Baumann Farms, LLP et al v. Yin Wall City Inc et al
Filing
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ORDER signed by Magistrate Judge William E Duffin on 11/29/16. IT IS THEREFORE ORDERED that defendants' motion to dismiss (ECF No. 11 ) is denied. Defendant shall answer or otherwise respond to plaintiffs' complaint no later than December 13, 2016. (cc: all counsel) (mlm)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
BAUMANN FARMS, LLP
a Wisconsin limited liability partnership;
GLENN HEIER; and AARON KAISER,
Plaintiffs,
v.
Case No. 16-CV-605
YIN WALL CITY, INC., an Illinois corporation;
SUT I. FONG; CHOENG SAT O;
YIN WALL CITY, INC., a Texas corporation; and
YIN WALL CITY, DALLAS, INC., a Texas corporation,
Defendants.
ORDER ON DEFENDANTS’ MOTION TO DISMISS
Defendants Yin Wall City, Inc. (an Illinois Corporation), Sut I. Fong, Choeng Sat
O, Yin Wall City, Inc. (a Texas corporation), and Yin Wall City, Dallas, Inc. (a Texas
corporation) (all collectively referred to herein as “YWC”) move to dismiss the class
action complaint of plaintiffs Baumann Farms, LLP (a Wisconsin limited liability
partnership), Glenn Heier, and Aaron Kaiser (collectively “Baumann”). (ECF No. 11.)
Having the consent of the parties (ECF Nos. 2, 10), the matter is briefed and ready for
resolution.
I.
Background
This case involves ginseng root, a root cultivated in Asia and North America that
is associated with certain medicinal effects that sooth the recipient. 1 According to
Baumann’s complaint, Wisconsin-grown ginseng root sells at a premium of two and
one-half to three and one-half times the price of ginseng root grown elsewhere. (ECF
No. 1, at 2.) This demand is driven by Wisconsin-grown ginseng’s purity and high
levels of the medicinally active ingredient, ginsenocide. 2 (ECF No. 1 at 2.) Given the
demand, there have been reports of U.S. wholesalers and retailers importing bulk
ginseng from outside the United States and packaging it as “grown in Wisconsin” so as
to obtain a higher price. 3
Baumann filed this class action lawsuit alleging that the YWC defendants
engaged in precisely such behavior: YWC imported and repackaged in-bulk (as
opposed to pre-packaged) ginseng root from China and sold it as ginseng grown in
Wisconsin. (ECF No. 1, ¶ 6.) The complaint alleges that the YWC defendants violated
section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by falsely advertising their
products and engaging in unfair competition.
American ginseng, UNIVERSITY OF MARYLAND MEDICAL CENTER,
https://umm.edu/health/medical/altmed/herb/american-ginseng (last visited Nov. 14, 2016).
2 Why Wisconsin Ginseng?, GINSENG BOARD OF WISCONSIN, http://www.ginsengboard.com/pages/servicestyle-1/ (last visited Nov. 14, 2016).
3 Frank Shyong, American ginseng has a loyal Chinese clientele, LA TIMES,
http://www.latimes.com/local/california/la-me-adv-ginseng-american-20150301-story.html (Feb. 28, 2015).
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YWC’s motion to dismiss challenges this court’s jurisdiction. It sets forth two
grounds for dismissal: (1) this court cannot establish either general or specific personal
jurisdiction over YWC, and (2) Baumann has not plausibly pled the requisite amount in
controversy for this court to exercise subject matter jurisdiction over this class action.
YWC further moves for dismissal of the non-corporate defendants (Fong and Sat O).
Lastly, YWC argues that, as a non-class action, none of the plaintiffs have demonstrated
entitlement to any damages as stand-alone plaintiffs.
