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treating a plaintiff's allegation that its principal place of business was New York "as an admission that [plaintiff] is doing business in New York"
Summary of this case from New Asia Enters. Ltd. v. Fabrique, Ltd.Opinion
No. 04 Civ. 8106 (RWS).
February 1, 2005
RUBIN BAILIN ORTOLI MAYER BAKER, ERIC VAUGHN-FLAM, ESQ., MARC JONAS BLOCK, ESQ., New York, NY, Attorneys for Plaintiff.
A. TODD MEROLLA, P.C., A. TODD MEROLLA, ESQ., Atlanta, GE, Attorney for Defendants.
WAGNER, JOHNSTON ROSENTHAL, Atlanta, GE, Attorneys for Defendants.
OPINION
On October 14, 2004, MK Systems, Inc. ("MK") filed the original complaint in this action, asserting three claims against defendants David Schmidt ("Schmidt") and LifeWave Products, L.L.C. ("LifeWave") (collectively, the "Defendants"): (i) a claim for fraud in the inducement asserted against both Defendants; (ii) a claim for breach of contract asserted against LifeWave; and (iii) a claim asserted against both Defendants for alleged violations of "the laws of the Food and Drug Administration" (Compl. at ¶ 63) for which MK is seeking a permanent injunction to prevent Defendants from manufacturing or commercially distributing certain products unless and until the products are "fully compliant with FDA law." (Compl. at ¶ 68).
According to the complaint, which was verified by Mark Klein, the "President of the corporate plaintiff in the above-captioned action" (Compl. at 15), MK is a corporation incorporated under the laws of the State of New York, having its principal place of business at 500 Fifth Avenue in the City, County and State of New York. (See Compl. at ¶ 1.) LifeWave is alleged to be a limited liability company existing under and by virtue of the laws of the State of Georgia, with its principal place of business in Suwanee, Georgia. (See Compl. at ¶ 3.) Schmidt is alleged to be a "member" of LifeWave, whose offices are alleged to be in Suwanee, Georgia. (Compl. at ¶ 4.) Jurisdiction is alleged under both 28 U.S.C. § 1331 and 28 U.S.C. § 1332.
On December 22, 2004, Schmidt moved to dismiss the complaint pursuant to Rule 12(b), Fed.R.Civ.P., on the grounds that MK lacks capacity to bring the suit and that no private right of action exists under the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301, et seq. (the "FDCA"), or, in the alternative, to transfer the action to the United States District Court in the Northern District of Georgia pursuant to 28 U.S.C. § 1404(a). On January 11, 2005, LifeWave moved to dismiss MK's complaint, adopting the arguments of Schmidt.
One day earlier, by order to show cause dated January 10, 2005, MK moved to stay all proceedings and enjoin LifeWave from prosecuting an action entitled LifeWave Products, LLC v. Kline, et al., Case No. 04 Civ. 3710, currently pending in the United States District Court for the Northern District of Georgia, Atlanta Division (the "Georgia action"). The Georgia action was commenced on December 21, 2004, and MK argued that the Georgia action should be stayed pursuant to the so-called first-filed rule.
On January 14, 2005, Active-8, Inc., d/b/a MK Lifepatch Systems, Inc. ("Active-8") filed a document in this matter styled a first amended complaint. According to the purported amended complaint, Active-8 is alleged to be a corporation incorporated under the laws of the State of Nevada, having its principal place of business at 500 Fifth Avenue, in the City, County and State of New York. Active-8, it is alleged, "was formally [sic] known as MK Systems, Inc." and is allegedly "registered to do business in the states of New York and New Jersey." (Active-8 Am. Compl. at ¶ 1.) Apart from the addition of two new paragraphs and the absence of verification, the purported first amended complaint and the original complaint are substantially the same.
A hearing was held on the motion to enjoin the Georgia action on January 19, 2005, and the motions to dismiss and transfer the action were heard on January 26, 2005. On January 25, 2005, Defendants filed a motion to dismiss Active-8's amended complaint on the ground that Active-8 was not a party to the action or, in the alternative, to transfer the action to Georgia.
For the reasons set forth below, Defendants' motions to dismiss the original complaint are granted, and this action is dismissed in its entirety without prejudice subject to the condition specified below.
Discussion A. The Purported Amendment By Active-8 Was Improper And The Original Complaint Remains The Operative Complaint
Pursuant to Rule 15(a), Fed.R.Civ.P., "[a] party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served . . ." Fed.R.Civ.P. 15(a). As a motion to dismiss is not itself a pleading, see Fed.R.Civ.P. 7(a), where a plaintiff amends its complaint after a defendant has moved to dismiss the complaint but before the motion has been decided, the motion to dismiss is rendered moot. See, e.g., United Magazine Co. v. Murdoch Magazines Distrib., Inc., 146 F. Supp. 2d 385, 416 (S.D.N.Y. 2001).
