On a now defunct website, Chai posted anonymous comments critical of the lese majeste law.
Even though he did not identify himself on the site, Chai said that agents detained him for nearly three days when he visited Bangkok, and that he fears imprisonment if he returns. He said a DSI agent made threats about his family, in Thailand and in California.
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Netfirms.com has not commented on the case.
The lawsuit said that Netfirms.com confirmed in correspondence that in 2005 it suspended the website Manusaya, on which users at Chai's shop posted anonymous comments, because of complaints from Thai authorities. Chai said he was interrogated in Bangkok in May 2006.
Chai's suit claims he suffered "severe psychological and physical stress" during two days of questioning, in which authorities seized his laptop, forced him to surrender his passwords and told Chai they knew where his family members lived.
Chai said he was forced to write a letter praising and apologising to His Majesty the King. He said he does not know what happened to that letter.
In the lawsuit, Chai said he feared retalation and that he tried to appear cooperative. He met twice in the US with Pol Col Yanaphon Youngyuen, the director of the DSI's bureau of high tech crimes - once at a McDonald's restaurant at Los Angeles airport and then at Hollywood's Magic Castle Hotel.
Chai said the police officer gave him a yellow shirt and other tokens of the monarchy as gifts. The suit claims Pol Col Yanaphon had "suggested" Chai might like to give him some iPods for his family, and then "made it clear to Chai that he was very disappointed that he did not bring any gifts of value" to the airport meeting.
The lawsuit alleges that Netfirms.com Inc. violated Chai's rights under the US constitution's first amendment which guarantees the right to free speech. The suit also said that the company violated California's business code which bans the sharing of confidential information.
Allison Lefrak, litigation director at the World Organisation for Human Rights USA who is representing Chai, hoped that the case would have a "broader effect."
"For us, it's an important case to underscore the need for all Internet communication companies to think about these human rights issues," she said.
Chai is seeking an injunction on the company's release of private information as well as at least $75,000 in compensation. Among his losses, Chai said he felt obliged to sell stock shares in Bangkok as he is afraid to return.
Chai's lawsuit comes on the heels of the arrest of another Thai-American, Joe Gordon, who is charged with helping to translate a banned book on His Majesty.