Allergy Research Grp. v. Rez Candles, Inc.

ALLERGY RESEARCH GROUP LLC, a Delaware limited liability company, Plaintiff, v. REZ CANDLES INC., a Delaware corporation, and REZA DAVACHI, an individual, Defendants.

No. 2:21-cv-73-TC-JCB

United States District Court, D. Utah

August 30, 2021

ORDER AND MEMORANDUM DECISION

TENA CAMPBELL U.S. District Court Judge

Plaintiff Allergy Research Group (ARG) brings this trademark action against Defendants Rez Candles Inc. and Reza Davachi. It asserts six claims: trademark infringement under the Lanham Act; unfair competition under the Lanham Act; common law unfair competition; deceptive trade practices under a Utah statute; unfair competition under a Utah statute; and tortious inference with contractual relations.

Defendants ask the court to dismiss those claims because the court does not have personal jurisdiction over them. For the reasons set forth below, the court finds that it has jurisdiction to resolve ARG's claims against Rez Candles but not ARG's claims against Mr. Davachi.

Factual Background^[1]

ARG, a company based in Salt Lake City, sells nutritional and dietary supplements online and through third-party retailers. ARG has registered numerous trademarks connected to its brand and products.

Defendant Rez Candles is a Maryland-based company with a substantial nationwide business selling thousands of products through its third-party storefront on Amazon.com and its own website. Rez Candles' online activity includes advertising and selling hundreds of ARG's products. Despite its national online presence, “Rez Candles operates its business, responds to customer questions, stores inventory, and ships orders from Maryland.” (Decl. of Reza Davachi ¶ 8, ECF No. 15-1.)

Individual Defendant Reza Davachi, who lives and works in Maryland, is Rez Candles' owner and President. ARG accuses Mr Davachi, a former customer of ARG, of falsifying credentials with ARG's authorized distributors in order to conceal his identity. That, ARG says, allowed him to avoid liability for violating those distributor's policies and precluded ARG's ability to enforce its distribution rules.

Even though Rez Candles is not an ARG-approved seller, it has sold many ARG products to Utah consumers. According to ARG, Rez Candles purchases ARG products from authorized sellers, then repackages and resells the products to online consumers. This practice avoids ARG's strict quality control procedures and results in sales of low-quality products bearing ARG's trademarks. ARG alleges that Rez Candles may be using “risky fulfillment practices.”

In addition to its claims against Rez Candles, ARG contends that Mr. Davachi is personally liable. ARG alleges, on information and belief, that Mr. Davachi either sells the products himself, or, alternatively, “directs, controls ratifies, participates in, or is the moving force behind the sales of infringing products[.]” (Compl. ¶ 138 ECF No. 2.) ARG also alleges, again on information and belief, that “Rez Candles Inc[.] follows so few corporate formalities and is so dominated by Davachi that it is merely an alter ego of Davachi.” (Id. ¶ 139.) In response, Mr. Davachi says “[a]ll of [his] work to help run Rez Candles' operations, websites advertisements, and sales is done as Owner and President of Rez Candles.” (Davachi Decl. ¶ 3.)

ARG alleges that “Defendants' ongoing sale of non-genuine products bearing the ARG Registered Trademarks harms the ARG brand.” (Compl. ¶ 141.) According to ARG, it has suffered “significant monetary harm as a result of Defendants' actions including, but not limited to, loss of sales, damages to its intellectual property, and potential business relations.” (Id. ¶ 142.) It further states that Defendants' actions have caused “irreparable harm to its reputation, goodwill, business and customer relationships, intellectual property rights, and brand integrity.” (Id. ¶ 143.)

After ARG discovered Rez Candles' sales, it sent three cease-and-desist letters during the period of July 2020 to January 2021. In its letters, which identified ARG as a Utah company, ARG told Rez Candles and Mr. Davachi that ARG owned the trademark and that Defendants were interfering with ARG's contractual relationships with authorized sellers. ARG also threatened legal action if Defendants did not stop selling ARG products. Despite receiving those communications, Defendants continued to advertise and sell the infringing products to customers, including customers in Utah. ARG then filed this suit.

