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finding no waiver of lack-of-personal-jurisdiction defense where the defendant denied the jurisdictional allegation, despite defendant's delay of ten months in filing motion to dismiss
Summary of this case from Fabara v. GoFit, LLCOpinion
00 Civ. 0201 (JSM)
September 6, 2001
Brad D. Rose, Pryor Cashman Sherman Flynn LLP, New York, NY, Attorney for plaintiff.
Roy C. Dickson, Dickson Associates, Yorba Linda, CA, Attorney for defendant.
AMENDED OPINION and ORDER
Phat Fashions, L.L.C. ("Plaintiff") brings this action against Phat Game Athletic Apparel, Inc. and Phat Game, Inc. ("Defendant") for trademark infringement, false designation of origin, and dilution under the Lanham Act. See 15 U.S.C. § 1114 (1), 1125(a) 1125(c). Plaintiff also brings a state law claim for trademark dilution pursuant to N.Y. Gen. Bus. Law § 360-1, and a common law claim for unfair competition. Defendant moves here to dismiss the complaint for lack of personal jurisdiction, and Plaintiff moves for summary judgment on its trademark claims. For the reasons set forth below, this action is hereby transferred to the Eastern District of California.
Plaintiff's request to amend the caption is granted. Plaintiff previously named Phat Game Athletic Apparel, a California corporation, as sole defendant based on Defendant's application to the United States Patent and Trademark Office. Plaintiff has submitted documents showing that Defendant is registered as Phat Game Athletic Apparel, Inc. with the Secretary of the State of California and is also registered as Phat Game, Inc. with an internet domain company. (Arden Decl. Exs. D, E.) Because the principles are the same, Defendants are not prejudiced by such an amendment.
In view of the fact that this court does not have personal jurisdiction over the defendant, this opinion does not reach the merits of the motion for summary judgment.
I. BACKGROUND
In 1992, Russell Simmons ("Simmons") established Phat Fashions, L.L.C., the plaintiff corporation, for the purpose of manufacturing and distributing urban and athletic apparel. Simmons, who is the co-founder of the music label "Def Jam Records," started the plaintiff corporation in order to sell apparel worn by popular rap and hip-hop artists whose music is produced by the record label. Plaintiff's products consist of T-shirts, jerseys, sweatshirts, slacks, jeans, jackets, shorts, caps, hats, backpacks, and sunglasses.Plaintiff's most prominent label and design is the registered mark PHAT FARM, which was first used in March 1993 and was registered for use on apparel with the Patent and Trademark Office (the "PTO") on August 24, 1993. Since 1993, Plaintiff has obtained registrations for the use of other marks bearing the word "PHAT" on apparel. These marks include PHAT THREADS, BABY PHAT, and PHAT. Plaintiff also sells athletic clothing bearing the marks ALL CITY and ALL CITY ATHLETIQUES, which also bear the PHAT FARM mark on their labels and generally on the clothing itself.
Plaintiff's apparel prominently displays one of the PHAT marks, such as PHAT FARM, in a bold athletic-style or script font. Alternatively, Plaintiff's logo features the mark PHAT FARM together with the initials P or PF, a PHAT mark in combination with a design logo, or the letters P or PF surrounded by a heraldic crest or a bold circle. Plaintiff sells its apparel through its flagship store in Manhattan, through department stores such as Macy's and Bloomingdales, and via its website "phatfarm.com." Plaintiff's primary consumers are males between the ages of thirteen and thirty who are interested in sports and urban fashion.
By 1997, Plaintiff's annual revenue exceeded $8.6 million. In 1999, Plaintiff's annual revenue had grown to $36.7 million, and in 2000 it increased to $111.5 million. Also in 2000, sales by third parties pursuant to licenses granted by Plaintiff amounted to $110.3 million, and Plaintiff spent approximately $3.7 million to advertise its PHAT clothing lines in fashion and music magazines and on radio, television, and billboards. Plaintiff has been promoting its products on its "phatfarm.com" website since 1998. Plaintiff's marks have been featured in unsolicited articles in national newspapers and magazines such as The New York Times, People, and Harper's Bazaar. (Simmons Aff. Exs. E, F.)
