Paolino v. Channel Home Centers

• Decision Date: 26 January 1982
• Docket Number: No. 81-1661,81-1661
• Parties: Ralph J. PAOLINO, Appellant, v. CHANNEL HOME CENTERS and Air Control Industries, Inc.
• Court: U.S. Court of Appeals — Third Circuit

Page 721

668 F.2d 721

217 U.S.P.Q. 453

Ralph J. PAOLINO, Appellant, v. CHANNEL HOME CENTERS and Air Control Industries, Inc.

No. 81-1661.

United States Court of Appeals Third Circuit.

Argued Nov. 17, 1981.

Decided Dec. 30, 1981.

As Amended Jan. 11 and Feb. 23, 1982.

Rehearing and Rehearing In Banc Denied Jan. 26, 1982.

Zachary T. Wobensmith, 2d (argued), Wobensmith & Wobensmith, Philadelphia, Pa., for appellant.

Ronald L. Panitch, Richard S. Barth, (argued), Seidel, Gonda, Goldhammer & Panitch, Philadelphia, Pa., for appellees.

Before GIBBONS and HIGGINBOTHAM, Circuit Judges, and McCUNE, ^* District Judge.

OPINION OF THE COURT

GIBBONS, Circuit Judge.

Ralph J. Paolino, a resident of Pennsylvania, appeals from a judgment dismissing his complaint against Channel Home Centers, Inc. (Channel) for failure to state a claim upon which relief may be granted, and against Air Control Industries, Inc. (Air Control) for lack of in personam jurisdiction. We reverse as to both defendants.

Channel

Since Paolino's complaint was dismissed at the pleadings stage we must determine whether in the light most favorable to him "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 101, 2 L.Ed.2d 80 (1957). It alleges that in 1978 Paolino developed, in Pennsylvania, an apparatus for reclaiming waste heat from flues, which he maintained as a trade secret. Paolino corresponded with Air Control and disclosed the apparatus to it, and disclosed it to Air Control under circumstances establishing a relationship of trust and confidence which should have prevented Air Control from exploiting the device without his consent. In breach of that alleged relationship Air Control manufactured copies of the device and sold them to Channel, a large retailer with outlets in Pennsylvania. Channel has offered the devices for sale in its Pennsylvania stores.

The district court dismissed the complaint because it does not allege that Channel has any confidential relationship with Paolino. That ruling ignores that he could prove that Channel, after learning of a breach of trust by Air Control, knowingly participated in that breach. If the complaint allegations are true, Air Control became a constructive trustee in Paolino's favor of the disclosed device and of the sale proceeds. See Kimball v. Barr Township, 249 Pa.Superior Ct. 420, 424, 378 A.2d 366, 368 (1977); 5 A. Scott, Law of Trusts, §§ 462, 462.1 (3d ed. 1967). See also Yohe v. Yohe, 466 Pa. 405, 353 A.2d 417 (1976); Chambers v. Chambers, 406 Pa. 50, 176 A.2d 673 (1962); Beatty v. Guggenheim Exploration Co., 225 N.Y. 380, 386, 122 N.E. 378, 380 (1919) (Cardozo, J.) ("a constructive trust ... is not really a trust at all but rather an equitable remedy. Like all remedies in equity, it is flexible and adaptable.")

If a purchaser of property from a trustee knew, or should have known, that disposition of the property was a breach of trust, the purchaser is charged with the same trust. The rule is applicable both to express and to constructive trusts. Cameron v. People's Bank of Maytown, 297 Pa. 551, 556, 147 A. 657, 659 (1929). Notice need not be actual. It suffices that a person of ordinary prudence would inquire as to the existence of a trust. Curtis v. Serrill, 303 Pa. 267, 154 A. 487 (1931). In this case, Paolino could prove, at the very least, that Channel was put on notice of Air Control's alleged breach of trust as soon as the complaint was served. Channel nevertheless continued to market the device; indeed it vigorously asserts its continuing right to do so. If Paolino proves that distribution of the device is a breach of a constructive trust by Air Control he will be entitled to injunctive relief against Channel at least prospectively, and perhaps for an accounting with respect to sales made after service of the complaint. Whether he will be able to establish an earlier notice must await proof at trial. But a Rule 12(b)(6) dismissal was improper since he could, under the complaint, prove a set of facts which would support relief respecting post-complaint sales by Channel.

Air Control

Air Control does not urge that the complaint fails to state a claim on which relief can be granted against it. ¹ It contends, instead, that it may not be subjected to in personam jurisdiction in the Eastern District of Pennsylvania. Affidavits establish that Air Control maintains a plant in Nashville, Tennessee, at which it manufactures the heat reclaiming device alleged to be Paolino's trade secret. This is Air Control's only facility. It sold the products to Channel through the solicitation of commissioned New Jersey sales representatives, and shipped them to Channel at its headquarters in Whippany, New Jersey. Channel, after acquiring title, reshipped the devices to Pennsylvania and advertised for their sale in that state. Air Control is not qualified to do business in Pennsylvania. It did, however, do business with a Pennsylvania resident with respect to a form of intellectual property-an alleged trade secret-recognized by Pennsylvania law, and signed an agreement with that resident agreeing to acquire details of that trade secret in confidence. In breach of that agreement it has manufactured and sold the devices for resale in Pennsylvania and elsewhere. Some of the devices have been advertised for sale and sold in Pennsylvania. Such manufacture and sale of the devices has eroded the value of Paolino's intellectual property.

Air Control concedes that the Pennsylvania long-arm statute, 42 Pa.C. § 5321 et seq., available in the federal courts by virtue of Fed.R.Civ.P. 4(e), provides for the exercise of jurisdiction to adjudicate "to the fullest extent allowed under the Constitution of the United States." Relying on World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), it contends a lack of minimum contacts with Pennsylvania which would justify that state's adjudicatory authority to reach it. The district court accepted this argument. In doing so, however, the court failed to observe the settled distinction between personal jurisdiction in cases where the defendant's forum-related activities do not give rise to the claim, and personal jurisdiction in cases where the claim arises out of a specific forum-related act or series of acts. See Schwilm v. Holbrook, 661 F.2d 12 (3d Cir. 1981). General contact counting may be appropriate in the former situation, for the object is to establish that the defendant has such continuous and substantial affiliations with the forum that any lawsuit against it might be entertained. In this case Paolino is not interested in establishing such general amenability to process, but only amenability with respect to a claim growing out of a single transaction. The focus in such a case must be upon the relationship of the transaction to the forum.

In World-Wide Volkswagen v. Woodson the Court made the point that when dealing with transactional in personam jurisdiction interests of the other states in the federal union demand that the forum refrain from adjudicating disputes which affect its public policies only slightly and happenstantially. See Comment, Federalism, Due Process, and Minimum Contacts: World-Wide Volkswagen Corp. v. Woodson, 80 Colum.L.Rev. 1341, 1345-52 (1980). Plainly the Court did not intend to preclude a "tort out/harm in" exercise of long-arm jurisdiction when the forum as a place of harm was clearly and specifically foreseeable. See 444 U.S. at 297, 100 S.Ct. at 566...