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*Note: The following opinion was edited by AudioCaseFiles' staff.
© 2007 AudioCaseFiles, LLC.

Coastal Video Communications Corp. v. The Staywell Corp.
59 F. Supp. 2d 562
United States District Court for the Eastern District of Virginia, Norfolk Division, 1999

OPINION: OPINION AND ORDER

I. Factual Background

. . . Plaintiff, Coastal Video Communications, Corp., . . .("Coastal"), is a Virginia corporation engaged in the business of producing employee handbooks, video training programs, posters, and interactive CD-ROM courses. Coastal sells these products to companies throughout the United States. One of Coastal's products is an employee handbook titled "Defending Your Safety Zone: Back Protection."

The Staywell Company, d/b/a Krames Communications ("Krames"), is a Delaware corporation with its principal place of business in California. Krames is in the business of publishing patient education, health promotion, safety, and injury prevention training materials. As part of this effort, Krames publishes "Safety Zone: Using Natural Limits to Protect Your Back," for which it holds U.S. Copyright Registration . . .

On January 26, 1999, Krames and Times Mirror sent Coastal a cease and desist letter, notifying Coastal that the "Defending Your Safety Zone" handbook was an infringement of Krames's "Safety Zone" copyright. . . . On February 6, 1999, Coastal filed the instant action, seeking a declaration that the handbook, "Defending Your Safety Zone: Back Protection," does not infringe on copyrighted material contained in Krames's "Safety Zone" handbook. On April 8, 1999, the instant motion to dismiss for lack of personal jurisdiction was filed. . . .

Krames sells its products to managed care organizations, more than seventy percent of hospitals in the United States, and to more than 100,000 physicians, nurses, and health educators in private practice and hospitals. Krames also sells its products to customers in fifty countries on six continents. Krames has also sold and distributed products in Virginia in the past and currently. Krames mailed product catalogs to individuals in Virginia, as recently as Winter, 1998. Krames has also sent mailings to Virginia residents at their homes and business addresses containing order forms for Krames products and free product samples. According to the Rice Affidavit, Krames also has apparently distributed and sold products to at least three hospitals located in Virginia: Chesapeake General Hospital, Virginia Beach General Hospital, and Sentara Norfolk General Hospital. However, there is no indication in plaintiff's affidavits that Krames's "Safety Zone" publication was ever purchased by any of these hospitals. Furthermore, apart from allegations that the "Defense of the Safety Zone" publication is available for sale through the website and catalog and generic "products" have been sold in Virginia, there is no indication in the affidavits provided by plaintiff that any copies of Krames's "Safety Zone" publication were actually sold in Virginia. Krames is qualified to do business in Virginia and maintains a registered agent in Virginia.

Although The Staywell Corporation and Krames Communications are in reality the same company, there are two separate websites in operation. Krames's World Wide Web site advertises over 850 Krames products and allows customers to order products directly over the Web by completing order forms online. The Krames website also provides an "Ask Krames" service by which potential customers may e-mail questions about Krames products and services to the company. Krames offers the "Safety Zone" product over its website. In addition to the Krames site, there is also a separate site for Staywell. Staywell's website states that it is the "premier provider of integrated health improvement and behavior change programs." According to the site, Staywell is the exclusive creator and publisher of American Red Cross health and safety training programs and manuals. These materials are distributed by more than 1,300 local American Red Cross chapters around the country, including, presumably, those located in Virginia. Staywell publishes student course books, instructor training materials, videos, and slides for American Red Cross courses in First Aid, CPR, Aquatics, and mission-related care giving, such as child care, babysitting, and HIV/AIDS.

The website also describes Staywell products in the areas of health risk assessment, focused intervention, disease management, workplace wellness, and newsletter publishing, among others. The site lists a toll-free number to call with inquiries about Staywell products. Visitors to the site may download a free demonstration of a Staywell/Krames on-line "On Demand Patient Education Program." The Staywell site also lists job opportunities available with the company, and permits interested individuals to send a resume to the company over the Internet, as well as provides an e-mail address and fax number to contact the company concerning employment opportunities.

II. Discussion
Federal Rule of Civil Procedure 12(b)(2) permits dismissal of an action lacking the requisite personal jurisdiction. A district court applies the relevant state statute to determine whether the court has personal jurisdiction over a defendant. . . . Determining whether personal jurisdiction exists is a two-step process that requires an assessment of whether (1) the particular facts and circumstances of a case fall within the state's statutory language, and (2) the Due Process Clause of the Constitution would permit such jurisdiction to be asserted. . . . However, because Virginia's long-arm statute extends personal jurisdiction to the fullest extent permitted by due process…, the court's inquiry is collapsed into the question of whether asserting jurisdiction violates the Due Process Clause. .... The plaintiff bears the burden of demonstrating personal jurisdiction by a preponderance of the evidence once its existence is questioned by the defendant. … Resolution of the jurisdictional issue is a matter for the court. . . .

A. Specific Jurisdiction
In arguing that the court has specific, personal jurisdiction over Krames, Coastal claims the case is controlled by Virginia's long-arm statute, which states "[a] court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's . . . transacting any business in this Commonwealth[.]" . . .

