Smith Enterprise, Inc. v. Capital City Firearms

Full title: Smith Enterprise, Inc., Plaintiff, v. Capital City Firearms, Defendant

Court: United States District Court, D. Arizona

Date published: Jun 24, 2008

No. CV 07-02163-PHX-EHC (D. Ariz. Jun. 24, 2008)

Opinion

No. CV 07-02163-PHX-EHC.

June 24, 2008

ORDER

EARL CARROLL, Senior District Judge

Before the Court is Defendant Capital City Firearms' Motion to Dismiss (Dkt. 5) pursuant to Rules 12(b)(2) and (3), Federal Rules of Civil Procedure. Plaintiff Smith Enterprise, Inc. filed a Response and Alternative Request to Permit Conducting Additional Jurisdictional Discovery (Dkt. 10). Defendant filed a Reply (Dkt. 13). The Court finds this matter suitable for decision without oral argument.

I. Background ¹

1 The following facts come from Plaintiff's Complaint (Dkt. 1) and Response (Dkt. 10), and are accepted as true for the purposes of this motion.

Plaintiff Smith Enterprise, Inc. is an Arizona corporation with its principal place of business in Tempe, Arizona. (Dkt. 1, ¶ 2). Plaintiff manufactures and sells accessories and services for tactical and competition firearms, and has used the VORTEX trademark extensively in connection with the sale of these items, and with muzzle flash hiders.² (Dkt. 1, ¶ 6). Plaintiff has federal registration over the VORTEX trademark, and its VORTEX flash hiders have become well-known in the industry. (Dkt. 1, ¶ 7, 9). Defendant Capital City Firearms is a Virginia corporation with its principal place of business in Richmond, Virginia. (Dkt. 1, ¶ 3; Dkt. 10, ¶ 13). Defendant sells tactical handguns and accessories via the Internet to wholesale and retail customers. (Dkt. 10, pg. 2).

2 A muzzle flash hider eliminates the muzzle flash on a firearm. (Dkt. 1).

In 1999, Plaintiff and Defendant entered into a license agreement whereby Plaintiff authorized Defendant to purchase Plaintiff's VORTEX flash suppressors, and market the flash suppressors to Defendant's customers. (Dkt. 10, pg. 2). From August 1999 to February 2002, Plaintiff sold several hundred flash suppressors to Defendant. (Dkt. 10, pg. 2). In February 2002, Plaintiff and Defendant terminated their business relationship. (Dkt. 10, pg. 2). In October 2006, Plaintiff became aware that Defendant was marketing a flash hider under the VORTEX trademark, or a mark that was allegedly similar to the VORTEX one. (Dkt. 1, ¶ 11). On October 13, 2006, Plaintiff sent Defendant a cease and desist letter. (Dkt. 1, ¶ 12).

Defendant, however, continued to sell flash hiders using the VORTEX mark on its website³, prompting Plaintiff's current lawsuit. (Dkt. 1, ¶ 13). In addition, Defendant has advertised its flash suppressors in a nationally distributed magazine. (Dkt. 10, pg. 3). As a result, Defendant has sold approximately 40 of its allegedly infringing flash suppressors to Arizona residents. (Dkt. 10, pg. 3). Thus, personal jurisdiction is arguably present.

3 Defendant's website is alleged to be http://www.ccfa.com/FlashSuppressors.htm.

II. Discussion

Pursuant to Rule 12(b)(2), Federal Rules of Civil Procedure, a complaint against a defendant may be dismissed for lack of personal jurisdiction. See Fed.R.Civ.P. 12(b)(2). To overcome a Rule 12(b)(2) motion, a plaintiff must make a prima facie showing of personal jurisdiction, and may present evidence beyond the allegations in the complaint. See Swartz v. KPMG LLP, 476 F.3d 756, 766 (9th Cir. 2007). A mere "bare bones" assertion of minimum contacts without factual support will not satisfy a plaintiff's burden of proof. Id.

In its Motion to Dismiss (Dkt. 5), Defendant contends that Plaintiff's complaint fails to identify any injurious event occurring in Arizona, or any specific advertisement or solicitation directed toward Arizona. In particular, Defendant contends that all of its products are sold under certain terms and conditions which state that their orders are binding under Virginia Law. In response, Plaintiff asserts that because Defendant operates a website from which Arizona customers make purchases, personal jurisdiction over Defendant exists in this Court.

