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explaining that personal jurisdiction did not arise under § 302 with regard to tortious interference claims because defendant was not physically present and “communication by post or telephone from outside of New York into New York is not an act committed ‘within the state’ for the purposes of § 302.”
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02 Civ. 4344 (RWS)
December 9, 2002
STAHL ZELMANOVITZ, Attorney for Plaintiff, New York, NY, By: JOSEPH ZELMANOVITZ, ESQ., Of Counsel.
DUVAL STACHENFELD, Attorney for Plaintiff, New York, N.Y. By: WARREN GRAHAM, ESQ., Of Counsel.
OPINION
Defendant Ellen Donnelly ("Donnelly") has moved pursuant to Rules 12(b)(2), 12(b)(3) and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint of plaintiff Ahava Food Corporation ("AFC") for lack of personal jurisdiction, improper venue and failure to state a cause of action.
For the following reasons, that motion is granted.
Facts
As befits a motion to dismiss, the following facts are taken from the complaint and do not constitute findings of fact by the Court.
Parties
AFC is a corporation organized and existing under the laws of the State of New York, with its principal place of business in Brooklyn, New York. AFC is in the business of the manufacture and production of kosher food products in New York and throughout the United States.
Donnelly is an individual who resides in Mullica Hill, New Jersey. Donnelly is the CEO of American Equities Group, Inc. ("AEG"), a company that was engaged in the business of accounts receivable factoring and financing. AEG and its affiliated companies filed for protection under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). Donnelly is one of the only remaining officers who worked at AEG prior to the commencement of the bankruptcy proceedings.
In April 2001, AEG commenced an adversary proceeding against Ahava Dairy Products Corp. ("Ahava") in the Bankruptcy Court, alleging that Ahava is indebted to AEG in connection with a 1996 accounts receivable factoring agreement between Ahava and AEG. AEG has claimed that it has a security interest against, and can collect upon, Ahava's current accounts receivable. AFC believes that Ahava has no substantive assets and was evicted from its place of business on March 1, 2001.
AFC claims that Donnelly has represented to many of AFC's customers that Ahava and AFC are the same company, that AFC is in default under its agreement with AEG, that AFC owes AEG millions of dollars, and that payment of AFC's bills should be made to AEG. It also alleges that Donnelly has caused false representations to be made to the United States Postal Service that AFC is in default under an agreement with AEG and that, consequently, AEG has the right to change AFC's address and to receive AFC's customers' remittances.
AFC denies these allegations. AFC was incorporated under the laws of the State of New York in 1999, and claims that it is neither a successor in interest to, nor a subsidiary or parent of, Ahava. AFC and Ahava both use the word "Ahava" in their names, and they both serve the kosher market. Due to the failing financial situation of Ahava and its inability to pay its suppliers and maintain the supply chain to its customers, many of its customers have switched to AFC and other kosher distributors for service. Finally, AFC claims that it never had any business relationship with AEG.
According to the complaint of AFC, Donnelly's actions have seriously injured AFC's relations with its customers, who have professed confusion as to the identity of AFC because of Donnelly's representations, and remittances have been withheld from AFC without justification and Donnelly has disseminated false information for the purpose of causing injury to AFC. The complaint alleges that Donnelly has actual knowledge of AFC's business relations and contractual relations with which she has interfered, and that as a direct and proximate cause of Donnelly's tortious acts, AFC has sustained damages in excess of the jurisdictional limit of this Court, the precise amount to be determined at trial.
For the defamation cause of action, AFC alleges that Donnelly made defamatory statements to AFC's customers, including Seven Mile Market, Edelman, Lee Ave Supermarket, Alberston, CS, Northern Metropolitan NH, inter alia. These customers have withheld payments to AFC or, instead have paid AEG, as a result of Donnelly's statements. AFC has been greatly injured in its character and reputation and has lost and continues to lose revenues that AFC otherwise would have received.
