Allchem Performance Prods., Inc. v. Aqualine Warehouse, LLC

• Citation: 878 F.Supp.2d 779
• Decision Date: 13 July 2012
• Docket Number: Civil Action No. H–10–3224.
• Parties: ALLCHEM PERFORMANCE PRODUCTS, INC., Plaintiff, v. AQUALINE WAREHOUSE, LLC, Cactus Valley Pool Services and Repair, L.L.C., Doing Business as Cactus Valley Pools, Chad Kennedy, Aaron Hagen, David Hagen, Shiner Warehouse, LLC, Shiner Chemicals, LLC, and Shiner Products, LLC, Defendants.
• Court: U.S. District Court — Southern District of Texas

878 F.Supp.2d 779

ALLCHEM PERFORMANCE PRODUCTS, INC., Plaintiff,
v.
AQUALINE WAREHOUSE, LLC, Cactus Valley Pool Services and Repair, L.L.C., Doing Business as Cactus Valley Pools, Chad Kennedy, Aaron Hagen, David Hagen, Shiner Warehouse, LLC, Shiner Chemicals, LLC, and Shiner Products, LLC, Defendants.

Civil Action No. H–10–3224.

United States District Court,
S.D. Texas,
Houston Division.

July 13, 2012.

[878 F.Supp.2d 781]

James Jeffrey Burnett, Anne Elizabeth Wheeler, Whitley LLP Attorneys at Law, Houston, TX, for Plaintiff.

Aqualine Warehouse LLC, Gilbert, AZ, pro se.

Chad Kennedy, Chandler, AZ, pro se.

OPINION AND ORDER
MELINDA HARMON, District Judge.

Pending before the Court in this action alleging violations of the Copyright Act, 17 U.S.C. § 101, et seq. (copyright infringement), and the Lanham Act, 15 U.S.C. § 1125(a)(1) (unfair competition and/or false designation of origin, and/or false advertising) and state law claims, is Defendants Aqualine Warehouse, LLC (“Aqualine”), Chad Kennedy (“Kennedy”), ¹ and Shiner Warehouse, LLC, Shiner Chemicals, LLC, and Shiner Products, LLC's (collectively, “Shiner entities' ”) motion to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2), or, in the alternative, for improper venue under Rule 12(b)(3) and 28 U.S.C. § 1406(a),² or, in the alternative, to transfer venue to the Phoenix Division of the District of Arizona under 28 U.S.C. § 1406(a) because of improper venue or in the interest of justice, or to transfer this action for convenience of parties and witnesses in the interest of justice under 28 U.S.C. § 1404(a) (instrument # 31). Defendants maintain that they have no connection or minimum contacts with Texas.

The Court has both diversity and federal question jurisdiction pursuant to 28 U.S.C. § 1332³ and § 1331.

Plaintiff's Second Amended Complaint (# 28)

To summarize the complaint in a nutshell, Plaintiff AllChem Performance Products, Inc. (“AllChem”) is a distributor of water treatment chemicals, including trichloroisocyanuric acid, also known as trichloro-s-triazenatrione, “TCCA,” or “trichlor,” which is used to chlorinate swimming pools. Trichlor is regulated by the Federal

[878 F.Supp.2d 782]

Insecticide, Fungicide and Rodenticide Act (“FIFRA”), 7 U.S.C. § 136 et seq. The United States Environmental Protection Agency (“EPA”) regulates the sale and distribution of trichlor and requires distributors, like Defendants, to register their products with the EPA. The EPA publishes and maintains registration eligibility documents (“REDs”) for FIFRA-regulated chemicals. The EPA has assigned CAS Number 87–90–1 as the RED for trichlor. Plaintiff states that the RED is attached as Ex. A to Second Amended Complaint (# 28), but apparently failed to submit it. Plaintiff asserts that it is a violation of federal law to offer to sell or to sell trichlor without a valid EPA registration.

Furthermore individual states also regulate the sale and distribution of trichlor and require that after obtaining its EPA registration, a distributor must also obtain a registration or permit from each state in which it intends to sell its products.

AllChem complains that Aqualine and Cactus Valley violated the laws of the States of Arizona and Texas by a scheme to sell trichlor bearing stolen registration numbers belonging to AllChem and by failing to register Aqualine trichlor at the state and federal level. It further alleges that Defendants Kennedy, Aaron Hagen, and David Hagen conspired to engage in this illegal activity. Furthermore if Defendant Shiner lacks valid registrations for its trichlor activities, it is also violates those laws in its activities with Cactus Valley, a customer. The complaint further states that Kennedy uses Aqualine and Shiner as alter egos.

