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A Cautionary Tale On Social Media And US Jurisdiction – Social Media


The U.S. District Court for the Central District of California
recently determined that a foreign company was subject to the
jurisdiction of U.S. courts based, in part, on its social media
activity.

The Aug. 3 Miles Park McCollum v. Opulous decision involves
rapper Lil Yachty, the online music distribution company Ditto
Music, and its founder.

The ruling is factually specific, but it is an important
decision for all foreign companies, individuals, their respective
advisers, and those seeking to sue them before the U.S. courts
because the majority of the court’s analysis was based on the
defendants’ social media activities.

Although the decision does not engage in a state-based personal
jurisdiction analysis, it provides useful guidance to domestic U.S.
defendants about how their social media presence may lead them to
be subject to jurisdiction in other states.

The decision is particularly notable because the U.S. Supreme
Court has provided little guidance about how social media activity
may provide virtual contacts sufficient to establish personal
jurisdiction.

In its 2014 decision in Walden v. Fiore, the high court left the
issue “for another day,”1 despite former
Justice Stephen Breyer’s fortuitous warnings over a decade ago
in J. McIntyre Machinery Ltd. v. Nicastro on the impact of
advertising goods and services on websites for personal
jurisdictional analyses2 — warnings now extensible
to social media as a primary method of modern advertising.

The lack of guidance from the Supreme Court also makes lower
courts’ rulings — especially the Opulous
decision3 — instructive for companies, businesses
and individuals.

The Facts of the Opulous Case

Lil Yachty met with defendant Lee James Parsons — the
founder of both other defendants, Opulous and Ditto Ltd. — to
pitch the Opulous platform, which is described as “the only
platform to mint Music Fungible Tokens.”4

The parties allegedly never agreed on any terms, nor entered
into any agreement. However, the defendants later launched a
“press and advertisement campaign that [allegedly] falsely
represented” Lil Yachty as being affiliated with Opulous,
allegedly falsely represented that his works would be sold on
Opulous, and allegedly used his name, trademark and photographic
likeness without authorization.

Ditto and Parsons5 moved to dismiss Lil Yachty’s
case for lack of personal jurisdiction, under Federal Rule of Civil
Procedure 12(b)(2) — because Ditto was formed and is
headquartered in England.

Parsons is domiciled in England, and both had insufficient
contacts to allow California courts to exercise personal
jurisdiction over them.

The Court’s Holdings

On FRCP 4(k)(2)

The court found that it had personal jurisdiction over both
Ditto and Parsons under Federal Rule of Civil Procedure
4(k)(2)6 — which requires that:

  • The relevant claim arises under federal law;

  • The defendant is not subject to jurisdiction in any state’s
    courts of general jurisdiction; and

  • Exercising jurisdiction upholds due process — which
    requires the traditional personal jurisdiction analysis, although
    the court considers the defendant’s contacts with the nation as
    a whole rather than with only the forum state.

The purpose of Rule 4(k)(2) is to provide courts with
jurisdiction over aliens who have sufficient contacts with the U.S.
as a whole but “insufficient contact with any single state to
support jurisdiction under state long-arm legislation or meet the
requirements of the 14th Amendment limitation on state court
territorial jurisdiction.”7

For Ditto, the court found that the first two prongs were easily
satisfied and focused on the third limb — i.e., due process
— which is dealt with below.

On Due Process

The court’s analysis of due process is critical in examining
the practical impact of the Opulous decision. The third prong
requires:

  • Ditto to purposefully avail itself of the privileges of doing
    business in the U.S.;

  • The relevant claim to arise out of Ditto’s activities
    related to the U.S.; and

  • The exercise of jurisdiction over Ditto to comport with notions
    of fair play and substantial justice.

The court found all three prongs satisfied, on the basis that
Ditto:

  • Had offices in Los Angeles and New York City;

  • Posted job advertisements for its LA and NYC offices;

  • Had employees with LinkedIn profiles indicating their residence
    in the U.S.; and

  • Critically, made an array of social media posts directed at the
    U.S. — including one which “utilized an American flag
    ’emoji,'” another referencing competitions involving
    U.S. consumers, and others advertising events in the U.S.

Regarding those posts and Ditto’s general social media
activity, the court emphasized that the evidence established
that:

First, Ditto has social media followers in the [U.S.], as
evidenced by the substance and interactive style of its posts.
Second, Ditto knows it has followers in the [U.S.], as evidenced by
its advertising of specific live music events taking place in Los
Angeles. And finally, when Ditto wishes to advertise or promote an
event in the [U.S.], it uses social media to connect with [U.S.]
consumers.

Similarly, the court held that “Ditto’s social media
activities connect Ditto to the [U.S.].”

The court went on to distinguish the line of authorities holding
that the mere operation of a website was insufficient to establish
jurisdiction by ruling that:

Ditto is not merely posting information on a passive website
— Ditto is posting information to its social media account,
which is a place it regularly uses to interact with American
consumers.

