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STARK CARPET CORP. v. M-GEOUGH ROBINSON

January 17, 1980

STARK CARPET CORPORATION, Plaintiff,
v.
M-GEOUGH ROBINSON, INC., James M-Geough and Ned Robinson, Defendants



The opinion of the court was delivered by: TENNEY

Plaintiff, Stark Carpet Corporation ("Stark Carpet"), has brought this action to recover damages and to obtain an injunction against a Massachusetts corporation, M-Geough Robinson, Inc. ("MGR"), and two of its officers, James M-Geough and Ned Robinson. Plaintiff sues for trademark infringement, unfair competition, palming off, improper use of trade secrets, breach of fiduciary duty, unjust enrichment and conversion. Each defendant has moved to dismiss the complaint for lack of subject matter jurisdiction, lack of personal jurisdiction, improper venue and, alternatively, for a change of venue to the District of Massachusetts. Subject matter jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332, and violation of a federal trademark law, 28 U.S.C. § 1338(a). The Court concludes that it has subject matter jurisdiction over this action, *fn1" grants the motion to dismiss the complaint for lack of personal jurisdiction, *fn2" and grants the motion to transfer venue to the District of Massachusetts. *fn3"

Background

MGR is a sales representative for manufacturers of furniture, home furnishings and carpets. From 1967 until 1976, MGR was Stark Carpet's sales representative in the New England area. Stark Carpet alleges that after MGR terminated their business relationship, MGR retained, without Stark Carpet's permission, various sales aids (samples, price lists and brochures) that should have been returned. It alleges that MGR used the Stark trademark and trade name in representing inferior products. It also alleges that defendant obliterated plaintiff's trademark from some samples, indicating that these samples were the products of other manufacturers. Furthermore, plaintiff alleges that MGR acquired valuable trade secrets during their business relationship and improperly used those trade secrets after the relationship ended.

 MGR operates a showroom in Boston where it displays the products of several manufacturers and suppliers. MGR's clients are members of the "design trade" (architects and designers) who visit MGR's showroom to view the products of its suppliers. When a client decides to buy a displayed product, MGR prepares an order and submits it to the supplier who approves and completes the transaction with the client. MGR then receives a commission from the supplier. Defendant's Reply Brief at 3-4.

 MGR's sales territory includes the six New England states, and for one supplier, the Albany, New York area. About two-thirds of its clients are located in Massachusetts. Deposition of Edward W. Robinson, sworn to February 27, 1979, at 21, 55, 68 ("Feb. Dep."). MGR's suppliers are located in several states. Many are New York firms, and from these suppliers MGR receives approximately two-thirds of its total commissions. Feb. Dep. at 49. The sales that generate these commissions are made primarily in Massachusetts and to New England-based clients.

 MGR is not licensed to do business in New York, does not pay New York State taxes, does not maintain a New York office, showroom, postal address or telephone listing. It has no employees located within New York State. Affidavit of Edward W. Robinson on behalf of M-Geough Robinson, Inc., sworn to October 3, 1978. Its sales territory in the Albany area has about 20 active clients whose purchases generate about 2% ($ 1,500) of its total commissions. Feb. Dep. at 20, 64-65. MGR visits these clients about four times a year. Feb. Dep. at 62. New York City is not part of MGR's sales territory, and MGR does not solicit orders in New York City. An occasional sale, however, is made to a New York City resident. In 1977-1978, MGR personnel made several visits to New York City (a total of 20 "man days") for business purposes, usually to attend trade shows. Feb. Dep. at 22-23. Occasionally, MGR directs its clients to the New York City showrooms of its suppliers. When a sale results, MGR receives a partial commission. Feb. Dep. at 32-34. MGR has advertised in national magazines that reach New York residents and circulates a newsletter to 71 New York clients (4% of its total mailing list) who are located primarily in the Albany area. Feb. Dep. at 16; Deposition of Edward W. Robinson, sworn to April 13, 1979, at 11 ("Apr. Dep.").

 Discussion

 In diversity actions, federal courts look to the law of the forum state to determine whether a defendant is subject to its jurisdiction. Arrowsmith v. United Press Int'l, 320 F.2d 219, 225, 229-31 (2d Cir. 1963); Metropolitan Staple Corp. v. Samuel Moore and Co., 278 F. Supp. 85, 87 (S.D.N.Y.1967). Stark Carpet asserts that MGR is subject to jurisdiction in New York under N.Y.C.P.L.R. §§ 301, 302(a)(3)(ii). Section 301 provides jurisdiction over a defendant who is "doing business" in the state sufficient to constitute its presence in New York. A defendant who is "doing business" in New York under section 301 is deemed present within the state and is therefore subject to jurisdiction on any cause of action, regardless of whether the cause of action is related to defendant's New York activities. Section 302(a)(3)(ii) is the provision in New York's "long-arm" statute that permits New York courts to exercise jurisdiction over an out-of-state defendant who has committed a tort outside the state that has caused foreseeable injury to persons or property within the state. The "long-arm" statute requires that the cause of action arise from the defendant's contact with the state. Frummer v. Hilton Hotels Int'l, 19 N.Y.2d 533, 536, 281 N.Y.S.2d 41, 43, 227 N.E.2d 851, 853 (1967).