Due process is satisfied where the defendant has enough "'minimum contacts'" with the forum state such that requiring him to defend his interests there would not "'offend traditional notions of fair play and substantial justice.'" . . . Furthermore, the minimum contacts with the state must be such that the defendant could "reasonably anticipate being haled into court there."…World-Wide Volkswagen Corp. v. Woodson… "'It is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws.'" . . .

Plaintiff argues the sale of defendant's "Safety Zone" publication in Virginia constitutes "transacting business" and that the declaratory judgment action arises from these transactions. As the record stands now, however, there is no evidence that defendant has ever sold any copies of the "Safety Zone" publication in Virginia. Other than stating that the publication is offered for sale via the Internet, there is no allegation, statement, or indication of any kind of plaintiff's affidavits that even a single copy of defendant's "Safety Zone" publication was ever sold in the state of Virginia. It is not sufficient that the product may have been advertised in Virginia, either over the World Wide Web, or through mail order catalogs. . . .. Without proof that Krames transacted business relevant to the cause of action in Virginia, there is no specific jurisdiction over defendant.

More importantly, even if plaintiff was able to demonstrate that defendant sold the "Safety Zone" publication in Virginia, the court would still not have specific, personal jurisdiction over defendant because the declaratory judgment action currently before the court does not "arise from" the sale of defendant's publication. . . .

B. General Jurisdiction

The lack of specific jurisdiction, however, does not end the inquiry. Even though the present action does not "arise from" defendant's in-state sales of "Safety Zone," the court may still exercise personal jurisdiction over a defendant if it has "general jurisdiction," in which the requisite "minimum contacts" between the defendant and the forum state are "fairly extensive." Ratliff v. Cooper Laboratories, Inc., ... "Conduct of single or isolated items of activities in a state in the corporation's behalf are not enough to subject it to [general jurisdiction]." International Shoe Co. v. Washington... Even "continuous activity of some sorts [by a corporation] within a state is not enough to support [general jurisdiction over the corporation]."... Only when the "continuous corporate operation within a state [is] thought so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities" may a court assert general jurisdiction over a corporate defendant. The Fourth Circuit has also stated that "broad constructions of general jurisdiction should be generally disfavored.". . .

Defendant first argues that it cannot be subject to general jurisdiction without the Virginia long-arm statute being satisfied. In essence defendant argues that a finding of specific jurisdiction is a necessary predicate to a finding of general jurisdiction. Such an argument is not supported by logic or the law. To require the Virginia long-arm statute to be satisfied before there can be a finding of general jurisdiction would render the concept of general jurisdiction a nullity. Once the long-arm statute is satisfied, the court has specific, personal jurisdiction over the person and there is then no need to proceed further and consider the question of general jurisdiction. The Supreme Court has specifically defined specific and general jurisdiction, and, by definition, general jurisdiction clearly exists only when the cause of action does not arise from defendant's contacts with the forum state. . . .

Moreover, contrary to defendant's assertion, general jurisdiction is available under Virginia law. In Witt v. Reynolds Metals Co.,…, the Virginia Supreme Court held that a corporation that "regularly and systematically does business in Virginia" may be subject to personal jurisdiction "on a cause of action arising out of events unrelated to the business conducted in the Commonwealth."… A number of federal courts have also found general, personal jurisdiction over a defendant without having first satisfied a provision of Virginia's long-arm statute. . . . Consequently, defendant's argument fails and Krames may be subject to general, personal jurisdiction, if the quantity and nature of Krames's contacts with Virginia are continuous and "fairly extensive," such that Krames could reasonably expect to be subject to suit in Virginia for causes of action not directly related to its contacts with Virginia. . . .

The facts of this case, however, present the court with difficulties in applying traditional general jurisdiction principles. For example, the Fourth Circuit has held that advertising and solicitation activities alone do not constitute the "minim contacts" necessary to establish general personal jurisdiction over a defendant. Ratliff,.. (quoting Seymour v. Parke, Davis & Co.,... Yet, in the instant case, it is undisputed that the Krames/Staywell websites went well beyond mere advertising and solicitation of products. The sites allow the on-line visitor to purchase all of Krames's products through the website, without ever speaking to a Krames representative. In addition, if a customer did have questions, the site also provides a mechanism for those questions to be posed and answered through an exchange of e-mail. In essence, Krames/Staywell has established an on-line storefront that is readily accessible to every person in Virginia with a computer, a modem, and access to the World Wide Web. Thus, instead of using physical assets such as sample-bearing salesmen, or tradition business offices to reach their Virginia-based hospital, Red Cross, and health care provider customers, Krames is able to provide the same level of service via the Internet's instant connections.

The difficulties in applying personal jurisdiction to Internet-based contacts with a forum are legion, and have been repeatedly discussed by many federal district courts. . . . the difficulty is compounded in this case by the fact that, unlike the vast majority of personal jurisdiction cases involving Internet-based contacts with the forum, the court here is presented with the question of to what extent defendant's Internet-based contacts, combined with traditional business contacts, support the exercise of general personal jurisdiction over Krames.

