Opinion
Civil Action No. 02-CV-6691
March 24, 2003
MEMORANDUM AND ORDER
Certainteed Corporation ("Certainteed") brought this declaratory judgment action against The Cellulose Insulation Manufacturers Association ("CIMA") seeking a declaration that its use of marketing videotapes does not violate the Lanham Act, 15 U.S.C. § 1051, et seq., and/or a settlement agreement the parties had entered into in Florida. Arguing lack of personal jurisdiction, improper venue, and the absence of a justiciable case or controversy, CIMA has moved to dismiss Certainteed's complaint. Because its arguments are without merit, CIMA's motion to dismiss will be denied and this Court will retain jurisdiction over this dispute.
The Federal Declaratory Judgment Act, 22 U.S.C. § 2201, requires the existence of a federal question and an actual controversy for a federal court to have subject matter jurisdiction. See Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937). Count One of Certainteed's complaint is pursuant to the Lanham Act, 15 U.S.C. § 1051, et seq., thus satisfying the federal question requirement. The case or controversy requirement is addressed below.
The agreement resolved litigation involving the parties in the United States District Court for the Northern District of Florida. Green Earth Insulation, Inc., et al. v. Gale Industries, Inc., d/b/a Coastal Insulation and Certainteed Corporation, No. 98-CV-09 (N.D.Fla. May 4, 1999).
At oral argument on November 18, 2002, counsel for CIMA withdrew CIMA's claim that Certainteed failed to properly serve CIMA. Transcript 11/18/02, at 34.
The parties compete against each other in the building insulation market. Certainteed, a Pennsylvania corporation, manufactures and distributes building materials, including fiberglass insulation. (Complaint ¶ 6). CIMA, headquartered in Ohio, is a trade association which represents the interests of the cellulose insulation industry. (Complaint ¶ 7).
In considering CIMA's motion to dismiss pursuant to Rule 12(b), the Court must accept as true all allegations pled in the complaint and must draw all reasonable inferences in favor of Certainteed. N.E. Hub Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333, 341 (3d Cir. 2001).
In April 1999, pursuant to the settlement agreement which terminated a Florida lawsuit, Certainteed agreed to stop distributing and/or using any advertising or promotional materials which stated or implied that (1) cellulose insulation causes fires; (2) cellulose insulation can start itself on fire; or, (3) properly manufactured and installed cellulose insulation presents an unacceptable risk of causing fires. (Complaint ¶ 10).
In a July 24, 2002 letter to Certainteed's counsel, CIMA objected to Certainteed's use of videotapes reportedly shown at a trade show in Georgia the previous spring because CIMA believed the tapes contained false and misleading statements in violation of the settlement agreement and/or the Lanham Act. (Complaint ¶ 12). CIMA's counsel, without knowing the contents of the tapes, demanded that Certainteed cease using the tapes or CIMA would initiate suit to enforce the settlement agreement. (Complaint ¶ 12). Certainteed responded on August 7, 2002, stating that the tapes did not contain any false or misleading statements in violation of the settlement agreement. (Complaint ¶ 13).
The full text of the Lanham Act section cited by Certainteed is as follows:
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation or origin, false or misleading description of fact, or false or misleading representation of fact, which —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any such person who believes that he or she is or is likely to be damaged by such act.15 U.S.C. § 1125(a). Though CIMA did not specifically implicate the Lanham Act in its letter to Certainteed, the threat of infringement litigation under the Act can be made directly or indirectly. 5 McCarthy on Trademarks and Unfair Competition § 32:51 (4th ed. 2002). See, e.g., Simmonds Aerocessories, Ltd. v. Elastic Stop Nut Corp. of America, 257 F.2d 485, 490 (3d Cir. 1958) (stating there does not need to be direct threat of litigation provided threat is implicit in position of defendant based on language used in a letter).
Anticipating the threatened legal action, Certainteed filed its declaratory judgment complaint on August 9, 2002. On November 18, 2002, this court held a hearing to define the subject matter of the dispute. Because the parties could not agree which videotapes had been used at the Georgia trade show and what their contents were, the court ordered Certainteed to deliver to CIMA the videotapes which it uses in marketing its products. Additionally, CIMA was permitted to depose Certainteed's representative at the Georgia trade show to ascertain what materials had been used at the show. The parties were required to report if there remained a dispute whether the tapes shown at the trade show contained any false and misleading statements about cellulose insulation in violation of the settlement agreement or the Lanham Act; and, if so, whether Certainteed would agree to cure them.
