Facebook Not Subject to Illinois Long-Arm Jurisdiction For Its Photo “Tagging” Feature – IL ND

Surely something as culturally pervasive as Facebook, arguably the Alpha and Omega of social media, is subject to personal jurisdiction in Illinois (or anywhere else for that matter). Wouldn’t it? After all, with over a billion monthly users1 and some 350 million photos uploaded to it daily 2, Facebook’s electronic reach is virtually limitless (pardon the pun).

Wrong – says an Illinois Federal court.  In what will be welcome news to on-line merchants the world over, the Northern District of Illinois recently dismissed a privacy lawsuit filed against the social media titan by an Illinois resident for lack of personal jurisdiction.

The plaintiff in Gullen v. Facebook, Inc., 15 C 7681 3 , http://cases.justia.com/federal/district-courts/illinois/ilndce/1:2015cv07681/314962/37/0.pdf?ts=1453468909 sued under the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1 et seq.   The plaintiff claimed Facebook’s “tag suggestion” feature which culls uploaded photos for facial identifiers, invaded plaintiff’s BIPA privacy rights.

Granting Facebook’s motion to dismiss, the Court gives a useful primer on what a plaintiff must allege to establish an arguable basis for personal jurisdiction over a nonresident corporate defendant.

Federal courts sitting in diversity may exercise personal jurisdiction over a nonresident defendant only if the forum-state court could do so.  Illinois courts can exercise jurisdiction over a nonresident defendant on any basis sanctioned by the Illinois Constitution or the U.S. Constitution;

– For a court to exercise specific personal jurisdiction over an out-of-state defendant, the court looks to whether the defendant has minimum contacts with the forum State and if those contacts create a substantial connection with the forum State;

– In addition, the contacts with the forum must be initiated by the defendant itself and the mere fact that a defendant’s conduct affected a plaintiff who has a connection to the forum isn’t enough for jurisdiction over the nonresident defendant;

– In an intentional tort case, the court looks at whether the defendant (1) engaged in intentional conduct, (2) expressly aimed at the forum state, and (3) had knowledge that the effects of his conduct would be felt in the forum state;

– With intentional torts, the fact that a plaintiff is injured in Illinois can be relevant on the jurisdiction  question but only if the defendant has “reached out and touched” Illinois: if the defendant’s conduct does not connect him with Illinois in a meaningful way, jurisdiction over a non-resident won’t lie in Illinois.

– A website’s interactivity however, is a “poor proxy” for adequate in-state contacts.  So just because a website happens to be accessible to anyone with an Internet connection (basically, every person on the planet) doesn’t open the website operator to personal jurisdiction in every point of the globe where its site can be accessed.4

In arguing that Facebook’s electronic ubiquity subjected it to Illinois jurisdiction (A Federal court sitting in diversity looks at whether the forum state (Illinois) would have jurisdiction over the non-resident defendant)), the plaintiff catalogued the social media Goliath’s contacts with Illinois: (1) Facebook was registered to do business here, (2) it had an Illinois sales and advertising office, and (3) Facebook applied its facial recognition technology to millions of photo users who are Illinois residents.

The court rejected each of these three contacts as sufficient to confer Illinois jurisdiction over Facebook for the plaintiff’s privacy-based claims.  For contacts (1) and (2), the lawsuit didn’t involve either Facebook’s status as an Illinois-registered entity or its Illinois sales and advertising office.  With respect to contact (3) – that Facebook collected biometric information from Illinois residents – the Court found this allegation false.

The Court noted that since Plaintiff alleged that Facebook used the recognition technology in all photos – not just in those uploaded by Illinois users – Facebook’s global use of the technology was not enough to subject Facebook to Illinois court jurisdiction.

Afterwords:

Gullen’s fact-pattern is one most of the world can relate to.  It intersects with and implicates popular culture and national (if not global) privacy concerns in the context of an ever-present and seemingly innocuous photo tagging feature.  The case presents a thorough application of “law school” territorial jurisdiction principles to a definitely post-modern factual context.  This case and others like it to come, cement the proposition that wide-spread access to a Website isn’t enough to subject the site operator to personal jurisdiction where it doesn’t specifically focus its on-line activity in a particular state.

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1 http://www.statista.com/statistics/264810/number-of-monthly-active-facebook-users-worldwide/

2 http://www.businessinsider.com/facebook-350-million-photos-each-day-2013-9

3 http://cases.justia.com/federal/district-courts/illinois/ilndce/1:2015cv07681/314962/37/0.pdf?ts=1453468909

4. See Tamburo v. Dworkin, 601 F.3d 693 (7th Cir. 2010), Walden v. Fiore, 134 S.Ct. 1115 (2014).

Massive Wind Turbine Tower A Trade Fixture, Not Lienable Property Improvement – IL Second Dist.