One of the few cases to exercise general personal jurisdiction over a defendant grounded, in substantial part, on the Internet-based contacts with the forum state was Mieczkowski,. Mieczkowski was a products liability action brought against the North Carolina manufacturer of a bunk bed owned by the Texas plaintiffs. The bed was first purchased from a store located in Washington, D.C., and delivered to a home in Virginia. The bed's original owners subsequently sold the bed to the plaintiff in North Carolina, and the plaintiffs then moved to Texas. The district court first held that there was no specific jurisdiction over the defendant because it was not foreseeable "that the bed in question would make its way to Texas while in the stream of commerce."... The court then went on to examine the question of general jurisdiction over the defendant. The plaintiffs presented evidence that over the previous six years defendant sold and shipped $ 5.7 million in products to Texas residents; consummated 250 business transactions totaling $ 717,000 in the year prior to the filing of the lawsuit; and, received 3.2 percent of it's gross sales income from Texas residents in the previous four years. The district court also found it significant that defendant maintained a World Wide Web site accessible to over two million Texas residents. In Mieczkowski, the defendant's website provided categories of furniture and allowed a visitor to the site to view individual furniture pieces. A visitor to the site could print an order form to complete their purchase after reviewing their selections on-line. In addition, customers could check the status of their order through the Internet site as well. Finally, visitors to the site could communicate directly with defendant's on-line sales representatives via e-mail. Relying on the analysis contained in Zippo Mfg., … the court held that the potential of defendant's interactive website to reach millions of Texans, combined with the extent of defendant's traditional business contacts "leads the Court to the conclusion that the defendant maintains substantial, continuous and systematic contacts with Texas sufficient to subject it to personal jurisdiction."... The court specifically declined to rule on whether either the website or the traditional business contacts, standing alone, justified a finding of general jurisdiction.

Superficially, the facts in Mieczkowski are very analogous to those of the present case. As in Mieczkowski, defendant in this case maintains a World Wide Web site with a high degree of interactivity. In addition, it also appears from the record that defendant maintains traditional business contacts with Virginia through its product sales to at least three Virginia hospitals. However, it appears that the record before the district court in Texas was much more developed, especially with regard to the traditional business contacts. The court in Mieczkowski had access to defendant's historical sales figures to Texas, and could determine not only the total volume of sales made to Texas residents, but also the percent of Texas sales relative to defendant's total sales. In addition, although providing a sound basis to begin analyzing the use of an interactive website to support the exercise of general personal jurisdiction, it is also clear to the court that the analysis in Mieczkowski is not complete.

When conducting the general jurisdiction analysis, it is not enough to find that an interactive website has the potential to reach a significant percentage of the forum state's population. . . . Instead, for the contact to be continuous and systematic, there must be proof that the website is actually reaching a portion of the state's population. See Loumar v. Smith,… (stating "the amount of business obtained from the advertisements" was relevant to the question of whether placing advertisements in national magazine alone was sufficient for exercise of personal jurisdiction). In traditional terms, the placing of a store or salesmen in a state is not sufficient to confer general jurisdiction over a defendant without some evidence that the store or salesmen actually generated sufficient sales in the forum state for the contact to be considered continuous and systematic. Nichols… (holding defendant's solicitation activities, consisting of seventeen to twenty-one salesmen, two supervisors, and their automobiles, samples, and promotional materials, insufficient to establish general jurisdiction over defendant). In this respect, it is certainly true that the mere existence of an interactive website, without proof that there was continuous and systematic contact between the forum state and website, is not sufficient for a court to exercise general jurisdiction. . . .

However, it is still incumbent upon the court to examine the quantity and extent of the contacts between the defendant and the forum state. It is also significant that defendant's site is commercial in nature, in that it is designed to not only advertise and solicit sales, but also provides a direct method by which a customer may purchase defendant's products. As with traditional business contacts, the most reliable indicator of the nature and extent of defendant's Internet contact with the forum state will be the amount of sales generated in the state by or through the interactive website. In addition, it may also be possible to determine how many times a website has been accessed by residents or businesses located in a specific state. Such information, if available, would also be relevant to the determination of general personal jurisdiction. . . .

Given the significant gaps in the record as to the nature and extent of both defendant's traditional business contacts with Virginia and also defendant's Internet-based contacts with Virginia, information that is uniquely in the control of the defendant, the court GRANTS plaintiff's motion for discovery on the issue of general personal jurisdiction over the defendant. In accordance with the principles contained in this opinion, plaintiff is DIRECTED to seek discovery of information relevant to the issue of the court's general personal jurisdiction over defendant within fifteen (15) days of the date of this order. Within seventy-five (75) days of the date of this order, the parties are DIRECTED to set a hearing with the calendar clerk on defendant's motion to dismiss. The parties shall file any supplemental briefs with the court on the issue of general personal jurisdiction no later than ten (10) days before the hearing date.

The Clerk is DIRECTED to send a copy of this Opinion and Order to counsel for the parties.

It is so ORDERED.

This case is in these books

• Civil Procedure
• Yeazell
• 6th Edition