Canada Pipeline Accessories Co., Ltd. v. Canalta Controls, Ltd.

Filing 40

MEMORANDUM OPINION AND ORDER granting in part and denying in part Plaintiff CPA's 15 Motion to Dismiss for Failure to State a Claim; CPA's motion to dismiss Count VI of the counterclaims is granted only to the extent that Count VI allege s a claim for relief based on tortious interference with independent testing laboratories; Count VI of the counterclaims may proceed, however, as to the alleged tortious interference with Canalta clients; CPA's motion to dismiss Counts II and V of the counterclaims is DENIED; denying Defendant Dale Sawchuk's 25 MOTION to Dismiss for lack of personal jurisdiction and finding that its exercise of personal jurisdiction over Mr. Sawchuk is proper. Signed by Judge Robert C. Chambers on 6/25/2013. (cc: attys; any unrepresented parties) (mkw)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION

CANADA PIPELINE
ACCESSORIES, CO., LTD.,
Plaintiff/Counterclaim Defendant,
v.

CIVIL ACTION NO. 3:12-8448

CANALTA CONTROLS, LTD.,
Defendant/Counterclaim Plaintiff,
v.
DALE SAWCHUK,
Counterclaim Defendant.

MEMORANDUM OPINION AND ORDER
Pending is Plaintiff’s motion to dismiss Counts II, V, and VI of Defendant’s counterclaims.
ECF No. 15. Also pending is a separate motion to dismiss filed by counterclaim defendant Dale
Sawchuk. ECF No. 25. For the reasons stated below, the Court GRANTS in part and DENIES
in part Plaintiff’s motion, and DENIES Mr. Sawchuk’s motion.
I.

BACKGROUND

This is an action involving trademark infringement and related claims. Plaintiff Canada
Pipeline Accessories Co., Ltd. (“Plaintiff” or “CPA”) is a Canadian corporation “dedicated to
research, development and sale of cutting edge flow measurement technology for the oil and gas
industries and related consulting.” Compl. ¶ 7. Defendant Canalta Controls, Ltd. (“Defendant”
or “Canalta”) is also a Canadian corporation, which “provides a wide range of industrial control

and measurement equipment to the oil and gas industries throughout the United States and
Canada.” Countercl. ¶ 5. The parties both manufacture and sell flow conditioners, which are
devices used for regulating fluid flow in pressurized pipelines. See Countercl. ¶ 2. The parties
are direct market competitors and sell their products to energy companies throughout the United
States and elsewhere, including a firm located in this district. See Compl. ¶ 37.
On December 3, 2012, CPA filed a five-count complaint accusing Canalta of selling
“knock off” flow conditioners. CPA sells its line of flow conditioners under the “CPA 50E” and
“50E” trademarks, which CPA owns. Compl. ¶¶ 12, 17, 18. According to the complaint,
“CPA’s flow conditioners have been subject to extensive testing and, as a result, are fully
compliant with American Gas Association specifications.” Compl. ¶ 16. The complaint states
that CPA is the owner of “unique and distinctive trade dress in the overall non-functional
appearance of its flow conditioners,” including “the unique hole pattern on the face of the flow
conditioner.” Compl. ¶ 19. This trade dress allegedly causes consumers to “immediately
identify CPA as the single source of high quality products bearing the CPA trade dress.” Compl.
¶ 20.
CPA charges Canalta with trademark infringement, trade dress infringement, false
advertising, false designation of origin, and unfair competition, all stemming from Canalta’s
activities related to the sale and manufacture of flow conditioners. The complaint alleges that
Canalta markets “knock off” flow conditioners under the marks “Contour 50,” “Contour 50F,” and
“Contour 50P.” Compl. ¶ 23. At industry conferences held in Pittsburgh, Pennsylvania, in
August 2012 and September 2012, Canalta allegedly displayed its flow conditioners side-by-side
with CPA’s products to “cause customer confusion.” See compl. ¶¶ 24, 31, 33. According to the
complaint, a Canalta employee at these conferences represented to potential customers that

2

Canalta’s products were identical to, and performed the same as, CPA’s products. CPA alleges
that Canalta further falsely represented that the Contour 50F was manufactured to the same
dimensions and tolerances as the CPA 50E and that the test data for the CPA 50E is therefore valid
as to the Contour 50F. Canalta also allegedly represented that its flow conditioners comply with
industry specifications, when they do not.
Canalta filed its answer on March 19, 2013, and asserted counterclaims against CPA and
an additional party, Dale Sawchuk, president of CPA. As the basis for its counterclaims, Canalta
asserts that its Contour product and CPA’s device have a common origin. According to Canalta’s
counterclaims, the original inventor and patent holder of the flow conditioner was Elizabeth M.
Laws. Countercl. ¶ 11. In the early 1990s, the Novacor Research and Technology Corporation
instituted a program (“Novacor program”) to improve upon the Laws flow conditioner to
overcome certain functional flaws. Countercl. ¶ 11. The Novacor program conducted tests on a
certain flow conditioner known as the NOVA device. The testing conducted on the NOVA
device ultimately ripened into the industry standard. The Novacor program tested different flow
conditioner designs, which were grouped into two categories based on the total surface area of the
device. Flow conditioners are perforated metal discs, with the perforations arranged in concentric
circles. The Novacor program tested different designs, each containing perforations of different
sizes, and named them according to the surface area of the design. The NOVA 60 design, for
example, was a flow conditioner with an overall solidity of roughly 60 percent (i.e., the
perforations constituted approximately 40 percent of the surface area), and the NOVA 50 had a
solidity of roughly 50 percent (i.e., the perforations constituted approximately 50 percent of the
surface area). Countercl. ¶ 14. One design emerged from the Novacor program as most
“effective,” and was dubbed the NOVA 50E. Based on these allegations, Canalta argues that the

