Opinion
00 Civ. 1248 (RWS)
October 13, 2000
BROWN RAYSMAN MILSTEIN FELDER STEINER, New York, NY, By: ERIC OSTERBERG, ESQ., Of Counsel, Attorney for Plaintiff.
RIEZMAN BERGER, By: NELSON L. MITTEN, ESQ., CHARLES S. KRAMER, ESQ., RANDY HAYMAN, ESQ., Of Counsel, Attorneys for Defendant.
WHITE CASE, New York, NY, By: GLENN M. KURTZ, ESQ., ALYCIA REGAN-BENENATI, ESQ., Of Counsel.
OPINION
Defendant Carpet Co-Op of America Association, Inc., d/b/a/ Carpet One ("Carpet One"), has moved to dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(6), Fed.R.Civ.P., or, in the alternative, for summary judgment pursuant to Rule 56, Fed.R.Civ.P. Plaintiff Bozell Group Inc. ("Bozell") opposes the motions and has moved for recovery of costs of service and filing pursuant to Rule 4, Fed.R.Civ.P. For the reasons stated below, the motion for costs is granted, and the case is dismissed for lack of personal jurisdiction.
The Parties
Bozell is an advertising agency that is incorporated and headquartered in New York.
Carpet One is a Delaware corporation with its principal place of business in Missouri that operates a nationwide cooperative of retail carpet dealers.
Background
The complaint in this action (the "Complaint") was filed on February 18, 2000. Bozell claims indemnity and breach of contract arising out of Carpet One's failure to honor celebrity endorsement contracts Bozell procured in its capacity as Carpet One's national advertising agency.
On May 2, 2000, Bozell filed the motion for costs. Carpet One filed its opposition to Bozell's motion for costs on May 24, 2000, and the motion was deemed fully submitted on May 26, 2000 upon the filing of Bozell's reply memorandum.
On May 9, 2000, Carpet One filed the motion to dismiss or for summary judgment. Bozell filed its opposition on July 10, and Carpet One filed its reply on July 25. The motion was deemed fully submitted on July 27, 2000.
Both the motion for costs and the motion for dismissal or summary judgment will be addressed in this opinion.
Facts
Except as otherwise noted, the following are undisputed facts as presented by the parties.
Some time prior to January 1998, Carpet One entered into negotiations with Bozell for a contract under which Bozell would act as Carpet One's national advertising agent. Representatives of Carpet One discussed the advertising plan with a Bozell representative at a meeting in New York on January 15, 1998 and again on March 15, 1998.
By agreement, between November 1997 and June 1998, Carpet One paid $50,000 per month for Bozell to arrange media buys for Carpet One, to locate and identify actors, celebrities and other talent who might be willing to endorse Carpet One and/or its products, and to perform other advertising services.
The parties dispute whether a final contract was ever formed and whether, once Contract One had approved the celebrity spokespersons Bozell procured, Contract One was required to contract with them directly in writing.
During this period, Bozell negotiated with potential spokespersons with respect to a potential agreement between the spokespersons and Carpet One. In particular, Bozell exchanged drafts of proposed Talent Agreements with representatives of Beatrice Arthur ("Arthur") and Estelle Getty ("Getty"), both most recently of "Golden Girls" fame. Both Arthur and Getty are represented by the William Morris Agency in New York ("WMA"), are members of the Screen Actors Guild ("SAG"), the union that represents all "principal performers" that act in commercials. Bozell is a party to the SAG 1997 Commercials Contract, which applies whenever a SAG member is employed in a commercial.
The parties disagree as to whether Carpet One ever gave Bozell approval to hire Arthur and Getty as spokespersons for Carpet One's national advertising campaign, but it is undisputed that Carpet One never executed a written contract with Arthur, Getty or their representatives. Neither Arthur nor Getty ever appeared in any advertisements for Carpet One.
On or about May 20, 1998, Carpet One informed Bozell that it wished to terminate the relationship as of May 31, 1998. In May 1998, Bozell claimed that Carpet One owed it certain monies. The parties contest whether Carpet One acknowledged owing Bozell any payments. The parties entered into settlement negotiations and, on or before July 20, 1998, Carpet One paid Bozell $295,468.
