Bel Canto Design, Ltd. v. MSS HiFi, Inc. et al
Filing
65
ORDER denying 31 Motion to Strike Pleading and 31 Motion for Sanctions; granting in part 38 Motion for Preliminary Injunction; denying 40 Motion to Reconsider; granting in part 14 Motion to Dismiss for Lack of Jurisdiction. This action is transferred to the United States District Court for the Southern District of New York.(Written Opinion). Signed by Senior Judge David S. Doty on 9/12/2011. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 11-2126(DSD/FLN)
Bel Canto Design, Ltd., a
Minnesota corporation,
Plaintiff,
ORDER
v.
MSS HiFi, a New York corporation,
and John Boey a/k/a Johnny Boey,
Defendants.
Benjamin J. Court, Esq., John Harper III, Esq. and
Messerli & Kramer, P.A., 1400 Fifth Street Towers, 100
South Fifth Street, Minneapolis, MN 55402 and Mark A.
Larsen, Esq. and Larsen, Christensen & Rico, PLLC, 50
West Broadway, Suite 400, Salt Lake City, UT 84101,
counsel for plaintiff.
Troy J. Hutchinson, Esq., Benjamin E. Gurstelle, Esq. and
Briggs & Morgan, PA, 80 South Eighth Street, Suite 2200,
Minneapolis, MN 55402, counsel for defendants.
This matter is before the court upon (1) the motion to dismiss
by defendants MSS HiFi, Inc. (MSS HiFi) and John Boey, (2) the
motion in limine by plaintiff Bel Canto Design, Ltd. (Bel Canto),
(3) the motion to strike and for sanctions by defendants, (4) the
motion for reconsideration by defendants, (5) the motion for a
preliminary
injunction
by
Bel
expedited discovery by Bel Canto.
heard oral argument.
Canto,
and
(6)
the
motion
for
On September 7, 2011, the court
Based on a review of the file, record, and
proceedings herein, the motion to reconsider is denied; the motion
to dismiss is granted in part; the motion for a preliminary
injunction is granted in part, in the form of an extension and
modification of the temporary restraining order (TRO); and the
motion to strike or for sanctions is denied.
The court does not
rule on the motion in limine or the motion for expedited discovery.
BACKGROUND
The factual background of this matter is fully set forth in
the August 25, 2011, order granting Bel Canto’s motion for a TRO.
See Order 1–6, ECF No. 37.
Since entry of the TRO, defendants
continue to advertise that Bel Canto will convert voltage from
120V/60Hz to 230V/50Hz for MSS HiFi customers. See McCormick Third
Decl. Exs. 3–6.
Defendants’ website also states that “Bel Canto
had to replace some of their products ... because many sources had
found their power ratings to be overly aggressive and deceiving.”
Stronczer Decl. Exs. 1–2.
injunction,
admission
discovery.
Defendants
of
Bel Canto moves for a preliminary
certain
move
to
evidence
dismiss
and
for
for lack
of
expedited
personal
jurisdiction and improper venue, to strike the motion in limine and
sanction Bel Canto, and for reconsideration.
2
DISCUSSION
I.
Motion to Reconsider
Defendants move to reconsider what they call the court’s
disposition of their motion to dismiss. “Motions to reconsider are
prohibited except by express permission” and a party seeking to
make a motion to reconsider must request permission in writing. D.
Minn. L.R. 7.1(h). Defendants did not do so.
Further, the court’s
previous TRO order necessarily addressed the question of personal
jurisdiction but did not dispose of the motion to dismiss, as the
matter had not been fully briefed.
Therefore, the motion to
reconsider is denied.
II.
Motion to Dismiss
The parties have now fully briefed the motion to dismiss, and
the court determines that additional oral argument is not necessary
pursuant to Rule 78(b).
A.
Personal Jurisdiction
Defendants first argue that dismissal is proper for lack of
personal jurisdiction. The existence of personal jurisdiction over
defendants in Minnesota is a close question.
However, for the
reasons stated in the previous order, the court finds that Bel
Canto has made a prima facie case that the exercise of personal
3
jurisdiction by this court is proper.
Order 6–9, ECF No. 37.
Therefore, dismissal for lack of personal jurisdiction is not
warranted.1
B.