3

terms “50,” “50E,” and “60” are generic and can carry no trademark significance. Countercl. ¶
15.
Canalta alleges that by 2003, the NOVA 50E design became part of the industry’s
standard; by 2000 the American Gas Association and the American Petroleum Institute issued
national standards that adopted many of the original NOVA specifications. Countercl. ¶ 19. The
design became part of the international standard in 2003 when the design was adopted into the
International Organization for Standardization’s ISO 5167-1 standard. Countercl. ¶ 20.
Canalta alleges that CPA falsely represented to the U.S. Patent and Trademark Office
(“PTO”) that the terms “50E” and “60” as used in its trademark applications for “CPA 50E” and
“CPA 60” lacked any significance in the relevant trade or industry or as applied to the goods.
According to Canalta, Elizabeth Laws licensed to CPA the exclusive rights to the American and
Canadian patents for the flow conditioner design. CPA allegedly then rebranded the NOVA 50E
design as its own, and sold it under the name CPA 50E, without material modification. In its
promotional materials, CPA represents that the original NOVA testing was performed on the CPA
50E device—not the NOVA 50E device. The original U.S. Laws patent expired on August 30,
2011, thus ending CPA’s claim to the exclusive right to the NOVA 50E design. Countercl. ¶ 29.
Canalta further states that the shapes, designs, colors, and materials that make up the design of the
CPA 50E are entirely utilitarian and functional, rather than protected trade dress.
Canalta states that it has had prior business dealings with CPA. Canalta purchased CPA
flow conditioner products in the past, relying on the original NOVA testing data that CPA
promulgated as supporting its CPA 50E devices. Canalta also contracted to manufacture flow
conditioners for CPA, which CPA marketed based on the NOVA 50E testing data. Once the
Laws patent expired, Canalta decided to manufacture its own line of flow conditioners meeting the

4

NOVA 50E specifications, which it asserts are now in the public domain. Canalta markets and
sells its products as the “Contour” series. In its marketing materials, Canalta represents that the
original testing was performed on the NOVA 50E, but is still applicable to the Contour line of flow
conditioners.
In response to Canalta’s market entry, CPA has allegedly engaged in various unfair and
deceptive practices designed to limit sales of Canalta’s Contour products. Canalta alleges that
CPA has directly contacted Canalta’s customers, making false and slanderous statements about the
company, including that Canalta is using CPA’s flow test data and that the Contour design is
untested and unreliable.

CPA has also allegedly advised Canalta customers—falsely—that

Canalta is fraudulently supplying “knock offs,” is a company of “low integrity,” and is going
bankrupt. Canalta alleges that one or more letters containing defamatory information were signed
by Mr. Sawchuk and sent to third parties in this district and elsewhere. The counterclaims state
that CPA is falsely representing to the public that the hole pattern in its product design is
protectable trade dress, despite evidence that the design is merely functional and thus not
protectable. Based on these factual allegations, Canalta filed six-counts in counterclaim against
CPA. Three of those are the subject of this motion to dismiss. Count II seeks cancellation of
CPA’s trademark registrations because of the generic nature of “50” and “50E.” Count V charges
both CPA and Sawchuk with defamation related to statements made about Canalta and/or its
products. Finally, Count VI charges CPA with tortious interference with prospective business
relations.
CPA filed a motion to dismiss Counts II, V, and VI of Canalta’s counterclaims, pursuant to
Federal Rule of Civil Procedure 12(b)(6), arguing that Canalta failed to plead sufficient factual
allegations to state plausible claims. Mr. Sawchuk separately filed a motion to dismiss, pursuant

5

to Rule 12(b)(2), for lack of personal jurisdiction. With this background in mind, the Court now
turns to the parties’ arguments and the applicable legal standards. The Court will first address
CPA’s motion and then Mr. Sawchuk’s motion.
II.
A.

ANALYSIS

Legal Standard
In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the United States Supreme Court

disavowed the “no set of facts” language found in Conley v. Gibson, 355 U.S. 41 (1957), which
was long used to evaluate complaints subject to 12(b)(6) motions. 550 U.S. at 563. In its place,
courts must now look for “plausibility” in the complaint. This standard requires a plaintiff to set
forth the “grounds” for an “entitle[ment] to relief” that is more than mere “labels and conclusions,
and a formulaic recitation of the elements of a cause of action will not do.” Id. at 555 (internal
quotation marks and citations omitted). Accepting the factual allegations in the complaint as true
(even when doubtful), the allegations “must be enough to raise a right to relief above the
speculative level . . . .” Id. (citations omitted). If the allegations in the complaint, assuming their
truth, do “not raise a claim of entitlement to relief, this basic deficiency should . . . be exposed at
the point of minimum expenditure of time and money by the parties and the court.” Id. at 558
(internal quotation marks and citations omitted).
In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Supreme Court explained the requirements of
Rule 8 and the “plausibility standard” in more detail. In Iqbal, the Supreme Court reiterated that
Rule 8 does not demand “detailed factual allegations[.]” 556 U.S. at 678 (internal quotation
marks

and

citations

omitted).