On or about July 20, 1998, Bozell signed a "Mutual Release" which provided that, in consideration for the $295,468, Bozell would forever release Carpet One and its related entities from "any and all actions, causes of actions, lawsuits, claims, counterclaims, demands . . . WHETHER NOW KNOWN OR UNKNOWN," arising out of the business relationship. (emphasis in original). From this broad release was a narrow "carve-out" exception, which provided in relevant part:
Notwithstanding the foregoing, if [Arthur, Getty or their representatives] sue Bozell for damages or other relief for any claim of any kind, arising out of, related to or connected with the negotiations of the proposed Getty/Arthur agreement whereby Getty and Arthur would have been engaged as spokespersons for Carpet One (the "Getty/Arthur Discussions"), Bozell reserves all Claims against . . . Carpet One . . ., including any claims for costs or attorneys fees or monetary relief of any type, provided, however, that this reservation of Claims only applies in the situation where . . . Getty, and/or Arthur [or their representative] bring a lawsuit or claim in a legal proceedings against Bozell. In any such assertion of claims by Bozell against Carpet One, Bozell's damages shall be limited to the amount of damages, including costs and attorneys fees, awarded . . . against Bozell.
Mutual Agreement at 1-2 ¶ 1(a) (emphasis added).
Subsequently, SAG initiated an arbitration proceeding in California against Bozell and Carpet One (the "SAG Arbitration") alleging that the Talent Agreements with Arthur and Getty were binding despite the fact that no commercials were made, and seeking various types of relief. Upon receiving the SAG Arbitration, Carpet One notified SAG's counsel that it could not be compelled to arbitration, deemed SAG'S claims to be frivolous, and demanded that it be dismissed from any arbitration proceeding. SAG thereafter agreed to and did dismiss Carpet One from the SAG Arbitration.
Bozell continued to participate in the SAG Arbitration and thereafter notified Carpet One of an intent to settle the claims asserted by SAG. Bozell asked Carpet One to participate in the proposed settlement. Carpet One refused. Nonetheless, Bozell settled the claim for $212,650, comprising $100,000 each to Arthur and Getty via their representatives, and $12,650 to the SAG Producers Pension Health Plans. In consideration for these payments, the Settlement Agreement between Bozell and SAG provided that SAG would "forever release and discharge Bozell" and its related entities for any claims arising out of the aborted Arthur and Getty commercials.
Bozell then initiated the instant suit for breach of contract and indemnity against Carpet One for the amount of the SAG settlement. Bozell sent notice of the suit, a request for waiver of service of a summons, and return forms to Carpet One on February 23, 2000. Although Carpet One acknowledged receiving the mailings in late February of 2000, it did not return the waiver forms. Carpet One contends that there is "good cause" excusing its failure to waive service. First, Carpet One initially responded to the receipt of the waiver request by offering to settle in a letter sent on March 2, 2000. In that letter, Carpet One contended that the claims were without merit, threatened to move for sanctions, and stated "[i]n light of these problems, specifically the release and jurisdictional problem with New York venue, Carpet Co-Op is not prepared to execute a waiver of summons at this point." Bozell responded with a counteroffer by letter of March 17, 2000, and, in a separate letter, demanded return of the waiver form.
Carpet One wrote to Bozell on March 22, 2000 that it wished to avoid spending attorney's fees on researching waiver of service if there was a chance the matter would settle or be submitted to arbitration. In that letter, counsel for Carpet One stated "[i]t is my understanding that your statement that my client has an obligation to return a waiver of service form is an overstatement of the law. Further, any 'obligation' which might otherwise exist would not exist where a suit such as yours is involved."
By letter of March 24, 2000, Bozell refused to continue settlement talks because the parties' positions were too far apart and stated "if your client chooses not to arbitrate, please return the waiver of service form." Carpet One claims that it opted not to return the waiver in reliance on this alleged promise from Bozell not to require waiver until the parties had established whether or not the case would proceed in federal court. Nonetheless, Bozell filed formal service and served Carpet One with the Complaint on April 4, 2000, after the 30-day period for return of the waiver forms had expired.
Discussion I. Costs
A defendant may be compelled to pay the plaintiff's costs of service under the Federal Rules of Civil Procedure. Rule 4 provides that:
An individual, corporation, or association that is subject to service under subdivision (e), (f), or (h), and that receives notice of an action in the manner provided in this paragraph has a duty to avoid unnecessary costs of serving the summons. To avoid costs, the plaintiff may notify such. a defendant of the commencement of the action and request that the defendant waive service of a summons.
