The Second Circuit Court of Appeals held that a plaintiff’s economic losses were not enough to establish personal jurisdiction under New York’s long-arm statute. Troma Entertainment, Inc. v. Centennial Pictures, Inc., et al., Case No. 12-1883-cv (2d Cir. September 6, 2013) (available here). Troma Entertainment sued Defendants for copyright infringement under the Copyright Act and several New York state law claims. Troma alleged that the lower court had personal jurisdiction over the Defendants under New York’s long-arm statute section 302(a)(3)(ii), which allows for personal jurisdiction over a defendant when the allegedly tortious conduct causes injury to a person or property within New York. The lower court concluded that Troma had not shown an in-state injury and dismissed the case against Defendants-appellees Lance H. Robbins and King Brett Lauter. Troma appealed. On appeal, the Second Circuit affirmed, finding no personal jurisdiction.
Troma is a New York-based company that produces and distributes “controlled budget motion pictures,” such as the two spoof films titled “Citizen Toxie, Toxic Avenger Part IV,” created by Troma, and “Poultrygeist: Night of the Chicken Dead,” which Troma owns distribution rights (“the Movies”). In 2009, Troma authorized defendant-appellee Robbins to represent Troma in negotiating a license to distribute the rights to the Movies with a German distributor. The authorization was supposed to lapse after 30 days if no agreement was reached. Troma believed that Robbins was unable to negotiate a deal at the end of the 30 days. However, Robbins had conspired with co-defendant-appellee King Brett Lauter (“Lauter”) to enter into a distribution agreement with a German distribution company called Intravest Beteiligungs GMBH (“Intravest”). Troma alleged that Robbins and Lauter falsely told Intravest they owned the rights to the Movies; purchased copies of the movies from Amazon.com and delivered the copies to Intravest; and kept the proceeds of the agreement without telling Troma. However, none of these actions took place in New York.
In 2010, Troma discovered that Intravest was broadcasting the Movies in Germany, and in 2011 Troma sued. Robbins and Lauter moved to dismiss for lack of personal jurisdiction. The lower court held that the New York long-arm statute did not allow the court to exercise personal jurisdiction over Robbins and Lauter because Troma did not show that Robbins’s and Lauter’s actions caused injury in New York. Troma had the opportunity to transfer the case to California, where personal jurisdiction over the defendants could have been exercised (because Robbins and Lauter allegedly created their plan in California), but declined the transfer. As such, the lower court dismissed Troma’s case.
The Second Circuit had to determine whether the lower court was correct in holding that it could not exercise personal jurisdiction over Robbins and Lauter. Troma argued that personal jurisdiction existed under section 302(a)(3)(ii), which confers personal jurisdiction over one who “commits a tortious act without the state causing injury to person or property within the state . . . if he . . . expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” N.Y. C.P.L.R. § 302(a)(3)(ii). Thus, the issue was whether Robbins’s and Lauter’s actions caused such injury in New York. Troma argued that their actions did cause such injury, because the actions resulted in a loss of sales and generalized harm to Troma’s exclusive distribution rights over the Movies. However, the fact that Troma is a New York corporation is insufficient on its own to confer personal jurisdiction over Robbins and Lauter.
Troma’s argument rested mainly on the New York Court of Appeals’ decision in Penguin Group (USA), Inc. v. American Buddha (“Penguin II”), 16 N.Y. 3d 295 (2011). In Penguin II, plaintiff Penguin Group alleged that defendant American Buddha infringed its copyrights of several books by uploading copies of the books to its Internet website free of charge. On appeal, the Second Circuit certified a question to the New York Court of Appeals: “In copyright infringement cases, is the situs of injury for purposes of determining long-arm jurisdiction under N.Y. C.P.L.R. § 302(a)(3)(ii) the location of the infringing action or the residence or location of the principal place of business of the copyright holder?” Id. at 34. The Court of Appeals accepted the question but narrowed it to the specific situation of when a copyright infringement case involves the uploading of a copyrighted printed literary work onto the Internet. The Court of Appeals held that the situs of injury was where the copyright owner was located. The Court of Appeal’s decision rested on two factors. “The first was the nature of the alleged infringement, viz., the uploading and making available of Penguin Group’s copyrighted works by means of the Internet. . . The second factor upon which the Court of Appeals rested its decision was ‘the unique bundle of rights granted to copyright owners.’” Troma, Slip Op. Pp. 10-11.
The holding in Penguin II is too narrow to control to Troma’s case. While Penguin II dealt with a copyright infringement injury that was virtually impossible to localize (uploading and making available of copyrighted materials, free of charge, to anyone with access to the Internet), Troma does not allege any conduct that does not have a centralized locality. Thus, the Second Circuit concluded that Troma’s case was a traditional commercial tort case in which the place where Troma’s business was lost of threatened influences the jurisdictional analysis. Troma offered no evidence as to how New York would be such an influence. “Troma is left, then, to rely on the Court of Appeals’ endorsement of the theory that out-of-state infringement may harm the bundle of rights held by a New York-based copyright owner in New York.” Troma, Slip Op. P. 13. However, this is only a theory of injury. There is nothing in the Penguin II decision that would allow Troma to bypass the obligation to allege facts showing a direct New York-based injury. Troma’s allegations of generalized harm to its distribution right were too speculative to support a finding of New York-based injury. Instead, Troma’s alleged injury is simply economic losses, which are insufficient for personal jurisdiction. As a result, the Second Circuit affirmed the dismissal of Troma’s case.