Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

be2 LLC v. IVANOV (April 27, 2011)

be2 Holding is a German company that operates an Internet dating site at be2.com. The site has 14 million users in 36 countries. Its U.S. subsidiary, be2 LLC, is a Delaware company. The companies filed suit against Nikolay Ivanov, alleging, among other things, that Ivanov violated the Lanham Act by offering an Internet dating site at be2.net. Ivanov, a resident of New Jersey, did not appear or answer the complaint. Judge Shadur (N.D. Ill.) entered a default judgment. The plaintiff companies submitted several documents to support their damage claim. One document showed that be2.net had 20 registered users with Chicago addresses. Another described Ivanov as the CEO and co-founder of be2.net. A third document was Ivanov's LinkedIn profile, which also described him as the co-founder and CEO of be2.net. Ivanov moved to vacate the judgment for lack of personal jurisdiction. He submitted an affidavit asserting that: a) he was not the co-founder or CEO of be2.net, b) he was not compensated for any work he did for be2.net, c) most of his work consisted of translating web content, d) the CEO title stood for "Centralized Expert Operator," and e) he had never been to Illinois. The court found his affidavit not credible and denied the motion.

In their opinion, Judges Flaum, Wood, and Hamilton reversed and remanded. Personal jurisdiction over Ivanov depends on whether he has the minimum contacts with Illinois to satisfy Due Process. In the Internet arena, due process requires more than simply operating a website accessible in the forum state. The defendant must, in some fashion, target an audience in the forum state. Here, the record does not support that conclusion. The only evidence of the site’s contacts with Illinois is the document showing 20 Illinois users. Without some evidence that Ivanov targeted an Illinois market, personal jurisdiction was improper and the default judgment must be vacated and the complaint dismissed.

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MOBILE ANESTHESIOLOGISTS CHICAGO v. ANESTHESIA ASSOCIATES OF HOUSTON METROPLEX (October 1, 2010)

Mobile Anesthesiologists Chicago ("Chicago") provides on-site anesthesia services, is based in Chicago, has been in business for 15 years, registered the website www.mobileanesthesiologists.com, registered Mobile Anesthesiologists as a federal trademark, and has affiliate offices in other U.S. cities, including Houston. Anesthesia Associates of Houston Metroplex ("Houston") was founded by Dr. Eric Chan. Dr. Chan is its sole member and it operates only in the Houston area. Chan registered the website www.mobileanesthesia.com, where he advertises his practice to the greater Houston area. Dr. Chan is a licensed anesthesiologist in Texas but in no other state, and he has never conducted business in Illinois or visited Illinois for business. Chicago brought suit in Illinois federal court alleging that Houston violated federal law by registering a confusingly similar domain name. Judge Norgle (N.D. Ill.) dismissed the complaint for lack of personal jurisdiction. Chicago appeals.

In their opinion, Judges Flaum, Wood, and Hamilton affirmed. The Court first rejected Chicago's argument that Houston waived its personal jurisdiction defense when it asked for a continuance of the preliminary injunction hearing and for discovery. Waiver of personal jurisdiction requires much more than that, said the Court. The Court proceeded to the merits of the personal jurisdiction defense under the familiar federal due process and International Shoe rubric. General jurisdiction was not alleged, so it proceeded to analyze specific jurisdiction. Chicago relied on the Calder "expressly aimed" test. The Florida defendants in Calder were required to appear in California on a libel charge because the allegedly libelous story was about a California resident and the "brunt of the harm" was felt in California. The Court reviewed its “not . . . entirely consistent” application of Calder in Wallace, Indianapolis Colts, and Janmark. It concluded that Wallace, and its rejection of the notion that a defendant with no contacts in a forum could be forced to defend there simply by alleging an intentional tort, was the proper application of Calder (while rejecting the notion that Indianapolis Colts or Janmark actually conflicted with Calder). Here, Chicago's only evidence is that Houston maintained a website, accessible in Illinois, under a confusingly similar name and therefore caused injury in Illinois. The Court concluded that that was insufficient "express aiming" to establish personal jurisdiction. The Court also rejected Chicago's alternative theories that its federal trademark registration somehow established personal jurisdiction in Illinois and that Houston's actions were "expressly aimed" at Illinois after its receipt of Chicago's cease-and-desist letter.

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UBID v. THE GODADDY GROUP (September 29, 2010).

The GoDaddy Group operates a domain name registration site called GoDaddy.com. GoDaddy has taken significant steps to limit its physical presence to Arizona. It is incorporated there, it is headquartered there, its computer servers are all located there, and the great majority of its offices and employees are there. Its non--physical presence is another story. It advertises nationally (including on the last six Super Bowls), it sponsors professional race car driver Danica Patrick and professional golfer Anna Rawson, and it advertises in sports arenas (including those of the Chicago-based Cubs, White Sox, Bulls, and Blackhawks). It has hundreds of thousands of Illinois customers and millions of dollars of Illinois revenue annually. Chicago-based uBID, an Internet excess-inventory auctioneer, brought suit against GoDaddy for violating the Anti-Cybersquatting Consumer Protection Act. The GoDaddy conduct that uBID complains of is its practice of selling domain names that are confusingly similar to existing domain names (including uBID’s), selling advertising on those websites, and profiting from the confusion it has created. Judge Kocoras (N.D. Ill.) dismissed the complaint for lack of personal jurisdiction. uBID appeals.

