Opinion
No. FST CV 05 4002792
July 19, 2005
MEMORANDUM OF DECISION
This proceeding began as an application by the plaintiff, Deer Creek Fabrics, Inc. (Deer Creek), for a temporary injunction regarding the alleged misappropriation by the defendants of trade secrets belonging to the plaintiff. The defendant, Paul Gottlieb Co., d/b/a Cyberknit (Cyberknit), interposed a motion to dismiss (#118) claiming lack of personal jurisdiction. Practice Book § 10-31(2). The other defendants are Bradford M. Colyer and Textile Logic, LLC (Textile).
The multi-count complaint also includes allegations of breach of fiduciary duties, tortious interference with fiduciary relationships, tortious interference with business relationships, misuse of computer systems information, unjust enrichment and a violation of General Statutes § 42-110, et seq., the Connecticut Unfair Trade Practices Act (CUTPA).
A so-called Standard Tallow hearing based on the motion to dismiss filed by Cyberknit was conducted to determine whether the plaintiff could sustain its burden of proving personal jurisdiction. Knipple v. Viking Communications, Ltd., 236 Conn. 602, 607, 674 A.2d 426 (1996). The nature of this inquiry on a challenge to the court's jurisdiction is "whether the applicable state long-arm statute authorizes the assertion of jurisdiction over the [defendant]. If the statutory requirements [are] met, its second obligation [is] then to decide whether the exercise of jurisdiction over the [defendant] would violate constitutional principles of due process." (Internal quotation marks omitted.) Id., 606.
Standard Tallow Company v. Jowdy, 190 Conn. 48, 56, 459 A.2d 503 (1983).
The issue in this motion to dismiss is the applicability of General Statutes § 33-929(f)(4) relating to "long-arm" jurisdiction over foreign corporations, such as Cyberknit, based upon "tortious conduct" committed in this state. The defendant, Cyberknit, has conceded solely for the purposes of this hearing that Colyer committed a tort in this state. Cyberknit contends, however, that as a foreign corporation it is not responsible for the torts of its independent sales representatives such as Colyer and, therefore, not subject to the long-arm jurisdiction of this state.
The facts elicited at the hearing indicate that Cyberknit is engaged in producing and selling fabric or textiles and is located in New York City. Colyer is a resident of Darien. Cyberknit hired Colyer to sell its circular knit fabrics. Colyer does business under the name of Textile Logic, LLC, a Connecticut corporation, and works out of his home in Darien.
Colyer was the vice president of sales and marketing for the plaintiff company. In early 2004, Colyer began discussing with a Mr. Menachen Katz, the chief operating officer of Cyberknit, a division of Gottlieb, the possibilities of employment with that firm. In June of 2004, Katz and the defendant Colyer agreed that he would represent the Cyberknit line of fabrics. Cyberknit, acting by Katz, agreed that it would pay Colyer $11,000 a month, representing a draw on a 5% commission on sales. Colyer left the employ of the plaintiff, Deer Creek, on July 26, 2004 and immediately began representing Cyberknit.
It was further determined that ninety to ninety-five percent of sales made by Colyer while representing Cyberknit were to customers of Deer Creek, his former employer. Colyer agreed that just before he stopped working for the plaintiff, he copied its laptop hard drive. This defendant testified that in addition to Cyberknit, he represented one other company but agreed that at the time of the hearing, he had not yet sold any of the other company's product.
"A ruling on a motion to dismiss is neither a ruling on the merits of the action nor a test of whether the complaint states a cause of action . . . Motions to dismiss are granted solely on jurisdictional grounds." (Citations omitted; internal quotation marks omitted.) Villager Pond, Inc. v. Darien, 54 Conn.App. 178, 182, 734 A.2d 1031 (1999). Although it is well recognized that a plaintiff has the burden of proving jurisdiction, it is equally true that: "[I]n ruling on a motion to dismiss, the trial court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Fort Trumbull Conservancy, L.L.C. v. New London, 262 Conn. 423, 432-33, 829 A.2d 801 (2003).
Long-arm jurisdiction under General Statutes § 33-929(f)
The moving party on this motion to dismiss, the defendant Cyberknit, argues that the plaintiff cannot satisfy its burden of proving long-arm jurisdiction as the plaintiff has alleged no basis for personal jurisdiction. It is axiomatic that "[a] foreign corporation may be haled into court in Connecticut only if a plaintiff alleges jurisdictional facts that, if proven, would satisfy one of the provisions of the long-arm statute." Pitruzello v. Muro, 70 Conn.App. 309, 311, 798 A.2d 469 (2002).