A. Personal Jurisdiction

The Court must first address whether Defendant is subject to personal jurisdiction in Arizona. Arizona's long-arm statute provides that an Arizona court may exercise personal jurisdiction over an out-of-state defendant to the fullest extent constitutionally permissible. See Ariz. R. Civ. P. 4.2(a);Cybersell, Inc. v. Cybersell, Inc., 130 F.3d 414, 416 (9th Cir. 1997). Therefore, so long as doing so would not violate due process, Defendant may be subject to personal jurisdiction in this Court. In order to be consistent with due process, a court may only exercise personal jurisdiction over a nonresident defendant if that defendant has certain minimum contacts with the forum state "such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" SEC v. Ross, 504 F.3d 1130, 1138 (9th Cir. 2007) (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). In essence, the Due Process Clause of the United States Constitution protects the out-of-state defendant from being subjected to suit in a forum in which he has no purposeful or meaningful contacts. Burger King Corp. v. Rudcewicz, 471 U.S. 462, 471 (1985). As the Court in Burger King Corp. stated: ". . . the Due Process Clause `gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable for suit.'" Id.

When determining whether Defendant had minimum contacts with the state of Arizona such that it will be subject to personal jurisdiction in this Court, and such that this personal jurisdiction will not violate the Due Process Clause, the Court must consider "the relationship among the defendant, the forum, and the litigation . . ." Shaffer v. Heitner, 433 U.S. 186, 205 (1977). If this Court decides that Defendant's contacts with Arizona satisfy the Due Process Clause, then the Court must determine whether to exercise general or specific jurisdiction over Defendant — this will be based on the nature of Defendant's contacts. See Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414-415 nn. 8-9 (1984).

1. General Jurisdiction

General jurisdiction exists only where a defendant's activities in Arizona are continuous or systematic, even if the plaintiff's action has nothing to do with these activities. See Doe v. American Nat'l Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997). Such is not the case here. Defendant, a Virginia corporation, has not engaged in continuous and systematic relations with Arizona, and maintains its principal place of business in Virginia. While Defendant has at least 40 clients in Arizona, its dealings with these clients have not been steady. Defendant ships products to Arizona only when they are ordered, and these items constitute only 2.75% of Defendant's total revenues. (Dkt. 10, Exhibit 5). All of Defendant's sales transactions are delivered from Virginia. Therefore, because the delivery and consummation of orders in Arizona are not regular, systematic or substantial, this Court cannot exercise general jurisdiction over Defendant.

2. Specific Jurisdiction

Because Defendant is not subject to general jurisdiction in Arizona, the Court must determine whether Defendant has sufficient minimum contacts with Arizona, to give rise to specific jurisdiction. In the Ninth Circuit, specific jurisdiction exists if: (1) the nonresident defendant purposefully directs its activities, or consummates some transaction with the forum state, such that it purposely avails itself of the privilege of conducting business in the forum state; (2) the plaintiff's claim arises out of or relates to the defendant's activities in the forum; and (3) the exercise of jurisdiction in the forum state is reasonable. See Int'l Shoe Co., 326 U.S. at 316; See Menken v. Emm, 503 F.3d 1050, 1057 (9th Cir. 2007).

a. Purposeful Availment

When first discussing the specific jurisdiction test, the United States Supreme Court stated that it was essential that in each case, the defendant have some act by which he had purposely availed himself of the privilege of conducting activities in the forum state, thereby invoking the benefits of that state's legal protection. See Hanson v. Denckla, 357 U.S. 235, 253 (1958). More recently, the Supreme Court has held that a court may have specific jurisdiction over a defendant when the intended effects of the defendant's conduct were not only directed at the forum state, but also meant to cause harm to it. See Calder v. Jones, 465 U.S. 783, 789-790 (1984) (adopting "effects test" for libel, invasion of privacy, and intentional infliction of emotional distress claims when defendant's Florida conduct had "effects" in forum state of California). Thus, district courts in the Ninth Circuit apply different specific jurisdiction tests for contracts and tort cases. See Roth v. Garcia Marquez, 942 F.2d 617, 621 (9th Cir. 1991).

There are three elements to the specific jurisdiction test as it applies to tort cases such as this one⁴: (1) intentional action; (2) aimed at the forum state; and (3) causing harm that the defendant could have anticipated would be suffered in the forum state. Ziegler v. Indian River County, 64 F.3d 470, 474 (9th Cir. 1995). Furthermore, some courts have found that corporations who direct their advertising via the Internet, and have toll-free numbers available to call on their websites, are subject to jurisdiction in the forum state. See Id. (citing Inset Systems Inc. v. Instruction Set, Inc., 937 F. Supp. 161 (D. Conn. 1996) (holding that defendant purposely availed itself of conducting business in Connecticut due to its advertising activities via the Internet and its toll-free number directed at Connecticut and all other states)).

