YETI Coolers, LLC v. Mercatalyst, Inc.
| Docket Number | 1:22-CV-01337-DAE |
| Decision Date | 01 December 2023 |
| Parties | YETI Coolers, LLC, Plaintiff, v. Mercatalyst, Inc., TerraCycle US, LLC, Aksha Plastic, Inc., Devang H. Patel, Oscar Guel, Robert N. Rezak, Global Xcessories, Inc., and Daniel Gavrielov, Defendants. |
| Court | U.S. District Court — Western District of Texas |
ORDER DECLINING TO ADOPT U.S. MAGISTRATE JUDGE HIGHTOWER'S REPORT AND RECOMMENDATION
Before the Court is U.S. Magistrate Judge Hightower's Report and Recommendation (“Report”), issued on August 16 2023, concerning Plaintiff YETI's Motion for Default Judgment with Respect to Defendant Oscar Guel. (Dkt. # 74.)
The Court finds this matter suitable for disposition without a hearing. After careful consideration, the Court-for the reasons that follow- DECLINES to Adopt Judge Hightower's Report.
In 2021, YETI considered adding outerwear to its product line. As part of that process, YETI obtained thousands of YETI branded down feather vests and jackets. (Dkt. # 29 at ¶ 2.) But after further testing and analysis, YETI decided not to take the jackets to market. (Id.) As a result YETI contracted with TerraCycle US, LLC ("TerraCycle") for the jackets to be destroyed and recycled. (Id.) At the same time, YETI needed to recycle and destroy thousands of YETI branded backpacks and tote bags that were at the end of their sales life cycles and ready to be replaced with new styles. (Id. at ¶ 3.)
On March 16, 2021, YETI entered into a Materials Recycling Program Agreement with TerraCycle for the sustainable destruction and recycling of the jackets, backpacks, and totebags. (Id. at ¶ 44.) In entering into the Agreement, YETI paid TerraCycle and through it, Akshar and Patel, to take control of the YETI branded goods for the sole and specific purpose of destroying them. (Id.)
Unbeknownst to YETI, thousands of YETI branded jackets, backpacks, and tote bags wound up in the possession of various unauthorized entities and individuals across the country, who resold them illegally. (Id. at ¶ 5.)
In this Motion, YETI has filed a Motion for Default Judgment with Respect to Defendant Oscar Guel. As alleged in YETI's Complaint, Guel has engaged in multiple illicit transactions with Akshar and Patel in the past. In this case Guel was allegedly the first person to negotiate with Akshar and Patel to facilitate the illicit transactions. Guel allegedly facilitated transactions for the sale stolen YETI goods involving multiple states. The Court reviews Judge Hightower's decision denying YETI's default judgment for lack of personal jurisdiction.
The Court must conduct a de novo review of any of the Magistrate Judge's conclusions to which a party has specifically objected. See 28 U.S.C. § 636(b)(1)(C) (“A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.”). The objections must specifically identify those findings or recommendations that the party wishes to have the district court consider. Thomas v. Arn, 474 U.S. 140, 151 (1985). A district court need not consider “[f]rivolous, conclusive, or general objections.” Battle v. U.S. Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). “A judge of the court may accept reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C).
Findings to which no specific objections are made do not require de novo review; the Court need only determine whether the Recommendation is clearly erroneous or contrary to law. United States v. Wilson, 864 F.2d 1219, 1221 (5th Cir. 1989).
Under Rule 55 of the Federal Rules of Civil Procedure, a default occurs when a defendant fails to plead or otherwise respond to a complaint within the time required. New York Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir. 1996). After the defendant's default has been entered by the clerk of court, the plaintiff may apply for a judgment based on the default. Id. Even when the defendant technically is in default, however, a party is not entitled to a default judgment as a matter of right. Escalante v. Lidge, 34 F.4th 486, 492 (5th Cir. 2022). There must be a sufficient basis in the pleadings for the judgment entered. Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 498 (5th Cir. 2015). Entry of default judgment is within the court's discretion. See Stelly v. Duriso, 982 F.3d 403, 406 (5th Cir. 2020); Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998).
Judge Hightower recommended this Court deny Plaintiff's Motion for Default Judgment with respect to Defendant Guel because she found this Court lacks personal jurisdiction over Guel.
