defendant's business transaction in the State. Nowak, 94 F.3d at 712.
i. "Transacting Business" Element
The "transacting business" element has been construed broadly; although an isolated and minor transaction with a Massachusetts resident may be insufficient, "generally [a defendant's] purposeful and successful solicitation of business from residents of [Massachusetts] . . . will suffice." Tatro v. Manor Care, Inc., 416 Mass. 763, 625 N.E.2d 549, 551-52 (Mass. 1994) (finding personal jurisdiction over Delaware corporation owning California hotel which solicited business from Massachusetts residents).
It is undisputed that Town Shoes and Gredico each ordered the allegedly infringing shoes through Marlboro in Massachusetts. In addition, each paid Marlboro a commission for its services. This is sufficient to constitute "transacting business" within the meaning of the Massachusetts long-arm statute.
ii. "Arising From" Element
The Supreme Judicial Court of Massachusetts has recently made clear that the "arising from" element of Section 3(a) is also to be read broadly and is to be analyzed under a "but for" test. Tatro, 625 N.E.2d at 553-54. Accord Nowak, 94 F.3d at 713 (recognizing that "Tatro is controlling insofar as it deals with the construction of" § 3(a)'s "arising from" element).
Consequently, if a claim is made possible by or lies in the wake of the transaction of business in Massachusetts, the claim arises from that business. Tatro, 625 N.E.2d at 553.
Here, "but for" Town Shoes and Gredico's acquisition of the allegedly infringing shoes from Marlboro, the shoes would not have been sold in Canada, and Aerogroup would not have suffered its alleged injury. Accordingly, both are subject to the Massachusetts long-arm statute, and the only remaining inquiry is the due process test.
b. Whether Massachusetts's Exercise of Jurisdiction Would Satisfy Due Process
The First Circuit has a three-pronged analysis for determining whether an exercise of specific personal jurisdiction comports with the requirements of due process.
First, the cause of action at issue must "'arise out of, or relate to, the defendant's forum-state activities.'" Nowak, 94 F.3d at 712 (quoting Pritzker v. Yari, 42 F.3d 53, 60-61 (1st Cir. 1994), cert. denied, 131 L. Ed. 2d 851, 115 S. Ct. 1959 (1995)). Second, the defendant must have purposefully availed itself "'of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state's laws,'" making it foreseeable that the defendant could be haled into court in that state. Nowak, 94 F.3d at 712 (quoting Pritzker, 42 F.3d at 60-61). Finally, it must be reasonable for the court to exercise jurisdiction over the defendant. Nowak, 94 F.3d at 712.
Turning to the requirement of relatedness, the First Circuit would not appear to require that the "passing off," which creates the injury from the tortious conduct alleged by plaintiff here, occur within Massachusetts. In Nowak the First Circuit concluded that, in a tort action arising out of a business or contractual relationship, strict adherence to a requirement that the injury must be proximately caused by the conduct connected to the forum was "unnecessarily restrictive." Id. at 715. While proximate cause is an essential element of a tort action and defines the scope of a defendant's liability, when deciding whether a party is subject to the Court's jurisdiction there is no need to be as rigid. Id. In Nowak, the Court found personal jurisdiction over a Hong Kong hotel that had solicited business from Massachusetts residents. A Massachusetts resident had drowned in the hotel's pool. The Court noted that
When a foreign corporation directly targets residents in an ongoing effort to further a business relationship, and achieves its purpose, it may not necessarily be unreasonable to subject that corporation to forum jurisdiction when the efforts lead to a tortious result. . . . If the resident is harmed while engaged in activities integral to the relationship the corporation sought to establish, we think the nexus between the contacts and the cause of action is sufficiently strong to survive the due process inquiry at least at the relatedness stage.
