Opinion
34185/08.
Decided May 22, 2009.
Michelle Hauser, Esq., Noel W. Hauser and Associates, New York, NY, Attorney for Plaintiff.
Kevin M. Knab, Esq., Eric M. Berman, P.C., Babylon, NY, Attorney for Defendant.
Defendants Equipment Relocation Services, Inc. a/k/a ERS Inc. of Illinois (ERS) and Douglas Royer move pursuant to CPLR 3211(a)(8) for lack for jurisdiction and CPLR 3211(a)(7) for failure to state a cause of action. For the reasons set forth below defendants' motion to dismiss for lack of personal jurisdiction is denied but defendants' motion to dismiss the fraud claim against defendant Royer is granted.
Background
ERS is a corporation which deals in new and pre-owned process machinery. It is organized and incorporated under the laws of the State of Illinois and maintains no offices and employs no individuals in New York. Defendant Royer is the alleged principal of ERS and a resident of Illinois. It is not disputed that he never entered New York during the period of, or for any purpose related to, the transaction alleged in the Complaint. Plaintiff, Josef's Organic Corp. (Josef's), is a corporation that manufactures and distributes sandwich cookies and crackers. Its principal place of business is in Brooklyn, New York.
Plaintiff claims in its memorandum of law in opposition to the motion that Royer is the principal of the plaintiff. Defendant does not dispute this allegation. However, in the sales quotations attached to plaintiff's opposition papers, Royer signs his name as "SALES REPRESENTATIVE" of ERS ( See e.g. Lefkovits Affirmation in Opposition, Exhibit A).
Eugene Lefkovits, an officer of plaintiff corporation, claims that in November 2007, he called ERS and spoke to defendant Royer about purchasing a cookie processing machine which would allow plaintiff to meet the demand for its cookies. On November 26, 2007, Royer, on behalf of ERS, submitted a price quote for a fully refurbished and reconditioned machine that would meet plaintiff's needs. That quote was later revised and on December 5, 2007, ERS submitted a new quote which priced the machine at $85,000. The quote noted that the machine was "RECONDITIONED AND READY TO RUN WILL BE SET UP TO DO THE SMALL 1 LB TRAYS AND WILL ALSO DO JELLY FILED COOKIES" (Exhibit C to the Lefkovits Affidavit in Opposition, Royer Quotation dated December 5, 2007). The specified method of shipment was "F.O.B. IL" and ERS requested a $42,500 down payment. Plaintiff "agreed to this proposal and forwarded" ERS the sum of $42,500 on December 5, 2007.
Plaintiff alleges that, although Royer made the representation that the machine was immediately available for shipment, it was only months later, in July 2008, that the machine was actually shipped (Complaint ¶ 10). At that time, plaintiff paid the outstanding sum due on the machine ($42,500) and defendant shipped it to plaintiff. The machine was not functional upon delivery and, sometime after delivery, ERS sent an employee by the name of John Chance to set up the equipment at plaintiff's Brooklyn location. The circumstances of this visit are detailed in a letter dated October 3, 2008 written by Royer, on behalf of ERS:
E.R.S. INC WOULD HOWEVER LIKE TO CLARIFY SOME POINTS, E.R.S. INC. SENT JOHN CHANCE TO BROOKLYN NEW YORK TO ASSIST RAUL ALCALA TO START AND TIME THE PT 2 CREAMER, E.R.S. INC. LEARNED THAT THE CHUTES WERE MANUFACTURED IN REVERSE, E.R.S. INC. IS READY TO SHIP THE RE-MANFACTURED [ sic] PART BUT REQUIRES JO-SEF GLUTIN FRE-EE TO ACKNOWLEDGE THE FOLLOWING.
1) E.R.S. INC. WAS NOT CONTRACTED TO INSTALL, START OR TIME THE PT 2 PETERS MACHINE.
2) JOHN CHANCE OF E.R.S. INC. WENT TO BROOKLYN NY AT NO CHARGE TO JOSEPH GLUTIN FOR ASSISTANCE OF INSTALLATION.