YWC previously was sued by the Ginseng Board of Wisconsin in the Northern
District of Illinois for the same underlying conduct. (ECF No. 11 at 3.) 4 That lawsuit was
dismissed with prejudice on July 27, 2016. (ECF No. 13-1, Exh. B.) Nevertheless,
plaintiffs possess certain information as a result of that suit which they reference in
arguing for personal jurisdiction and meeting the amount in controversy requirement.
II.
Personal Jurisdiction
a. Jurisdictional Facts
Through a declaration by defendant Sat O, all defendants avow that they do not:
(a) reside in Wisconsin; (b) maintain any office in Wisconsin; (c) own or lease any real
estate in Wisconsin; (d) maintain any bank accounts in Wisconsin; (e) have any personal
property in Wisconsin; (f) have any telephone listings in Wisconsin; (g) are licensed to
do business in Wisconsin; (h) maintain any active website enabling purchase of
That action was styled Ginseng Board of Wisconsin, Inc. v. Yin Wall City, Inc. et al., No. 1:15-cv-04057 (N.D.
Ill. 2015).
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products by any persons in Wisconsin or elsewhere; (i) sell any product in Wisconsin,
by order over the telephone or otherwise; (j) ship any products into the State of
Wisconsin; or (k) target Wisconsin as a market for ginseng products they package for
resale, by advertising, marketing, or otherwise. (ECF No. 12, at 1-2, ¶ 3.) Sat O’s
declaration further states:
The only transaction that the YWC Defendants have had with a Wisconsin entity
is the purchase of prepackaged ginseng from Hsu’s Ginseng Enterprises Inc. of
Wasusau, WI, which product was resold in the YWC Defendants’ retail stores
without any modification. This product is not the subject of any allegations by
Plaintiffs in this lawsuit.
(ECF No. 12, at 2, ¶ 5.)
Contradicting Sat O’s declaration that the only transaction the YWC Defendants
have had with a Wisconsin entity was the purchase of prepackaged ginseng from Hsu’s
Ginseng (“Hsu’s”), Baumann presents an invoice showing that YWC purchased
$45,000.00 worth of bulk ginseng from “Grandco Inc.”– a company operating in
Wausau, Wisconsin—in June 2015. (ECF No. 16-4.) Baumann also provides invoices
between YWC and Hsu’s that show that YWC purchased ginseng from Hsu’s several
times per year between 2008 and 2015, for a total of approximately 31 interactions. 5
(ECF No. 16-3.)
In reply, YWC admits that its contacts with Wisconsin do indeed include the
purchase of bulk ginseng from Grandco, Inc. YWC does not say whether the June 2015
Several of the invoices submitted as part of Exhibit C were virtually illegible, making determining the
exact number of transactions difficult. See e.g. ECF No. 16-3 at 7, 19.
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purchase evidenced by the invoice submitted by Baumann was the only transaction
between YWC and Grandco, Inc. or only one of many. Regardless, that admission in the
reply brief is in conflict with Sat O’s declaration.
b. Legal Background
When challenged by a defendant, the plaintiff bears the burden of establishing
personal jurisdiction. N. Grain Mktg., LLC. v. Greving, 743 F.3d 487, 491 (7th Cir. 2014).
Where no evidentiary hearing is held, “the plaintiff need only make out a prima facie
case of personal jurisdiction.” Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d
773, 782 (7th Cir. 2003) (emphasis in original). “In evaluating whether the prima facie
showing has been satisfied, the plaintiff ‘is entitled to the resolution in its favor of all
disputes concerning relevant facts presented in the record.’” Id. (quoting Nelson v. Park
Indus., Inc., 717 F.2d 1120, 1123 (7th Cir. 1983)).
