Where You Advertise May Increase Your Risk

Here’s an interesting case, particularly if you like horror stories. I rarely report on non-Texas cases, but this California case has implications for Texas, so here goes. If your business advertises in California, can you be sued in California, under all of its consumer-oriented laws? The answer is a definite “maybe.” Click the headline to read about this developing situation, which is right now at the California Supreme Court level. Snowney v. Harrah’s Entertainment, Case No. S124286, Supreme Court of California (accepted June, 2004).

In Late June, 2004, the California Supremes decided to take a case that was thrown out by the trial court. Yes, that most liberal bastion of all that is “Californianism” is going to decide if out of state businesses who advertise in California, can be sued by California residents, in California courts, using California law. Can you feel the earthquake coming from Sacramento? Here’s the background.

Years ago, back before 1981, a California resident tried to sue Circus Circus, a Nevada “gaming establishment” which had no business operations in California other than advertising and the availability of toll free numbers. That case ended at the appeals court level in 1981, with a decision in favor of Circus Circus to the effect that advertising and toll free numbers were not enough to make Circus Circus subject to California law and California courts. That ruling stood for relatively 23 peaceful years, and all was well with the outside-of-California businesses.

But now this Frank Snowney character from–where else? L.A.–has decided to challenge that case. It seems that Mr. Snowney paid a visit to a Nevada gaming establishment. He was hit with a huge, unreasonable $3-per-night energy surcharge in connection with his lodging arrangements. So, feeling sufficiently miffed (must have been an unlucky trip), he went back to California and filed a lawsuit over it.

And this isn’t just any lawsuit, it’s a class action lawsuit, against not just the casino at which he stayed but several other casinos as well (can you say “shakedown”?), on behalf of all California residents who also had to pay this $3 per night fee while staying in Nevada (going back who knows how long). And the law he chose to sue under? California’s unfair competition laws. Think this plaintiff’s lawyer might have helped put him up to this? After all, what’s $3 per night in a casino?

Not surprisingly, California is Nevada’s top market, and the stakes for Nevada’s casinos are huge. But this case affects not just Nevada’s gaming and hotel industries, it affects every business nationwide, including those in Texas, who advertise in some manner in California. Think about websites. The casino websites are a key piece of evidence in this case. The California Appeals Court has decided that the combination of advertisements, toll free numbers, and interactive websites provide enough of a basis to subject out of state businesses, with no other operations in California, to California law, California courts, California judges, and California juries.

Don’t get me wrong; I love California’s scenery and I have some very good friends there. But the last place I’d want to see a Texas client is in a California court. Talk about no sympathy.

In any event, the California Appeals Court said that these casinos purposely solicited and received the patronage of California residents through their ads, phone numbers and websites, that they purposefully directed their activities at California residents, and that they purposely derived benefit from their contacts with California. And so the issue of interactive websites creating a “connection” with California has become a case of first impression (first time that theory has been used), per the casino attorneys.

And how did the current California Appeals Court get around the Circus Circus case? By calling that ruling a “narrow interpretation” and “unwarranted.” You have to say something like that to go directly against the holding of a prior case. From the Appeals Court’s perspective, as long as your business’s contacts with California give you “fair warning” that your business’s activities are subject to California law, they’ve got you. And don’t forget to define “fair warning” with that California dreamin’ perspective–the plaintiffs lawyers, not yours.

So now the California Supremes want to weigh in on this. Their decision to take this case was unanimous, and we’ll keep an eye on this impending earthquake. Always remember that courts are unpredictable, and conduct yourselves accordingly. In the meantime, you should review (and have reviewed by counsel) the disclaimers on your business’s website to attempt to miss these and other sorts of liability missiles.

Snowney v. Harrah’s Entertainment, Case No. S124286, Supreme Court of California (accepted June, 2004).

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McTexLaw Email Alerts are original writings of Mark McPherson, principal attorney of the firm.

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