Zaxcom, Inc. v. Lectrosonics, Inc.

Filing 53

MEMORANDUM & ORDER, For the foregoing reasons, Defendant's 41 motion to dismiss or transfer for improper venue is GRANTED. The Clerk of the Court is respectfully directed to transfer the file in this matter to the United States District Court for the District of New Mexico and to thereafter close the case. So Ordered by Judge Nicholas G. Garaufis on 2/1/2019. (Please Note: This case will be transferred to the District of New Mexico in 7 days in accordance with Local Rule 83.1) (Lee, Tiffeny)

D/pr
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-X

ZAXCOM,INC.,

Plaintiff,
MEMORANDUM & ORDER

-against17-CV-3408(NGG)
(SJB)
LECTROSONICS,INC.,
Defendant,
X

NICHOLAS G. GARAUFIS,United States District Judge.
PlaintiffZaxcom,Inc. brings this action against Defendant Lextrosomcs, Inc. alleging
patent inffingement ofthree Zaxcom patents: U.S. Patent No. 7,929,902, U.S. Patent No.

8,385,814, and U.S. Patent No.9,336,307(collectively, the "Patents-In-Suit"). (Am. Compl.
(Dkt. 33).)

Before the court is Defendant's motion to dismiss the amended complaint for improper
venue pursuant to Federal Rule of Civil Procedure 12(b)(3), or, in the alternative, to transfer the
case to the United States District Court for the District of New Mexico pursuant to 28 U.S.C.

§ 1406(a)(the "Motion"). (Mot. to Dismiss("Mot.")(Dkt. 41); Mem.in Supp. of Mot.("Def.
Mem.")(Dkt. 41-1).) For the following reasons, the court GRANTS Defendant's Motion and
ORDERS the case transferred to the District of New Mexico.
I.

BACKGROUND
A.

Facts

The court takes the following statement offacts largely from PlaintifFs amended
complaint,the well-pleaded allegations of which the court generally accepts as true. S^ SB
Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1352(3d ed. 2018). A

district court considering a Rule 12(b)(3) motion to dismiss for improper venue may also

1

examine facts outside the complaint to determine whether its venue is proper.

id; Uni-Svs..

LLC V. U.S. Tennis Ass'n. No. 17-CV-147(KAM),2018 WL 4863589, at *3(E.D.N.Y. Oct. 5,

2018)(observing that ifthe court chooses to rely on pleadings and affidavits instead ofan

evidentiary hearing,the plaintiff need only make a prima facie showing of venue). Specifically,
the court considers the Declarations of Gordon Moore, Howard Kaufinan, and Jerry Cudmore in

support of Defendant's motion to dismiss(see Decl. of Gordon Moore("Moore Deck")(Dkt. 412); Decl. of Howard Kaufinan ("Kaufinan Deck")(Dkt. 41-3); Deck of Jerry Cudmore

("Cudmore Deck")(Dkt. 41-4); Suppl. Deck of Gordon Moore("Suppk Moore Deck")(Dkt.
44)), as well as the exhibits attached to Plaintiffs memorandum oflaw, which include

depositions ofthe same three individuals(see PI. Mem.in 0pp.("PI. Opp'n")(Dkt. 42)).
Plaintiff, the owner ofthe Patents-In-Suit, is a corporation organized and existing imder
the laws ofthe state ofNew Jersey, with its principal place of business in Pompton Plains, New
Jersey. (Am. Compk ^ 1, 78.) Plaintiffis a "leading designer and manufacturer ofprofessional
audio equipment for the television and film industries." (Id ^ 73.)

Defendant is a corporation organized and existing in New Mexico, with its principal
place of business in Rio Rancho,New Mexico. Qd ^ 2; Moore Deck H 3.) Defendant is engaged
in the business of designing and manxifacturing a variety of electronics devices, including

wireless microphone systems and related accessories. (Am.Compk

80-81; Moore Deck ^ 3.)

One ofthese wireless microphone systems is the Portable Digital Audio Recorder("PDR").

(Am. Compk

80-81; Moore Deck K 3.) It is Defendant's production, sale, and distribution of

the PDR that led to this suit.

Plaintiff asserts that Defendant sells the PDR "through Amazon.com and its online

website"(Am. Compk ^ 4), but Defendant contends that it "does not sell its products, such as its

PDR,directly to the public." (Moore Decl.f 5.) Instead, Defendant's products are exclusively
"sold and shipped from its New Mexico place of business to independent desilers," who "in turn
offer to sell [Defendant's] products to their customers." (Id) The only exception to this rule is
"certain 'commodity-type' goods, such as connector cables or antennae," which customers can

order directly from Defendant's New Mexico factory. (Suppl. Moore Decl.^ 9.)
Defendant states that it has one employee, Howard Kaufrnan, who resides in the Eastern

District ofNew York. (Moore Decl.^ 6.) Defendant has employed Mr. Kaufrnan since 1996 as
a "technical representative" for the company's Northeastern Territory, which includes Maryland,
Virginia, New York, New Jersey, Pennsylvania, Connecticut, Rhode Island, Massachusetts, New

Hampshire, Vermont, Maine, and the District of Columbia. (Id.1[6.) His primary job
responsibilities include "educat[ing][Defendant's] dealers and their customers about the

functions and capabilities of[Defendant's] products, and how they can be incorporated in a

customer's system." (Kaufrnan Decl. If 7.) Mr. Kaufman has "no authority to place orders" for
Defendant's equipment and cannot "fulfill orders." (Jd.) Defendant provides Mr. Kaufrnan with
"demonstration samples" that he uses for "demonstration purposes" when meeting with dealers
or their customers. (Id ^8.) He stores these units in his home,"typically" in his garage. (Id)
"[0]ccasionally," he lends such samples "on a temporary basis to dealers or prospective
customers who want to test and evaluate those products," or "provide[s] a demonstration unit to a
customer who has an urgent need" and cannot wait for a dealer to order one from Defendant's

headquarters. (Id.) On "a very few occasions," he has been authorized to sell "a few pieces of[]
used demonstration equipment that were no longer in production." (Id.)

