Sunny Days Entertainment LLC v. Traxxas LP
Filing
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OPINION AND ORDER denying 14 Motion to Dismiss for Lack of Jurisdiction. Signed by Honorable Donald C Coggins, Jr on 3/25/2019.(abuc)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
Sunny Days Entertainment, LLC,
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Plaintiff,
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v.
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TRAXXAS, L.P.,
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Defendant. )
________________________________ )
C/A No. 6:18-cv-00015-DCC
OPINION AND ORDER
This matter comes before the Court on Defendant's Motion to Dismiss for Lack of
Personal Jurisdiction and Insufficient Service of Process.1 ECF No. 14. Plaintiff filed a
Response in Opposition, ECF No. 19, and Defendant filed a Reply, ECF No. 20.
Therefore, the Motion is ripe for review.
I.
Procedural and Factual History
Plaintiff is a South Carolina corporation with its principal place of business in
Simpsonville, South Carolina. Plaintiff "makes and sells role play toys (for children to
imitate real life occupations) as well as toy bows and arrows, toy guns, toy trucks, and toy
vehicles." ECF No. 8 at 2. Plaintiff "began selling toys in commerce under the MAXX
ACTION trademark at least as early as April 1, 2014, and on September 6, 2017, Plaintiff
filed a trademark application with the USPTO to register MAXX ACTION for 'Role play
toys in the nature of playsets for children to imitate real life occupation; Toys, namely, toy
bows and arrows, toy guns, toy trucks, toy vehicles,' Application Serial No. 87598578."
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The parties agree that any problems with service of process have been remedied;
therefore, the Court finds the Motion moot on that issue. Accordingly, the Court will limit
its discussion to Defendant's Motion to Dismiss for Lack of Personal Jurisdiction. See
ECF No. 20 at 1 n.1.
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Id. at 3. Plaintiff's toys generally retail for approximately $4.99 to $19.99 and are sold
through "mass market" outlets such as Target, Walmart, and other large stores. Id. at 5–
6.
Defendant is a Texas limited partnership with its principal place of business in
McKinney, Texas. "Defendant makes and sells radio-controlled model vehicles and
related parts and motors." Id. at 2. Defendant's vehicles retail for approximately $149.99
to $949.99 and are sold online and through specialized hobby shops.
Id. at 5–6.
Defendant claims ownership to a variety of trademark registrations containing the phrase
"MAXX" such as "E-MAXX," "MINI MAXX," and other related phrases. Id. The original
"MAXX" trademark was issued on January 2, 2007, with other trademarks containing
permutations of that phrase being issued since that time up to and including December
27, 2016. Id. at 2–3.
On December 4, 2017, Defendant sent Plaintiff a cease-and-desist letter, "in which
Defendant asserts that it uses its Registered Marks to identify, advertise, and promote its
radio-controlled model vehicles, as well as related goods, and that [Plaintiff] is violating
trademark rights of [Defendant] by using the mark MAXX ACTION in connection with its
offering of role play toys . . . and further that resulting consumer confusion caused by the
use of MAXX ACTION will unfairly give the goods of [Plaintiff] a ready acceptance in the
marketplace that is undeserved."
Id. at 3 (internal quotations omitted).
Defendant
demanded that Plaintiff cease using and abandon the MAXX ACTION trademark. Id. at
8. This cease-and-desist letter was also sent to six vendors who sell Plaintiff's products.
Id. at 9.
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Thereafter, Plaintiff filed a Complaint, which was subsequently amended prior to
service, which alleges three causes of action. ECF Nos. 1, 8. First, Plaintiff seeks a
declaration that its MAXX ACTION trademark does not violate any laws or the rights of
Defendant to its Registered Marks. Id. at 10. Second, Plaintiff requests a declaration
"that, when considering Defendant's Registered Marks, no likelihood of confusion would
occur by the continued use of, and the subsequent federal registration of, Plaintiff's MAXX
ACTION trademark, which application is pending before the USPTO." Id. at 11. Finally,
Plaintiff alleged a cause of action for tortious interference with contractual relationships,
seeking damages based on Defendant's transmission of the cease-and-desist letter to
Plaintiff's vendors. Id. at 11–12.