3) E.R.S. INC. PAID THE FREIGHT OF MACHINE TO BROOKLYN NY WHICH E.R.S. INC. WAS NOT CONTRACTUAL OBLIGATED.
4) JOSEPH GLUTIN HAS ELECTED TO INSTALL THE CHUTES THEM SELF AND NOT PAY RAUL ALCALA THE BALANCE OWED OF $2,200.00 RAUL ALCALA AND E.R.S. INC ACCEPT THIS TERM ONLY IF WE DO NOT HAVE TO RETURN TO NEW YORK FOR START UP, HOWEVER IF REQUESTED BY JOSEPH GLUTIN E.R.S. INC. AND RAUL ALCALA WILL REURN [ sic]TO NEW YORK FOR START UP AND TRAINING OF PT 2 PETERS, AT THAT POINT THE ORIGINAL BALANCE OF $2,200.00 WOULD BE DUE TO RAUL ALCALA.
5) PLEASE SIGN AND FAX.
(Lefkovits Affidavit in Opposition, Exhibit E). Royer also states in the letter that ERS was ready to ship re-manufactured parts for the machine. The letter was not signed by Mr. Lefkowitz. However, defendants admitted, at oral argument, that their representative John Chance was sent into New York to assist Raul Alcala with the machine's start up. Plaintiff claims that the machine remains inoperable today.
In December 2008 plaintiff filed the Summons and Complaint. In the Complaint plaintiff asserts two causes of action. The first is for breach of contract claiming that defendant breached the terms of its agreement with plaintiff by shipping an inoperable machine which remains inoperable today. Plaintiff's second cause of action is against Royer for fraud. In it plaintiff claims that Royer made false representations that ERS could deliver an operational machine within three to four weeks solely to induce plaintiff to pay $85,000 for the machine when, in fact, defendant never owned the machine and thus, could not ship it in the time frame specified, and knew it was not operational.
Discussion
In response to a motion to dismiss pursuant to CPLR 3211(a)(8), "the plaintiff need only make a prima facie showing that personal jurisdiction exists." ( Opticare Acquisition Corp. v Castillo , 25 AD3d 238 , 244 [2d Dept 2005]; see also Crystal Cove Seafood Corp. v Chelsea Harbor, LLC , 47 AD3d 670 [2d Dept 2008]). The Complaint does not specifically cite the basis for jurisdiction. However, as to ERS, plaintiff states that "said defendant is doing business in the State of New York." (Complaint ¶ 2). In addition, in opposition to the motion, plaintiff argues that ERS transacted business here by providing a quotation, accepting payment, shipping and, most notably, setting up a cookie machine at ERS' place of business Brooklyn. As for Royer, plaintiff claims that he is "subject to the jurisdiction of the Courts of the State of New York by reason of the occurrence of the events hereafter set forth [in the body of the Complaint]" (Complaint ¶ 3). For both defendants, all of plaintiff's legal arguments in its memorandum of law pertain to jurisdiction under CPLR 302(a)(1). Therefore, the Court presumes that plaintiff is relying on CPLR 302(a)(1) as the basis for jurisdiction over both defendants.
CPLR 302(a)(1) provides that a Court may exercise personal jurisdiction over a non-domiciliary that "transacts any business within the state or contracts anywhere to supply goods or services in the state." Under CPLR 302(a)(1) "[w]hat constitutes a transaction of business' has not been precisely defined, but it is clear that under the right circumstances, a single act' may constitute a transaction within the ambit of the long-arm statute" ( Opticare, 25 AD3d at 243). "Proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant's activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted" ( Kreutter v McFadden Oil, 71 NY2d 460, 467; see also Deutsche Bank Securities, Inc. v Montana Board of Investments, 7 NY3d 65, 71).
In addition to the statutory requirements, "it is necessary that the Due Process Clause of the United States Constitution be satisfied insofar as the basis of the exercise of long-arm jurisdiction must be a defendant's "minimum contacts" with the state and must comport with "traditional notions of fair play and substantial justice"'" ( Liberatore v Calvino, 293 AD2d 217, 219, quoting Agency Rent A Car, 98 F3d 25, 32 [citations omitted]). Stated differently, "[a]s the United States Supreme Court has made clear, a state may exercise personal jurisdiction over a nondomiciliary defendant provided that it 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'" ( Opticare Acquisition, 25 AD3d at 248, quoting International Shoe Co. v Washington, 326 US 310 [internal quotation marks omitted])."