When a party seeks entry of default judgment under Rule 55 “the district court has an affirmative duty to look into its jurisdiction both over the subject matter and the parties.” Sys. Pipe & Supply, Inc. v. M/V Viktor Kurnatovskiy, 242 F.3d 322, 324 (5th Cir. 2001) (citation omitted).
In summary, Judge Hightower found that Guel lacks the minimum contacts necessary in the forum to satisfy due process.
Based on the facts, Judge Hightower found that YETI showed no contact between Guel, a California resident, and Texas. Judge Hightower noted that under Walden v. Fiore, it is the defendant's conduct that must form the necessary connection with the forum state. “A defendant's relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction.” 571 U.S. 277, 286 (2014).
Judge Hightower considered specific jurisdiction under the effects test from Calder v. Jones, 465 U.S. 783 (1984), and concluded YETI failed to allege that Guel intentionally directed his activities to Texas. As Judge Hightower highlighted, mere injury to a forum resident is not a sufficient connection to the forum. Sangha v. Navig8 ShipManagement Private Ltd., 882 F.3d 96, 103 (5th Cir. 2018) (citing Walden, 571 U.S. at 290 (“‘Regardless of where a plaintiff lives or works, an injury is jurisdictionally relevant only insofar as it shows that the defendant has formed a contact with the forum State.'”))
However, Judge Hightower did not conduct an analysis under the Supreme Court's “stream of commerce metaphor.” With respect to the Lanham Act and unfair competition claims, the Court must ask in what forum did the trademark infringement occur? The answer requires an analysis through a stream of commerce metaphor. See Luv N' care, Ltd. v. Insta-Mix, Inc 438 F.3d 465, 470 (5th Cir. 2006) (applying the stream of commerce to claims under the Lanham Act).
Under the Fifth Circuit's precedent in Ainsworth, this Court has jurisdiction over Guel for unauthorized sales in Texas.
The Fifth Circuit has found minimum contacts exist so long as the court determines “that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased by or used by consumers in the forum state.” Ainsworth v. Moffett Eng'g, Ltd., 716 F.3d 174, 177 (5th Cir. 2013) (quoting Bearry v. Beech Aircraft Corp., 818 F.2d 370, 374 (5th Cir.1987)). In other words, “mere foreseeability or awareness [is] a constitutionally sufficient basis for personal jurisdiction if the defendant's product made its way into the forum state while still in the stream of commerce.” Luv N' care, Ltd. v. Insta-Mix, Inc., 438 F.3d 465, 470 (5th Cir. 2006)).
But, “[t]he defendant's contacts [with the forum state] must be more than ‘random, fortuitous, or attenuated, or [the result] of the unilateral activity of another party or third person.'” ITL Int'l, Inc. v. Constenla, S.A., 669 F.3d 493, 498 (5th Cir. 2012).
In Nestle USA, Inc. v. Ultra Distribuciones Mundiales S.A. de C.V., the undersigned explained that “the fact that Ultra Mundiales never sold products in Texas is not determinative.” 516 F.Supp.3d at 644 (W.D. Tex. 2021) (Ezra, J.) (). “[T]he ‘mere foreseeability or awareness' standard is satisfied where the foreign supplier could reasonably expect that sales would be made in this forum by a third party.” Id. (citing Ainsworth, 716 F.3d at 179).
In Nestle, the undersigned found jurisdiction over defendant in a stream of commerce case because the entities involved should have known their products were likely to be sold in Texas. Id. Defendant Ultra Mundiales shared leadership with its Texas subsidiary Ultra International and transferred several products to it in Texas. Id. at 643. Plaintiffs presented evidence of Ultra Mundiales' knowledge that its products would end up in Texas. Id. at 645.
In Nestle, this Court distinguished the facts from Zoch v. Magna Seating Zoch v. Magna Seating (Germany) GmbH, 810 Fed.Appx. 285 (5th Cir. 2020). In Zoch, plaintiff conceded he had no evidence that defendant was aware that any of its manufactured products would end up in Texas. Nestle, 516 F.Supp.3d 633 at 645.
Importantly the undersigned noted that Zoch is an unpublished opinion not binding on this Court.[1] The Fifth Circuit in Zoch warned that it makes “no broad pronouncements with respect...
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