In their opinion, Judges Flaum, Manion, and Hamilton reversed and remanded. The Court first considered and rejected the existence of general jurisdiction. General jurisdiction requires such extensive contacts that a defendant is considered to be present for all purposes. Here, although GoDaddy's contacts are extensive, they are limited to its domain name services. The Court concluded that it would be unfair to consider GoDaddy present for all conceivable claims. With respect to specific jurisdiction, the Court noted that the question has not changed since International Shoe -- is it "fair and reasonable" to require the defendant to respond to the claim? The analysis is a three-part test addressing the sufficiency of the contacts, the relationship between the contacts and the claim, and International Shoe's requirement that it not offend notions of "fair play and substantial justice." With respect to the sufficiency of the contacts, the Court relied heavily on Keeton. In that case, the Supreme Court upheld jurisdiction in New Hampshire over Hustler Magazine. Hustler had no offices or employees in New Hampshire, did not particularly target the state, and very little of its revenue came from the state. But Hustler "continuously and deliberately" exploited the market. That was enough for the Supreme Court to permit jurisdiction. The Court concluded that GoDaddy continuously and deliberately exploited the Illinois market and reached the same conclusion. The fact that GoDaddy can do that in a virtual, rather than physical, sense does not dictate a different result. With respect to the relationship between the contacts and the claim, the Court applied a proportional and foreseeable test (declining to endorse either the but-for or proximate causation tests relied upon by some courts -- and also declining to adopt or reject the Zippo test). The Court concluded that the relationship was close enough. In fact, it found the contacts and the claims "intimately related." Finally, the Court considered the "substantial justice" factors. Some of them favored the exercise of jurisdiction; none of them favored GoDaddy. Requiring GoDaddy to answer the claim in Illinois is not unfair.

Judge Manion concurred. Although he agreed that personal jurisdiction was proper, he disagreed with the Keeton test applied by the majority. In his view, the claim does not arise out of Go Daddy's advertisements at sporting events or out of its hundreds of thousands of relationships with Illinois residents. Instead, it arises out of its cybersquatting -- profiting from advertisements that it places on domain names that allegedly infringe uBID’s trademark. Instead of Keeton, Judge Manion would look to the intentional harms test from Calder. Each of the three prongs of the Calder test are satisfied here: a) the conduct was intentional, b) the conduct was aimed at Illinois since it was targeted correctly at uBID, and c) GoDaddy knew that uBID would be harmed in Illinois. 

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ILLINOIS v. HEMI GROUP (September 14, 2010)

Hemi Group is located in New Mexico but sells cigarettes throughout the United States (except New York - maybe this is why) through several interactive websites as well as by phone, mail, and fax. Hemi pays the federal tax on the cigarettes it sells but it directs its customers to investigate their own state tax liability. Hemi is not registered to do business in Illinois, has no offices or employees in Illinois, and does not advertise in print media in Illinois. An Illinois Department of Revenue agent purchased hundreds of packs of cigarettes from Hemi in 2005 and 2007. Illinois brought suit in state court against Hemi, alleging numerous violations of law. After removing the case to federal court, Hemi moved to dismiss for lack of personal jurisdiction. Judge Scott (C.D. Ill.) denied the motion. Hemi appeals.

In their opinion, Judges Bauer, Kanne, and Evans affirmed. The Court briefly considered, but rejected, the argument that the Illinois Constitution is more restrictive than the federal constitution in its personal jurisdiction requirements. The Court therefore conducted its analysis with respect to the due process clause of the federal constitution. Since Hemi does not have general, systematic business contacts in Illinois, the Court considered only specific jurisdiction and found that it existed. First, Hemi's contacts with Illinois satisfy due process: a) Illinois customers could buy cigarettes on their many interactive websites, b) they held themselves out as ready to do business in Illinois , c) their refusal to sell to New York residents showed that they were aware of the ramifications of selling into a particular state, and d) they shipped cigarettes into Illinois. The Court emphasized that it was not using the Zippo sliding scale approach that other circuits have adopted for Internet jurisdiction cases. Second, the relatedness requirement for specific jurisdiction is satisfied -- the claims arise out of Hemi's contacts. Finally, the exercise of jurisdiction here "does not offend traditional notions of fair play and substantial justice." Hemi set up a nationwide, online commercial venture. It wanted to do business nationwide and has customers throughout the nation. The Court cautioned against exercising jurisdiction over a company simply because it has an interactive website accessible in the forum state. Here, additional voluntary contacts with the state make the exercise of jurisdiction permissible.

