Opinion
1:01cv96-C
November 30, 2001
MEMORANDUM AND RECOMMENDATION
THIS MATTER is before the court upon defendants' Motion to Dismiss and Motion to Transfer Venue. Having carefully considered those motions and reviewed the pleadings, the undersigned enters the following findings, conclusions, and recommendation.
FINDINGS AND CONCLUSIONS
I. Background
This is a patent infringement action in which plaintiffs allege that defendants willfully have infringed their United States Patent, Number 5, 775, 781 ("the `781 patent"), officially entitled "PAVEMENT MARKING REMOVAL TOOL AND METHOD." In addition to their allegations that such conduct violates federal unfair practices laws, plaintiffs contend that the alleged infringing conduct also violates North Carolina's Unfair and Deceptive Practices Act, entitling plaintiffs to treble damages.
The following facts are drawn from the complaint. Plaintiffs compete with defendants in the design, manufacture, and marketing of machinery used to remove markings from pavement or to resurface pavement. Complaint, at ¶ 12. Apparently, plaintiffs and defendants are the only two companies in the United States that manufacture and market drums configured with individually removable teeth for use in the removal of pavement markings. Id.
It is plaintiffs' contention that their drum, which is protected by the `781 patent, is being infringed by defendants' drum and by refurbishing services offered by defendants on plaintiffs' drums. Defendants counterclaim, seeking declaration by this court that the `781 patent is invalid.
In their answer, defendants contend that this court lacks personal jurisdiction over defendant Steven J. Smith and that this matter should be transferred to the Southern District of Florida. Defendant Smith contends that he has not conducted substantial business in North Carolina and, therefore, lacks minimum contacts with the proposed forum state. Defendants have, together, moved to transfer this matter to Florida, arguing that this action would be more conveniently defended in that forum.
In response, plaintiffs have shown that Defendant Smith has conducted business in the State of North Carolina. By way of affidavit, plaintiffs have shown that Defendant Smith has engaged in substantial transactions with North Carolina businesses, including the shipping, servicing, and return of drums to a North Carolina customer. Plaintiffs allege that the drums defendants service were manufactured by the plaintiffs, those drums are covered by the `781 patent, and the services rendered by defendants on such drums infringe plaintiffs' patent. While hearsay, plaintiff Randy R. Sawtelle avers that a customer informed him that "Defendant Smith has had multiple contacts with [his North Carolina company]" and that Defendant Smith is the only contact person for the corporate defendant. Plaintiffs have also submitted evidence that defendants have sold their own drums, which allegedly infringe the `781 patent, to at least one business in North Carolina.
The court has considered such affidavit, inasmuch as no hearsay objection was lodged in the reply, and insofar as the Federal Circuit permits consideration of such material in this context. Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558, 1562 (Fed. Cir. 1994).
II. Standard
Defendants have moved for dismissal pursuant to Rule 12(b), Federal Rules of Civil Procedure, contending that this court lacks personal jurisdiction over them. Rule 12(b) authorizes dismissal based upon a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 109 S.Ct. 1827, 1832 (1989); Hishon v. King Spalding, 467 U.S. 69, 73 (1984);Conley v. Gibson, 355 U.S. 41 (1957). As the Court discussed in Neitzke:
This procedure [for dismissal], operating on the assumption that the factual allegations in the complaint are true, streamlines litigation by dispensing with needless discovery and fact finding. Nothing in Rule 12(b)(6) confines its sweep to claims of law which are obviously insupportable. On the contrary, if as a matter of law "it is clear that no relief could be granted under any set of facts . . . a claim must be dismissed, without regard to whether it is based on outlandish legal theory. . . . What Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations."Id., at 1832 (citation omitted). For the limited purpose of ruling on defendants' motion, the undersigned has accepted as true the facts alleged by plaintiffs in the complaint and has viewed those facts in a light most favorable to plaintiffs. The undersigned has also considered all affidavits submitted in support of and in opposition to such motion.
