Smith Enterprise Incorporated v. Hammonds

Filing 28

ORDER that Defendant's Motion to Dismiss (Doc. 16 ) is granted. FURTHER ORDERED that Defendant's Motion for Sanctions (Doc. 24 ) is denied. IT IS FURTHER ORDERED directing the Clerk of Court to terminate this action and enter judgment accordingly. Signed by Judge G Murray Snow on 3/6/2014.(KMG)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8

Smith Enterprise Incorporated,

9

Plaintiff,

10
11
12
13

No. CV-13-01773-PHX-GMS
ORDER

v.
Jason Edward Hammonds,
Defendant.

14

Pending before the Court are Defendant Jason Hammonds’ Motion to Dismiss

15

(Doc. 16) and Motion for Sanctions (Doc. 24). For the following reasons, Defendant’s

16

Motion to Dismiss is granted and Defendant’s Motion for Sanctions is denied

17

BACKGROUND

18

This case arises from a statement made by Defendant on an internet message

19

board. Plaintiff Smith Enterprise Incorporated (“SEI”) is an Arizona corporation that

20

manufactures firearms and related accessories. (Doc. 1 ¶ 2.) In addition to other products,

21

SEI manufactures M14 receivers, the part of an M14 rifle that houses its operating parts.

22

(Id. ¶ 9.) SEI manufactures its M14 receivers using a lengthy process that involves

23

carving the receiver out of a solid block of steel. (Id. 13–16.) SEI does not sell its M14

24

receivers to end users, but instead uses a distributer, Crocs Gunshop, to manage consumer

25

sales. (Id. ¶ 19.) Given the apparently high demand for the M14 receivers and the

26

extended manufacturing process, Crocs Gunshop requires customers to put down a

27

deposit to buy one of the receivers. (Id. ¶ 20.) Crocs Gunshop collects this deposit and

28

holds it until the customer’s receiver is shipped from SEI. SEI does not receive any part

1

of this deposit, and only receives payment from Crocs Gunshop once the receiver has

2

shipped. (Id. ¶ 21.)

3

Defendant Jason Hammonds is a resident of Georgia and works as a medical

4

school professor. (Doc. 16–1.) At some point prior to May 2013, Hammonds placed an

5

order for five SEI M14 receivers from Crocs Gunshop. (Doc. 16–2 at 2.) On or about

6

May 29, 2013, a Crocs Gunshop customer posted a comment on an online message board

7

known as the “M14 Forum” regarding his SEI M14 receiver order. (Doc. 1 ¶ 22.) The

8

customer asked for information about when he might receive the receiver that he had

9

ordered. (Id.) This comment began a thread in which a number of other customers

10

discussed their orders and some expressed frustration at the length of time it was taking

11

for them to receive the items. (Id. 23–25.) In the course of this message board thread,

12

Hammonds posted the following:

13

I heard from a reliable source that they are experiencing heat
treatment issues in their receivers. Reports of receiver threads
cracking upon barrel installation, stuff like that. I can’t
imagine it’s been this long getting the tooling in order.
Feeding us BS. At this point I believe you have every right to
demand a full refund. Crocs has offered such to others that
have been waiting. Feel free to use this info to your every
advantage.

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

(Doc. 1-1 at 3.)
An SEI employee saw this post and replied: “Unless your source is one of us, then
it’s wrong. None of that is true.” (Id. at 4.) Shortly after, Hammonds responded: “Good to
know, I guess. Then where are the receivers????? Current explanation does not seem to
add up.” (Id.)
SEI President Ron Smith then called Hammonds and told him that the statement
he made on the message board was false and that SEI would “not hesitate to file a lawsuit
to protect its reputation and goodwill” if Hammonds did not retract his statement. (Id. ¶
32.) SEI claims that Hammonds refused to retract his statement, but did return to the M14
Forum to post:

-2-

1
I had what I have found to be a reliable source tell me some
reasoning behind the delay in SEI M14 receiver deliveries. It
was merely conjecture as the source was secondary in nature,
but has proven over time to me to be quite accurate in
hindsight. Pretty good source of info. Anyway, it seemed
logical as we had seen no product. We had gotten nothing
from SEI except excuses for 6 months. Poor Croc. I feel for
him. Caught in the middle. Anyway, it was time to nudge
them and force an explanation.

2
3
4
5
6
7
8

(Doc. 1-1 at 13.)

9

Hammonds further posted that:

10

We don’t know exactly. We are all guessing and listening to
folks that we respect come up with likely reasoning. I was
told they may have been experiencing heat treatment issues
and that is the reason why we have not seen any product. The
source of info was merely brainstorming reasoning behind
such a delay in the current environment. Just the normal
rumor mill when you don’t get an honest answer.

11
12
13
14
15
16

(Doc. 1-1 at 8.)