However,

a

mere

“unadorned,

the-defendant-unlawfully-harmed-me accusation” is insufficient. Id. “To survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to

6

relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). Facial plausibility
exists when a claim contains “factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. (citation omitted). The Supreme
Court continued by explaining that, although factual allegations in a complaint must be accepted as
true for purposes of a motion to dismiss, this tenet does not apply to legal conclusions. Id.
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. (citation omitted). Whether a plausible claim is stated in a
complaint requires a court to conduct a context-specific analysis, drawing upon the court’s own
judicial experience and common sense. Id. at 679. If the court finds from its analysis that “the
well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct,
the complaint has alleged-but it has not ‘show[n]’-’that the pleader is entitled to relief.’” Id.
(quoting, in part, Fed. R. Civ. P. 8(a)(2)). The Supreme Court further articulated that “a court
considering a motion to dismiss can choose to begin by identifying pleadings that, because they are
no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can
provide the framework of a complaint, they must be supported by factual allegations.” Id.
B.

CPA’s Motion to Dismiss
1.

Count II: cancellation of trademark registrations

In Count II of its counterclaims, Canalta seeks the cancellation of three of CPA’s
trademark registration numbers: (1) No. 2,994,138 (“CPA 50E”); (2) No. 3,934,642 (“50E”); and
(3) No. 3,944,407 (“CPA 50E CHANGER”). Canalta argues that these trademark registrations
are invalid and unenforceable due to the generic nature of the terms “50” and “50E” as applied to
flow conditioner devices, and also because CPA committed fraud on PTO in procuring the
registrations.

7

A defendant charged with trademark infringement may counterclaim for cancellation of
that registration; the district court possesses concurrent power with the PTO, pursuant to 15 U.S.C.
§ 1119, to conduct such cancellation proceedings. 5 McCarthy on Trademarks and Unfair
Competition § 30:109 (4th ed. 2013); see also, e.g., Sweetwater Brewing Co. v. Great Am.
Restaurants, Inc., 266 F. Supp. 2d 457, 464 n.2 (E.D. Va. 2003). Any person with standing1 may
seek cancellation of a trademark registration
[a]t any time if the registered mark becomes the generic name for the goods or
services, or a portion thereof, for which it is registered, or is functional, or has been
abandoned, or its registration was obtained fraudulently or contrary to the
provisions of section 1054 of this title or of subsection (a), (b), or (c) of section
1052 of this title for a registration under this chapter . . . .
15 U.S.C. § 1064(3).
a.

Generic trademark theory

A trademark becomes generic and unenforceable when it “ceases to identify in the public’s
mind the particular source of a product or service but rather identifies a class of product or service,
regardless of source[.]” Glover v. Ampak, Inc., 74 F.3d 57, 59 (4th Cir. 1996) (citing 15 U.S.C.
§ 1064(3)). To become generic, “the primary significance of the mark must be its indication of
the nature or class of the product or service, rather than an indication of source.” Id. (citations
omitted) (emphasis in original). A party who seeks to establish that a mark has become generic
must: “(1) identify the class of product or service to which use of the mark is relevant; (2) identify
the relevant purchasing public of the class of product or service; and (3) prove that the primary
significance of the mark to the relevant public is to identify the class of product or service to which
the mark relates.” Id.

1

The statute confers such standing on “any person who believes that he is or will be damaged . . .
as a result of a likelihood of dilution by blurring or dilution by tarnishment under section 1125(c)
of this title, by the registration of a mark on the principal register[.]” 15 U.S.C. § 1064.
8

In this case, Canalta has sufficiently pleaded a claim for trademark cancellation under the
theory that the mark is generic. CPA argues that Canalta’s factual allegations related to this claim
are legal conclusions rather than specific facts. The Court disagrees. Canalta alleges specific
facts detailing the origin of the flow conditioner product, beginning with the patent obtained by
Elizabeth Laws and tracing its development through the Novacor program. Countercl. ¶¶ 11, 14.
Canalta also alleges facts explaining the meaning of the terms “50,” “50E,” and “60” within the
industry. Countercl. ¶ 14 (stating that “50” and “60,” as used in the Novacor program tests, mean
that the device has 50 percent overall surface solidity and 60 percent solidity, respectively). In
these allegations, Canalta has sufficiently pleaded (1) the relevant class of product (flow
conditioners) and (2) the relevant purchasing public (those in the oil and gas industry). Contrary
to CPA’s arguments, the Court finds that Canalta has also sufficiently pleaded the third element:
that the primary significance of the mark to the relevant public is to identify the class of product to
which the mark relates. Canalta’s allegations regarding the results of the Novacor program,
countercl. ¶ 14, and the subsequent adoption of those standards by the industry, countercl. ¶¶ 13,
19, 20, are sufficient to put CPA on notice of Canalta’s theory, that the Novacor program resulted
in these numerical terms, which the industry as a whole associates with a class of product.
CPA argues alternatively in its reply that Canalta’s claim for cancellation of the “CPA
50E” and “CPA 50E CHANGER” trademarks should be dismissed because the claim ignores the
composite nature of these marks.2 That is, even if Canalta properly stated a claim that the mark
“50E” alone is generic, it did not plead facts alleging that the phrases “CPA 50E” and “CPA 50E
2

“A composite mark is one that contains some matter that is descriptive in nature—and, thus,
would not alone be registerable as a trademark—used in conjunction with nondescriptive matter.”
United States v. Chong Lam, 677 F.3d 190, 199 n.7 (4th Cir. 2012) (citing Estate of P.D. Beckwith,
Inc. v. Comm’r of Patents, 252 U.S. 538, 541 (1920) (defining “composite marks” as those which
“contain both registerable and nonregisterable matter”)).
9

CHANGER” are generic.

