Loyalty Conversion Systems Corporation v. Hawaiian Airlines, Inc.
Filing
30
MEMORANDUM OPINION AND ORDER. Signed by Judge William C. Bryson on 9/2/2014. (ch, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
LOYALTY CONVERSION SYSTEMS
CORPORATION,
Plaintiff,
v.
AMERICAN AIRLINES, INC., et al.,
Defendants.
LOYALTY CONVERSION SYSTEMS
CORPORATION,
Plaintiff,
v.
HAWAIIAN AIRLINES, INC., et al.,
Defendant.
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Case No. 2:13-CV-655
(LEAD CASE)
Case No. 2:13-CV-661
MEMORANDUM OPINION AND ORDER
Before the Court is Defendant Hawaiian Airlines, Inc.’s Motion to Dismiss for Lack of
Personal Jurisdiction. Case No. 2:13-cv-661, Dkt. No. 12. After considering full briefing and
hearing argument on the motion, the Court DENIES the motion.
I. BACKGROUND
This action against Hawaiian Airlines, Inc., (“Hawaiian”) is one of nine separate actions
brought against various United States airline companies by plaintiff Loyalty Conversion Systems
1
Corporation (“Loyalty”). Loyalty owns two U.S. patents, U.S. Patent Nos. 8,313,023 (“the ’023
patent”) and 8,511,550 (“the ’550 patent”), which relate to methods and computer program
products for converting loyalty award credits that a customer earned from one vendor into
loyalty award credits of a second vendor that the customer can use to make purchases from the
second vendor. Loyalty alleges that Hawaiian, like the other eight defendant airlines, infringes
those patents through the operation of its frequent flyer mileage program.
Hawaiian is a Delaware corporation with its principal place of business and corporate
headquarters in Hawaii.
It is in the business of providing scheduled air transportation of
passengers and cargo among the Hawaiian islands, between the Hawaiian islands and certain
cities in the continental United States, and between the Hawaiian islands and certain cities in the
South Pacific, Australia, and Asia. In the continental United States, Hawaiian serves the cities of
Los Angeles, Oakland, Sacramento, San Diego, San Francisco, and San Jose, California; Las
Vegas, Nevada; Phoenix, Arizona; Portland, Oregon; Seattle, Washington; and New York City,
New York. It does not serve any city in Texas with scheduled air passenger service, nor does it
have any offices, facilities, or support operations in Texas.
Hawaiian represents, without
contradiction from Loyalty, that although its customers can book flights between Los Angeles
and other U.S. cities, including Dallas, Texas, under a code-sharing agreement with Virgin
America, Inc., the codeshare flights are all on aircraft operated and controlled by Virgin
America, Inc. Based on its assertions that it has no presence or business operations in Texas and
has not committed any act of alleged infringement in Texas, Hawaiian contends that this Court
lacks personal jurisdiction over it and that the action against it must be dismissed.
2
II. DISCUSSION
A. Governing Legal Principles
The general principles that apply to the question whether a federal court has in personam
jurisdiction over a non-resident defendant are well-settled. If the federal statute under which an
action is brought contains an applicable service-of-process provision, the court looks to whether
that provision can be satisfied by service of process on the defendant. See Omni Capital Int’l,
Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 105-06 (1987). When the federal statute has no such
applicable service of process provision, as is the case for the Patent Act, 1 the federal court may
reach those entities that are subject to the jurisdiction of the state in which the district court sits.
See Fed. R. Civ. P. 4(e). In that setting, federal courts “follow state law in determining the
bounds of their jurisdiction over persons.” Daimler AG v. Bauman, 134 S. Ct. 746, 753 (2014).
A district court may exercise personal jurisdiction over a defendant if the defendant “is
subject to the jurisdiction of a court of general jurisdiction in the state where the district court is
located.” Fed. R. Civ. P. 4(k)(1)(A). In order to satisfy that requirement, the district court’s
jurisdiction over an out-of-state defendant must be consistent with both the forum state’s longarm statute and the requirements of due process. See Walden v. Fiore, 134 S. Ct. 1115, 1121
(2014); Radio Sys., Inc. v. Accession, Inc., 638 F.3d 785, 788-89 (Fed. Cir. 2011); Avocent
1
A federal statute, 28 U.S.C. § 1694, provides that in a patent infringement action
commenced in a district “where the defendant is not a resident but has a regular and established
place of business, service of process, summons or subpoena upon such defendant may be made
upon his agent or agents conducting such business.” That statute, however, does not apply in
this case, as Hawaiian does not have a regular and established place of business in the Eastern
District of Texas.
3
Huntsville Corp. v. Aten Int’l Co., 552 F.3d 1324, 1329 (Fed. Cir. 2008); Red Wing Shoe Co. v.
Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1358 (Fed. Cir. 1998). 2
Texas’s long-arm statute is coterminous with the extent of personal jurisdiction permitted
by due process principles, see Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408,
413 & n.7 (1984); Great W. United Corp. v. Kidwell, 577 F.2d 1256, 1266 (5th Cir. 1978);
Product Promotions, Inc. v. Costeau, 495 F.2d 483, 492 (5th Cir. 1974); Schlobohm v. Schapiro,
784 S.W.2d 355, 357 (Tex. 1990); U-Anchor Advertising, Inc. v. Burt, 553 S.W.2d 760, 762
(Tex. 1977). Where, as here, the forum state’s long-arm statute “is coextensive with the limits of
due process, the two inquiries collapse into a single inquiry: whether jurisdiction comports with
due process.” Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1360 (Fed. Cir. 2001).
Due process requires that to subject a defendant to the judicial power of a forum state, the
defendant must have sufficient “minimum contacts” with the forum “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). As a general matter, the sovereign’s exercise of judicial power requires “some act by
which the defendant “purposefully avails itself of the privilege of conducting activities within the
forum state, thus invoking the benefit and protections of its laws.” J. McIntyre Mach., Ltd. v.
Nicastro, 131 S. Ct. 2780, 2787 (2011) (plurality opinion), quoting Hanson v. Denckla, 357 U.S.
235, 253 (1958). In that manner, due process principles “give[] a degree of predictability to the
legal system that allows potential defendants to structure their primary conduct with some
2
Federal Circuit law governs the question whether a particular district court may
exercise personal jurisdiction over the defendant in a patent case. See Inamed Corp. v. Kuzmak,
249 F.3d 1356, 1359 (Fed. Cir. 2001); Akro Corp. v. Luker, 45 F.3d 1541, 1543 (Fed. Cir. 1995).
4
minimum assurance as to where that conduct will and will not render them liable to suit.”
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
There are several ways that a defendant can submit to the adjudicative authority of a
forum state (and thus of federal courts sitting within that state). Besides consent or presence
within the state at the time the suit is filed and process is served, citizenship or domicile
“indicates general submission to a State’s powers.” McIntyre, 131 S. Ct. at 2787. For a
corporation, the state of “citizenship or domicile” means the state of incorporation or the
corporation’s principal place of business, or some equivalent.
Id.
In such instances, the
defendant is said to be subject to “general jurisdiction” in the forum.
Because general
jurisdiction exposes the defendant to suit on any claim, regardless of the place of its origin, the
minimum contacts required to establish general jurisdiction must satisfy “an exacting standard”
that “‘approximate[s] physical presence’ in the forum state.” Schwarzenegger v. Fred Martin
Motor Co., 374 F.3d 797, 801 (9th Cir. 2004) (minimum contacts standard for general
jurisdiction is high “because a finding of general jurisdiction permits a defendant to be haled into
court in the forum state to answer for any of its activities anywhere in the world.”).
A more limited form of submission to a state’s authority, referred to as “specific
jurisdiction,” applies only in cases of disputes that “arise out of or are connected with the
activities within the state.” Int’l Shoe, 326 U.S. at 319. “[W]here the defendant deliberately has
engaged in significant activities within a State, or has created continuing obligations between
himself and residents of the forum, he manifestly has availed himself of the privilege of
conducting business there, and because his activities are shielded by the benefits and protections
of the forum’s laws it is presumptively not unreasonable to require him to submit to the burdens
5
of litigation in that forum as well.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76
(1985) (citations and internal quotation marks omitted). That is, when a defendant “purposefully
avails itself of the privilege of conducting activities within the forum State, thus invoking the
benefits and protections of its laws,” Hanson, 357 U.S. at 253, “it submits to the judicial power
of an otherwise foreign sovereign to the extent that power is exercised in connection with the
defendant’s activities touching on the State,” McIntyre, 131 S. Ct. at 2788. For that reason,
“submission through contact with and activity directed at a sovereign may justify specific
jurisdiction ‘in a suit arising out of or related to the defendant’s contacts with the forum.’” Id.,
quoting Helicopteros, 466 U.S. at 414 n.8.
To satisfy the due process standard for specific jurisdiction, the defendant must have “fair
warning that a particular activity may subject [it] to the jurisdiction of a foreign sovereign.”
Burger King, 471 U.S. at 472. That is, the defendant’s “conduct and connection with the forum
State” must be “such that he should reasonably anticipate being haled into court there.” Id. at
474.
When a court seeks to exercise specific jurisdiction over an out-of-state defendant, the
“fair warning” requirement is satisfied “if the defendant has ‘purposefully directed’ his activities
at residents of the forum and the litigation results from alleged injuries that ‘arise out of or relate
to’ those activities.” Burger King, 471 U.S. at 472 (citations omitted). That is, there must be
“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.” Hanson,
357 U.S. at 253. The “purposeful availment” requirement “ensures that a defendant will not be
haled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts, or of
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the ‘unilateral activity of another party or a third person.’” Burger King, 471 U.S. at 475
(citations omitted). Thus, if the sale of a product in the forum district is “not simply an isolated
occurrence, but arises from the efforts of the manufacturer or distributor to serve, directly or
indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in
one of those States” in which a claim arises. World-Wide Volkswagen, 444 U.S. at 297.
