Opinion
Civil Action No. 3:01-CV-2571-M
July 15, 2002
MEMORANDUM ORDER OPINION
Defendants Frank J. Marchese, Salvatore ("Mark") Marchese, and Robert M. Marchese have each filed Motions to Dismiss for lack of personal jurisdiction. For the reasons stated below, the Court GRANTS Defendant Mark Marchese's Motion to Dismiss, but DENIES Robert and Frank Marchese's Motions.
On December 5, 2001, Plaintiff Auto Wax Co., Inc. ("Auto Wax") filed suit against Defendants, alleging that they are liable under 35 U.S.C. § 271 (a), (b), and (c) for willful infringement, willful inducement of infringement, and willful contributory infringement of U.S. Patent No. 5,727,993. Defendants are officers of Mark V, which was a defendant in a prior infringement action brought by Auto Wax in this Court. In the prior action, this Court entered a judgment against Mark V for approximately $3.6 million. The Complaint against the Marchese Defendants alleges that they have each "personally and willfully taken part in the sale, manufacture, importation, and/or use" of Mark V's infringing product, and that they "willfully directed other officers, agents, distributors, customers, and/or employees . . . to sell, make, import, and/or use" the products.
Section 271 provides:
(a) Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.
(b) Whoever actively induces infringement of a patent shall be liable as an infringer.
(c) Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.
In determining whether it may assert personal jurisdiction over any of the Defendants, the Court is cognizant that Plaintiff must present only a prima facie case for personal jurisdiction. All uncontroverted allegations in the Complaint must be taken as true, and all factual conflicts in the affidavits and other evidence submitted must be resolved in Plaintiffs favor. BeautiControl v. Burditt, No. 3:01-CV-744-M, 2001 WL 1149360, at *7 (N.D. Tex. Sept. 26, 2001). Because this case arises from patent law, in determining whether it may assert personal jurisdiction over Defendants, the Court must apply the law of the Federal Circuit. Hildebrand v. Steck Mfg. Co., 279 F.3d 1351, 1354 (Fed. Cir. 2002). The Federal Circuit has established the following criteria for determining whether personal jurisdiction over a defendant in a patent action exists. First, for personal jurisdiction over an out-of-state defendant to be proper, "the forum state's long-arm statute [must] permit the assertion of jurisdiction." HollyAnne Corp. v. TFT, Inc., 199 F.3d 1304, 1307 (Fed. Cir. 1999). The Texas long-arm statute permits the exercise of jurisdiction consistent with the limits of federal due process. Guardian Royal Exchange Assur., Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991).
Because the forum state permits the exercise of jurisdiction consistent with due process limitations, the Court must next discern whether Plaintiff contends that general or specific jurisdiction applies in this case, since that determines the type of due process analysis this Court must employ. Here, Auto Wax asserts that specific jurisdiction exists. Thus, in its jurisdictional inquiry, the Court must apply the following three-prong test, which the Federal Circuit has formulated for cases involving specific jurisdiction: "(1) whether the defendant purposefully directed its activities at the residents of the forum; (2) whether the claim arises out of or is related to those activities; and (3) whether assertion of personal jurisdiction is reasonable and fair." HollyAnne Corp., 199 F.3d at 1307-08. Frank and Robert Marchese do not contest that they, as officers of Mark V, purposefully directed Mark V's allegedly infringing product at the residents of Texas, and that Auto Wax's claim is related to those activities. However, Mark Marchese contends that he has not played an active role in creating, marketing, and distributing the infringing product. Plaintiff responds that Mark Marchese, who is the CEO and a 49% shareholder in the company, is sufficiently involved in Mark V's creation, marketing, and sending of the infringing product to Texas so as to be amenable to jurisdiction here.
The Court concludes, from a review of the documentary evidence presented by both sides, that Plaintiff has not established a prima facie case that Mark Marchese participated in the manufacture of the product, or in sales of the infringing product in Texas. The uncontroverted evidence presented by Mark Marchese reveals that he does not have a role in the day-to-day operations of Mark V — his sons, Frank and Robert, fulfill those responsibilities. He also did not participate in creating or naming the infringing product. The only evidence Plaintiff has produced as to Mark Marchese's role in Mark V is that he is a salesman for the company. However, Auto Wax has not provided evidence showing that Mark Marchese ever participated in selling the allegedly infringing product to Texas purchasers. In fact, the only evidence presented as to the scope of his sales territory reveals that his customers are located only in the southern California area. Therefore, because the Court finds that Mark Marchese did not participate in the manufacture of the product or its distribution in Texas, the Court GRANTS Mark Marchese's Motion to Dismiss.