In 1998, Shawn Williams ("Williams") and Cloyce Dickerson ("Dickerson") formed the defendant corporation in California. Aside from their involvement with the defendant corporation, Dickerson is employed full-time as an account manager and Williams works part-time as a deputy reserve police officer at a local sheriff's department. Defendant's business is operated primarily out of Williams's home in Sacramento, California, and Defendant's listed telephone number is actually Williams's home phone number.
Defendant sells athletic apparel and accessories bearing the mark PHAT or PHAT GAME in a bold, athletic-style print or script font. Alternatively, Defendant's logo features the mark PHAT GAME appearing in a circle and surrounding the interlocking initials PG. Defendant's website "phatgame.com" describes the goods as urban wear and athletic apparel, and Defendant currently sells basketball uniforms, football jerseys, hats, shorts, T-shirts, and warm-up suits. Defendant's target audience is males in their teens and early twenties.
Defendant sells its goods through its website and sporadically in retail stores in the Sacramento area, and it sold its products for one month at a kiosk in a local shopping mall. (Simmons Aff. Ex. O at 58-60, 62-63.) Defendant has also sold its products at several basketball competitions and festivals in local parks, (Simmons Aff. Ex. O at 60-61), and has filled a few custom orders for local sports teams. Thus far, Defendant has apparently sold its apparel primarily, if not exclusively, in California, (Williams Decl. ¶ 9; cf. Dickerson Decl. ¶ 3 ), although it also claims to target markets in North Carolina and Michigan due to the large number of college basketball fans in those areas. Defendant has used manufacturers and suppliers in Minnesota and in the Philippines, and Dickerson has traveled to the Philippines and Hong Kong for business purposes. Defendants retail their products at prices "com[ing] just under" those of Plaintiff. (Simmons Aff. ¶ 31.) As will be discussed in greater detail below, the extent of Defendant's gross revenues is difficult to determine.
On October 5, 1997, Defendant filed an intent-to-use application in the PTO to register the PHAT GAME mark for use on athletic apparel and urban wear. On November 18, 1998, Plaintiff filed an opposition to Defendant's PTO application. (Simmons Aff. Ex. O at 99, 105.) In January 2000, Plaintiff brought this action for trademark infringement. The PTO proceedings are apparently on hold during the pendency of this suit.
II. DISCUSSION A. Personal Jurisdiction
Because discovery is complete, Plaintiff has the burden of establishing a prima facie case of jurisdiction over Defendants by setting forth an averment of facts that, if credited by the trier of fact, would suffice to establish jurisdiction over Defendants. See Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990); In re Sumitomo Copper Litig., 120 F. Supp.2d 328, 334 (S.D.N.Y. 2000). The allegations contained in the complaint and in the parties' affidavits are construed in the light most favorable to Plaintiff. See A.I. Trade Finance, Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993); In Re Sumitomo, 120 F. Supp. 2d at 335.
Prior to addressing the merits of Defendant's motion to dismiss, two points raised by Plaintiff must be addressed. First, Plaintiff argues that Defendant has waived the right to raise a personal jurisdiction defense because it was not raised as an affirmative defense in its answer. Plaintiff also argues that Defendant delayed too long in bringing its motion. Defendant responds that it preserved its defense by denying Plaintiff's allegation of personal jurisdiction in the answer, and that Plaintiff was fully aware that Defendant intended to bring this motion upon completion of discovery. Defendant is correct on both counts.
Fed.R.Civ.P. 12(h)(1) provides that "[a] defense of lack of jurisdiction over the person . . . is waived . . . if it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof . . . ." In its answer, Defendant denied the corresponding allegation in Plaintiff's complaint that asserted: "This Court has personal jurisdiction over Defendant because, upon information and belief, Defendant transacts business, including the unlawful activity alleged herein, in this District, and derives substantial revenue from said transaction of business in this District." (Comp. ¶ 5; Answer ¶ 4.) Defendant did not plead lack of personal jurisdiction as a separate enumerated defense.
