American Eagle Outfitters, Inc. v. Lyle Scott Limited

Full title: AMERICAN EAGLE OUTFITTERS, INC., et al., Plaintiffs, v. LYLE SCOTT…

Court: United States District Court, W.D. Pennsylvania

Date published: Apr 12, 2007

Civil Action No. 06-607 (W.D. Pa. Apr. 12, 2007)

Opinion

Civil Action No. 06-607.

April 12, 2007

MEMORANDUM AND ORDER

FRANCIS CAIAZZA, Chief Magistrate Judge

I. MEMORANDUM

For the reasons that follow, the Defendants' Motion to Dismiss (Doc. 30) will be granted regarding Susan M. Watson and John G. Harris, but otherwise denied. In addition, the Plaintiffs will be ordered to show cause why their tortious interference with contract claims should not be dismissed for failure to state a claim.

BACKGROUND

American Eagle Outfitters, Inc. ("AE" or "the Plaintiff") has filed this declaratory judgment action, which addresses the parties' dispute(s) regarding AE's use of an "American Eagle" design trademark. See generally Am. Compl. (Doc. 26) at ¶ 13.¹ In September 2005, the Defendant Lyle Scott Limited ("L S") advised AE of its belief that the mark infringed upon a "birdie" design trademark used by L S in Europe. See id. at ¶ 15. AE alleges that the parties entered into a "coexistence agreement" in January 2006, and it seeks to enforce the agreement through this lawsuit. See generally id. at Counts I-II.

1 Also named as a Plaintiff is Retail Royalty Company ("RRC"), a wholly-owned subsidiary of AE. See id. at ¶ 2. RRC's interests coincide with AE's, so the court will refer to the entities collectively as "AE" or "the Plaintiff."

Also named as Defendants are Harris Watson Investment Limited ("HW"), a holding company and L S's corporate parent, and Susan M. Watson and John G. Harris, who acted as Directors of HW. See Am. Compl. at ¶ 4 (HW owned L S) and Defs.' Br. (Doc. 31) at 8 (HW was L S's corporate "parent"); Am. Compl. at ¶¶ 5-6 (Ms. Watson and Mr. Harris were "Director[s]" of HW).² In addition to compelling performance of the coexistence agreement, AE seeks a judicial declaration that AE has not infringed on L S's trademark. See Am. Compl at Count III. AE also claims that HW, Ms. Watson, and Mr. Harris tortiously interfered with the coexistence agreement between AE and L S. See id. at Count IV.

2 Defense counsel advises that HW now is known as Waterlinks Investment Limited. See Defs.' Br. at 1. For the sake of clarity, the court will refer to the entity as HW, in reference to its name at the times most relevant to this lawsuit.

The facts relevant to the Defendants' personal jurisdiction challenge are as follows:³ See generally Id. Id. Id. i.e. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id. Id.

3 The facts below come from AE's Opposition Brief (Doc. 40, filed under seal), and they are supported by record evidence. See generally id. at 2-11 (stating facts and providing citation to evidence of record). The facts are taken as true, and they are construed in favor of AE. See Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 176 (3d Cir. 2006) ("In reviewing a motion to dismiss for lack of personal jurisdiction, [the c]ourt must accept all of the plaintiff's allegations as true and construe disputed facts in favor of the plaintiff.") (citations and internal quotations omitted), cert. denied., ___ U.S. ___, 127 S. Ct. 1261 (2007).