III. Discussion
A. Motion to Dismiss
In patent infringement claims, this court is guided by the decision of the Federal Circuit, which has promulgated a three-part test for determining personal jurisdiction. This court considers the following:
(1) whether the defendants purposely directed their activities at residents of the forum state;
(2) whether the claim arises out of or relates to the defendants' activities within the forum; and
(3) whether assertion of personal jurisdiction is reasonable and fair.Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1359 (Fed. Cir. 2001). It is plaintiffs' burden to satisfy the first two parts of the test, which are to make a prima facie showing of specific jurisdiction, after which the burden shifts to defendants to show that such assertion of personal jurisdiction is not reasonable and fair. The quantum of proof necessary to demonstrate personal jurisdiction is governed by the law of the forum state. Graphic Controls Corp. v. Utah Medical Products, Inc., 149 F.3d 1382, 1383 (Fed. Cir. 1998). North Carolina has a presumption favoring personal jurisdiction. Med-Therapy Rehabilitation Services, Inc. v. Diversicare Corp., 768 F. Supp. 513, 517 (W.D.N.C. 1991). Further, this court has traditionally found due process satisfied where a party purposely avails itself of protections afforded by North Carolina law, even where the contact was initiated by a customer in North Carolina through a website, SuperGuide Corp. v. Kegan, ___ F. Supp. ___, 4:97cv181 (W.D.N.C. 1997); or where the defendants have engaged in purchases or sales with a customer or supplier in North Carolina, Volvo Trademark Holding Aktiebolaget v. Nueces Farm Center, Inc., ___ F. Supp. ___, 1:01cv122-T (W.D.N.C. 2001).
The Federal Circuit test in patent cases is not unlike the test in the Fourth Circuit for specific jurisdiction:
Specific jurisdiction involves the exercise of personal jurisdiction over the defendant in an action which arises out of the defendant's contact with the forum. Where a court seeks to assert specific jurisdiction over a nonresident corporate defendant, the "fair warning" requirement inherent in due process still demands that the defendant "purposely directed" its activities at the forum. General jurisdiction, by contrast, involves the exercise of personal jurisdiction over a defendant in an action which does not arise out of a defendant's contact with the forum. In such a case, the defendant's contacts with the forum must be "continuous and systematic" in order to satisfy the due process clause.
Federal Ins. Co. v. Lake Shore Inc., 886 F.2d 654, 660 (4th Cir. 1989). It is important to note that where specific jurisdiction is shown through "purposely directed activities" that relate to the ciaim, a plaintiff need not show that such contacts were "continuous and systematic," which is only applicable to showing general jurisdiction.
Construed in a light most favorable to plaintiffs, the allegations of their complaint, as well as the affidavits, provide sufficient evidence that (1) Defendant Smith has engaged in substantial commerce with North Carolina businesses on behalf of the corporate defendant; (2) such contacts involved negotiations and agreements with such North Carolina businesses; and (3) such contacts arise out of or relate to plaintiffs' claims, inasmuch as plaintiffs aver that those contacts involved the servicing of plaintiffs' product in an infringing manner and the selling of defendants' purportedly infringing product.
Plaintiffs having satisfied their burden under the first two prongs of the Inamed test, the burden shifts to Defendant Smith to show that it would be fundamentally unfair and unreasonable to hale him into this court. Defendant Smith attacks the sufficiency of plaintiffs' proffer by arguing that no evidence has been submitted that Defendant Smith was involved in the reconstruction of plaintiffs' drums or that the drums manufactured by defendants are in any way similar to the `781 patent. Defendant Smith further argues that plaintiffs have failed to show how he "purposely directed" his activities at residents of the State of North Carolina, and he has invoked the "unilateral activity" rule.Heliocopteros Nacionales de Columbia v. Hall, 466 U.S. 408, 416-17 (1984).
For the limited purpose of determining fundamental fairness of in personam jurisdiction, this court can find no requirement that plaintiffs show that the defendants knowingly engaged in infringing acts that were also minimum contacts. Indeed, neither the Federal Circuit in Inamed, nor the Fourth Circuit in Federal Ins. Co., requires such a showing to support specific jurisdiction, and they require only a showing that the claim asserted emanated from the contact with the forum. To the extent such a requirement could be found to exist at this stage in the proceedings, plaintiffs have alleged that they clearly marked their drums with the issued patent number and that notice is otherwise inferred to all as a matter of law through issuance of the patent.
