001), and we
consider its two grounds for dismissal in Parts II and III below.
II
The district court has subject matter jurisdiction
in this breach of contract action because of the diversity of citizenship of
the parties. 28 U.S.C. § 1332(a).
In a diversity case, the court's personal jurisdiction over nonresident
defendants depends upon state law, here the law of the District of Columbia,
the application of which is subject to the constraints of constitutional due
process. See Crane v. Carr,
814 F.2d 758, 762 (D.C.Cir.1987); 4
CHARLES ALAN WRIGHT & Arthur R. Miller, Federal Practice and Procedure
§ 1068.1, at 592 & n.2 (3d ed.
2002). The requirements of due process
"are satisfied when in personam jurisdiction is asserted over a
nonresident corporate defendant that has 'certain minimum contacts with [the
forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'
" Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984) (quoting International
Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)) (additional internal
quotation marks omitted). . . . .
District of Columbia law . . . permits courts to exercise
"general jurisdiction" over a foreign corporation as to claims not
arising from the corporation's conduct in the District, if the corporation is
"doing business" in the District.
See D.C.Code § 13-334(a); AMAF Int'l Corp.
v. Ralston Purina Co., 428 A.2d 849, 850
(D.C.1981); see also Helicopteros, 466 U.S. at 415
n. 9, 104 S.Ct. at 1872 n. 9. Under the Due Process Clause, such general
jurisdiction over a foreign corporation is only permissible if the defendant's
business contacts with the forum district
are "continuous and systematic."
Helicopteros,
466 U.S. at 415 (quoting Perkins v. Benguet Consol. Mining Co., 342 U.S.
437, 438 (1952)). The District of
Columbia Court of Appeals has indicated that the reach of "doing
business" jurisdiction under §
13-334(a) is coextensive with the reach of constitutional due process. See
Hughes, 490 A.2d at 1148 ("[W]e may find jurisdiction if [the
defendant] ... has 'been carrying on in [the District] a continuous and
systematic, but limited, part of its general business.' " (quoting Perkins,
342 U.S. at 438).
In his pleadings below, Gorman contended that
Ameritrade "sells securities and provides other online brokerage services
to residents of the District of Columbia on a continuous basis," and is
therefore "continuously doing business in the District of
Columbia." He further argued
that he was "[a]t the very least ... entitled to jurisdictional discovery
to determine the exact nature of Ameritrade's contacts with the District." And although "[a]s a general matter,
discovery ... should be freely permitted, and this is no less true when
discovery is directed to personal jurisdiction," Edmond v. United
States Postal Serv. Gen. Counsel, 949 F.2d 415, 425 (D.C.Cir.1991), the
district court granted Ameritrade's motion to dismiss without permitting the
plaintiff to undertake discovery.
Ameritrade contends that Gorman was not entitled to
discovery because there are no factual circumstances under which the district
court could have asserted personal jurisdiction over Ameritrade. The defendant concedes that it engages in
"electronic transactions" with District residents, and that
"Ameritrade undoubtedly derives revenue from those customers." But Ameritrade maintains that those
transactions do not occur in the District of Columbia. Rather, the firm declares, Ameritrade's
business is conducted "in the borderless environment of cyberspace."
"Cyberspace," however, is not some mystical
incantation capable of warding off the jurisdiction of courts built from bricks
and mortar. Just as our traditional
notions of personal jurisdiction have proven adaptable to other changes in the
national economy, so too are they adaptable
to the transformations wrought by the Internet. In the last century, for example, courts
held that, depending upon the circumstances, transactions by mail and telephone
could be the basis for personal jurisdiction notwithstanding the defendant's
lack of physical presence in the forum.
There is no logical reason why the same should not be true of
transactions accomplished through the use of e-mail or interactive websites.
Indeed, application of this precedent is quite natural since much communication
over the Internet is still transmitted by ordinary telephone lines. See AT&T Corp. v.
City of Portland, 216 F.3d 871, 874
(9th Cir.2000). Accordingly, the test that we will apply to
determine whether the District has general personal jurisdiction in this case
is the traditional one: Were
Ameritrade's contacts with the District "continuous and
systematic"?
For support of its claim that Internet-based transactions
are outside the jurisdiction of District of Columbia courts, Ameritrade relies
on our decision in [GTE New Media Servs.
