A federal appeals court in New York has clarified the jurisdictional requirements for lawsuits waged against international internet-based sellers in a case that is being closely watched by companies across industries. In a newly-issued decision, the U.S. Court of Appeals for the Second Circuit held that China-based e-commerce company Zembrka, which was named in a lawsuit by American Girl LLC for trademark infringement and counterfeiting, had “purposefully availed itself of the privilege of conducting activities within New York” and engaged in sufficient business activity to be subject to jurisdiction under the state’s long-arm statute.
According to the Second Circuit panel of judges, personal jurisdiction was established when Zembrka “accepted orders with New York shipping addresses, sent confirmatory emails … containing commitments to ship to those New York addresses, and accepted payments from a customer with a New York address,” even though the alleged counterfeit American Girl doll products it sold were never shipped and the transactions were refunded. In its decision, which was issued on September 17, the Second Circuit held that because Zembrka’s websites are “highly interactive,” allowing New York customers to submit orders, input payment information, and receive order confirmations, the company “transacted business” in the state. This remains the case even if the orders were ultimately canceled or refunded and no infringing products were shipped to customers in New York.
Beyond dealing a blow to Zembrka and its argument that it should not be subject to the U.S. court’s jurisdiction, the court’s determination highlights the broader implications of a state’s jurisdictional reach in cases involving foreign e-commerce companies, with the appeals court stating that New York’s long-arm statute “doesn’t require a completed sale. It only requires a transaction.”
The Second Circuit sent the case back to the U.S. District Court for the Southern District of New York for further deliberation over the underlying trademark infringement case,
The Background: The case got its start in March 2021, when well-known doll-maker American Girl filed suit against Zembrka for allegedly selling “counterfeit and infringing versions” of their iconic products to U.S. customers, including New York residents. Shortly after filing the lawsuit, American Girl secured a temporary restraining order, which prevented Zembrka from “marketing, manufacturing, or distributing counterfeit American Girl products or from advertising counterfeit or confusingly similar American Girl marks.”
American Girl’s victory was short-lived, as Zembrka successfully moved to have the case dismissed, arguing that it had not transacted business in New York because no goods were actually shipped to the state. The company emphasized that orders placed by New York customers had been refunded, claiming there was no transaction to justify personal jurisdiction over the Chinese company. In April 2021, the district court granted Zembrka’s motion, with SDNY Judge Mary Kay Vyskocil concluding that without physical shipments of goods, American Girl had “failed to establish that Zembrka transacted business in New York.”
American Girl filed a motion for reconsideration, pointing out that 38 New York customers had placed orders for counterfeit American Girl products in March 2021 and that 700 purchases made by New York customers totaled $41,369.72. However, the district court denied the motion, reemphasizing that no business transaction occurred because “no products actually shipped to New York.”
American Girl’s Appeal
On appeal, American Girl argued that the district court had “misinterpreted” New York’s long-arm statute by applying an overly narrow interpretation of what constitutes transacting business under C.P.L.R. § 302(a)(1). American Girl argued that Zembrka’s conduct – “maintaining interactive websites through which customers, including those located in New York, could place orders by inputting their billing and payment information, shipping addresses, and contact information” – was sufficient to establish personal jurisdiction. The company asserted that Zembrka’s actions went beyond mere accessibility of a website; instead, the company actively engaged in business transactions with New York customers by accepting orders and payments, issuing order confirmations, and only later canceling the transactions after the fact. According to the decision, American Girl highlighted that “a website’s interactivity may be useful for analyzing personal jurisdiction under section 302(a)(1)” and that Zembrka’s operation of these interactive websites was clearly aimed at conducting business in New York.
Zembrka, on the other hand, continued to claim that the transactions were incomplete, as no goods had been delivered and also that New York’s jurisdiction should not extend to canceled orders or refunded payments. The company emphasized that it did not purposefully avail itself of the benefits of doing business in New York, arguing that its websites were only accessible to New York residents and not specifically targeting them. Because the company’s “current policy is that no products are offered for sale to the United States” therefore no meaningful commercial activity was directed toward New York and no business transaction had taken place, Zembrka argued.
The Second Circuit’s Decision
In reversing the district court’s decision, the Second Circuit held that Zembrka had indeed conducted business in New York under C.P.L.R. § 302(a)(1). The court stated that New York’s long-arm statute is a “single-act statute” and that “proof of one transaction in New York is sufficient to invoke jurisdiction,” even if the defendant never enters the state, so long as the defendant’s activities are purposeful. The appellate court in its ruling stated 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.”
It also found that “the fact that Zembrka canceled the orders and refunded the purchase price to the customer does not change this conclusion.” The court, in clarifying that under the statute jurisdiction can be established based on the initiation of a transaction, stated the statute doesn’t require “a completed sale” – only a transaction. The court also noted that Zembrka’s actions – operating “highly interactive” websites and accepting orders from New York residents – clearly constituted “purposeful availment” of New York’s market.
THE BIGGER PICTURE: The Second Circuit’s ruling represents an important expansion of New York’s jurisdictional reach in a new era of e-commerce. By holding that accepting online orders and payments is sufficient to establish personal jurisdiction, even when no goods are actually shipped and the transactions are refunded, the decision highlights how companies conducting business with U.S. customers may be subject to domestic jurisdiction. As the court noted, “long-arm jurisdiction is appropriately exercised over commercial actors” who engage in business with New York residents, even if their presence is entirely virtual.
The case is American Girl, LLC v. Zembrka, No. 21-1381 (2nd Circ.).
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