CPA argues that Canalta ignores the “anti-dissection” rule of

trademark law, under which “conflicting composite marks are to be compared by looking at them
as a whole, rather than breaking the marks into their component parts for comparison.” United
States v. Chong Lam, 677 F.3d 190, 199 n.7 (4th Cir. 2012) (citing 4 McCarthy on Trademarks and
Unfair Competition § 23.41 (4th ed. 2011)). At this stage, the Court finds that Canalta’s
allegations support its claim that CPA’s trademarks may be subject to cancellation. Discovery in
this case may reveal that the anti-dissection rule will apply to defeat Canalta’s counterclaims.3
Nonetheless, the Court finds that Canalta has adequately pleaded its claims to survive this motion
to dismiss.
The issue of whether the trademark registrations are generic in this case cannot be resolved
in the context of this motion to dismiss. “It is well-established that ‘[w]hether a given mark is
generic and therefore ineligible for trademark protection is dependent on the particular facts of the
case,’ and that a Rule 12(b)(6) motion ‘does not resolve contests surrounding the facts [or] the
merits of a claim.’”

Va. Polytechnic Inst. & State Univ. v. Hokie Real Estate, Inc., No.

7:10CV00466, 2011 WL 926862, at *5 (W.D. Va. Mar. 15, 2011) (quoting Hunt Masters, Inc. v.
Landry’s Seafood Rest., Inc., 240 F.3d 251, 254 (4th Cir. 2001) and Edwards v. City of Goldsboro,
178 F.3d 231, 243 (4th Cir. 1999)). While it is true that Canalta bears the burden of ultimately
proving the marks are generic, the Court’s task in resolving the instant motion is simply to
3

The Court additionally observes that discovery on CPA’s trademark infringement claim (Count I
of the complaint) will significantly—if not completely—overlap with discovery for Canalta’s
counterclaim. CPA contests Canalta’s use of the number designations in its own products.
Compl. ¶ 23 (alleging that “Canalta markets the knock off flow conditioners under at least the
following spurious marks: Contour 50, Contour 50F and Contour 50P”). Similarly, discovery on
Canalta’s cancellation claim will likely overlap with that for its counterclaim for declaratory
judgment, which CPA does not seek to dismiss at this stage, and the Court therefore finds it
prudent to allow Canalta’s claims to proceed and revisit them after discovery via a motion for
summary judgment. See Speedmark Transp., Inc. v. Mui, 778 F. Supp. 2d 439, 444-45 (S.D.N.Y.
2011) (Peck, M.J.).
10

determine whether Canalta is entitled to offer evidence in support of its trademark cancellation
claim—not whether it will prevail. See Hidden Values, Inc. v. Wade, No. 3:11-cv-1917, 2012 WL
1836087, at *12 (N.D. Tex. May 18, 2012). The Court concludes that at this early stage of
litigation, Canalta has properly stated a claim for trademark cancellation on the theory that the
trademarks are generic, and thus the motion to dismiss will be DENIED on this ground.
b.

Fraud theory

Canalta additionally claims that CPA’s trademarks should be canceled because they were
obtained by fraud on PTO. To prevail on this theory, Canalta must prove that CPA “knowingly
made false, material representations of fact and intended to deceive the Patent and Trademark
Office.” Resorts of Pinehurst, Inc. v. Pinehurst Nat’l Corp., 148 F.3d 417, 420 (4th Cir. 1998)
(citations and quotations omitted). Because this claim sounds in fraud, it is subject to the
heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires a claimant
to “state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).
The circumstances include “the time, place, and contents of the false representations, as well as the
identity of the person making the misrepresentation and what he obtained thereby.” Spaulding v.
Wells Fargo Bank, N.A., 714 F.3d 769, 781 (4th Cir. 2013) (citations and quotations omitted).
Canalta specifically alleges that CPA committed fraud during its pursuit of application
number 78/180,613, which resulted in registration number 2,994,138, for “CPA 50E.” Canalta
argues that by this application, CPA falsely represented to PTO that the term “50E” had no
significance in the relevant trade or industry as applied to the goods.

CPA disputes this

allegation, arguing that, as related to this trademark application, any representations CPA made to
PTO pertained to the mark “CPA 50E” and not the mark “50E” alone. In other words, CPA
argues that Canalta’s counterclaim ignores the composite nature of the marks “CPA 50E” and

11

“CPA 50E CHANGER.”
The Court finds that Canalta has satisfied the heightened pleading requirements of Rule
9(b) and has adequately stated a claim for trademark cancellation based on fraudulent
procurement. First, Canalta alleges that in its application for trademark registration number
2,994,138, CPA falsely represented that the term “50E” lacked any significance in the relevant
trade or industry or as applied to the goods. Countercl. ¶¶ 14, 16. Second, Canalta alleges that
this representation was material to the issuance of the trademark. Countercl. ¶¶ 16, 45. Finally,
Canalta alleges that CPA made this false representation with intent to deceive PTO. Countercl. ¶
45; Fed. R. Civ. P. 9(b) (“[I]ntent . . . may be alleged generally.”). Canalta has stated the
circumstances constituting the alleged fraud.