Id. at 715-16. By relaxing the requirement of proximate cause, the First Circuit introduced flexibility into an analysis of this prong of the jurisdictional inquiry. The danger from such a relaxation, however, is that a defendant will not have fair warning of when its conduct will subject it to a state's jurisdiction. Id. at 715. Thus, application of the relaxed proximate cause standard articulated by the First Circuit requires a careful analysis of the facts of the case, and will, if the relatedness requirement is just barely met, justify closer scrutiny when judging whether the exercise of jurisdiction is reasonable. Id. at 715-16.
Here, Town Shoes and Gredico placed their orders of shoes through Marlboro in Massachusetts. The shoes were manufactured abroad, were not shipped through Massachusetts, and were offered for sale in Canada. In contrast to Nowak, there is no allegation that either company solicited Massachusetts residents or injured them through the alleged tortious conduct. Nor is the plaintiff a Massachusetts resident. On these facts, I conclude that the First Circuit would not find the conduct which occurred in Massachusetts sufficiently related to the claims in this lawsuit to support jurisdiction.
ii. Purposeful Availment
In analyzing whether a defendant has purposefully availed itself of the forum, the focus of the Court's analysis is on the issues of voluntariness and foreseeability. The First Circuit has held that this element of due process "ensures that jurisdiction is not premised on 'random, isolated, or fortuitous' contacts with the forum state, but rather guarantees that the exercise of jurisdiction is 'fair, just, or reasonable.'" Nowak, 94 F.3d at 716 (citations omitted). As the First Circuit stated in Nowak, "in order to be subject to Massachusetts jurisdiction, a defendant need only have one contact with the forum state, so long as that contact is meaningful." Id. at 717.
Both Town Shoes and Gredico voluntarily and deliberately entered into a business relationship with a Massachusetts entity. It was foreseeable that such a business relationship could generate litigation and might subject these defendants to a lawsuit in Massachusetts, for instance, for a failure to pay commissions owed to Marlboro. It was not reasonably foreseeable to either defendant, however, that they would be sued in Massachusetts for trademark violations for shoes ordered through Marlboro, but which were sold in Canada. Accordingly, I do not find in the context of this lawsuit that either defendant purposefully availed itself of Massachusetts as a forum.
Even if Town Shoes and Gredico have sufficient contacts with Massachusetts to warrant a finding of minimum contacts, I find that exercising jurisdiction over them fails the reasonableness prong of the due process inquiry. As the Court stated in Nowak, "personal jurisdiction may only be exercised if it comports with traditional notions of 'fair play and substantial justice.'" Nowak, 94 F.3d at 717 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 320, 90 L. Ed. 95, 66 S. Ct. 154 (1945)). The First Circuit has outlined five factors taken from the Supreme Court's decision in Burger King Corp. v. Rudzewicz, 471 U.S. 462, 85 L. Ed. 2d 528, 105 S. Ct. 2174 (1985), which this Court must consider in making this reasonableness determination:
(1) the defendant's burden of appearing, (2) the forum state's interest in adjudicating the dispute, (3) the plaintiff's interest in obtaining convenient and effective relief, (4) the judicial system's interest in obtaining the most effective resolution of the controversy, and (5) the common interests of all sovereigns in promoting substantive social policies.
Nowak, 94 F.3d at 717 (quoting United Elec. Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1088 (1st Cir. 1992)). Again, if the showing of minimum contacts is weak, the Court should weigh the reasonableness factors more heavily in the balance. Nowak, 94 F.3d at 717.
The First Circuit notes that it will be burdensome any time a party is required to litigate in a foreign forum. Id. at 718. Thus, there must be a special or unusual showing of inconvenience. Id. There is no question that forcing Town Shoes or Gredico to litigate in Massachusetts as opposed to Canada would be burdensome. This burden is magnified by the cost of defending this complex litigation when neither defendant ordered a significant number of the allegedly infringing shoes. Thus, I find that this factor weighs against exercising jurisdiction.