Venue
Defendants next argue that venue in Minnesota is improper.
Venue is proper in:
(1) a judicial district where any defendant
resides, if all defendants reside in the same
State, (2) a judicial district in which a
substantial part of the events or omissions
giving rise to the claim occurred, or a
substantial part of property that is the
subject of the action is situated, or (3) a
judicial district in which any defendant may
be found, if there is no district in which the
action may otherwise be brought.
28. U.S.C. § 1391(b).
A corporation is deemed to reside in any
district in which it is subject to personal jurisdiction at the
time the action is commenced.
Id. § 1391(c).
Bel Canto argues that venue is proper in Minnesota under
subsection
(b)(1)
because
jurisdiction in Minnesota.
defendants
are
subject
to
personal
Boey, however, does not reside in
Minnesota, and as a result venue is not proper under subsection
(b)(1).2
Bel Canto next argues that venue is proper in Minnesota
1
If the court found jurisdiction lacking, it would transfer
this action to cure the defect.
2
As a result, this case differs from Dakota Industries, Inc.
v. Dakota Sportswear, Inc., in which the only defendant was a
corporation subject to personal jurisdiction in the forum. 946
F.2d 1384, 1392 (8th Cir. 1991).
4
under subsection (b)(2) because the harm is felt by Bel Canto in
Minnesota.
products
Where, as here, there is no evidence that infringing
were
sold
or
altered
in
the
forum,
the
original
manufacture of goods and the existence of harm from a Lanham Act
violation do not support venue.
985–86 (8th Cir. 1995).3
See Woodke v. Dahm, 70 F.3d 983,
Bel Canto alleges that defendants altered
its products in New York and sold infringing products from New
York.
As Bel Canto repeatedly states, “Mr. Boey and MSS HiFi in
person ... committed acts outside Minnesota causing ... property
damage in Minnesota.”
See, e.g., Pl.’s Mem. Opp’n 8, ECF No. 44
(alteration in original) (internal quotation marks omitted).
Bel
Canto’s request to examine the product in New York highlights the
fact that the events that constitute a violation of the Lanham Act,
as well as the other allegedly defamatory and deceptive acts, all
occurred in New York.
its
reputation
in
Bel Canto argues only that it felt harm to
Minnesota.
Without
more,
insufficient to support venue in this action.
at 985–86.
such
harm
is
See Woodke, 70 F.3d
As a result, a substantial part of the events in this
3
Minnesota Mining & Manufacturing Co. v. Rauh Rubber, Inc.,
is inapposite, because the defendants sold infringing products in
Minnesota. See 943 F. Supp. 1117, 1125 (D. Minn. 1996). For that
same reason,
American Association for Justice v. The American
Trial Lawyers Association, Inc., also differs. See No. 07-4626,
2008 WL 2690290, at *7 (D. Minn. July 1, 2008) (finding venue
proper where defendants sent up to 100 infringing letters and
follow-up membership materials to Minnesota residents). The record
in the present case contains no facts showing that defendants sold
or sent infringing materials into Minnesota; no Lanham act
violation occurred in Minnesota.
5
action did not occur in Minnesota, and venue
is improper.4
Moreover, retaining the action in Minnesota only creates procedural
uncertainty and delays resolution of the merits of the action.
In
contrast, a substantial part — if not all — of the relevant events
occurred in New York, where venue and personal jurisdiction are
unquestioned.
Having determined that venue is improper in this district, the
court must “dismiss, or if it be in the interest of justice,
transfer [the] case to any district or division in which it could
have been brought.” 28 U.S.C. § 1406(a). Defendants’ alleged acts
and apparent disregard of this court’s order suggest that ongoing
judicial supervision of defendants will be required. Moreover, the
trademark claims of plaintiffs and antitrust counterclaims of
defendants appear to have merit.
Therefore, it is in the interest
of justice to transfer this action.
III.
Preliminary Injunction
Because the court will transfer this case, the transferee
court is the proper forum to decide whether to issue a preliminary
injunction.
However, there is a need to maintain the status quo
while the action moves to New York. Therefore, the court considers
whether to extend the TRO to preserve the status quo during
transfer.
4
The court notes that even if venue were proper in Minnesota,
it would transfer the action to New York under 28 U.S.C. § 1404(a).
6
A.
