Sotelo v. DirectRevenue, LLC

United States District Court for the Northern District of Illinois · Torts

Tortstrespass to personal propertyinternet spywarearbitrationpersonal jurisdictionconsumer protectionunjust enrichmentnegligence

Facts

Plaintiff alleged that DirectRevenue deceptively bundled spyware with free software and caused it to be installed on users' computers without their knowledge or consent. He alleged the spyware tracked browsing activity, generated repeated pop-up ads for advertisers including AccuQuote and aQuantive or their clients, and was difficult to remove. Plaintiff further alleged the spyware slowed computers, consumed memory and bandwidth, interfered with use of the computer and internet connection, destroyed other software, and caused wasted time and increased costs. DirectRevenue relied on an end-user license agreement containing an arbitration clause, but plaintiff alleged he never saw or agreed to it because he downloaded bundled software from a third-party distributor rather than DirectRevenue's website.

Issue

Whether the court had personal jurisdiction over DR Holdings, whether plaintiff was bound to arbitrate under the EULA, and whether the complaint stated claims for trespass to personal property, consumer protection, unjust enrichment, negligence, and computer tampering. The central merits issues were whether unauthorized spyware installation and resulting pop-up advertising can constitute actionable interference and damage to a user's computer and whether plaintiff adequately alleged consent, injury, and entitlement to relief.

Rule

Personal jurisdiction over a parent or holding company cannot rest on stock ownership or corporate affiliation alone when corporate formalities are observed and the parent lacks its own forum contacts; a plaintiff must show the parent's own contacts, veil piercing, or agency. Arbitration is a matter of contract, and when the making of the arbitration agreement is genuinely disputed, the court cannot compel arbitration without resolving that factual dispute. Under Illinois law, trespass to personal property may be committed by intentionally dispossessing another of a chattel or by using or intermeddling with a chattel in another's possession, and liability may arise where the conduct interferes with use or diminishes the property's quality, condition, or value.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Flores filed suit in federal court in Illinois against Pixel Harbor Media, LLC, alleging that its software impaired her laptop in Chicago. She also named Harbor Ridge Holdings, LLC, a Delaware holding company based in New York, but her complaint alleged only that Harbor Ridge owned Pixel Harbor. Harbor Ridge submitted an affidavit stating it had no offices, employees, bank accounts, contracts, or business operations in Illinois.

Should the Illinois court exercise personal jurisdiction over Harbor Ridge Holdings on these facts?

Explanation. The majority held that personal jurisdiction cannot rest on corporate affiliation or stock ownership alone where the parent or holding company lacks its own Illinois contacts and the plaintiff does not allege veil piercing or agency. An unrebutted affidavit denying forum contacts defeats jurisdiction when the complaint alleges only parent status. (Derived from Sotelo v. DirectRevenue, LLC (n.d.).)