When Mr. Kau&aan was hired by Defendant in 1996, he lived in Valley Stream, New
York. (Id ^ 4.) Shortly thereafter, however, he moved to his current address in Seaford, New

York. (Id) Mr. Kaufinan works for Defendant from a"home office [he] maintain[s] in a small

room at [his] home address" for an "average" of"roughly five hours a week." (Id T[ 5.) This
work generally consists of"paperwork," including "the preparation ofreports of[his] activities"
and expense reports. (Id) Mr. Kaufinan also spends approximately one hour per day working at
a local Starbucks, using his "laptop computer and cell phone to communicate with [Defendant's]
dealers and their customers, or persons at pefendant's] offices in New Mexico,for a variety of
business matters." (Id) The "majority" of his work—^approximately 25 to 30 hours a week—

involves traveling throughout the Northeastern territory to meet with Defendant's "dealers, their
customers, and occasionally consultants who advise those customers." (Id) Mr. Kaufman also

rents a mailbox at a local UPS store,"for which [Defendant] pays," so that packages containing
Defendant's products do not need to be left outside his house. (Id.i Mr. Kaufinan has never met
with dealers or their customers at his home in Seaford. (Id K 9.)

Defendant "paid for[Mr. Kaufman's] purchase of a computer and printer,""provides"
him with a cell phone, and reimburses him for the "cost of his automobile rental and insurance,
and for cell phone and internet service charges." (Moore Decl.^ 10.) Defendant has also paid
for "travel-related expenses,including meals," and other expenses incurred in "meeting with and

entertaining dealers or their customers." (Id.) Defendant also provides Mr. Kaufinan with health
insurance benefits.(Id.) Defendant does not, however, pay or reimburse Mr. Kaufman for the
use of his home to operate its business and Mr. Kaufinan does not identify his home as
Defendant's business location. (Id ^ 9.) Mr. Kaufinan's business card bears Defendant's New
Mexico address. Qd ^ 10.) Defendant does not identify Mr. Kaufinan's home as its office on

Defendant's website or in its publications or advertisements. (Id ^ 9.)

Since 2008, Defendant has authorized Jaycee Communications & Electronics, Inc.

("Jaycee"), an "electronics repair business" located in Queens, New York,to provide warranty
service and repair for Defendant's products. (Am. Compl.

42,44; Moore Decl. H 12;

Cudmore Decl.^ 4.) Jaycee is run by Jerry Cudmore and his wife out of"an office annexed to
[their] home." (Cudmore Decl. H 2.) Jaycee has a non-exclusive contract with Defendant to
serve as an authorized service center for certain of Defendant's products. (Id H 5.) The majority
of Jaycee's current business is "with respect to [Defendant's] wireless products." (Id; Am.

Compl. H 48.) When Jaycee performs work on a product still under the warranty provided by
Defendant, Defendant provides Jaycee with replacement parts and compensates Jaycee for its
labor according to established rates, which are periodically re-negotiated. (Cudmore Decl.^ 5.)

For repair ofproducts no longer under Defendant's warranty, Jaycee purchases parts from
Defendant and charges the customers for those parts and for Mr. Cudmore's labor. (Id)
B.

Procedural History

Plaintiff commenced this action on Jime 6,2017. (See Compl.(Dkt. 1).) On August 9,
2017,the court granted Plaintiffleave to conduct limited jurisdictional discovery. (Aug. 9,2017,
Min. Entry.) The court also granted Defendant leave to move to dismiss at some future point in
time. (Id) On November 16,2017,Plaintifffiled the amended complaint. (See Am.Compl.)

Defendant's motion to dismiss was fully briefed on March 6,2018. (See Mot.; PI. Opp'n; Def.
Reply("Reply")(Dkt. 43).)
n.

LEGAL STANDARD

On a motion to dismiss for improper venue under Rule 12(b)(3), the plaintiff bears the
burden of demonstrating that venue is proper. See In re ZTE(USA')Inc.. 890 F.3d 1008, 1013
(Fed. Cir. 2018); CDx Diagnostic. Inc. v. U.S. Endosconv Grp.. Inc.. No. 13-CV-5669(NSR),

2018 WL 2388534, at *1 (S.D.N.Y. May 24,2018). In resolving such a motion,the court may

consider facts outside ofthe pleadings. Peerless Network. Inc. v. Blitz Telecom Consulting.
LLC.No. 17-CV-1725(JPO),2018 WL 1478047, at *2(S.D.N.Y. Mar.26, 2018). Unless the
court holds an evidentiary hearing, the court may rely on pleadings and affidavits, pursuant to

which "the plaintiff need only make a prima facie showing of[venue]." Id.(quoting Gulf Ins.
Co. V. Glasbrenner. 417 F.3d 353, 355(2d Cir. 2005)(alteration in original)). In analyzing

whether the plaintiff has met its burden,the court"must view all facts in the light most favorable
to the plaintiff." Uni-Svs.. LLC,2018 WL 4863589, at *3 (citation and quotation marks
omitted).