Minnesota Franchise Act
As an initial matter, defendants argue that the court cannot
grant injunctive relief because they remain an authorized dealer of
Bel Canto products.
Specifically, defendants argue that the
Minnesota Franchise Act, Minn. Stat. § 80C.01, applies to the
dealer agreement.
A minimum purchase agreement may create a
franchisor/franchisee relationship when dealers are “required to
purchase amounts or items that they would not purchase otherwise.”
Twin Cities Galleries, LLC v. Media Arts Group, Inc., 476 F.3d 598,
601 (8th Cir. 2007) (quoting Upper Midwest Sales Co. v. Ecolab,
Inc., 577 N.W.2d 236, 242 (Minn. Ct. App. 1988)).
Defendants
provide only conclusory statements in support of this argument.
Defendants do not provide a copy of an authorized dealer agreement
between Bel Canto and MSS HiFi.
See Boey Decl. Ex. 1, ECF No. 58-1
(agreement between Mt. Washington Valley Audiophile, Inc. and Bel
Canto). Defendants offer no evidence that Bel Canto forced them to
make unwanted purchases.
Instead, defendants provide a self-
serving declaration reciting the legal standard. See id. ¶ 3 (“MSS
was also required to purchase items it would not have purchased
otherwise.”).
Moreover, defendants do not show that the alleged
minimum-purchase requirement was objectively unreasonable.
Twin Cities Galleries, 476 F.3d 601.
7
See
As a result, defendants fail
to show that the agreement between Bel Canto and defendants was a
franchise agreement pursuant to the Minnesota Franchise Act.
Therefore, defendants’ argument fails.
B.
Dataphase Factors
Since the court first granted a TRO, defendants disregarded
this court’s restraining order by continuing to post disparaging
comments about Bel Canto products.
Defendants also continue to
suggest that Bel Canto will alter product voltage for MSS HiFi
customers. In possible mitigation, defendants have raised serious,
credible allegations of Sherman Act violations.
As a result, the
court again considers the Dataphase factors in deciding whether to
extend the TRO.
A TRO is an extraordinary equitable remedy, and the movant
bears the burden of establishing its propriety.
v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003).
See Watkins Inc.
The court considers
four factors in determining whether to extend a TRO: (1) the threat
of irreparable harm to the movant in the absence of relief, (2) the
balance between that harm and the harm that the relief may cause
the non-moving party, (3) the likelihood of the movant’s ultimate
success on the merits and (4) the public interest.
See Dataphase
Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981)
(en banc).
8
1.
Irreparable Harm
Bel Canto argues that defendants’ sale of Bel Canto products
with counterfeit serial numbers, false claims about being an
exclusive online distributor and claims about the value of Bel
Canto
products
allegations.
sold
and
numbers.5
damage
its
goodwill.
Defendants
deny
the
Bel Canto, however, presented evidence that MSS HiFi
offered
for
sale
products
with
counterfeit
serial
Moreover, defendants do not deny making the false
representations about Bel Canto on the MSS HiFi website.
To show irreparable harm, “a party must show that the harm is
certain and great and of such imminence that there is a clear and
present need for equitable relief.” Iowa Utils. Bd. v. F.C.C., 109
F.3d 418, 425 (8th Cir. 1996).
qualifies as irreparable harm.”
“[P]otential loss of goodwill
Id. at 426.
Based on defendants’
false representations and false claims, the court finds that Bel
Canto has demonstrated that it is likely to suffer irreparable harm
to its goodwill without equitable relief.
Moreover, harm is
presumed when misrepresentations have a tendency to deceive under
§ 43 of the Lanham Act.
See Black Hills Jewelry Mfg. Co. v. Gold
Rush, Inc., 633 F.2d 746, 753 (8th Cir. 1980).
5
The first-sales doctrine does not apply to altered products.
See Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562
F.3d 1067, 1073–74 (10th Cir. 2009); see also Champion Spark Plug
Co. v. Reich, 121 F.769, 773 (8th Cir. 1941).
9
Since the TRO issued, defendants willfully disregarded this
court’s
restraining
order
by
continuing
to
post
disparaging
comments about Bel Canto products and suggesting that Bel Canto
will alter product voltage for MSS HiFi customers.
cause additional harm to Bel Canto.