In Nowak the First Circuit stated that "although a forum state has a significant interest in obtaining jurisdiction over a defendant who causes tortious injury within its borders, that interest is diminished where the injury occurred outside the forum state." Nowak, 94 F.3d at 718. The Lanham Act is designed to protect consumers from confusion resulting from the misappropriation of trademarks or trade dress. 1 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 2.12, at 2-59 (3d Ed. 1996). But here, neither Town Shoes nor Gredico sold any allegedly infringing shoes in Massachusetts, so no Massachusetts consumers were confused. Moreover, to the extent the Lanham Act also has as a purpose the protection of trademark owners, see id. § 2.06, it is significant that Aerogroup is not a Massachusetts company. I find that this factor weighs in favor of not exercising jurisdiction since the primary actions in which Town Shoes and Gredico engaged took place in Canada, and since Massachusetts residents are unaffected by these defendants' actions.
Turning to Aerogroup's interest, it may be more convenient for Aerogroup, an American company, to litigate in Massachusetts than in Canada. On the other hand, Aerogroup did not choose Massachusetts as a forum, and litigating in Massachusetts would not be substantially more inconvenient than litigating in Canada, once Aerogroup loses its first choice of forum, New York. In any event, because Canada may be more inconvenient than Massachusetts, this factor weighs somewhat in favor of Aerogroup.
In Nowak, the First Circuit observed that the efficient administration of justice, when analyzed in this context, is usually "a wash." Nowak, 94 F.3d at 718. This case is no different. Considering the number of both Massachusetts and Canadian witnesses and documents, this factor is likely to be even between the parties. If Aerogroup had brought this entire action originally in Massachusetts, however, it could have argued quite forcefully that retaining jurisdiction over the Canadian defendants would allow one court to decide all the issues relating to this case in one lawsuit. Aerogroup has forfeited that argument by bringing suit in New York, a state which clearly does not have jurisdiction over these Canadian defendants.
The final factor "addresses the interests of the affected governments in substantive social policies." Id. at 719. In the international context, this factor requires a consideration of the foreign nation's interest in furthering the substantive policies implicated by this litigation, as well as the interest of the United States. See Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 115, 94 L. Ed. 2d 92, 107 S. Ct. 1026 (1987). Indeed, in analyzing the competing state policies, a court should bear in mind the comity traditionally accorded foreign courts by American courts, and should engage in "a careful inquiry into the reasonableness of the assertion of jurisdiction" and should be unwilling "to find the serious burdens on an alien defendant outweighed by minimal interests on the part of the plaintiff or the forum State." Id.
Canada unquestionably has a strong interest in enforcing its own intellectual property laws with respect to sales which take place exclusively in Canada. As for the interests of the United States, the Court has uncontested jurisdiction over the primary alleged infringer -- an American corporation -- which is the source of the shoes sold by Town Shoes and Gredico. Aerogroup can be accorded full relief from this American defendant without any unnecessary burden on two Canadian corporations with very minimal contacts to the United States. In sum, the strong nexus between Canada's interest in its intellectual property law and the fact that the sales complained of here occurred exclusively in Canada, supports the proposition that Town Shoes and Gredico should not be subject to this Court's jurisdiction.
In sum, I find that it would be unreasonable for Massachusetts to exercise jurisdiction over either Town Shoes or Gredico. Here, where Town Shoes and Gredico are Canadian corporations with no offices, employees, or sales in Massachusetts, it would simply be contrary to substantial justice for a court in Massachusetts to exercise personal jurisdiction where none of its residents have been injured through the tortious activity. Accordingly, there are no States which could exercise personal jurisdiction over Town Shoes or Gredico.