Jurisdiction is therefore proper where the contacts with the forum state “proximately result from
actions by the defendant himself that create a ‘substantial connection’ with the forum State.”
Burger King, 471 U.S. at 475 (emphasis in original).
The minimum contacts determination does not end the due process inquiry. Once it has
been determined that a defendant purposefully established minimum contacts with the forum,
those contacts “may be considered in light of other factors to determine whether the assertion of
personal jurisdiction would comport with ‘fair play and substantial justice.’” Burger King, 471
U.S. at 476.
However, the Supreme Court has emphasized that “where a defendant who
purposefully has directed his activities at forum residents seeks to defeat jurisdiction, he must
present a compelling case that the presence of some other considerations would render
jurisdiction unreasonable.” Id. at 477. Normally, when a corporation “purposefully avails itself
of the privilege of conducting activities within the forum State,” Hanson, 357 U.S. at 253, its
contacts with that state giving rise to a cause of action there are deemed sufficient to satisfy the
requirement that the exercise of specific personal jurisdiction by a court in that forum be fair and
reasonable.
See Burger King, 471 U.S. at 477.
As the Court explained in World-Wide
Volkswagen:
When a corporation ‘purposefully avails itself of the privilege of conducting
activities within the forum State,’ it has clear notice that it is subject to suit there,
7
and can act to alleviate the risk of burdensome litigation by procuring insurance,
passing the expected costs on to customers, or, if the risks are too great, severing
its connection with the State. Hence if the sale of a product of a manufacturer or
distributor . . . is not simply an isolated occurrence, but arises from the efforts of
the manufacturer or distributor to serve, directly or indirectly, the market for its
product in other States, it is not unreasonable to subject it to suit in one of those
States if its allegedly defective merchandise has there been the source of injury to
its owners or to others.
444 U.S. at 297 (citation omitted).
The Federal Circuit has summarized the Supreme Court’s guidance regarding the due
process requirement for establishing specific jurisdiction as follows: The plaintiff bears the
burden of showing (1) that the defendant purposefully directed its activities at residents of the
forum, and (2) that the plaintiff's claim arises out of or relates to those activities. See Synthes
(U.S.A.) v. G.M. Dos Reis Jr. Ind. Com de Equip. Medico, 563 F.3d 1285, 1297 (Fed. Cir.
2009); Elecs. For Imaging, Inc. v. Coyle, 340 F.3d 1344, 1350 (Fed. Cir. 2003); see also Revell
v. Lidov, 317 F.3d 467, 469-70 (5th Cir. 2002); Stuart v. Spademan, 772 F.2d 1185, 1191 (5th
Cir. 1985). However, if jurisdictional discovery has not taken place and an evidentiary hearing
on jurisdiction has not been held, the plaintiff need only make a prima facie showing that the
defendants are subject to personal jurisdiction in the forum.
See Pennington Seed Inc. v.
Produce Exchange No. 299, 457 F.3d 1334, 1344 (Fed. Cir. 2006); Elecs. for Imaging, 340 F.3d
at 1349; Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343,
1347 (Fed. Cir. 2002); Johnston v. Multidata Sys. Int’l Corp., 523 F.3d 602, 609 (Fed. Cir.
2008); see also Paz v. Brush Engineered Materials, Inc., 445 F.3d 809, 812 (5th Cir. 2006);
Wilson v. Belin, 20 F.3d 644, 647-48 (5th Cir. 1994); Guidry v. U.S. Tobacco Co., 188 F.3d 619,
625 (5th Cir. 1999). In that setting, the Court must accept as true the uncontroverted allegations
in the complaint and resolve in favor of the plaintiff any factual conflicts. Deprenyl, 297 F.3d at
8
1347; Latshaw v. Johnston, 167 F.3d 208, 211 (5th Cir. 1999); Bullion v. Gillespie, 895 F.2d
213, 217 (5th Cir. 1990).
If the plaintiff makes such a showing, the burden shifts to the defendant to show that the
assertion of personal jurisdiction would not be fair and reasonable under the circumstances. See
Radio Sys., 638 F.3d at 789; Breckenridge Pharm., Inc. v. Metabolite Labs., Inc., 444 F.3d 1356,
1363 (Fed. Cir. 2006); Inamed Corp., 249 F.3d at 1360, 1363.
That factor “applies only
sparingly.” Nuance Commc’ns, Inc. v. Abbyy Software House, 626 F.3d 1222, 1231 (Fed. Cir.
2010); see Campbell Pet Co. v. Miale, 542 F.3d 879, 885 (Fed. Cir. 2008); Beverly Hills Fan Co.
v. Royal Sovereign Corp., 21 F.3d 1558, 1568 (Fed. Cir. 1994). Once the plaintiff has shown
that the defendant purposefully directed its activities at residents of the forum and that the
plaintiff’s claim arises out of or relates to those activities, the assertion of personal jurisdiction is
considered unfair and unreasonable only in “the rare situation in which the plaintiff’s interest and
the state’s interest in adjudicating the dispute in the forum are so attenuated that they are clearly
outweighed by the burden of subjecting the defendant to litigation within the forum.” Akro
Corp. v. Luker, 45 F.3d 1541, 1549 (Fed. Cir. 1995).