The allegations in the counterclaim are sufficiently

detailed to state a proper claim for trademark cancellation. Accordingly, CPA’s motion to
dismiss the claim for cancellation will be DENIED on this ground as well.4
2.

Count V: defamation

In Count V, Canalta charges CPA and Mr. Sawchuk with defamation, arising from
statements these defendants allegedly made about Canalta’s products to potential and current
customers. CPA argues that Count V should be dismissed because Canalta failed to plead

4

The Court rejects CPA’s argument that Exhibit A to Canalta’s counterclaim, ECF No. 9-1,
warrants dismissal of this claim. Exhibit A is an Examiner’s Amendment to CPA’s trademark
application for the mark “CPA 50E.” CPA argues that this document shows that CPA represented
that the mark “CPA 50E” had no significance in the industry, rather than making any such claim of
the mark “50E” alone, as Canalta alleges. This distinction is of no consequence at this stage in the
litigation. Exhibit A is an amendment to an application; discovery in this case could reveal
additional documentation of the alleged misrepresentations made to PTO, such as the original
application and correspondence between CPA and PTO. Canalta’s citation to its Exhibit A does
not render defective any of its factual allegations of fraudulent trademark procurement.
12

specific facts regarding the location of the alleged injury.5 Without such an allegation, CPA
contends, Canalta’s pleading fails to place CPA on notice of the claims against it because it is
unclear which jurisdiction’s laws apply after a choice of law analysis. The Court finds this
argument unpersuasive.
Canalta pleads sufficient factual allegations to support the reasonable inference that, if
true, it is entitled to relief. First, the counterclaim alleges both the content of the defamatory
statements and the method by which they were made. Canalta states that “CPA has contacted
certain of Canalta’s customers, both by phone and in writing, making false and slanderous
allegations . . . that Canalta is using CPA’s flow test data and that the Contour design is untested
and unreliable . . . .” Countercl. ¶ 34. Canalta even attached a dated letter, signed by Mr.
Sawchuk, that it alleges CPA sent to Canalta’s customers. Countercl. ¶ 34; Ex. B. Canalta
alleges that CPA made other defamatory statements to customers, including that Canalta
fraudulently supplied “knock offs” and that Canalta is a company of “low integrity,” countercl. ¶
35, and that Canalta is going bankrupt, which is false, countercl. ¶ 36. Second, Canalta alleged
that CPA possessed the requisite mens rea required for defamation. Finally, Canalta alleges an
exact date when at least one of the defamatory statements was made (January 8, 2013), countercl. ¶
34, and also alleges to whom the defamatory statements were made (Canalta’s customers, and
mutual customers of CPA and Canalta), countercl. ¶¶ 34-36. Canalta also alleges where the
statements were made (in this district). Countercl. ¶ 37. Given these allegations, the Court does
not find credible CPA’s assertion that Canalta fails to specify with particularity “the who, what,
when and where” of this claim. ECF No. 16 at 9.

5

Mr. Sawchuk moves for dismissal of these claims against him on different grounds, which will
be addressed in Part II.B of this memorandum opinion.
13

It is of no consequence to the Court’s decision that Canalta may not have pleaded specific
facts alleging which forum’s law applies to its defamation claim. As courts in this circuit and
others have recognized, a choice-of-law analysis at the motion-to-dismiss stage is often premature.
See Banner Life Ins. Co. v. Bonney, No. 2:11-cv-198, 2011 WL 6002609, at *5 (E.D. Va. Nov. 29,
2011) (citing North Am. Tech. Svcs., Inc. v. V.J. Techs, Inc., No. 10-cv-1384, 2011 WL 4538069,
at *2 (D. Conn. Sept. 29, 2011) (“Due to the complexity of this analysis when confronted with a
choice of law issue at the motion to dismiss stage, courts . . . have concluded that it is more
appropriate to address the issue at a later stage in the proceedings”) and Clean Earth of Maryland,
Inc. v. Total Safety, Inc., No. 2:10-cv-l19, 2011 WL 1627995, at *2 (N.D. W. Va. Apr. 28, 2011)).
See also Snyder v. Farnam Companies, Inc., 792 F. Supp. 2d 712, 721 (D.N.J. 2011) (deferring
choice of law inquiry at the motion to dismiss stage and applying law of the forum for purposes of
determining whether the plaintiffs’ claim satisfied Rule 12(b)(6)); Cantonis v. Stryker Corp., No.
09-cv-3509, 2010 WL 1084971, at *3-4 (D. Minn. Nov. 23, 2010) (denying motion to dismiss and
finding that a choice-of-law analysis would be premature until discovery is conducted, especially
because discovery may reveal that there is no conflict of law between jurisdictions).
Therefore, the Court concludes that Canalta has satisfied the pleading standard and CPA’s
motion to dismiss Count V of the counterclaim is DENIED.
3.

Count VI: tortious interference

In Count VI of its counterclaims, Canalta charges CPA with tortious interference with
prospective business relations.

