1994 Decisions

Opinions of the United

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Precedential or Non-Precedential: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
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 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 noncompetition 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 statelaw 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 

District of Michigan. 

___________________________________