Key West Margarita Company

Advances in technology and shipping methods have made the concept of jurisdiction an increasingly important factor for business owners and managers. Decision making in the context of pursuing or defending a lawsuit in an out-of-state court must involve a cost-benefit analysis that is affected by jurisdiction issues. Read the following hypothetical case and analyze how jurisdictional issues may impact business operations.

Blaine is the owner of a caf in Key West, Florida, and has a secret recipe for margarita mix that has been popular with locals and tourists for many years. Last year, Blaine launched Key West Margarita Company (KWMC) and began to produce, bottle, and sell the mix from a retail shop next to his caf. Because many of his customers were tourists, customers often bought the product in Key West and brought it back to their home state. More recently, Blaine set up a website to sell his product over the Internet. Although sales were slow at first, KWMC invested in a nationwide advertising campaign, and eventually more than 90 percent of its sales were to Internet customers.

Laszlo, a resident of California, used a credit card to purchase several bottles of the mixture via KWMC's website after he heard rave reviews about the mix from a neighbor who had just returned from a trip to Key West. After consuming his first Key West Margarita Company cocktail, Laszlo became violently ill and had to be hospitalized, resulting in medical bills and other damages totaling $90,000. In the 12 months before Laszlo's order, KWMC shipped approximately 20,000 bottles of the mix (approximate 25 percent of its total sales) to other residents of California.

If Laszlo files a lawsuit in a federal district court in California against KWMC alleging that the margarita mix was the cause of his illness, will the court have subject matter jurisdiction over the case? Explain why or why not.