At least one court has held that a denial of a plaintiff's allegation of personal jurisdiction in a defendant's answer is sufficient to preserve a personal jurisdiction defense. See Boss Prods. Corp. v. Tapco Int'l Corp., No. 00 Civ. 0689, 2001 WL 135819, at *1 (W.D.N.Y. Feb. 16, 2001); but see Croney v. Louisville N.R. Co., 14 F.R.D. 356, 358 (S.D.N.Y. 1953). The Boss Products court reasoned that although a denial of this type in an answer does not technically comply with Rule 12(h)(1), to find that a defendant thereby waives its jurisdictional defense is to elevate form over substance. Cf. 5A Wright Miller,Federal Practice Procedure § 1347, at 186 (1990) ("In accordance with the basic philosophy of the federal rules, the substance of a defense . . . rather than its form will control the court's treatment of a Rule 12(b) . . . responsive pleading."). In addition, Rule 8(f) indicates that all pleadings should be "construed as to do substantial justice." Because Plaintiff was on notice that Defendant intended to bring this motion throughout the pendency of the litigation, as will be discussed below, the Court finds that Defendant did not waive its right to assert this ground of dismissal.
Plaintiff also argues that Defendant's motion to dismiss is untimely because Defendant waited thirteen months to bring its motion after the complaint was filed, and ten months after filing its answer, and engaged in significant pretrial activity during that time, including the completion of discovery on Plaintiff's substantive claims. In considering whether a defendant has forfeited its right to interpose a defense of personal jurisdiction based on a lack of contacts under the New York long arm statute, the Second Circuit has held that it is appropriate to evaluate the defendant's delay in bringing the motion, the extent of pretrial activity that has taken place, and the opportunities that existed to assert the motion. See Hamilton v. Atlas Turner, Inc., 197 F.3d 58, 60-63 (2d Cir. 1999), cert. denied, 120 S.Ct. 2691 (2000)
Although somewhat regrettable, Defendant's delay in bringing its motion does not rise to the level of egregiousness that other courts have found sufficient to constitute a forfeiture. See, e.g., Hamilton, 197 F.3d at 60-63 (motion raised four years after commencement of suit); Saratoga Harness Racing Inc. v. Veneglia, No. 94 Civ. 1400, 1997 WL 135946, at *7-8 (N.D.N.Y. Mar. 18, 1997) (defendant waited over one year to file motion and asserted no grounds in support of its motion); Fidata Trust Co. v. Bankers Trust Co., No. 87 Civ. 5025, 1990 WL 20150, at *1 n. 1 (S.D.N Y Mar. 2, 1990), aff'd, 923 F.2d 842 (2d Cir. 1990) (motion raised one-and-a half years after the answer was filed and on the first day of trial). Moreover, Plaintiff admits that Defendant first communicated its intent to make such a motion in April 2000, (Rose 4/15/01 Aff. ¶ 3), and reiterated this intention several times over the next few months during conferences with the Court and to Plaintiff's counsel directly. Therefore, Plaintiff was on notice that Defendant intended to make this motion. Furthermore, Plaintiff was given the opportunity to gather information about Defendant's contacts with New York through discovery. In these circumstances, Defendant has not forfeited its personal jurisdiction defense and it is appropriate to proceed to the merits of the motion to dismiss. See, e.g., Securities Training Corp. v. Securities Seminar, Inc., 633 F. Supp. 938, 939 (S.D.N.Y. 1986).
Indeed, the Court itself instructed Defendant's counsel to delay making his motion until after the Court heard argument on whether Defendant should be sanctioned for failing to comply with discovery requests. That conference was held in October 2000.
