Internet Sale Ruled To Trigger Personal Jurisdiction in Long-Arm Law

A federal appeals court ruled last month that a trademark-infringement action can be brought against an out-of-state employee of an online retailer who sent a bogus handbag to an address in the Bronx, New York City, from a Web site that offered merchandise to New York consumers.

Simone Ubaldelli, a California resident and principal of Queen Bee of Beverly Hills LLC, contended that the fashion company Chlo' could not sue him in New York based on the one-time Internet-based sale of the fake designer purse.

Reversing a judgment of the district court, the U.S. Court of Appeals for the Second Circuit held that Ubaldelli's single act, combined with the fact that Queen Bee had made at least 50 sales of non-Chlo' merchandise to New Yorkers through its online site, gave rise to personal jurisdiction under the state's long-arm statute.

Queen Bee's “additional contacts show that the shipment of a counterfeit Chlo' bag was not, as the district court thought, a 'one-off transaction' ' but rather a part of a larger business plan purposefully directed at New York consumers,” Judge Peter W. Hall wrote in Chlo' v. Queen Bee of Beverly Hills, LLC, 09-3361-cv (available at www.law.com/jsp/nylj/CaseDecisionNY.jsp?id=1202464350736).

In 2005, Chlo' discovered that Queen Bee, an online retail discount designer incorporated in Alabama, was hawking counterfeit copies of the French designer's $1,600 leather handbag on its Web site.

Chlo's law firm, Kalow & Springut, directed a paralegal to place an online order for a Chlo' “Paddington” bag and have the purse sent to her Bronx address.

The bag, which later proved to be phony, arrived with a shipping label bearing the Beverly Hills address of Ubaldelli, one of two principals of Queen Bee.

According to the decision, at least 52 other non-Chlo' items were sent from Queen Bee's Web site to New York consumers.

Chlo' sued Ubaldelli and five other defendants for trademark infringement in New York.

Personal Jurisdiction?

While the suit was stayed against the company, Queen Bee, which filed for bankruptcy, Ubaldelli moved to dismiss the action for lack of personal jurisdiction.

Score one for Ubaldelli: On June 29, 2009, Southern District Judge Richard J. Holwell granted Ubaldelli's motion, finding that “a single Internet-based sale of a counterfeit retail product is insufficient to establish personal jurisdiction over an out-of-state defendant.”

The judge agreed that evidence detailing 52 instances in which Queen Bee shipped merchandise to New York “indicate[d] Queen Bee's purposeful availment of the New York forum for some business activity.”

However, he held that the Web site did not support the exercise of personal jurisdiction because it “did not target New York residents specifically, but made products available for sale to consumers worldwide.”

Second Circuit's Reasoning

But the Second Circuit disagreed, and the volleying would continue with the appeals court lobbing a nexus-based reasoning. After finding that Ubaldelli either shipped or was responsible for the shipment of the bogus Chlo' bag to New York, the Second Circuit reviewed Queen Bee's contacts with the state.

“We think the district court's characterization of Defendants' non-Chlo' sales as constituting purposeful availment of New York only for 'some business activity,' but not for 'the purpose of selling Chlo' handbags ” too narrowly construes the nexus requirement, which merely requires the causes of action to 'relate to' defendant's minimum contacts with the forum,” Judge Hall wrote. (For more on physical-nexus case reasonings, see, “Unconstitutional Burdens,” in this issue, which examines recent state legislature activity on Internet sales tax collection.)

Judge Hall concluded that Queen Bee's New York activities could be imputed to Ubaldelli, who split the profits from the bags sold by Queen Bee, had joint access to the company's bank account and “shared in the decision-making and execution of the purchase and sale of handbags.”

Judge Hall wrote: “Viewed in totality, these contacts sufficiently demonstrate Ubaldelli's purposeful availment of the benefits of transacting business in New York.”

In addition to upholding jurisdiction based on '302(a) of the state's long-arm statute, the Second Circuit found that it did not “offend due process to require Ubaldelli to answer in New York for the consumer confusion allegedly caused there through his purposeful direction of bags into the state.”

Trade Court Weighs in

Judges Reena Raggi and Gregory W. Carman of the U.S. Court of International Trade, sitting by designation, joined the decision.

Milton Springut and Tal S. Benschar, of Kalow & Springut represented Chlo'.

Michael Konopka, who represented Ubaldelli, says that while he is disappointed with the decision, he expects his client will prevail at trial.

David H. Bernstein and Christopher J. Hamilton of Debevoise & Plimpton, as well as Steven B. Pokotilow of Stroock & Stroock & Lavan, and John W. Crittenden of Cooley Godward Kronish, represented the International Trade Association, which submitted an amicus brief on behalf of Chlo'.

“The decision makes clear that online counterfeiters can't avoid jurisdiction by claiming that they are not physically present in New York,” Bernstein said in an interview.

