A former law partner of mine once told me that he could figure out answers to legal questions based on knowing where each player in the problem was. He reasoned that everybody had to be someplace. Then he determined where that place was. Once he put everybody in place, he had a map showing him where everyone was in relation to each other. From the map he could assume, guess or argue their responsibilities and obligations to one another.
This article focuses on the power of U.S. courts to assert personal jurisdiction over website operators. This article does not deal with the more practical, and probably more important, questions of:
- How does a law enforcement authority enforce a sentence issued by a state court?
- How can a private person collect on a money judgment against an operator located out of the United States?
- Is it wise to try to enforce gambling laws on an extraterritorial basis?
Those questions will be the subjects of future articles.
The Big Question
Where is the legal here for an Internet gambling website?
The proper answer to that question determines the ability of the “Court of Here” to assert legal jurisdiction over the possibly offending website operator and perhaps also over some of its owners, operators, employees, other affiliates and advisors.
“Jurisdiction” means having the authorized legal power to determine issues raised in a criminal indictment or information or in a civil complaint presented to the court by a law enforcement authority or a private person. The defendant has to be haled into the state court by a legal method of giving notice and the state court has to also have the power to determine the subject matter involved in the dispute.
The typical legal method of giving notice to an absent defendant (whether out-of-state or out-of-country) involves using the so-called long-arm laws that have been adopted by every state. Such statutes allow a substituted method of giving notice (i.e. service of process), such as mailing the notice. One court went so far as to authorize notice by sending a mere email to the absent defendant at his website.
In analyzing the application of the law we will use hypothetical situations confronting offshore gambling sites. We use a fictional offshore gambling site named Hypo Online Gambling.com
Where in the world is Hypo?
Operators of websites that offer real-money wagering, like Hypo, take the position that “here” is the place where they are incorporated (Costa Rica), or where the server for their website is located (Canada), or where they may have gotten a license to engage in casino-style gambling (Canada, Costa Rica or both) or only in cyberspace. (An analysis of some of the foreign licensing procedures is in a separate article on this website, Licensing of Online Casinos.)
Since cyberspace is everywhere all at once, they thus conclude that the website has no particular here—so the website is nowhere. They thus violate the wry, immutable truth of the universe that no matter where you are, you are always here.
No less a legal expert than Anthony Cabot, formerly of the prominent Las Vegas firm Lionel Sawyer & Collins and now with the firm of Lewis & Roca, recently took exactly that position in an interview on the Nov-Dec 2004 PokerUpdates show available on streaming video. He said “The Internet has no location base. It is in cyberspace.” That will come as an insupportable shock to many who have successfully asserted jurisdiction in state and federal courts located in places where an interactive website is received by a user.
Mr. Cabot’s position appears to be an outgrowth of an article he previously wrote in which he concluded:
“A recent case in the 11th Circuit Court of Appeals held that an Internet site should not be subject to place-based city zoning regulations, because it operates in “cyberspace” rather than in a specific location. Therefore, traditional prohibitions against general, location-based gambling may not apply in cyberspace. Moreover, the fact that a growing number of states felt the need to enact legislation specifically outlawing Internet gambling suggests that this argument may be persuasive.”
There are a number of problems with his arguments.
Taking the last point first, the fact that some states have passed clarifying statutes does not mean that the general anti-gambling legislation in other states (or, for that matter, the previous anti-gambling law in those states with specific prohibitions) does not apply to the conduct of gambling in the specific state.
Next, it is very clear that when presented with the issue of where the gambling takes place, the courts will find that it takes place where the bet is sent from as well as where the bet is received.
Finally, Mr. Cabot’s reliance on the 11th Circuit decision is misplaced. In that case, Voyeur Dorm v. City of Tampa, 265 F3d 1232 (11th Cir 2001), an attorney for the City of Tampa took the position that the offering of “live” webcam pictures over the Internet of women in various stages of undress in a house in a particular neighborhood violated a city ordinance prohibiting the offering of adult entertainment to the public in certain neighborhoods.