In its report to the court, CIMA represented that a portion of a tape shown in Georgia violated the settlement agreement and that it intended to pursue legal action against Certainteed. (Def. Resp. to the Court Order Nov. 18, 2002, at 3). In response, Certainteed stated that it would consider curing any portions of the videotape which CIMA contended were false or misleading; however, it could not do so because CIMA refused to identify the specific portions it claimed were false and misleading. (Letter from Potenza to Court of 1/21/03, at 1-2).
Any uncertainty about what representations Certainteed made in the tapes has since been resolved. CIMA is now in possession of all tapes Certainteed currently uses in marketing and advertising its fiberglass insulation. After viewing them, CIMA reported to this Court that one of the videotapes contains a portion of a tape which Certainteed had agreed not to use and that its continued use violates the settlement agreement. (Def. Response to Court Order Dated November 18, 2002, at 11-12). In short, CIMA contends that the tape contains false and misleading advertising.
Personal Jurisdiction
A federal court sitting in Pennsylvania can exercise personal jurisdiction over a nonresident defendant to the extent permissible under Pennsylvania's long arm statute. Fed.R.Civ.P. 4(k)(1)(A). Long arm jurisdiction must meet the constitutional requirements of the due process clause of the Fourteenth Amendment. See Mellon Bank (East) PSFS, Nat'l Ass'n v. Farino, 960 F.2d 1217, 1221 (3d Cir. 1992) (citing North Penn Gas v. Corning Natural Gas Corp., 897 F.2d 687, 689-90 (3d Cir. 1990)). Thus, the test is whether the exercise of personal jurisdiction is constitutional.
The applicable portion of the long arm statute states:
The existence of any of the following relationships between a person and this Commonwealth shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over such person, or his personal representative in the case of an individual and to enable such tribunals to render personal orders against such person or representative:
. . .
(3) Partnerships, limited partnerships, partnership associations, professional associations, unincorporated associations and similar entities. —
(I) Formation under the laws of this Commonwealth.
(ii) Consent, to the extent authorized by the consent.
(iii) The carrying on a continuous and systematic part of its general business within this Commonwealth.
42 Pa.C.S. § 5301.
Once a defendant raises lack of jurisdiction, the burden shifts to the plaintiff to demonstrate facts establishing a basis for the exercise of jurisdiction. North Penn Gas v. Corning Natural Gas Corp., 897 F.2d 687, 689 (3d Cir. 1990). Consequently, the plaintiff must prove "with reasonable particularity" that sufficient contacts exist between the defendant and the forum state. Provident Nat'l Bank v. California Federal Sav. Loan Ass'n, 819 F.2d 434, 437 (3d Cir. 1987).
Personal jurisdiction over nonresident defendants can be either general or specific. See Farino, 960 F.2d at 1221. Specific jurisdiction arises when the cause of action is related to or arises out of the defendant's contacts with the forum. Pennzoil Prods. Co. v. Colelli Assoc., Inc., 149 F.3d 197, 201 (3d Cir. 1998). A finding of specific jurisdiction requires a court to determine that a defendant, by the nature of its conduct in the forum, could have reasonably anticipated being sued there; and, the court may then consider whether the exercise of personal jurisdiction is consistent with "fair play and substantial justice." Id.
General jurisdiction requires a showing that the nonresident has continuing and substantial contacts with the forum which are "significantly more than mere minimum contacts." Provident Nat'l Bank, 819 F.2d at 437. Once these contacts are established, the party can be answerable to any claim regardless of whether the subject matter of the cause of action has any relationship to the forum. Pennzoil, 149 F.3d at 200.
Certainteed asserts that CIMA is amenable to suit in this jurisdiction because it "continuously and systematically solicits and transacts business within Pennsylvania and this district and realizes a pecuniary benefit therefrom." (Complaint ¶ 4). Certainteed's allegations raise a general jurisdiction basis. 42 Pa.C.S. § 5301(a)(3)(iii). Indeed, there is nothing to justify the exercise of specific jurisdiction. Therefore, we shall consider only whether there is general jurisdiction over CIMA.