With that in mind, the question of personal jurisdiction begins with the laws of
the state in which the federal district court sits. Daimler AG v. Bauman, 134 S. Ct. 746, 753
(2014) (“Federal courts ordinarily follow state law in determining the bounds of their
jurisdiction over persons.”); see also Fed. R. Civ. P. 4(k)(1)(A). “Under Wisconsin law, the
jurisdictional question has two components. First, the plaintiff must establish that the
defendants come within the grasp of the Wisconsin long arm statute.” Steel Warehouse of
Wisconsin, Inc. v. Leach, 154 F.3d 712, 714 (7th Cir. 1998). “If the plaintiff is successful, the
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burden switches to the defendants to show that jurisdiction would violate due process.”
Id.
The defendants do not dispute that they come within the grasp of the Wisconsin
long-arm statute. “Then, because Wisconsin presumes its long-arm statute merely
codifies the federal due process requirements, the burden switches to [defendant] to
show that jurisdiction would nonetheless violate due process.” Logan Prod., Inc. v.
Optibase, Inc., 103 F.3d 49, 52 (7th Cir. 1996) (citing Lincoln v. Seawright, 104 Wis. 2d 4, 10,
310 N.W.2d 596, 599 (1981) (“Sec. 801.05 was drafted to attempt to codify the minimum
contacts sufficient to comport with a defendant’s right to due process.”))
Turning to the due process inquiry, the Supreme Court in International Shoe v.
Washington held that a defendant must “have certain minimum contacts with [the forum
state] such that the maintenance of the suit does not offend ‘traditional notions of fair
play and substantial justice.’” 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311
U.S. 457, 463 (1940)). “The ‘quality and nature’ of an interstate transaction may
sometimes be so ‘random,’ ‘fortuitous,’ or ‘attenuated’ that it cannot fairly be said that
the potential defendant ‘should reasonably anticipate being haled into court’ in another
jurisdiction.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 486 (1985) (quoting WorldWide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).
Subsequent interpretation of International Shoe has split personal jurisdiction into
two categories – general and specific—under either of which a court may assert
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personal jurisdiction over a defendant. Daimler AG, 134 S. Ct. at 754. General—or “all
purpose” – jurisdiction exists when the defendant’s contacts with the forum state are so
“continuous and systematic” as to render it essentially at home in the forum state. Id.
(quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). “The
threshold for general jurisdiction is high; the contacts must be sufficiently extensive and
pervasive to approximate physical presence.” Tamburo v. Dworkin, 601 F.3d 693, 701 (7th
Cir. 2010). “For an individual, the paradigm forum for the exercise of general
jurisdiction is the individual’s domicile; for a corporation it is an equivalent place, one
in which the corporation is fairly regarded as at home.” Goodyear, 564 U.S. at 924.
Importantly for present purposes, the Supreme Court has long ascribed to the notion
that “[m]ere purchases, even if occurring at regular intervals, are not enough to warrant
a State’s assertion of in personam jurisdiction over a nonresident corporation in a cause
of action not related to those purchase transactions.” Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 418 (1984) (citing Rosenberg Bros. & Co. v. Curtis Brown Co., 260
U.S. 516, 518 (1923)).
Specific jurisdiction, on the other hand, “depends on an ‘affiliatio[n] between the
forum and the underlying controversy.’” Walden v. Fiore, 134 S. Ct. 1115, 1125 n. 6 (2014)
(quoting Goodyear, 564 U.S. at 919). In Walden, the Supreme Court expounded upon the
“minimum contacts” needed for specific jurisdiction: due process requires that (1) “the
relationship must arise out of contacts that the ‘defendant himself’ creates with the
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forum State” and (2) the defendant’s contact must be “with the forum State itself, not
the defendant’s contacts with persons who reside there.” Walden, 134 S. Ct. at 1122
(emphasis in original). “For a State to exercise jurisdiction consistent with due process,
the defendant’s suit-related conduct must create a substantial connection with the
forum state.” Id. Specific jurisdiction is case-linked; non-suit related activities in the
forum state cannot be used to satisfy the “minimum contacts” necessary for specific
jurisdiction. See Advanced Tactical Ordinance Sys. LLC, v. Real Action Paintball, 751 F.3d
796, 801 (7th Cir. 2014).
