Column: In American Girl dolls case, US appeals court makes it easy to sue e-retailers in N.Y.
The opinions expressed here are those of the author, a columnist for Reuters.
By Alison Frankel
Sept 19 (Reuters) -Remember the debate last year in U.S. Supreme Court briefings about whether an online merchant’s delivery of a single product in a particular state is enough to establish that state’s jurisdiction over the e-retailer?
Here's a quick refresher.
Federal circuits have reached different conclusions about jurisdictional requirements for lawsuits against internet businesses that operate across the country and the world. The 7th U.S. Circuit Court of Appeals has said that courts in its ambit can hear cases against internet sellers that have delivered a single product into the venue. The 9th Circuit hasn’t set a particular number but has also ruled that the delivery of a small number of physical products can establish a state's jurisdiction against an online retailer.
The 5th and 8th Circuits, meanwhile, have voiced skepticism that the delivery of a single product can satisfy jurisdictional requirements.
The 2nd Circuit has long been counted in the single-product camp. In 2010, the court held in Chloe v. Queen Bee of Beverly Hills that Manhattan federal courts had jurisdiction to hear the French luxury handbag company’s trademark infringement claims against a website operator that sold allegedly counterfeit handbags, because the defendant accepted an order from and then shipped a handbag to a New York resident. (The resident was a legal assistant at the law firm representing Chloe.)
The 2nd Circuit’s Chloe precedent is routinely cited, along with the 7th Circuit’s similar 2022 ruling in a case involving allegedly counterfeit NBA-branded clothing, for the proposition that the delivery of a single product could trigger jurisdiction.
But it turns out that New York’s jurisdictional test is even more lenient than that: The appeals court ruled on Tuesday that dollmaker American Girl can proceed with a lawsuit in New York federal court against Zembrka, a China-based company that allegedly sold counterfeit American Girl dolls through its international website, even though American Girl offered no evidence that Zembrka delivered a counterfeit doll in New York.
At the trial court, U.S. District Judge Mary Kay Vyskocil of Manhattan dismissed the lawsuit for lack of jurisdiction, ruling that American Girl's failure to show that the defendant shipped even a single infringing product into New York distinguished its case from Chloe's.
The 2nd Circuit said in Tuesday's ruling that Vyskocil misunderstood itsChloe precedent.
The key fact in that case, wrote Judge Barrington Parker for a panel that also included Judges Jose Cabranes and Maria Araújo Kahn, was not that the defendant had shipped a physical product – an allegedly counterfeit handbag – to a purchaser in New York. Instead, the 2nd Circuit said, the critical question was whether the defendant purposefully conducted business in New York and engaged in at least one transaction in the state.
“Our holding in Chloe did not depend on the shipment of goods, but rather on the fact that a single act can potentially suffice for establishing personal jurisdiction,” the court said. “Neither Chloe nor any of our other cases should be read as indicating that shipment is required to demonstrate a business transaction.”
New York’s long-arm statute, Parker wrote, demands proof only that the defendant engaged in a business transaction in New York. Here, the 2nd Circuit said, American Girl satisfied that requirement by offering evidence that its own New York-based lawyer used the Zembrka website to place an order and submit payment for an allegedly counterfeit American Girl doll, then received emails from Zembrka confirming the order and pledging to deliver the product.
American Girl’s lawyers at Epstein Drangel also provided evidence that 38 other would-be purchasers from New York submitted orders to Zembrka for allegedly counterfeit dolls, in addition to evidence that New Yorkers purchased 700 other items from Zembrka.
That proof – as well as an admission by Zembrka’s lawyer from Glacier Law during oral argument in July that the company is doing business in New York via the internet – showed that the China-based company had availed itself of New York’s laws.
For jurisdictional purposes, the 2nd Circuit said, it does not matter than Zembrka subsequently canceled orders from New Yorkers, including counsel for American Girl, and refunded the purchase price. Under New York’s “relatively permissive” statute, the court said, American Girl showed that Zembrka transacted business in New York and that the doll company’s claim arose from those transactions.
Zembrka counsel Ruoting Men of Glacier Lawdid not respond to my query. American Girl lawyers Kerry Brownlee and Jason Drangel declined to provide a statement.
The newly clarified New York jurisdictional standard for lawsuits against online retailers won’t end the debate over where internet companies can be sued. The en banc 9th Circuit, for instance, is scheduled to hear oral arguments next week in a high-stakes privacy case against online payment platform Shopify, after vacating a three-judge panel’s ruling that California courts do not have jurisdiction over Shopify. The company and its amicus supporters, as I've told you, contend that loose jurisdictional rules forcing defendants to appear in courts across the country will destroy internet commerce.
The Supreme Court, meanwhile, has twice declined to hear cases asserting a circuit split on jurisdiction over online retailers that delivered at least one product into a venue, most recently in a challenge earlier this year to a 9th Circuit decision allowing Herbal Brands to proceed in Arizona with a trademark lawsuit against Amazon resellers.
It will be interesting to see whether the new 2nd Circuit interpretation of New York’s jurisdictional law influences appellate consideration of other states’ long-arm statutes. But for now, online retailers are on notice: If you take orders from New York customers, you’d better be prepared to be sued in New York courts.
Read more:
Shopify appeal has become battle royale over where internet companies can be sued
In Shopify class action, US appeals court will revisit thorny venue issue
Amazon resellers ask Supreme Court to clarify where online businesses can be sued
(Reporting By Alison Frankel)
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