Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit
9-20-1994
Cottman Transm. Syst. v. Martino, et al. Precedential or Non-Precedential:
Docket 94-1129
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Recommended Citation "Cottman Transm. Syst. v. Martino, et al." (1994). 1994 Decisions. Paper 139. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/139
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No. 94-1129 ____________
COTTMAN TRANSMISSION SYSTEMS, INC., a Pennsylvania Corporation, Appellee v.
LEONARDO MARTINO and TRANS ONE II, INC., a Michigan Corporation, Appellants ____________
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civ. No. 92-07245) ____________
Argued July 14, 1994
Before: SLOVITER, Chief Judge, ROTH and WEIS, Circuit Judges
Filed September 20, l994 ____________
Anthony D. Rosati, Esquire (ARGUED) Rosati Associates, P.C. 7115 Orchard Lake Road Suite 140 West Bloomfield, MI 48322
Brad K. Robbins, Esquire 7614 Seminole Avenue Melrose Park, PA 19126
Attorneys for Appellants
Todd P. Leff, Esquire (ARGUED) Cottman Transmission Systems, Inc. 240 New York Drive Fort Washington, PA 19034
Attorney for Appellee
____________ OPINION OF THE COURT ____________
WEIS, Circuit Judge.
In this breach of contract, unfair competition, and
Lanham Act case, we determine that venue does not lie in a
district where the individual defendant did not conduct his
business and did not carry out any infringing activities.
Therefore, a default judgment will be vacated, and the case will
be transferred to the district where the defendant resides and
carries on his business. Even though the individual defendant's
wholly owned corporation, a co-defendant, may have waived an
objection to venue by failing to have an attorney appear on its
behalf, we will nevertheless vacate the judgment against the
company as well so that the entire action may be transferred to
the same district.
Plaintiff Cottman Transmission Systems, Inc. is a
nationwide franchisor incorporated under the laws of Pennsylvania
and maintains its principal place of business in that state.
Cottman licenses the use of its trademark in connection with the
operation of transmission repair facilities throughout the United
States. Defendant Leonardo Martino is a Michigan resident and
the sole stockholder of co-defendant Trans One II, Inc., a
Michigan corporation that operates a transmission repair business
in that state. In 1988, Martino entered into a franchise agreement
with A-1 Transmissions, Inc., also a Michigan corporation. Three
years later, A-1 assigned its franchises to Cottman. In
conformance with that assignment, Martino and Trans One executed
a franchise agreement with Cottman on August 26, 1991. However,
Cottman still asserted an ability to enforce the original A-1
agreement if necessary.
After some months of operation under the newly formed
franchise, Cottman became dissatisfied with Martino's
performance, particularly because of inaccurate reporting of
sales and delinquent license fee payments. On March 4, 1992,
Cottman filed suit against Martino and Trans One in the Court of
Common Pleas of Montgomery County, Pennsylvania, alleging fraud
and breach of the Cottman franchise agreement. Venue and
jurisdiction in Montgomery County were established by a forum
selection clause in the Cottman agreement, and judgment was
entered against defendants by default.
Because the Cottman agreement signed by Martino and
others failed to comply with a provision of a Michigan statute,
Cottman offered its franchisees in April 1992 the opportunity to
rescind their contracts. Martino asserts that he accepted that
offer on April 8, 1992. Cottman disputes the date of
termination, but concedes that by May, the Cottman-Martino
agreement was no longer in effect. In the spring of 1992, Martino and Trans One instituted suits against Cottman in the
Michigan state courts.
On December 17, 1992, Cottman filed the present suit
against Martino and Trans One in the United States District Court
for the Eastern District of Pennsylvania, asserting three causes
of action:
(1) a violation of the Lanham Act by the defendants'
unauthorized use of Cottman's trademarks after "Spring, 1992";
(2) breach of the A-1 franchise agreement's covenant
not to compete; and
(3) unfair competition in the operation of a new
transmission repair center in Michigan under the name of "U.S.A.
Transmissions," which Martino and Trans One had formed in April
1992.
The Martino litigation was consolidated with several
other suits previously brought by Cottman in the Eastern District
of Pennsylvania against a number of its former Michigan
franchisees. Martino, appearing pro se, challenged personal and
subject matter jurisdiction as well as venue in that district.