Baumann’s complaint alleges an intentional tort under the Lanham Act. In that
context the Supreme Court has said:
In [the intentional tort] context, it is likewise insufficient to rely on a defendant’s
‘random, fortuitous, or attenuated contacts’ or on the ‘unilateral activity’ of a
plaintiff. A forum State’s exercise of jurisdiction over an out-of-state intentional
tortfeasor must be based on intentional conduct by the defendant that creates the
necessary contacts with the forum.
Walden, 134 S. Ct. at 1123. Further, a “mere injury to a forum resident is not a sufficient
connection to the forum.” Id. at 1125.
c. General Personal Jurisdiction
The YWC defendants argue that their relatively few purchases of ginseng from
Wisconsin should not be considered the “continuous and systematic general business
contacts” needed to subject it to the general personal jurisdiction of this state. See Steel
Warehouse of Wisconsin, 154 F.3d at 714 (7th Cir. 1998). The YWC defendants do not
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target Wisconsin for any of their sales, and merely purchasing some of their ginseng
from Wisconsin does not subject YWC to the general personal jurisdiction of Wisconsin.
Baumann responds that the YWC defendants do have continuous and systematic
contacts with Wisconsin sufficient to establish general personal jurisdiction over them.
Baumann argues that defendants “have relied and depended upon Wisconsin’s
transportation and communications infrastructure, laws and law enforcement, and
overall civil society in entering into these purchase transactions over nearly a decade.”
(ECF No. 14, at 11.)
The court cannot conclude that the YWC defendants are subject to the general
personal jurisdiction of this court. Baumann alleges that YWC has made approximately
thirty-two purchases over an eight-year span from companies in Wisconsin. Such a
relatively small number of purchases over an eight year period is not “sufficiently
extensive and pervasive to approximate physical presence.” Tamburo, 601 F.3d at 701.
“[M]ere purchases . . . are not enough to warrant a State’s assertion of in personam
jurisdiction . . . in a cause of action not related to those purchase transactions.”
Helicopteros, 466 U.S. 408, 418. Therefore, YWC has shown that exercising general
personal jurisdiction over them in Wisconsin would violate their right to due process.
Thus, if this court has personal jurisdiction over the YWC defendants, it must be
because they are subject to specific personal jurisdiction on the basis of their conduct as
alleged in this lawsuit.
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d. Specific Personal Jurisdiction
As for specific personal jurisdiction, the YWC defendants argue they have no
jurisdictionally relevant contact with Wisconsin. At issue here is bulk ginseng that was
allegedly imported from China and repackaged for sale at YWC’s non-Wisconsin
locations. Neither the importation nor repackaging occurred in Wisconsin. And the
contacts that YWC does have with Wisconsin are not involved in this lawsuit. From
Hsus’s, YWC purchased only pre-packaged ginseng, not bulk ginseng. (ECF No. 12, at 2, ¶
5). From Grandco, Inc., the ginseng purchased was Wisconsin-grown bulk ginseng, not
the Chinese ginseng that is the subject of the complaint. Therefore, YWC is not subject
to the specific personal jurisdiction of Wisconsin. See Advanced Tactical, 751 F.3d at 801.
Baumann argues that specific personal jurisdiction does exist over the YWC
defendants. YWC purchased $45,000 of bulk ginseng from Grandco, Inc. in June of 2015.
“[G]iven the fact that Grandco’s invoice (evidencing a sale valued in excess of $45,000),
had terms of ‘net 90 days,’ one can surmise that this was not the parties’ first business
transaction.” (ECF No. 14, at 12, n. 24.) And since the purchase, repackaging, and sale of
bulk ginseng forms the factual underpinnings of Baumann’s claims, this court has
specific jurisdiction.