These acts
Therefore, this factor weighs
even more strongly in favor of Bel Canto than when the court first
considered the TRO.
2.
Balance of Harms
The court has already determined that Bel Canto’s reputation
and goodwill are harmed by defendants’ claims and sale of altered
Bel
Canto
products.
On
the
eve
of
the
first
TRO
hearing,
defendants removed the false statements from their website.
Defendants also claim that they do not sell Bel Canto products with
altered serial numbers.
true,
injunctive
defendants.
relief
The evidence suggests otherwise.
will
cause
little
if
any
But if
harm
to
Posting a statement informing consumers that products
purchased from MSS HiFi do not bear support by Bel Canto merely
gives consumers information, and cannot be construed as a harm to
defendants.6
Therefore, this factor weighs in favor of Bel Canto.
6
To the extent that this statement is incorrect or that Bel
Canto is engaging in an unlawful restraint of trade by such
statement, defendants will have legal recourse against Bel Canto in
the form of antitrust claims.
10
3.
Likelihood of Success on the Merits
The court next considers the “most significant” Dataphase
factor: likelihood that the movant will prevail on the merits.
S & M Constructors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir.
1992).
The Lanham Act makes unlawful the unauthorized:
use in commerce [of] any reproduction,
counterfeit, copy, or colorable imitation of a
registered mark in connection with the sale,
offering
for
sale,
distribution,
or
advertising of any goods or services on or in
connection with which such use is likely to
cause confusion, or to cause mistake, or to
deceive.
15 U.S.C. § 1114.
The Lanham Act further imposes civil liability
when a person uses:
any word, term, name, symbol, or device, or
any
combination
thereof,
or
any
false
designation of origin, false or misleading
description of fact, or false or misleading
representation of fact, which ... is likely to
cause confusion, or to cause mistake, or to
deceive as to the affiliation, connection, or
association of such person with another
person, or as to the origin, sponsorship, or
approval of his or her goods, services, or
commercial activities by another person, or
... in commercial advertising or promotion,
misrepresents the nature, characteristics,
qualities, or geographic origin of his or her
or another person’s goods, services, or
commercial activities.
Id. § 1125(a).
In this case the evidence of false statements and altered
serial numbers offered by plaintiffs suggests that they are very
likely to prevail on the merits of their Lanham Act and deceptive
11
trade claims.7
Defendants raise serious allegations of per se
antitrust violations by Bel Canto.
Those claims are not presently
before the court, and defendants’ likelihood of success under the
Sherman Act does not mitigate Lanham Act violations.
Therefore,
this factor weighs in favor of Bel Canto.
4.
The
Public Interest
public
interest
favors
protecting
trademarks
and
tradenames and preventing misrepresentations to consumers.
There
also is a public interest in unrestrained competition.
Here,
however, it appears that defendants are engaged in deceptive and
unfair competition.
Therefore, the public interest factor is
neutral or favors Bel Canto.
Accordingly, based upon a balancing
of the four Dataphase factors, extension of the TRO is warranted.
IV.
Remaining Motions
A.
Motion in Limine
Bel
Canto
moves
to
admit
evidence
of
Boey’s
conviction and bad reputation in the audio community.
criminal
Bel Canto
acknowledges that such evidentiary motions in limine are properly
made shortly before trial, and cite a 2007 how-to article from a
legal trade journal as authority to bring this motion before
defendants have even answered the complaint.
7
Pl.’s Mem. Opp’n Ex.
By listing these claims, the court offers no opinion on the
merits of the other claims, but merely notes that plaintiffs are
likely to succeed on several claims. Cf. United Healthcare Ins.
Co. v. AdvancePCS, 316 F.3d 737, 742–43 (8th Cir. 2002).
12
1, ECF No. 54-1.
persuasive
legal
Magazine articles are neither binding nor
authority
in
this
court.
This
motion
is
premature, and therefore, the court will not address the motion.
B.
Motion to Strike and for Sanctions
Defendants
sanctions.
warranted
move
to
strike
the
motion
in
limine
and
for
The court has already determined that no action is
regarding the
motion
in
limine.
As
to sanctions,
defendants filed the motion without giving Bel Canto 21 days to
respond under the safe-harbor provisions of Rule 11.
See Fed. R.