The court held: “The residence … provides no “offer[ing] [of adult entertainment] to members of the public.” … It does not follow, then, that a zoning ordinance designed to restrict facilities that offer adult entertainment can be applied to a particular location that does not, at that location, offer adult entertainment. Moreover, the case law relied upon by Tampa and the district court concern adult entertainment in which customers physically attend the premises wherein the entertainment is performed.” (Emphasis supplied.)
Contrary to the facts in the Voyeur Dorm case, in the context of Internet gambling, the customer “physically attends” the place in the state where the gambling takes place, for example, the living room where his or her computer is located.
Following the lead of attorney Cabot, the owners and operators of online gambling websites firmly believe and insist that wherever they in fact are, it is nowhere near any place that might want to punish them for violating the gambling and gaming laws of that place.
In asserting personal jurisdiction over out-of-state or out-of-country companies, Professor Michael Geist notes that there are three layers:
- An “application layer.”
- A “substantive layer,” and
- An “enforcement layer.”
The rest of this article covers the application and substantive layers. The enforcement layer is not dealt with even though it is perhaps the most problematic layer.
The application layer deals with gaining personal jurisdiction over a defendant in the International Shoe sense. That is, whether Hypo should expect to be haled into the Court of Here and what means will give Hypo fair notice that it is being haled in.
The substantive layer deals with whose law can or should be applied in deciding the litigation. That is, whether the law of the state in which the Court of Here is located should be applied to Hypo’s gambling offerings, or whether the laws of either Costa Rica or Canada should be exclusively applied.
The enforcement layer deals with how the plaintiff in the litigation can extract from Hypo any penalties that the Court of Here may order.
Zippo and Hypo: Personal Jurisdiction
The U.S. law on asserting personal jurisdiction over an absent Internet website has evolved from the decision in Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa.1997). The court there announced the following test:
“[T]he likelihood that personal jurisdiction can be constitutionally exercised is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. . . .At one end of the spectrum are situations where a defendant clearly does business over the Internet. If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper. At the opposite end . . .is a defendant [who] has simply posted information on an Internet Web site which is accessible to [forum resident] users . . . . The middle ground is occupied by interactive Web sites where a user can exchange information with the host computer.” Zippo, 952 F. Supp. at 1124 (citations omitted).
The evolution of this test is considered and applied in Gator.com Corp. v. L.L. Bean, Inc. (9th Cir. No. 02-15035). Gator.com Corp. distributes a “digital wallet” software product that allows users to store passwords to various websites. When a user of that software logged into the online website of sports clothing and equipment retailer L.L. Bean, Inc., an embedded ad for an L. L. Bean competitor would pop up on the computer screen. Bean mailed a nastygram to Gator telling it to stop interfering with its website. Gator filed a lawsuit in a California Federal District Court seeking a declaratory judgment approving its actions. The Ninth Circuit Court of Appeals upheld the assertion of personal jurisdiction, finding “that there is general [personal] jurisdiction in light of L.L. Bean’s extensive marketing and sales in California, its extensive contacts with California vendors, and the fact that, as alleged by Gator, its website is clearly and deliberately structured to operate as a sophisticated virtual store in California.” Id at 12671. (Page reference is to the online source linked in the case title above) 6% of L.L. Bean’s business was from sales into California. The Ninth Circuit said:
“In addition,…Gator alleges that L.L. Bean ‘targets’ its electronic advertising at California and maintains a highly interactive, as opposed to ‘passive,’ website from which very large numbers of California consumers regularly make purchases and interact with L.L. Bean sales representatives…L.L. Bean has not merely made a single ‘package’ purchase from a [California] vendor or cashed a check on a [California] bank; instead, it ships very large numbers of products to California and maintains ongoing contacts with numerous California vendors. Nor are any of L.L. Bean’s contacts occasional or infrequent….L.L. Bean’s contacts are part of a consistent, ongoing, and sophisticated sales effort that has included California for a number of years.” Id.