Defendants' stronger argument is found in the "unilateral activity" rule, which prohibits the finding of personal jurisdiction where either a plaintiff attempts to manufacture jurisdiction by initiating an order with a distant defendant or where the defendant did not solicit the business — that it, the contact was fortuitous. Heliocopteros Nacionales de Columbia, supra. As to the contacts plaintiffs have cited, they have provided sufficient evidence that while Defendant Smith may not have solicited the business, he availed himself of the opportunity by sending quotes to such North Carolina businesses for products and services and arranging for shipping to and from Florida for the purpose of repairing the drums. In addition, plaintiffs have shown that Defendant Smith sold allegedly infringing drums to businesses within North Carolina. It is clear that Defendant Smith was "fairly warned" that he could be haled into a North Carolina forum when he "purposely directed" his activities at this forum by entering into contracts in, performing services in, and shipping goods to North Carolina. Finding that Defendant Smith cannot satisfy the third prong and that it would be fair and reasonable to require him to defend this action in this forum, the undersigned will recommend that Defendant Smith's Motion to Dismiss for lack of personal jurisdiction be denied.
B. Motion to Transfer Venue
Defendants have moved to transfer this matter to the Southern District of Florida and, in particular, contend that such transfer would make defending this litigation more convenient to them. They also contend that access to the proof will be enhanced, inasmuch as the alleged infringing product is found in that jurisdiction.
In Jim Crockett Promotions, Inc. v. Action Media Group, Inc., 751 F. Supp. 93 (W.D.N.C. 1990), this court established a litany of considerations applicable to any motion to transfer. In order to determine whether transfer is proper, a balance must be struck between the competing interests. Unless the balance is tipped strongly in favor of the moving party, Collins v. Straight, Inc., 748 F.2d 916, 921 (4th Cir. 1984), plaintiffs' choice of forum should not be disturbed. Upon a motion to transfer, the moving party carries the burden, 1A Moore's Federal Practice, paragraph 0.345[5] at 4360 (Matthew Bender 1990); and the burden is heavy, Datasouth Computer Corp. v. Three Dimensional Technologies, Inc., 719 F. Supp. 446, 451 (W.D.N.C. 1989).
A defendant carries a particularly heavy burden when it moves pursuant to [Section] 1404(a) to transfer an action from a district where venue is proper. As this court has noted previously, it is "black letter law," that "plaintiff's choice of a proper forum is a paramount consideration in any determination of a transfer request, and that choice . . . should not be lightly disturbed."Phillips v. S. Gumpert Co., Inc., 627 F. Supp. 725, 726-27 (W.D.N.C. 1986) (citations omitted) (quoting Western Steer Mom `N' Pop's v. FMT Invs., Inc., supra, at 265. The relevant considerations are, as follows:
1. The plaintiff's initial choice of forum;
2. The residence of the parties;
3. The relative ease of access of proof;
4. The availability of compulsory process for attendance of witnesses and the costs of obtaining attendance of willing witnesses;
5. The possibility of a view;
6. The enforceability of a judgment, if obtained;
7. The relative advantages and obstacles to a fair trial;
8. Other practical problems that make a trial easy, expeditious, and inexpensive;
9. The administrative difficulties of court congestion;
10. The interest in having localized controversies settled at home and the appropriateness in having the trial of a diversity case in a forum that is at home with the state law that must govern the action; and
11. The avoidance of unnecessary problems with conflict of laws.Id. at 7-8. Courts should make both a quantitative and a qualitative analysis of the factors. McDevitt Street Co. v. Fidelity and Deposit Co., 737 F. Supp. 351, 354 (W.D.N.C. 1990).
Having considered those factors both quantitatively and qualitatively, the undersigned finds that a transfer of venue would do nothing but shift the travel burden to plaintiffs. Citations to the relative caseloads, while of interest, have little impact in this division, inasmuch as the caseload stays current and the parties can expect trial or another disposition within six months. Here, it is fundamentally fair that a corporation and its agent, who did business with other corporate residents of the State of North Carolina, should be required to return to North Carolina to defend their activities in front of a court familiar not only with patent law, but with the laws of North Carolina, which also govern those activities.
RECOMMENDATION
IT IS, THEREFORE, RESPECTFULLY RECOMMENDED that defendants' Motion to Dismiss and Motion to Transfer Venue (#7) be DENIED.
The parties are hereby advised that, pursuant to 28, United States Code, Section 636(b)(1)(C), written objections to the findings of fact, conclusions of law, and recommendation contained herein must be filed within ten (10) days of service of same. Failure to file objections to this Memorandum and Recommendation with the district court will preclude the parties from raising such objections on appeal. Thomas v. Arn, 474 U.S. 140 (1985), reh'g denied, 474 U.S. 1111 (1986); United States v. Schronce, 727 F.2d 91 (4th Cir.), cert. denied, 467 U.S. 1208 (1984).