In this case, however, MK did not amend its complaint. Instead, the purported first amended complaint was filed by Active-8, a corporation which, unlike MK, is alleged to be incorporated under the laws of the State of Nevada and registered to do business in the States of New York and New Jersey.
Rule 15(a) provides that a party "may amend the party's pleading. . . ." Fed.R.Civ.P. 15(a) (emphasis supplied). Active-8 could not amend the original complaint as of right as it is not "the party" which filed the original complaint but an entity bearing a different name and, according to the purported amended complaint, allegedly incorporated in a different state. The allegation that Active-8 was, at some unspecified time in the past, "formally known as MK Systems, Inc." (Active-8 Am. Compl. at ¶ 1), is a suggestive coincidence of name but provides no basis to conclude that Active-8, the alleged Nevada corporation, is one and the same entity as MK, the alleged New York corporation which filed the complaint in this matter.
If either MK or Active-8 wished to substitute Active-8 as plaintiff in place of MK as the real party in interest under Rule 17(a), Fed.R.Civ.P., the proper means for doing so would have been to seek leave of the Court. See generally Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F. 3d 11, 20 (2d Cir. 1997) ("A Rule 17(a) substitution of plaintiffs should be liberally allowed when the change is merely formal and in no way alters the original complaint's factual allegations as to the events or the participants."). Absent such leave, the purported amendment by Active-8 of MK's complaint is improper.
Accordingly, since the purported first amended complaint was filed by a non-party entity not entitled to file an amended complaint as of right nor granted leave to substitute for MK, the so-called first amended complaint is a nullity, and the operative complaint remains the original complaint filed by MK. As a consequence, Defendants' unopposed motions to dismiss the complaint have not been rendered moot and may be considered by the Court.
B. Defendants' Motions To Dismiss The Complaint Are Granted
In their motions brought pursuant to Rule 12(b), Fed.R.Civ.P., Defendants have asserted that MK lacks the capacity to sue under Rule 17(b), Fed.R.Civ.P. In support of this argument, Defendants have submitted a declaration of counsel attesting to the absence of any record of a corporation named "MK Systems, Inc." in the online database for the New York State Department of State Division of Corporations.
Although the defense of lack of capacity is not expressly mentioned in Rule 12(b), Fed.R.Civ.P., it is accepted practice in this circuit that arguments concerning a plaintiff's lack of capacity may be treated as arising under Rule 12(b)(6) where the defect in capacity appears on the face of the complaint. See Klebanow v. New York Produce Exch., 344 F.2d 294, 296 n. 1 (2d Cir. 1965) (Friendly, J.); Machne Menachem, Inc. v. Hershkop, No. 97 Civ. 2550 (ILG), 2001 WL 984943, at *3 (E.D.N.Y. July 24, 2001); Weiner v. Winters, 50 F.R.D. 306, 307-08 (S.D.N.Y. 1970). Where, as here, the Court must consider matters outside the pleadings, such as affidavits, the motion shall be treated under Rule 56(b), Fed.R.Civ.P. See Klebanow, 344 F.2d at 296 n. 1; Machne Menachem, 2001 WL 984943, at *3; Weiner, 50 F.R.D. at 308.
The capacity of a corporation to sue or be sued is determined by the law under which it was organized. See Fed.R.Civ.P. 17(b). Although MK is alleged to be incorporated in New York, Defendants have challenged this allegation, and MK has offered no evidence to suggest that Defendants are incorrect. To the contrary, in connection with the reply papers on MK's motion to enjoin the Georgia action counsel for MK and Active-8 have submitted documentation evidencing the incorporation of an entity by the name of "MK Systems, Inc." in Nevada and a New Jersey certificate of authority of MK Systems, Inc. d/b/a/ MK Life Patch Systems, Inc. In addition, counsel for MK and Active-8 has affirmed that Active-8 was originally incorporated in Nevada as "MK Systems, Inc.," and that "plaintiff's principal and president amended its name to 'Active-8 Inc.'" (Reply Affirmation of Eric Vaughn-Flam, dated Jan. 18, 2005 ("Vaughn-Flam Reply Aff."), at ¶ 8.) There is no indication from counsel's affirmation or from the documentary evidence submitted in support whether the amendment in question was ever formally accomplished under Nevada law. Counsel further affirms that, "[p]rior to the commencement of the current action, the undersigned filed an application with the Secretary of State for a license for plaintiff pursuant to the New York B.C.L." (Vaughn-Flam Reply Aff., at ¶ 8.)