Because this is a patent infringement action, venue is governed by 28 U.S.C. § 1400(b),

which provides that venue is proper either "in the judicial district where the defendant resides,"
or "where the defendant has committed acts ofinj&ingement and has a regular and established

place of business." For purposes of§ 1400(b),"'reside[nce]'...refers only to the State of
incorporation." TC Heartland LLC v. Kraft Foods Gm.Brands LLC. 137 S. Ct. 1514,1521

(2017)(alteration in original). In In re Crav. Inc., 871 F.3d 1355 (Fed. Cir. 2017),the Federal
Circuit annoimced a three-part test for determining whether venue is proper under the "regular

and established place of business" prong:"(1)there must be a physical place in the district;(2)it
must be a regular and established place of business; and(3)it must be the place ofthe
defendant." Id. at 1360.^

In applying this analysis, courts should be "mindful that patent venue is narrower than
general venue—and intentionally so." Peerless Network. 2018 WL 1478047, at *2. "Congress
adopted the predecessor to § 1400(b)as a special venue statute in patent infringement actions to

'
Whether venue is proper under § 1400(b) is an issue unique to patent law and is governed by Federal Circuit law.
SeelnreZTEfUSAlInc.. 890 F.3d at 1012;In re Crav. 871 F.3d at 1360.

eliminate the 'abuses engendered' by previous venue provisions allowing such suits to be
brought in any district in which the defendant could be served." Schnell v. Peter Eckrich &

Sons. Inc.. 365 U.S. 260, 262(1961)(quoting Stonite Prods. Co. v. Melvin Llovd Co.. 315 U.S.
561,563(1942)). Indeed, the Supreme Court has cautioned that "[t]he requirement of venue is
specific and unambiguous; it is not one ofthose vague principles which, in the interest ofsome
overriding policy, is to be given a 'liberal' construction." In re Crav. 871 F.3d at 1361

(alteration in original)(quoting Schnell. 365 U.S. at 264).
in.

DISCUSSION

Because Defendant is incorporated in the state of New Mexico fsee Am. Compl ^ 2;
Moore Decl.

3,4),there is no dispute that Plaintiff cannot make out a case for venue under the

residency prong of§ 1400(b). See TC Heartland LLC. 137 S. Ct. at 1518. Consequently,

Plaintiff must show both that Defendant has connnitted acts ofinfringement in the Eastern
District ofNew York and that it has a regular and established place of business here. § 1400(b).
Defendant does not contest Plaintiffs allegations that Defendant committed acts of

infringement in this district. Whether Defendant has infringed the Patents-In-Suit is a factual

question not appropriate for resolution on a motion to dismiss for improper venue. See
Medicines Co. v. Hospira. Inc.. 881 F.3d 1347,1350(Fed. Cir. 2018)("Infringement is a
question offact."). The court will thus accept Plaintiffs allegations that Defendant"has sold
products and committed infringing acts in this district by offering for sale and selling [the PDR
and related accessories]" through distributors in the district, such as Gotham Sounds and

Communications,Inc., and by using these products in demonstrations in the district. (Am.
Compl. H 24,87; Declaration of Glenn Sanders ("Sanders Deck")(Dkt. 42-2)

3-5.) S^ 35

U.S.C. § 271. That conduct is sufficient to constitute an "act ofinfringement" under § 1400(b).

See In re Cordis Corp., 769 F.2d 733,737(Fed. Cir. 1985)(noting that the "issue of
inJBringement" is "a question to be determined at trial" and "is not reached on the merits in
considering venue requirements"); Funnelcap. Inc. v. Orion Indus.. Inc., 392 F. Supp. 938,943

(D. Del. 1975)("[C]ourts have consistently held that an allegation ofinfringement is itself

sufficient to establish venue and plaintiff is not required to demonstrate actual infringement...

The question before the court is thus whether Defendant has"a regular and established

place of business" in the district. In determining whether Plaintiff has met its burden,the court

applies the factors set forth in In re Crav:"(1)there must be a physical place in the district;(2)it
must be a regular and established place of business; and(3)it must be the place ofthe
defendant." 871 F.3d at 1360.

A.

Physical Space in the District

At this stage in the litigation, the court concludes that Plaintiff has satisfied the first
element ofthe In re Crav test. Mr. Kaufinan's home office, which Plaintiff describes as

"includ[ing] a dedicated room and storage area in a garage, within which are kept various

equipment used by Mr. Kaufinan to discharge his responsibilities"(Am. Compl.^ 26),is "a

physical place in the district" insofar as it is "[a] building or a part of a building set apart for any
purpose," In re Crav. 871 F.3d at 1362. The same is true for Jaycee, which "is situated at a
physical location vrithin the Eastem District(i^, Oakland Gardens, NY)." (PI. Opp'n at 18;^
Am.Compl.
B.

42-45.) Defendant does not contend otherwise.
Regular and Established

The court similarly finds that Plaintiff has met its burden to show that the place of

business is "regular and established." In re Crav. 871 F.3d at 1362. A business may be "regular"

8

if it, for instance,"operates in a steady[,] uniform[,] orderly [, and] methodical manner." Id.
(alterations in original)(internal quotation marks and citation omitted). Mere "sporadic activity
cannot create venue." Id To be "established" the "place in question must be 'settle[d] certainly,
or fix[ed] permanently.'" Id at 1363 (quoting Establish, Blacks Law Dictionary (1st ed. 1891)).
In other words,"while a business can certainly move its location, it must for a meaningful time
period be stable, established." Id
Under these dejSnitions, both Mr. Kaufinuan's home office, which he maintained within

the district for approximately 20 years, and firom which he has continuously conducted business
in service of Defendant, and Jaycee, which has operated as an authorized service center for
Defendant's products from the same location in Queens for over nine years, are "regular and
established" places of business. (Kaufinan Decl.f 5; Cudmore Decl.

2,4; Deposition of Jerry

Cudmore("Cudmore Dep.")(Dkt. 41-18)at 39:10-40:13.)
C.

