25 January 2006

A Notable Long Arm Jurisdiction Case

When can a Louisiana company sue a Colorado company for violations of federal law, in a federal court in Louisiana? This is the question posed by Luv'n Care, Ltd. v. Insta-Mix, Inc. decided today in the 5th Circuit Court of Appeal.

The facts are not very unusual, and I've litigated similar issues many times. The Colorado Company, Insta-Mix, makes baby bottles in Colorado Springs, Colorado, where it delivers them to Wal-Mart trucks. The Wal-Mart trucks take the bottles to Wal-Marts all over the country. The court found that Insta-Mix knew that some of those bottles were going to end up in Louisiana (in fact it was a little under 5% of them), despite Insta-Mix's claim to the contrary, based on invoices showing an Louisiana destination which it received (it claimed it didn't care where they were going and so didn't look). Since everyone knows that Wal-Mart does business all over the country, the "I had no idea where my product was going" defense is pretty hard to make. A Louisiana company, Luv'n Care, claims that those bottle designs violate its copyrights and trademarks pursuant to federal law.

No one disputes this case belongs in federal court. It isn't widely known, but well established rule is that U.S. District Courts have no greater jurisdiction over out of state parties, as a general rule, than the state courts in the state where they sit. No one disputed that the only contact that Insta-Mix had with Louisiana was selling bottles to Wal-Mart when it knew that some of them were likely to end up in Louisiana. Under what is called the "stream of commerce" theory of jurisdiction adopted in the 5th Circuit Court of Appeals, as long as the suit has something to do with the bottles, this is good enough. The 4th Circuit Court of Appeals has a different rule called "stream of commerce plus" which requires some connection stronger than a mere knowledge that your products are likely to end up in a state. So, the Colorado company lost.

This case is attracting wider attention because 5th Circuit Judge DeMoss in a concurring opinion, noted the circuit split, said that the 5th Circuit rule is a bad one (on federalism grounds), and urged the losing Colorado company to take their case to the U.S. Supreme Court. Judge DeMoss also appropriately notes that the U.S. Supreme Court sewed the seeds of the current circuit split in 1987 when it decided Asahi Metal Industry Co. v . Superior Court, 480 U.S. 102, without a majority opinion (agreeing unanimously, but only, on a result), and that some courts had followed Justice O'Connor's reasoning, "stream of commerce plus" (to which four Justices agreed), while others followed Justice Brennan's reasoning "stream of commerce" (to which four Justices agreed), and perhaps some Courts even followed Justice Steven's own unique reasoning (neither of the above).

One interesting question is whether the Colorado company should follow the judge's advice and seek U.S. Supreme Court review. It probably isn't in their economic interest to do so.

They could still end up having the case transferred to Colorado, because the law makes a distinction between personal jurisdiction (which court is allowed to hear this case involving these parties) and venue (which court of those that are allowed to hear this case will actually get to do so). Since the trial court found that the Louisiana federal court didn't have jurisdiction over the Colorado defendant (a decision which was reversed) it didn't reach the issue of venue. It is entirely possible that the trial court will still find that the case needs to go to Colorado on venue grounds. Colorado is the only proper venue in this case for a copyright suit, standing alone, under 28 USC 1400. A trademark suit may be brought outside of Colorado in this case only if Louisiana is "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated.", 28 USC Section 1391(b)(2), which is a close question itself. The statute itself also doesn't address what to do in cases where two kinds of claims are present in the same lawsuit and are subject to conflicting venue provisions. And the Louisiana federal trial court can also send the case to Colorado for "the convenience of parties and witnesses, in the interest of justice," 28 USC Section 1404(a), thus avoiding the mixed type of case issue it would have to consider otherwise, and could probably be reversed on appeal only if that decision was an "abuse of discretion." Thus, not appealing does not necessarily mean losing the ultimate issue. Just because a court has the power to hear your case doesn't mean that it actually must hear your case, when another court is available.

Also, having the case tried in Louisiana rather than Colorado would probably not be the end of the world for the Colorado company. It would be more expensive for them to have to bring witnesses to Louisiana for an ultimate trial and perhaps a jury there might be less favorable, but the odds that this case will be resolved in motion practice or by settlement long before the case reaches a jury is high, and since the case involves purely federal law, local counsel wouldn't necessarily have to do that much work to cooperate with the Colorado company's Colorado lawyer.

Thus, an appeal to the U.S. Supreme Court would be a very expensive proposition but would be unlikely to help the company bringing the appeal very much, even though it would be very useful to all companies in the United States, in thousands of cases each year, to have the issue resolved. This is still a very early stage of the lawsuit, and for the Colorado company, even if they win, they still have to fight this battle in Colorado. Litigants, especially Defendants with uncertain liabilities hanging out there which there is a good chance could be eliminated if the case goes forward, rarely appreciated delay. Indeed, the fact that it is often not in the interest of litigants to take cases like this all the way to the U.S. Supreme Court, even when they could, is one of the reasons that a circuit split on the issue has persisted so long. What is in the interest of the system as a whole, is not always in the interests of those participating in that system.

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