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Hotels, casinos, restaurants, and other businesses in the hospitality industry routinely advertise outside the state in which they are located. However, using newspaper and magazine ads, toll-free numbers, interactive web sites, and billboards in California may subject an out-of-state business to suit in a California court.
The California Supreme Court agreed this summer to review the intermediate Court of Appeal's holding in Snowney v. Harrah's Entertainment, Inc. The lower appellate court had held that Harrah's Las Vegas, Inc. and related companies-which had no property or operations in California-were subject to suit there for alleged unfair business practices, false advertising, breach of contract, and unjust enrichment arising out of their Nevada casino hotels.
California's Unfair Business Practices Act ("Act") is extremely broad. It prohibits "any unlawful, unfair or fraudulent business act or practice." A business practice that is not otherwise forbidden by law or fraudulent, may still be deemed to be "unfair" to consumers or other businesses for purposes of the Act. Similarly, business practices that violate other laws (whether federal, state, or local) would be separately actionable under the Act. The violation need not be anti-competitive and need not injure the plaintiff. Even if regulated and approved (e.g., by the Gaming Commission), the conduct may still be considered "unfair" for purposes of the Act. If the claim is adjudicated in a California court, a California jury could determine whether the conduct was "unfair."
In Snowney, the issue was whether the defendant hotels, their holding companies, and related businesses had sufficient contacts to confer California courts with personal jurisdiction over them. The exercise of personal jurisdiction is constitutionally permissible only if the defendant has sufficient "minimum contacts" with the state so that it does not offend "traditional notions of fair play and substantial justice."
As to "minimum contacts," the Court of Appeal found significant that the hotel defendants had each directed advertising at California residents, including billboards in California, print advertisements in California newspapers, and radio and television advertising on California stations. It also found that the hotel defendants' on-line reservation system and maps on their affiliate's web site (with which California residents could receive customized driving directions from California locations) constituted efforts to solicit business from California residents, notwithstanding that the Internet functions were not California-specific. (The web site covers 25 casinos in 7 states. Only seven of the casinos are in Nevada.)
The court also noted that a "central toll-free telephone reservation system in another state [i.e., neither Nevada nor California] accepts reservations from customers nationwide" and that an unspecified but significant percentage of patrons using the system came from California. Finally, it found that an affiliated marketing company (Harrah's Marketing Services Corporation) markets directly to select "high-end" California residents through offices in California on behalf of the hotel defendants, and reasoned that the hotel defendants therefore directed their activities at California residents as well.
The Court of Appeal's decision in Snowney contrasts with that of another Court of Appeal in an older case, Circus Circus Hotels, Inc. v. Superior Court (1981) 120 Cal. App. 3d 546, disapprov. on other gnds. The court in Circus Circus held that by advertising in California newspapers and having a toll-free telephone number, the defendant had not "purposefully availed" itself of the benefits afforded by California or sought the protection of California laws, and that such activities therefore did not represent sufficient contacts with California to support the exercise of either general or specific personal jurisdiction.
The Snowney court applied broader tests, including whether the defendant purposefully directed its activities at California residents. It also determined that it would be fair to require Harrah's to defend itself in Los Angeles Superior Court in light of the burden of doing so, California's interest in adjudicating the dispute, the plaintiff's interest in obtaining relief, judicial economy, and Nevada's shared interest in furthering fundamental substantive social policies.
The California Supreme Court's expected decision should clarify which test to apply, whether the hotel defendants' activities were sufficiently "directed at" California residents to support the exercise of jurisdiction (if the lower court's test is adopted), and whether it would be fair under the circumstances to exercise such jurisdiction. The parties are filing their opening briefs with the Supreme Court presently. We would expect the Court to issue a decision sometime next summer.
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