Fed.R.Civ.P. Rule 4(d)(2). Subdivision (h) provides guidelines for service on corporations and associations, a category in which Carpet One falls. Fed.R.Civ.P. Rule 4(h). If a defendant fails to comply with a request to waive service of a summons, "the court shall impose the costs subsequently incurred in effecting service on the defendant unless good cause for the failure be shown." Id. These costs include the cost of service as well as a "reasonable attorney's fee" for a motion to collect costs. Fed.R.Civ.P. Rule 4(d)(5). To trigger a defendant's obligation to pay, a plaintiff must, inter alia, (1) send a written notice and waiver request, (2) to an officer or agent of the defendant corporation (3) by first-class mail, including (4) notice of the consequences of failing to comply with the waiver request within 30 days, and (5) a prepaid reply envelope. Fed.R.Civ.P. Rule 4(d)(2) (A-G).
In opposition to Bozell's motion, Carpet One takes the position that it is not responsible for the costs of service under this motion because Bozell never made an effort to determine whether the parties could agree upon these costs. This argument need not be addressed in detail. Carpet One has cited no authority for this contention and Rule 4 itself does not refer to any preference for negotiated agreements as to costs. A plaintiff has no burden to seek an out-of-court agreement as to costs to avert the need for a Rule 4 motion.
Moreover, Carpet One contends that its reliance on Bozell's "specific indication" that it would not require waiver is "good cause" excusing the failure to file the waiver form. Yet Bozell did not promise to excuse waiver, and even if it had done so, Rule 4 does not authorize the parties to contract around the waiver of service requirements. A review of the correspondence between counsel submitted as exhibits to the Kramer Affidavit reveals that Bozell stated only, "if your client chooses not to arbitrate, please return the waiver of service form." Carpet One construes this statement as a promise not to require compliance with a Federal Rule of Civil Procedure. The fact that Bozell "immediately began to institute the process to secure formal service" after the expiration of the period for return of waiver, (Def. Mem. at 4), suggests that Bozell did not intend to excuse any formalities required by the Rules.
Even if Bozell's statement could fairly be construed as a promise not to require waiver of service, the Rules do not authorize the parties to contract around the waiver requirements. The Rules provide that where, as here, the waiver of service and notice of suit are properly sent and received, a defendant who fails to return the waiver form within 30 days "shall" pay a plaintiff's costs. Fed.R.Civ.P. Rule 4(d)(2). Although out of court agreements are certainly preferable to motions from the perspective of judicial economy, the language of Rule 4 is mandatory. Bozell could not have contracted out of the waiver requirements even if it had so desired.
Although not argued here, it should be noted that neither of Carpet One's initial defenses — that the lawsuit lacked merit and that the court did not have jurisdiction — constitutes "good cause" excusing the failure to return the waiver of service forms under Rule 4. See Morales v. SI Diamond Technology, Inc., 43 Fed.R. Serv.3d 1200 (S.D.N.Y. 1999) (holding that lack of merit in the Complaint is not "good cause" to excuse failure to return waiver form); Fed.R.Civ.P. Rule 4(d)(1) ("A defendant who waives service of a summons does not thereby waive any objection to the venue or to the jurisdiction of the court over the person of the defendant.").
No good cause having been shown, Carpet One is ordered to reimburse Bozell for its costs of service, including a reasonable attorney's fee for the preparation of the motion for costs, for a total of $1,103.00, pursuant to Rule 4(d)(2), (5).
II. Personal Jurisdiction
In diversity actions such as this one, personal jurisdiction over the parties is determined by the law of the state in which the court sits, in this case New York. Premier Lending Services v. J.L.J. Assocs., et al., 924 F. Supp. 13 (S.D.N Y 1996); see Arrowsmith v. United Press Int'l, 320 F.2d 219 (2d Cir. 1963). New York law provides two mechanisms by which to assert jurisdiction over a defendant, general jurisdiction and personal jurisdiction pursuant to a long-arm statute. In addition, the exercise of personal jurisdiction under New York law is circumscribed by the Due Process Clause of the Fourteenth Amendment to the United States Constitution. See Metro. Life Ins. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996); Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d Cir. 1963). The plaintiff has the burden of proving that the court has personal jurisdiction over the defendant. See Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996) (citation omitted).
A. General Jurisdiction
There may be general jurisdiction over a defendant under section 301 of the New York Civil Practice Law and Rules ("CPLR") if the defendant "does business" in New York. CPLR § 301. A defendant should be deemed to be "doing business" in New York only if the aggregate of the corporation's activity "is such that it may be said that the corporation is present in the State, not occasionally or casually, but with a fair measure of permanence or continuity." PaineWebber, Inc. v. WHV, Inc., No. 95 Civ. 6514 (LMM), 1995 WL 296398, *4 (S.D.N.Y. May 16, 1992) (quoting Laufer v. Ostrow, 55 N.Y.2d 305, 312, 449 N.Y.S.2d 456, 434 N.E.2d 692 (Ct. App. 1982)); see Tauza v. Susequehanna Coal Co., 229 N.Y. 259, 267, 115 N.E. 915, 917 (Ct.App. 1917) (Cardozo, J.).