The Court finds Mark Marchese's level of participation in Mark V to be analogous to that of one of the defendants in Graco Children's Products, Inc. V. Draco Corp., Inc., Nos. 93-6711 93-6710, 1995 WL 299023 (E.D. Pa. May 15, 1995). In Graco, a patent infringement action, the court held that it could not assert jurisdiction over the president of the company accused of patent infringement because, although the president "ha[d] general responsibility for `everything' within the company," the plaintiff "failed to show that [the president] had direct, personal involvement with the specific activities giving rise to this lawsuit." Id. at *3. This Court similarly concludes that the evidence presented does not establish that Mark Marchese had any direct involvement with the creation of the infringing product or its distribution in Texas, the specific activities giving rise to this lawsuit.
Plaintiff also asserts that the Court should find that it has jurisdiction over Mark Marchese because of his participation in the Auto Wax v. Mark V lawsuit. The Court finds these contacts insufficient to establish jurisdiction, however, because they were caused by Auto Wax's unilateral activity of suing Mark V in Texas.
Although Frank and Robert Marchese do not dispute that they were active participants in the creation of the allegedly infringing product and its distribution in Texas, they argue that the Court cannot consider these actions, because the fiduciary shield doctrine precludes assertion of jurisdiction over them based on actions taken in the course of their employment with Mark V. The proper place for the fiduciary shield doctrine in a court's jurisdictional analysis is a matter of opinion. Some courts have reasoned that the doctrine is best understood as a limitation on the reach of the forum state's long-arm statute, rather than a component within federal due process analysis. See, e.g., Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 902 (2d Cir. 1981) ("The fiduciary shield doctrine is not a constitutional principle, but is rather a doctrine based on judicial inference as to the intended scope of the long arm statute."); In re Mahurkar Double Lumen Hemodialysis Catheter Patent Litig., 750 F. Supp. 330, 334 (N.D. Ill. 1990) (Easterbrook, Cir. J., sitting by designation) (finding the fiduciary shield doctrine to be a limitation upon the scope of Illinois's long-arm statute, even though the statute was found to reach the limits of due process). Other courts, however, have concluded that the doctrine is best understood not as a limitation on a state's long-arm statute — particularly where the statute has been found to extend to the limits of due process — but rather as a component of federal due process analysis. See, e.g., Saktides v. Cooper, 742 F. Supp. 382, 385 (W.D. Tex. 1990) ("[T]he Court . . . considers the fiduciary shield doctrine to be an important sub-issue under a due process analysis when it is raised."). This dichotomy is relevant in that it affects what forum's fiduciary shield law should be applied to the case at hand. If the fiduciary shield doctrine operates as a limitation on a state's long-arm statute, then the fiduciary shield law of that state's courts should be applied. See, e.g., In re Mahurkar, 750 F. Supp. at 334 (applying Illinois's fiduciary shield law after determining that the doctrine operated to restrict the application of Illinois's long-arm statute). In contrast, if the fiduciary shield doctrine finds its basis in federal due process analysis, the Court should look to federal common law relating to the doctrine. See, e.g., Saktides, 742 F. Supp. at 385-86 (primarily applying federal common law).
The Federal Circuit has not formulated its own fiduciary shield doctrine, nor spoken on whether federal or state fiduciary shield law should be applied in patent infringement cases. However, in practice the Circuit has applied state fiduciary shield law on at least one occasion, while not looking to federal courts' pronouncements on the subject. See Genetic Implant Sys., Inc. v. Core-Vent Corp., 123 F.3d 1455, 1459-60 (Fed. Cir. 1997) (applying Washington law).
Because the Federal Circuit has previously applied the law of the forum state in determining whether the fiduciary shield doctrine applies to limit the exercise of personal jurisdiction over a non-resident, this Court will follow its lead and look to Texas law in its jurisdictional inquiry. Under Texas law, the fiduciary shield doctrine "provides that corporate officers are not subject to jurisdiction in a foreign forum if their actions are taken in a representative capacity." Shapolsky v. Brewton, 56 S.W.3d 120, 133 n. 6 (Tex.App.-Houston [14th Dist.] 2001, no pet.). Exceptions to the doctrine's application include cases in which the officer is accused of committing an intentional tort, or those in which the corporation is alleged to have been the alter ego of the officer. Id. at 133; Gen. Brick Sales Co., 39 S.W.3d at 299-300.
Although the Texas Supreme Court has never explicitly adopted the doctrine, several state courts of appeals have applied it. See Brown v. Gen. Brick Sales Co., Inc., 39 S.W.3d 291 (Tex.App.-Fort Worth 2001, no pet.) (listing the courts of appeals that have applied the doctrine).
