Johnson Creative Arts, Inc. v. Wool Masters, Inc.

• Decision Date: 10 November 1983
• Docket Number: Civ. A. No. 82-2989-G.
• Parties: JOHNSON CREATIVE ARTS, INC., Plaintiff, v. WOOL MASTERS, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

573 F. Supp. 1106

JOHNSON CREATIVE ARTS, INC., Plaintiff, v. WOOL MASTERS, INC., et al., Defendants.

Civ. A. No. 82-2989-G.

United States District Court, D. Massachusetts.

November 10, 1983.

COPYRIGHT MATERIAL OMITTED

John M. Kahn, Hill & Barlow, Boston, Mass., Robert M. Newbury, Pattishall, McAuliffe & Hofstetter, Chicago, Ill., for plaintiff.

Stuart T. Rossman, Gaston Snow Ely and Bartlett, Boston, Mass., John J. Jones, Hightstown, N.J., for Wool Masters, Inc., Robert M. Keyes, Cesar H. Guerrero.

MEMORANDUM AND ORDER ALLOWING DEFENDANTS' MOTIONS TO DISMISS

GARRITY, District Judge.

Johnson Creative Arts, Inc. ("Creative Arts") commenced this action against Wool Masters, Inc. ("Wool Masters"), its two shareholders and others, alleging trademark violations, unfair competition and breach of contract. Wool Masters and its two shareholders, defendants Keyes and Guerrero, have moved to dismiss the action pursuant to Rule 12(b)(2) and Rule 12(b)(3) of the Federal Rules of Civil Procedure on the grounds of lack of personal jurisdiction and improper venue.¹

I. Facts

The facts relevant to the motion to dismiss are not in dispute. Plaintiff Creative Arts is a Delaware corporation with its principal place of business in West Townsend, Massachusetts. It manufactures, distributes and sells wool yarn. The yarn, distributed nationally under the names Paternayan and Paterna, comes in over 350 colors. These colors are designated by means of an arbitrary numerical code that appears in books and charts furnished by Creative Arts to its retail outlets. Customers use the code to identify the color or shade of yarn they desire.

Defendant Wool Masters is a New York corporation with its principal place of business in Pearl River, New York. It was incorporated on January 28, 1982. All the planning for the incorporation took place in New York. Defendant Keyes is president, vice president, and treasurer. Defendant Guerrero is secretary. They are the sole shareholders. Both were formerly employed by Creative Arts in its Paternayan Bros. division, which is located in New York City. Keyes was employed as financial manager, Guerrero as production manager. Both individuals reside in New York.

Wool Masters engaged in mail solicitation of various retail stores in Massachusetts and elsewhere, advising prospective customers that:

Wool Masters is comprised of former Paternayan Bros. managers in an effort to create the finest Persian yarn in the needlecraft market....

We are presently offering all the new and old colors that Paternayan carries and we will be making additions in the future to improve your color selection. We are not claiming to be as good as Paternayan or any other company — we're claiming to be better....

To order or obtain more information, please call Wool Masters at (914) 735-2230 or 2335, or use the enclosed order form. You can order by using either Paternayan's old or new product numbers but please state clearly which set of numbers you are using.

The gist of Creative Arts' complaint is that Wool Masters' instruction to use Creative Arts' special numerical code in ordering Wool Masters' yarn encouraged retailers to palm off Wool Masters' yarn as yarn manufactured by Creative Arts.

The mail solicitation was based primarily on yellow page listings for needlepoint shops in various cities throughout the country, including Boston, Cape Cod and Worcester. The letter itself was written by defendant Keyes in New York and was mailed by him from New York.

Following the mail solicitation, Wool Masters began receiving written and telephone orders from various retail outlets located in Massachusetts and 34 other states. Wool Masters processed these orders in New York. All its sales were shipped f.o.b. New York. As of October 1, 1982, when this action was brought, Wool Masters had sold $8,773 worth of yarn to retailers in Massachusetts. It appears that this amount represents approximately 6% of Wool Masters' total sales.²

Wool Masters is not registered to do business in Massachusetts. Nor does it maintain an office, a mailing address, a telephone listing, or any employees in the state.

II. Personal Jurisdiction

For the court to have personal jurisdiction over the moving defendants, we must find both that (a) the Massachusetts long-arm statute authorizes personal jurisdiction in the circumstances of this case and (b) the exercise of such jurisdiction would comport with the due process requirement that the defendants have certain "minimum contacts" with Massachusetts. Hahn v. Vermont Law School, 1 Cir.1983, 698 F.2d 48, 50.