Cyberknit asserts that it is not a domiciliary of Connecticut, is not incorporated in Connecticut, is not registered to transact business as a foreign corporation, does not transact business in this state, does not advertise, or solicit business in this state, and does not maintain employees, agents or facilities in Connecticut. The defendant contends that its actions are insufficient to support jurisdiction under any provision of General Statutes § 33-929(f), the Connecticut long-arm statute, which provides that a foreign corporation is subject to suit in this state under several different circumstances. In addition, General Statutes § 33-929(e) provides that any foreign corporation which "transacts business" in this state in violation of General Statutes § 33-920 "shall be subject to suit in this state upon any cause of action arising out of such business." General Statutes § 33-920(a) provides that a foreign corporation may not transact business in this state without first obtaining a certificate of authority from the Secretary of the State.
General Statutes § 33-929(f) provides in relevant part: "Every foreign corporation shall be subject to suit in this state, by a resident of this state . . . whether or not such foreign corporation is transacting or has transacted business in this state and whether or not it is engaged exclusively in interstate or foreign commerce, on any cause of action arising as follows: (1) Out of any contract made in this state or to be performed in this state; (2) out of any business solicited in this state by mail or otherwise if the corporation has repeatedly so solicited business, whether the orders or offers relating thereto were accepted within or without the state; (3) out of the production, manufacture or distribution of goods by such corporation with the reasonable expectation that such goods are to be used or consumed in this state and are so used or consumed, regardless of how or where the goods were produced, manufactured, marketed or sold or whether or not through the medium of independent contractors or dealers; or (4) out of tortious conduct in this state, whether arising out of repeated activity or single acts, and whether arising out of misfeasance or nonfeasance."
General Statutes § 33-920(b)(6) provides in pertinent part that: "The following activities, among others, do not constitute transacting business within the meaning of subsection (a) of this section . . . (6) soliciting or obtaining orders, whether by mail or through employees or agents or otherwise, if the orders require acceptance outside this state before they become contracts . . ."
The resolution of this motion to dismiss revolves around the status of Colyer. The defendant claims that Cyberknit is not liable for the torts of Colyer because he is an independent contractor. As a general rule, "an employer is not liable for the negligence of its independent contractors . . . The explanation for [this rule] most commonly given is that, since the employer has no power of control over the manner in which the work is to be done by the contractor, it is to be regarded as the contractor's own enterprise, and [the contractor), rather than the employer, is the proper party to be charged with the responsibility of preventing the risk, and bearing and distributing it." (Citations omitted; internal quotation marks omitted.) Pelletier v. Sordoni/Skanska Construction Co., 264 Conn. 509, 517-18, 825 A.2d 72 (2003).
"The legal incidents of the employer-employee relationship, on the one hand, and the employer-independent contractor relationship, on the other, are well established. In Alexander v. R.A. Sherman's Sons Co., 86 Conn. 292, 297, 85 A. 514, we adopted the definition that [an] independent contractor is one who, exercising an independent employment, contracts to do a piece of work according to his own methods and without being subject to the control of his employer, except as to the result of his work. This definition has been amplified in subsequent cases but at no time has the basic principle been altered . . . The fundamental distinction between an employee and an independent contractor depends upon the existence or nonexistence of the right to control the means and methods of work." (Internal quotation marks omitted.) Hunte v. Blumenthal, 238 Conn. 146, 154, 680 A.2d 1231 (1996). "The test of the relationship is the right to control. It is not the fact of actual interference with the control, but the right to interfere, that makes the difference between an independent contractor and a servant or agent." (Internal quotation marks omitted.) Tianti v. William Raveis Real Estate, Inc., 231 Conn. 690, 697, 651 A.2d 1286 (1995).
In this particular case, the evidence indicated that Colyer is not an independent contractor because Cyberknit maintained close control over him. For example, Colyer agreed that he did not sell any fabric in competition with the Cyberknit line and that Cyberknit had to approve all sales that Colyer made to any customer. His e-mail to his former customers at Deer Creek said he was "partnered" with Cyberknit, which Colyer defined as having "a strategic alliance with Cyberknit as an independent company." The e-mail was captioned "Textile Logic in concert with Cyberknit" with his Darien address. Colyer's business cards, fax cover sheets and his letterhead all were in the name of "Textile Logic, in concert with Cyberknit, 28 Oak Shade Avenue, Darien, Connecticut."
Cyberknit controls the price of the material that Colyer sells and controls to whom their product may be sold. The product, the fabric, when sold is sent directly to the customer in this state and the customer plays Cyberknit directly, not Colyer. Moreover, Cyberknit can terminate Colyer's services at any time it wishes. At several trade shows, Colyer appeared at a Cyberknit booth and wore a tag with Cyberknit's name. Cyberknit contacted Colyer in this state by, for example, e-mail or telephone.
On the other hand, Colyer is not an employee of Cyberknit, as urged by the plaintiff. Cyberknit did not pay any expenses for Colyer's maintaining his office in his home in Darien, nor did the defendant give him any equity interest in Cyberknit or profit sharing. Furthermore, Cyberknit did not give Colyer a W-2 form but rather a 1099. It did not purchase a car for Colyer's use nor pay for any of his insurance.