2. Whether, Under Rule 4(k)(2), Town Shoes' and Gredico's National Contacts Are Sufficient to Satisfy Due Process
Because I find that no one State may exercise personal jurisdiction over either Town Shoes or Gredico, I must now turn to Rule 4(k)(2) and ascertain whether exercising jurisdiction would be "consistent with the Constitution." The Second Circuit
has recently outlined the due process jurisdictional inquiry, dividing it into a two-step process -- the "minimum contacts" inquiry and the "reasonableness" inquiry. Metropolitan Life Ins., 84 F.3d at 567.
a. Minimum Contacts
In applying Rule 4(k)(2), courts have engaged in the traditional minimum contacts analysis based on an aggregation of the defendant's contacts with the nation as a whole. See Eskofot A/S v. E.I. Du Pont De Nemours & Co., 872 F. Supp. 81, 87 (S.D.N.Y. 1995).
See also World Tanker Carriers Corp. v. M/V Ya Mawlaya, 99 F.3d 717, 1996 WL 628055, at *6 (5th Cir. Nov. 14, 1996); In the Matter of an Application to Enforce Admin. Subpoenas Duces Tecum of the SEC v. Knowles, 87 F.3d 413, 417-19 (10th Cir. 1996); Pharmachemie B.V. v. Pharmacia S.p.A., 934 F. Supp. 484, 488 (D. Mass. 1996); United States v. International Brotherhood of Teamsters, 945 F. Supp. 609, 1996 U.S. Dist. LEXIS 16777, 1996 WL 655808, at *7-9 (S.D.N.Y. 1996); United Trading Co. v. M/V Sakura Reefer, 1996 WL 374154, at *5 (S.D.N.Y. July 2, 1996); Bank Brussels Lambert v. Credit Lyonnais (Suisse), 192 Bankr. 73, 79-80 (S.D.N.Y. 1996); Nissho Iwai Corp. v. M/V Star Sapphire, 1995 WL 847172, at *3-4 (S.D. Tex. Aug. 24, 1995); Pacific Employers Ins. Co. v. M/T Iver Champion, 1995 U.S. Dist. LEXIS 6566, 1995 WL 295293, at *5 (E.D. La. May 11, 1995).
The minimum contacts analysis is governed by the Supreme Court case, International Shoe Co. v. Washington, 326 U.S. 310, 90 L. Ed. 95, 66 S. Ct. 154 (1945), and its progeny. There are two types of jurisdiction which the Court should bear in mind in determining whether there are sufficient minimum contacts.
Specific jurisdiction exists when "a State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum"; a court's general jurisdiction, on the other hand, is based on the defendant's general business contacts with the forum state and permits a court to exercise its power in a case where the subject matter of the suit is unrelated to those contacts.
Metropolitan Life Ins., 84 F.3d at 567-68 (citing Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414-16, 80 L. Ed. 2d 404, 104 S. Ct. 1868 & nn. 8-9 (1984)).
To find general jurisdiction, the defendant must have "continuous and systematic general business contacts" with the forum State. Helicopteros, 466 U.S. at 416. This is a fact-specific inquiry that requires courts to assess the defendant's contacts "as a whole." Metropolitan Life Ins., 84 F.3d at 570 (emphasis in original). Moreover, "because general jurisdiction is not related to the events giving rise to the suit, courts impose a more stringent minimum contacts test" than that applicable to specific jurisdiction. Id. at 568. This issue need not detain me long. The plaintiff does not contend that the contacts of either defendant with the United States as a whole are sufficient for this Court to find one of them present in a continuous and systematic way.
To find specific jurisdiction, the Court must determine that "the defendant has 'purposefully directed' his activities at residents of the forum, and the litigation results from alleged injuries that 'arise out of or relate to' those activities." Burger King, 471 U.S. at 472. Although courts look to whether it was foreseeable to the defendant that its actions would cause injury in the forum State, the Supreme Court has made clear that foreseeability requires that "'the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.'" Id. at 474 (quoting World-Wide Volkswagen, 444 U.S. at 295). In sum, defendant must have "'purposefully availed itself of the privilege of conducting activities within the forum State.'" Burger King Corp., 471 U.S. at 475 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 2 L. Ed. 2d 1283, 78 S. Ct. 1228 (1958)). This requirement "ensures that a defendant will not be haled into a jurisdiction solely as a result of 'random,' 'fortuitous,' or 'attenuated' contacts." Burger King Corp., 471 U.S. at 475. See also Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 32 (2d Cir. 1996).