Defendants' Rule 12(b)(2) Motion to Dismiss

Defendants ask the court to dismiss the case for lack of personal jurisdiction. “Personal jurisdiction can be acquired through either general jurisdiction or specific jurisdiction.” Xmission, L.C. v. Fluent LLC 955 F.3d 833, 840 (10th Cir. 2020). Defendants assert that the court has neither. ARG concedes the court does not have general jurisdiction but maintains the court has specific jurisdiction. “Specific jurisdiction … allows a court to exercise jurisdiction over an out-of-state defendant only for claims related to the defendant's contacts with the forum State.” Id.

To determine whether this court has jurisdiction, the court must analyze whether exercising jurisdiction over the Defendants comports with due process.^[2] Id. at 839. To do this, the court considers whether the defendants have minimum contacts with Utah “such that having to defend a lawsuit there would not ‘offend traditional notions of fair play and substantial justice.'” Dudnikov v. Chalk & Vermillion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). That is, the defendant's contacts with the forum state “must be such that the defendant should reasonably anticipate being haled into court there.'” Xmission, 955 F.3d at 839-40 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).

ARG has the burden to establish jurisdiction. Id. at 839. But because the court is not conducting an evidentiary hearing, ARG need only make a prima facie showing that personal jurisdiction exists. Id. ARG can establish jurisdiction through affidavits or other written materials, including the complaint (to the extent the defendant has not presented evidence contradicting those allegations). Id. The court must take uncontroverted well-pled allegations in the complaint as true. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995). If the plaintiff establishes the defendant has minimum contacts with the forum state, the defendant, to avoid litigating in the forum state, must present “‘a compelling case that the presence of some other considerations would render jurisdiction unreasonable.'” Xmission, 955 F.3d at 840 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)).

1. Minimum Contacts

“Specific jurisdiction is proper if (1) the out-of-state defendant ‘purposefully directed' its activities at residents of the forum State, and (2) the plaintiff's alleged injuries ‘arise out of or relate to those activities.'” Id. (quoting Burger King, 471 U.S. at 472).

a. Purposeful Direction

In order to conclude that Defendants purposefully directed their activities at Utah, the court must find a substantial connection between their activities and Utah. Emp'rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1160 (10th Cir. 2010. This ensures the court does not require an out-of-state defendant to account for “random, fortuitous, or attenuated contacts” with the forum state, “the unilateral activity of another party or third person, ” or “the mere foreseeability that its actions may cause injury in that jurisdiction.” Xmission, 955 F.3d at 840- 41 (internal quotation marks and citations omitted).

Case law allows a plaintiff to establish purposeful direction by showing “harmful effects in the forum State” or “exploitation of the forum-State market.” Id. at 841. Under the “harmful effects” test, which is most relevant here, a plaintiff may establish purposeful direction by showing that “an out of-state defendant's intentional conduct targets and has substantial harmful effects in the forum state.” Old Republic Ins. Co. v. Cont'l Motors, Inc., 877 F.3d 895, 907 (10th Cir. 2017).

The United States Supreme Court laid out the harmful effects test in Calder v. Jones, 465 U.S. 783 (1984). Calder requires a plaintiff to show that the defendant (1) intentionally committed an act (2) expressly aimed at the forum state (3) with the “knowledge that the brunt of the injury” would be felt in that state. Dudnikov, 514 F.3d at 1072. Under the circumstances here, ARG has established that Rez Candles purposefully directed its activities at Utah. ARG has not, however, done the same for Mr. Davachi.

i. Rez Candles

Rez Candles has a substantial nationwide business selling thousands of products, including ARG products, on Amazon.com and its website. Both online sites are interactive, meaning the customer can exchange information with Rez Candles and complete purchases through the sites. Rez Candles advertises more than four hundred ARG products, which it regularly sells and ships to Utah-based consumers. According to ARG, those sales include the unauthorized use of ARG's trademark.

Rez Candles downplays those allegations, arguing that it has not targeted Utah. Reza Davachi states in his declaration that Rez Candles' sales to Utah have been “minimal” over the past few years.^[3] (Davachi Decl. ¶ 10.) Rez Candles points out that all acts giving rise to ARG's complaint (for instance, operating the website and shipping products) occurred in Maryland. In addition, it emphasizes that its online presence, where it advertises and sells to consumers throughout the United States, does not focus exclusively on Utah.

Those facts, including Rez Candles'...