Many states, including Texas and Arizona, require anyone seeking to sell trichlor to display the appropriate registration indicators clearly and conspicuously on the product's label. Supported by an affidavit from its Chief Operating Officer, Alejandro Oclese (# 33–1), AllChem states that it has invested time, talent, energy and material resources in developing not only its product line, but its unique label showing its EPA and state registrations, which constitutes a tangible expression covered by the federal Copyright Act and which Aqualine has fraudulently and illegally stolen and thereby caused damages of approximately $483,0976 to AllChem.⁴

Defendants other than Cactus Valley allegedly are in the business of purchasing, manufacturing, assembling, packaging, and distributing trichlor in Arizona, and, by virtue of online Internet sales, distributing the product throughout the United States. Aqualine did not register its trichlor with the EPA, the Department of Agriculture in Arizona or the Texas Department of Agriculture, as it was required to do. Cactus Valley, a customer, purchased and distributed Aqualine's trichlor products to third parties and maintains a website that enables

[878 F.Supp.2d 783]

it to sell to purchasers throughout the United States and potentially around the world. Without obtaining AllChem's permission, Defendants use labels identical in form, format, design, and appearance to AllChem's label and display the registration numbers of AllChem in Texas, except that they replace “TX” with “AZ.” AllChem has no control over the manufacture, assembly, packaging, marketing or distribution of or knowledge of the origin of Defendants' trichlor.

Thus AllChem claims that Aqualine, aided by Cactus Valley, stole and converted AllChem's tangible, as well as intellectual, property, and its label and Texas registration, to sell a product it had no legal authority to sell, and thereby impaired AllChem's ability to compete effectively.

Plaintiff further asserts that Kennedy and the Shiner entities unlawfully imported trichlor from an as-yet-unidentified supplier in China, from which it was shipped to California, then trucked to Mexico, and then to Arizona in violation (1) of the North American Free Trade Agreement (“NAFTA”), 32 I.L.M. 605 (May 1993),⁵ (2) of the Copyright Act, 17 U.S.C. §§ 102(a)(1) (label as a literary work), 102(a)(6) (label as a pictorial and graphic work), and 101 (tangible medium), and (3) of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A) (false and misleading labels likely to cause confusion, mistake or deception as to the origin, sponsorship, or approval of Aqualine's trichlor).

Defendants' Motion to Dismiss (# 31)

With a supporting declaration from Chad Kennedy, Defendants Aqualine, Kennedy, and the Shiner entities' motion states that they have never opened or maintained an office or business premises of any kind in Texas, hired any employees, servants or agents in Texas, owned or leased any real or personal property in Texas, opened or maintained any bank accounts in Texas, maintained a telephone, facsimile or telex number in Texas, paid or owed taxes to the State of Texas or any of its political subdivisions, been required to maintain or maintained a registered agent for service in Texas, engaged in business related to trichlor in Texas, committed a tort in whole or in part in Texas, been a party to a lawsuit in Texas other than the instant action, sold trichlor to any entity or individual in Texas, or maintained a website permitting the sale of trichlor anywhere. # 31, Ex. A, Declaration of Chad Kennedy, ¶ 12.

Because as a matter of law there is no general jurisdiction here, Movants contend that specific jurisdiction does not exist either because AllChem's claims have no connection with the State of Texas and none of the alleged acts took place in Texas. They have never sold products online or maintained an operational website. They have only sold and/or distributed trichlor from their Arizona offices to Arizona entities and/or Nevada entities.

Furthermore, even if they had sufficient contacts with Texas, it would offend traditional notions of fair play and substantial justice to require Movants to litigate this action in Texas. Movants, Cactus Valley, Aaron and David Hagen, and third-party witnesses are all residents of Arizona.

[878 F.Supp.2d 784]

Alternatively they request the Court to dismiss or transfer this case under 28 U.S.C. § 1406(a) for improper venue or transfer it under 28 U.S.C. 1404(a) for convenience and in the interests of justice. Movants argue that the relevant witnesses are located in Arizona, the actions targeted in the Second Amended Complaint occurred in Arizona, the party and non-party witnesses are located in the District of Arizona, all of the named Defendants are located in Arizona, compulsory process to secure attendance of witnesses is available in Arizona, the cost of attendance for willing witnesses would be lower, proof is more readily accessible in Arizona, and practical problems that make trial of a case easy, expeditious and inexpensive favor transfer to the Phoenix Division of the District of Arizona. Deference to a plaintiff's choice of forum “disappears” when, as here, the suit has no connection to the chosen venue. Reed v. Fina Oil and Chem. Co., 995 F.Supp. 705, 714 (E.D.Tex.1998). This Court and the Phoenix federal district court probably have full dockets and both are familiar with federal copyright law and unfair competition law.

Standard of Review

When a defendant files a motion to dismiss for lack of jurisdiction under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of demonstrating that the court has personal jurisdiction over the defendant. Luv N' Care, Ltd. v. Insta–Mix, Inc., 438 F.3d 465, 469 (5th Cir.2006), citing Wyatt v. Kaplan, 686 F.2d 276, 280 (5th Cir.1982). ⁶ At the pretrial stage of litigation, if the district court does not conduct a hearing on personal jurisdiction, the plaintiff need only present a prima facie case of personal jurisdiction. Wilson v. Belin, 20 F.3d 644, 648 (5th Cir.), cert. denied,513 U.S. 930, 115 S.Ct. 322, 130 L.Ed.2d 282 (1994); Felch v. Transportes...