Summary
recognizing the automatic stay imposed by § 69 of the BIA, and noting that "American courts routinely extend comity to the actions and judgments of Canadian bankruptcy courts"
Summary of this case from In re ABC-NACO, Inc.Opinion
Case No. 3:00CV7038
August 15, 2002
ORDER
This is a patent infringement case in which the defendant Orthosupport International's products have been found to infringe plaintiff Banyan Licensing's patent for knee-pillows, used to relieve back pain during sleep. The Federal Circuit has upheld the finding of infringement.
When infringement was first found, an injunction issued to restrain defendant's sale, and offer to sell, its infringing products in this country. Orthosupport has twice disregarded that injunction, and plaintiff has sought, and is entitled to sanctions. Determination of the kind and amount of such sanctions is pending.
Orthosupport, which is a Canadian company owned by Dr. Larry Frydman, a Canadian national and resident of Toronto, recently filed for bankruptcy in a Canadian court. That court has issued an order staying proceedings against Orthosupport. In light of that order, Orthosupport has filed a motion to dismiss or stay these proceedings against it.
In addition, plaintiff has filed a motion for leave to join Dr. Frydman, who is Orthosupport's principal shareholder and manager. Orthosupport opposes that motion primarily on the basis of a lack of personal jurisdiction over Dr. Frydman.
Also pending are motions by Orthosupport's counsel for leave to withdraw. In addition, plaintiff has filed a draft amendment to this court's order of July 11, 2002, finding Orthosupport in contempt.
For the reasons that follow, comity shall be extended to the order of the Canadian bankruptcy court; plaintiff's motion for leave to amend to add Dr. Frydman as a party shall be granted; leave shall be granted to Orthosupport's counsel to withdraw; and the draft amendment to the contempt order shall be granted.
1. Comity re. Canadian Bankruptcy Proceedings
Comity is the recognition which one nation extends within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws. Hilton v. Guyot, 159 U.S. 113, 164 (1895). Comity is granted to the decision or judgment of a foreign court if the foreign court is a court of competent jurisdiction, and that the laws and public policy of the forum state and the rights of its residents will not be violated. Id. Comity should be withheld only when its acceptance would be contrary or prejudicial to the interest of the nation called upon to give it effect. Somportex Ltd. v. Philadelphia Chewing Gum Corp., 453 F.2d 435, 440 (3d Cir. 1971).
Comity is applied to the actions and judgments of foreign bankruptcy tribunals. See, e.g., Cunard S.S. Co. Ltd. v. Salen Reefer Services AB, 773 F.2d 452, 458 (2nd Cir. 1985) ("The granting of comity to a foreign bankruptcy proceeding enables the assets of a debtor to be dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic or piecemeal fashion. Consequently, American courts have consistently recognized the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities.").
It appears that American courts routinely extend comity to the actions and judgments of Canadian bankruptcy courts on the basis that creditors, including American creditors, will be treated fairly and with due process:
Courts have consistently extended comity to Canadian bankruptcy proceedings[,] finding that Canada's Bankruptcy and Insolvency Act ("BIA") contains a comprehensive procedure for the orderly marshaling and equitable distribution of Canadian debtor's assets which closely resembles under the United States' Bankruptcy Code. In determining whether to accord comity to a foreign bankruptcy case, the foreign law need not be identical to the United States' bankruptcy laws but that it is enough that it is not repugnant to American laws and policies. There is no indication that the bankruptcy proceedings in Canada do not comport with American notions of due process or that extending comity would be prejudicial to the interests of American creditors. Courts have recognized that the marshaling and equitable distribution of a Canadian debtor's assets closely resembles that available under the Bankruptcy Code. The automatic stay under the BIA, § 69, is similar to that imposed by § 362 of the Bankruptcy Code. The BIA recognizes the rights of secured creditors to realize on their collateral, protects that collateral from the claims of unsecured creditors and preserves the right of an undersecured creditor to assert a deficiency claim. The BIA provides for the avoidance of fraudulent transfers or preferential payments and contains a comprehensive distribution scheme similar to that under the Bankruptcy Code. Estate assets will be wasted if litigation proceeds against the debtor outside of Canada.
Badalament, Inc. v. Mel-O-Ripe Banana Brands, Ltd., 265 B.R. 732, 736-37 (E.D.Mich. 2001).
In light of the foregoing, and absent any suggestion, much less showing by plaintiff that it and other creditors cannot expect, or will not receive, due process in the Canadian bankruptcy court, these proceedings shall be stayed as to Orthosupport.
2. Amendment of the Complaint
Orthosupport seeks leave to file a second amended complaint, whereby it seeks to join Orthosupport's principal, Dr. Frydman, as a codefendant. According to Orthosupport, the motion should not be granted because this court lacks in personam jurisdiction over Dr. Frydman. In response, plaintiff argues that Dr. Frydman is Orthosupport's alter ego, so that the corporate veil that separates him from his company can and should be pierced to impose whatever liability might be owed to plaintiff by Orthosupport on him.
Orthosupport argues that the alter ego issue should be resolved by the Canadian court. I disagree. Because this court, for the reasons that follow, has jurisdiction over Orthosupport, it would also have jurisdiction over Dr. Frydman, were he found to be Orthosupport's alter ego. The allegations to that effect in the second amended complaint must be accepted as true, particularly because the record is not sufficient to determine the validity of those allegations. Thus, determination of whether this court has jurisdiction over Dr. Frydman depends on development of the record, which should occur here, rather than in the Canadian proceedings.