In addition, it has been noted that:
"The test for minimum contacts' has been refined over the years to whether a defendant's "conduct and connection with the forum State"' are such that it "should reasonably anticipate being haled into court there'" ( LaMarca v Pak-Mor Mfg. Co., 95 NY2d 210, 216 [2000], quoting World-Wide Volkswagen Corp. v Woodson, 444 US 286, 297 [1980]). Put another way, the decisions under the Due Process Clause are designed to ensure that a defendant is not dragged into a jurisdiction to answer in litigation brought there as a result of random,' fortuitous,' or attenuated' contacts ( Burger King Corp. v Rudzewicz, 471 US 462, 475 [1985])."
( Opticare Acquisition, 25 AD3d at 247).
In Island Wholesale Wood Supplies Inc. v Blanchard Industries Inc., 101 AD2d 878 (2d Dept 1984), the Appellate Division, Second Department, dealt with an identical scenario to the one at bar. There, plaintiff commenced an action to recover damages arising out its purchase of a firewood processing machine from Blanchard Industries (Blanchard) and serviced by defendant Abbott Machine Co. (Abbot). Both defendants were residents of New Hampshire. The terms of sale between Blanchard and plaintiff included the words "F.O.B. Wilton, N.H." Plaintiff picked up the machine in New Hampshire and transported it back to New York. After delivery, one of Blanchard's employees went to plaintiff's place of business in New York to "set up the machine." In addition, Blanchard hired defendant Abbot to provide one service visit and the ship parts to plaintiff on three occasions.
The Appellate Division considered whether personal jurisdiction existed under CPLR 302(a)(1). Defendants argued that they did not supply goods or services in New York within the meaning of CPLR 302 because the contract was F.O.B. point of origin. However, the Court declined to decide the jurisdictional issue on that basis because "if [CPLR 302] were held to apply to a mere contract to ship goods F.O.B. an out-of-state location, serious constitutional problems would be raised" ( Id. at 879). Instead, the Court gave "broad construction to the phrase supply goods and services in the state'" ( Id.) and found that, regardless of the method of shipment, it could assert jurisdiction over both defendants because, by servicing the machine in New York, defendants availed themselves of the privilege of conducting activities in the State ( Id.). Moreover, the "minimum contacts" requirement of the due process clause was satisfied because defendants sent their employees into New York to set up and service the machine "in the performance of [their] contractual duties" ( Id. at 880). In other words, minimum contacts were established because the set up and service visits arose out of a contractual duty.
Here, like the defendant in Island Wholesale, ERS shipped the equipment F.O.B. place of origin. However, it too sent its employee, John Chance, into New York to set up and service the machine to ensure that it complied with ERS' contractual obligation to provide a "READY TO RUN" machine. Moreover, just as Blanchard arranged for Abbot to service the machine in Island Wholesale, ERS arranged to have Raul Alcala service the machine. Therefore, like the Island Wholesale defendants, ERS purposefully availed itself of the benefits and protections of the forum's law by setting up and servicing the machine in New York. Moreover, ERS' presence in New York to set up the machine satisfies due process because, as evinced by its October 3, 2008 letter to plaintiff, ERS admittedly sent its employee into the state in furtherance of its contractual obligations and therefore maintained minimum contacts in the forum. ( Id. at 880). Furthermore, due process is not offended by haling ERS into Court inasmuch as the statements in the October letter anticipate litigation and appear to be an attempt to limit defendant's liability. Therefore, the Court is satisfied that a basis for jurisdiction exists over defendant ERS and now turns to the jurisdictional analysis for defendant Royer.
