Opinion
00 Civ. 8847 (WK).
October 9, 2001
ORDER
In this diversity action, defendant CRL, Inc. (hereinafter, the "defendant") has moved to dismiss the complaint for lack of personal jurisdiction. We annex hereto a Proposed Memorandum Order granting the motion. However, plaintiff FCNBD Mortgage Investments, Inc. ("plaintiff") has requested that we permit it to engage in discovery limited to factual questions raised about jurisdiction. Although it appears to us unlikely that such discovery will change our decision, we have considerable discretion to order discovery under it should not be deemed frivolous.
Therefore, we ORDER discovery limited to defendant's in-state activity during the calendar year 2000 in the following four categories: (1) the frequency and nature of business visits to New York by defendant's officers or employees; (2) the frequency and volume of business that defendant conducted with the New York offices of financial brokerage firms; (3) foreclosures and other litigation initiated in this state; and (4) defendant's possible use of the in-state office space of its affiliate, SunTrust Bank. The parties shall complete this discovery within 45 days and then shall file with this Court summaries of any pertinent disclosures. In the meantime, we will withhold our decision and will consider any criticism or suggestions by either party. There will be no further oral argument unless we specifically so direct.
Under CPLR § 301, we examine defendant's actions at the time the suit was commenced, not when the claim arose. See Yurman Designs, Inc. v. A.R. Morris Jewelers, L.L.C. (S.D.N.Y. 1999) 41 F. Supp. d 453, 457. This litigation began in November 2000, after plaintiff's complaint of January 2000 was dismissed by the federal District Court in Chicago. See FCNBD Mortgage Invs., Inc. v. CRL, Inc. (N.D.Ill. Aug. 3, 2000) No. 00 C 405, 2000 U.S. Dist. LEXIS 11174.
PROPOSED MEMORANDUM ORDER
In this diversity action, defendant CRL, Inc. (hereinafter, the "defendant") moves to dismiss the complaint for lack of personal jurisdiction. Fed.R.Civ.P. 12(b)(2). For the reasons explained below, we grant the motion.
BACKGROUND
Plaintiff FCNBD Mortgage Investments, Inc. (the "plaintiff") incorporated in jurisdictional problems. We will assume familiarity with the Background section of the Illinois opinion, which renders details of the financial transactions at issue here. See id. at *1-7. We also now abstract the most important facts for our present purposes.
We must construe all allegations in the light most favorable to plaintiff and resolve all doubts in its favor, "notwithstanding a controverting presentation by the moving party." A. I. Trade Fin., Inc. v. Petra Bank, (2d Cir. 1993) 989 F.2d 76, 79-80. For, in the absence of discovery and an evidentiary hearing, a plaintiff is required only to make a prima facie showing that the defendant is amenable to personal jurisdiction in New York in order to defeat a motion to dismiss. Id. Hence, we must examine the sufficiency of the jurisdictional allegations in plaintiff's pleadings, affidavits, and other supporting materials. Marine Midland Bank, N.A. v. Miller, (2d Cir. 1981) 664 F.2d 899, 904.
Defendant's General New York Activity
Defendant, a Virginia real estate investment trust company with principal place of business in Richmond, Virginia, buys and sells real estate-related assets in the secondary market. Defendant maintains no offices, bank accounts, or telephone lines in New York. But, Officer at all relevant times. Several times, he spoke on the telephone to Craig Knutson, a trader who worked at different times for Credit Suisse and for Morgan Stanley Co. in New York. According to Knutson, Hunter also visited New York on a number of occasions over the years to solicit and negotiate deals for defendant. For example, Hunter visited the Credit Suisse offices in 1998, and he also told Knutson that he sometimes visited other brokerage firms in New York City as well.
At some unspecified time in 1999 or 2000, Hunter left CRL. ( See Hunter Decl. ¶¶ 2-4).