Place of the Defendant

Finally, the court must determine whether Plaintiff has made out a prima facie showing

that the "physical,""regular and established place[s] of business" that Plaintiff has identified in
the district—^Mr. Kaufrnan's home office and Jaycee's business location—are "place[s] ofthe

defendant" and "not solely [] place[s] ofthe defendant's employee" or independent contractor.
In re Crav. 871 F.3d at 1363. To aid in deterrnining whether a defendant has "establish[ed] or

ratif[ied] the place of business," the Federal Circuit has identified several important
considerations, including(1) whether the defendant owns, leases, or otherwise exercises control
over the premises;(2)"whether the defendant conditioned employment on an employee's

continued residence in the district";(3) whether the defendant stored inventory there to be sold
or distributed from that place;(4) whether the defendant made outward representations that the

physical location was its place of business; and(5)how the alleged place of business in the
district compares to other places of business ofthe defendant in other venues. Id at 1363-64
(citations omitted).
1.

Mr. Kaufinan's Home Office

First, Defendant does not appear to own,lease, or otherwise control any portion of
Mr. Kaufinan's home in the Eastem District ofNew York. While Defendant does reimburse

Mr. Kaufman for certain expenses, including computer supplies and the UPS mailbox that
Mr. Kaufman uses to receive demonstration units. Defendant does not provide an allowance or

reimburse Mr. Kaufman for any expenses related to the physical space of his home office,
including rent. (Deposition of Howard Kaufman("Kaufman Dep.")(Dkt. 42-8)at 62:8-25,
153:4-13; Deposition of Gordon Moore("Moore Dep.")(Dkt. 42-4) at 136:4-137:19.) See
RillinpNetwork Patent. Inc. v. Modemiring Med.. Inc.. No. 17-CV-5636,2017 WL 5146008, at

*3(N.D. 111. Nov. 6,2017)(concluding, where defendant did not own or lease employees'
homes,require them to reside at particular locations or in the district, and did not publicly
advertise or hst the homes as a place where it conducts business,that the facts "merely show that

there exists within the district a physical location where an employee ofthe defendant carries on
certain work for his employer").

Second,Plaintiff has not demonstrated that Mr. Kaufinan's employment is conditioned
on his continued residence "in the district." In re Crav. 871 F.3d at 1364. Plaintiff avers that(1)

New York is "one ofthe most important markets for [Defendant]"(PI. Mem at 2);(2)New York
City is "the most crucial area for sales within [Mr. Kaufinan's] region"(id at 20(citing Moore
Dep. at 156:9-157:19)); and(3)Defendant requires its regional representatives to be located
"within their assigned territories and forbids them from moving to locations where they cannot

10

perform tasks or meet with customers in-person"(id at 19 (citing Moore Dep. at 69:24-70:2,
155:21-156:8,161:22-162:7)). These facts do not, however, indicate that Mr. Kaufinan was

required by Defendant to live in the Eastem District ofNew York or that he would have been
prevented from moving to another judicial district in New York—^by moving to, for example,
Albany or Westchester—or to a different state in his territory. Indeed, Mr. Kaufrnan stated that
although he has an "informal but clear understanding" with Defendant that he "must be able to
travel to and service the needs ofits dealers and their customers" in his territory. Defendant"has

never made the location of[his] residence a condition ofemployment." (Kaufinan Decl.f 4.)
Indeed, Mr. Kaufimian moved his residence in the past—^from Valley Stream,New York,to

Seaford, New York—^without seeking or obtaining consent from Defendant. rid.I See In re

Crav. 871 F.3d at 1363 ("[I]f an employee can move his or her home out ofthe district at his or
her own instigation, without the approval ofthe defendant,that would cut against the employee's
home being considered a place of business ofthe defendant.") Plaintiff agrees that Defendant
"does not require offices to operate from specific addresses" and notes that Defendant's other

regional representatives have been at various times located in different cities and even different
states within their respective territories. (PI. Opp'n at 6,19; Moore Dep. at 67:10-68:25.) See In
re Crav. 871 F.3d at 1364-65 (finding home offices were not places "ofthe defendant" because,

in part,"[n]o evidence show[ed] that [the defendant] believed a location within the [district] to
be important to the business performed, or that it had any intention to maintain some place of
business in that district in the event [the employees] decided to terminate their residences as a
place where they conducted business").
The third consideration—^Defendant's inventory—^may count slightly in favor ofPlaintiff.

Mr. Kaufman keeps a significant number of Defendant's products in his home and garage.

11

(Kaufinan Decl. ^ 8). Defendant contends that these items are "nonsaleable""sales demo"

products that Mr. Kaufman uses for demonstration or training purposes and that Mr. Kaufinan is
not regularly authorized to sell Defendant's products. (Id.; Moore Decl.^ 8,10.) However, Mr.
Kaufinan also acknowledged that he sometimes uses these products to swap out defective units
already sold to customers; has "occasionally," with Defendant's "tacit consent,""provide[d] a
demonstration unit to a customer who has an urgent need for such product;" and "on a very few
occ£isions," has been "authorized to sell a few pieces of[Defendant's] used demonstration

equipment that were no longer in production." (Kaufman Decl. 8.) This contrasts with In re
Crav,in which the court noted that the forum state-based employees did not store inventory in
their homes. 871 F.3d at 1365. See also ReeenLab USA LLC v. Estar Techs. Ltd.. 335 F. Supp.