Typical indicia of an ongoing corporate presence in a state include maintaining a local address and telephone number, property, or employees in the state. See Landoil Resources Corp. v. Alexander Alexander Services, Inc., 918 F.2d 1039, 1043 (2d Cir. 1980); PaineWebber, 1995 WL 296398, at *4; Pneuma-Flo Systems, Inc. v. Universal Mach. Corp., 454 F. Supp. 858, 861 (S.D.N Y 1978). Although Carpet One does not have corporate offices or employees in New York, Bozell contends that Carpet One "does business" in New York because it is a nationwide cooperative that is continuously "negotiating agreements . . . purchasing carpet
shipping carpet . . . purchasing advertising services and advertising . . . and licensing the Carpet One name to the retailers." (Bozell Mem. at 7.)
However, this allegation is made in a declaration by John Roth, who is a senior partner in Bozell and does not claim to have any personal knowledge of Carpet One's business practices other than its advertising plans with Bozell itself. (See Roth Aff. ¶¶ 1, 4, 5.) In fact, Carpet One does not "ship" or "purchase" carpet, own stores or have employees in New York, and licenses its name to independently owned retailers via transactions in Missouri. (Marcarelli Aff. ¶ 4.)
Mere nominal affihation with independent New York retailers does not give Carpet One a sufficiently permanent presence to justify asserting general jurisdiction under CPLR § 301. See Beacon Enterprises, Inc. v. Mary Rose Menzies, 715 F.2d 757 (2d Cir. 1983) (finding no general jurisdiction where "defendant has no manufacturing facilities, no sales office, no advertising offices, no agents or distributors in the Southern District of New York or elsewhere in the state of New York at this time," despite occasional mail order sales to New York); Dunn v. Southern Charters, Inc., 506 F. Supp. 564, 567 (E.D.N.Y. 1981) (solicitation of orders for defendant's products through independent agents and publications insufficient to provide general jurisdiction).
Bozell contends that the two visits to New York by Carpet One executives in January and March of 1998 evidence Carpet One's corporate presence in New York. However, two meetings taking place over the course of three months do not confer general jurisdiction. over Carpet One. See Landoil, 918 F.2d at 1045-46 (holding thirteen short trips over eighteen months insufficient to establish § 301 jurisdiction); Aquascutum of London, Inc. v. S.S. American Champion, 426 F.2d 205, 211-12 (2d Cir. 1970) (visits to solicit business in New York "every few months" insufficient); Hoffritz For Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 57-58 (2d Cir. 1985) (fifty-four visits to New York to discuss business with plaintiff insufficient); New World Capitol Corp. v. Poole Truck Line, Inc., 612 F. Supp. 166, 172 (S.D.N.Y. 1985) (eight visits over four years insufficient); Savoleo v. Couples Hotel, 136 A.D.2d 692, 693, 524 N.Y.S.2d 52, 52 (App.Div. 1988) ("occasional" business trips to New York insufficient)).
B. Long-Arm Jurisdiction
Second, New York's long-arm statute provides that a court may exercise personal jurisdiction over a non-domiciliary defendant who: (1) transacted business in New York, (2) if the cause of action arises out of the business transacted. CPLR § 302(a)(1); see PaineWebber, 1995 WL 296398 at *2. Each claim in a cause of action must arise out of the transaction of business or the contract to supply goods or services. See Morrison v. Indiana Black Expo, Inc., 81 F. Supp.2d 494, 501 (S.D.N.Y. 2000).
1. Transacting Business
A defendant "transacts business" in New York under CPLR § 302 when it has "purposely availed" itself of the opportunity to conduct business here, and thereby benefits and protections of New York law. Sterling Nat. Bank and Trust Co. of New York v. Fidelity Mtge. Investors, 510 F.2d 870, 873 (2d Cir. 1975); McKee Electric Co. v. Rauland-Borg Corp., 283 N.Y.S.2d 34 (Ct.App. 1967) (citing Hanson v. Denckla, 357 U.S. 235 (253 (1958)).