B. General Personal Jurisdiction over Hawaiian
Loyalty argues that personal jurisdiction is proper in this case under principles of general
jurisdiction. That contention is wholly without merit.
To be subject to general jurisdiction in a forum, a foreign corporation, i.e., a corporation
that is not incorporated or headquartered in the forum state, must engage in “continuous
corporate operations within a state” that are “so substantial and of such a nature as to justify suits
against it on causes of action arising from dealings entirely distinct from those activities.”
9
Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014), quoting Int’l Shoe, 326 U.S. at 318. The
Supreme Court has described that test as requiring that the corporation’s “affiliations with the
State [be] so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”
Daimler, 134 S. Ct. at 754, quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.
Ct. 2846, 2851 (2011). 3 That means that the defendant corporation must either be headquartered
in the forum state, incorporated in the forum state, or have some equivalent presence in the state.
Daimler, 134 S. Ct. at 761 n.19; Goodyear, 131 S. Ct. at 2853-54; see also Johnston v. Multidata
Sys. Int’l Corp., 523 F.3d 602, 611 (5th Cir. 2008) (“This circuit has consistently imposed the
high standard set by the Supreme Court when ruling on general jurisdiction issues. . . . [W]e
emphasized that in order to confer general jurisdiction a defendant must have a business presence
in Texas. . . .
It is not enough that a corporation do business with Texas.”); see also
Helicopteros, 466 U.S. at 414-16; LSI Indus. Inc. v. Hubbell Lighting, Inc., 232 F.3d 1369, 1375
(Fed. Cir. 2000); Submersible Sys., Inc. v. Perforadora Cent., S.A. de C.V., 249 F.3d 413, 419
(5th Cir. 2001).
Hawaiian has no such presence in Texas. Hawaiian has no flights to Texas; it has no
office or other physical presence in Texas; and it has only one employee who resides in Texas.
3
Loyalty attempts to distinguish Daimler on the ground that it dealt with a non-United
States corporation. That distinction is not viable, as Daimler did not restrict its analysis to
foreign country corporations. While the Court addressed the “transnational context” of the case
in the last section of its opinion, see 134 S. Ct. at 762-63, it is clear that the rest of the opinion,
which is discussed here, dealt with the issue of general jurisdiction as to corporations that were
either sister-state or foreign-country corporations, and that it used the term “foreign” to refer to
both of those categories. See 134 S. Ct. at 754 (“‘[a] court may assert general jurisdiction over
foreign (sister-state or foreign-country) corporations to hear any and all claims against them
when their affiliations with the State are so ‘continuous and systematic’ as to render them
essentially at home in the forum State.’”), quoting Goodyear Dunlop Tires Operations, S.A. v.
Brown, 131 S. Ct. 2846, 2851 (2011) (alteration in original).
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While Hawaiian makes sales to persons residing in Texas, and offers loyalty award credits to
those customers, doing business with persons in a particular state is not enough to satisfy the
requirement of general jurisdiction that the contacts with the forum state be so continuous and
systematic as to render the corporation essentially at home in the forum state. See Daimler, 134
S. Ct. at 761-62 (general jurisdiction does not exist in a forum just because a defendant’s has
sizeable sales in that forum).
Loyalty argues that because Hawaiian conducts a significant volume of business with
Texas residents, it should be subject to general jurisdiction in Texas, and thus in the federal
courts in Texas. However, the Supreme Court in Daimler directly addressed the argument that
the volume of business done within a state is sufficient to form the basis for general jurisdiction.
The Court wrote:
the general jurisdiction inquiry does not “focu[s] solely on the magnitude of the
defendant’s in-state contacts.” General jurisdiction instead calls for an appraisal
of a corporation’s activities in their entirety, nationwide and worldwide. A
corporation that operates in many places can scarcely be deemed at home in all of
them. Otherwise, “at home” would be synonymous with “doing business” tests
framed before specific jurisdiction evolved in the United States. Nothing in
International Shoe and its progeny suggests that “a particular quantum of local
activity” should give a State authority over a “far larger quantum of . . . activity”
having no connection to any in-state activity.
Daimler, 134 S. Ct. at 762 n.20 (alteration and omission in original) (citations omitted).
The Supreme Court’s decision in the Helicopteros case illustrates just how far short
Loyalty’s evidence falls. In that case, the Supreme Court held that the Texas courts could not
exercise general jurisdiction over Helicol, a Colombian helicopter transportation company, in a
suit arising from a fatal helicopter crash in Peru. 466 U.S. at 418-19. The decedents' employer,
a Texas-based joint venture, had contracted with Helicol in Peru to provide transportation in
11
Peru. As the Supreme Court summarized the facts relevant to jurisdiction, “Helicol's contacts
with Texas consisted of sending its chief executive officer to Houston for a contract-negotiation
session; accepting into its New York bank account checks drawn on a Houston bank; purchasing
helicopters, equipment, and training service from [a Texas helicopter manufacturer] for
substantial sums; and sending personnel to [the manufacturer's] facilities in Fort Worth for
training.” Id. at 416. The Court held that those contacts, although extensive, were not sufficient
to serve as a basis for the exercise of general jurisdiction. Id.