Q: Does a massive wind turbine tower that can be removed only by detonating several bombs at a cost of over half a million dollars qualify as a lienable property improvement under Illinois law?

A: Not if it’s a “trade fixture” that remains the property of its manufacturer.

Source: AUI Construction Group, LLC v. Vaessen, 2016 IL App (2d) 160009, a recent Second District case that examines the property improvement vs. trade fixture dichotomy and just how impractical removal (of a structure) must be to fall outside mechanics lien protection.

Facts: The property owner and turbine seller signed an easement agreement for the seller to install a turbine on defendant’s land for an annual fee.  The easement provided the turbine would remain the seller’s property and that the seller must remove the structure on 90 days’ notice.  The seller also had to remove the turbine when the easement ended.  The turbine seller then contracted with a general contractor to install the turbine who, in turn, subcontracted out various aspects of the installation.

The owner-general contractor agreement and the downstream subcontracts referenced the easement and stated the turbine system remained the seller’s property.

When the plaintiff sub-subcontractor didn’t get paid, he sued its subcontractor, ultimately getting an arbitration award of over $3M.  When that proved uncollectable after the subcontractor’s bankruptcy, the plaintiff sued the property owner to foreclose a mechanics lien it previously recorded to recover the unpaid judgment.

Trial Court Result: The trial court dismissed the suit on the basis that the turbine was a removable trade fixture that was non-lienable as a matter of law.

Appellate Result: Affirmed

Reasons: The Mechanics Lien Act (770 ILCS 60/0.01 et seq.) protects those who furnish material or labor for the improvement of real property.  The Act allows a lien where a benefit has been received by the owner and the property’s value has increased by the labor or materials’ presence. In Illinois, real estate improvements are lienable; trade fixtures are not.

The factors considered in determining whether equipment is lienable includes (1) the nature of attachment to the realty, (2) the equipment’s adaptation to and necessity for the purpose to which the premises are devoted, and (3) whether it was intended that the item in question should be considered part of the realty.  Crane Erectors & Riggers, Inc. v. LaSalle National Bank, 125 Ill.App.3d 658 (1984).

Intent (factor (3)) is paramount.  Even where an item can be removed from land without injuring it, doesn’t mean the item isn’t lienable.  As long as the parties manifest an intent to improve the realty, a removable item can still be lienable.

Parties are also free to contract that title to equipment furnished to property does not pass to the land owner until fully paid for.  Such an agreement will be enforceable so long as no rights of third parties are unfairly affected.

Applying the three-factored fixture test, the court found the  nature of attachment, and necessity of the item for production of wind energy weighed in favor of finding the turbine lienable.   However, the all-important intent factor suggested the opposite.

The easement agreement specified the turbine seller retained its ownership interest in the turbine and could (and had to) remove it at the easement’s end.  The court wrote: “the easement agreement establishes that the tower was a trade fixture.”  (¶ 20)

The Court also found that plaintiff’s “third party” rights were not impacted since plaintiff’s sub-subcontract specifically referenced the easement and prime contract – both of which stated the turbine would remain seller’s property. (¶ 23)

The Court examined additional factors to decide whether the turbine was lienable.  From a patchwork of Illinois cases through the decades, the Court looked at (1) whether the turbine provided a benefit or enhancement to the property, (2) whether the turbine was removable without material damage to the property, (3) whether it was impractical to remove the item, (4) whether the item (turbine) was used to convert the premises from one use to another, and (5) the agreement and relationship between the parties.

The sole factor tilting (no pun intended) in favor of lienability was factor 4 – that the turbine was essential to converting the defendant’s land from farmland to harnessing of wind energy.  All other factors pointed to the turbine being a nonlienable trade fixture.

The Court noted the property owner didn’t derive a benefit from the turbine other than an annual rent payment and rent is usually not a lienable benefit under the law.  Then the Court pointed out that the tower could be removed even though doing so was an expensive and cumbersome exercise.  Lastly, and most importantly, the parties’ intent was that the turbine was to remain seller’s personal property and for it not to be a permanent property improvement. (¶¶ 38-39)

The Court also rejected the subcontractor’s remaining arguments that (1) the Illinois Property Tax Code evinced a legislative intent to view wind turbines as lienable improvements and (2) it’s unfair to disallow the plaintiff’s lien claim since it could not have a security interest in the turbine under Article 9 of the Uniform Commercial Code (UCC).