Plaintiff's Amended Complaint includes the following allegation about personal
jurisdiction:
Court has personal jurisdiction over Defendant because Defendant
engages in business in the State of South Carolina and has sufficient
contacts in the State of South Carolina to subject it to in personam
jurisdiction. Particularly, Defendant sells its products online and through
various dealer stores, and Defendant makes its products available to
customers all over the United States, including the State of South Carolina.
Further, on information and belief, Defendant sells its products in South
Carolina.
ECF No. 8 at 2. In response to Plaintiff's Amended Complaint, Defendant entered a
special appearance for the limited purpose of contesting the Court's personal jurisdiction
and filed a Motion to Dismiss. The parties have fully briefed Defendant's Motion, and it is
ripe for the Court's review.
II.
Legal Standard
When a defendant challenges the Court's personal jurisdiction under Rule
12(b)(2), the plaintiff has the burden of proving that jurisdiction exists by a preponderance
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of the evidence. In re Celotex Corp., 124 F.3d 619, 628 (4th Cir. 1997). "If the existence
of jurisdiction turns on disputed factual questions[,] the court may resolve the challenge
on the basis of a separate evidentiary hearing, or may defer ruling pending receipt at trial
of evidence relevant to the jurisdictional question." Combs v. Bakker, 886 F.2d 673, 676
(4th Cir. 1989). However, when "a district court rules on a Rule 12(b)(2) motion without
conducting an evidentiary hearing or without deferring ruling pending receipt at trial of
evidence relevant to the jurisdictional issue, but rather relies on the complaint and
affidavits alone, 'the burden on the plaintiff is simply to make a prima facie showing of
sufficient jurisdictional basis in order to survive the jurisdictional challenge.'" In re Celotex
Corp., 124 F.3d at 628 (quoting Combs, 886 F.2d at 676). "In deciding whether the
plaintiff has made the requisite showing, the court must take all disputed facts and
reasonable inferences in favor of the plaintiff."
Carefirst of Md., Inc. v. Carefirst
Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003) (citing Mylan Labs, Inc. v. Akzo,
N.V., 2 F.3d 56, 59–60 (4th Cir. 1993)). Additionally, "'[i]n reviewing the record before it,
a court may consider pleadings, affidavits, and other evidentiary materials without
converting the motion to dismiss to a motion for summary judgment.'" Magic Toyota, Inc.
v. Se. Toyota Distribs., Inc., 784 F. Supp. 306 (D.S.C. 1992) (quoting VDI Techs. v. Price,
781 F. Supp. 85, 87 (D.N.H. 1991)).
A federal court may exercise personal jurisdiction over a defendant in the manner
provided by state law. Fed. R. Civ. P. 4(k)(1)(A). Thus, "for a district court to validly
assert personal jurisdiction over a non-resident defendant, two conditions must be
satisfied. First, the exercise of jurisdiction must be authorized by the long-arm statute of
the forum state, and, second, the exercise of personal jurisdiction must also comport with
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Fourteenth Amendment due process requirements." Christian Sci. Bd. of Dirs. of First
Church of Christ, Sci. v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001) (citing Stover v.
O'Connell Assocs., Inc., 84 F.3d 132, 134 (4th Cir. 1996)).
South Carolina's long-arm statute provides as follows:
A court may exercise personal jurisdiction over a person who acts directly
or by an agent as to a cause of action arising from the person's: (1)
transacting any business in this State; (2) contracting to supply services or
things in the State; (3) commission of a tortious act in whole or in part in this
State; (4) causing tortious injury or death in this State by an act or omission
outside this State if he regularly does or solicits business, or engages in any
other persistent course of conduct, or derives substantial revenue from
goods used or consumed or services rendered in this State; (5) having an
interest in, using, or possessing real property in this State; (6) contracting
to insure any person, property, or risk located within this State at the time
of contracting; (7) entry into a contract to be performed in whole or in part
by either party in this State; or (8) production, manufacture, or distribution
of goods with the reasonable expectation that those goods are to be used
or consumed in this State and are so used or consumed.
S.C. Code Ann. § 36-2-803(A). "South Carolina's long-arm statute has been interpreted
to reach the outer bounds permitted by the Due Process Clause." ESAB Group, Inc. v.