By contrast, the Supreme Court’s decision in Perkins v. Benguet Consolidated Mining
Co., 342 U.S. 437 (1952), shows how much is required in order to support a claim for general
jurisdiction against a corporation that is neither headquartered nor incorporated in the forum
state. The defendant in Perkins was a Philippines mining company that had stopped its mining
operations when Japan invaded the Philippines. The company's president relocated to Ohio,
where he continued to carry on the company's business from an office in that State. Within that
office, the president “kept . . . office files of the company,” “carried on . . . correspondence
relating to the business of the company,” and “drew and distributed . . . salary checks on behalf
of the company.” Id. at 448. The corporation employed two secretaries in Ohio, maintained
“two active bank accounts carrying substantial balances,” and used an Ohio bank to “act[] as
transfer agent for [its] stock.” Id. The president hosted “[s]everal directors' meetings . . . at his
office or home” in Ohio, “supervised policies dealing with the rehabilitation of the corporation's
properties in the Philippines,” and “dispatched funds to cover purchases of machinery for such
rehabilitation.” Id. Under those circumstances, the Supreme Court concluded that the president
had “carried on in Ohio a continuous and systematic supervision of the necessarily limited
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wartime activities of the company.” Id. That was enough to persuade the Court that Ohio courts
could exercise general personal jurisdiction over the company, and thus adjudicate a suit against
the company that did not arise in Ohio and did not relate to the corporation’s activities there. Id.
The jurisdictional facts in this case are not as strong as the facts presented by the
plaintiffs in Helicopteros and are not even remotely as strong as the jurisdictional facts that were
present in Perkins. The best that Loyalty can do by way of an argument on general jurisdiction
is to say that some of Hawaiian’s customers reside in Texas and that some of those Texas-based
customers earn frequent flyer miles from Hawaiian. The domicile of customers of a company,
however, says nothing about whether the company has a sufficient presence in the state where
those customers are located.
Loyalty’s argument on general jurisdiction is essentially the same as the argument made
by the respondent in the Daimler case—that the Court should “approve the exercise of general
jurisdiction in every State in which a corporation ‘engages in a substantial, continuous, and
systematic course of business.’” Daimler, 134 S. Ct. at 761. The Supreme Court, however,
referred to that formulation as “unacceptably grasping.” The Court noted that if Daimler’s
California activities sufficed to allow the adjudication of foreign claims in California courts, “the
same global reach would presumably be available in every other State in which [Daimler’s
subsidiary’s] sales are sizable.” Id. That argument, the Court held, would be an “exorbitant
exercise[] of all-purpose jurisdiction.” Id. In sum, because there is no evidence that Hawaiian is
“essentially at home” in the State of Texas, the Court rejects Loyalty’s argument that the Court
may exercise general personal jurisdiction over Hawaiian.
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C. Specific Personal Jurisdiction over Hawaiian
Loyalty’s argument that this Court can exercise specific personal jurisdiction over
Hawaiian presents a very different question. Specific jurisdiction, unlike general jurisdiction,
applies only to disputes that “arise out of or are connected with the activities within the state.”
Int’l Shoe, 326 U.S. at 319. The Supreme Court has explained that a defendant may fairly be
subjected to the jurisdiction of the courts of a forum state if the defendant “has purposefully
directed his activities at residents of the forum and the litigation results from alleged injuries that
arise out of or relate to those activities.” Burger King, 471 U.S. at 472 (citations and internal
quotation marks omitted).
After a review of the evidence pertaining to the jurisdictional question, the Court is
satisfied (1) that Hawaiian has purposefully directed certain of its activities at residents of
Texas—in particular, its loyalty awards program with its awards conversion features; and (2) that
this litigation results from alleged injuries that are related to those activities. The Court has also
concluded that Hawaiian cannot defeat personal jurisdiction by showing that the assertion of
personal jurisdiction in this case would not comport with fair play and substantial justice. Burger
King, 471 U.S. at 472-73, 476; Campbell Pet Co., 542 F.3d at 884-85. The Court therefore holds
that, even though Marshall, Texas, is a long way from Honolulu, the Court has specific personal
jurisdiction over Hawaiian in this case.
While Hawaiian does not fly to Texas or have any offices in Texas, it has a large number
of members of its loyalty awards programs—“HawaiianMiles and XtraMiles”—who live in
Texas. Approximately 80,000 Texas residents have had accounts with those programs between
2008 and the present. Those program members have taken advantage of the accused conversion
14
features of the programs numerous times. Loyalty’s evidence shows that on 2620 occasions
since 2008, Texas residents have either converted loyalty points with partners of Hawaiian into
frequent flyer miles credits in the HawaiianMiles/XtraMiles programs or have converted
frequent flyer miles credits in their HawaiianMiles/XtraMiles accounts into loyalty points with
Hawaiian’s partners.
