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Food Sciences Corp. v. Nagler

March 22, 2010

FOOD SCIENCES CORPORATION D/B/A ROBARD CORPORATION, PLAINTIFF,
v.
WILLIAM M. NAGLER, DEFENDANT.



The opinion of the court was delivered by: Simandle, District Judge

OPINION

HON. JEROME B. SIMANDLE

I. INTRODUCTION

This intellectual property matter is before the Court on the motion of Defendant William M. Nagler to dismiss for lack of personal jurisdiction and for failure to state a claim [Docket Item 18]. Defendant also moves, in the alternative, to transfer the case to the US District Court for the Eastern District of Michigan. [Id.] For the reasons set forth below, the Court will exercise jurisdiction and decline to transfer venue, but dismiss the case for failure to state a claim without prejudice to Plaintiff's opportunity to seek leave to file a curative amendment, consistent with this Opinion, to provide a plausible basis for its claims.

II. BACKGROUND

Plaintiff, Food Sciences Corporation doing business as Robard Corporation, brings this lawsuit based on Defendant's practice of selling NUTRIMED dietary food supplements through his website (Dietresults.com) without Plaintiff's authorization. Plaintiff maintains that the sale and administration of NUTRIMED supplements are carefully controlled; they are sold exclusively to medical professionals, who in turn, administer and supervise diet programs and monitor patients using the products. For this reason, Plaintiff does not sell NUTRIMED dietary food supplements over the Internet. Plaintiff argues that Defendant's sale of NUTRIMED products through its website "is likely to cause confusion and deception among customers regarding Robard's sponsorship or approval of said products." (Compl. ¶ 20.) Plaintiff's claims are brought before the Court under 15 U.S.C. § 1114(1) (trademark infringement), § 1125(a) (false designation of origin), and unfair competition under New Jersey law.

Plaintiff is a Nevada corporation with its principal place of business in New Jersey. Defendant resides in the State of Michigan with a residence and principal place of business in Livonia, MI. Defendant argues that a handful of sales of products to customers in New Jersey through an interactive website is an insufficient basis for personal jurisdiction. Defendant also argues that application of the "first sale" doctrine forbids this action because the products re-sold by Defendant were genuine NUTRIMED products. Finally, Defendant argues in the alternative to dismissal that the case should be transferred to Michigan because Defendant resides in that district and it is more convenient for him as the financially weaker party.

III. DISCUSSION

A. Personal Jurisdiction

Federal Rule of Civil Procedure 4(e) allows a district court to assert personal jurisdiction over a non-resident defendant to the extent permitted by the law of the state where the district court sits. See Fed. R. Civ. P. 4(e). Because New Jersey law permits the exercise of jurisdiction to the extent allowed by the Constitution, the question is whether this Court can exercise jurisdiction without offending the Due Process Clause of the Fifth Amendment. Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004).

The Due Process clause requires that Plaintiff establish that the Defendant has "certain 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 v. Washington, 326 U.S. 310, 316 (1945); Pinker v. Roche Holdings Ltd., 292 F.3d 361, 368 (3d Cir. 2002). A plaintiff must show either "that the cause of action arose from the defendant's forum-related activities (specific jurisdiction) or that the defendant has 'continuous and systematic' contacts with the forum state (general jurisdiction)." Mellon Bank (EAST) v. DiVeronica Bros., 983 F.2d 551, 554 (3d Cir. 1993).

In this case, Plaintiff argues that this Court has specific jurisdiction. Because "the mere operation of a commercially interactive web site should not subject the operator to jurisdiction anywhere in the world," Toys "R" Us, Inc. v. Step Two, 318 F.3d 446, 454 (3d Cir. 2003), the exercise of specific jurisdiction in the context of an internet business depends on "the nature and quality of commercial activity that the defendant conducts over the Internet." Spuglio v. Cabaret Lounge, 344 Fed. App'x 724, 725 (3d Cir. 2009) (internal quotation and citations omitted). The Third Circuit Court of Appeals has held that a district court must determine where the website's commercial activity falls on the sliding scale set forth in Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997). Spuglio, 344 Fed. App'x at 725. The court in Spuglio summarized the sliding scale as follows:

On one end of the sliding scale are defendants who actively do business over the Internet. An example would be one who 'enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet.' For such 'active' defendants, the exercise of personal jurisdiction is proper. On the other end of the scale are those who merely make information available on the Internet. The exercise of personal jurisdiction over such 'passive' defendants is improper.

Id. (quoting Zippo, 952 F.Supp. at 1124.) Additionally, "[t]here is also a middle ground between active and passive websites. In the cases that fall in the middle, the proper exercise 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. at 725 n.2 (quoting Zippo, 952 F.Supp. at 1124).

Active websites featuring online purchasing, or middle ground websites that are sufficiently interactive, make the exercise of jurisdiction proper because they involve an entity that intentionally reaches beyond its boundaries to conduct business with foreign residents. Zippo, 952 F.Supp. at 1124 (citing Burger King Corp. v. Rudzewicz 471 U.S. 462, 475 (1985)). In these cases, the touchstone remains this kind of purposeful availment. The Third Circuit Court of Appeals examined this issue at length in Toys "R" Us, Inc. v. Step Two, 318 F.3d 446 (3d Cir. 2003). The court held that in order for a forum to have jurisdiction over a defendant, "there must be evidence that the defendant 'purposefully availed' itself of conducting activity in the forum state, by directly targeting its web site to the state, knowingly interacting with residents of the forum state via its web site, or through sufficient other related contacts." 318 F.3d at 454. This requirement was not met in Toys because there was no targeting and insufficient proof of knowing interaction. The defendant's website was entirely in Spanish, with prices in pesetas or Euros; the website indicated that merchandise could only be shipped to addresses within Spain, with none of the portions of the site designed to accommodate addresses within the United States; the only documented sales to persons in the United States were the two contacts orchestrated by plaintiff; and the items were shipped to Spanish addresses. Id. at 454. Distinguishing Zippo, the Toys court noted:

In Zippo, the defendant had purposefully availed itself of doing business in Pennsylvania when it repeatedly and consciously chose to process Pennsylvania residents applications and to assign them passwords, knowing that the contacts would result in business relationships with Pennsylvania customers. The court summarized the pivotal importance of intentionality as follows: "When a defendant makes a conscious choice to conduct business with the residents of a forum state, it has clear notice that it is subject to suit there. If the ...


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