Specifically, Mr. Robert Hunter served as defendant's President and Chief Investment Officer at all relevant times.1 Several times, he spoke on the telephone to Craig Knutson, a trader who worked at different times for Credit Suisse and for Morgan Stanley Co. in New York. According to Knutson, Hunter also visited New York on a number of occasions over the years to solicit and negotiate deals for defendant. For example, Hunter visited the Credit Suisse offices in 1998, and he also told Knutson that he sometimes visited other brokerage firms in New York City as well.
In August 1998, prior to the events at issue in this action, plaintiff entered into a purchase and sale of mortgage loans with defendant. In connection with that completed transaction, plaintiff used Morgan Stanley as its financial advisor and agent. All plaintiff communications with defendant were made through Morgan Stanley's New York City offices.
In addition, defendant availed itself of our state court system to foreclose on a mortgage it acquired on Nassau County real estate. Finally, an affiliate of defendant maintains an office in Manhattan. The Transaction in Issue
According to plaintiff, defendant CRL was a subsidiary of Crestar Financial Corp. In 1998, SunTrust Bank acquired Crestar and thus became CRL's parent corporation. In or about July 2000, CRL changed its name to SunTrust Real Estate Investment Corp. (Gordon Aff. ¶ 7).
In September 1998, with Credit Suisse's Manhatten office acting as its advisor and agent, offered to sell a pool of mortgage loans into the secondary market. See FCNBD Mortgage Invs., 2000 U.S. Dist. LEXIS 11174, at *3-6 n. 1. Upon ascertaining that defendant might want to buy some of the loans, Credit Suisse sent defendant a confidentiality agreement, and defendant executed and returned it. Credit Suisse then sent defendant a "Confidential Offering Memorandum," a standard bid form, and information. The offering memorandum stated that Credit Suisse "is acting on an exclusive and confidential basis as financial advisor for the sale," that bids must be faxed to New York City, and that "all contact should be made through" Credit Suisse.
Defendant submitted two bids by fax. Credit Suisse subsequently mailed a letter to Hunter accepting defendant's bid on behalf of plaintiff; Hunter signed commitment letters and faxed them back to Credit Suisse. Plaintiff alleges that defendant then "reneged on its contract" to buy the loans. See FCNDB Mortgage Invs., 2000 U.S. Dist. LEXIS 11174, at *7. These purported contracts involve loans held by non-resident borrowers, and they provide that any payments must be sent to Illinois.
After the dispute arose, Credit Suisse initiated at least three telephone conversations with Hunter in an effort to resolve the matter. Yet at no time did any defendant agent or on November 20, 2000.
DISCUSSION
As noted above, plaintiff must make only a prima facie showing of personal jurisdiction. "Eventually, of course, the plaintiff must establish jurisdiction by a preponderance of the evidence, either at a pretrial evidentiary hearing or at trial. But until such a hearing is held, a prima facie showing suffices, notwithstanding any controverting presentation by the moving party, to defeat the motion." A.I. Trade Fin., 989 F.2d at 79-80.
A. Long-Arm Jurisdiction Under CPLR § 302(a)(1)
Under New York's long arm legislation, a court may exercise jurisdiction over a foreign corporation if the corporation "transacts any business within the state or contracts anywhere to supply goods or services in the state" and the claim at issue "arises from" that business activity. N Y C.P.L.R. § 302(a)(1); see Agency Rent A Car Sys., Inc v. Grand Rent A Car Corp. (2d Cir. 1996) 98 F.3d 25, 31 (a plaintiff must establish a substantial or articulable nexus between the business transacted and his cause of action); CutCo Indus., Inc. v. Naughton (2d Cir. 1986) 806 F.2d 361, 365. "The key inquiry is whether defendant purposefully availed itself of the benefits of New York's laws" in connection with matters involved in this lawsuit. Courtroom Television Network v. Focus Media, Inc. (1st Dep't 1999) 264 A.D.2d 351, 695 N.Y.S.2d 17, 19 (citation omitted).