The burden of proving the facts necessary to sustain jurisdiction is on the plaintiff. Escude Cruz v. Ortho Pharmaceutical Corp., 1 Cir.1980, 619 F.2d 902, 904. Plaintiff asserts that personal jurisdiction exists under Mass.G.L. c. 223A, § 3, which provides in pertinent part:

A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's (a) transacting any business in this commonwealth; ...³

The "transacting any business" provision of the Massachusetts long-arm statute has been construed broadly. Hahn v. Vermont Law School, supra at 50; Nova Biomedical Corp. v. Moller, 1 Cir.1980, 629 F.2d 190, 193-194. Jurisdiction has been exercised on a showing of solicitation of business by a defendant plus some additional increment of activity in the state. Backman v. Schiff, D.Mass.1979, 84 F.R.D. 132, 137, n. 6 (citing cases).

A. Corporate Defendant

We first apply this standard to the corporate defendant, Wool Masters. In our view, Wool Masters' solicitation letter and its sales totalling approximately $8800 to Massachusetts retailers authorize jurisdiction over the corporation. Cases such as Droukas v. Divers Training Academy, 1978, 375 Mass. 149, 376 N.E.2d 548; and "Automatic" Sprinkler Corp. of America v. Seneca Foods Corp., 1972, 361 Mass. 441, 280 N.E.2d 423, in which jurisdiction was not exercised, are distinguishable on their facts. In those cases plaintiffs attempted to predicate jurisdiction on a single commercial transaction. Wool Masters activities in Massachusetts were not simply isolated occurrences, however; they were part of Wool Masters' efforts to serve the market for yarn in the state. Cf. World-Wide Volkswagen v. Woodson, 1980, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490; Hahn v. Vermont Law School, supra at 52. We also conclude that the exercise of such jurisdiction over Wool Masters would comport with the requirements of due process.

On the due process issue Vencedor Mfg. Co. v. Gougler Industries, 1 Cir.1977, 557 F.2d 886, is dispositive in plaintiff's favor.⁴ In Vencedor, the court noted that the critical inquiry in personal jurisdiction cases is whether there is "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." 557 F.2d at 890, quoting Hanson v. Denckla, 1958, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283. The court went on to identify two acts that meet this test. The first is soliciting business in the forum state. In Vencedor, the defendant's decision to send catalogues to customers in another state was a "purposeful" step into that state on which jurisdiction could be based. The second act that meets the jurisdictional test is sending products into the forum state with some regularity. So long as the defendant's sales are part of a regular course of dealing, and are not isolated or exceptional events, the fact that sales in the forum state account for a small percentage of the defendant's total sales is irrelevant.⁵ Under either analysis, jurisdiction over Wool Masters is clearly permitted by the Constitution. Its letter to retail outlets clearly was seeking business in Massachusetts. And its sales to Massachusetts retailers totaling approximately $8800 constitutes a continuous and systematic pattern of sales, not a series of isolated events.⁶

For these reasons, Wool Masters' motion to dismiss for lack of personal jurisdiction is denied.

B. Individual Defendants

We turn now to the individual defendants, Keyes and Guerrero. The general rule is that jurisdiction over the individual officers of a corporation may not be based merely on jurisdiction over the corporation. Escude Cruz v. Ortho Pharmaceutical Corp., supra at 906. There must be an independent basis for asserting long-arm jurisdiction. Plaintiff's conclusory allegation that the individual defendants own and control the corporate defendant is insufficient to show that they transacted business in Massachusetts. Plaintiff has made no showing that defendant Guerrero had any contacts with Massachusetts that would constitute "transacting business." Indeed, the affidavits of defendants Keyes and Guerrero state that defendant Guerrero was involved in neither the incorporation of Wool Masters nor the solicitation letter. The fact that Guerrero is the corporation's secretary and owns a substantial portion of the corporation's stock does not without more establish that he was transacting business in Massachusetts for jurisdictional purposes. Because the plaintiff has failed to meet its burden of proving the facts necessary to sustain personal jurisdiction over defendant Guerrero, the action against him must be dismissed.

It is undisputed, on the other hand, that Keyes planned the incorporation of Wool Masters, that he composed and mailed the solicitation letter, and that he even accepted telephone orders from Massachusetts retailers. This evidence is sufficient to establish an independent basis for long-arm jurisdiction over defendant Keyes.

The "fiduciary shield" doctrine affords Keyes no protection in this case. The doctrine holds that acts performed by a person in his capacity as a corporate fiduciary may not form the predicate for the exercise of jurisdiction over him in his...