Trans One did not retain an attorney and, consequently, filed no
pleadings recognized by the district court. The district court,
citing its earlier opinion in the cases against the Cottman
franchisees, Cottman Transmission Sys., Inc. v. Metro Distrib.,
Inc., 796 F. Supp. 838 (E.D. Pa. 1992), held that venue was
proper. In the Metro case, the court cited the forum selection
clause in the Cottman franchise agreement and rejected the
defendants' objections to venue. As further support for its
ruling, the district court referred to transactions between the
parties such as payments made by the Michigan franchisees to
Cottman in Pennsylvania, their ordering of parts and supplies
from Cottman's Pennsylvania offices, and the fact that the
franchisees "otherwise voluntarily accepted `long-term and
exacting regulation' of their businesses by Cottman." Id. at 843
(citing Cottman License Agreement ¶ 7).
When Martino and Trans One failed to appear at a
scheduled trial on the merits, defaults were entered against them
on the claims set forth in Cottman's three-count complaint.
After a hearing, the district court entered judgment on the
Lanham Act count in the amount of $355,438 but declined to award
damages on the counts that asserted breach of the A-1 contract
and unfair competition, finding that an additional recovery would
be "merely duplicative" of the relief already granted. The court
also awarded attorneys' fees under the Lanham Act and enjoined
Martino and Trans One from using the Cottman or A-1 trademarks.
On appeal, Martino and Trans One challenge a number of
district court rulings. Because we find the venue question to be
dispositive, we do not address the other alleged errors. See LeRoy v. Great W. United Corp., 443 U.S. 173, 180 (1979); Cameron
v. Thornburgh, 983 F.2d 253, 257 n.3 (D.C. Cir. 1993). In ruling on Martino's challenges to venue, the
district court overlooked the important distinction between the
case at hand and Metro. In that case, the suits were based on a
breach of the Cottman franchise agreement, and its terms were
critical. The pertinent provision stated that "[w]ith respect to
any legal proceedings arising out of [the Cottman] Agreement,
[franchisee] and COTTMAN consent to the jurisdiction and venue of
. . . the United States District Court for the Eastern District
of Pennsylvania, and any legal proceedings arising out of [that]
Agreement shall be brought only in such court[] . . . ." Cottman
License Agreement ¶ 27.
However, the present complaint against Martino does not
arise under the Cottman franchise agreement, but under the A-1
franchise agreement and the Lanham Act. Any doubt on this point
was removed when counsel for Cottman, in argument before the
district court, stated: "[O]ur claim against Mr. Martino, which
is before you, does not include any claim under the Cottman
license agreement." Counsel explained his client's position to
be that after the Cottman agreement was rescinded, Martino
reverted to being a franchisee of A-1 Transmissions. Having
taken an assignment from A-1, Cottman contended that it therefore
had the right to enforce the A-1 franchise agreement. As counsel
remarked, "We wish them to go back to the A-1 license."
Because the present suit does not arise under the
Cottman franchise agreement, the choice of venue provision of that contract has no application, and we delete it from further
consideration. The A-1 franchise agreement does not contain a
forum selection clause, and we therefore look to the record to
determine whether, under the pertinent statutory provisions,
venue was proper in the Eastern District of Pennsylvania.
I.
28 U.S.C. § 1391(a)(2) provides that in diversity
cases, suit may be brought in "a judicial district in which a
substantial part of the events or omissions giving rise to the
claim occurred, or a substantial part of property that is the
subject of the action is situated." In actions that are not
founded solely on diversity, the venue requirements can be found
in § 1391(b). See, e.g., Indianapolis Colts, Inc. v.
Metropolitan Baltimore Football Club, Ltd., 1994 WL 423471, at *2
(7th Cir. Aug. 12, 1994) (trademark infringement); Dakota Indus.,
Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1392 (8th Cir.
1991) (same). Section 1391(b)(2) repeats precisely the wording
of section 1391(a)(2).
Section 1391 was amended in 1990 by the Judicial
Improvements Act of 1990 in response to a recommendation of the
Federal Courts Study Committee. See Report of the Fed. Courts Study Comm. 94 (Comm. Print 1990). The Report pointed out that
the reference in the earlier version of section 1391(b) to the
district "in which the claim arose" led to wasteful litigation
whenever several different forums were involved in the transactions leading up to the dispute. The House Report noted
that the new language was in accord with that recommended earlier
by an American Law Institute study. See H.R. Rep. No. 734, 101st
Cong., 2d Sess. 23 (1990), reprinted in 1990 U.S.C.C.A.N. 6860,
6869.