17
18
19
20
21
22
23
24
25
26
27
28

In a letter dated August 2, 2013, SEI’s counsel again informed Hammonds that his
statement was false. (Doc. 1 at ¶ 48.) The letter stated that SEI would waive its damages
if Hammonds would cease making false statements and post an apology and retraction on
the M14 Forum. (Id.) When Hammonds refused to do so, stating his statements were
merely opinion, SEI filed the present suit. (Id. at ¶ 49.) SEI alleges one count of product
disparagement under the Lanham Act, 15 U.S.C. § 1125(e), and one count of product
disparagement under Arizona common law. (Id. ¶¶ 52–76.) Hammonds now moves to
dismiss the action on various grounds, including that Plaintiff has not established
personal jurisdiction. (Doc. 16.) Further, Hammonds moves for sanctions against SEI and
its counsel pursuant to Federal Rule of Civil Procedure 11. (Doc. 24.)
///
///
-3-

ANALYSIS

1
2

I.

PERSONAL JURISDICTION

3

A.

Legal Standard

4

“The party seeking to invoke the court’s jurisdiction bears the burden of

5

establishing that jurisdiction exists.” Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986)

6

(citing Data Disc, Inc. v. Systems Tech. Assocs., 557 F.2d 1280, 1285 (9th Cir. 1977));

7

Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir. 1984). “When a defendant moves to

8

dismiss for lack of personal jurisdiction, the plaintiff is ‘obligated to come forward with

9

facts, by affidavit or otherwise, supporting personal jurisdiction.’” Id. (quoting Amba

10

Mktg. Sys., Inc. v. Jobar Int’l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)). “The mere

11

allegations of a complaint, when contradicted by affidavits, are not enough to confer

12

personal jurisdiction over a nonresident defendant.” Chem Lab Products, Inc. v.

13

Stepanek, 554 F.2d 371, 372 (9th Cir. 1977) (citing Taylor v. Portland Paramount Corp.,

14

383 F.2d 634, 639 (9th Cir. 1967)); Data Disc, 557 F.2d at 1284 (citing Taylor, 383 F.2d

15

at 639).

16

To establish a prima facie case of personal jurisdiction, the plaintiff has the burden

17

of showing that: (1) the forum state’s long-arm statute confers jurisdiction over the

18

nonresident defendant; and (2) the exercise of jurisdiction comports with principles of

19

due process. Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 269 (9th Cir.

20

1995). Arizona’s long-arm statute confers jurisdiction to the maximum extent allowed by

21

the Due Process Clause of the United States Constitution. Ariz. R. Civ. P. 4.2(a); Doe v.

22

Am. Nat’l Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997). Due process requires a

23

nonresident defendant to have “certain minimum contacts with [the forum] such that the

24

maintenance of the suit does not offend traditional notions of fair play and substantial

25

justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal citation

26

omitted). There are two types of personal jurisdiction, general and specific. Burger King

27

Corp. v. Rudzewicz, 471 U.S. 462, 473 n. 5 (1985).

28

-4-

1

To establish general personal jurisdiction, “minimum contacts exist where a

2

defendant has ‘substantial’ or ‘continuous and systematic’ contacts with the forum state,

3

even if the case is unrelated to those contacts. Tuazon v. R.J. Reynolds Tobacco Co., 433

4

F.3d 1163, 1171 (9th Cir. 2006) (citing Helicopteros Nacionales de Colombia, S.A. v.

5

Hall, 466 U.S. 408, 415 (1984))

6

Specific jurisdiction is analyzed under a three-pronged test:

7

(1) [t]he non-resident defendant must purposefully direct his
activities or consummate some transaction with the forum or
resident thereof; or perform some act by which he
purposefully avails himself of the privilege of conducting
activities in the forum, thereby invoking the benefits and
protections of its laws; (2) the claim must be one which arises
out of or relates to the defendant’s forum-related activities;
and (3) the exercise of jurisdiction must comport with fair
play and substantial justice, i.e. it must be reasonable.

8
9
10
11
12
13
14

Mavrix Photo, Inc. v. Brand Tech., Inc., 647 F.3d 1218, 1227–28 (9th Cir. 2011).

15

B.

16

Here, Plaintiff does not allege that Hammonds had the kind of substantial or

17

systematic and continuous contacts with Arizona to establish general personal

18

jurisdiction. Hammonds is a Georgia resident who has never visited Arizona and who has

19

no business with Arizona outside of this matter. (Doc. 16-1.) Plaintiff alleges that

20

Hammonds has done business with SEI in Arizona, but does not seem to suggest that this

21

business goes beyond ordering the SEI receivers from Crocs Gunshop at issue in this

22

case. Thus, Plaintiff does not establish general personal jurisdiction.

Application

23

To establish specific personal jurisdiction, Plaintiff must first demonstrate that

24

Hammonds purposefully directed his activity at Arizona. Purposeful direction is

25

evaluated using the Supreme Court’s three-part Calder effects test. Yahoo! Inc. v. La

26

Ligue Contre Le Racisme Et L’Antisemitisme, 433 F.3d 1199, 1206 (9th Cir. 2006) (en

27

banc) (internal quotation marks omitted). Under this test, “the defendant allegedly must

28

-5-

1

have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing

2

harm that the defendant knows is likely to be suffered in the forum state.” Id.