Specifically, Canalta alleges that CPA interfered with the

expectancy of Canalta’s business relationships with: (1) clients; and (2) independent
product-testing laboratories. CPA argues that Count VI suffers from the same deficiency as
Count V, with respect to choice-of-law allegations. For the reasons discussed above, however,

14

the Court finds this argument unpersuasive, and will deny the motion to dismiss Claim VI on this
ground. As an additional ground for dismissal of Count VI, CPA argues that the counterclaim
lacks factual allegations supporting the tortious interference claim as it relates to independent
testing laboratories.
In West Virginia,6 a plaintiff alleging tortious interference must show: (1) existence of a
business relationship or expectancy thereof; (2) an intentional act of interference by a party outside
that relationship or expectancy; (3) proof that the interference caused the harm sustained; and (4)
damages. Syl. Pt. 2, Torbett v. Wheeling Dollar Sav. & Trust Co., 314 S.E.2d 166 (W. Va. 1983).
With respect to Canalta’s alleged business expectancy with certain clients, the counterclaim
alleges sufficient facts to state a plausible claim for relief. Canalta alleges that it has a business
relationship, and an expectancy of such a relationship, with customers who purchase flow
conditioners. Countercl. ¶¶ 34-36. Moreover, Canalta alleges that CPA contacted Canalta
customers via written letter. Countercl. ¶ 34; ECF No. 9-1. Taking this allegation as true, as the
Court must at this stage, Canalta has sufficiently pleaded a tortious interference claim. CPA’s act
of contacting specific entities with this letter indicates that CPA itself believed that Canalta had an
actual or expected business relationship with the letter recipients. The letter is also an act that, as
alleged, intentionally interferes with that relationship. Canalta has plausibly alleged that as a
result of this letter and other actions by CPA, Canalta has suffered lost sales and profits. Because
Canalta has stated a plausible claim for relief, the Court DENIES CPA’s motion to dismiss Count
VI as it relates to Canalta clients.

6

CPA does not concede that West Virginia law applies to this particular claim. The Court need
not decide that question at this juncture; rather, West Virginia law is applied at this stage only for
the purposes of deciding this motion to dismiss.
15

The Court, however, agrees with CPA that Canalta’s allegations provide an insufficient
basis to sustain a plausible tortious interference claim based on the independent testing laboratory.
Unlike the allegations about CPA’s interference with Canalta customers via a phone and letter
campaign, there are no such factual allegations as to how CPA interfered with a relationship
between Canalta and a testing laboratory. The only relevant factual allegation states: “On
information and belief, CPA has wrongfully interfered with Canalta’s attempts to retain
independent laboratories to test its Contour products by the exercise of its market power.”
Countercl. ¶ 39. Without providing any additional allegations of CPA’s actions or statements to
an independent laboratory, the allegations have not stated a plausible claim for relief on this basis.
See Painter’s Mill Grille, LLC v. Brown, No. 12-1357, 2013 WL 2284874, at *10-11 (4th Cir. May
24, 2013) (affirming dismissal of tortious interference claims where there were no factual
allegations regarding how the defendants effected the alleged interference). Accordingly, the
Court GRANTS in part CPA’s motion and dismisses Count VI of Canalta’s Counterclaim, only
to the extent that it asserts tortious interference of a business relationship with any testing
laboratory. Canalta may proceed with Count VI based upon tortious interference of a business
relationship with clients.
B.

Defendant Sawchuk’s Motion to Dismiss
Counterclaim Defendant Sawchuk, a resident and citizen of Canada, appeared specially to

move for dismissal of the counterclaims against him for lack of personal jurisdiction, pursuant to
Federal Rule of Civil Procedure 12(b)(2). Mr. Sawchuk argues that the Court lacks jurisdiction
because he has insufficient contacts with West Virginia. For the reasons discussed below, the
Court disagrees and finds that Canalta has established a prima facie case of jurisdiction to survive
this motion to dismiss.

16

1.

Legal standards

When a defendant seeks dismissal of a claim for lack of personal jurisdiction, the plaintiff
bears the burden to prove the grounds for jurisdiction by a preponderance of the evidence. Mylan
Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993). An evidentiary hearing, however, is not
required; where a district court “decides a pretrial personal jurisdiction dismissal motion without
an evidentiary hearing, the plaintiff need prove only a prima facie case of personal jurisdiction.”
Id. (citing Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989)). In deciding whether a plaintiff
has proved a prima facie case of personal jurisdiction, the court must “draw all reasonable
inferences arising from the proof, and resolve all factual disputes, in the plaintiff’s favor.” Id.
(citations omitted). Of course, “[a] threshold prima facie finding that personal jurisdiction is
proper does not finally settle the issue; plaintiff must eventually prove the existence of personal
jurisdiction by a preponderance of the evidence, either at trial or at a pretrial evidentiary hearing.”
New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 294 (4th Cir. 2005)
(quoting Prod. Grp. Int’l v. Goldman, 337 F. Supp. 2d 788, 793 n.2 (E.D. Va. 2004) (citation
omitted)).
A federal district court may only exercise personal jurisdiction over a nonresident
defendant if: (1) such jurisdiction is authorized by the long-arm statute of the state in which it sits;
and (2) the exercise of personal jurisdiction would be consistent with the Due Process Clause of
the Fourteenth Amendment. See Consulting Engineers Corp. v. Geometric Ltd., 561 F.3d 273,
277 (4th Cir. 2009); Mitrano v. Hawes, 377 F.3d 402, 407 (4th Cir. 2004); English & Smith v.
Metzger, 901 F.2d 36, 38 (4th Cir. 1990). West Virginia’s long-arm statute provides that West
Virginia courts may exercise personal jurisdiction over nonresidents who engage in, inter alia:
(1) Transacting any business in this state;
(2) Contracting to supply services or things in this state;
17