There is a paucity of appellate authority concerning General Statutes § 33-929(f) and the principal-agent relationship. Reference was made by counsel to General Statutes § 33-920(b)(5) and (6), relating to foreign corporations transacting business in this state, and to General Statutes § 52-59b relating to personal jurisdiction over nonresident individuals, partnerships and associations, but a case directly on point was not cited.
The evidence indicates, however, that as a sales representative Colyer was in fact an agent of Cyberknit. Agency has been said to result from the "manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act . . . Thus, the three elements required to show the existence of an agency relationship include: (1) a manifestation by the principal that the agent will act for him; (2) acceptance by the agent of the undertaking; and (3) an understanding between the parties that the principal will be in control of the undertaking . . . Moreover, it is a general rule of agency law that the principal in an agency relationship is bound by, and liable for, the acts in which his agent engages with authority from the principal, and within the scope of the [agency relationship]." (Citations omitted; internal quotation marks omitted.) McDermott v. Calvary Baptist Church, 263 Conn. 378, 384, 819 A.2d 795 (2003).
"It is telling to note, as one court points out, that "[for jurisdictional purposes, the courts have distinguished an agent from an independent contractor by reference to the measure of control." Rose v. Silver, 394 A.2d 1368, 1371 (D.C.App. 1978). Rose was a case in which the plaintiff invoked the District of Columbia longarm statute against the defendant and the issue of "agent" or "independent contractor" was significant. Rose, in speaking to the "measure of control," said: "It is this lack of control over an independent contractor that results in the contractor's `unilateral activity' which the [United States] Supreme Court in Hanson v. Denckla, [ 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)], held not imputable to the out-of-state defendant for the purpose of obtaining personal jurisdiction . . . Control over the forum state actor, on the other hand, results in the defendant's purposefully avail[ing] itself of the privilege of conducting activities within the forum State, id. at 253, 78 S.Ct. at 1240 — enough to satisfy the `minimum contacts' test.' Rose v. Silver, supra." Rosenblit v. Danaher, 206 Conn. 125, 145, 537 A.2d 145 (1988).
Thus, the plaintiff has satisfied its burden of proving that Cyberknit is responsible for tortious conduct committed in this state by its agent, the defendant Colyer.
Jurisdiction Under Constitutional Standard of Due Process
Having determined that jurisdiction may be exercised pursuant to General Statutes § 33-929(f)(4), the court must next determine whether the assertion of personal jurisdiction over the defendant Cyberknit would comport with constitutional requirements of procedural due process. Knipple v. Viking Communications, Ltd., supra, 236 Conn. 609. It must be determined whether the nonresident defendant corporation has "certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Thomason v. Chemical Bank, 234 Conn. 281, 287, 661 A.2d 595 (1995).
"The twin touchstones of due process analysis under the minimum contacts doctrine are foreseeability and fairness. `[T]he foreseeability that is critical to due process analysis . . . is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.'" United States Trust Co. v. Bohart, 197 Conn. 34, 41, 495 A.2d 1034 (1985).
"The specific facts of each case necessarily determine the outcome of a minimum contacts analysis." United States Trust Co. v. Bohart, supra, 197 Conn. 42. "It is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985). However, "jurisdiction in these circumstances may not be avoided merely because the defendant did not physically enter the forum State . . . So long as a commercial actor's efforts are `purposefully directed' toward residents of another State, [our Supreme Court has] . . . consistently rejected the notion that an absence of physical contacts can defeat personal jurisdiction there." Id., 476. Moreover, it is not the quantity of contacts that determine the satisfaction of the minimum contacts analysis, rather it is the quality of the contact or contacts. International Shoe Co. v. Washington, supra, 326 U.S. 319.
In the present case, applying these standards, there is a basis for exercising personal jurisdiction over the defendant Cyberknit. The defendant purposefully availed itself of the privilege of conducting activities within this state, invoking the benefits and protections of its laws, by virtue of its agency agreement with Colyer.
Furthermore, the defendant's contacts in Connecticut were sufficiently substantial for it to have reasonably anticipated being sued in this state. The defendant knew or should have know that Colyer was contacting a number of former Deer Creek customers, who are located in this state. This knowledge is sufficient to justify the exercise of personal jurisdiction over the defendant Cyberknit.
Jurisdiction over the defendant foreign corporation is also proper as the threshold requirement of minimum contacts with Connecticut is satisfied and jurisdiction over the defendant on the basis of its relationship with Colyer would not be unfair. See Burger King Corp. v. Rudzewicz, supra, 471 U.S. 477-78. Accordingly, the defendant Cyberknit's motion to dismiss is denied.
So Ordered.
William B. Lewis, Judge T.R.