There is no established analytical framework for determining whether a defendant is subject to general jurisdiction. Each case must be examined on its particular facts. See, e.g., Gehling v. St. George's School of Medicine, Ltd., 773 F.2d 539, 542-44 (3d Cir. 1985). The main focus is not on the relationship of the parties but the relationship between the defendant and the forum state. See Mesalic v. Fiberfloat Corp., 897 F.2d 696, 701 (3d Cir. 1990). Thus, we must evaluate CIMA's contacts with Pennsylvania to discern its relationship with this forum.
Certainteed argues that CIMA has substantial contacts with Pennsylvania which confer general jurisdiction. One of CIMA's members is physically located in Pennsylvania, its members conduct business in Pennsylvania, CIMA's Board of Directors held a meeting in Pennsylvania a few months before the initiation of this suit, and CIMA directs consumer bulletins and advertising to Pennsylvania residents. (Pl. Mem. in Opp. of Mot. to Dismiss. at 17, 20-21). Significantly, CIMA directs advertising materials and consumer bulletins to Pennsylvania residents which address the benefits of cellulose insulation as opposed to fiberglass insulation, the underlying issue giving rise to this dispute. Id. CIMA also circulated an advertisement in Pennsylvania identifying the tapes subject to the Florida settlement and inviting residents to report Certainteed's use of them. Id. at 18.
While not denying that its members conduct business in Pennsylvania and that it advertises in the state, CIMA argues that it is not subject to general jurisdiction here because it does not derive any direct monetary benefit from Pennsylvania residents, the activities that give rise to this action did not occur in Pennsylvania, and its one Pennsylvania plant contributes less than 1.5% of its total member dues. (Mot. to Dismiss at 17-18). An analysis of all Pennsylvania contacts demonstrates a sufficient basis for the exercise of jurisdiction over CIMA in Pennsylvania.
The location of the events where the cause of action occurred is irrelevant for general jurisdiction. See Pennzoil Prods. Co., 149 F.3d at 200. Hence, we dismiss CIMA's argument that this Court lacks personal jurisdiction because the harm which gives rise to this action occurred in Florida and Georgia. See, e.g., Provident Nat'l Bank, 819 F.2d at 436.
In Provident National Bank, the Third Circuit held that a California bank was subject to general jurisdiction in Pennsylvania even though only 0.066% of its total depositors resided in Pennsylvania; those Pennsylvania depositors contributed only 0.71% of the bank's total deposits; the bank maintained no office, employee, agent, mailing address or telephone number in Pennsylvania; and, it did no advertising in Pennsylvania. Id. at 436. The court highlighted that the bank serviced loans totaling $10.2 million for three Pennsylvania institutions, one of which received wire transfers from the bank on a daily basis. Id. Additionally, the court noted that the bank purchased secondary mortgages secured by property located in Pennsylvania. Id.
Further details of the dispute in Provident National Bank can be found in the district court's memorandum and opinion. Provident Nat'l Bank v. California Fed. Sav. Loan Ass'n, 624 F. Supp. 858 (E.D. Pa. 1985). The dispute arose out of a Pennsylvania bank's sale of a certificate of deposit to the California bank. Id. at 859-60. The negotiations, offer and acceptance of the sale took place by way of a California to New York telephone conversation. Id. at 860. Moreover, the agreement of sale provided that the actual certificate was to be transported from New York to Massachusetts. Id. No part of the negotiations, offer, acceptance and actual transaction took place in Pennsylvania other than a letter confirming the sale which was sent to the Pennsylvania bank. Id.
Focusing not on the quantity but on the nature of the bank's Pennsylvania contacts, the court concluded that the type of activity the bank conducted in Pennsylvania was "the bread and butter of its daily business" which should have put the bank on notice that it could be sued in Pennsylvania. Id. at 438. The court found unpersuasive the California bank's contention, not unlike CIMA's, that only a small fraction of its business came from Pennsylvania residents. Id. at 437-38.