Inc. v. BellSouth Corp., 199 F.3d 1343,
1350 (D.C.Cir.2000)]. Ameritrade misreads the case. In GTE, we held that defendants who
operated Internet Yellow Pages websites accessible to D.C. residents had
insufficient contacts with the District to permit the exercise of specific
jurisdiction under the District's long-arm statute. In reaching that conclusion, we emphasized
that District residents did not engage in business transactions with the
defendants. Rather, "[a]ccess to
an Internet Yellow Page site is akin to searching a telephone book--the
consumer pays nothing to use the search tool, and any resulting business
transaction is between the consumer and a business found in the Yellow Pages,
not between the consumer and the provider of the Yellow Pages." GTE, 199 F.3d at 1350. The "mere accessibility of the defendants'
websites," we held, does not "establish[ ] the necessary 'minimum
contacts' with this forum." Id.
This case, however,
is substantially different from GTE.
Ameritrade's contact with the District is not limited to an
"essentially passive" website through which customers merely access
information about the financial markets.
GTE,
199 F.3d at 1348. To the contrary,
Ameritrade concedes that District residents use its website to engage in electronic transactions with the firm. The firm's customers can open Ameritrade
brokerage accounts online; transmit
funds to their accounts electronically;
and use those accounts to buy and sell securities, to borrow from
Ameritrade on margin, and to pay Ameritrade brokerage commissions and
interest. Using e-mail and web-posting,
Ameritrade transmits electronic confirmations, monthly account statements, and
both financial and product information back to its customers. As a result of
their electronic interactions, Ameritrade and its District of Columbia
customers enter into binding contracts, the customers become the owners of
valuable securities, and Ameritrade obtains valuable revenue.
What may serve best
to take the mystery out of the process--and to demonstrate that nothing about the Ameritrade website need
alter our traditional approach to personal jurisdiction--is the fact that
Ameritrade also offers its customers the alternative of accomplishing virtually
all of the above-described transactions by ordinary mail or telephone. Indeed,
if anything, Ameritrade appears susceptible to application of the "doing
business" test in a much more literal way than a traditional brokerage
firm. Ameritrade's website allows it to
engage in real-time transactions with District of Columbia residents while they
sit at their home or office computers "in the District of Columbia." And by permitting such transactions to take
place 24 hours a day, the site makes it
possible for Ameritrade to have contacts with the District of Columbia that are
"continuous and systematic" to a degree that traditional foreign
corporations can never even approach.
In short, on the record before this court, it is quite
possible that, through its website, Ameritrade is doing business in the
District of Columbia by continuously and
systematically "enter[ing] into contracts with residents of a foreign jurisdiction
that involve the knowing and repeated transmission of computer files over the
Internet." Zippo Mfg. Co. v.
Zippo Dot Com, Inc., 952 F.Supp. 1119, 1124 (W.D.Pa.1997) (describing
similar websites as ones where the defendant "clearly does business over
the Internet," in the context of a case involving specific jurisdiction). Of course, determining whether Ameritrade is
actually "doing business" in the District requires an examination of
the frequency and volume of the firm's transactions with District
residents. But those facts are
unavailable because Gorman was not permitted to undertake discovery. Because the plaintiff has
"demonstrate[d] that it can supplement its jurisdictional allegations
through discovery, ... jurisdictional discovery is justified" and should
have been afforded. Accordingly, were it
not for the conclusion of the following Part--that although dismissal on
personal jurisdiction grounds was unwarranted, dismissal for insufficient
service of process was justified--we would remand the case for jurisdictional
discovery.
III
Even if there are sufficient contacts for a court to assert
personal jurisdiction over a defendant, it lacks power to do so unless the
procedural requirements of effective service of process are satisfied. [The court held that the plaintiff had not
validly effected service of process of the Summons and Complaint.]
IV
Ameritrade is quite wrong in treating
"cyberspace" as if it were a kingdom floating in the mysterious
ether, immune from the jurisdiction of earthly courts. Nevertheless, in this case Ameritrade is
saved from the jurisdiction of the district court by a much more mundane
problem: the plaintiff simply failed to
serve the corporation properly. For
that reason, and for that reason alone, the judgment of the district court is