Baumann argues that specific personal jurisdiction also exists by virtue of the
YWC defendants’ intentionally mislabeling their ginseng as grown in Wisconsin. See
Calder v. Jones, 465 U.S. 478 (1984); Walden v. Fiore, 134 S. Ct. 1115 (2014). This intentional
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conduct was expressly aimed at harming Wisconsin ginseng growers by disrupting the
market for Wisconsin ginseng, both by increasing its supply and by substituting an
inferior product into the market. Because YWC targeted Wisconsin’s ginseng farmers,
there is specific jurisdiction over YWC in Wisconsin.
YWC can hardly argue that litigation in Wisconsin would be “random,
fortuitous, or attenuated” or based solely on “the unilateral action of the plaintiffs.”
Walden, 134 S. Ct. at 1123 (citing Burger King, 471 U.S. at 475). It was the YWC
defendants that placed the name of the forum—“Wisconsin”—on their boxes. In doing
so they intentionally sought to exploit the sales boost that comes from ginseng
supposedly grown in Wisconsin. These actions involve the forum, not merely the
individual plaintiffs. See Walden, 134 S. Ct. 1125. Wisconsin, in fact, was the particular
forum that YWC intended its products to be associated with. Nothing about litigation in
Wisconsin, then, can be considered random. Considered as a whole, it is clear that
YWC created sufficient minimum contacts with Wisconsin for purposes of specific
personal jurisdiction.
Moreover, asserting specific personal jurisdiction here comports with the “fair
play and substantial justice” standards laid down by International Shoe. The YWC
defendants should have anticipated facing a lawsuit in Wisconsin when they falsely
branded their products as originating from here. The court finds that it has specific
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personal jurisdiction over the YWC defendants. Their motion to dismiss on this basis is
denied.
III.
Subject Matter Jurisdiction
The Class Action Fairness Act of 2005 (“CAFA”) amended the diversity statute to
expand the availability of diversity jurisdiction for class action lawsuits. See S. Rep. No.
109-14, at 5 (2005) (“[T]his bill (a) amends section 1332 to allow federal courts to hear
more interstate class actions on a diversity jurisdiction basis…”). Thus, federal courts
have original jurisdiction over class actions between parties with minimal diversity of
citizenship in which the amount in controversy exceeds the sum or value of $5,000,000.
28 U.S.C. § 1332(d); see also Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 679
(7th Cir. 2006).
The YWC defendants contend that, in order for this court to have subject matter
jurisdiction over this purported class action, the amount in controversy must be at least
$5,000,000 as required by 28 U.S.C. § 1332(d). They contend that Baumann’s allegation
that the matter in controversy exceeds $5,000,000 is implausible given the volume of the
YWC defendants’ sales.
The problem with the defendants’ argument is that this case was not brought
solely on the basis of diversity of citizenship, at least not according to the complaint.
Baumann’s complaint alleges:
The court has original subject matter jurisdiction in this action pursuant to 28
U.S.C. § 1331 and 15 U.S.C. § 1121(a) as this action arises under the Federal
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Trademark Act, 15 U.S.C. § 105, et seq. The Court also has subject matter
jurisdiction over this putative class action pursuant to 28 U.S.C. § 1332(d), as the
matter in controversy exceeds FIVE MILLION ($5,000,000.00) DOLLARS,
exclusive of interest and costs, and this matter is a class action in which the
putative class members are all citizens of states other than Defendants’ states of
citizenships.
(ECF No. 1 at 3, ¶ 7) (emphasis added). The defendants do not challenge the federal
question jurisdiction of this court, nor could they, since federal courts “have original
jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the
United States.” 28 U.S.C. § 1331.