Courts should consider the "the totality of circumstances" to determine whether a party has "transacted business" within the meaning of § 302(a)(1). Serendip LLC v. Franchise Pictures LLC (S.D.N.Y. Sept. 6, 2000) No. 00 Civ. 210, 2000 U.S. Dist. LEXIS 12946, at *11-12 (citation omitted). Specifically, we may consider the following non-exclusive factors: (1) whether the defendant has an ongoing contractual relationship with a New York corporation; (2) whether the parties negotiated or executed the contract in New York and whether, after executing a contract with a New York entity, the defendant visited New York for meetings devoted to the contractual relationship; (3) what choice of law clause (if any) the contract contains; (4) whether the contract requires defendant to send notices and payments into New York; and (5) whether the contract subjects defendant to supervision by the plaintiff corporation in New York. Agency Rent A Car, 98 F.3d at 29 (citations omitted). No one factor is determinative. Id.
Examining the factors in reverse order, we conclude that the majority of them favors defendant. First, plaintiff does not dispute that factor # 5 favors defendant: that is, defendant would not have been subject to any oversight by plaintiff in New York.
Plaintiff, however, prevails regarding factor # 4 since the purported contract required defendant to send notices into New York. The offering memorandum repeatedly instructed defendant to communicate with Credit Suisse here. Defendant complains that no contract was finalized and that the cited cases deal only with completed contracts See, e.g., Agency Rent A Car Sys., 98 F.3d at 29. However, even assuming that defendant has hit upon a valuable distinction, we nust still give the plaintiff the benefit of the doubt and assume for the moment that a "contract was created when [defendant] signed the commitment letter in Virginia and sent it to New York." See FCNBD Mortgage Invs., 2000 U.S. Dist. LEXIS 11174, at *11.
Factor # 3 (contractual choice of law provision) does not benefit either party. The Illinois District Court held that no enforceable Illinois choice-of-law clause exists because "the parties never agreed to be bound by" the choice-of-law provision contained in one of the unexecuted documents (viz., an assignment agreement). Id. at *14. In any event, here none of the relevant documents contained any New York choice-of-law provision.
We now analyze all other relevant circumstances, including any ongoing contractual relationship and the place where the contract was negotiated and executed (factors # 1-2). We conclude that these circumstances demonstrate our lack of personal jurisdiction.
While the Second Circuit has questioned "whether, in an age of e-mail and teleconferencing, the absence of actual personal visits to the forum is any longer of critical consequence," Agency Rent A Car, 98 F.3d at 30, it is "well settled" in this District that, "generally, telephone and mail contacts do not constitute 'transacting business' under the statute." Palace Exploration Co. v. Petroleum Dev. Co. (S.D.N.Y. 1998) 41 F. Supp.2d 427, 433 (emphasis added) (citing Fiedler v. First City Nat'l Bank (2d Cir. 1986) 807 F.2d 315, 317; Dogan v. Harbert Constr. Corp. (S.D.N.Y. 1980) 507 F. Supp. 254, 259). Here, defendant apparently never physically attended meetings in New York. Rather, all of its contacts with Credit Suisse, plaintiff's resident agent, occurred via telephone, fax, or mail; and defendant reviewed and signed all documents in Virginia.
Analogous cases seem to fall into two categories: those in which jurisdiction was found but where the facts diverge significantly from those at bar, and cases in which jurisdiction was denied.
We include in the former category a suit in this District in which the court exercised jurisdiction over a defendant that negotiated two contracts over the telephone and through the mail. Besides the telephone and mail contacts, however, other ties existed (not found in our case), including that the defendant initiated contact with the plaintiff, that the plaintiff was a domestic corporation, and that the defendant was physically present in New York for a post-execution meeting. CT Chemical, Inc. v. Horizons Int'l, Inc. (S.D.N.Y. 1985) 106 F.R.D. 518, 519-21. Moreover, according to more recent cases, "[t]o the extent that § 302(a)(1) jurisdiction in [CT Chemical] was based on mail and telephone conferences alone, it is contrary to the weight of authority." Wilhelmshaven Acquisition Corp. v. Asher (S.D.N.Y. 1993) 810 F. Supp. 108, 112 (citations omitted); see also Palace Exploration, 41 F. Supp.2d at 433.