9/20/05 Ben Sharpe (Managing Director of L S, located in the United Kingdom) sent a letter to James O'Donnell (CEO of AE, located in Warrendale, Pennsylvania) stating that L S owned the "birdie" design trademark and that AE's mark infringed upon it. Pls.' Opp'n Br. at 2-3. 10/31/05 A telephone conference was held between Mr. Sharpe (L S), Kimberly Strohm (Corporate Counsel for AE, with her office in Warrendale), and others. No resolution of the parties' dispute was reached, and a later conference was anticipated. at 3. 11/2/05 Mr. Sharpe (L S) faxed to Ms. Strohm (AE) notes summarizing the parties' discussions during the 10/31/05 conference call. 11/05 Ms. Strohm (AE) and Dennis Hall (Group Corporate Development Director for HW, in the U.K.) participated in a telephone conference regarding the parties' dispute. at 4. 11/23/05 Mr. Hall (HW) wrote a letter to Ms. Strohm (AE), urging that the parties promptly settle the matter without resort to litigation. In the letter, Mr. Hall (HW) referenced "our desire to protect our [, L S's] brand and trademarks." 12/2/05 Ms. Strohm (AE) emailed Mr. Hall (HW), declining to redesign the AE eagle mark. Ms. Strohm instead proposed the development of a mutual co-existence agreement. 12/20/05 Mr. Hall (HW) responded to Ms. Strohm (AE) by e-mail, maintaining that AE should "amend [its] logo." 12/21/05 Ms. Strohm (AE) responded by suggesting a face-to-face meeting in the U.K. 12/22/05 to The parties exchanged a number of emails and telephone calls 1/5/06 regarding the proposed meeting. at 5. 1/9/06 Ms. Strohm and Chris Fiore (AE's Senior V.P. of International Sales) met with Mr. Hall (HW) in London. After lengthy discussions, a coexistence agreement was reached and memorialized in a handwriting prepared by Ms. Strohm in the presence of Mr. Hall. 1/23/06 Ms. Strohm (AE) emailed to Mr. Hall (HW) a formal document for signature by the parties. 1/26/06 Mr. Hall (HW) emailed to Ms. Strohm (AE) a redlined version of the formal document, making some non-substantive changes, referred to by Mr. Sharpe (L S) as "simple tidying," and he stated that L S did "not want [AE] to register [the eagle design mark] outside [its] core market." at 5-6. 1/31/06 Emails were exchanged regarding "concerns" with the coexistence agreement, and the parties scheduled a telephone conference between Ms. Strohm (AE), Mr. Fiore (AE) and Mr. Hall (HW). Mr. Hall also sent an email stating: "I need to raise/clarify one issue ahead of our conversation tomorrow which is now even broader than [previously discussed]. As a result you may well think I am moving our position!" at 6. 2/06 Emails were exchanged and telephone conferences had between Ms. Strohm (AE), Mr. Fiore (AE) and Mr. Hall (HW). Mr. Hall proposed that the parties meet in the United States on February 14, 2006. at 7. 3/3/06 Mr. Hall (HW) emailed Ms. Strohm (AE), seeking further substantive changes to the coexistence agreement. Mr. Hall also suggested a meeting in the United States that he would attend along with either Mr. Harris (HW) or Ms. Watson (HW), who were identified as "the ultimate shareholders" of HW. 3/13/06 Ms. Strohm (AE) responded to Mr. Hall (HW), stating that an agreement already had been reached: "If we understand your March 3 [e]mail, you are now attempting to dramatically and materially change the terms of the London Agreement; indeed, your proposal virtually emasculates it." 3/24/06 Mr. Hall (HW) responded to Ms. Strohm (AE) via email, stating he had read her email "carefully and considered it in detail with [Ms.] Watson." He again suggested a meeting in the United States, and a telephone conference was held between Ms. Strohm, Mr. Fiore (AE) and Mr. Hall. In the conference, Mr. Hall agreed to discuss the issues with Mr. Harris (HW) and Ms. Watson (HW). at 7-8. 5/5/06 When no response was received for several weeks, AE commenced this lawsuit. at 8. 5/10/06 Ms. Strohm (AE) received an email and telephone call from Ms. Watson (HW), who stated that Mr. Hall (HW) was leaving their organization, and that Ms. Watson would be taking over the discussions. She also proposed that a meeting be held in New York. 6/06 A meeting was held in New York, attended by Ms. Strohm (AE), Ms. Watson (HW) and others. The possible acquisition by AE of L S and/or L S's eagle design marks was discussed, but no agreement was reached. at 10. 8/8/06 Ms. Watson (HW) sent an email stating that her U.S. counsel had been instructed "to sue for trade mark infringement and damages for AE's unauthori[z]ed use of the L S eagle."