The Court also said: “even if the only contacts L.L. Bean had with California were through its virtual store, a finding of general jurisdiction in the instant case would be consistent with the “sliding scale” test that both our own and other circuits have applied to internet-based companies. Id at12673. [[ NOTE: On April 29, 2004, in No. 02-15035, the 9th Circuit ordered the decision of the three-judge panel stayed pending an en banc hearing. However, the parties subsequently reached a settlement and the 9th Circuit, on February 15, 2005, dismissed the pending en banc hearing on the grounds of mootness.]]
Moreover, email contacts alone can establish jurisdiction when the contacts are extremely numerous. See Verizon Online Servs., Inc. v. Ralsky, 203 F. Supp. 2d 601 (E.D. Va. 2002); Internet Doorway, Inc. v. Parks, 138 F. Supp. 2d 773 (S.D. Miss. 2001) (involving millions of email); Washington v. Heckel, 93 P.3d 189, 193 (Wash. Ct. App. 2004) (involving millions of email but not directly addressing personal jurisdiction). [6}
Personal jurisdiction was found lacking in Pound v. Airosol, Inc. No. 02-2632-CM, recently decided in a Federal District Court in Kansas. The court there found that the sellers of the products involved had only minimally interactive websites (e.g. they did not offer an online shopping cart through which any of the products could be ordered and paid for), limited contacts with residents of Kansas, and that there was no evidence any of the defendants targeted Kansas resident or that any of defendants products had ever in fact been sold to a Kansas resident.
How do Hypo’s activities measure up to these extended Zippo standards?
It targets residents of various U.S. states by:
- sending emails advertising its activities,
- offering bonuses and incentives to players, and
- advertising on the cable TV show.
Its website is very interactive. That is the nature of online gambling.
It has an important ongoing relationship with the U.S.-based vendor of its operating system.
It deposits money it receives from residents of various states, albeit the deposits are made in its foreign bank account.
More than half its business comes from residents of the U.S.
Yahoo and Hypo: Substantive Jurisdiction
Once the Court of Here has decided to exercise personal jurisdiction over a defendant, it usually follows that the court will also apply the substantive law of its state. A series of decisions involving the civil and criminal laws of France, the United States, California and Missouri is instructive of the application of local laws and the thought and analysis the court with personal jurisdiction gives to whether it is proper to apply those local laws to an absent defendant.
Under French law it is a crime to offer or promote the sale of Nazi objects. A French court applied that substantive French law and ordered Yahoo to ban online auctions by its users of Nazi memorabilia. Yahoo turned around and sued the French plaintiffs in a U.S. Federal District Court in Northern California. The District Court there held it was fair to compel the plaintiffs in the French litigation to litigate in the U.S. and that it could apply substantive U.S. freedom of speech law to allow Yahoo to allow it to continue hosting the auctions offering of the Nazi items on its website. During August 2004, a three-judge panel of the 9th Circuit Court of Appeals reversed, holding that there was no personal jurisdiction over the French entities. (Yahoo wound up adopting a policy banning the auction of such objectionable items, anyway, a ban which remains in its auction guidelines today.) After an en banc rehearing of the decision of the three-judge panel, the 9th Circuit upheld the finding of personal jurisdiction in January 2006. The 9th Circuit’s website describes the issue being considered as follows: “Whether the federal district court has personal jurisdiction over defendants, French organizations in an action brought by Yahoo! seeking a declaratory judgment that orders issued by a French court were unenforceable. Whether the exercise of personal jurisdiction requires wrongful conduct by the defendant and whether the Supreme Court’s “express aiming” test may be met by a defendant’s intentional targeting of actions at plaintiff in the forum state.” The en banc hearing is scheduled for March 24, 2005.