Next, in an opinion issued last year, Judge Baer found jurisdiction over a non-domiciliary who negotiated a contract by telephone and who never visited New York. Serendip, 2000 U.S. Dist. LEXIS 12946, at *13-14. However, in that case, the defendant periodically sent videotapes and "initiated numerous telephone calls" into the state. Id. at at *15. Overall, the Court found a prima facie showing of contacts that were "continual, repetitive, and essential to the defendants' businesses." Id. at *16 (quoting Agency Rent A Car, 98 F.3d at 30).
Similarly, in Courtroom Television Network, supra, the First Department asserted long-arm jurisdiction where a non-resident entered into the contracts in question via telephone, letter, and fax. But, the Court emphasized that the non-resident also sent tapes of advertisements to plaintiff with the intention that they be broadcast in New York. 695 N.Y.S.2d at 19. "Defendant was more than a passive buyer of a New York product or service; it played a 'crucial role' in creating the substance of the transaction . . ." Id. (citation omitted).
Finally, in another distinguishable case, the defendants called a New York lawyer on several occasions regarding their interest in a bankruptcy proceeding. The defendants also participated by telephone in settlement negotiations. But, several other contacts existed, too — for example, communication with plaintiff by means of at least 93 telephone calls, many of which defendants originated, settlement of various aspects of bankruptcy proceedings pending in New York, entry into an agreement governed by local law, and retention of various resident attorneys. Otterbourg, Steindler, Houston Rosen, P.C. v. Shreve City Apts., Ltd. (1st Dep't 1989) 147 A.D.2d 327, 543 N.Y.S.2d 978, 981; see PaineWebber Inc. v. Westgate Group, Inc. (S.D.N.Y. 1990) 748 F. Supp. 115, 120 (distinguishing Otterbourg). In summary, the defendant in Otterbourg purposefully availed itself of New York law in many ways not here present.
The case at bar is closer on its facts to L.F. Rothschild, Unterberg, McTamney (1983) 59 N.Y.2d 651, 463 N.Y.S.2d 197, aff'd, 89 A.D.2d 540, 452 N.Y.S.2d 630 (Court of Appeals unanimously adopting the majority opinion of the Appellate Division). In Rothschild, a Pennsylvania resident's telephone comm unications with a New York brokerage firm did not establish jurisdiction. Although defendant initiated phone calls to New York, such contact was deemed insufficient because the defendant had no representatives in New York or any "direct or personal involvement in any ongoing sale in New York." Instead, defendant simply "made a few telephone calls to plaintiff's representative in New York concerning a single stock transaction." 452 N.Y.S.2d at 631 (distinguishing Park-Bernet Galleries, Inc. v. Franklyn (1958) 26 N.Y.2d 13, 308 N.Y.S.2d 337). Similarly, in the instant lawsuit, plaintiff has not fashioned a prima facie case of § 302 jurisdiction, given the few phone calls and faxes routed into this state relating to the transaction and contract at issue.
B. "Doing Buisness" Jurisdiction Under CPLR § 301
N.Y. C.P.L.R. § 301 declares that a New York court "may exercise jurisdiction over persons, property, or status as might have been exercised heretofore." The statute has been interpreted to provide personal jurisdiction over a foreign corporation that is "doing business" in New York. Unlike the requirements for § 302, supra, a foreign corporation may be deemed "doing business" for purposes of § 301 regardless of whether the acts that constitute doing business relate to the litigation's subject matter. Jazini v. Nissan Motor Co., Ltd. (2d Cir. 1998) 148 F.3d 181, 184 (citation omitted). In other words, § 301 carries no "nexus" requirement. Moreover, under § 301, we examine defendant's actions at the time of the suit was commenced, not when the claim arose. See Yurman Designs, Inc. v. A.R. Morris Jewelers, L.L.C. (S.D.N.Y. 1999) 41 F. Supp.2d 453, 457.