Centricut, Inc., 126 F.3d 617, 623 (4th Cir. 1997) (citations omitted). "Consequently, 'the
statutory inquiry necessarily merges with the constitutional inquiry, and the two inquiries
essentially become one.'"
Id. (quoting Stover, 84 F.3d at 135–36).
The central
constitutional question the Court must address is whether the defendant has established
"minimum contacts with [South Carolina] such that the maintenance of the suit does not
offend 'traditional notions of fair play and substantial justice.'"
Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463
(1940)).
Viewed through this constitutional lens, personal jurisdiction may arise through
specific jurisdiction, which is based on the conduct alleged in the lawsuit, or through
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general jurisdiction. CFA Inst. v. Inst. of Chartered Fin. Analysts of India, 551 F.3d 285,
292 n.15 (4th Cir. 2009). Under general jurisdiction, a defendant's contacts or activities
in the forum state do not provide the basis for the suit. Id. Instead, when a defendant
has "continuous and systematic" contacts with the forum state, the defendant "may be
sued in [the forum] state for any reason, regardless of where the relevant conduct
occurred."
Id. (citations omitted).
When the defendant is a corporation, "general
jurisdiction requires affiliations 'so continuous and systematic as to render [the foreign
corporation] essentially at home in the forum State,' i.e., comparable to a domestic
enterprise in that State." Daimler AG v. Bauman, 571 U.S. 117, 159 n.11 (2014) (quoting
Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)).
In contrast, under specific jurisdiction, a defendant may be sued in this Court if the
litigation results from alleged injuries that arose out of or related to their contacts with
South Carolina and those contacts were sufficient. Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 414 (1984). To determine whether specific jurisdiction exists,
courts employ a "minimum contacts" analysis that examines: "(1) the extent to which the
defendant purposefully avail[ed] itself of the privilege of conducting activities in the State;
(2) whether the plaintiff['s] claims arise out of those activities directed at the State; and
(3) whether the exercise of personal jurisdiction would be constitutionally reasonable."
ALS Scan, Inc. v. Dig. Serv. Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002) (internal
quotations omitted). This analysis focuses on the relationship between the defendant,
the forum, and the litigation; therefore, the Supreme Court has emphasized "[t]wo related
aspects of this necessary relationship." Walden v. Fiore, 571 U.S. 277, 284 (2014). "First,
the relationship must arise out of contacts that the defendant himself creates with the
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forum State." Id. (internal quotation omitted) (quoting Burger King Corp. v. Rudzewicz,
471 U.S. 462, 475 (1985)). "Second, [the] minimum contacts analysis looks to the
defendant's contacts with the forum State itself, not the defendant's contacts with persons
who reside there." Id. (internal quotation omitted) (citing Int'l Shoe Co., 326 U.S. at 319).
III.
Analysis
As set forth above, personal jurisdiction may lie where a court has either general
or specific jurisdiction over a defendant. In its Motion to Dismiss, Defendant contends
that the Court has neither general nor specific jurisdiction. The Court turns first to general
jurisdiction.
A. General Jurisdiction
In recent years, the Supreme Court has significantly narrowed the reaches of
general personal jurisdiction. Most recently, in Daimler AG v. Bauman, the Supreme
Court clarified that general jurisdiction over corporate defendants will only exist in three
circumstances: (1) in the forum where the defendant is incorporated; (2) in the forum
where the defendant has its principal place of business; and (3) in a forum where a
"corporation's affiliations with the [forum] are so continuous and systematic as to render
[it] essentially at home in the forum State." 571 U.S. 117, 138–39 (2014) (internal
quotations omitted).
Here, Defendant is a Texas limited partnership that maintains its principal place of
business in McKinney, Texas. As such, the only way this Court can have personal
jurisdiction over Defendant is if Defendant's contacts with South Carolina are so
continuous and systematic as to render it essentially at home in South Carolina. See id.
at 139.