3d 526, 552(S.D.N.Y. 2018)(facts regarding inventory storage at employees' home offices cut
in favor offinding venue appropriate where employees used those products to conduct
demonstrations for customers). But cf. Automated Packaging Svs.. Inc. v. Free-Flow Packaging
Int'l. Inc.. No. 5:14-CV-2022,2018 WL 400326, at *8(N.D. Ohio Jan. 12, 2018)(fmding venue

improper where "small amounts of product are maintained in [employees'] homes,[but] this
product is not available for direct sale to customers").
The fourth consideration is whether a defendant represents that it has a place of business
in the district. In re Crav. 871 F.3d 1363-64. The court is instructed to consider whether the

defendant lists the alleged place of business on a website, telephone, or other directory or ifit
affixes its name on a sign associated with the physical place in the district, while keeping in mind
that "the mere fact that a defendant has advertised that it has a place of business or has even set

up an office is not sufficient; the defendant must actually engage in business fiom that location."
Id. Here,Defendant contends that it does not hold out Mr. Kaufman's home office as its place of

12

business. (Reply at 5-6; Moore Decl.^ 9.) There is no reference to his address on Defendant's
website or in any of its advertisements or publications. (Moore Decl. 9.) The address
displayed on Mr. Kaufinan's business card is the New Mexico address of Defendant's

headquarters. (Id; Kaufinan Decl.f 10.) Mr. Kaufinan's business cards do list his Long Island
phone numbers(Kaufinan Bus. Card (Dkt. 42-9); Kaufinan Dep. at 125:12-126:7; see also Am.

Compl. 1[36), but the use ofthese numbers in business "indicate at most that he conducted
business firom the [district], not that [Defendant] established a place of business there." 871 F.3d
at 1365-66(finding that an employee's use ofa phone number with an Eastern District of Texas

area code did not show that the employer conducted its business from that district). There is "no

signage" in front of or on Mr. Kaufinan's home identifying it as a place of business of
Defendant, nor does he recall a dealer or customer ever coming to his house in connection with

Defendant's business. (Kaufman Decl.f 9.) Plaintiff points to Mr. Kaufinan's statement in an
online forum,in which he said "My office is in New York"(Kaufinan Forum Post(Dkt. 42-10)

at LEC000464; Kaufinan Dep. at 144:10-146:10 (cited in PI. Opp'n. at 10)), but, given that Mr.
Kaufinan was speaking in the first person,this statement is not inconsistent with his contention
that he "has never represented that [his] home is a place of[Defendant's] business." (Kaufinan

Decl. K 9.) Defendant also does not target the New York market with advertisements, has no
telephone listing in New York, and has no website hosted in or targeting New York. (Def. Mem.
at 5-6 (citing Moore Dep. at 80:4-81:1); Moore Decl. H 13.)
Plaintiff also points to comments on an online forum by Defendant's Vice President of

Sales, Karl Winkler,in which he referred to Mr. Kaufinan as operating "out of our NY office."^
(PI. Opp'n at 20; Winkler Forum Post(Dkt. 42-12)at LEC000453.) Plaintiff also submits four

^ Mr. Moore,Defendant's president, stated in a(highly contentious) deposition that Mr. Winkler had in fact made this
comment. Moore Dep. at 132:22-134:2.
13

articles that refer to Defendant as having regional offices, including one in New York. (PL

Opp'n at 10-11; Jxme 21, 2004, Albuquerque J. Article (Dkt. 42-13); June 23, 2005, Albuquerque
J. Article(Dkt. 42-14); ProSound Article (Dkt. 42-15); Rio Rancho Observer Article (Dkt. 4216.) These statements were not directly attributed to any representative of Defendant, and
Defendant contends that such references to a'"New York office" were "not intended to indicate

that [Defendant] maintained an office or other company-owned or -operated physical location for
the use ofits regional representatives." (Moore Decl. H 15.) Regardless oftheir source or
intention, such statements are not on their own sufficient to demonstrate that Defendant held out
V.

the physical space of Mr. Kaufinan's home dffice as a place ofits business.^
Finally, the court considers how the alleged place of business in the district compares to
other places ofbusiness ofthe defendant in other venues.

In re Crav, 871 F.3d at 1364.

Such a comparison could be helpful, the Federal Circuit suggested, because it might reveal that
Defendant"has a business model whereby many employees' homes are used by the business as a

place ofbusiness ofthe defendant." Id, Plaintiff argues that Defendant's business model is to

"utilize the homes ofits managers to conduct company business." (PI. Opp'n at 2-3.) As
support for this contention. Plaintiff notes that Defendant "forbids regional managers from

opening brick-and-mortar offices, advertises regional managerjob positions as full-time'home
office' positions, requires the location of a'home office' to be 'in [an assigned] territory' and
offers 'home office allowance[s]."' (Id, at 3 (alterations in original).) However, despite
Plaintiffs conclusion that these allowances were "offer[ed]" to employees "presumably as
compensation for use of managers' homes" fid.), there is no indication that Defendant uses
employees' home offices to conduct its own business. In fact, the evidence before the court

^ Because the court funds these statements insufficient to establish venue in light ofthe facts put forward by Defendant,
it does not address Defendant's argument that such evidence is inadmissible and thus not properly considered.
14

indicates that Defendant's business model is to have,in addition to its staff at its headquarters in

New Mexico and an office in Toronto,three regional sales employees"who travel from their
homes to promote [Defendant's] products to dealers and their customers in their [respective]
territories." (Moore Decl. K 6.) Mr. Kaufinan explained that when he was hired, it was with the
understanding that he "would work as [he] chose from home and travel to visit [Defendant's]
dealers; and that[he] could live anywhere [he] chose." (Kaufinan Decl.^ 4.) Indeed, Mr.
Kaufinan states that he spends only about five hours each week working from his home office,

while the majority of his time is spent traveling and meeting with dealers and their customers.
(Id. ^5.) This is not enough to establish that Defendant's business model is to use its regional

employees' homes as physical "place[s] of business." Cf. RegeuLab USA LLC,335 F. Supp. 3d
at 549(observing that because^employees ofthe defendant worked from home,their home
offices constituted a primary physical location for the defendant's business).

