                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             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Precedential or Non-Precedential: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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                 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 non-

competition 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 state-

law 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.

___________________________________