CIMA can not deny a direct monetary benefit when one of its producer members, Applegate Insulation, is located in Chambersburg, Pennsylvania, and at least seven CIMA members service 21 accounts in Pennsylvania. (Brown Decl. ¶¶ 10-11). These Pennsylvania customers purchase approximately $2.3 million worth of cellulose insulation annually. Id. CIMA also solicits business from Pennsylvania residents by advertising its cellulose product which is in direct competition with the fiberglass insulation manufactured by Certainteed.
CIMA's producer members are actual manufacturers of cellulose insulation. See http://www.cellulose.org/members_producer.html.
The business CIMA and its members conduct in Pennsylvania is the "bread and butter" activity cited in Provident National Bank as demonstrative of systematic and continuous conduct. Because CIMA enjoys the benefits of the laws of Pennsylvania and does business with its citizens, it was or should have been on notice that it was amenable to suit in this jurisdiction. Accordingly, the exercise of personal jurisdiction over CIMA, grounded on the long-arm statute, comports with due process requirements.
Venue
CIMA contends that venue is not proper in this district because it does not do business in this state as contemplated by the venue statute. As discussed above, CIMA does conduct business in Pennsylvania. Thus, because a trade association such as CIMA is treated the same as a corporation for residency purposes and can be sued in any jurisdiction in which it does business, venue is proper here. See Denver R.G.W.R.R. v. Brotherhood of R.R. Trainmen, 387 U.S. 556, 562 (1967).
The general venue statute provides that an action not based on diversity of citizenship may be brought either in the judicial district where all defendants reside or in the judicial district where the claim arose. 28 U.S.C. § 1391(b).
Case or Controversy
CIMA argues that there is no justiciable case or controversy because Certaineed did not identify which tapes were shown in Georgia and that Certainteed initiated suit before the expiration of the thirty day cure period in the settlement agreement. When it filed its motion to dismiss, CIMA was unsure what videotapes had been shown at the Georgia trade show, and what, if anything, was in the videotapes that could potentially violate the settlement agreement and/or the Lanham Act. (Mot. to Dismiss at 8). This uncertainty was resolved when, pursuant to the Court's Order, Certainteed turned over to CIMA all videotapes which had been used at the Georgia trade show and CIMA was given the opportunity to view them. Any question about which videotapes had been shown at the Georgia trade show and their contents is no longer hypothetical or speculative. (Mot. to Dismiss at 8).
The settlement agreement provides that if any party to the agreement breaches the agreement, is notified in writing of the breach and does not cure the breach within thirty days of receiving notice of the breach, the aggrieved party is entitled to recover attorney's fees and costs associated with enforcement of the agreement. (Complaint at Ex. A). As Certainteed correctly notes, the agreement does not impose an obligation on any party to wait thirty days before initiating suit. (Pl. Opp. to Mot. to Dismiss at 13).
Although a court is afforded a considerable amount of discretion under the Declaratory Judgment Act, it can issue a declaration only when there is an "actual controversy." 28 U.S.C. § 2201. "Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient imminency and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941). Thus, before a determination of the rights of parties can be made, there must be a "legitimate dispute between the parties." Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643, 647 (3d Cir. 1990).
In declaratory judgment actions, this circuit requires that a court focus its analysis of the Article III case or controversy requirement primarily on ripeness. See 12 Moore's Federal Practice, § 57.22[3][b] (Matthew Bender 3d ed.) (stating that in the Third Circuit, the primary focus of the actual controversy test in the declaratory judgment context is ripeness). See, e.g., Step-Saver Data Sys., Inc. v. Wyse Tech., 912 F.2d 643, 646-47 (3d Cir. 1990) (outlining ripeness principles for declaratory judgment actions).
The Third Circuit has established a three part test for determining ripeness. In the context of declaratory judgments, the following three factors are considered: (1) the adversity of the parties' interests; (2) the conclusiveness of the judgment; and, (3) whether the judgment will have a useful purpose. Step-Saver, 912 F.2d at 647.
Characterizing these three factors as "the most important of these principles," the Third Circuit suggests that the list is not exhaustive. Step-Saver, 912 F.2d at 647.