I make no ruling for now on the question of whether Canadian or American substantive law (and if American law, which American law) controls the determination of the alter ego issue.
Orthosupport consented to this court's jurisdiction over it. I also conclude, in any event, that jurisdiction exists over Orthosupport independently of its consent. If Dr. Frydman is found to be Orthosupport's alter ego, jurisdiction likewise will exist over him.
Orthosupport advertised over stations viewed by Ohio residents, maintained a website accessible by Ohio residents, and derived about $1,100 in revenue from sales in Ohio. In light of this nominal amount, it argues that it cannot be found to have transacted business in this state under Ohio's long arm statute, even though it solicited Ohio's customers through television advertising and its website.
Were the Ohio long arm statute the only basis for asserting jurisdiction over Orthosupport, an argument that jurisdiction could not have been asserted over it, absent its consent, might have been well-taken. See Stern's Dept. Stores, Inc. v. Herbert Mines Assoc., Inc., 1999 WL 33471990, *9 (S.D.Ohio, Jul 08, 1999) (maintenance of a website accessible by Ohio residents, distribution of brochures to two such residents, and "sporadically" engaging in transactions in Ohio not sufficient); Hoover Co. v. Robeson Industries Corp., 904 F. Supp. 671, 674 (N.D.Ohio. 1995) (income of $1,920.60 in commissions from sales in Ohio not substantial revenue).
This is, however, a patent infringement case, and courts have consistently held that infringement is a tort that brings the infringer within the scope of a state long arm statute. See, e.g., North American Philips Corp. v. American Vending Sales, Inc., 35 F.3d 1576, 1579-80 (Fed. Cir. 1994); Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1570-71 (Fed. Cir. 1994); Worldtronics Intern., Inc. v. Ever Splendor Enterprise Co., Inc., 969 F. Supp. 1136, (N.D.Ill. 1997). As a corollary to this proposition, "[t]he law is clear that, where a defendant infringer is shown to have sold the allegedly infringing product in the forum state, the forum may exercise personal jurisdiction over the defendant." Osteotech, Inc. v. GenSci Regeneration Sciences, Inc., 6 F. Supp.2d 349 (D.N.J. 1998). The requisite constitutional basis for exercising jurisdiction is deemed to have been shown because "such a defendant clearly had a `fair warning' that it could be haled into court into the forum state [and], as well, . . . the forum in which an allegedly infringing product is sold clearly has an interest in prohibiting the importation of infringing articles into its territory." Id.
Thus, "[r]egardless of the quantity of products sold or the shipping method used, the sale of patented products to buyers in the forum state creates specific personal jurisdiction over an out-of-state seller" without contravening constitutional norms. VP Intellectual Properties, LLC v. IMTEC Corp., 1999 WL 1125204, *5 (D.N.J., Dec. 9, 1999). Accord, Maxwell Chase Technologies, L.L.C. v. KMB Produce, Inc., 79 F. Supp.2d 1364, 1373 (N.D.Ga. 1999).
Even if Orthosupport had not consented, this court had jurisdiction over it. It will likewise have jurisdiction over Dr. Frydman, if he is found to be Orthosupport's alter ego.
Final determination of that question must await further development of the record. For now, it suffices to conclude that leave can properly be granted to plaintiff to file its second amended complaint, naming Dr. Frydman as a codefendant.
To the extent that Orthosupport argues that amendment should not be allowed because this would be an inconvenient forum, I find its arguments not well-taken. Dr. Frydman traveled to this country to attend trade shows; indeed, his activities at one such show have been found to have violated the injunction against Orthosupport and its employees. I take judicial notice that Toronto, where Dr. Frydman lives, is about six hours drive away from this court; this is not such a distance that this is an inappropriate or inconvenient forum in which to call Dr. Frydman to defend his actions and those of Orthosupport, if he is found to be his company's alter ego.
III. Motion of Counsel For Leave to Withdraw
Lead counsel for Orthosupport have filed a motion for leave to withdraw as counsel for due to nonpayment of substantial attorneys' fees due and owing to said counsel. That being so, and Orthosupport being in bankruptcy, and the Canadian court having issued a stay order, which is entitled to comity, the motion for leave to withdraw shall be granted.
During a conference on August 13, 2002, local counsel for Orthosupport likewise asked leave to withdraw. Though such counsel have filed no formal motion, they stated that Orthosupport owes them substantial monies. In light of that representation, they shall also be granted leave to withdraw.
IV. Amendment to Contempt Order
Plaintiff has requested that the contempt order issued July 11, 2002, be amended in a manner the conforms to its draft amendment to said order. I have reviewed the draft, and compared it with the original order, and I find that plaintiff's request is well-taken, and more accurately expresses the findings and conclusions reached following the show cause and related proceedings. The draft shall be adopted as the order of this court.
Conclusion
In light of the foregoing, it is
ORDERED THAT:
1. Defendant Orthosupport's motion to dismiss or stay proceedings granted, to the extent that further proceedings against that defendant are stayed pending further court order;
2. Plaintiff Banyan's motion for leave to file a second amended complaint granted, without prejudice to the right of the newly-added defendant, Dr. Lawrence Frydman, to oppose plaintiff's contention that he is an alter ego of defendant Orthosupport;
3. Leave granted to lead and local counsel for defendant Orthosupport to withdraw;
4. Draft of Amendment to Contempt Order adopted, and shall be entered nunc pro tunc as this court's substitute for its order of July 11, 2002.
So ordered.