N.Y. C.P.L.R. 302(a)(1) provides for long arm jurisdiction over an out-of-state defendant who transacts any business within the state so long as the cause of action arises out of that transaction. See Citigroup Inc. v. City Holding Co., 97 F. Supp. 2 d 549, 564 (S.D.N.Y. 2000);Pilates, Inc. v. Pilates Institutes, Inc., 891 F. Supp. 175, 179 (S.D.N.Y. 1995). Mere telephone, mail, or email contacts will normally not suffice to support jurisdiction, see Hearst Corp. v. Goldberger, No. 96 Civ. 3620, 1997 WL 97097, at *12-13 (S.D.N.Y. Feb. 26, 1997), although such contacts can be sufficient where the defendant purposely projects himself into New York in order to avail himself of the benefits and protections of its laws, see Klagsbrun v. Ross, No. 93 Civ. 7709, 1995 WL 43664, at *3-4 (S.D.N.Y. Feb. 3, 1995). In addition, there must exist a strong nexus between the plaintiff's cause of action and the defendant's in-state conduct, see Citigroup, 97 F. Supp. 2d at 564, such that "a cause of action which bears only a remote and indirect relationship to the New York transaction will not support jurisdiction." Sherwin v. Indianapolis Colts, Inc., 752 F. Supp. 1172, 1182 (N.D.N Y 1990).
Plaintiff alleges that Defendant transacted business in New York in the following ways: (1) Defendant purchased a hockey jersey on-line from RussianGifts.com, a New York company, as research for Defendant's product development; (2) Defendant acquired an email address for its business operations from Juno Online Services, a company with its principal place of business in New York, and agreed to a New York forum selection clause as part of its contract; and (3) between one and four New York consumers emailed Defendant with inquiries about its products, to which Defendant responded.
As to the first two transactions, even if they were sufficiently substantive to constitute the "transaction" of business under Section 302(a)(1), they are unrelated to Plaintiff's present suit. Plaintiff's trademark claims are based upon Defendant's sale of apparel bearing the mark PHAT GAME, not upon Defendant's purchase of a Russian hockey jersey or its establishment of an email account. See Mattel, Inc. v. Securenet Info. Servs., No. 99 Civ. 11813, 2001 WL 521816, at *2 (S.D.N Y May 16, 2001). The fact that Defendant's contract with Juno contains a New York forum selection clause does not affect its consent to suit for claims unrelated to the email contract itself. As to the email responses sent to New York residents, Plaintiff offers no evidence indicating that these inquiries from New York residents gave rise to any New York sales. In short, these emails are an insufficient basis upon which to assert jurisdiction in New York because Plaintiff has not otherwise shown that Defendant purposely injected itself into the state. See Hearst, 1997 WL 97097, at *12-13
Williams testified in his deposition that he received one online order from a New York customer after Plaintiff instituted this suit, and he thought it prudent not to fill that order. (Simmons Aff. Ex. P at 123.)
Plaintiff also argues that Defendant's maintenance of a website establishes personal jurisdiction over Defendant because the website allows New York consumers to purchase Defendant's goods on-line and to e-mail and exchange information with Defendant. It is well-settled that mere maintenance of a website, which is akin to a national advertisement, will not alone support jurisdiction. See id. at *10-11. However, use of a website to make sales in a distant state or to exchange information with distant users can give rise to personal jurisdiction.See Mattel. Inc. v. Adventure Apparel, No. 00 Civ. 4085, 2001 WL 286728, at *3 (S.D.N.Y. Mar. 22, 2001); NFL v. Miller, No. 99 Civ. 11846, 2000 WL 335566, at *2 (S.D.N.Y. Mar. 30, 2000). Assertion of jurisdiction on the basis of a website is subject to an examination of the "nature and quality of commercial activity that [the defendant] conducts over the internet." Citigroup Inc., 97 F. Supp. 2d at 565 (internal quotation marks omitted).