Those transactions relate to the alleged acts of infringement at issue in this case, namely,
the use of computers to enable customers to convert loyalty award credits of one company into
those of the company’s commerce partners. By offering membership in loyalty awards programs
to Texas residents and enabling them to convert loyalty award credits with other vendors,
Hawaiian has purposefully directed its activities at the forum state.
It is also true that Loyalty’s claims arise from injuries relating to Hawaiian’s contacts
with Texas. The alleged injury suffered by Loyalty is the infringement of its patents. That
injury occurred, according to Loyalty’s contentions, when the conversions of reward points were
made and recorded, and when they resulted in customers’ purchases of goods and services.
Hawaiian’s acts of making the conversion process available to 80,000 Texas-based loyalty
awards program members, and its conversion of loyalty points on more than 2600 occasions, is
conduct that is directly related to the infringement allegations.
Hawaiian responds to that evidence by saying that the exhibits showing the number of
loyalty award conversions by persons with Texas addresses “do not necessarily reflect where the
members requested any alleged ‘conversion’ of rewards points.” Case No. 2-13-cv-655, Dkt.
No. 85, at 7. While that is true, it is a reasonable inference that a large percentage of the Texas
residents who made conversions of loyalty award credits did so from Texas. Loyalty’s evidence
15
on that issue is therefore sufficient to make a prima facie showing that a large number of
conversions were made by Texas residents and likely were made in Texas.
Hawaiian further argues that the actual conversions did not take place in Texas “even
assuming the members initiated their requests while in Texas,” and that “the process by which
members redeem their points for miles is evidently performed by third parties.” Accordingly,
Hawaiian argues that it has conducted “no in-forum activity from which [Loyalty’s] infringement
claim could arise.” Case No. 2:13-cv-655, Dkt. No. 85, at 8. The force of that argument turns on
whether Hawaiian is responsible for the alleged infringement relating to its conversion
agreements with other vendors, and whether the allegations of infringement include interactions
with customers in Texas for which Hawaiian may be liable.
As to the first question, Loyalty’s theory of the case against Hawaiian under the ’023
patent claims is that Hawaiian is a party to the agreement to convert loyalty award credits with
various “commerce partners” and that it is responsible, at least in part, for causing the
infringement of the claimed method by granting its customers award credits with Hawaiian and
accepting the converted award credits of its commerce partners as payment for purchases of
airline travel. Loyalty’s theory under the ’550 patent claims is that Hawaiian has created Web
pages accessible by customers that allow the customers to convert loyalty award credits with
Hawaiian’s commerce partners.
In the complaint, Loyalty alleges that Hawaiian “has entered into agreements with
partners such as Hyatt, and provides for the conversion of Hyatt Rewards points to
HawaiianMiles. Hawaiian provides related support services and instructions for the infringing
16
operation of such [award credit conversion] systems to its customers.” Case No. 2-13-cv-661,
Dkt. No. 1, at 3. In addition, the complaint alleges:
Hawaiian has actively induced others including its customers to infringe and
contributed to the infringement by others of the ’023 and ’550 Patents throughout
the United States, knowing that Loyalty Conversion alleges such activities to be
infringing. Hawaiian agrees and specifies with its loyalty program partners that
conversions shall occur in the manner claimed in the ’023 and ’550 Patents.
Hawaiian has designed, installed, operated and implemented its computer systems
to operate in an infringing manner. The infringing systems have no substantial
non-infringing uses.
Id. at 3-4.
Although Hawaiian disputes those allegations and contends that it has not actively
participated in the alleged infringing activity, the Court is required to “accept as true the
uncontroverted allegations in the complaint and resolve in favor of the plaintiff any factual
conflicts posed by the affidavits.”
Latshaw, 167 F.3d at 211.
The only sworn statement
introduced by Hawaiian that pertains to the allegations of the complaint summarized and quoted
above is paragraph 13 of the affidavit of Colette Sowers, in which she avers that “conversions of
Hyatt loyalty points into HawaiianMiles are performed by Hyatt, not by Hawaiian. That is, for
those Members of the HawaiianMiles Program who elect to receive Airline Miles in lieu of Hyatt
Gold Passport points, the calculated conversion of their points or stays to miles is provided by
Hyatt, and thereafter, the calculated conversations are sent by Hyatt to Hawaiian employees who
update the Members’ accounts.” Case No. 2:13-cv-661, Dkt. No. 12-1, at 3.
While Hawaiian alleges that Hyatt performs the actual conversion operation, that does
not fully answer Loyalty’s allegation that Hawaiian participated in the acts of infringement,
either directly by making the conversions available to customers on Hawaiian’s websites, or
indirectly by inducing Hyatt to engage in the infringing acts of conversion.
17
As to the second question, the allegations of infringement against Hawaiian plainly entail
interactions between Hawaiian and customers in Texas. Under Loyalty’s infringement theories,
Hawaiian is responsible for acts of infringement by making it possible for its loyalty award
program members, many of whom live in Texas, to convert Hyatt points into HawaiianMiles.