4 Trademark infringement actions, such as this one, sound in tort. See Am. Isuzu Motors, Inc. v. Fladeboe Volkswagon, Inc., 250 Fed. Appx. 204, 205 (9th Cir. 2007).

Here, Defendant's actions satisfy the criteria for purposeful availment in a tort action. First, Defendant intentionally sold products to Arizona customers that allegedly bear Plaintiff's protected VORTEX trademark. Defendant's website was accessible to — and indeed, accessed by — customers in Arizona, who placed at least 40 orders for allegedly infringing products. This, combined with Defendant's magazine advertisements, should have put Defendant on notice that it might be subject to suit in Arizona, especially after receiving a cease and desist letter from Plaintiff, an Arizona-based company. Indeed, Defendant could have reasonably expected to be subject to suit in all states in which citizens would have access to its website and magazine advertisements, and where the effects of any online trademark infringement could be felt. Therefore, because Defendant has knowingly engaged in actions aimed at Arizona, with the knowledge that such actions might subject it to suit in Arizona, Defendant has purposely availed itself of the privilege of conducting business here, and has invoked the benefits and protections of Arizona's laws. See Hanson, 357 U.S. at 253.

b. Action Arose Through Contacts

Notwithstanding purposeful availment, "a defendant cannot be haled into court for activities unrelated to the cause of action in the absence of a showing of substantial and continuous contacts sufficient to establish general jurisdiction." Shute v. Carnival Cruise Lines, 897 F.2d 377, 385 (9th Cir. 1990). An action arises out of certain contacts if, "but for" the contacts between the defendant and the forum state, the action would not exist. Terracom v. Valley Nat'l Bank, 49 F.3d 555, 561 (9th Cir. 1995).

In Cybersell, Inc., the Court stated:

Cybersell AZ points to several district court decisions which it contends haveheld that the mere advertisement or solicitation for sale of goods and serviceson the Internet gives rise to specific jurisdiction in the plaintiff's forum. However, so far as we are aware, no court has ever held that an Internetadvertisement alone is sufficient to subject the advertiser to jurisdiction in the plaintiff's home state.

Cybersell, Inc., 130 F.3d at 419. Every court that has subjected an advertiser to suit in the forum state has determined that the advertiser did something "more" than just simply advertise. Id. Similarly, in Calder v. Jones, the court noted that "[t]he plaintiff's lack of `contacts' will not defeat otherwise proper jurisdiction . . . but they may be so manifold as to permit jurisdiction when it would not exist in their absence."Calder, 465 U.S. at 788. Courts have also considered the number of "hits" received on a particular website. See Cybersell, Inc., 130 F.3d at 419.

Here, Defendant operates an interactive website⁵ complete with a telephone and fax number listed on the home page. Sales made from that website are the "but for" cause of Plaintiff's action. That is, "but for" Defendant's directing its advertisements and phone number to Arizona (among other states) and consummating sales with Arizona residents, Plaintiff would have no valid action. Therefore, Plaintiff's action arose out of Defendant's Arizona contacts.

5 An interactive website is one in which users can exchange information with the host computer. Cybersell, Inc., 130 F.3d at 418.

c. Reasonableness of Jurisdiction

Finally, having determined that the first two requirements of the specific jurisdiction test have been met — purposeful availment and the action arises out of Defendant's contacts — the Court concludes that the exercise of jurisdiction is reasonable. Thus, the burden of proof is on Defendant to "present a compelling case that the presence of some other considerations would render jurisdiction unreasonable." Burger King, 471 U.S. at 477. Specifically, Defendant must show a due process violation, and prove that jurisdiction in the forum state would be gravely difficult and inconvenient, thus placing it at a severe disadvantage as compared to Plaintiff. See WebZero, LLC v. ClicVu, Inc., 2008 U.S. Dist. LEXIS 33124 at *6 (C.D. Cal. 2008) (citing Sher v. Johnson, 911 F.2d 1357, 1365 (9th Cir. 1990)). Reasonableness requires consideration of six factors: (1) the extent of the defendant's purposeful injection into the forum; (2) the defendant's burdens from litigating in the forum; (3) the extent of conflict with the sovereignty of the defendant's state; (4) the forum state's interest in adjudicating the dispute; (5) the most efficient judicial resolution of the controversy; (6) the importance of the forum to the plaintiff's interest in convenient and effective relief; and (7) the existence of an alternative forum. Ziegler, 64 F.3d at 475.