ANALYSIS

A. Personal Jurisdiction

1. General Legal Standards

Federal Rule 4(e) authorizes personal jurisdiction over non-resident defendants to the extent permissible under the law of the state where the district court sits. Pennzoil Prods. Co. v. Colelli Assocs., Inc., 149 F.3d 197, 200 (3d Cir. 1998) (citations and internal quotations omitted). Pennsylvania's long-arm statute permits the exercise of personal jurisdiction "to the constitutional limits of the [D]ue [P]rocess [C]lause," so this court's exercise of personal jurisdiction is valid so long as it is constitutional. Id. (citations and some internal quotations omitted). AE does not assert that the Defendants are subject to general jurisdiction, so the court may restrict its discussions to specific jurisdiction. Compare Pls.' Opp'n Br. at 12 with Pennzoil Products, 149 F.3d at 200-201 (holding same).

Specific jurisdiction exists when the plaintiff's claim "is related to or arises out of the defendant's contacts with the forum." Pennzoil Products at 201 (citation and internal quotations omitted). To make a finding of specific jurisdiction,

a court generally applies two standards, the first mandatory and the second discretionary. . . .

First, [the] court must determine whether the defendant had the minimum contacts with the forum necessary for the defendant to have reasonably anticipate[d] being haled into court there. . . . Second, assuming minimum contacts have been established, [the] court may inquire whether the assertion of personal jurisdiction would comport with fair play and substantial justice. Although the latter standard need only be applied at [the] court's discretion, . . . [the Third Circuit Court] generally [has] chosen to engage in this second tier of analysis. . . .

Id. (citations and internal quotations omitted).

2. Minimum Contacts

As seen above, the court first must determine whether the Defendants had sufficient contacts with Pennsylvania. The Third Circuit Court has recently summarized the standards applicable to contract disputes, see Telcordia, and its guidance is particularly instructive here:

In determining jurisdiction for a breach of contract, the district court must consider the totality of the circumstances. . . . Traveling to the forum to consult with the other party can constitute purposeful availment, regardless of who solicited the contact. . . . [However], physical presence in the forum is no longer determinative in light of modern commercial business arrangements; rather, mail and wire communications can constitute purposeful contacts when sent into the forum.

Also, where a long-term relationship has been established, actual territorial presence becomes less determinative. . . . Finally, [i]n contract cases, courts should inquire whether the defendant's contacts with the forum were instrumental in either the formation of the contract or its breach.

Id., 458 F.3d at 177 (citations and internal quotations omitted, some alterations in original, emphasis added).

In light of these factors, the Plaintiff has made a sufficient showing of minimum contacts regarding L S and HW. As seen above, these entities made numerous contacts with AE in Pennsylvania regarding the underlying trademark dispute and the parties' attempted resolution of it through an alleged coexistence agreement. See discussion supra (summarizing corporate Defendants' contacts with Pennsylvania to discuss and/or memorialize substance of parties' dispute(s) and/or settlement on 9/20/05, 10/31/05, 11/2/05, 11/05, 11/23/05, 12/20/05, 1/26/06, 1/31/06, 2/06, 3/3/06, 3/24/06, 5/10/06, and 8/8/06). Taking the Plaintiff's allegations as true, the coexistence agreement was expected to create the type of "long-term relationship" contemplated in Telcordia, and "actual territorial presence" therefore "becomes less determinative." See id.; compare Pls.' Opp'n Br. at 5 (summarizing terms of purported coexistence agreement, including parties' ongoing "consent to the registration of the other's eagle [trademarks]" and AE's "right of first refusal to purchase LS['s] eagle(s) or business" in future) with General Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001) (parties who "reach out beyond [their] state and create continuing relationships and obligations with citizens of another state" render themselves subject to personal jurisdiction) (citation and internal quotations omitted, emphasis added).

