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Chloe v. Queen Bee of Beverly Hills

July 1, 2009

CHLOÉ, ET AL., PLAINTIFFS,
v.
QUEEN BEE OF BEVERLY HILLS, LLC, SIMONE UBALDELLI, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Richard J. Holwell, District Judge

MEMORANDUM OPINION AND ORDER

This is a trademark infringement action against the operators of QueenBeeBeverlyHills.com, a self-described "leading online retail discount designer boutique, offering the latest trends in authentic European designer accessories."

On August 1, 2008, the Court dismissed the case as to defendant Simone Ubaldelli, a California resident. See Chloé v. Queen Bee of Beverly Hills, LLC, 571 F. Supp. 2d 518 (S.D.N.Y. 2008) ("Chloé I"). Ubaldelli used the Queen Bee site to sell a counterfeit handbag to a paralegal employed by plaintiffs' counsel. Other than that, he had no contacts with New York. See id. at 521-22. The Court found that it could not, based on this single sale, exercise specific personal jurisdiction over Ubaldelli. Id. at 523-26.

By letter dated February 19, 2009, plaintiffs moved the Court to certify Ubaldelli's dismissal from the case as final. See Fed. R. Civ. P. 54(b). Plaintiffs point out an apparent conflict of authority among the judges of this district over one of the issues addressed in the Court's August 2008 decision-whether exercising jurisdiction over a non-resident based on a single, internet-based sale of a counterfeit retail product is consistent with due process. Compare Chloé I, 571 F. Supp. 2d 518, with Cartier v. Seah LLC, 598 F. Supp. 2d 422 (S.D.N.Y. 2009) (Kaplan, J.). In view of the tension in the caselaw and the importance of the question to trademark holders in this district, the Court finds it appropriate to add a few words to its prior discussion and grant the relief plaintiffs request.

I. International Shoe and One-Off Internet Transactions

There is no dispute about the governing law, at least at a very general level. Under International Shoe Co. v. State of Washington Office of Unemployment Compensation and Placement, 326 U.S. 310 (1945), a forum may exercise jurisdiction over a non-resident defendant who has "certain minimum contacts" with it if maintenance of a suit would not offend "traditional notions of fair play and substantial justice." Id. at 316. In the August 2008 opinion, the Court held that Ubaldelli's sale could not support jurisdiction under this standard. The handbag was purchased by plaintiffs' paralegal, so there was no possibillity of consumer confusion in New York. As a result, there was no connection between Ubaldelli's actions in New York and plaintiffs' cause of action. Chloé I, F. Supp. 2d at 525-26; see Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) ("Where a forum seeks to assert specific jurisdiction over an out-of-state defendant who has not consented to suit, [due process] is satisfied if 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." (citations and footnotes omitted)); Chaiken v. VV Publ'g Corp., 119 F.3d 1018, 1028 (2d Cir. 1997) (same). In addition, all of Ubaldelli's actions took place outside of New York. Thus, exercising jurisdiction over Ubaldelli would be unreasonable and offend traditional notions of fair play and substantial justice. Chloé I, 571 F. Supp. 2d at 526.

This conclusion also follows from three Supreme Court decisions that addressed the circumstances in which a non-resident defendant's commercial dealings with a forum support personal jurisdiction.*fn1 The Court writes now to explain this additional basis for its decision.

In Travelers Health Association v. Virginia, 339 U.S. 643 (1950), the Supreme Court considered whether a Virginia regulatory commission could exercise jurisdiction over a Nebraska-based mail-order health insurance business. While the insurer had no offices or agents in Virginia, it developed what the Court termed "continuing relationships" with the state by soliciting business, accepting premium payments, and investigating claims there. See id. at 647-48. The Court reasoned that the insurer "did not engage in mere isolated or short-lived transactions," but subjected itself to "continuing obligations" to "each of the many certificate holders in the state." Id. at 648. Together with Virginia's important interests in enforcing its consumer protection laws, see id. at 648-49, these continuing obligations were enough to support jurisdiction over the non-resident insurer.

In McGee v. International Life Insurance Co., 355 U.S. 220 (1957), the Court considered whether a "continuing relationship" sufficient to support jurisdiction could be based on an out-of-state insurer's relationship with a single insured in the forum state. The insured, a California resident, bought a life insurance policy from an Arizona-based insurer, which later assigned the policy to the defendant, a Texas corporation. See id. at 221-22. Aside from this single policy, the defendant had no connection to California. Id. at 222. The insured died, the insurer refused to pay, and the beneficiary obtained a default judgment against it in California. See id. at 224. Noting that the contract of insurance (a reinsurance certificate) was delivered in California, that premiums were paid there, and that the insured was a California resident when he died, id. at 223, the Court found that California properly exercised jurisdiction over the insurer, and that its judgment was entitled to full faith and credit. Id. at 224.

The Court's most recent discussion of when a defendant's commercial relationship with the forum supports jurisdiction came in Burger King, 471 U.S. 462. Defendant Rudzewicz and his partner, both Michigan residents, entered into a twenty-year franchise agreement with Burger King, a Florida corporation. See id. at 466-67. While certain aspects of the franchise relationship were handled by Burger King's local district office, the franchise agreement required Rudzewicz to pay fees to Burger King's Miami headquarters. Id. at 466. In addition, the agreement contemplated that Burger King's Miami headquarters would make important policy decisions affecting franchisees and work with them to resolve major problems. Id.

The Court held that Florida could exercise jurisdiction over Rudzewicz for an alleged breach of the agreement. The critical question, the Court explained, was not whether "an individual's contract with an out-of-state party alone can automatically establish sufficient minimum contacts in the other party's home forum," id. at 478 (emphasis in original), but whether the contract manifested an intent on the part of the out-of-state party to purposefully avail himself of the protections of the forum state so that he could reasonably anticipate being haled into court there:

[W]e have emphasized the need for a "highly realistic" approach that recognizes that a "contract" is "ordinarily but an intermediate step serving to tie up prior business negotiations with future consequences which themselves are the real object of the business transaction." It is these factors-prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing- that must be evaluated in determining whether the defendant purposefully established minimum contacts within the forum.

Id. at 479 (emphasis added and citations omitted). Because Rudzewicz voluntarily entered into a relationship that called for "long-term and exacting regulation of his business from Burger King's Miami headquarters," Florida's exercise of jurisdiction over him was proper. Id. at 480, 487.

In the Court's view, the Supreme Court's decisions in Travelers, McGee, and Burger King confirm that a single internet-based sale of a counterfeit retail product is insufficient to establish personal jurisdiction over an out-of-state defendant under International Shoe. By hypothesis, such a sale is a one-off transaction and cannot establish a "continuing relationship[]" with the buyer. Travelers, 339 U.S. at 647. Thus, the sale does not manifest meaningful "prior negotiations" and "contemplated future consequences," nor does it reflect a continuing course of conduct of a kind that the Supreme Court has found sufficient to support personal jurisdiction. Instead, the sale is at best the kind of "mere isolated or short-lived transaction[]" that Travelers and Burger King indicated is insufficient to support jurisdiction over a non-resident. Cf. Travelers, 339 U.S. at 648 ("The Association did not engage in mere isolated or short-lived transactions."); Burger King, 471 U.S. at 478 ("If the question is whether an individual's contract with an out-of-state party alone can ...


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