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TAMBURO v. DWORKIN (April 8, 2010)

John Tamburo designs software for dog lovers. He lives and works in Illinois. One of his products is an online database that provides pedigree information. He created the database by pulling information about pedigrees from other sources on the Internet. The sources of some of the information used by Tamburo were free public websites operated by defendants Henry, Hayes, Mills, and Dworkin. Dworkin is a Canadian resident and citizen -- the others are citizens and residents of the United States. When Henry, Hayes, and Mills discovered what Tamburo had done, they made statements on their own web sites accusing Tamburo of being a thief and of selling stolen goods. They called for a boycott of his products. They even revealed Tamburo's home address and urged their own readers to harass him. Dworkin first demanded that he remove the information from his database. When Tamburo did not do so, Dworkin sent out his own e-mails accusing Tamburo of theft and using the information for an improper purpose. Some of these messages made it to Wild Systems, an Australian company that has its own pedigree software product. Wild Systems forwarded the messages to its own e-mail list. Tamburo sued the four individuals and Wild Systems in Illinois federal court. He sought a declaration that he had violated no federal law and sought damages for antitrust violations, defamation, tortious interference, trade libel, and civil conspiracy. The district court dismissed as to all defendants on the grounds that the court lacked personal jurisdiction. Tamburo appeals.

In their opinion, Judges Bauer, Kanne, and Sykes affirmed in part and reversed in part. As an initial matter, the Court addressed the state and federal antitrust claims and concluded that the district court properly dismissed them, although they should have been dismissed for failure to state a claim. The claims were stated in a completely conclusory fashion and failed to meet the Twombly standard. The Court then turned to personal jurisdiction. Given the Illinois long-arm statute, the question for the Court was whether the defendants had sufficient "minimum contacts" with the forum to support jurisdiction. The Court concluded that none of the defendants had sufficient contacts with Illinois to support a finding of general jurisdiction. In order to establish specific jurisdiction, a) the contacts must relate directly to the challenged conduct, b) the defendant must have "purposefully directed" activities at the forum, and c) the injury must arise out of that activity. The Court looked to the Supreme Court's decision in Calder for guidance on application of the "purposefully directed" test. It found three requirements: a) intentional conduct, b) aimed at the forum state, and c) defendant's knowledge that the injury would be felt in the forum state. The Court found the first element satisfied. With respect to the second and third elements, the Court noted some tension in its decisions applying Calder -- Janmark focused on an injury in the forum state while Wallace required something more than a forum state injury. Here, there is a forum state injury arising from tortious conduct deliberately aimed at a target in the forum state. That satisfies either test and is enough to exercise personal jurisdiction over the individual defendants. With respect to Wild Systems, however, there is no allegation that it acted with knowledge of Tamburo's location or with the purpose of inflicting injury in Illinois. Thus, personal jurisdiction does not exist with respect to Wild Systems. The Court next addressed the "arise out of" requirement. Although it pointed out the conflict among the circuits with respect to the proper test, it found no need to weigh in on the issue since it concluded that the alleged injury "arose out of" the defendants' contacts even under the most rigorous approach. Finally, the Court concluded that the exercise of personal jurisdiction over the individual defendants would not offend the traditional notions of fair play and substantial justice.

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GCIU -- Employer Retirement Fund v. The Goldfarb Corporation (May 11, 2009)
 

The Goldfarb Corporation, a Canadian company, does not maintain a place of business or employees inside the United States. In 1995, Goldfarb purchased 60% of Fleming Packaging Corporation, a Delaware corporation. Between 1995 and 2003, Goldfarb was actively involved in the financial affairs of Fleming but did not directly control its activities. Members of the Goldfarb family were on the Fleming board and were corporate officers. In February of 2003, the Goldfarbs and Bank One negotiated an amendment to a loan agreement, pursuant to which the lenders agreed to a delay in exercising their rights of default and the Goldfarb agreed to relinquish control of the company (which they did). One of the reasons for the amendment was to allow Fleming to complete a sale of its operations as a going concern. Fleming filed for bankruptcy in May of 2003. Plaintiff, a multi-employer pension plan, filed an action in 2007 to collect Fleming’s withdrawal liability payments from Goldfarb. The district court dismissed the action, concluding that Goldfarb had insufficient contacts with the United States to sustain jurisdiction. The court also denied a request for further discovery. Plaintiff appeals.

In their opinion, Judges Bauer, Flaum and Kapala affirmed. The Court addressed the requirements for specific jurisdiction (plaintiff did not challenge the absence of general jurisdiction). The specific jurisdiction analysis consists of three steps: a) identify the contacts, b) determine whether the minimum constitutional threshold is met, and c) determine whether the contacts are related to the cause of action. The sole issue before the Court was whether Goldfarb's contacts in the United States were related to the plaintiff's cause of action. The Court examined Goldfarb's involvement with Fleming's lenders as they compared to the elements of plaintiff's cause of action. Fleming's withdrawal liability arose out of its withdrawal from the fund. The liability exists because of the nature of the sale of the business and its failure to comply with ERISA’s “safe harbor” provisions. All of Goldfarb's contacts occurred prior to February of 2003, when it surrendered all of its interest in Fleming. The Court found that these contacts were too attenuated to support specific jurisdiction. Finally, the Court concluded that the district court did not abuse its discretion in refusing to allow further discovery.

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