Antitrust Law Daily Wrap Up, ADVERTISING—W.D. Tex.: Nonresident officers in treadmill desk company unable to walk away from personal jurisdiction, (Oct 30, 2015)

By Edward L. Puzzo, J.D.

The federal district court in Austin, Texas has specific personal jurisdiction over nonresident corporate officers being sued by an in-state “walking desk” competitor because their tortious conduct was specifically directed at diverting market share from the in-state company, that court has ruled (Next Technologies, Inc. v. Thermogenisis, LLC, October 28, 2015, Lane, M.).

Texas-based Next Technologies manufactures a treadmill desk, also known as a walking desk. A competing treadmill desk product is manufactured by Thermogenisis. Next brought a claim in federal court in Texas against Thermogenisis and its principals Ron Weiner and Larry Swanson alleging that they had engaged in false advertising in violation of the Lanham Act by creating and publishing a website that purported to present independent reviews of various walking desks, but which actually was an advertisement for Thermogenisis products. It was further alleged that the website, WorkWhileWalking.com, contained false, misleading and defamatory statements about Next’s products.

Weiner and Swanson, the individual defendants, moved to dismiss, alleging that Internet activities were insufficient to support personal jurisdiction in Texas. However, Thermogenisis had already conceded that the same Internet activities supported personal jurisdiction in Texas. Next claimed the court has specific personal jurisdiction over the defendants.

Specific personal jurisdiction. Whether a federal court has personal jurisdiction over a nonresident defendant, the court explained, is determined by ascertaining whether the long-arm statute of the state in which the court sits confers jurisdiction, and if it does, whether the exercise of that jurisdiction is consistent with the Due Process clause of the Fourteenth Amendment to the U.S. Constitution.

In the Fifth Circuit, the court explained, the analysis involves (1) whether the defendant has minimum contacts with the forum state, i.e., whether it purposely directed its activities toward the forum state or purposefully availed itself of the privileges of conducting activities there; (2) whether the plaintiff's cause of action arises out of or results from the defendant's forum-related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable.

To make the determination as to whether the exercise of jurisdiction over the defendant offends traditional notions of fair play and substantial justice, the court examines (1) the defendant’s burden, (2) the forum state’s interests, (3) the plaintiffs interest in convenient and effective relief, (4) the judicial system’s interest in efficient resolution of controversies, and (5) the states’ shared interest in fundamental social policies.

Fiduciary shield doctrine. Individual defendants Weiner and Swanson raised the Fiduciary shield doctrine against the exercise of specific personal jurisdiction. The doctrine states that an individual’s business within a state solely as a corporate officer does not create personal jurisdiction even though the state may have in personam jurisdiction over the corporation. In response, Next alleged a “tortious conduct” exception to the Fiduciary shield doctrine.

Jurisdiction exercised. The court ruled that individual defendants Weiner and Swanson were subject to the court’s specific personal jurisdiction because the alleged intentional torts of defamation, copyright infringement, and tortuous interference with business relations were aimed at Texas-based Next in order to divert market share from them. Specifically, Next and its products were the subject of allegedly defamatory reviews on defendants’ website, and there was at least one defamatory Internet “chat” session that encouraged the user to favor Thermogenisis’ products over Next’s products. Next alleged that the negative reviews occurred only after Next turned down Thermogenisis’ request to become an affiliate or dealer for Next’s products. Other evidence indicated that the website’s negative reviews of Next products were intended to pressure Next into reconsidering its proposed business combination. The Texas Supreme Court has found, the court continued, that specific jurisdiction may lie where a defendant’s out-of-state or online activities are purposefully aimed at getting extensive business in or from the forum state.

The actions of Weiner and Swanson met these requirements and therefore specific personal jurisdiction over these individual defendants was appropriate, the court ruled. Next met its burden by pleading tortious conduct, not insulated by the Fiduciary shield doctrine, that was attributable to the individual defendants, directed at the forum state and causally related to plaintiff’s claimed injuries.

The case is Civil Action No. 1:15-cv-00225-LY.

Attorneys: Paul Brown Kerlin (Vorys, Sater, Seymour and Pease LLP) for Next Technologies, Inc. David E. Dunham (Taylor Dunham and Rodriguez, LLP) for Thermogenisis LLC.

Companies: Next Technologies, Inc.; Thermogenisis, LLC

Cases: Advertising TexasNews