March 18, 2013
When You're Sued in a Faraway Place

By Cliff Ennico
SucceedingInYourBusiness.com

"I have a brick and mortar retail business in Pennsylvania.  A couple of years ago, I started selling my merchandise online and have had a really great experience with that, until now.

Most of my online sales come through a third-party retailer.  I send my stuff to their warehouse in California, and they fulfill all orders from my company website.  It's a great deal - they take care of shipping, sales tax and other costs on each transaction and remit the balance to me each month.

Last month, however, I received a summons to appear in court in California.  Apparently someone ordered a movie DVD on my website which turned out to be a counterfeit copy.  They reported it to the movie producer, who is now suing me.

Now before I ship any merchandise, I always check carefully to make sure everything's genuine.  When I told the warehouse company about the lawsuit, they told me that 'occasionally' they combine inventories from multiple sellers who are selling similar merchandise.  What must have happened here is that they sent someone else's (counterfeit) DVD to the customer who ordered from my website.  I told them never to do that anymore, and they said they wouldn't.

But I still have to deal with this lawsuit.  There's a hearing scheduled in California in a couple of weeks.  Should I plan to attend?"

Four words for you:  GET A LAWYER, NOW!!!

Whenever you are served with lawsuit papers, even if it's in a faraway place, you should never just close your eyes and hope it will go away.  It won't.  You need to hire a California lawyer who specializes in counterfeiting cases; search online for "California lawyer counterfeiting" followed by the city and state in which the hearing will be held, and you probably will come up with a few law firm websites you can contact.

First, you need to find out if this is a criminal case (where you will be hit with a fine) or a civil case (where you will be sued for damages).  There's a big difference, which your lawyer will explain.  A criminal conviction against your business will have big negative consequences for you, and you don't want to risk that happening "by default" if you don't show up.  You are better off defending the suit as best you can.

Hopefully the warehouse company will be able to trace the counterfeit DVD back to the company that originally shipped it to them (via barcode or sticker data).  If they can, that should be enough to get you off the hook.

If they can't, you will be fighting an uphill battle to prove to the California court that you weren't at fault here.  California has some of the toughest anti-counterfeiting statutes in the country (because just about all of the major media companies are headquartered there), and they really play hardball with violators, even innocent ones like yourself.

If this is a civil case (you are being sued for damages), you have a choice:  you can hire a California lawyer to appear in the case, or you can decide not to attend the hearing, let the movie producer get a default judgment against you (which they probably will), and then wait for them to try to enforce their judgment against you in Pennsylvania.

Under the "full faith and credit clause" of the federal Constitution, state courts are obligated to honor judgments that have been rendered in other states.  But there's a big loophole for "default judgments" where the defendant doesn't show up.  Many state court judges do not like to enforce "default judgments" from other states because an in-state resident (a taxpayer and voter) was denied his day in court.  Instead, they will order a new trial.  This will give you a chance to defend the case in Pennsylvania, on your home turf.  Every sports fan knows about the "home court advantage," and it applies here as well.

You should talk to a local lawyer in Pennsylvania about the likelihood of a local judge throwing out a California default judgment.  If he feels it's worth the risk, you can then sit back and wait to see what happens.

If you do make an appearance in the California case, however, and the judge out there rules against you, that will not be considered a "default judgment" - you have had your day in court, and a Pennsylvania judge will be duty-bound under the federal Constitution to honor that judgment.

In any case, it sounds like you have one heck of a case against the warehouse company that messed up here, especially if you can prove that all merchandise shipped to them was 100 percent genuine when it left your company.  Whether you talk to a California or a Pennsylvania lawyer, you should ask him or her about "impleading" the warehouse company (bringing them in as a co-defendant) in the lawsuit.   And maybe also the seller of the counterfeit DVD.

 Cliff Ennico (SucceedingInYourBusiness.com), a leading expert on small business law and taxes, is the author of Small Business Survival Guide, The eBay Seller's Tax and Legal Answer Book, and 15 other books.  COPYRIGHT 2013 CLIFFORD R. ENNICO.  Permission granted for use on DrLaura.com.


Posted by Staff at 12:13 AM