In addition, some courts have differentiated between "passive" and "interactive" websites when discussing the issue of reasonable jurisdiction. In Pebble Beach Co. v. Caddy, the Court found that because the defendant's website did not allow customers to make reservations online, thus rendering it a "passive" website, the plaintiffs could not subject the defendant to personal jurisdiction in California or even the United States.Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006) (finding no personal jurisdiction where California plaintiff sued British defendant over trademark infringement due to similarity between names of defendant's bed-and-breakfast and plaintiff's golf resort). In Stomp, Inc. v. Neato, however, the defendant was a company that was consummating sales over the Internet, thus subjecting it to litigation in any state (in this case, specifically California) in which sales were made. See Stomp, Inc. v. Neato, 61 F.Supp.2d 1074, 1078 (C.D. Cal. 1999) (finding personal jurisdiction where California plaintiff brought suit against Connecticut defendant for alleged patent infringement arising out of defendant's online sales). Similarly, in WebZero, the Court found that the defendant, as the operator of an "interactive" website, was subject to personal jurisdiction in California due to its business contacts with the state. See WebZero, LLC, 2008 U.S. Dist. 33124 at *24 (finding personal jurisdiction where Wyoming plaintiff brought suit against Delaware defendant alleging patent infringement arising out of defendant's online transactions). Finally, in A. Uberti C. v. Leonardo, the Supreme Court of Arizona held that due to the defendant's nationally distributed advertisements, catalogs, and sales of goods in Arizona, personal jurisdiction in Arizona was reasonable because the foreign defendant's acts were aimed at Arizona, as at all other states. See A. Uberti C. v. Leonardo, 181 Ariz. 565, 574 (Ariz. 1995) (holding that Italian firearm manufacturer was subject to personal jurisdiction in Arizona).

While Defendant contends that all of its orders are sold under a contract binding under Virginia law, this stipulation applies solely to Defendant's customers, and alleged trademark infringement does not fall under the same category as sales. Therefore, when considering reasonable jurisdiction, the first factor to consider is that of purposeful interjection: "Even if there is sufficient `interjection' into the state to satisfy the purposeful availment prong, the degree of interjection is a factor to be weighed in assessing the overall reasonableness of jurisdiction under the reasonableness prong." Panavision Intern., L.P. v. Toeppen, 141 F.3d 1316, 1323 (9th Cir. 1998). Here, Defendant maintained an interactive website and consummated over 100 sales with Arizona customers. Therefore, Defendant's interjection was substantial. Another factor to consider is Defendant's burden in litigating; that is, the burden should be so great as to constitute a violation of due process. See Id. In this case, it is not gravely difficult or inconvenient for Defendant to litigate in Arizona.See Webzero, LLC, 2008 U.S. Dist. LEXIS 33124 at *6 (C.D. Cal. 2008) (finding that, as a business entity that had operated for over six years, and given fax machines and discount air fares, requiring defendant to defend itself in California as opposed to Wyoming was not a violation of due process). The third principal aspect to consider is efficient resolution. According to the Court in Panavision, this factor considers the location of witnesses and evidence, yet given modern advances in communication, is no given significant weight. Panavision Intern, L.P., 141 F.3d at 1323. In this case, at least some key witnesses are located in Arizona. Finally, the alternative forum of Virginia must be considered. While it may be more costly and inconvenient for Defendant to litigate in Arizona (See Panavision Intern, L.P., 141 F.3d at 1324), Defendant has not presented any compelling reason as to why the exercise of jurisdiction over it in Arizona would be unreasonable. Indeed, Defendant's local counsel appears competent and well-equipped to represent its interests here. Therefore, because due process is not violated by exercising personal jurisdiction over Defendant, jurisdiction in Arizona is proper.

III. Venue

Pursuant to Rule 12(b)(3), Federal Rules of Civil Procedure, a complaint against a defendant may be dismissed for improper venue. See Fed.R.Civ.P. 12(b)(3). In deciding a Rule 12(b)(3) motion, the Court must draw all reasonable inferences and resolve every factual dispute in favor of Plaintiff. See Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1139 (9th Cir. 2004).

When considering the issue of venue in this case, the Court must look to both 28 U.S.C. § 1391(b)(2) and § 1391(c). Pursuant to 28 U.S.C. § 1391(b)(2), a civil action that is not solely founded on diversity can only be brought in a judicial district in which a substantial amount of the events giving rise to the claim occurred. See 28 U.S.C. § 1391(b)(2). As discussed, Defendant sold a substantial number of allegedly infringing products to Arizona customers. In addition, 28 U.S.C. § 1391(c) states that a defendant corporation is deemed to reside in any judicial district in which it is subject to personal jurisdiction. See 28 U.S.C. § 1391(c). Because Defendant is subject to personal jurisdiction in Arizona, as discussed above, venue in the District of Arizona is proper.

Accordingly,

IT IS ORDERED denying Defendant's Motion to Dismiss (Dkt. 5).