Procedural Posture
AFC commenced this lawsuit on June 28, 2001 in the District Court for the Eastern District of New York, alleging two causes of action: (1) tortious interference with contractual relations and (2) defamation. In July 2002, the case was transferred to this district and on August 30, 2002, was assigned to this Court as related to In re American Equities, 01 Civ. 5207.
Donnelly made the instant motion on September 9, 2002, and it was considered fully submitted on October 29, 2002.
While Donnelly raised the jurisdictional issue for the first time in her reply papers, AFC was given the opportunity to respond in a sur-reply, and Donnelly filed a response to that sur-reply on October 29, 2002.
Discussion
I. Personal Jurisdiction
In assessing whether personal jurisdiction is authorized, the court must look first to the long-arm statute of the forum state. Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). If the exercise of jurisdiction is appropriate under that statute, the court must decide whether such exercise comports with the requisites of due process. Id.
A. Standard of Review
The plaintiff bears the burden of establishing that the court has jurisdiction over the defendant when served with a Rule 12(b)(2) motion to dismiss. DiStefano v. Carozzi North American Inc., 286 F.3d 81, 84 (2d Cir. 2001); Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994). Because an evidentiary hearing has not been held, AFC need only make a prima facie showing of jurisdiction through the complaint's allegations and affidavits in order to defeat the motion to dismiss. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986); Network Enterprises, Inc. v. APBA Offshore Prods. Inc., 2002 WL 31050846, at *8 (S.D.N.Y. Sept. 12, 2002).
B. New York's Long-Arm Statute
The New York long-arm statute authorizes personal jurisdiction over non-domiciliaries under several circumstances. AFC alleges that jurisdiction is appropriate under both N.Y. C.P.L.R. § 302(a)(2) and 302(a)(3)(ii).
Section 302(a)(2) provides for jurisdiction over a person who "commits a tortious act within the state" unless that act is one of defamation. CPLR § 302(a)(2).
To obtain jurisdiction under this section, the defendant must have been physically present in New York while committing the tort. Feathers v. McLucas, 15 N.Y.2d 443, 459 (1965); see also Bensusan, 126 F.3d at 29 (denying jurisdiction under § 302(a)(2) where acts were performed by persons physically present in Missouri even though injury may have been suffered in New York); Carlson v. Cuevas, 932 F. Supp. 76, 80 (S.D.N.Y. 1996) ("To subject non-residents to New York jurisdiction under § 302(a)(2), the defendant must commit the tort while he or she is physically in New York state.").
AFC does not allege that Donnelly was physically present in the state when purportedly tortiously interfering with AFC's contractual relations. Instead, it alleges that she contacted AFC's customers by telephone and/or mail. Such communication by post or telephone from outside of New York into New York is not an act committed "within the state" for the purposes of § 302(a)(2). E.g., Davis v. Masunaga Group, Inc., 204 F. Supp.2d 657, 660 (S.D.N.Y. 2002) (denying jurisdiction under § 302(a)(2) where there was no evidence or allegations that allegedly tortious phone calls were made in New York), vacated on other grounds, 204 F. Supp.2d 665 (S.D.N.Y. 2002); Heinfling v. Colapinto, 946 F. Supp. 260, 264 (S.D.N.Y. 1996) ("Telephone calls placed and letters mailed from outside the state into New York do not constitute tortious acts committed 'within the state' for purposes of § 302(a)(2)."); Carlson, 932 F. Supp. at 80 (letters mailed and calls made by defendant's agent into New York were insufficient to establish presence under § 302(a)(2)); Van Essche v. Leroy, 692 F. Supp. 320, 324 (S.D.N.Y. 1988) (mailing of tortious letter from Texas to New York did not constitute a tort committed in New York because not mailed in New York). As a result, jurisdiction may not obtain pursuant to § 302(a)(2).
Because § 302(a)(2) specifically excludes tortious acts of defamation from qualifying as bases of jurisdiction, Count II, alleging defamation, cannot be used, and jurisdiction hinges on the allegations involving tortious interference with contractual relations.