The existence of purposeful activity should be considered in the totality of the circumstances, and jurisdiction should not be asserted against a defendant based upon "random" or "fortuitous" contacts. Cutco Industries v. Naughton, 806 F.2d 361, 365; see Burger King v. Rudzewicz, 471 U.S. 462, 475 (1985) . It is the "nature and quality," not the number of contacts, that determine whether activity is purposeful. Standard Enterprises, Inc. v. BagIt, Inc., 673 F. Supp. 1216, 1220 (S.D.N.Y. 1987). As a rule, the "minimum contacts" must provide a defendant with notice that it might be subjected to suit in courts of the forum state.Kruetter v. McFadden Oil Corp., 527 N.Y.S.2d 195, 198 (Ct.App. 1998) (citing Rudzewicz, 471 U.S. 462).
It cannot be said that two trips to New York and a few phone calls constitute "purposeful availment" of New York law. See Cortland Line Co. v. Vincent, No. 98-CV-259, 1999 WL 305369, *3 (N.D.N.Y. May 7, 1999) (finding no § 302 jurisdiction despite numerous telephone calls and a single trip to New York). The fact that the meetings and calls involved New York was incidental; Carpet One is based in Missouri and planned a nationwide advertising campaign and did not project itself into New York through these contacts. Moreover, there were only two meetings during which Carpet One executives were physically present in New York. The meetings took place three months apart, were not part of a systematic pattern of New York visits, and did not result in any contract being signed. These contacts do not rise to the level of "transacting business" required for § 302 jurisdiction. Cf. George Reiner Co., Inc. v. Schwartz, 41 N.Y.2d 648, 394 N.Y.S.2d 844, 363 N.E.2d 551 (1977) (finding jurisdiction under § 302(a)(1) when the defendant "was physically present in New York at the time the contract, establishing a continuing relationship between the parties, was negotiated and made . . . .". 2. Nexus between Contacts with New York and the Asserted Claim
Moreover, even if Bozell were acting as Carpet One's agent in negotiating with WMA for Arthur and Getty's appearances, Bozell's conduct in New York could not be attributed to Carpet One in analyzing whether or not Carpet One had sufficient contacts with New York to confer jurisdiction. Stein v. Microelectronic Packaging, Inc., No. 98 Civ. 8952 (MBM), 1999 WL 540443, *5 (S.D.N.Y. July 26, 1999); Laufer, 55 N.Y.2d at 312, 449 N.Y.S.2d at 460.
Even if the contacts asserted here did rise to the level of "transacting business" in New York, the instant claims for breach of contract and indemnity did not "arise out of" those contacts as is required for § 302 jurisdiction. A claim "arises out of" the transaction of business when there is a "substantial nexus" between the transaction of business and the cause of action sued upon. See Agency Rent A Car Sys., Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 31 (2d Cir. 1996); Nassar v. Florida Fleet Sales, 69 F. Supp.2d 443, 446 (S.D.N.Y. 1999); McGowan v. Smith, 52 N.Y.2d 268, 272, 437 N.Y.S.2d 643, 645, 419 N.E.2d 321 (1981) (requiring an "articulable nexus" between claims asserted and transaction of business in New York").
Bozell asserts that the requisite nexus stems from the fact that Carpet One's executives visited New York twice to discuss Bozell's advertising strategy in what Bozell claims to have been "important" and "crucial" meetings. Personal jurisdiction based upon meetings in the forum state is warranted only if the meetings were substantial. See PaineWebber, 1995 WL 296398, at *3.
Yet even if they were "important" to Carpet One's overall business strategy, these meetings were mere "link[s] in the chain of events leading to the claim[s] for which relief is sought." Xedit Corp. v. Harvel Indus. Corp., 456 F. Supp. 725, 729 (S.D.N Y 1978). The claim asserted in this action is that Carpet One must indemnify Bozell for the cost of Bozell's settlement with SAG over the cancelled Arthur and Getty commercials, and that Carpet One breached its contract to Bozell in failing to pay. The meetings gave rise to a marketing plan, which led to Bozell's solicitation of and contracting with Arthur and Getty to appear in Carpet One commercials, an agreement which in turn was repudiated by Carpet One, which led to the initiation and settlement of arbitration against Bozell, which Carpet One refused to join, which, finally, led to the instant claims for indemnity and breach of contract. The two meetings were simply not proximate enough to the acts claimed in this suit for them to confer personal jurisdiction under § 302. See Weinstein, Korn Miller, New York Civil Practice § 302.05, at 3-80) ("The defendants' New York activities must be substantially proximate to the allegedly unlawful acts before the cause of action can be said to arise out of those activities.").
Bozell has not shown that the two claims it asserts in this action arose out of Carpet One's transaction of business in New York. This court has no personal jurisdiction over the defendant under CPLR § 302(a) (1).
Conclusion
For the foregoing reasons, the motion for costs is granted and the case is dismissed for lack of personal jurisdiction.
It is so ordered.