Moreover, Hawaiian has accepted the converted points in exchange for airline travel on more
than 2600 occasions.
Hawaiian enables its customers to interact with Hawaiian’s loyalty program through the
use of Hawaiian’s website. Indeed Loyalty’s theory of infringement with respect to the ’550
patent is that Hawaiian infringes through web pages it has created that allow customers to
convert loyalty award credits with its commerce partners. When a defendant’s interactions with
its contacts in a forum state occur through a website, courts frequently analyze the issue of
personal jurisdiction by applying the test enunciated in Zippo Manufacturing Co. v. Zippo Dot
Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997). Under that test, courts “examin[e] the level of
interactivity and commercial nature of the exchange of information that occurs on the Web site”
to determine whether the defendant has subjected itself to personal jurisdiction in a state or
district where the defendant’s customers receive the defendant’s messages. Id. at 1124. On one
end the spectrum, personal jurisdiction is most likely to exist where the defendant “clearly does
business over the Internet.” Id. On the other end of the spectrum are passive websites where a
defendant “has simply posted information” that customers can access. Id. In between are
interactive websites, where the existence of personal jurisdiction “is determined by examining
the level of interactivity and commercial nature of the exchange of information that occurs on the
Web site.” Id.; see also Mink v. AAAA Development LLC, 190 F.3d 333, 336 (5th Cir. 1999)
18
(adopting the Zippo framework in the Fifth Circuit); Maynard v. Phila. Cervical Collar Co., 18 F.
App’x 814, 816-17 (Fed. Cir. 2001) (nonprecedential) (“A passive website is insufficient to
establish purposeful availment for the purpose of due process.”).
This case falls at the end of the spectrum that allows for the exercise of personal
jurisdiction. The allegedly infringing activity involves customers who purchase air travel on
Hawaiian with converted loyalty miles.
When those purchases occur through Hawaiian’s
website, they clearly constitute “do[ing] business over the Internet.”
Furthermore, the
conversion of HawaiianMiles/XtraMiles to or from the loyalty points of other vendors is itself a
commercial transaction that constitutes “do[ing] business over the Internet.” The exercise of
jurisdiction over Hawaiian in this case is therefore proper under the Zippo test. See also Toys
“R” Us, Inc. v. Step Two, S.A., 318 F.3d 446, 452 (3d Cir. 2003) (“In cases where the defendant
is clearly doing business through its web site in the forum state, and where the claim relates to or
arises out of use of the web site, the Zippo court held that personal jurisdiction exists.”);
Autobytel, Inc. v. Insweb Corp, 2009 WL 901482, at *2-3 (E.D. Tex. Mar. 31, 2009) (personal
jurisdiction existed where Texas residents could use defendant’s website to contact auto dealers
in Texas, submit financial information, and apply for a loan); AdvanceMe, Inc. v. Rapidpay
LLC, 450 F. Supp. 2d 669, 673-74 (E.D. Tex. 2006) (accused infringer’s website allowed
potential customers in Texas to receive state-specific quotes, apply for the allegedly infringing
services, and receive those services through the website); CoolSavings.com, Inc. v.
IQ.Commerce Corp., 53 F. Supp. 2d 1000, 1001-03 & n.3 (N.D. Ill. 1999) (noting, in a case in
which the alleged contact with the forum state occurred through the defendant’s operation of its
19
allegedly infringing interactive website, that “a case in which the contact itself is the wrong is a
stronger case for jurisdiction than one in which the contact merely relates to the wrong”).
Accordingly, the Court concludes that the first two elements of the showing required for
specific jurisdiction are satisfied: Loyalty has shown that Hawaiian has purposefully directed its
loyalty awards program and the conversion feature of that program at Texas residents, and that
this litigation results from injuries related to those activities.
As for the third element—whether the assertion of personal jurisdiction in this case
would comport with fair play and substantial justice—Hawaiian has not preserved that argument.
In its motion, Hawaiian did not argue that the third element of specific jurisdiction was not
satisfied. It was not until its reply memorandum, after Loyalty had pointed out that Hawaiian
had not argued the third element, that Hawaiian for the first time argued that the “fair play and
substantial justice” element was not satisfied in this case. Failure to raise an argument in a
motion waives the argument; raising it for the first time in a reply memorandum is too late. See
Flooring Sys., Inc., v. Chow, 2013 WL 4674667, at *1 n.2 (E.D. Tex. Aug. 27, 2013); Miles
Bramwell USA, LLC v. Weight Watchers Int’l, Inc., 2013 WL 1797031, at *4 (E.D. Tex. Mar.
27, 2013); Nearstar, Inc. v. Waggoner, 2011 WL 817374, at *4 (E.D. Tex. Mar. 2, 2011);
Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 2009 WL 901128, at *2 n.1 (E.D. Tex.
Mar. 30, 2009).