There is no question that Defendant's website is interactive, in that it allows customers to purchase Defendant's goods on-line and to exchange email inquiries. However, Defendant has not made any sales to New York residents through its website, and in fact has made only one on-line sale altogether. As noted above, Plaintiff has also not shown that any sales resulted from the email inquiries received from New York. Thus, in this case the mere possibility that New York residents can purchase Defendant's goods on-line is insufficient to establish jurisdiction because once again there exists no substantive transaction of business in New York out of which Plaintiff's claims arise. See V'soske, Inc. v. Vsoske.com, No. 00 Civ. 6099, 2001 WL 546567, at *4-5 (S.D.N.Y. May 23, 2001). The sole fact that Defendant has answered a handful of email inquiries from New York residents does not demonstrate the type of purposeful activity in New York sufficient to support the exercise of personal jurisdiction, particularly where Plaintiff has identified no other substantive contacts with the state of New York. See id. Accordingly, there is no basis on this record upon which to exert jurisdiction over Defendant under Section 302(a)(1).
N.Y. C.P.L.R. 302(a)(3)(ii) establishes a basis for jurisdiction over an out-of-state defendant who commits a tortious act outside of New York that causes injury in New York, where the defendant should reasonably expect its actions to have consequences in New York and where the defendant derives substantial revenue from interstate or international commerce. See Starmedia Network, Inc. v. Star Media, Inc., No. 00 Civ. 4647, 2001 WL 417118, at *2-3 (S.D.N.Y. Apr. 23, 2001) Defendant's sale of the allegedly infringing PHAT GAME products constitutes a tort committed outside the state that causes injury to Plaintiff in New York, which Defendant could reasonably foresee based on its maintenance of an Internet website advertising and selling its products. See id. at *23. Therefore, the first three requirements of Section 302(a)(3)(ii) are met.
However, Plaintiff has failed to show that Defendant derives substantial revenue from interstate or international commerce. This requirement ensures that businesses of a purely local nature are not subject to jurisdiction merely because they service a few New York customers. See Securenet, 2001 WL 521816, at *1. As evidence that Defendant obtains substantial revenue from these sources, Plaintiff points to the following facts: (1) Defendant uses manufacturers in Minnesota and the Philippines; (2) Defendant targets markets in Michigan and North Carolina; and (3) Defendant has admittedly made sales to residents of other states, (Dickerson Decl. ¶ 3). The first two facts standing alone do not demonstrate that substantial revenue is garnered from interstate commerce. The difficulty lies in ascertaining the extent of Defendant's admitted sales outside the state of California, not to mention the extent of its gross revenues generally, due to Defendant's poor bookkeeping practices.
Dickerson states in his declaration that Defendant has made sales to residents of other states, such as North Carolina. (Dickerson Decl. ¶ 3.) Williams stated in his declaration that sales have been exclusive to California. (Williams Decl. ¶ 9.) Because inferences are to be resolved in favor of Plaintiff, it will be assumed that some sales have been made outside of California. Plaintiff also points to specific deposition testimony of Dickerson as further proof that Defendant made sales to entities in North Carolina, Oregon, and Ontario, Canada. However, a review of Dickerson's deposition testimony indicates that those transactions were actually purchases by Defendant of products to sell to its customers, not actual sales to customers. (Simmons Aff. Ex. O at 163-67.)
Defendant claims that its gross revenues are not ascertainable because its accountant did not file 1998 or 1999 tax returns. (Simmons Aff. Ex. O at 142; Ex. P at 28, 213.) Defendant also claims that it cannot readily retrieve receipts of cash sales earned from its local kiosk and fair venues, in part because Defendant did not make a practice of keeping receipts until recently. Defendant's principles do testify that their sales are minimal, (Simmons Aff. Ex. O at 110; Ex. P at 110-11), and that they only began seeing a return on their investment in 2000, (Simmons Aff. Ex. O at 143). Defendant's characterization of its low number of sales would appear to be accurate. For example, Defendant had made only one on-line sale as of December 1, 2000. (Simmons Aff. Ex. O at 58, 68, 71, 73; Ex. P at 117-18.)