Civ. P. 11(c)(2) (“A motion for sanctions must be made separately
from any other motion and ... must not be filed or be presented to
the court if the challenged paper, claim, defense, contention, or
denial is withdrawn or appropriately corrected within 21 days after
service [on the nonmoving party].”).
Further, the proffered
evidence of Boey’s 2006 criminal conviction and reputation via
online message boards is public information. Therefore, the motion
to strike and for sanctions is denied.
C.
Motion for Expedited Discovery
Bel Canto moves for limited discovery of the serial numbers of
Bel Canto products that defendants’ advertise for sale.
At oral
argument, defendants indicated that they do not oppose inspection
of
the
external
serial
numbers,
but
stated
that
they
oppose
allowing Bel Canto to open the products to view the internal serial
numbers.
Defendants argue that Bel Canto seeks internal serial
13
numbers
only
defendants.
to
further
an
alleged
group
boycott
against
However, if defendants have not altered the external
serial numbers, then allowing inspection of internal numbers gives
Bel Canto no additional information in furtherance of a boycott.
The record contains evidence that defendants have sold Bel Canto
products with altered external serial numbers.
As a result, it
appears that allowing inspection of both the external and internal
surfaces of defendants’ Bel Canto products is warranted.
Such
discovery is relevant, not unduly burdensome and will preserve
evidence.
In light of the court’s decision to transfer this
action, the court withholds ruling on this motion to allow the
transferee court to dispose the motion.
CONCLUSION
Accordingly, based on the above and in accordance with the
previous order of the court, IT IS HEREBY ORDERED that:
1.
The motion for a preliminary injunction [Doc. No. 38] is
granted in part, in the form of an extension of the TRO:
a.
John Boey and MSS HiFi and its officers, agents,
servants, employees, and attorneys, and all other persons
who are in active concert or participation with them, are
hereby restrained from:
i.
Selling any Bel Canto products with false,
altered or counterfeit serial numbers, including
14
but
not
limited
to
the
following
Bel
Canto
products:
DAC 3.5VB Serial No. D35-135
VBS-1 Serial No. VBS-118
DAC 3.5VB Serial No. D35-135
VBS-1 Serial No. VBS-118
DAC 3.5VB Serial No. D35-139
REF500m
monoblock
R5M-262 & R5M-263
amplifier
Serial Nos.
C5i Serial No. C51-112
LNS1 Serial No. LNS-149
VBS-1 Serial No. VBS-152
DAC 1.5 Serial No. D15-220
DAC 2.5 Serial No. D25-156
REF1000m, Serial Nos. R1M-127 & R1M-128;
ii.
Claiming
including
any
affiliation
specifically
that
with
its
Bel
Canto,
national
sales
manager, P.J. Zornosa, will be attending any MSS
HiFi sponsored events;
iii. Defaming, diluting, or causing confusion with
respect to Bel Canto or its trademarks in the sale
of goods or services in commerce in any way;
b.
The following language shall appear in association
with any advertisement, solicitation or sale of any and
all new Bel Canto products by defendants:
15
MSS HiFi IS NOT AN AUTHORIZED BEL
CANTO DESIGN DEALER. ANY BEL CANTO
DESIGN PRODUCTS PURCHASED FROM MSS
HiFi DO NOT HAVE A MANUFACTURER’s
WARRANTY, and WILL NOT BE ELIGIBLE
FOR
(i)
SERVICE
FROM
BEL
CANTO
DESIGN, (ii) SOFTWARE or HARDWARE
UPGRADES, (iii) REBATES, or (iv) ANY
RECALL OR OTHER NOTICES;
c.
Bel Canto shall provide security to defendants in
the form of the $5,000 bond presently on file with the
Clerk of Court [Doc. No. 45];
d.
This TRO shall remain in effect for 14 days or as
ordered by the transferee court.
2.
The motion to strike and for sanctions [Doc. No. 31] is
denied;
3.
The motion to reconsider [Doc. No. 40] is denied;
4.
The
motion
to
dismiss
for
lack
of
jurisdiction
or
improper venue [Doc. No. 14] is granted in part; and
5.
This action is transferred to the United States District
Court for the Southern District of New York.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated:
September 12, 2011
s/David S. Doty
David S. Doty, Judge
United States District Court
16
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