Parsons and the Fiduciary Shield

Regarding Parsons, the court held that it had personal
jurisdiction over him because the fiduciary shield doctrine did not
apply.

This was because Parsons was a primary participant in the
alleged wrongdoing and “actively and personally involved”
in the conduct giving rise to the relevant claims — as
Parsons met with, and pitched to, Lil Yachty and knew there was no
deal or agreement reached, yet later made various social media
posts suggesting that Lil Yachty was involved with Opulous.

The Importance and Impact of the Opulous Decision

While the court gave weight to Ditto’s offices, employees
and job advertisements in the U.S., the court also gave significant
weight and attention to Ditto’s array of social media contacts
to establish personal jurisdiction.

The court therefore provides a clear warning to international
defendants that their social media activities may be highly
relevant to, and potentially determinative of, an aggregate
personal jurisdiction analysis under Rule 4(k)(2).

Implicit in the court’s decision is the idea that social
media provides businesses and individuals with a social marketplace
where they can best interact with consumers, advertise their goods
and services, and ultimately sell those goods and services to
consumers.

While such an idea comports with the reality of modern social
media use, it is worrying for many international businesses and
individuals because the main purpose of most businesses’ social
media use is to interact with, and sell products to, consumers
— especially U.S. consumers, as they comprise an exceedingly
lucrative market.

According to the Opulous decision, that usage of social media is
likely to bring those businesses before U.S. courts. As such,
Opulous provides foreign defendants with a stark warning to be
extremely cautious about, and closely monitor, their social media
activity.

The clear limitation on this social media-related jurisdictional
reach under Rule 4(k)(2) is that the relevant claims against a
foreign defendant must arise out of that defendant’s social
media activities. This may provide some comfort to foreign
defendants, but it does not detract from the importance of the
above.

The Opulous decision also cautions U.S. domestic businesses and
individuals to be wary about how their social media use may affect
analysis of personal jurisdiction under state long-arm
legislation.

Further, the court’s decision regarding Parsons serves as a
timely reminder to foreign corporate officers and agents that their
actions on social media, regardless of their innocuousness or
repetition, may lead them to be subject to the personal
jurisdiction of U.S. courts.

It is true that such activities must show those officers’ or
agents’ involvement in the relevant wrongdoing — under
the fiduciary shield doctrine — but it remains important for
them to be conscious of the impact of their social media
activity.

If Parsons had not made the relevant posts, it seems unlikely
that the court would have found that the fiduciary shield was
breached.

An overarching lesson from the Opulous decision is that foreign
entities, businesses and individuals that do any business in the
U.S. should be cognizant of U.S. laws, especially intellectual
property laws, to ensure that no claim can be made against them in
the first place.

If they are prudent in this respect, the jurisdictional analysis
does not come into play.

Practical Guidance for Foreign Companies and Individuals

The Opulous decision stands as a clear cautionary tale for
foreign companies and individuals about the impact of their social
media usage in compelling them to defend claims in U.S. courts.

As practical matters after Opulous, all foreign companies and
individuals should:

  1. Closely reevaluate the nature of their corporate and personal
    social media usage;

  2. Scrutinize any applicable policies and procedures regarding
    social media;

  3. Ensure that business and marketing personnel are adequately
    trained, so that they do not unwittingly engage U.S. courts’
    jurisdiction or generate other legal issues; and

  4. Always err on the side of caution when posting on social media,
    as it is an increasingly integral and omnipresent aspect of
    contemporary business.

Footnotes

1. Walden v. Fiore, 571 U.S. 277, 290, n. 9 (2014)
(“We leave questions about virtual contacts for another
day.”).

2. J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 890
(2011) (“But what do those standards mean when a company
targets the world by selling products from its Web site? And does
it matter if, instead of shipping the products directly, a company
consigns the products through an intermediary (say, Amazon.com) who
then receives and fulfills the orders? And what if the company
markets its products through popup advertisements that it knows
will be viewed in a forum? Those issues have serious commercial
consequences but are totally absent in this
case.”).

3. See also Wright & Miller, Fed. Prac. & Proc.
Civ. § 1073 (4th ed.) and the cases there cited, particularly
Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1121
(W.D. Pa. 1997).

4. https://opulous.org/.

5. Opulous had not been served, nor appeared in the
action, so the court did not make any findings regarding
Opulous.

6. Plaintiff admitted that the court lacked general
jurisdiction over both defendants.

7. Sunshine Distribution, Inc. v. Sports Auth. Michigan,
Inc., 157 F. Supp. 2d 779, 788 (E.D. Mich. 2001) (citing Advisory
Committee Notes regarding Rule 4(k)(2).); also see 5 Patry on
Copyright § 17:141.

Originally published by Law360.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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