* * *
(4) Causing tortious injury in this state by an act or omission outside this state if he
or she 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.7
W. Va. Code § 56-3-33(a). Because West Virginia’s long-arm statute is co-extensive with the
constitutional reach, the two inquiries merge into one—whether exercising personal jurisdiction
over the defendant is consistent with the Due Process Clause. In re Celotex Corp., 124 F.3d 619,
627-28 (4th Cir. 1997).
The exercise of personal jurisdiction does not offend the Due Process Clause if the
defendant has sufficient “minimum contacts” with the forum such that requiring the defendant to
defend his interests there does not “offend traditional notions of fair play and substantial justice.”
Id. at 628 (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted)).
Even if a defendant lacks the quantity and nature of contacts with the state that would subject him
to a court’s general jurisdiction (that is, jurisdiction over the defendant for any cause of action), a
court may nonetheless exercise specific jurisdiction over a defendant if the defendant’s contacts
with the forum provided the basis for the suit. See Mitrano, 377 F.3d at 406-07; Carefirst of Md.,
Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 397 (4th Cir. 2003). In determining whether
specific jurisdiction exists, a court should consider: (1) the extent to which the defendant has
purposefully availed himself 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
7

Specifically, W. Va. Code § 56-3-33 names the Secretary of State as attorney-in-fact for a
nonresident defendant who has committed one of the enumerated statutory acts. The Secretary of
State’s acceptance of service is the legal equivalent of personally serving that nonresident in the
state. “By statutory design, compliance with the service of process procedures set forth in West
Virginia Code § 56-3-33 expressly authorizes the exercise of personal jurisdiction over
nonresident defendants by the courts of this state.” Leslie Equip. Co. v. Wood Res. Co., LLC, 687
S.E.2d 109, 115 (W. Va. 2009).
18

personal jurisdiction would be constitutionally reasonable. ALS Scan, Inc. v. Digital Serv.
Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002).

The Fourth Circuit explained this

“reasonable” factor in Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”,
283 F.3d 208 (4th Cir. 2002):
Overall, courts “must consider the burden on the defendant, the interests of the
forum State, and the plaintiff’s interest in obtaining relief” when determining
whether the exercise of jurisdiction is reasonable in any given case. Asahi Metal
Indus. Co. v. Superior Court, 480 U.S. 102, 113, 107 S. Ct. 1026, 94 L. Ed. 2d 92
(1987). And “[t]he unique burdens placed upon one who must defend oneself in a
foreign legal system should have significant weight in assessing the reasonableness
of stretching the long arm of personal jurisdiction over national borders.” Id. at
114, 107 S. Ct. 1026. But, “[w]hen minimum contacts have been established,
often the interests of the plaintiff and the forum in the exercise of jurisdiction will
justify even the serious burdens placed on the alien defendant.” Id.
Base Metal Trading, 283 F.3d at 213-14.
With these standards in mind, the Court will now turn to the parties’ arguments.
2.

Mr. Sawchuk’s contacts with the forum

The parties agree that Mr. Sawchuk is a citizen and resident of Canada. Canalta argues,
however, that this Court has specific personal jurisdiction over him, because Mr. Sawchuk signed
a defamatory letter that was sent to actual or potential Canalta customers in West Virginia, and
directed other oral defamatory statements to customers here. Because Canalta’s claim against
Mr. Sawchuk for defamation arises from Mr. Sawchuk’s alleged contacts with the state, Canalta
contends that personal jurisdiction exists in this case.
The Court finds it necessary to first address Mr. Sawchuk’s argument that the counterclaim
lacks sufficient factual allegations or proof tying him to the defamatory conduct directed towards
West Virginia. The allegations supporting Canalta’s counterclaim for defamation appear in
paragraphs 34 through 38 and 59 through 64. Paragraph 34 alleges that “CPA has contacted
certain of Canalta’s customers, both by phone and in writing, making false and slanderous
19

allegations about Canalta.” Countercl. ¶ 34. That same paragraph also states that “a true and
correct copy of one such letter from CPA to its customers dated January 8, 2013, is attached as
Exhibit ‘B’ hereto.” Countercl. ¶ 34. Exhibit B is a letter, dated January 8, 2013, printed on
CPA letterhead. It is addressed “Dear Valued Customer” and states in part that Canalta “is
marketing and selling counterfeit flow conditioners.” ECF No. 9-1. The letter continues, stating
that “Canalta falsely claims that the extensive test data generated for the CPA 50E flow
conditioner is applicable to the CONTOUR 50 perforated plate” and “[Canalta] has used
nomenclature for its perforated plate that is confusingly similar to CPA’s registered trademarks.”
Countercl. Ex. B, ECF No. 9-1. The letter claims that the “CPA 50E test data is applicable only to
the CPA 50E flow conditioner manufactured by CPA.” ECF No. 9-1. The letter also notifies the
customer that CPA “filed a lawsuit in the United States District Court for the Southern District of
West Virginia to vindicate [its] rights.” ECF No. 9-1. Finally, the letter purports to be signed by
Dale Sawchuk, President. ECF No. 9-1.
Paragraph 36 of the counterclaims alleges that CPA “falsely represented to its customers
that Canalta is going bankrupt.” Countercl. ¶ 36. The next paragraph states:
On information and belief, one or more letters containing defamatory information
as described in paragraph 36 hereof were signed by Defendant Sawchuk and sent to
third parties in this District and/or Defendant Sawchuk made defamatory oral
statements to third parties in this District, all which have damaged Canalta in this
District.
Countercl. ¶ 37. Mr. Sawchuk argues that paragraph 37 is the only factual allegation tying him to
the defamation claim, and this paragraph alleges that Mr. Sawchuk signed letters containing
defamatory information as described in paragraph 36 (alleging that CPA made false
representations that Canalta is going bankrupt). Mr. Sawchuk concludes that because Canalta has