Even if the “fair play and substantial justice” argument had been timely raised, it would
fail. The defendant has the burden of showing that the “fair play and substantial justice” factor
requires dismissal. See Autogenomics, Inc. v. Oxford Gene Tech. Ltd., 566 F.3d 1012, 1018
(Fed. Cir. 2009); Breckenridge Pharm., 444 F.3d at 1363. Moreover, the Supreme Court and the
20
Federal Circuit have made clear that the “fair play and substantial justice” factor is not to be
applied liberally, but is to be applied “sparingly” and only in extreme cases. See Burger King,
471 U.S. at 477 (“[W]here a defendant who purposefully has directed his activities at forum
residents seeks to defeat jurisdiction, he must present a compelling case that the presence of
some other considerations would render jurisdiction unreasonable.” (emphasis added));
Campbell Pet Co., 542 F.3d at 885 (rare situations); Elecs. for Imaging, 340 F.3d at 1351-52;
Deprenyl, 297 F.3d at 1355-56; Inamed Corp., 249 F.3d at 1363. Such cases in which otherwise
constitutional personal jurisdiction is defeated “are limited to the rare situation in which the
plaintiff's interest and the state's interest in adjudicating the dispute in the forum are so attenuated
that they are clearly outweighed by the burden of subjecting the defendant to litigation within the
forum.” Beverly Hills Fan, 21 F.3d at 1568. Therefore, even if the Court were willing to
address the argument Hawaiian makes for the first time in its reply memorandum, it would
conclude that Hawaiian has not met its burden to show that this is a “compelling” case in which
“fair play and substantial justice” require that personal jurisdiction not be recognized.
Determining whether Hawaiian has demonstrated that the exercise of jurisdiction would
be so unreasonable as to violate fair play and substantial justice requires consideration of several
factors, including (1) the burden on the defendant, (2) the interests of the forum state, (3) the
plaintiff's interest in obtaining relief, (4) the interstate judicial system's interest in obtaining the
most efficient resolution of controversies, and (5) the shared interest of the several states in
furthering fundamental substantive social policies. Deprenyl, 297 F.3d at 1355; Inamed, 249
F.3d at 1363.
21
While it is no doubt burdensome for Hawaiian to have to defend this action in Texas
rather than in Hawaii, it is not clear that the burden of defense in this district would be any
greater than the burden of defense in Delaware, the district of its incorporation, where Hawaiian
would be subject to general jurisdiction. As for the interests of the forum state, the Federal
Circuit has recognized that a state has a significant interest in discouraging injuries that occur
within the state, including patent infringement. Beverly Hills Fan, 21 F.3d at 1568, citing
Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 776 (1984). Texas’s interest in preventing
infringement by Hawaiian is sufficient, in light of the volume of alleged infringing acts, to make
the state’s interest a significant factor in the fairness inquiry. Moreover, the several states have a
“shared interest” in preventing infringement, which bears on the “fair play” factor and supports
the exercise of personal jurisdiction in one such state.
With respect to its activities in Texas, Hawaiian is in the same situation as many other
national corporations that sell products or services nationwide. Those companies are subject to
specific jurisdiction in any district in which their infringing products are sold. The volume of
business that Hawaiian does with residents of Texas, and the number of Texas residents who are
members of Hawaiian’s loyalty rewards program and have used the conversion feature of that
program, bear heavily on the “fair play and substantial justice” factor. This is not a case in
which a single isolated sale or use of a product is being employed to obtain personal jurisdiction
over a defendant that otherwise has had no business relationship with the forum, and in which it
would be perverse to impose on the defendant the burden of defending in a foreign forum based
on so little contact there.
22
Beyond that, the interest of the plaintiff in obtaining relief and the interest of the judicial
system in obtaining the most efficient resolution of controversies weigh against dismissal of
Hawaiian on personal jurisdiction grounds. Although Hawaiian has perhaps the strongest claim
among the nine airline defendants on the issue of personal jurisdiction, some of the factors
bearing on its personal jurisdiction claims apply to several of the other defendant airlines in this
case. If the Court were to conclude that it would be unfair to exercise personal jurisdiction over
Hawaiian, a similar argument could be made with respect to several of the other defendant
airlines as well. The result of ruling in Hawaiian’s favor on “fair play” grounds would thus be to
divide this case into at least two parts, and potentially more, imposing a substantial burden not
only on the plaintiff but on other district courts. The Court concludes that the plaintiff’s interests
and the interest of judicial economy cut in favor of retaining jurisdiction over Hawaiian in this
forum, and that it is not unfair to exercise jurisdiction over Hawaiian in a state where it has
engaged in substantial business activity, including activity relating to the alleged infringement.
Accordingly, the Court concludes that Hawaiian has not met its burden to show that this is one of
those rare cases in which the defendant has shown that the action should be dismissed for lack of
personal jurisdiction based on the “fair play and substantial justice” factor.
The motion to dismiss for lack of personal jurisdiction is DENIED.
IT IS SO ORDERED.
SIGNED this 2d day of September, 2014.
_____________________________
WILLIAM C. BRYSON
UNITED STATES CIRCUIT JUDGE
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