3

Under the first prong, it is clear that Hammonds intentionally posted on the M14

4

message board. However, under the second prong, it does not appear that Hammonds’

5

posts were expressly aimed at Arizona. The Ninth Circuit has explained that “express

6

aiming” occurs when the “defendant is alleged to have engaged in wrongful conduct

7

targeted at a plaintiff whom the defendant knows to be a resident of the forum state.”

8

Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1087 (9th Cir. 2000). It is

9

undisputed that Hammonds knew that SEI is an Arizona corporation, but the Ninth

10

Circuit has held that the knowledge of the citizenship of the Plaintiff “goes to the

11

foreseeable effect prong of the ‘effects test’ and is not an independent act that can be

12

interpreted as being expressly aimed at [the forum].” Pebble Beach Co. v. Caddy, 453

13

F.3d 1151, 1158 (9th Cir. 2006).

14

Here, Hammonds made a statement on the message board that SEI was

15

experiencing manufacturing problems. This comment was made to fellow customers as

16

part of a conversation in which customers expressed frustration to each other over the

17

delay in receiving the products they had ordered from SEI. Hammonds made a statement

18

suggesting a reason for this delay. After Hammonds was informed this statement was

19

false, Hammonds posted that his source had been “merely brainstorming” and that the

20

statement was “just the normal rumor mill.” (Doc. 1-1 at 8.) At the time of his statements,

21

Hammonds had placed orders and deposits for SEI products and was waiting for those

22

products to arrive. Hammonds’ comments themselves do not suggest, and SEI has not

23

sufficiently alleged, that Hammonds made his comments in order to harm SEI. Instead, it

24

appears that Hammonds was expressing his own frustration over the delay in receiving

25

his SEI products.

26

After SEI contacted Hammonds, he wrote a subsequent post admitting the initial

27

post was “merely conjecture” and also noting it was “time to nudge [SEI] and force an

28

explanation [for the delay].” (Doc. 1-1 at 13.) Here, Hammonds’ statement seems aimed

-6-

1

at SEI, but is merely a statement admitting his initial statement was solely based on

2

conjecture. Assuming that this statement qualifies as one expressly aimed at SEI in

3

Arizona, it nonetheless fails under the third prong of the Calder test as SEI does not

4

allege it experienced any harm because of this statement qualifying Hammonds’ earlier

5

statement. If anything, this later statement seems to help undo any possible harm caused

6

by that earlier statement. Plaintiff therefore fails to establish facts that suggest

7

Hammonds purposefully directed his actions at Arizona under Calder. Because Plaintiff

8

fails to establish this first prong of the specific personal jurisdiction inquiry, the Court

9

need not address the other two prongs, but nevertheless finds that, under the

10

circumstances as alleged by SEI, the exercise of Hammonds would not be reasonable,

11

and thus finds that SEI has not established personal jurisdiction in this case.

12

II.

SANCTIONS

13

Defendant moves for sanctions against SEI and its counsel, pursuant to Federal

14

Rule of Civil Procedure 11. (Doc. 24.) In relevant part, Rule 11 states that in presenting a

15

pleading or other paper to the court, an attorney certifies that “to the best of the person’s

16

knowledge, information, and belief formed after an inquiry reasonable under the

17

circumstances” the case is not “being presented for any improper purpose,” the claims

18

“are warranted by existing law or by a nonfrivolous argument for extending” the law, and

19

“the factual conditions have evidentiary support or, if specifically so identified” are likely

20

to have such support following discovery. Fed. R. Civ. P. 11(b)(1)–(3). Hammonds

21

argues that Plaintiff has used strong-arm tactics and has brought this suit in order to

22

intimidate him and that the suit is plainly frivolous because he is not a competitor of SEI.

23

While the Court finds that these arguments are not without merit, and even

24

viewing the facts alleged by Plaintiff in the light most favorable to it, this suit appears to

25

be an extremely disproportionate response to the actions of the Defendant, they do not

26

reach the level necessary to impose the “extraordinary remedy” of Rule 11 sanctions.

27

Operating Engineers Pension Trust v. A-C CO., 859 F.2d 1336, 1345 (9th Cir. 1988)

28

(noting that sanctions are appropriate in the “rare and exceptional case where the action is

-7-

1

clearly frivolous, legally unreasonable or without legal foundation, or brought for an

2

improper purpose”). Here, it seems quite clear that Hammonds is not a competitor of SEI

3

because he does not manufacture M14 receivers, but it does appear that Hammonds has at

4

least occasionally sold M14 rifles that he has assembled from component parts, and thus

5

the claims based on the contention that he is a competitor of SEI are not plainly frivolous

6

for purposes of Rule 11. Therefore,

7

IT IS ORDERED that Defendant’s Motion to Dismiss (Doc. 16) is granted.

8

IT IS FURTHER ORDERED that Defendant’s Motion for Sanctions (Doc. 24)

9
10
11
12

is denied.
IT IS FURTHER ORDERED directing the Clerk of Court to terminate this
action and enter judgment accordingly.
Dated this 6th day of March, 2014.

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

-8-