Town Shoes purchased the Airsupply shoes at issue in this case through N.I.R. and Marlboro -- both U.S. companies -- and paid both of them commissions. Although the shoes were manufactured abroad, the second shipment of shoes was sent from the United States to Town Shoes in Canada. Town Shoes met with representatives of Marlboro regarding the allegedly infringing shoes at a shoe show in New York.
Reasoning from the fact that New York's long-arm statute requires any "passing off" to occur within the state, Town Shoes argues that this Court should not find personal jurisdiction under Rule 4(k)(2) unless a passing off occurred within the United States. New York's statute, however, sets a higher threshold for minimum contacts than is constitutionally required.
I find, therefore, that due process does not require that an injury from tortious conduct be proximately caused by conduct occurring within the United States. When American residents have been the victims of tortious conduct, and in particular where American residents have been intentionally solicited or targeted by the allegedly tortious conduct and there are sufficient contacts overall with the United States, a court may find that the exercise of personal jurisdiction would not offend the minimum contacts requirement of due process even where the conduct that proximately causes the injury occurs outside this country's borders. Of course, when there is a weak showing of minimum contacts, the showing of reasonableness must be stronger. Metropolitan Life Ins., 84 F.3d at 568-69. With respect to Town Shoes and Gredico, this is not a case where the passing off occurred in the United States or was directed at American residents. The only victim of any tortious conduct that has any connection with the United States is the owner of the trademark rights which allegedly have been infringed. I find that when all of Town Shoes' contacts with the United States that are related to this action are taken as a whole, they are sufficient -- although barely so -- to establish minimum contacts.
I similarly find that Gredico has sufficient minimum contacts under a specific jurisdiction theory to satisfy the first prong of the due process inquiry. As with Town Shoes, Gredico has purchased the allegedly infringing shoes through an agent in the United States, has allegedly met in the United States with Marlboro to discuss their business dealings, and has allegedly infringed the intellectual property rights of an American company. These activities create barely sufficient minimum contacts.
The second part of the due process personal jurisdiction test is determining the reasonableness of the exercise of jurisdiction. In undertaking this reasonableness analysis, the Supreme Court has identified the following factors:
(1) the burden that the exercise of jurisdiction will impose on the defendant; (2) the interests of the forum state in adjudicating the case; (3) the plaintiff's interest in obtaining convenient and effective relief; (4) the interstate judicial system's interest in obtaining the most efficient resolution of the controversy; and (5) the shared interest of the states in furthering substantive social policies.
Metropolitan Life Ins., 84 F.3d at 568 (citing Asahi, 480 U.S. at 113-14).
i. The Burden on the Defendants
Litigating a case in New York would be a considerable burden for both Town Shoes and Gredico, given the fact that they are Canadian corporations with very few contacts with the United States. As already observed, this burden is magnified by the fact that the number of allegedly infringing shoes purchased is so small that the expense from any litigation will be disproportionate to the economic impact on their business. "On the other hand, the conveniences of modern communication and transportation ease what would have been a serious burden only a few decades ago." Metropolitan Life Ins., 84 F.3d at 574. Therefore, although this factor cuts in favor of Town Shoes and Gredico, "taken alone, it falls short of overcoming the plaintiff's threshold showing of minimum contacts." Id.
ii. The Interests of the Forum
The dispute between Town Shoes, Gredico, and Aerogroup implicates the interests of the United States insofar as the Lanham Act is applicable to the Canadian defendants' actions. In this case, however, the Lanham Act is only marginally implicated by Town Shoes' and Gredico's Canadian sales, if at all. It is doubtful under these circumstances that a U.S. Court would apply the Lanham Act to Town Shoes' and Gredico's allegedly infringing actions in Canada.