Plaintiff primarily relies on Kreutter v McFadden Oil, 71 NY2d 460 (1988), to support its argument that jurisdiction can be exercised over Royer pursuant to CPLR 302(a)(1). In Kreutter, the individual defendant, Downman, was involved in a transaction where plaintiff, a New York resident, purchased an oil rig from co-defendant McFadden Oil, a Texas oil company. The parent of McFadden Oil, McFadden Company, maintained its principal place of business in New York and was used in the transaction to filter money through co-defendant Harmony Drilling Co., Inc, another Texas entity which was owned and controlled by Downman and his wife. Due to McFadden Company's presence in New York and involvement in the transaction, the Court found that jurisdiction could be exercised over all of the corporate defendants ( Id. at 467).
Downman, however, asserted the "fiduciary shield doctrine," and argued that there was no basis for jurisdiction over him because "no claim could be asserted against an individual nonresident defendant whose only contact with New York was his execution of a contract here on behalf of his corporate employee" ( Kreutter, 71 AD2d 468). However, the Court of Appeals rejected the doctrine and found that it was not available to defeat jurisdiction under the New York long-arm statute because the due process clause already provides adequate protections to individual defendants. The Court also found that notions of fair play and substantial justice were not offended by haling Downman into Court inasmuch as he was a principal actor in the transaction and would, at the very least, enter the jurisdiction to testify at trial even if no jurisdiction were asserted over him ( Id. at 471).
Here, it is alleged that Royer is the principal of ERS, an allegation not disputed by defendants. It is further alleged that he was the principal actor for ERS that procured the equipment, negotiated and prepared the price quotation for the equipment and arranged for it to be shipped to, New York and set up in New York. The Court recognizes that the notions of fair play and substantial justice would be offended if an ordinary employee were dragged into the jurisdiction for doing something as minimal as negotiating and preparing a price quote for equipment to be shipped into New York ( see Calder v Jones, 465 US 783, 789; cf. Laufer v Ostrow, 55 NY2d 305, 313[applying similar rationale but with respect to jurisdiction asserted under CPLR 301]). However, here, as in Kreutter, the individual defendant is an officer of the corporation, was crucial to the transaction and, most significantly, as principal of ERS, will be an essential witness if this matter progresses to trial. Therefore, it is not unreasonable to find that, in light of Royer's involvement in the transaction and his continued effort to ensure that the machine was operational (the letter dated October 3, 2008), jurisdiction may be exercised over him as well.
However, although a basis for jurisdiction exists, defendants also move, pursuant to CPLR 3211(a)(7) to dismiss the fraud cause of action against Royer for failure to state a cause of action. "[I]t is well settled that a cause of action seeking damages for fraud cannot be sustained when the only fraud charged relates to a breach of contract" ( Elsky v KM Ins. Brokers, 139 AD2d 691 [2d Dept 1988]; see also Tiffany at Westbury Condominium v Marelli Dev. Corp. , 40 AD3d 1073 , 1076 [2d Dept 2007]; 34-35th Corp. v 1-10 Indus. Assoc. , 2 AD3d 711 , 712). A fraud claim must be dismissed unless it arises from representations that are collateral or extraneous to the parties contract ( see 34-35th Corp., 2 AD3d at 712; Tsilogiannis v 53-11 90th St. Assoc., 293 AD2d 468, 469 [2d Dept 2002]; Alamo Contract Bldrs. v CTF Hotel Co., 242 AD2d 643 [2d Dept 1997]).
None of the allegations in the fraud claim differ from the breach of contract claim, nor are they collateral or extraneous to the parties' contract. Indeed, the allegations that ERS shipped a nonfunctional machine to plaintiff for which plaintiff paid $85,000 are the substance of plaintiff's breach of contract claim. Therefore, the fraud claim must be dismissed because the fraud alleged here arises only out of an alleged breach of contract in ERS' alleged failure to furnish an operational machine. As no other causes of action are alleged against defendant Royer, the Complaint is dismissed as to him.
Conclusion
Defendants' motion to dismiss the Complaint due lack of personal jurisdiction is denied as to both defendants. However, defendants' motion to dismiss the Complaint as to the individual defendant Royer is granted. A preliminary conference is scheduled for July 22, 2009 at 9:45 am in Commercial Part I, Room 756 of Kings County Supreme Court.
The foregoing constitutes the decision and order of the Court