Even more telling is the corporate Defendants' use of their contacts to negotiate the alleged coexistence agreement and, thereafter, to unilaterally modify material terms thereof. See discussions supra; compare, e.g., Mr. Hall's email of 1/31/06 stating that, in light of proposed modification(s), AE "may well think I am moving our position!") with Telcordia, 458 F.3d at 177 (courts should inquire whether defendant's contacts with forum "were instrumental in either the formation of the contract or its breach") (emphasis added). In sum, the corporate Defendants' conduct falls squarely within the type contemplated in Telcordia, and minimum contacts have been established.⁴

4 In their Reply Brief, the Defendants argue that the proper focus should be L S's "lawful efforts to protect its global intellectual property rights from [AE]'s acts of willful infringement." See id. (Doc. 41) at 1; see also id. at 4-6 (urging court to follow personal jurisdiction standards adopted within context of IP infringement). Allowing the Defendants to reformulate AE's causes of action, however, would be inconsistent with both, (a) the rule that the Plaintiff is the master of its complaint, and (b) the court's obligation to take AE's allegations as true and construe facts in its favor. See discussion supra at n. 3; In re Enron Corp. Sec., Derivative ERISA Litig., 258 F. Supp.2d 576, 611 n. 32 (S.D. Tex. Mar. 12, 2003) (as master of complaint, plaintiff "may assert . . . claims against its defendants as it chooses"). The Defendants' narrow focus on their underlying claims of trademark infringement also is inconsistent with the Third Circuit Court's "highly realistic" approach to contract disputes, which accounts for the parties' prior "course of dealing," their "negotiations[,] and [the] contemplated future consequences." See BP Chems. Ltd. v. Formosa Chem. Fibre Corp., 229 F.3d 254, 260 (3d Cir. 2000) (citations and internal quotations omitted).

Undoubtedly, Defense counsel would hasten to note that the purported coexistence agreement was intended to bind AE and L S, not HW. As AE has recognized, however, "other than the initial contact by [L S], the negotiations leading to the coexistence agreement, and the subsequent attempts to change that agreement, were all directed by [HW]." See Pls.' Opp'n Br. at 23. And while L S certainly had input ( see timeline entries for 10/31/05, 11/2/05 and 1/26/06), AE has proffered facts supporting the conclusion that HW "exercised [significant] control over" L S for the purposes of the agreement. Cf. Pl.'s Opp'n Br. at 23.

The realities reflected in AE's evidence beg a discussion of the Third Circuit Court's opinion in Publicker Industries, Inc. v. Roman Ceramics Corp., 652 F.2d 340 (3d Cir. 1981). ThePublicker Court recognized that, where a corporate parent has substantial involvement in the negotiation, formation, and/or renegotiation of a subsidiary's contract, the aggrieved party is not limited to the relatively onerous standards applicable under "the traditional alter ego theory [for] pierc[ing] the corporate veil." Id. at 342. Because the subsidiary's contract to buy goods from the plaintiff was "negotiat[ed], renegotiat[ed], and partial[ly] perform[ed]" by its parent's representative(s), the Court held that said parent "manifested [its] agreement to bear direct liability" and it affirmed the district court's holding that the entity was "liable upon its own direct commitment under the contract." Id. at 344; see also id. at 343-44 (although "a person making or purporting to make a contract with another as agent for a disclosed principal does not [typically] become a party to the contract," "[a]n agent may . . . be personally bound . . . by implication[, as] reasonably drawn from all the facts and circumstances in evidence") (citations to Pennsylvania law and internal quotations omitted).

