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WESTVACO CORPORATION v. VIVA MAGNETICS LTD.

United States District Court, Southern District of New York


May 15, 2003

WESTVACO CORPORATION, PLAINTIFF(S),
v.
VIVA MAGNETICS LTD., MATRIX ASSOCIATES, INC., FINEST INDUSTRIAL CO., LTD., AND PONICA INDUSTRIAL CO. LTD., DEFENDANT(S).

The opinion of the court was delivered by: Laura Taylor Swain, United States District Judge

MEMORANDUM ORDER

Defendants Finest and Ponica seek, respectively, an order dismissing this action for lack of personal jurisdiction, or, alternatively, transferring this action to the Central District of California, or severing Finest and Ponica from this action into a separate proceeding. The Court has considered thoroughly all submissions, evidence, and argument in connection with the instant motions. For the following reasons, the motions are granted to the extent that Plaintiff's claims against Finest and Ponica are severed from the instant action and transferred to the Central District of California.

When a defendant brings a motion under Federal Rule of Civil Procedure 12(b)(2) to dismiss an action for lack of personal jurisdiction, the plaintiff bears the burden of showing that the court has jurisdiction over the defendant. Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). The burden Plaintiff must satisfy in this regard varies with the procedural context of the action. Prior to discovery in a case, a plaintiff need make only a prima facie showing that the Court has jurisdiction. Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990). After discovery, the plaintiff's prima facie showing "must include an averment of facts that, if credited by the trier, would suffice to establish jurisdiction over the defendant." Id. If a defendant contests the plaintiff's factual allegations supporting jurisdiction, then a hearing is necessary, at which the plaintiff must prove by a preponderance of the evidence facts sufficient to support jurisdiction. Id.; see also Cutco Industries Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986).

The Court first addressed the instant motions in a Memorandum Opinion and Order dated August 20, 2002 (the "August Opinion"), before discovery had been conducted. Plaintiff argued that the Court has personal jurisdiction over Finest and Ponica pursuant to sections 302(a)(2) and 302(a)(3) of New York's long arm statute, which provides, in relevant part:

(a) . . . [A] court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent:
(2) commits a tortious act within the state . . .; or

(3) commits a tortious act without the state causing injury to person or property within the state, . . . if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce. . . .
N.Y. Civil Practice Law and Rules § 302(a) (McKinney 2001). Defendants disputed the factual bases of Plaintiff's jurisdictional allegations. In the August Opinion, the Court ruled that section 302(a)(2) does not provide a basis for this Court's exercise of personal jurisdiction over Finest and Ponica, but the Court allowed limited discovery to proceed as to whether the Court has jurisdiction under section 302(a)(3). On April 14, 2003, the Court held an evidentiary hearing to determine whether the Court has section 302(a)(3) long-arm jurisdiction over Finest and Ponica.

To establish jurisdiction under CPLR 302(a)(3), Plaintiff must prove by a preponderance of evidence: 1) that Defendants committed a tortious act outside the State; 2) that the cause of action arises from that act; 3) that the act caused injury to a person or property within the State; 4) that Defendants expected or should reasonably have expected the act to have consequences in the State; 5) that Defendants derived substantial revenue from interstate or international commerce. See LaMarca v. Pak-Mor Mfg. Co., 713 N.Y.S.2d 304, 307 (2000). Defendants argue that Plaintiff has failed to meet its burden with respect to the third, fourth, and fifth elements of a 302(a)(3) showing.

In a patent case, injury is deemed to occur where sales of infringing products occur. Beverly Hills Fan, 21 F.3d at 1571; Dan-Dee, 2000 WL 1346865 at *4. Thus, to meet its burden with respect to the third element listed above, Plaintiff must prove that infringing products manufactured or distributed by Defendants were sold in New York. At the evidentiary hearing, witnesses testified about two types of DVD boxes manufactured by Finest and at one time, if not currently, distributed by Ponica, that may infringe Plaintiff's `068 patent: the "DVD 200" model and the "DVD 500" model. The Court received in evidence three DVD boxes for three different MGM James Bond films, each bearing the U.S. patent number 5944181, Plaintiff's Exhibits 39, 40, and 41, that Plaintiff witness and Ponica President Joseph Chien testified were DVD 200 boxes. (Hearing Transcript ("Tr.") at 108-110.) Plaintiff offered no evidence, however, as to where Exhibits 39, 40, and 41 were purchased, or as to which replicator packaged James Bond DVD's for MGM, and what, if any, relation Ponica had with that replicator in connection with the DVD boxes used for Bond packaging. As for DVD 500 boxes, the testimony and evidence presented established that, at the very earliest, Ponica's distribution of DVD 500 boxes to DVD replicators or other intermediaries began in late November 2000.*fn1 (Id. at 82; "Sales Confirmation," Pl.'s Ex. 7 at Finest-0020.) Plaintiff offered no evidence of the sale of DVD 500 boxes in New York. Accordingly, the Court finds that Plaintiff has not shown by a preponderance of the evidence that infringing products manufactured or distributed by Ponica or Finest were sold in New York.