Yahoo’s French subsidiary, yahoo.fr, complies with France’s law, but a French judge ordered Yahoo.com of Sunnyvale, Calif., to strip Nazi paraphernalia from the portal’s most popular site. Yahoo did not appeal the French order, and instead went to a U.S. District Court in San Jose where the First Amendment battle began. An Associated Press story says: “Yahoo wants the appeals court to declare that the judgment, now at about $15 million and growing by as much as $15,000 per day, cannot be collected in the United States – the only venue where the two French human rights groups who sued Yahoo can claim the judgment.”
Subsequently, “A court in Paris dismissed criminal charges that were [also] brought against Yahoo!, Inc. and its former CEO, Tim Koogle, in a criminal prosecution involving the auction of [the] Nazi memorabilia on Yahoo’s auction site. The case was closely watched around the world because it appeared to open up Internet providers to prosecution anywhere in the world even if their activities were legal in their home countries. …[A] French criminal court dismissed all charges, holding that Yahoo never tried to ‘justify war crimes [or] crimes against humanity.’ Although this decision does not address the important jurisdictional issues raised by France’s actions, it does support free expression online by reflecting a better understanding of the appropriate role of providers and hosters of material.” Note: This appears to be a decision that applies the substantive French criminal law and determines it was not violated by Yahoo or its CEO.
Missouri v. Coeur D’Alene Tribe, 164 F.3d 1102 (8th Cir.1999), involved the state of Missouri’s challenge to the legality of the offering of a nationwide lottery by an American-Indian lottery over the Internet. The Eighth Circuit remanded this case back to the original federal District Court to determine where the gambling involved took place, i.e. if the gambling was “on Indian lands.” The Eighth Circuit implied that its view was that the gambling occurred in the place where the person making the wager on the lottery was located at the time of the bet. The suit was ultimately transferred from the Federal District court to a Missouri state court, thus implicitly confirming the view that the gambling took place where the person making the bet was at the time of the bet, Missouri, and not on the Indian lands occupied by the Coeur D’Alene Tribe in Idaho.
How do Hypo’s activities compare to the standards considered in these Yahoo cases?
- Even if its actions are perfectly legal under applicable Canadian or Costa Rican law, its promotes gambling by U.S. residents.
- For real-money bets on its website Hypo earns revenue, thus violating state gambling laws, all of which criminalize this sort of activity taking place in the state, whether it constitutes professional gambling or a violation of the gaming licensing laws of the particular state.
- Hypo’s targeting of people in the United States subjects it to the assertion of personal jurisdiction by particular state courts.
- Its activities are open and obvious given the public nature of its business, so its defenses to criminal and civil charges of promoting gambling are limited.
- It does not take any action to attempt to block U.S. residents from accessing its website.
 William D. Hoops, who was the senior partner of Hoops & Levy, Houston Texas, until his untimely passing in 2004.
 The basic United States law on asserting jurisdiction over out-of-state defendants was stated in the Supreme Court’s landmark International Shoe case. The Supreme Court held that the Constitution’s due process clause permits a state court to assert personal jurisdiction over an absent out-of-state defendant provided that the defendant has “minimum contacts” with the state so that maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” International Shoe v. Washington, 326 U.S. 310 (1945)
 Rio Properties, Inc v. Rio International Interlink, 284 F.3d 1007 ( 9th Cir. 2002). [Page references below are to the linked pdf file accessible by clicking on the case title.]
The Rio Hotel and Casino in Las Vegas sued an online sports betting website, Rio International Interlink (RII) In this opinion the U.S. Ninth Circuit Court of Appeals said: “Unable to serve RII by conventional means, RIO filed an emergency motion for alternate service of process. RII opted not to respond to RIO’s motion. The district court granted RIO’s motion, and pursuant to Federal Rules of Civil Procedure 4(h)(2) and 4(f)(3), ordered service of process on RII through the mail… and via RII’s email address, email@example.com. [Id at 4470.] …
“Even if facially permitted by Rule 4(f)(3), a method of service of process must also comport with constitutional notions of due process. To meet this requirement, the method of service crafted by the district court must be ‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’ Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950) (Jackson, J.).