The amendment changed pre-existing law to the extent
that the earlier version had encouraged an approach that a claim
could generally arise in only one venue. However, the current
statutory language still favors the defendant in a venue dispute
by requiring that the events or omissions supporting a claim be
"substantial." Events or omissions that might only have some
tangential connection with the dispute in litigation are not
enough. Substantiality is intended to preserve the element of
fairness so that a defendant is not haled into a remote district
having no real relationship to the dispute.
The Federal Courts Study Committee's recommendation was
based on the underlying aim of simplifying litigation rather than
displacing the existing policy that showed due consideration for
the defendant. In that context, LeRoy v. Great W. United Corp.,
443 U.S. 173 (1979) still retains viability. There, the Supreme
Court explained: "In most instances, the purpose of statutorily
specified venue is to protect the defendant against the risk that a plaintiff will select an unfair or inconvenient place of
trial." Id. at 183-84 (footnote omitted). Although LeRoy was
decided before the 1990 amendment, it is interesting that in discussing venue, the Court weighed the "actions" taken in the
District of Idaho before declaring the Northern District of Texas
as an inappropriate situs for the litigation. Id. at 185-86.
The test for determining venue is not the defendant's
"contacts" with a particular district, but rather the location of
those "events or omissions giving rise to the claim,"
theoretically a more easily demonstrable circumstance than where
a "claim arose." Although the statute no longer requires a court
to select the "best" forum, Setco Enters. v. Robbins, 19 F.3d
1278, 1281 (8th Cir. 1994), the weighing of "substantial" may at
times seem to take on that flavor.
In Cameron, 983 F.2d at 257, a suit brought against
federal prison officials, the Court observed that "[i]t seems
abundantly clear that the `events and omissions' relevant to this
case took place predominantly" at the prison where the plaintiff
was incarcerated. Consequently, that location was determined to
be the proper venue for that case. Similarly, in Bates v. C & S
Adjusters, Inc., 980 F.2d 865, 868 (2d Cir. 1992), the Court of
Appeals for the Second Circuit concluded that the receipt of a
challenged debt collection letter was "a substantial part of the
events giving rise to a claim under the Fair Debt Collection
Practices Act." The Court pointed out that the Act is intended
to prevent the type of injury that did not occur and would not
occur until receipt of the letter. Id. Therefore, the place
where the letter was received was a proper venue. In Tefal, S.A. v. Products Int'l Co., 529 F.2d 495, 496
n.1 (3d Cir. 1976), we concluded that under the pre-1990 venue
statute, "a cause of action for trademark infringement arises
where the passing off occurs." See also Indianapolis Colts, 1994
WL 423471, at *2 (citing 4 J. Thomas McCarthy, McCarthy on
Trademarks and Intellectual Property § 32.22(3)(b)(iii) (3d ed.
1994)); Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633,
639 (2d Cir. 1956). Under Tefal, if the infringement of a
registered trademark occurred solely within one district, then
only in that district would venue be proper. By the same token,
however, if the infringement occurred in other districts as well,
then venue could be proper in more than one district. Tefal, 529
F.2d at 497. The 1990 amendment to the venue statue did not
necessarily shift the judicial focus away from the place of
infringement for establishing proper venue in Lanham Act cases.
II.
With this background, we proceed to examine the nature
of the suit brought by Cottman against Martino and Trans One.
The breach of contract count is based on the contention that the
A-1 franchise had been assigned to Cottman and was revived after
the recision of Cottman's own franchise. The A-1 agreement
recites that it is deemed to have been made in Michigan and is to
be construed in accordance with the law of that state.
Cottman also asserts that by operating a competing
transmission facility under the name of "U.S.A. Transmissions" beginning in the spring of 1992, Martino violated the non-
competition clause of the A-1 agreement and engaged in unfair
competition. Martino allegedly failed to remove A-1 advertising,
signs, business cards, and continued to use the Cottman telephone
numbers listed in the Michigan Bell yellow pages. The Lanham Act
count is based on Martino's and Trans One's conduct after the
spring of 1992 in their alleged unauthorized use of the Cottman
and A-1 trademarks in connection with the operation of the U.S.A.
Transmissions business in Michigan.
