Second Circuit Finds Personal Jurisdiction over Chinese Company in “American Girl” Doll Case

The Second Circuit has reversed a ruling by a federal court in the Southern District of New York dismissing copyright and trademark claims over sales of counterfeit “American Girl” dolls. The Circuit Court found that the defendant Chinese company transacted business in New York State by selling to New York customers through its websites, giving New York courts personal jurisdiction over the Chinese company under New York’s long-arm statute.

The case is American Girl, LLC v. Zembrka.

As the court noted, American Girl is a well-known manufacturer of dolls, doll books, and doll accessories.

In March of 2021, American Girl sued Zembrka, a Chinese company, asserting counterfeiting and trademark infringement claims. The complaint showed images of dolls on the defendant’s websites identical to images on the plaintiff’s site.

Zembrka moved to dismiss the complaint for lack of personal jurisdiction.

Jurisdiction was based on two provisions of New York’s long-arm statute: C.P.L.R. § 302(a)(1) and (3)(ii).

Section 302(a) provides:

As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who, in person or through an agent:

1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or . . .

3. commits a tortious act without the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if he . . .

(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce[.]

In support of personal jurisdiction, American Girl showed that Zembrka maintained interactive websites through which customers, including those located in New York, could place orders and that customers were then sent confirmations of their orders. These orders were accompanied by simultaneous emails from PayPal with receipts for the orders, which listed New York addresses for shipment of Defendants’ products.

Zembrka’s lawyer admitted, “That product is offered for sale on the website, yes, and that can be purchased from the people from New York, from the United States, yes.”

However, the orders made by the plaintiff to provide evidence for the lawsuit were canceled by the defendant two weeks after the defendant was served in the lawsuit.

The District Court granted the motion because there was no evidence that Zembrka shipped the allegedly counterfeit products to New York and thus that the “transacting business” prong of N.Y. C.P.L.R. § 302(a)(1) had not been satisfied.

On appeal, the Circuit Court noted that Section 302 is a ‘single act statute’ and

proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.

For § 302(a)(1), the “jurisdictional inquiry is twofold: under the first prong, the defendant must have conducted sufficient activities to have transacted business in the state, and under the second prong, the claims must arise from the transactions.”

Transacting business under § 302(a)(1), said the court, means “purposeful activity—some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.”

According to the Circuit Court,

The evidence put forth by American Girl, as well as the representations by Zembrka’s counsel before this Court, convince us that Zembrka, indeed, purposefully availed itself of the privilege of conducting activities within New York and, thus, transacted business. American Girl plausibly contended that a Zembrka customer had successfully placed orders on Defendants’ website for counterfeit products to be shipped to New York. This customer received an email confirmation from Zembrka—emails that included the customer’s New York shipping address—stating “Order confirmed” and “We’re getting your order ready to be dispatched. We will notify you when it has been shipped.”

American Girl also submitted emails from PayPal to a New York customer containing receipts for five counterfeit products with shipping addresses in New York.

The court found that the fact that Zembrka canceled the orders and refunded the purchase price to the customer does not change this conclusion because Section 302(a)(1) doesn’t require a completed sale. It only requires a transaction.

The court noted that the law is clear that “long-arm jurisdiction is appropriately exercised over commercial actors who have . . . used electronic . . . means to project themselves into New York to conduct business transactions.” … That is precisely what Zembrka did. We have recognized that “a website’s interactivity may be useful for analyzing personal jurisdiction under section 302(a)(1) . . . insofar as it helps to decide whether the defendant transacts any business in New York.”

The District Court concluded that Zembrka had not transacted business under § 302(a)(1) because there was no evidence that they actually shipped goods to New York. This conclusion was incorrect, said the Circuit Court, saying that Section 1 302(a)(1) does not require a shipment but only a transaction.

The court also considered whether exercising personal jurisdiction over Zembrka comported with the due process protections of the US Constitution.

Said the court,

This inquiry usually proceeds in two steps—an analysis of whether each defendant has minimum contacts with the forum state and whether exercising jurisdiction would comport with fair play and substantial justice.

Here, the court found that for the same reasons that Zembrka’s engagement with New York satisfied § 302(a)(1), it also satisfied the minimum contacts requirement.

The court noted that the inquiry for whether exercising jurisdiction comports with fair play and substantial justice relies on five factors:

1. the burden that the exercise of jurisdiction will impose on the defendant;
2. the interests of the forum state in adjudicating the case;
3. the plaintiff's interest in obtaining convenient and effective relief;
4. the interstate judicial system’s interest in obtaining the most efficient resolution of the controversy; and
5. the shared interest of the states in furthering substantive social policies.

The court found that Zembrka ran the risk of being hauled into court by offering for sale allegedly counterfeit items New York customers could order and pay for.

Also, said the court,

New York has an exceptionally strong interest in protecting consumers and businesses in this state from the flow of counterfeit goods from abroad. That interest, we conclude, trumps the potential inconvenience of requiring foreigners to litigate in the courts of this State.