A federal appeals court ruled last month that a trademark-infringement action can be brought against an out-of-state employee of an online retailer who sent a bogus handbag to an address in the Bronx, New York City, from a Web site that offered merchandise to New York consumers.

Simone Ubaldelli, a California resident and principal of Queen Bee of Beverly Hills LLC, contended that the fashion company Chlo' could not sue him in New York based on the one-time Internet-based sale of the fake designer purse.

Reversing a judgment of the district court, the U.S. Court of Appeals for the Second Circuit held that Ubaldelli's single act, combined with the fact that Queen Bee had made at least 50 sales of non-Chlo' merchandise to New Yorkers through its online site, gave rise to personal jurisdiction under the state's long-arm statute.

Queen Bee's “additional contacts show that the shipment of a counterfeit Chlo' bag was not, as the district court thought, a 'one-off transaction' ' but rather a part of a larger business plan purposefully directed at New York consumers,” Judge Peter W. Hall wrote in Chlo' v. Queen Bee of Beverly Hills, LLC, 09-3361-cv (available at www.law.com/jsp/nylj/CaseDecisionNY.jsp?id=1202464350736).

In 2005, Chlo' discovered that Queen Bee, an online retail discount designer incorporated in Alabama, was hawking counterfeit copies of the French designer's $1,600 leather handbag on its Web site.

Chlo's law firm, Kalow & Springut, directed a paralegal to place an online order for a Chlo' “Paddington” bag and have the purse sent to her Bronx address.

The bag, which later proved to be phony, arrived with a shipping label bearing the Beverly Hills address of Ubaldelli, one of two principals of Queen Bee.

According to the decision, at least 52 other non-Chlo' items were sent from Queen Bee's Web site to New York consumers.

Chlo' sued Ubaldelli and five other defendants for trademark infringement in New York.

Personal Jurisdiction?

While the suit was stayed against the company, Queen Bee, which filed for bankruptcy, Ubaldelli moved to dismiss the action for lack of personal jurisdiction.

Score one for Ubaldelli: On June 29, 2009, Southern District Judge Richard J. Holwell granted Ubaldelli's motion, finding that “a single Internet-based sale of a counterfeit retail product is insufficient to establish personal jurisdiction over an out-of-state defendant.”

The judge agreed that evidence detailing 52 instances in which Queen Bee shipped merchandise to New York “indicate[d] Queen Bee's purposeful availment of the New York forum for some business activity.”

However, he held that the Web site did not support the exercise of personal jurisdiction because it “did not target New York residents specifically, but made products available for sale to consumers worldwide.”

Second Circuit's Reasoning

But the Second Circuit disagreed, and the volleying would continue with the appeals court lobbing a nexus-based reasoning. After finding that Ubaldelli either shipped or was responsible for the shipment of the bogus Chlo' bag to New York, the Second Circuit reviewed Queen Bee's contacts with the state.

“We think the district court's characterization of Defendants' non-Chlo' sales as constituting purposeful availment of New York only for 'some business activity,' but not for 'the purpose of selling Chlo' handbags ” too narrowly construes the nexus requirement, which merely requires the causes of action to 'relate to' defendant's minimum contacts with the forum,” Judge Hall wrote. (For more on physical-nexus case reasonings, see, “Unconstitutional Burdens,” in this issue, which examines recent state legislature activity on Internet sales tax collection.)

Judge Hall concluded that Queen Bee's New York activities could be imputed to Ubaldelli, who split the profits from the bags sold by Queen Bee, had joint access to the company's bank account and “shared in the decision-making and execution of the purchase and sale of handbags.”

Judge Hall wrote: “Viewed in totality, these contacts sufficiently demonstrate Ubaldelli's purposeful availment of the benefits of transacting business in New York.”

In addition to upholding jurisdiction based on '302(a) of the state's long-arm statute, the Second Circuit found that it did not “offend due process to require Ubaldelli to answer in New York for the consumer confusion allegedly caused there through his purposeful direction of bags into the state.”

Trade Court Weighs in

Judges Reena Raggi and Gregory W. Carman of the U.S. Court of International Trade, sitting by designation, joined the decision.

Milton Springut and Tal S. Benschar, of Kalow & Springut represented Chlo'.

Michael Konopka, who represented Ubaldelli, says that while he is disappointed with the decision, he expects his client will prevail at trial.

David H. Bernstein and Christopher J. Hamilton of Debevoise & Plimpton, as well as Steven B. Pokotilow of Stroock & Stroock & Lavan, and John W. Crittenden of Cooley Godward Kronish, represented the International Trade Association, which submitted an amicus brief on behalf of Chlo'.

“The decision makes clear that online counterfeiters can't avoid jurisdiction by claiming that they are not physically present in New York,” Bernstein said in an interview.