The facts presented by AE are materially indistinguishable from the ones in Publicker. The Plaintiff has presented evidence that HW, like the parent in Publicker, was "the moving force" behind the purported settlement of the trademark dispute through the entry of a coexistence agreement. Compare Publicker, 652 F.2d at 342 with discussions supra (on 11/23/05, HW executive Mr. Hall expressed "our desire to protect our brand and trademarks," and on 5/10/06 HW principal Ms. Watson stated she would "be taking over the discussions") (emphasis added). In light of both L S's and HW's participation, the agency and related principles inPublicker support an exercise of personal jurisdiction over both corporations. Cf. id. at 342 ("[the subsidiary], acting both on its own behalf and under apparent authority from [its parent], bound [the parent] as well as itself to the" contract; parent and subsidiary "created mutual agencies in one another with respect to their dealings with [the]" other party, and if parent "did [not] have an interest . . . it [did not] make any sense" for it to "attempt to settle the transaction"); see also Delcon (S.C.), Inc. v. Giant Cement Co., 1989 WL 54053, *5 (E.D. Pa. May 18, 1989) (Publicker "stand[s] for the equitable proposition . . . that where apparent agency has been shown by the evidence, the parent and subsidiary may both be deemed bound by the contract").⁵

5 To be sure, the contract claims in the Amended Complaint are stated against L S and not HW. See id. at Counts I-II. Given the liberal notice pleading standards applied under the Federal Rules, the Plaintiff need not amend the pleadings to pursue the theory further illuminated in its opposition brief. See discussion supra (noting AE's argument that HW is subject to personal jurisdiction based on its negotiations regarding L S's coexistence agreement); Leuthner v. Blue Cross Blue Shield of N.E. Pa., 454 F.3d 120, 131 (3d Cir. 2006) ("the liberal pleading system embodied in the Federal Rules . . . require[s] only that the complaint provide fair notice of the proposed cause of action, allowing the court to assess whether relief is potentially available") (citations and internal quotations omitted, emphasis added), cert. denied, ___ U.S. ___, 127 S. Ct. 1260 (2007).

While the Publicker decision provides solid grounds for finding minimum contacts against HW, by implication it defeats AE's claims of tortious interference. The law is clear that a party cannot tortiously interfere with its own contract. Rather, a tortious interference claim requires the plaintiff to plead and prove that "it had a business relationship with a bona fide third party, i.e., a party independent of the defendant." Asirobicon, Inc. v. Rolls-Royce PLC, 2003 WL 22071002, *8 (W.D. Pa. Sep 05, 2003) (applying Pennsylvania law, citations and internal quotations omitted, emphasis added), R R adopted Nov. 12, 2003. Given AE's allegation that HW exercised control over L S for the purposes of the coexistence agreement, it cannot now claim the subsidiary is a "bona fide third party." See, e.g., 16 Causes of Action § 6 (2006) ("[i]f the `third party' with which the plaintiff alleges that it had a business relationship appears to be an `alter ego' or representative of the defendant, . . . there usually will be difficulty in demonstrating the `third party's' independence"; "[t]his frequently will be the case where the purported third party [shares] a [parent-]subsidiary [relationship with] the defendant") (internal quotations in original).

In light of the foregoing, the Plaintiff cannot proceed against HW under the theory of tortious interference. Given AE's inability to state a viable tort claim, moreover, the fiduciary shield doctrine precludes an exercise of personal jurisdiction over HW agents Ms. Watson and Mr. Harris. See Componetone, L.L.C. v. Componentart, Inc., 2007 WL 776930, *4 (W.D. Pa. Mar. 12, 2007) (McVerry, J.) (absent viable tort claim or violation of statute allowing for personal liability, "[i]ndividuals performing acts . . . in their corporate capacity are not subject to the personal jurisdiction . . . for those acts") (citations omitted, alteration in original).

For all of these reasons, AE has established minimum contacts regarding L S and HW, but not Ms. Watson and Mr. Harris. In addition, the Plaintiff will be ordered to show cause why their claims for tortious interference should not be dismissed for failure to state a claim.⁶

6 Although the court is mindful of the Plaintiff's prerogative to plead in the alternative, said right is tempered by the doctrine of judicial estoppel. Compare discussion supra (noting Plaintiff's argument that HW's involvement in contract negotiations and attempted renegotiations rendered it subject to personal jurisdiction) with Whiting v. Krassner, 391 F.3d 540, 543-44 (3d Cir. 2004) ("[j]udicial estoppel prevents parties from taking different positions on matters in litigation," and it "preserve[s] the integrity of the judicial system by preventing parties from . . . assuming inconsistent positions") (citations and internal quotations omitted), cert. denied, 545 U.S. 1131 (2005).