In asserting venue in the Eastern District of
Pennsylvania, the complaint alleges that Martino and Trans One
have "participated in conduct in this district and [have] caused
plaintiff to suffer injury in this district." In its brief in
this Court, Cottman asserts that there were three substantial
acts and omissions that gave rise to its cause of action in the
Eastern District of Pennsylvania, namely: (1) Martino was
obligated to pay license fees to Cottman in Pennsylvania, but
failed to do so; (2) he failed to return A-1 advertising items to
Cottman in Pennsylvania;1 and (3) Cottman prepared the Michigan
Bell yellow page advertisements in Pennsylvania and from there
caused them to be placed in the Michigan telephone directories.
1 . In its brief, Cottman also asserts that Martino was required by the Cottman franchise agreement to return trademarked items to it in Pennsylvania. We will not consider this contention because it is contrary to plaintiff counsel's assertion in the district court that the case did not include any claims under the Cottman franchise agreement. In assessing whether events or omissions giving rise to
the claims are substantial, it is necessary to look at the nature
of the dispute. The contract on which Cottman bases its state-
law claims was executed and performed in Michigan. Martino's
transmission repair center was located there. The telephone
directories were issued and used there. Finally, the alleged
unauthorized use of the trademarks at issue occurred in Michigan,
not in Pennsylvania. It is obvious that most, if not all, of the
significant events occurred in Michigan.
The omissions that Cottman cites -- Martino's failure
to return various materials and failure to remit payments --
actually occurred in Michigan, not in Pennsylvania. Even though
the result was Cottman's non-receipt of those items in
Pennsylvania, the omissions bringing about this result actually
occurred in Michigan. Although this conclusion may seem to hinge
on a question of "whether the glass is half full or half empty,"
we fail to see how these omissions could "give rise" to the
claims that Cottman presents.
The sole event in the Eastern District of Pennsylvania
of possible relevance to this case was Cottman's preparation of
advertisements for the Michigan Bell yellow pages. However, even
this allegation is questionable because that work may have been
performed solely in connection with the previously expired
Cottman franchise, rather than that of A-1. At any rate, as we held in Tefal, 529 F.2d at 496-97,
the focus of our venue inquiry in a Lanham Act trademark
infringement case is the location where the unauthorized passing
off takes place -- whether that occurs solely within one district
or in many. See also Dakota Indus., 946 F.2d at 1388 (discussing
without deciding the issue). The district in which the infringed
trademark was originally prepared or initiated is not
determinative. The record does not support an assertion that
Martino attempted to pass off the trademarks at issue in the
Eastern District of Pennsylvania but, to the contrary, reveals
that the alleged infringement occurred solely within the Eastern
District of Michigan.
Cottman cannot rely on the fact that it prepared and
placed the advertisements in the Eastern District of Pennsylvania
as a basis for establishing venue in that district. In short,
under 28 U.S.C. § 1391(b) and Tefal, venue in the Eastern
District of Pennsylvania for Cottman's claim of trademark
infringement has not been established.
The only events sufficiently substantial to give rise
to Cottman's present causes of action occurred in the Eastern
District of Michigan. Therefore, as to Martino, the objections
to improper venue should have been sustained and the case
transferred to Michigan. See Goldlawr, Inc. v. Heiman, 369 U.S. 463 (1962). Martino's solely owned corporation, Trans One, stands
on a somewhat different footing. In LeRoy, 443 U.S. at 180, the
Court emphasized that venue is a personal privilege of the
defendant and may be waived. See also Fed. R. Civ. Proc.
12(h)(1). As noted earlier, no attorney appeared for Trans One,
and no objection to venue was filed on its behalf in the district
court. Hence, Trans One may be said to have waived its objection
to venue. However, the status of the judgment against it must be
examined in light of the circumstances of this case.
28 U.S.C. § 1406(a) provides that "[t]he district court
of a district in which is filed a case laying venue in the wrong
division or district shall dismiss, or if it be in the interest
of justice, transfer such case to any district or division in
which it could have been brought." Dismissal would not have been
appropriate on the record here, and as to Martino, the proper
procedure would have been to transfer. Assuming that Trans One
waived venue, the issue is whether the claims against it should
also have been transferred along with the ones against Martino.
In the situation where venue is proper for one
defendant but not for another and dismissal is inappropriate, the
district court has a choice. One option is to transfer the
entire case to another district that is proper for both
defendants. Another alternative is to sever the claims,
retaining jurisdiction over one defendant and transferring the
case as to the other defendant to an appropriate district. See In re Fine Paper Antitrust Litig., 685 F.2d 810, 819 (3d Cir.