28 U.S.C. §§ 1331 and 1332(d) set forth distinct, independent grounds for federal
court jurisdiction. See Air China, Ltd. v. Kopf, 472 F.App’x 45, 47-48 (2d Cir. 2012)
(challenge to diversity subject matter jurisdiction “utterly meritless because federal
question jurisdiction existed with respect to the RICO claim asserted against the
defendants…”); Hawaii ex rel Louie v. HSBC Bank Nevada, N.A., 761 F.3d 1027, 1038-1039
(9th Cir. 2014) (discussing whether CAFA provides “an alternative basis for jurisdiction”
apart from 28 U.S.C. § 1331) (emphasis added)); In re Anthem, Inc., 2015 WL 5286992, *3
(N.D. Cal. Sept. 9, 2015) (having found subject matter jurisdiction under ERISA, the
Court “need not address the independent question[] of whether diversity jurisdiction
exists under CAFA”). CAFA did nothing to override federal jurisdiction grounded on a
federal question. see Blevins v. Aksut, No. 15-00120, 2015 WL 10557923, *3 (S.D. Ala.,
Nov. 17, 2015) (“[N]o authority suggest[s] that Congress intended to annul federal
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question subject matter jurisdiction under § 1331 in cases in which CAFA would also
apply, and this Court has found no such authority.”).
Since it is undisputed that federal question jurisdiction exists under § 1331, the
court need not decide whether Baumann has plausibly pled the $5,000,000.00 required
by § 1332(d). YWC’s motion to dismiss for lack of subject matter jurisdiction is denied.
IV.
Non-corporate Defendants’ Personal Liability
Lastly, the YWC defendants move to dismiss defendants Fong and Sat O from
the lawsuit. Fong and Sat O are principal officers who together “manage the business
affairs” of each of the corporate defendants. (ECF No. 12, ¶ 2.)
“General corporation law is clear that personal liability for a corporation’s debts
cannot be imposed on a person merely because he is an officer, shareholder, and
incorporator of that corporation.” Musikiwanba v. ESSI, Inc., 760 F.2d 740, 753 (7th Cir.
1985). However, in the context of Lanham Act litigation, “[a]n individual can be jointly
liable for a company’s infringing conduct.” Microsoft Corp. v. Rechanik, 249 F.App’x 476,
478 (7th Cir. 2007). In Rechanik, the Court of Appeals for the Seventh Circuit noted that
“Microsoft’s undisputed evidence showed that Rechanik intentionally encouraged Era
Soft’s infringement; thus he is personally liable as a contributor.” Id. “[A] corporate
officer will be held personally liable for trademark infringement and unfair competition
if the officer is a moving, active force behind the corporation’s infringement.” Dynamic
Force, LLC v. Dynamic Force, Ltd., 98 C 5922, 1999 WL 342407, at *4 (N.D. Ill. May 14,
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1999); see also Comm. for Idaho’s High Desert, Inc., 92 F.3d 814, 823 (9th Cir. 1996) (“[a]
corporate officer or director is, in general, personally liable for all torts which he
authorizes or directs or in which he participates, notwithstanding that he acted as an
agent of the corporation and not on his own behalf.”).
Baumann has sufficiently stated that Fong and Sat O authorized, directed, and or
participated in the alleged Lanham Act violations. Baumann alleges that Fong and Sat O
supervised the operations of YWC, took pecuniary gain from the infringement, and
were “responsible for creating the copy on the packages.” (ECF No. 15-7, at 6-7.) Since
YWC has neither argued nor shown why Baumann is unable to proceed given this case
law, Baumann’s allegations are enough to warrant keeping Fong and Sat O as
individual defendants.
YWC’s motion to dismiss the individual defendants is denied.
Because the court has denied the defendants’ motion on all grounds, the motion
for attorneys’ fees associated with bringing this motion is also denied.
IT IS THEREFORE ORDERED that defendants’ motion to dismiss (ECF No. 11)
is denied. Defendant shall answer or otherwise respond to plaintiffs’ complaint no later
than December 13, 2016.
Dated at Milwaukee, Wisconsin this 29th day of November, 2016.
_________________________
WILLIAM E. DUFFIN
U.S. Magistrate Judge
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