A. Adverse Interests
There must be a real threat that a defendant will act against a plaintiff, creating actual adverse legal interests. Presbytery of N.J. of the Orthodox Presbyterian Church v. Florio, 40 F.3d 1454, 1466 (3d Cir. 1994). CIMA alleges that there is no adversity because any dispute regarding the tapes' contents "involved uncertain and contingent events that may not have occurred." (Mot. to Dismiss at 10).
If there had been any doubt regarding CIMA's intentions before this action started, there is none now. The conduct of the parties since July 2002 contradicts CIMA's assertion that there is no clearly defined dispute. In his July 24, 2002 letter to Certainteed's counsel, CIMA's counsel threatened that CIMA would move to enforce the settlement agreement unless Certainteed agreed to stop using and to destroy any videotape CIMA found objectionable. At the November hearing, still without definite knowledge of which tapes had been shown in Georgia, CIMA reiterated its rights under the settlement agreement and specifically did not rule out a possible suit under the Lanham Act. Significantly, after viewing the actual tapes shown in Georgia, CIMA confirmed its intention to sue Certainteed to enforce the settlement agreement. (Def. Response to Court Order Dated November 18, 2002, at 11-12). Based on CIMA's representations to both this court and Certainteed, there is no doubt that there is a real threat of litigation over the disputed videotapes and the parties interests are adverse.
When its counsel sent the letter of July 24th, CIMA did not have knowledge of which tapes had been shown at the Georgia trade show. Yet, it still threatened to invoke the settlement agreement. Transcript 11/18/02, at 12-13.
The exchange between this Court and counsel for CIMA is as follows:
The Court: So you would not be in a position to say on behalf of the CIMA, that it would never bring a Lanham Act claim, are you?
Mr. Stueve: Well no.
. . .
Mr. Stueve: Judge, we could not do that and this court could not prevent us from ever bringing a Lanham Act claim with respect to these videotapes.
The Court: That's correct. That is what they are afraid of.
Transcript 11/18/02, at 27-28.
CIMA contends that the videotapes, which are used in commercial advertising and promotion, contain false and misleading statements about cellulose insulation. Therefore, considering CIMA's refusal to rule out a potential suit under the Lanham Act, its threat to file suit and its unequivocal position that Certainteed's advertising is false and misleading, we conclude that the probability of a Lanham Act is real and substantial. 15 U.S.C. § 1125(a).
B. Conclusiveness
There is no longer any speculation over whether CIMA objects to Certainteed's marketing materials as violative of the settlement agreement and the Lanham Act. CIMA objects to the materials as false and misleading. Indeed, it states that it intends to sue Certainteed for breach of the agreement. At the same time, it does not rule out suing under the Lanham Act. Any court declaration which will be based on concrete facts, will be conclusive on the false and misleading issue. See Presbytery of N.J., 40 F.3d at 1468.
C. Utility
The declaration must serve some useful purpose to the parties. N.E. Hub Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333, 345 (3d Cir. 2001). The declaration need not clarify the legal rights of the parties. It is sufficient if it affects the parties' "plans of action." Presbytery of N.J., 40 F.3d at 1469 (quoting Step-Saver, 912 F.2d at 649 n. 9).
A declaration from this Court will clarify the parameters of what Certainteed can use in marketing and advertising its fiberglass insulation in comparison to cellulose insulation. If the Court finds any materials to be false and misleading, Certainteed will have to revise the tapes. A declaration that the tapes are not offensive will end the uncertainty of threatened litigation over the future use of the tapes. Accordingly, the grant or denial of relief in this case will dictate a course of action which will eliminate doubt in the future, satisfying the conclusiveness and utility purposes simultaneously.
Conclusion
This Court has general jurisdiction over CIMA, and this case presents an actual claim ripe for adjudication in this venue. Accordingly, CIMA's motion to dismiss will be denied.
An order follows.
ORDER
AND NOW, this 24th day of March, 2003, upon consideration of the Defendant's Motion to Dismiss (Docket No. 2), the Plaintiff's Memorandum of Law in Opposition to Motion to Dismiss (Docket No. 5), the Defendant's Response to the Court Order Dated November 18, 2002 (Docket No. 23), the Plaintiff's Letter Response to the Court's November 18, 2002 Order (Docket No. 25), and after a hearing held on November 18, 2002, it is ORDERED that defendant's motion to dismiss is DENIED.