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Plaintiff has alleged that Defendant sells its toys through three brick and mortar
stores in South Carolina as well as online to South Carolina consumers. In its Response
to Defendant's Motion, Plaintiff contends that Defendant's website now lists nine hobby
shops in South Carolina that distribute Defendant's products. Regardless of the number
of brick and mortar stores Defendant distributes its products through or the volume of
Defendant's online sales in South Carolina, the Supreme Court has emphasized that
sales—even when sizeable—in a forum are not sufficient to confer general jurisdiction,
as doing so would subject many corporate defendants to personal jurisdiction in every
State. See id. Were it otherwise, "any substantial manufacturer or seller of goods would
be amenable to suit, on any claim for relief, wherever its products are distributed."
Goodyear, 564 U.S. at 929.
Measured against the Supreme Court's mandate in
Goodyear and Daimler AG, South Carolina is not a forum in which it would be permissible
to subject Defendant to general jurisdiction.2
As detailed below, however, this finding is not determinative, as there are sufficient
contacts to confer specific jurisdiction over Defendant.
B. Specific Jurisdiction
Defendant contends the Court lacks specific personal jurisdiction because there is
no affiliation between the forum and the underlying controversy. Specifically, Defendant
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The Court notes that Plaintiff's discussion of general jurisdiction does not address the
Supreme Court's holdings in Goodyear and Daimler AG and largely conflates the issues
of general jurisdiction and specific jurisdiction. See, e.g., ECF No. 19 at 4 (contending
the Court has general jurisdiction "because [Defendant] has purposefully directed sales
and marketing efforts at South Carolina residents through certain independent distributors
within the state).
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argues that "cease-and-desist letters do not form the basis for personal jurisdiction." ECF
No. 14-1 at 8 (citations omitted). For the reasons set forth below, the Court disagrees.
Defendant is correct that "the court cannot, consistent with Due Process, find
exercise of personal jurisdiction over Defendants permissible based solely on one
isolated contact in which Defendants deposited a [mailing] into the U.S. Mails addressed
to South Carolina." Jarrett v. State of North Carolina, 868 F. Supp. 155, 158 (D.S.C.
1994). That, however, is not the case here. Defendant, a limited partnership engaged in
the sale of toys in South Carolina, sent a cease-and-desist letter to Plaintiff as well as a
number of retailers that sell Plaintiff's toys. While the Fourth Circuit has not directly
addressed the issue at bar, a number of other circuit courts have found specific jurisdiction
in similar cases.
For example, in Dudnikov v. Chalk & Vermilion Fine Arts, Inc., Judge (now Justice)
Gorsuch, writing for the Tenth Circuit, found personal jurisdiction under similar facts. 514
F.3d 1063 (10th Cir. 2008). In that case, the plaintiffs were eBay sellers who sold a variety
of fabrics from their home in Colorado. Id. at 1067. Several of the plaintiff's prints
contained images imitating a famous artist. Id. The defendants, the owners of the rights
to the artist's images, saw the plaintiff's eBay page, concluded that the plaintiff's fabrics
infringed their copyrights, contacted eBay in California who then suspended the plaintiff's
account, and emailed the plaintiffs a cease-and-desist letter, which threatened a federal
lawsuit. Id. Before the defendants could file suit, the plaintiffs initiated an action in federal
district court in Colorado seeking a declaration that their prints did not infringe defendants'
copyrights. Id. The defendants moved to dismiss for lack of personal jurisdiction, and
the district court granted the motion. Id. at 1067–68. On appeal, the Tenth Circuit noted
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that the defendants went well beyond simply sending the plaintiffs a cease-and-desist
letter, emphasizing the defendants' mailing of a notice of infringement to eBay and
characterizing the plaintiffs' actions as "an effort to reverse . . . the intended
consequences of defendants' [notice] which [plaintiffs] incurred in Colorado." Id. at 1082.
Therefore, the Tenth Circuit reversed the district court's grant of the defendants' motion
to dismiss.