It is of little practical relevance whether the Court applies Texas state common law or Fifth Circuit law, because Texas state law on the fiduciary shield doctrine is largely based on the Fifth Circuit case of Stuart v. Spademan, 772 F.2d 1185 (5th Cir. 1985). See Gen. Brick Sales Co., 39 S.W.3d at 300 (cataloguing different state courts of appeals's approaches to the fiduciary shield doctrine and noting that several courts cited Stuart as the basis for their application of the doctrine).
The Fifth Circuit has explicitly recognized the alter ego exception, and several district courts within the Circuit have recognized an intentional torts exception to fiduciary shield law as formulated in this Circuit. See Stuart, 772 F.2d at 1198 n. 12 (recognizing the alter ego exception); Bellino v. Simon, 1999 WL 1059753, at *3 (E.D. La. Nov. 22, 1999) (cataloguing district court cases in which the intentional tort exception has been recognized).
The Court finds that the fiduciary shield doctrine does not apply to this case because Defendants are accused of committing intentional torts. As the Federal Circuit has explained, "[i]nfringement is a tort," and "officers of a corporation are personally liable for tortious conduct of the corporation if they personally took part in the commission of the tort or specifically directed other officers, agents, or employees of the corporation to commit the tortious act." Orthokinetics, Inc. v. Safety Travel Chairs, Inc., 806 F.2d 1565, 1579 (Fed. Cir. 1986). Because the fiduciary shield doctrine does not apply to cases in which a plaintiff has claimed the commission of an intentional tort, and Auto Wax has clearly alleged in its Complaint that Defendants committed the intentional torts of willful patent infringement, willful inducement of patent infringement, and willful contributory patent infringement, the Court concludes that it should not apply the doctrine in this case.
At least two other district courts who have considered the application of the fiduciary shield doctrine in the context of 35 U.S.C. § 271 infringement claims have reached the same conclusion. See, e.g., Pres-Vac AS v. Bergan, Nos. 90-4551 90-2816, 1992 WL 41642 (E.D. La. Feb. 26, 1992) (Clement, J.) (finding a corporate officer's act of marketing an allegedly infringing product in the forum state supported the exercise of specific jurisdiction over the officer in a suit in which the plaintiff claimed the officer was liable under 35 U.S.C. § 271 (b) for inducing infringement); In re Mahurkar, 750 F. Supp. 330 (refusing to apply the fiduciary shield doctrine in a case involving § 271 claims). In Mahurkar, the court reasoned,
But see Amhil Enter., Ltd. v. Wawa, Inc., No. HAR 93-1349, 1994 WL 750535 (D. Md. Dec. 19, 1994) (reaching the contrary conclusion). The Amhil court grounded its holding in the distinction between the ability to sue a corporate officer for a § 271 violation and the ability to assert jurisdiction over the corporate officer in such a suit. Id. at *3-*4. The court reasoned that, while § 271 allows a corporate officer to be held liable for his participation in the infringing activity "regardless of whether circumstances justify piercing the corporate veil[,] . . . . [t]he potential for personal liability of a corporate officer . . . is no substitute for a determination of whether the Court may exercise personal jurisdiction over that officer." Id. This distinction is not as clear as the Amhil court surmised, however, because the ability to sue a corporate officer under § 271 becomes illusory if no court can assert jurisdiction over the officer. As the Mahurkar court found, in some cases, the inability to assert specific jurisdiction over a corporate officer for § 271 violations may result in the inability to sue the officer in any forum.
What seems most important . . . [is] the fact that[,] if there is no jurisdiction in this district, there may be no jurisdiction anywhere in the world. Section 271 says that corporate officers are personally liable when they induce a corporation to infringe a patent . . . . [Plaintiff] does not seek to hold the [defendants] vicariously liable for [the company's] acts or require them to pay [the company's] debts; he seeks to hold them liable under the terms of § 271 for their own acts. To say that the officer is not subject to personal jurisdiction because the acts of inducement were committed as a corporate employee is to say that § 271 cannot support liability for corporate officers, despite its terms. [In this case, the] rule would block litigation everywhere [because the defendants were Canadian residents, and Canada does not recognize claims under the U.S. patent laws]. . . . I doubt very much that Illinois would interpret the fiduciary shield doctrine to protect those who may be liable under § 271 from any suit, anywhere in the world. . . . The fiduciary shield doctrine is designed to make the corporation principally liable and to facilitate commerce by reducing employees' fear that they could incur liability for the corporation's debts merely by entering Illinois on corporate business. A rule that would . . . shield the employees from their personal liability for their own acts would go too far.750 F. Supp. at 336. This Court concurs with the Mahurkar court's analysis. Were the fiduciary shield doctrine to apply in this case, Auto Wax would be unable to establish the existence of specific jurisdiction in any forum. Although Auto Wax would be able to establish general jurisdiction over Defendants in California, where they reside, if Defendants lived outside of the United States and had no other type of continuous and systematic contacts with the United States, such that general jurisdiction could not be established, Plaintiff would simply be out of luck. The Court concludes that the fiduciary shield doctrine should not be applied in a way that could create such a result.