Because Defendant did not keep receipts for most small cash sales, the only evidence of sales in the record consists of the following, to which Dickerson and Williams testified in their depositions: (1) an estimation of $4,500.00 received from kiosk sales at the Downtown Plaza in Sacramento, California, (Simmons Aff. Ex. P at 26-27); (2) an invoice for $240.00 from booth sales in June 1999, (Simmons Aff. Ex. O at 124); (3) an invoice for $412.14 worth of goods given on consignment to Shiekh Shoe Store, a California retail store, of which Defendant claims only half were actually sold (Simmons Aff. Ex. O at 138-39; Ex. P at 106-07); (4) an invoice for $440.00 from a local jazz fair, (Simmons Aff. Ex. O at 134); (5) invoices for $140.00 for hats, $22.09 for a T-shirt, and $35.00 for hats, all of which were either sold "around town" or were purchased by Dickerson himself at cost (Simmons Aff. Ex. O at 137-40); and (6) an invoice for $160.00 for sixteen custom T-shirts and hats sold at the "Hoop 'N Up" basketball tournament in Stockton, California, (Simmons Aff. Ex. O at 60, 130). Defendant also made several custom sales to local high schools and sports teams, and one-time sales to a church and a law firm. (Simmons Aff. Ex. O at 132-33, 146-49; Ex. P at 146-49.)
Thus, it appears from this record that an overwhelming majority of Defendant's sales were made to California residents. The total revenue from the listed venues is less than $6,000.00. The sales to local sports teams and athletic clubs would have garnered additional profits, but Plaintiff has failed to connect any of these sales to customers outside of California. While Plaintiff has been hindered in its efforts by Defendant's sloppiness in tracking its business records and sales, and by Defendant's lethargy in producing documents requested during discovery, there is not even a colorable argument that Defendant has derived substantial revenue from interstate or international commerce. Accordingly, Plaintiff has failed to establish long arm jurisdiction over Defendant under Section 302(a)(3)(ii). Cf. CNN, L.P. v. GoSMS.com, Inc., No. 00 Civ. 4812, 2000 U.S. Dist. LEXIS 16156, at *13 (S.D.N.Y. Nov. 6, 2000) (jurisdiction found where defendant Internet company earned $60,000 from international commerce); Telebyte, Inc. v. Kendaco, Inc., 105 F. Supp.2d 131, 136 (E.D.N.Y. 2000) (no jurisdiction where only 9 customers out of 1, 552 lived outside the state of Washington) See generally Markham v. Gray, 393 F. Supp. 163, 166-67 (W.D.N Y 1975),aff'd, 531 F.2d 634 (2d Cir. 1976).
Plaintiff requests that this case be transferred rather than dismissed. The Court agrees that this is the appropriate solution. 28 U.S.C. § 1406 provides that "[t]he district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." Courts in this Circuit have held that transfer under Section 1406 is appropriate in the interest of justice even where venue is proper, but where the court lacks personal jurisdiction over the defendant. See generally Corke v. Sameiet M.S. Song of Norway, 572 F.2d 77, 78-80 (2d Cir. 1978);McCulley v. Anglers Cove Condo. Ass'n, Inc., 977 F. Supp. 177, 180-81 (E.D.N.Y. 1997). In this case, the parties have completed discovery and Plaintiff's motion for summary judgment disposing of all of its claims is fully submitted and ready for judicial resolution. Defendant will certainly not be inconvenienced by transfer to its home district, and Plaintiff has itself requested this result. Therefore, the interests of judicial economy and fairness to both parties will be well-served by transfer rather than outright dismissal. See American Motorists Ins. Co. v. Roller Bearing Co., No. 99 Civ. 9133, 2001 WL 170658, at *6 (S.D.N.Y. Feb. 21, 2001); McCulley, 977 F. Supp. at 81.
The district to which the case is transferred must be one in which the action could originally have been filed. See 28 U.S.C. § 1391(b);Minnette v. Time Warner, 997 F.2d 1023, 1026-27 (2d Cir. 1993). Because Defendant's business is located in Sacramento, both venue, see 28 U.S.C. § 1391(c), and personal jurisdiction are proper in the Eastern District of California. Accordingly this action will be transferred forthwith to that district.
III. CONCLUSION
For the foregoing reasons, this action is hereby transferred to the United States District Court for the Eastern District of California.
SO ORDERED.