No one consideration or fact here is controlling. Taken together, however, and keeping
in mind the "restrictive" nature of§ 1400(b), Stonite. 315 U.S. at 566,these facts do not support
a finding that Mr. Kaufinan's home was an established place of business ofthe Defendant in the
Eastern District of New York.
2.

Javcee

Plaintiff also contends that Jaycee, a company located in Jerry Cudmore's home in the

Eastem District ofNew York,is a place of business ofDefendant because Jaycee is "an agent of
[Defendant]." (See Am. Compl.

42-72;PI. Opp'n at 23-25.) The Federal Circuit has made it

clear, however,that the proper inquiry imder § 1400(b)is not whether the company or employee
located in a particular district is an agent ofthe defendant, but rather, whether the defendant has

15

"establish[ed] or ratif[ied] the place of business." In re Cray. 871 F.3d at 1363. "It is not enough

that the [purported agent] does so on [its] own.'"^
The analysis to be applied to a business location is similar to that applied to an
employees' home office. In In re ZTE(USA]Inc.. 890 F.3d atl015-16, the Federal Circuit

considered whether a district court had properly found venue in the Eastern District of Texas
based on the location ofthe defendant's third-party customer service call center. The Federal
Circuit found that the district court and rnagistrate judge had improperly failed to scrutinize the

nature ofthe relationship between the call center and the defendant("ZTE")so that it was not

possible to determine j&om the record whether it consisted ofsomething more than an "armslength contract for services." Id at 1015. For example, although the record reflected that the
"call center 'has more than sixty dedicated ZTE[] customer service representatives,' neither the

magistrate judge nor the district court made any findings on the nature ofZTE[]'s relationship
with those representatives or whether it has any other form of control over any ofthem." Id.
(citations omitted). Similarly,"[w]hile the magistrate judge found that ZTE []'has at least two

full-time employees (supervisors) on site at the call center,"' it had failed to consider "the
determining factor[, which] is whether those employees render the call center 'a place ofthe

defendant, not solely a place ofthe defendant's employee[s]." Id The Federal Circuit remanded
with instructions to "give reasoned consideration to all relevant factors or attributes ofthe

^ The court notes as well that the agreement between Defendant and Jaycee disclaims the creation of an agency
relationship:
[Defendant] and [Jaycee] agree that their relationship is that of buyer and seller only. Nothing in this
Agreement shall be construed as creating the relationship of employer and employee, principal and agent,
franchisor and franchisee orjoint venture between the parties hereto.[Jaycee]shall be deemed an independent
contractor at all times with respect to its performance hereunder, and shall have no right or authority, whether
express or implied, to assume or create, or purport to assume or create, any obligation in the name ofor on
behalfof[Defendant].

(Warranty Repair Agmt.(Dkt. 42-19)§ 7("Relationship ofthe Parties")-)

16

relationship," including: whether ZTE possesses, owns,leases, or rents the office space for the
call center or owns any ofthe equipment located there; whether any signage on, about, or
relating to the call center associates the space as belonging to ZTE; whether the location ofthe
call center was specified by ZTE; and whether the call center would need ZTE's permission to

move its call center outside ofthe district or to cease working for ZTE altogether. Id. at 1015.^
Here, Defendant has no ownership interest in Jaycee, an independent company owned
and operated by Mr. Cudmore and his wife. (Moore Decl. H 12; Cudmore Deck

2, 7.)

Defendant does not own,lease, or otherwise control any portion of Jerry Cudmore's home,
where Jaycee is located. (See Cudmore Decl.

2, 7.)

Plaintiff contends nonetheless that "Jaycee is subject to a great deal of control [by

Defendant], contractually in writing and by other conduct," and contends that Defendant places
"substantial business constraints" on Jaycee "related to price, warranty, parts, manner of

business, reporting, invoicing, etc.," which establish that Defendant "controls the manner by
which Jaycee performs repair services." (PI. Opp'n at 23-24; see also Am. Compl.

47,54,58-

59,61-65,67-70.) However,the record fails to show that the relationship between Defendant
and Jaycee is "more intimate and controlling than a traditional arms-length contractual

^ After remand,the parties stipulated to a settlement and the case was dismissed. See Order ofDismissal, Am. GNC
Com. V. ZTE Corp.. No.4:17-cv-620(E.D. Tex. Sept. 12,2018),Dkt. 149. Soon thereafter, however, a different
court in the Eastem District ofTexas was confi-onted with the same question—^whether ZTE could be sued based on
the location ofthe call center. AGIS Software Dev.. LLC v. ZTE Corp.. No.2:17-CV-517,2018 WL 4854023, at *3
(E.D. Tex. Sept. 28,2018). The plaintiffrelied largely on the findings ofthe court in Am.GNC Com,v. ZTE Com..
No.4:17-CV-620,2017
5157700(E.D. Tex. Nov. 7,2017)(adopting report and recommendation), which were
the subject ofthe Federal Circuit's mandamus action in In re ZTE(TJSAl to argue that venue was proper because:(1)
ZTE had established the center to provide customer support services to its customers,(2)ZTE had provided
materials to train customer service representatives,(3)ZTE's website advertised support and sales numbers for
online purchase and sales that automatically routed customers to the call center, and(4)ZTE directed its customer
service representatives at the call center to affirmatively contact customers in order to resolve issues and concerns.
AGIS Software. 2018 WL 4854023, at *3. The district court disagreed, finding venue improper because the record
did not show how ZTE controlled the work conducted at the call center or the call center itself, did not show how