Several other circuit courts have similarly held that extrajudicial enforcement
attempts, coupled with a cease-and-desist letter, can form the basis for specific personal
jurisdiction. See, e.g., Bancroft & Masters, Inc. v. Augusta Nat'l, Inc., 223 F.3d 1082 (9th
Cir. 2000), overruled in part on other grounds by Yahoo! Inc. v. La Ligue Contre Le
Racisme Et L'Antisemitisme, 433 F.3d 1199, 1207 (9th Cir. 2006) (en banc). While the
Federal Circuit has reached varying results on the relevant questions in different cases,
the court recently found specific personal jurisdiction in a case where there were "ceaseand-desist letters combined with ongoing business in the forum state." Campbell Pet Co.
v. Miale, 542 F.3d 879, 883 (Fed. Cir. 2008). In doing so, the Federal Circuit favorably
cited both Dudnikov and Bancroft & Masters, embracing the rule that specific jurisdiction
is appropriate when "[r]ather than simply sending a cease-and-desist letter to the
plaintiffs, the defendants [have] 'communicated their complaint to a third party with the
intent that the third party take action directly against plaintiff's business interests . . . .'"
Id. at 887 (quoting Dudnikov, 514 F.3d at 1082).
Based on the Court's review of the cases, there does not appear to be a pure circuit
split on this issue as Defendant intimates in its briefing. Rather, these circuit courts have
adopted a rule where the district court must conduct a fact-specific inquiry into what
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actions other than the sending of a cease-and-desist letter have occurred in a case. See,
e.g., Campbell Pet Co., 542 F.3d at 886 (collecting cases where the Federal Circuit has
found such additional conduct confers specific personal jurisdiction). This rationale is in
accord with guidance from the Supreme Court. In Burger King Corp. v. Rudzewicz, the
Supreme Court emphasized the importance of "'there be[ing] some act by which the
defendant purposefully avails itself of the privilege of conducting activities within the forum
State, thus, invoking the benefits and protections of its laws.'" 471 U.S. 461–62 (quoting
Hanson v. Denckia, 357 U.S. 235, 253 (1958)). A defendant need not be physically
present in a state to meet this jurisdictional requirement. Id. at 476. Indeed, "[s]o long as
a commercial actor's efforts are 'purposefully directed' toward residents of another State,
[the Supreme Court has] consistently rejected the notion that an absence of physical
contacts can defeat personal jurisdiction there." Id. (citations omitted).
In order to satisfy the purposeful direction requirement, the defendant must have:
(1) committed an intentional act; (2) that was expressly aimed at the forum state; and (3)
caused harm, the brunt of which is felt by the plaintiff in the forum state. Calder v. Jones,
465 U.S. 783, 789–90 (1984). "[T]he express aiming test focuses more on a defendant's
intentions—where was the focal point of its purposive efforts—while the latter requirement
concentrates on the consequences of the defendant's actions—where was the alleged
harm actually felt by the plaintiff." Dudnikov, 514 F.3d at 1075 (internal quotations
omitted).
Applying these well-established jurisdictional principles, the Court holds that
Plaintiff has established a prima facie case of specific personal jurisdiction. To that end,
the Court finds that the three required elements detailed above are met. First, Defendant
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committed intentional acts by mailing Plaintiff a cease-and-desist letter and by mailing
cease-and-desist letters to six of Plaintiff's retailers. Second, Defendant's intention in
doing this was to negatively impact Plaintiff's sales, with Defendant's conduct directed
toward Plaintiff in South Carolina. Finally, the brunt of the harm—measured in lost
sales—was felt by Plaintiff in South Carolina.
Therefore, the Court finds that the
extrajudicial enforcement efforts undertaken by Defendant are sufficient to establish
specific personal jurisdiction.
Moreover, the Court holds that a finding of personal jurisdiction in South Carolina
comports with traditional notions of fair play and substantial justice. "The Supreme Court
made clear that [this] factor is to be applied sparingly. When a defendant seeks to rely
on the 'fair play and substantial justice' factor to avoid the exercise of jurisdiction by a
court that otherwise would have personal jurisdiction over the defendant, 'he must present
a compelling case that the presence of some other considerations would render
jurisdiction unreasonable.'" Campbell Pet Co., 542 F.3d at 885 (quoting Burger King, 471
U.S. at 477). No such compelling case exists here.
IV.
Conclusion
For the foregoing reasons, the Defendant’s Motion to Dismiss, ECF No. 14, is
DENIED.
IT IS SO ORDERED.
s/Donald C. Coggins, Jr.
United States District Judge
March 25, 2019
Spartanburg, South Carolina
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