The "usual rule" is that a passing off that occurs in Canada will be governed by Canadian law, not U.S. law. See Vanity Fair Mills, 234 F.2d at 639. The exercise of Lanham Act extraterritorial jurisdiction is governed by the Second Circuit's decision in Vanity Fair Mills, 234 F.2d at 633. In Vanity Fair Mills, the Court of Appeals addressed the issue whether "the Lanham Act provide[s] relief in American courts and under American law against acts of trade-mark [sic] infringement and unfair competition committed in foreign countries by foreign nationals." Id. at 640. The Court, guided by the Supreme Court's decision in Steele v. Bulova Watch Co., 344 U.S. 280, 97 L. Ed. 319, 73 S. Ct. 252 (1952), set forth the following factors: (1) whether defendant's conduct had a substantial effect on United States commerce; (2) whether defendant is a U.S. citizen; and (3) whether a conflict with trademark rights established under foreign law existed. See Vanity Fair Mills, 234 F.2d at 642. The Vanity Fair Mills Court stated that even where a domestic defendant is involved, "the absence of one of the [other two] above factors might well be determinative and that the absence of both is certainly fatal." Vanity Fair Mills, 234 F.2d at 643. See also Warnaco Inc. v. VF Corp., 844 F. Supp. 940, 950-952 (S.D.N.Y. 1994) (applying Vanity Fair Mills factors).
Town Shoes and Gredico are Canadian corporations and not citizens of the United States In addition, the sale in Canada of the small number of shoes which were purchased through Marlboro could not cause a substantial effect on United States commerce. Of course, foreign sales of infringing goods may have a substantial effect on United States commerce by diverting sales from the plaintiff, causing confusion among consumers, and impacting the plaintiff's income and reputation. See Warnaco, 844 F. Supp. at 952. Where a substantial impact has been found from the foreign activities of foreign citizens, however, the scale of the alleged infringement has been far greater than that alleged here. See, e.g., id. at 945 (loss of over $ 6 million in sales). Therefore, Vanity Fair Mills indicates that the United States has little or no interest in applying the Lanham Act to Town Shoes and Gredico, and accordingly, this factor does not weigh in favor of the plaintiff.
iii. Aerogroup's Interests
It is more convenient for Aerogroup, an American company, to litigate in the United States rather than Canada. Thus, this factor weighs in favor of Aerogroup.
iv. Efficient Administration of Justice
"In evaluating this factor, courts generally consider where witnesses and evidence are likely to be located." Metropolitan Life Ins., 84 F.3d at 574. As noted above, given the number of both United States and Canadian witnesses and documents, this factor does not favor one side or the other. On the other hand, finding jurisdiction over the Canadian defendants would allow all of the litigation concerning the interwoven set of facts alleged in the Complaint to be resolved in one forum. Consequently, this factor also favors Aerogroup.
v. Policy Arguments
As already noted, Canada unquestionably has a strong interest in enforcing its own intellectual property laws with respect to sales which take place exclusively in Canada. As for the interests of the United States, the Court has uncontested jurisdiction over the primary alleged infringer -- an American corporation -- which is the source of the shoes sold by Town Shoes and Gredico. Aerogroup can be accorded full relief from this U.S. defendant without an unnecessary burden on Canadian corporations with very minimal contacts to the United States.
Where, as here, there is a weak showing of minimum contacts, there must be a stronger showing of reasonableness. I find that it would be unreasonable to exercise jurisdiction over Town Shoes and Gredico. The key consideration in determining whether exercising jurisdiction is consistent with the Constitution is whether maintenance of the suit would "offend 'traditional notions of fair play and substantial justice.'" Metropolitan Life Ins., 84 F.3d at 568 (quoting International Shoe, 326 U.S. at 316). As the Advisory Committee notes to Rule 4(k)(2) indicate,
The district court should be especially scrupulous to protect aliens who reside in a foreign country from forum selections so onerous that injustice could result.