ZTE "ratified" the call center, and did not demonstrate how the relationship between ZTE and the company in
charge ofthe call center was "more intimate and controlling than a traditional arms-length contractual relationship."
Id

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relationship," AGIS Software. 2018 WL 4854023, at *3, or that Jaycee is actually a place of
business of Defendant,

In re ZTE(USA)Inc.. 890 F.3d at 1015("The mere presence ofa

contractual relationship between [the call center] and ZTE [] does not necessarily make [the] call
center 'a regular and established place ofbusiness' ofZTE []

")

Since 2008, Jaycee has contracted with Defendant to provide repair services to owners of
certain ofDefendant's products. (Moore Decl.^12; Cudmore Deck UK 4-6; see also Warranty
Repair Agmt.(Dkt. 42-19).) The agreement between Defendant and Jayce provides that either
party may terminate the agreement with or without cause at any time with adequate notice.
(Warranty Repair Agmt.§ 9.) Although the bulk of Jaycee's work in recent years has involved

repair of Defendant's products, Jaycee is not restricted to working on Defendant's products.

(Cudmore Decl. K 5; Warranty Repair Agmt; Moore Dep. at 245:8-247:11.) Jaycee is only
authorized by Defendant to service a subset ofthe various products that Defendant manufactures.
(Moore Dep. at 249:5-23; Warranty Repair Agmt. § 2(b).) Defendant's factory in New Mexico

also performs repairs on those products, as well as on newer product lines that Jaycee is not
authorized to service. (Moore Dep. at 249:5-23, 257:13-17.) There is only one category of older
products made by Defendant for which Jaycee is the exclusive service center as a result ofthe

fact that Defendant no longer supports these older products at its factory. (Id. at 256:12-257:17;

Am.Compl. K 72.) Despite the products' age, Jaycee services these older products because Mr.
Cudmore "seems to be able to cobble them together." (Id) Jaycee performs this and other non-

warranty work "for anybody that has the product." (Cudmore Dep. at 24:3-6.)
It is true that Jaycee's agreement with Defendant specifies timelines for repairing

Defendant's products and provides that Jaycee should forward products to Defendant's factory in
New Mexico if Jaycee is unable to complete the repairs within the specified time fi
:ame.

18

(Warranty Repair Agmt.§ 3.) Mr. Cudmore, however, stated that he tells customers that he will

repair their products within three to five working days—a different time frame from that

specified in the Warranty Repair Agreement and one he set himself. (Cudmore Dep. at 59:960:10.) The agreement also provides the terms according to which Jaycee is compensated for its
work on Defendant's products. For products still under warranty, Jaycee purchases parts from
Defendant, and Defendant later reimburses Jaycee for the cost ofthose parts and pays Jaycee for
its labor. (Cudmore Decl.^ 6; Warranty Repair Agmt. §§ 4, 5.) Labor rates charged by Jaycee
to Defendant for warranty repairs are "established by agreement, and have been periodically re

negotiated and modestly increased" since 2008. (Cudmore Decl.^ 6.) For products no longer
under warranty, Jaycee purchases parts from Defendant or other suppliers, as it chooses.
(Cudmore Dep. at 24:3-6; Moore Dep. at 253:6-25.) Jaycee charges its customers for the cost of
those parts and for its own labor at rates "suggested by [Defendant's] flat-rate price list."
(Cudmore Decl. T[ 6.) Jaycee, however, has "latitude" to increase the flat-rate prices suggested
by the list, depending on the complexity ofthe job, and has frequently exercised that latitude.
(Id.: Cudmore Dep. at 64:10-67:23.)

With respect to the "manner" in which it conducts repairs, before Jaycee was designated
an authorized service center for Defendant's products, Mr. Cudmore spent a week at Defendant's
headquarters in New Mexico, being formally trained to service and repair Defendant's products.
(Cudmore Decl,^ 4.) Since 2008, however, Mr. Cudmore has not returned to New Mexico, and
no representative ofDefendant has ever visited Jaycee's place of business. (Id

9.)

Mr. Cudmore confers regularly with Defendant's president"on matters ranging from particular
Jaycee customer needs to other matters relating to Jaycee's repair business" and speaks
"occasionally" with Defendant's engineering department "about technical matters." (Cudmore

19

DecL T19.) Jaycee also "tr[ies] to adhere to good standard practices and to provide high quality
customer service at all times, which [] is important to [Defendant]." Qd) However, Defendant
does not "direct[] or controlQ the conduct of Jaycee's business or how [it] provide[s] services for
Jaycee's customers." (Id.) Mr. Cudmore is free to use his own procedures and techniques to
repair Defendant's products, and is also free to "refuse repairs whether they are warranty or not."
(Cudmore Dep. 45:19-48:7.) Jaycee also uses its own equipment to conduct repairs although
Defendant initially provided Jaycee with a "starter kit" ofsmall repair parts, such as "little tubes"
of"resisters and capacitators sorted out," and manuals for its products. (Cudmore Decl. K 7;
Cudmore Dep. at 40:17-41:23.)