1982); 15 Charles Alan Wright et al., Federal Practice &
Procedure § 3827, at 275-76 (1986 & Supp. 1994).
In Sunbelt Corp. v. Noble, Denton & Assocs., Inc., 5
F.3d 28 (3d Cir. 1993), we adopted the position "that [the court]
should not sever if the defendant over whom jurisdiction is
retained is so involved in the controversy to be transferred that
partial transfer would require the same issues to be litigated in
two places." Id. at 33-34. (internal quotation omitted). When
the conduct of a co-defendant as to whom venue is proper is
central to the issues raised by the plaintiff against those
subject to transfer, the grant of a severance would not
ordinarily be consistent with the sound exercise of discretion.
See id. at 34.
The facts in this case leave no room for doubt that
Trans One, owned solely by Martino, is directly connected to the
main issues, and accordingly, severance by the district court
would not have been proper. We conclude, therefore, that the
proper procedure in this case would have been to transfer the
case in its entirety to the Eastern District of Michigan.
The final question to be addressed is the appropriate
remedy in this case. We have indicated that only in rare
instances will we invoke mandamus jurisdiction to review a
transfer order. See Carteret Sav. Bank, FA v. Shushan, 919 F.2d 225, 232-33 (3d Cir. 1990). It is therefore unlikely that an erroneous ruling on improper venue will be examined by this Court
except on appeal. Even so, one Court has held that it would not
reverse on the ground of improper venue after a judgment was
entered on the merits, absent a showing of prejudice as a result
of the erroneous ruling. See Whittier v. Emmet, 281 F.2d 24, 30-
31 (D.C. Cir. 1960). The controlling factors in that case,
however, were somewhat unique; the defendant was the United
States government, and the dispute centered on a provision of a
life insurance policy issued by the government. In those
circumstances, venue was really only of academic interest. In
Save Our Cumberland Mountains, Inc. v. Clark, 725 F.2d 1434 (D.C.
Cir. 1984), reh'g en banc granted and vacated without op., No.
83-1224, slip op. (D.C. Cir. Apr. 23, 1984), and appeal dismissed
per stipulation, No. 83-1224, slip op. (D.C. Cir. Nov. 6, 1984),
the same Court found the Whittier reasoning not applicable in
other circumstances.
In contrast, the Supreme Court in Olberding v. Illinois
Cent. R.R., 346 U.S. 338 (1953), reversed a plaintiff's judgment
because of improper venue even though the case had been tried to
a jury. Justice Frankfurter characterized the venue issue as "a
horse soon curried" and apparently had no difficulty with having
a retrial. Id. at 340. In Gogolin & Stelter v. Karn's Auto
Imports, Inc., 886 F.2d 100 (5th Cir. 1989) and United States ex
rel. Harvey Gulf Int'l Marine Inc. v. Maryland Casualty Co., 573
F.2d 245 (5th Cir. 1978), the Court of Appeals for the Fifth Circuit held that a judgment on the merits would be reversed or
vacated and the cases remanded for transfer or dismissal if it is
determined on appeal that venue was improper in the district
court. See also Bechtel v. Liberty Nat'l Bank, 534 F.2d 1335
(9th Cir. 1976); Lied Motor Car Co. v. Maxey, 208 F.2d 672 (8th
Cir. 1953); cf. Michigan Nat'l Bank v. Robertson, 372 U.S. 591
(1963) (per curiam).
In this case, we cannot overlook the fact that Martino
proceeded pro se, no counsel was engaged to represent Trans One,
the judgments were obtained by default, defendants were not
present during the hearing on damages, and a review of the record
reveals that both Martino and Trans One have colorable defenses
on liability and damages. These circumstances persuade us that
proceeding with the case in an improper forum had a substantially
detrimental effect on defendants. In these circumstances, we
conclude that the interest of justice will best be served by
vacating the judgment of the district court and transferring the
entire case to the Eastern District of Michigan.
We have authority to transfer the case without imposing
that task on the district court. See, e.g., Minnette v. Time
Warner, 997 F.2d 1023, 1026-27 (2d Cir. 1993); Cameron, 983 F.2d
at 257; Cox Enters. v. Holt, 691 F.2d 989, 990 (11th Cir. 1982)
(per curiam); Dr. John T. MacDonald Found., Inc. v. Califano, 571
F.2d 328, 332 (5th Cir. 1978) (en banc). Accordingly, the judgments of the district court will
be vacated, and the case will be transferred to the Eastern
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