Counsel for MK and Active-8 has submitted a one-page receipt from a Delaware company related to the retrieval of New Jersey documents for Active-8, which receipt bears the notation "Name reflects as MK Systems, Inc. D/B/A/ MK Life Patch Systems, Inc." (Vaughn-Flam Reply Aff., Exh. C, at 1.) No further evidence of any purported amendment has been submitted.
Based upon the foregoing, it appears that MK was, at some point in the past, and may continue to be a foreign corporation organized under the laws of the State of Nevada.
As stated earlier, under Rule 17(b), Fed.R.Civ.P., MK's capacity to sue is determined by the law under which it was organized. It need not be determined whether MK properly possessed capacity to sue under the laws of the State of Nevada at the time this action was commenced, however, since, even assuming MK possesses such capacity, the application of Rule 17(b) where diversity jurisdiction is alleged "is nevertheless subject to the forum state's 'door-closing' provisions." Remsen Partners, Ltd. v. Southern Management Corp., No. 01 Civ. 4427 (RCC), 2004 WL 2210254, at *2 (S.D.N.Y. Sept. 30, 2004) (citingWoods v. Interstate Realty Co., 337 U.S. 535, 538 (1949); Angel v. Bullington, 330 U.S. 183, 191-92 (1947)); see also Regal Custom Clothiers, Ltd. v. Mohan's Custom Tailors, Inc., No. 96 Civ. 6320 (SS), 1997 WL 370595, at *3 (S.D.N.Y. July 1, 1997) (observing that New York's "door-closing statute" "closes federal doors, where the federal court's jurisdiction is based on diversity") (citations omitted). The application of New York's "door-closing statute," see N.Y. Bus. Corp. Law § 1312(a), is dispositive here with regard to MK's state law claims.
Pursuant to New York's door-closing statute, out-of-state corporations doing business in New York without authorization are precluded from maintaining any legal action in the state:
A foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized to do business in this state and it has paid to the state all fees and taxes imposed under the tax law or any related statute . . . as well as penalties and interest charges related thereto, accrued against the corporation.
N.Y. Bus. Corp. Law § 1312(a) (emphasis supplied). Where jurisdiction rests on diversity, N.Y. Bus. Corp. Law § 1312 "precludes the maintaining of an action by an unauthorized foreign corporation not only in the state courts of New York but also in the federal courts located in that state." Netherlands Shipmortgage Corp., Ltd. v. Madias, 717 F.2d 731, 735 (2d Cir. 1983).
Although MK has alleged that its principal place of business is in New York, which allegation may be treated as an admission that MK is doing business in New York, see, e.g., British Fish Development, Inc. v. Wheeler's Restaurants PLC, No. 89 Civ. 4616 (CSH), 1990 WL 55725, at *2 (S.D.N.Y. Apr. 24, 1990), amended by 1990 WL 71467 (S.D.N.Y. May 23, 1990), there is no evidence demonstrating that MK is authorized to do business in the State of New York; indeed, even crediting the suggestion that MK and Active-8 are one and the same entity, counsel has affirmed only that an application for authorization for the MK/Active-8 entity was filed prior to the commencement of the current action, not that any such authorization exists. As a foreign corporation lacks capacity to maintain any action in New York "unless and until" it has been authorized to do business in the State of New York, N.Y. Bus. Corp. Law § 1312(a), and MK, by its counsel, has acknowledged that it did not have any such authorization at the time the suit was brought, MK lacked capacity to bring this action insofar as the action is premised on diversity jurisdiction.
Even if Active-8's purported amendment of MK's complaint had been deemed proper, and its amendment related back to the date of the original complaint, Active-8 suffers from the same deficiency relating to the pending application for authorization.
The Second Circuit has ruled that "an appropriate remedy for a section 1312 violation is a conditional dismissal or stay of the action pending cure of the violation." S K Sales Co. v. Nike, Inc., 816 F.2d 843, 853 (2d Cir. 1987); accord A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 84 (2d Cir. 1993). Accordingly, the dismissal of MK's state-law claims as to which this Court's diversity jurisdiction has been invoked shall be without prejudice and conditional upon MK failing to serve and file, within twenty (20) days of the date of entry of this opinion and order, proof that it has obtained authority to do business in New York.