 "Doing Business"

 Jurisdiction under N.Y.C.P.L.R. § 301 requires that the defendant be "engaged in such a continuous and systematic course of "doing business' here as to warrant a finding of its "presence' in this jurisdiction." Manchester Modes, Inc. v. Lilli Ann Corp., 306 F. Supp. 622, 624 (S.D.N.Y.1969); Frummer v. Hilton Hotels Int'l, supra, 19 N.Y.2d at 536, 281 N.Y.S.2d at 43, 227 N.E.2d at 853. The statute requires not merely doing business "occasionally or casually, but with a fair measure of permanence and continuity." Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267, 115 N.E. 915, 917 (1917). "No precise test exists for determining whether a foreign corporation is "doing business' within New York State. . . . Each case must depend upon its own facts . . . ." Manchester Modes, Inc. v. Lilli Ann Corp., supra, 306 F. Supp. at 624; see Frummer v. Hilton Hotels Int'l, supra, 19 N.Y.2d at 537, 281 N.Y.S.2d at 44, 227 N.E.2d at 853; Bryant v. Finnish Nat'l Airline, 15 N.Y.2d 426, 432, 260 N.Y.S.2d 625, 629, 208 N.E.2d 439, 441 (1965).

 Stark Carpet contends that MGR is doing business in New York. According to Stark, by soliciting orders within New York and purchasing products from New York suppliers, MGR comes within the "solicitation-plus" rule set forth in Aquascutum of London, Inc. v. S.S. American Champion, 426 F.2d 205, 211 (2d Cir. 1970), and Frummer v. Hilton Hotels Int'l, supra. " "(M)ere solicitation' of business . . . is not enough to constitute doing business." Id., 19 N.Y.2d at 536, 281 N.Y.S.2d at 43, 227 N.E.2d at 853. "(Once) solicitation is found in any substantial degree very little more is necessary to a conclusion of "doing business.' " Aquascutum of London, Inc. v. S.S. American Champion, supra, 426 F.2d at 211. But the "solicitation-plus" rule is not a precise formula to be applied mechanically to a defendant whose solicitation in New York is sporadic and minimal. Rather, courts require "substantial solicitation" that is carried on with a "considerable measure of continuity and from a permanent locale" within the state. Bryant v. Finnish Nat'l Airline, supra, 15 N.Y.2d at 429, 431, 260 N.Y.S.2d at 627, 628, 208 N.E.2d 439, 441. For example, the court found the defendant in Manchester Modes, Inc. v. Lilli Ann Corp., supra, to be doing business in the state because it had two New York employees soliciting business at its New York showroom, even though it had few additional New York activities. In Frummer v. Hilton Hotels Int'l, supra, the defendant, Hilton (U.K.), a British corporation, was represented in New York by the Hilton Reservation Service, which provided "public relations and publicity work" and "help(ed) to generate business." Frummer v. Hilton Hotels Int'l, supra, 19 N.Y.2d at 537, 281 N.Y.S.2d at 44, 227 N.E.2d at 853. The Service maintained a New York office, bank account and telephone number, and was run for the benefit of the defendant. The court found the defendant present in New York by virtue of the activities of its New York-based agent.

 On the other hand, in Aquascutum of London, Inc. v. S.S. American Champion, supra, the defendant, a foreign shipping company, sent officials to New York to solicit business, contracted to export a substantial volume of goods to New York and employed New York firms to provide various services. The services provided by these New York firms were not as extensive or permanent as those of the defendant's agent in Frummer v. Hilton Hotels Int'l, supra. The absence of a permanent office or employee in the state and the minimal services provided by the New York agents were dispositive in the court's finding that the defendant was not doing business in the state. In Aquascutum of London, Inc. v. S.S. American Champion, supra, the court noted that "where the activities in addition to solicitation have been particularly skimpy," courts consider whether "the defendant was represented in New York by its own employees rather than by an independent contractor." Id. at 212.

 MGR's solicitation in New York does not rise to the level of "substantial solicitation" needed to trigger the "solicitation-plus" rule. From its sales territory in the Albany area, MGR derives only 2% of its total income, amounting to $ 1,500. MGR's volume of business and its four visits to that area per year do not amount to a systematic and continuous operation. Moreover, the solicitation is not carried on from a "permanent locale" within the state. The court, in Meunier v. Stebo, Inc., 38 A.D.2d 590, 328 N.Y.S.2d 608 (2d Dep't 1971), held that "(continuity) of action from a permanent locale is essential." Id. at 591, 328 N.Y.S.2d at 611. With such minimal solicitation and the absence of a permanent New York locale, the additional factors must be substantial for the Court to conclude that MGR is doing business in New York.

 The periodic visits made by MGR personnel to New York City showrooms and trade shows is a significant factor in the "solicitation-plus" calculation. But, as the court noted in Sterling Television Presentations v. Shintron Co., 454 F. Supp. 183 (S.D.N.Y.1978), the defendant's "presence at a trade exposition, and its occasional sales forays into the district, are not sufficient." Id. at 190. And although MGR sent 71 advertising brochures into the state, communication by mail weighs lightly when determining jurisdictional contacts. Honda Associates, Inc. v. Nozawa Trading, Inc., 374 F. Supp. 886, 890 (S.D.N.Y.1974). In Sanders v. Wiltemp Corp., 465 F. Supp. 71 ...


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