“Without hesitation, we conclude that each alternative method of service of process ordered by the district court was constitutionally acceptable. In our view, each method of service was reasonably calculated, under these circumstances, to apprise RII of the pendency of the action and afford it an opportunity to respond. [Id at 4476-7.] …
Finally, we turn to the district court’s order authorizing service of process on RII by email at firstname.lastname@example.org. We acknowledge that we tread upon untrodden ground. The parties cite no authority condoning service of process over the Internet or via email, and our own investigation has unearthed no decisions by the United States Courts of Appeals dealing with service of process by email and only one case anywhere in the federal courts. Despite this dearth of authority, however, we do not labor long in reaching our decision. Considering the facts presented by this case, we conclude not only that service of process by email was proper — that is, reasonably calculated to apprise RII of the pendency of the action and afford it an opportunity to respond — but in this case, it was the method of service most likely to reach RII.” [Id at 4477-8.]
 Is There a There There? Toward Greater Certainty for Internet Jurisdiction by Michael Geist, 16 Berkley Technology Law Journal (2001). Here is an extract from the abstract in the article: “The unique challenge presented by the Internet is that compliance with local laws [meaning the laws of the place of incorporation and/or the place where the Internet access server is located] is rarely sufficient to assure a business that it has limited its exposure to legal risk. Since websites are accessible worldwide, the prospect that a website owner might be haled into a courtroom in a far-off jurisdiction is much more than a mere academic exercise, it is a very real possibility. The article identifies why the challenge of adequately accounting for the legal risk arising from Internet jurisdiction has been aggravated in recent years by the adoption of the Zippo legal framework, commonly referred to as the passive versus active test… The solution submitted in the article is to move toward a targeting-based analysis. Unlike the Zippo approach, a targeting analysis would seek to identify the intentions of the parties and to assess the steps taken to either enter or avoid a particular jurisdiction. Targeting would also lessen the reliance on an effects analysis, the source of considerable uncertainty since Internet-based activity can ordinarily be said to create some effects in most jurisdictions.”
 In a footnote Professor Geist says: “Despite this article’s focus on the application layer—better known as adjudicatory jurisdiction—some commentators have opined that the enforcement layer actually presents the greatest challenge in the online environment. See, e.g., Henry H. Perritt, Jr., Will the Judgment-Proof Own Cyberspace?, 32 INT’L LAW. 1121, 1123 (1998) (‘The real problem is turning a judgment supported by jurisdiction into meaningful economic relief. The problem is not the adaptability of International Shoe—obtaining jurisdiction in a theoretical sense. The problem is obtaining meaningful relief.’).” Professor comments: “Since the Yahoo.com site was not intended for a French audience, and users implicitly agreed that United States law would be binding, the company felt confident that a French judge could not credibly assert jurisdiction over the site. [Footnote omitted.] Judge Jean-Jacques Gomez of the County Court of Paris disagreed, ruling that the court could assert jurisdiction over the dispute since the content found on the Yahoo.com site was available to French residents and was unlawful under French law. [Footnote omitted.]
[6} The case dealt with the Utah Email Statute which “made it illegal to ‘send’ noncompliant email ‘to an email address held by a resident of [Utah].’ Utah Code Ann. § 13-36-103(1)…. [T]he conduct at issue here occurred in Utah, even if the “send[ing]” was done from another state.
 “We order the company YAHOO! Inc. to take all measures to dissuade and make impossible any access via Yahoo.com to the auction service for Nazi objects and to any other site or service that may be construed as constituting an apology for Nazism or contesting the reality of Nazi crimes….” Yahoo!, Inc. v. LICRA, C-00-21275 JF, 2001 U.S. Dist. Lexis 18378, at *6, 7 (N.D. Cal. Nov. 7, 2001) (citing the French court’s decision in UEJF et LICRA v. Yahoo! Inc. et Yahoo France). An analysis of this French case by Yaman Akdeniz, a faculty member at the University of Leeds, is available online.