This interpretation of the fiduciary shield doctrine is not only the most logical, as it allows a state to hale into court any defendant who is accused of intentionally causing injury within the state, but also comports with the United States Supreme Court's pronouncement that an individual does not escape the jurisdiction of courts of the state in which he has intentionally caused an injury simply because the injury was caused in the course of his employment. See Calder v. Jones, 465 U.S. 783 (1984). In Calder, the Court found that two National Enquirer employees who resided in Florida were amenable to jurisdiction in California because they authored an article that contained misrepresentations concerning a California resident. Id. at 789-90. The Court reached this result despite the defendants' argument that California courts could not assert jurisdiction over them because their allegedly tortious actions were committed in the course of their employment. Defendants "liken[ed] themselves to a welder employed in Florida who works on a boiler which subsequently explodes in California." Id. at 789. They contended that "cases which hold that jurisdiction will be proper over the manufacturer should not be applied to the welder who has no control over and derives no direct benefit from his employer's sales in that distant State." Id. The (Calder Court rejected this comparison, however, reasoning that
Petitioners' analogy does not wash. Whatever the status of their hypothetical welder, petitioners are not charged with mere untargeted negligence. Rather, their intentional, and allegedly tortious, actions were expressly aimed at California. Petitioner South wrote and petitioner Calder edited an article that they knew would have a potentially devastating impact upon respondent. And they knew that the brunt of that injury would be felt by respondent in the State in which she lives and works and in which the National Enquirer has its largest circulation. Under the circumstances, petitioners must "reasonably anticipate being haled into court there" to answer for the truth of the statements made in their article. An individual injured in California need not go to Florida to seek redress from persons who, though remaining in Florida, knowingly cause the injury in California.
Petitioners are correct that their contacts with California are not to be judged according to their employer's activities there. On the other hand, their status as employees does not somehow insulate them from jurisdiction. Each defendant's contacts with the forum State must be assessed individually. In this case, petitioners are primary participants in an alleged wrongdoing intentionally directed at a California resident, and jurisdiction over them is proper on that basis.
Id. at 789-90. Thus, the Supreme Court did not allow the defendants to use their employee status as a shield against assertion of jurisdiction.
As the fiduciary shield doctrine is equitable in nature, the Court has discretion in its application. The Court finds that it would be inappropriate to apply the doctrine in this case. The Court therefore concludes that assertion of jurisdiction over Defendants Frank and Robert Marchese is appropriate as long as it is fair and reasonable to do so. The Federal Circuit has explained that the factors the Court should consider in making a determination as to the fairness and reasonableness of the assertion of jurisdiction over these Defendants are:
(1) the burden on the defendant, (2) the interests of the forum State, (3) the plaintiffs interest in obtaining relief, (4) the interstate judicial system's interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several States in furthering fundamental substantive social policies.
Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1363 (Fed. Cir. 2001). In regard to a defendant's claims of unreasonableness, the Federal Circuit has explained that
"[w]here a defendant who purposefully has directed his activities at forum residents seeks to defeat jurisdiction, he must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable. Most such considerations usually may be accommodated through means short of finding jurisdiction unconstitutional. For example, . . . a defendant claiming substantial inconvenience may seek a change of venue."
Id. at 1363 (quoting Burger King v. Rudzewicz, 471 U.S. 462, 477 (1985)). Successful claims of unreasonableness "are limited to the rare situation in which the plaintiff's interest and the state's interest in adjudicating the dispute in the forum are so attenuated that they are clearly outweighed by the burden of subjecting the defendant to litigation within the forum." Akro Corp. v. Luker, 45 F.3d 1541, 1549 (Fed. Cir. 1995).
Frank and Robert Marchese have not demonstrated that assertion of jurisdiction over them would be so unreasonable as to violate constitutional notions of fair play and substantial justice. Although these Defendants will be required to travel to this District to defend against the suit, the Court finds that two other factors weigh heavily in favor of a finding that jurisdiction is reasonable. First, Texas has an acute interest in being able to hale into its courts alleged infringers who have purposefully sent their products into the state. Furthermore, the most efficient resolution of controversies would be in this Court, because it previously tried Auto Wax v. Mark V, which contained certain issues identical to those in the suit at hand. Thus, the Court finds that assertion of jurisdiction over Defendants Frank and Robert Marchese would not be unreasonable in this case. Therefore, Court DENIES these Defendants' Motions to Dismiss.
SO ORDERED.