Personal jurisdiction over out-of-state defendant may exist based on single act

In Chloé NA v Queen Bee of Beverly Hills LLC (Case 09-3361-CV, 5th August 2010) the US Court of Appeals for the Second Circuit has held that specific personal jurisdiction over an out-of-state trademark defendant may exist based on a single act of shipping an item into New York, along with other substantial business activity in-state.

The plaintiffs were Chloé NA, a division of a Delaware corporation operating out of New York, and Chloé SA, a French corporation operating out of Paris. Chloé SA is the owner of the word mark CHLOÉ (Registration 3,291,996) associated with, among other things, handbags, for which Chloé NA is the exclusive licensee.

The defendant, Simone Ubaldelli, is a California resident who is accused of selling counterfeit Chloé handbags as a partner in Queen Bee of Beverly Hills LLC, a largely internet-based company with showrooms in Beverly Hills, California and Huntsville, Alabama. Chloé initially became aware of Ubaldelli during a suit against another counterfeit handbag vendor, who named Queen Bee as its supplier. As part of its subsequent investigation in December 2005, Rosa Santana, an administrative assistant for one of Chloé’s attorneys, purchased a handbag bearing the CHLOÉ mark through Queen Bee’s website and had it delivered to her home in New York. When the handbag was received and inspected, it was discovered to be counterfeit. In April 2006 Chloé filed suit for trademark infringement in the US District Court for the Southern District of New York, naming Queen Bee and Ubaldelli among the defendants.

Facts soon emerged which raised questions as to whether the New York courts could properly exercise specific personal jurisdiction over Ubaldelli. In particular, while Queen Bee had shipped more than 70 handbags bearing the CHLOÉ mark, none of the bags, with the exception of the one purchased by Santana, was shipped to New York state. Queen Bee had shipped at least 117 other items to New York customers, but all of them bore brand names other than Chloé.

The district court concluded that these facts could not support personal jurisdiction over Ubaldelli (Chloé v Queen Bee of Beverly Hills LLC (571 F Supp 2d 518 (2008))). First, Santana’s purchase could not form the basis of jurisdiction under the New York long-arm statute, because jurisdiction could not be based on contacts “manufactured” by the plaintiffs. While Queen Bee had shipped numerous other products into New York, the court discounted these transactions as the plaintiffs sought specific personal jurisdiction only against Ubaldelli, which requires that the plaintiffs’ claims arise out of, or relate to, the defendant’s contacts with the forum. Second, the Queen Bee website, although considered a “commercial interactive website”, could not support jurisdiction because, under the due process clause, there was no additional evidence that Ubaldelli had “purposely availed” himself of conducting activities in New York state. The website was not aimed or directed at New York users, and no New York residents had purchased counterfeit Chloé merchandise from Queen Bee, with the exception of Santana. Based on these findings, the court granted Ubaldelli’s motion to dismiss.

Around one year later, the district court supplemented its opinion granting Ubaldelli’s motion to dismiss (Chloé v Queen Bee of Beverly Hills LLC (630 F Supp 2d 350 (2009))). It amended its prior due process discussion to hold that a single internet purchase without “a continuing relationship”, “prior negotiations” or “contemplated future consequences” was insufficient to support specific personal jurisdiction against a non-resident without some additional contacts. It further ruled that under the due process clause’s reasonableness requirement, it would offend traditional notions of fair play and substantial justice to subject Ubaldelli to jurisdiction on the opposite side of the country, while the Lanham Act is the law of the land and other forums would be available to the plaintiffs.

The Second Circuit reversed the decision, assigning several points of error.

First, the district court had read the New York long-arm statute’s “arise out of or relate to” requirement too narrowly. Specific personal jurisdiction may be based on even tangentially related contacts – such as, in this case, the shipment of allegedly counterfeit handbags of any brand to New York – where the plaintiffs’ claims relate to trademark infringement. The court also held that New York law is a “single act statute”, and therefore proof of even one transaction is sufficient to invoke jurisdiction. While the court admitted that it was unclear whether Santana’s single act could be excluded as a manufactured contact, it declined to rule on that issue given the numerous other sales to New York customers.

Second, the district court had similarly misread the due process requirements. The mere facts that the Queen Bee website offered bags for sale to New York consumers and sold at least one counterfeit Chloé bag to a New York resident were sufficient to establish purposeful availment of the benefits of transacting business in New York. Ubaldelli’s minimum contacts with New York were further satisfied because Queen Bee shipped numerous other items to New York, regardless of whether Ubaldelli maintained a continuing relationship with any one customer. The Second Circuit also rejected the district court’s reasonableness analysis, holding that Ubaldelli’s inconvenience of litigating cross country was not a serious burden, but that New York’s interest in providing redress for its residents and Chloé’s interest in obtaining relief favoured litigating in New York.

Overall, this case establishes a relatively low bar for plaintiffs seeking to enforce their trademark rights, at least in New York. If the decision is followed elsewhere, a single act of shipping infringing goods to a forum state combined with other substantial contacts, such as the shipment of several other items in-state and operating a commercial interactive website available to forum state residents, may be sufficient to obtain specific personal jurisdiction over a defendant located almost anywhere in the United States.

This article first appeared in World Trademark Review Daily, published by The IP Media Group (www.worldtrademarkreview.com).