A corporation is doing business under § 301 "if it does business in New York not occasionally or casually, but with a fair measure of permanence and continuity." In other words, the non-resident must engage in a "continuous and systematic course of doing business." Hoffritz for Cutlery, Inc. v. Amajac, Ltd. (2d Cir. 1985) 763 F.2d 55, 58 (citations omitted). The factors considered for § 301 jurisdiction include: (1) whether the corporation has an office in the forum; (2) whether the corporation has solicited business in the forum; (3) whether the corporation has bank accounts or property in the forum; and (4) whether the corporation has employees or agents in the forum. Id.
The instant plaintiff does not contend that defendant has an office, bank accounts, employees or agents in New York. Instead, it avers that defendant "solicited business" in New York, that defendant sued here to enforce its lien on New York property, and that defendant's parent has an office on Fifth Avenue.
First, plaintiff alleges that defendant "solicited business" from New Yorkon the basis of visits by Robert Hunter, its President, on at least a few occasions through May 1999. (Knutson Decl. ¶¶ 1, 3-7). At oral argument, defense counsel does not deny this activity but maintains that plaintiff exaggerates the quantity of visits. Defense counsel asserts that Hunter came to New York only "two or three" times (Tr. Oral Arg. at 11-13).
These relatively isolated contacts do not establish a continuous, systematic relationship existing at the time this suit began (i.e., in the year 2000). Moreover, a defendant's solicitation of business alone cannot justify a finding of presence in New York under § 301. Yurman Designs, 41 F. Supp.2d at 458 (quoting Laufer v. Ostrow (1982) 55 N.Y.2d 305, 310, 449 N.Y.S.2d 456, 459). Only if the party's solicitation activities are "substantial and continuous" and if the "defendant engages in other activities of substance in the state" may jurisdiction become appropriate. Id. (quoting Landoil Res. Corp. v. Alexander Alexander Servs. (2d Cir. 1990) 918 F.2d 1039, 1043-44) (emphasis added).
In trying to reveal such "other" activities, plaintiff unsuccessfully focuses on a Nassau County foreclosure proceeding as well as a New York office for SunTrust Bank, defendant's affiliate. Such tangential contacts do not constitute a substantial presence per se. The foreclosure proceeding shows only that defendant, in the course of its investing activities, acquired a single lien on property in New York. Defendant apparently did not even realize it had a New York lien until the mortgage went into default. If this contact alone sufficed to create a "substantial and continuous presence" in this forum, then every investor in large pools of mortgages would find itself subject to jurisdiction in any state where one underlying mortgage happens to lie. This undesirable result is not authorized by any case of which we are aware. Furthermore, the Second Circuit has explicitly recognized that an office maintained by an affiliate does not alone generate § 301 jurisdiction. Jazini, 148 F.3d at 184 ("the presence of the subsidiary alone does not establish the parent's presence in the state").
The fact that defendant brought suit in New York state court to protect its real estate interests might prove relevant in a due process analysis, but we need not reach that issue here. (That is, since we conclude that plaintiff has not met its prima facie burden to establish personal jurisdiction under New York statute, we need not reach defendant's argument that the exercise of jurisdiction would run afoul of due process.)
CONCLUSION
For the foregoing reasons, we GRANT defendant's motion to dismiss the complaint.
SO ORDERED.
WHITMAN KNAPP, SENIOR U.S.D.J.
For Plaintiff:
Hiram Gordon, Esq. Janvey, Gordon, Herlands, Randolph Cox 355 Lexington Ave. New York, N Y 10017
For Defendant:
Daniel Tobin, Esq. Kirkpatrick Lockhart 1800 Massachusetts Ave., N.W. Washington, DC 20036