Plaintiff notes that Jaycee's business cards identify it as an authorized service center for
Defendant and incorporate Defendant's logo, and that Jaycee uses the domain name

www.lectrorepair.com in addition to its main website, www.jayceecomms.com. (Am. Compl.
49-51; PI. Opp'n at 5; Cudmore Decl.^ 10.) This was all done with Defendant's consent, but not
at Defendant's direction. (Cudmore Decl. K 10; Cudmore Dep. at 30:5-33:24.) While Jaycee's
use of Defendant's logo is relevant, it is not determinative. See Green Fitness Equip. Co.. LLC
v.Precorlnc.. No. 18-CV-00820-JST,2018 WL 3207967, at *4(N.D. Cal. June 29,2018)

(observing that use ofthe defendant's logo by its independent retail distributors in the district
was, alone,"inadequate" to establish the distributors' locations as the defendant's places of
business). Moreover, there is no indication that Defendant has ever advertised Jaycee as a place
ofits business—^Plaintiff alleges only that Jaycee is "the sole U.S. factory authorized service

center of[Defendant] listed on its website other than [Defendant] itself." (Am. Compl. K 44.)
Cf. Blitzsafe Texas. LLC v. Baverische Motoren Werke AG.No. 2:17-CV-00418,2018 WL

4849345, at *8(E.D. Tex. Sept. 6,2018)(finding that BMW had "undoubtedly adopted and

20

ratified" its dealerships as its places of business where, among other things, the dealerships were
"named'BMW ... and referred to by[BMW]as'BMW Centers;'" they "prominently

display[ed] the singular logo of BMW with no reservations such as 'authorized dealer' or
'exclusive distributor;"' and BMW represented on its website that "the dealerships within this
District are places of
[BMW]with respect to the purchase ofnew BMWs"(emphases in
original)).

Finally, Plaintiff has not shown that Defendant required Jaycee to be located in the
Eastern District ofNew York,nor has Plaintiff demonstrated that Jaycee would need

Defendant's permission to move its location out ofthe district. (See Cudmore Decl.^ 4;
Warranty Repair Agmt.)
In sum,the facts here demonstrate that Defendant has contracted with Jaycee over a

period of years to provide non-exclusive repair and maintenance services on certain of
Defendant's products, which have been purchased by customers through third-party dealers, and

which may or may not be under warranty. This does not, without more,render Jaycee's location
a place of business of Defendant.

id; see also Knann-Monarch Co. v. Dominion Elec.

Corp., 365 F.2d 175,176-77(7th Cir. 1966)(finding venue improper in district where defendant

had "appointed [a company] as its authorized agent to make repairs on appliances under the
terms of its warranty"); W.View Research. LLC v. BMW ofN. Am.. LLC,No. 16-CV-2590

JLS(AGS),2018 WL 4367378,at *8(S.D. Cal. Feb. 5,2018)(finding that dealerships' physical
locations were not the places of defendant BMW because BMW did not exert enough control
over the dealerships "to support collapsing the corporate forms"); Stewart-Wamer Corp. v.
Hunter Ens'g Co.. No.69 C 579,1969 WL 9613, at *3,*6(N.D. 111. July 3,1969)(service

center did not constitute a place ofthe defendant despite using defendant's name and despite

21

customer "good will" benefits derived by defendant from existence of service center because

center "cannot be considered anything other than a separate and independent enterprise"). Birt
cf. Blitzsafe Texas. 2018 WL 4849345, at *8-12(finding that BMW's dealerships "constitute
parts of a necessary distributorship which the law commands[BMW]adopt in order to conduct

its business within the state of Texas," and that with respect to its warranty program,BMW and

its dealerships "function as an integrated,two-part seller," with dealerships providing all new
BMW warranties and all BMW warranty service to customers in the state).
*

*

*

Because neither Mr. Kaufinan's home office nor Jaycee is the Defendant's "regular and
established place of business," venue is improper in the Eastern District ofNew York.
D.

Transfer

Because venue is not proper in the Eastern District ofNew York,the court must either

dismiss, or "ifit be in the interest ofjustice, transfer [the] case to any district or division in which
it could have been brought." 28 U.S.C. § 1406(a). The decision to transfer under § 1406 "lies
within the sound discretion ofthe district court." Minnette v. Time Warner. 997 F.2d 1023,1026

(2d Cir. 1993"): see also Katz v. Ladd Uniform Co.. 975 F.2d 869(Fed. Cir. 1992)("The decision
as to whether a transfer is in the interest ofjustice rests within the district court's discretion.") In
determining this issue, the court takes into account the ultimate goal ofthe "expeditious and
orderly adjudication of cases and controversies on their merits." Goldlawr. Inc. v. Heiman. 369
U.S. 463,466-67(1962).

Transfer will serve the interests ofjustice in this case. Venue is proper in the District of
New Mexico. (See Def. Mem. at 18-19(noting that Defendant "resides" in New Mexico for the

purposes of§ 1400(b)); PI. Opp'n at 5 n.2(requesting transfer to New Mexico ifthe court finds

22

venue improper).) Dismissal would require Plaintiffto file a new action in New Mexico, while
transfer will allow this action to proceed in that forum and lead to adjudication on the merits.
See Hatfield v. Asphalt Int'l. Inc.. No. 03-CV-1372(DAB),2004 WL 287680, at *4(S.D.N.Y.

Feb.11, 2004)(holding that transfer was warranted where dismissal would "force [plaintiff] to
expend significant time and money filing a new action in a new forum"). Defendant would also
not be prejudiced, but would likely benefit by having the case transferred to the District ofNew
Mexico, its "home state" and presumably the location of many relevant documents and potential
witnesses.

Stenhan v. Babvsport, LLC,499 F. Supp. 2d 279,290(E.D.N.Y. 2007)(holding

that transfer to the Northem District of Texas would benefit defendants "in that they would

litigate this matter in their home state, presumably the location of all relevant documents and
witnesses).

Accordingly,the court holds that transfer is appropriate and orders this case transferred to
the District of New Mexico,
rv.

CONCLUSION

For the foregoing reasons. Defendant's motion to dismiss or transfer for improper venue
is GRANTED.

The Clerk ofthe Court is respectfully directed to transfer the file in this matter to the
United States District Court for the District ofNew Mexico and to thereafter close the case.
SO ORDERED.

s/Nicholas G. Garaufis

Dated: Brooklyn, New York

February J ,2019

United States District Judge

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