Gorman v. Ameritrade Holding Corp.

• Decision Date: 14 June 2002
• Docket Number: No. 01-7085.,01-7085.
• Parties: David J. GORMAN, d/b/a Cashbackrealty.com, Appellant, v. AMERITRADE HOLDING CORPORATION and Freetrade.com, Inc., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 506

293 F.3d 506

David J. GORMAN, d/b/a Cashbackrealty.com, Appellant, v. AMERITRADE HOLDING CORPORATION and Freetrade.com, Inc., Appellees.

No. 01-7085.

United States Court of Appeals, District of Columbia Circuit.

Argued February 14, 2002.

Decided June 14, 2002.

COPYRIGHT MATERIAL OMITTED

Appeal from the United States District Court for the District of Columbia (No. 00cv01259).

John M. Shoreman argued the cause and filed the briefs for appellant.

Brian D. Craig argued the cause for appellees. With him on the brief was Robert S. Brennen.

Before: HENDERSON and GARLAND, Circuit Judges, and WILLIAMS, Senior Circuit Judge.

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, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945)) (additional internal quotation marks omitted).

Under the District of Columbia's long-arm statute, local courts may exercise so-called "specific jurisdiction" over a person for claims that arise from the person's "transacting any business" in the District. D.C.Code § 13-423(a)(1). See generally Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 & n. 15, 105 S.Ct. 2174, 2182-83 & n. 15, 85 L.Ed.2d 528 (1985); Crane, 814 F.2d at 763. However, because Gorman's breach of contract claim against Ameritrade does not arise out of any business transacted between the parties in the District, this font of jurisdiction is unavailable.

District of Columbia law also 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; Crane, 814 F.2d at 763.¹ 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, 104 S.Ct. at 1872 (quoting Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 438, 72 S.Ct. 413, 96 L.Ed. 485 (1952)); see El-Fadl v. Central Bank of Jordan, 75 F.3d 668, 675 (D.C.Cir.1996); see also Crane, 814 F.2d at 763 (describing the required contacts for general jurisdiction as "continuous and substantial"); Hughes v. A.H. Robins Co., 490 A.2d 1140, 1142, 1149 (D.C.1985) (same).² 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, 72 S.Ct. at 414)); see also Everett v. Nissan Motor Corp., 628 A.2d 106, 108 (D.C.1993).

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." Pl.'s Opp'n to Mot. to Dismiss at 1-2. 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." Id. at 5. 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." Reply Mem. in Supp. of Defs.' Mot. to Dismiss at 6. 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." Appellees' Br. at 5.

"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,³ 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.⁴ 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); Bell Atlantic Tel. Cos. v. FCC, 206 F.3d 1, 4 (D.C.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"? See GTE New Media Servs. Inc. v. BellSouth Corp., 199 F.3d 1343, 1350 (D.C.Cir.2000) ("We do not believe that the advent of advanced technology, say, as with the Internet, should vitiate long-held and inviolate principles of federal court jurisdiction."); 4A WRIGHT & MILLER § 1073.1, at 327-28.

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. Ameritrade misreads the case. In GTE, we held that defendants who operated Internet Yellow Pages websites...