3. Fair Play and Substantial Justice

"Once the plaintiff has made out a prima facie case of minimum contacts, . . . the defendant must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Grand Entertainment Group, Ltd. v. Star Media Sales, Inc., 988 F.2d 476, 483 (3d Cir. 1993) (citations and internal quotations omitted). The burden on the Defendants is "heavy," see id., and they have not met it.

The Defendants claim fair play and substantial justice are lacking because they had only "attenuated contacts" with Pennsylvania, rather than a "substantial connection" creating "reasonabl[e expectations of] being haled into court" here. See Defs.' Br. 12. These assertions go little further than their prior arguments regarding minimums contacts, however, and the court already has found sufficient activity for the Defendants "to have reasonably anticipate[d] being haled into court" in Pennsylvania. See discussions supra.

The Defendants fare no better under the standards applied in the law, namely:

(a) the burden on the defendant;

(b) the forum State's interest in adjudicating the dispute;

(c) the plaintiff's interest in obtaining the most efficient resolution of controversies; and

(d) the shared interest of the several States in furthering fundamental substantive social policies.

Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004) (citation and internal quotations omitted).

As to factor (a), agents of the Defendants have contemplated and actually traveled to the United States to discuss the parties' disputes and the attempted settlement thereof. See discussion supra. There is no evidence in the record to suggest that litigating here will place an undue burden on the Defendants. See id.; see also discussion supra (noting Ms. Watson's instruction to U.S. counsel "to sue [AE] for trade mark infringement and damages").

Regarding (b) and (c), the Plaintiff and the Commonwealth share an interest in holding accountable entities who allegedly have reneged on their contractual obligations with Pennsylvania residents. Factor (d) similarly is a "wash," as the laws of both Pennsylvania and the U.K. contemplate parties' adherence with their agreed-upon business arrangements.

The corporate Defendants cannot carry their heavy burden of showing constitutional unreasonableness, and they are subject to personal jurisdiction in this tribunal.

B. Venue

The Defendants argue venue is improper under 28 U.S.C. § 1391(a)(2) because no substantial part of the events or omissions giving rise to the Plaintiff's claims occurred in Pennsylvania. See Defs.' Br. at 14-15. Even assuming this to be the case (a position the court declines to endorse), the Plaintiff also has invoked Section 1391(d). See Am. Compl. at ¶ 9. That provision states: "An alien may be sued in any district." 28 U.S.C. § 1391(d). "An alien corporation may be sued in any district in which it can be subject to personal jurisdiction," and the Defendants' venue challenge is without merit. See Mizrahi v. Great-West Life Assur. Co., 1999 WL 398714, *2 (E.D. Pa. Jun. 17, 1999) (citing 28 U.S.C. § 1391(d), other citations omitted).

For all of the reasons stated above, the court hereby enters the following:

II. ORDER

The Defendants' Motion to Dismiss ( Doc. 30) is GRANTED regarding Susan M. Watson and John G. Harris, but otherwise denied. In addition, the Plaintiffs are ORDERED TO SHOW CAUSE, within seven (7) days from the date of this Order, why their tortious interference with contract claims should not be dismissed for failure to state a claim.⁷

7 The Plaintiff has filed its Opposition Brief and supporting evidentiary materials under seal. Out of an abundance of caution, the undersigned has sealed the instant ruling as well. "[T]he presumption in this circuit," however, "is that there exists a right of public access to judicial proceedings and . . . records." See Calvert v. General Accident Ins. Co., 2000 WL 124570, *8 (E.D. Pa. Feb. 2, 2000) (citations omitted). Accordingly, the Plaintiff is hereby ORDERED to show cause, should it so choose, why the court's filing should remain under seal. This Show Cause Order is returnable within seven (7) days of today. Absent a showing of good cause, the court will direct the unsealing of the instant ruling.

THESE THINGS ARE SO ORDERED.