Section 302(a)(3)(ii) permits a court to exercise jurisdiction over a non-domiciliary who "commits a tortious act without the state causing injury to person or property within the state," if that person "expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce."
Donnelly does not contest that AFC alleges that she committed a tortious act, tortious interference with contractual relations, without the state of New York. Therefore, it must be determined whether AFC has also alleged that (1) injury was suffered within New York; (2) Donnelly could expect or reasonably expect the act to have consequences in the state; and (3) Donnelly derives substantial revenue from interstate or international commerce.
Because § 302(a)(3) specifically excludes tortious acts of defamation from qualifying as bases of jurisdiction, Count II, alleging defamation, cannot be used, and jurisdiction hinges on the allegations involving tortious interference with contractual relations.
In cases such as the present action involving commercial torts, "'the mere fact that the plaintiff resides in New York and therefore ultimately experiences a financial loss there is not a sufficient basis for jurisdiction under § 302(a)(2).'" Duncan v. Nu-Life, Inc. of Illinois, 1998 WL 66002, at *6 (S.D.N.Y. Feb. 17, 1998) (citation omitted); see also Davis, 204 F. Supp.2d at 660 ("[A]n injury resulting from an out-of-state tort does not have its situs in New York merely by virtue of the fact that the injured party resides in the state and suffers pecuniary or other loss here."). AFC has failed to allege that Donnelly's actions outside the State of New York caused AFC to lose customers located in New York, or that Donnelly's out-of-state actions resulted in the sort of severe local impact contemplated by the Court in American Eutectic Welding Alloys Sales Co. v. Dytron Alloys Corp., 439 F.2d 428, 435 (2d Cir. 1971) ("Perhaps the case would be different if the discernible local impact of the commercial injury to plaintiffs were greater, e.g., destruction of plaintiffs' business in New York by the loss of out-of-state customers, although we express no view as to that. But the injury here does not even approach that extreme."). While AFC alleges that it has lost and continues to lose revenues that it otherwise would have received, AFC fails to specify the source or amount of these lost revenues. As a result, it cannot be said that an injury was suffered within the state for the purposes of § 302(a)(3). Thus jurisdiction is inappropriate under § 302(a)(3).
In any case, AFC has further failed to allege specific facts to show that Donnelly, as opposed to AEG, derives substantial income from interstate commerce. AFC argues that "both [Donnelly] and AEG earned their revenue from AEG's business, which indisputably was engaged in interstate commerce." In the absence of a prima facie showing that AEG's acts should be attributable to Donnelly, the only pertinent revenues are those earned by Donnelly herself. E.g., Ampa Ltd. v. Kentfield Capital LLC, 2001 WL 204198, at *4 (S.D.N.Y. March 1, 2001) (considering only acts of individual plaintiffs in assessing jurisdiction in absence of prima facie showing that corporate acts are attributable to individual defendants under theory of agency or alter ego relationship and thus disregarding revenues of employer in determining whether employees derived substantial revenue from interstate commerce); Packer v. TDI Systems, Inc., 959 F. Supp. 192 (S.D.N.Y. 1997) (determining that actions of employees only are relevant in jurisdictional inquiry in absence of showing of agency relationship). To hold otherwise "would produce the intolerable result that every officer or director of a major company accused of a tort outside the state could be subject to personal jurisdiction . . . without regard to the individual's own activities." Id. AFC has not made such a showing in the complaint or in affidavits and therefore personal jurisdiction is inappropriate under § 302(a)(3) for this reason as well.
The above cases recognize, as AFC points out, that New York has rejected the fiduciary shield doctrine. The rejection of the fiduciary shield doctrine does not, however, eliminate AFC's responsibility to establish either that (1) Donnelly's own contacts with New York satisfy the long-arm statute; or (2) the Court's jurisdiction over AEG should be imputed to Donnelly. E.g., Packer, 959 F. Supp. at 199 n. 6.
Conclusion
For the foregoing reasons, Donnelly's motion to dismiss for lack of personal jurisdiction is granted.
It is so ordered.