On the tax issue, the Court held that Illinois taxes turbines to ensure that wind turbines do not escape taxation and is purely a revenue-generating device.  Taxation of a structure is not a proxy for lienability. (¶¶ 43-44)

The Court agreed with plaintiff that under UCC Section 9-334, security interests do not attach to “ordinary building materials incorporated into an improvement on land.”  And since the turbine was replete with building materials (e.g. concrete, rebar, electrical conduit), the UCC didn’t give the plaintiff a remedy.  The Court allowed that this was a harsh result but the parties’ clear intent that the turbine remain the seller’s personal property trumped the policy arguments.

Afterwords:

This case strikes a blow to contractors who install massive yet removable equipment on land.  Even something as massive as a turbine system, which one would think has a “death grip”- level attachment to land, can be nonlienable so long as the parties’ intend for it to remain the installer’s personal property.

Another case lesson is for contractors to be extra diligent and insist on copies of all agreements referenced in their contracts to ensure their rights are protected from ancillary agreements to which they’re not privy.

The case also portrays some creative lawyering.  The court’s discussion of the taxability of wind turbines, UCC Article 9 and the difference between a lease (which can be lienable) and an easement (which cannot) and how it impacts the lienability question makes for interesting (if not mostly academic) reading.

 

Filing Lawsuit Doesn’t Meet Conversion Suit ‘Demand for Possession’ Requirement – 7th Cir. (applying IL law)

Conversion, or civil theft, requires a plaintiff to make a demand for possession of the converted property before suing for its return.  This pre-suit demand’s purpose is to give a defendant the opportunity to return plaintiff’s property and avoid unnecessary litigation.

What constitutes a demand though?  The easiest case is where a plaintiff serves a written demand for return of property and the defendant refuses.  But what if the plaintiff doesn’t send a demand but instead files a lawsuit.  Is the act of filing the lawsuit equivalent to sending a demand?

The Seventh Circuit recently answered “no” to the question in Stevens v. Interactive Financial Advisors, Inc., 2016 WL 4056401 (N.D.Ill. 2016)

That case’s plaintiff sued his former brokerage firm for tortious interference and with contract and conversion based when the firm blocked plaintiff’s access to investment client data after the firm fired the plaintiff.  The District Court granted summary judgment on the plaintiff’s tortious interference claim and a jury entered judgment for the defendant on the conversion count.

At trial on the conversion count, the jury submitted this question to the trial judge: “Can we consider [filing] the lawsuit a demand for property?”  The trial judge answered no – under Illinois law, filing a lawsuit does not qualify as a demand for possession.  The jury then found for the defendant and plaintiff appealed.

Affirming the jury verdict, the Seventh Circuit addressed if and when impeding access to financial data can give rise to a conversion action in light of Illinois law’s pre-suit demand requirement and various applicable Federal securities laws.

To prove conversion under Illinois law, a plaintiff must show (1) he has a right to personal property, (2) he has an absolute and unconditional right to immediate possession of the property, (3) he made a demand for possession, and (4) defendant wrongfully and without authorization assumed control, dominion, or ownership over the property.

The Seventh Circuit affirmed summary judgment for the defendant investment firm on the plaintiff’s conversion count that sought access to client information for clients plaintiff brought to the firm.

The Court held that since the firm was bound by Federal securities laws prohibiting it from disclosing nonpublic client information to third parties, and the plaintiff had been fired, the plaintiff could not show a right to immediate possession of the client financial information.  The plaintiff did possibly have a right to insurance client information (as opposed to securities clients) and the Court denied summary judgment as to plaintiff’s insurance clients.

The Seventh Circuit upheld the jury verdict on the insurance clients conversion suit based on the plaintiff’s failure to make a demand for possession.  The Court stated the demand requirement’s purpose as trying to motivate the return of property “before a plaintiff is required to submit to unnecessary litigation.”

The plaintiff did not make a demand for return of his insurance client’s data before he filing suit.  And since Illinois courts have never held that the act of suing was tantamount to a demand for possession, the Seventh Circuit found that the District Court correctly instructed the jury that the failure to make a demand for possession before suing defeats a conversion claim.

The Court also nixed the plaintiff’s “demand futility” argument: that a demand for possession would have been pointless given the circumstances of the given case. (Demand futility typically applies where the property has been sold or fundamentally damaged.)

The Seventh Circuit found that the jury properly considered the demand futility question and ruled against the plaintiff and there was no basis to reverse that finding.

Afterwords:

1/ A conversion plaintiff’s right to client data will not trump a Federal securities law that protects the data.  In addition, a pre-suit demand for possession is required to make out a conversion action unless the plaintiff can show that the demand is pointless or futile;

2/ The act of filing a lawsuit will not serve as a proxy for a demand for possession.

3/Conversion plaintiffs should take great care to make a demand for possession before suing.

3-a/ This is true even where the demand is likely to meet resistance.  Otherwise, like the plaintiff experienced here, the risk is too great that the lack of a demand will defeat the conversion claim.