Plaintiff has also failed to present evidence that Finest and Ponica should reasonably have expected their manufacture or distribution of accused products to have consequences in New York.

New York courts have asserted that the simple likelihood or foreseeability that a defendant's product will find its way into New York does not satisfy [the reasonable expectation] element of [CPLR 302(a)(3)], and that purposeful availment of the benefits of the laws of New York such that the defendant may reasonably anticipate being haled into New York court is required. . . . [I]t is not enough that a defendant foresaw the possibility that its product would find its way here; foreseeability must be coupled with evidence of a purposeful New York affiliation, for example, a discernible effort to directly or indirectly serve the New York market.
Kernan v. Kurz-Hastings, 175 F.3d 236, 241 (2d Cir. 1999) (internal quotation marks and citations omitted). The expert testimony from Scott Bartlett on replicator industry practices that was offered by Plaintiff was at best ambiguous. When asked whether a replicator would allow a package supplier (such as Ponica) to place geographic restrictions on where DVD packages could go, Mr. Bartlett replied "No. . . . Because it's not up to the supplier where the product goes, it's up to the [studio]. So the [studio] then has the say-so to say it goes here or where it goes." (Id. at 42.) Bartlett's testimony indicates that neither suppliers or replicators have control over where DVD's are distributed, undermining any inference that, by doing business with certain replicators, Defendants were directly or indirectly attempting to serve the New York market. Moreover, Plaintiff failed to present any testimony about the specifics of any distribution chains allegedly used by Ponica or Finest. Consequently, Plaintiff has failed to meet its burden of establishing any purposeful New York affiliation by Defendants.

Plaintiff has failed to prove the third and fourth elements of a CPLR 302(a)(3) showing, and has therefore failed to carry its burden of establishing this Court's personal jurisdiction over Ponica and Finest. Instead of dismissing Plaintiff's claims against those defendants, however, the Court will sever Plaintiff's claims against Ponica and Finest and transfer them to the Central District of California. Plaintiff has established that Finest and Ponica have substantial contacts with California, and Ponica and Finest have brought an action for declaratory relief against Plaintiff in the Central District of California relating to the issues raised in this action.

Rule 21 of the Federal Rules of Civil Procedure provides that:

Misjoinder of parties is not ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or of its own initiative at any stage of the action and on such terms as are just. Any claim against a party may be severed and proceeded with separately.
Fed.R.Civ.P. 21. "The trial court . . . has great discretion to restructure an action to promote the efficient administration of justice. Rule 21 gives the court tools to jettison those parties and claims that are not within its jurisdiction or that are not conveniently prosecuted together, preserving parties and claims that are properly before it." In re Merrill Lynch & Co., Inc. Research Reports Securities Litigation, 2003 WL 1571998, *3 (S.D.N.Y. 2003) (quoting 4 Moore's Federal Practice, §§ 21.02[4], 21.05 (Matthew Bender 3d ed. 2002)). District courts have the power to sever claims against parties over whom they lack personal jurisdiction, and to transfer those claims to a district in which the claims could have been brought, pursuant to 28 U.S.C. § 1406. See St. Paul Fire & Marine Ins. Co. v. Servidone Const. Corp., 778 F. Supp. 1496, 1507-1508 (D.Minn. 1991) (court severed claims against defendants over whom it lacked jurisdiction under Rule 21, and transferred those claims to proper district under section 1406). Accordingly, the Court will order severance of Plaintiff's claims against Ponica and Finest, and transfer of those claims to the Central District of California.

Conclusion

For the foregoing reasons, the Court finds that it lacks personal jurisdiction over Defendants Finest and Ponica, and the pending motions are granted to the extent that Plaintiff's claims against Defendants Finest and Ponica are hereby severed from this action pursuant to Rule 21 of the Federal Rules of Civil Procedure, and shall be transferred to the United States District Court for the Central District of California pursuant to 28 U.S.C. § 1406.

SO ORDERED.


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