MK's complaint may not be dismissed in its entirety on the basis of New York's door-closing statute, however. MK has alleged federal question jurisdiction in addition to diversity jurisdiction, and it would seem anomalous, at the very least, to apply subsection 1312(a) — a rule limiting access to the New York State courts — where a plaintiff is alleging a federal claim. Thus, to the extent that MK has alleged federal question jurisdiction as an alternate basis for jurisdiction in connection with the third claim of the complaint, which is premised on purported violations of the FDCA and regulations promulgated thereunder, MK's capacity to sue depends solely on the application of Nevada law, pursuant to Rule 17 (b), Fed.R.Civ.P., and not on the application of N.Y. Bus. Corp. Law § 1312(a). Once again, it need not be determined whether MK enjoys capacity under Nevada law, as, even assuming such capacity, this Court lacks federal question jurisdiction over the sole remaining claim of the complaint.
A court may address, sua sponte, the question of subject matter jurisdiction at any time. See Lyndonville Sav. Bank Trust Co. v. Lussier, 211 F.3d 697, 700 (2d Cir. 2000) (explaining that the "failure of subject matter jurisdiction is not waivable and may be raised at any time by a party or by the court sua sponte"); FDIC v. Four Star Holding Co., 178 F.3d 97, 100 n. 2 (2d Cir. 1999) (noting that the court "may examine subject matter jurisdiction, sua sponte, at any stage of the proceeding").
There are two ways in which a case may present a federal question under 28 U.S.C. § 1331. First, federal question jurisdiction exists if "federal law creates the cause of action." West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188, 192 (2d Cir. 1987). "If state law creates the cause of action, the second test asks whether that cause of action poses a substantial federal question." Id.; see also Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 808 (1986) (Although "the vast majority of cases brought under the general federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action . . . a case may arise under federal law where the vindication of a right under state law necessarily turn[s] on some construction of federal law.") (quotation marks and citations omitted).
"[C]ase law is clear on the point that no private right of action exists under the FDC Act." Eon Labs Mfg. Inc. v. Watson Pharm., Inc., 164 F. Supp. 2d 350, 361 n. 14 (S.D.N.Y. 2001) (citing Braintree Labs., Inc. v. Nephro-Tech, Inc., 58 F. Supp. 2d 1293, 1295 n. 1 (D. Kan. 1999) (discussing dismissal of two counts which "essentially alleged misbranding in violation of the Federal Drug and Cosmetic Act (FDCA), 21 U.S.C. §§ 301-395, a statute under which no private right of action exists")); see also PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1113 (2d Cir. 1997) (observing that "no . . . private right of action exists" under the FDCA); Bernhardt v. Pfizer, Inc., Nos. 00 Civ. 4042 (LMM) 00 Civ. 4379 (LMM), 2000 WL 1738645, at *2 (S.D.N.Y. Nov. 22, 2000) (observing that there is "no private right of action to enforce the provisions of the FDCA"). Nor does any private cause of action arise under the implementing regulations of the FDCA.See 21 U.S.C. § 337; see also Cushing v. Moore, 970 F.2d 1103, 1106 (2d Cir. 1992); Martinez Caraballo v. Intermedics, Inc., 886 F. Supp. 974, 979 (D.P.R. 1995) (collecting cases); Auto-Tron v. Allen Group, Inc., No. 90 Civ. 2900, 1990 WL 153958, at *3 (D.N.J. Oct. 20, 1990).
Although a private cause of action for per se negligence may arise under New York State law upon violation of the FDCA, see Sita v. Danek Med., Inc., 43 F. Supp. 2d 245, 262 (E.D.N.Y. 1999) (collecting cases), the mere invocation of the FDCA in relation to a state law claim is insufficient to establish federal question jurisdiction. As the U.S. Supreme Court has explained,
[T]he congressional determination that there should be no federal remedy for the violation of [the Federal Food, Drug, and Cosmetic Act] is tantamount to a congressional conclusion that the presence of a claimed violation of the statute as an element of a state cause of action is insufficiently 'substantial' to confer federal-question jurisdiction.Merrell Dow Pharms., 478 U.S. at 814 (footnote omitted). Accordingly, no federal question jurisdiction exists, and the third claim of the complaint is dismissed for want of jurisdiction. Conclusion
As no jurisdiction exists over the third claim, Defendants' argument for dismissal of the third claim of the Complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., shall not be reached.
Because, for the reasons set forth above, MK lacked capacity to bring those claims over which this Court's diversity jurisdiction was alleged at the time this action was commenced and because the sole claim over which federal question jurisdiction was alleged provides no basis for such jurisdiction, Defendants' motion to dismiss the complaint is granted. The complaint is dismissed in its entirety and without prejudice conditional upon MK failing to serve and file, within twenty (20) days of the date of entry of this opinion and order, proof that it has obtained authority to do business in New York.
It is so ordered.