20

produced no proof or evidence that he signed a letter making false representations that Canalta is
going bankrupt, Canalta has not satisfied its burden of proving personal jurisdiction.
Mr. Sawchuk’s argument appears to follow from a deliberately constrained reading of
Canalta’s counterclaims. It is clear to the Court that paragraph 37’s reference to paragraph 36
was a typographical error, and it should have referred instead to paragraph 34, which describes the
content of the letter signed by Mr. Sawchuk. This is plain from the surrounding allegations, and
most importantly, the attachment of the letter signed by Mr. Sawchuk himself. Under Mr.
Sawchuk’s reading of the counterclaims, the letter, signed by him, would serve to support the
defamation claim against CPA but not the claim against Mr. Sawchuk himself. That is not a
reasonable construction of the counterclaims.

Therefore, the Court rejects Mr. Sawchuk’s

argument that the attached letter should not be considered as a factual allegation supporting the
Court’s personal jurisdiction over him. Moreover, in an affidavit attached to his reply brief, Mr.
Sawchuk denies only making oral and written statements alleging that Canalta was going
bankrupt. He does not deny in the affidavit that he signed the letter attached to the counterclaim,
or that it was sent to customers in West Virginia, or that he made certain other defamatory
statements to West Virginia customers, as alleged in the counterclaims.8 Sawchuk Aff., ECF No.
34-1.

Mr. Sawchuk’s affidavit does nothing to controvert the relevant factual allegations

supporting jurisdiction in the complaint, which the Court, in any event, must accept as true at this
stage.
The Court now turns to the dispositive issue: whether Canalta has made a prima facie case
of personal jurisdiction over Mr. Sawchuk.

First, the Court finds that Mr. Sawchuk has

personally availed himself of the privilege of engaging in activities in West Virginia. CPA’s own
8

It also appears to the Court that Mr. Sawchuk’s signature on the affidavit matches the signature
on the letter attached to the counterclaims.
21

complaint describes CPA as a “family owned business,” compl. ¶ 7, and Mr. Sawchuk is the
president of that business who benefits from the company’s success and sales. CPA, with Mr.
Sawchuk at its head, sells its flow conditioners to customers in West Virginia. Count V of CPA’s
own complaint charges Canalta with West Virginia common law claims of unfair competition and
passing off, for damages that CPA allegedly suffered in lost sales in West Virginia. Compl. ¶¶
67-71. Not only has the company availed itself of commercial opportunities in West Virginia, but
it has also availed itself of the federal judicial resources located here by filing the initial complaint
against Canalta in this district. The letter that was sent to CPA customers, signed by Mr.
Sawchuk, explicitly refers to this litigation: “Once CPA learned of Canalta’s activities, we filed a
lawsuit in the United States District Court for the Southern District of West Virginia to vindicate
our rights.”

ECF No. 9-1 (emphasis added).

Therefore, the Court finds that Canalta’s

defamation claims arise from Mr. Sawchuk’s contacts with West Virginia, because the allegedly
defamatory letter was issued presumably to protect and promote the sales of CPA flow
conditioners in West Virginia.
Finally, the Court finds that the exercise of jurisdiction over Mr. Sawchuk is
constitutionally reasonable. Although Mr. Sawchuk is a foreign counterclaim defendant, there is
no undue burden to requiring him to defend himself in this district, because it was his company that
selected this district to file the initial suit. It certainly should not surprise Mr. Sawchuk to learn
that he may be required to defend himself in this state, especially if the claims are closely related
to—and were filed as a response to—his company’s complaint. Additionally, Canalta, which
also does business in this state, has an interest in pursuing its claim here, where it alleges its
reputation was damaged and where it potentially lost sales. Mr. Sawchuk therefore has sufficient
minimum contacts with West Virginia to support personal jurisdiction here. The burdens placed

22

on this alien defendant in defending himself in this forum are justified, especially where Mr.
Sawchuk’s company initially chose to file suit in West Virginia. The Court concludes that it has
personal jurisdiction over Mr. Sawchuk and DENIES his motion to dismiss.
III.

CONCLUSION

For the reasons discussed above, the Court GRANTS in part and DENIES in part CPA’s
motion to dismiss. CPA’s motion to dismiss Count VI of the counterclaims is granted only to the
extent that Count VI alleges a claim for relief based on tortious interference with independent
testing laboratories. Count VI of the counterclaims may proceed, however, as to the alleged
tortious interference with Canalta clients. CPA’s motion to dismiss Counts II and V of the
counterclaims is DENIED. The Court also DENIES Mr. Sawchuk’s motion to dismiss for lack
of personal jurisdiction. The Court finds that its exercise of personal jurisdiction over Mr.
Sawchuk is proper.
The Court DIRECTS the Clerk to send a copy of this written Opinion and Order to counsel
of record and any unrepresented parties.

ENTER:

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June 25, 2013