Second Circuit Clarifies Showing Necessary to Satisfy New York’s Long-Arm Statute for Cases Involving Foreign, Internet-Based Companies

By Zach Smith

The Second Circuit recently reversed a district court’s dismissal for lack of personal jurisdiction in American Girl, LLC’s (“American Girl”) Lanham Act lawsuit against Chinese e-commerce company Zembrka. The Second Circuit held that American Girl established personal jurisdiction under New York’s long-arm statute and that the exercise of personal jurisdiction did not violate due process.

In March 2021, American Girl sued Zembrka in the Southern District of New York, alleging that Zembrka sold counterfeit and trademark-infringing versions of American Girl’s products and prominently used American Girl’s trademarks on its website. American Girl moved for a temporary restraining order (“TRO”), which the district court granted, but Zembrka subsequently moved to dissolve the TRO and dismiss the complaint for lack of personal jurisdiction. The parties disputed whether Zembrka had transacted business in New York, as required to establish personal jurisdiction over a non-domiciliary under New York Civil Practice Law and Rules § 302(a)(1). The district court dissolved the TRO and granted the motion to dismiss because Zembrka did not transact business in New York for the purposes of § 302(a)(1).

American Girl appealed, arguing that Zembrka had transacted business in New York because its New York customers successfully placed orders on Zembrka’s website and received email confirmations that the orders would ship to their New York addresses. Zembrka argued that it did not transact business in New York because it cancelled any orders to New York residents, refunded the purchase price of said orders, and never actually shipped any products into New York.

The Second Circuit explained that to establish personal jurisdiction under § 302(a)(1), a plaintiff must show that (1) a defendant transacted business in the state, and that (2) the claims arise from the transactions. The court held that there was no dispute the Lanham Act claims arose from the disputed transactions. The court therefore focused on the first element and explained that an entity transacts business under the rule if it “purposefully avails itself of the privilege of conducting activities within New York.”

The Second Circuit held § 302(a)(1)’s “transacting business” element does not require a “shipment” or a “completed sale,” but rather only requires a “transaction,” so the fact that no goods had ultimately been shipped to New York was inconclusive. Thus, the court analyzed the “interactive” nature of Zembrka’s website with New York customers. The court explained that long-arm jurisdiction is appropriate when a commercial entity uses electronic means to transact business within the state, and a website’s level of interactivity can help determine if the entity transacted business under the rule. According to the court, Zembrka’s website was not just “accessible” to New York customers but “highly interactive” because a New York customer could submit an order through the website, which in turn triggered a confirmation email. For these reasons, the court held that Zembrka purposefully availed itself of the privilege of conducting activities within New York and “transacted business” under § 302(a)(1).

Finally, the court held that the exercise of personal jurisdiction over Zembrka satisfied due process. The court analyzed whether Zembrka had “minimum contacts” with New York and whether the exercise of personal jurisdiction would “comport with fair play and substantial justice.” The court held Zembrka had “minimum contacts” with New York for the same reason that § 302(a)(1)’s “transacting business” requirement had been satisfied. The court also held that the exercise of personal jurisdiction would be reasonable, especially given Zembrka’s extensive (not merely “minimum”) contacts with the state and New York’s interest in consumer protection.

At least in the Second Circuit, personal jurisdiction over foreign, internet-based companies may exist even for contacts within a state that are entirely virtual, such as accepting online orders and sending a confirmation email.