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Gorman v. Ameritrade Holding Corp.: Court Considers a Court's Jurisdiction over Websites

A federal appellate court in the District of Columbia has considered whether a Nebraska firm with no office in the District but who transacts business with the District's residents through its website is subject to the court's jurisdiction.

David Gorman ("Gorman") is a real estate broker who owns and operates Cashbackrealty.com. Gorman entered into a contract with Freetrade.com for the placement of advertisements on Freetrade.com's website. Following that contract, Freetrade.com was purchased by Ameritrade Holding Corporation ("Ameritrade"), an online stock brokerage firm based in Omaha, Nebraska. Ameritrade refused to provide the advertising to Gorman. Gorman brought a lawsuit against Ameritrade in the District of Columbia ("District") for breach of contract. The trial court ruled that it lacked jurisdiction over Ameritrade and also that Gorman's service of the complaint was improper, and so dismissed the lawsuit. Gorman appealed.

The United States Court of Appeals, District of Columbia, found that a court in the District could exercise jurisdiction over Ameritrade, but agreed that service of the complaint was improper and so affirmed the dismissal of the lawsuit. Considering the jurisdiction issue, Ameritrade argued that it was not subject to jurisdiction in the District because it did not have a physical presence in the District. Ameritrade's only presence in the District was through its website offering stock brokerage services. While Ameritrade admitted that it conducted transactions with residents of the District through its website, it argued that those transactions did not occur in the District but in "cyberspace" and so were not subject to the jurisdiction of the District's courts.

The court disagreed, ruling that Ameritrade was subject to personal jurisdiction in the District because of its "systematic and continuous contacts" with the District. Personal jurisdiction is a legal concept where a court recognizes that it has the necessary legal authority over an individual or entity to conduct judicial proceedings. For a court to exercise personal jurisdiction over a nonresident, the nonresident must be subject to either specific or general jurisdiction. Specific jurisdiction over a nonresident occurs in a particular transaction, and was not applicable to the agreement between Ameritrade and Gorman. Therefore, the court could only exercise personal jurisdiction over Gorman if he was subject to general jurisdiction in the District.

The court ruled Ameritrade was subject to the court's general jurisdiction. General jurisdiction occurs when the out-of-state corporation has "continuous and systematic" contacts with the forum state (here, the District). The court found that simply because the transactions occurred over the Internet was not determinative of whether or not Ameritrade was subject to personal jurisdiction in the District. Rather, the court would apply the same jurisdiction test it uses in all other cases. The court determined that Ameritrade was subject to general jurisdiction because its website allowed residents of the District to enter into transactions. This is contrasted with a so-called "passive website" which simply makes information available over the Internet, which the court had determined in an earlier case that this kind of website was not subject to the court's general jurisdiction. Because Ameritrade's website is more than simply a website accessible over the Internet and instead allows consumers to enter into transactions, the court ruled that Ameritrade was subject to general jurisdiction in the District. However, for reasons not relevant to this summary, the court also ruled that Gorman had failed to properly serve the complaint upon Ameritrade. Thus, even though the court found that Ameritrade was subject to general jurisdiction in the District because of its website, the court affirmed the trial court's dismissal of the lawsuit.

Gorman v. Ameritrade Holding Corp., 293 F.3d 506 (D.C. Cir. 2002).