Opinion
No. 99 Civ. 10942 (MBM).
October 23, 2000.
JAMES F. CAMPISE, ESQ., (Attorney for Plaintiff) New York, NY.
JEFFREY C. RUDERMAN, ESQ., (Attorney for Defendant) Livingston, NJ.
OPINION ORDER
Plaintiff Security Insurance of Hartford ("Security") seeks a judgment declaring that defendant ITA has no recoverable claim under an insurance policy issued to ITA through William H. McGee, Co., underwriting managers for Security. ITA moves to dismiss this action for lack of personal jurisdiction, or, in the alternative, to dismiss or transfer the action pursuant to 28 U.S.C. § 1404(a) (1994). ITA's motion to dismiss for lack of personal jurisdiction is denied. ITA's motion to transfer pursuant to § 1404(a) is granted.
I.
The following facts are undisputed. ITA is a Delaware corporation with its principal place of business in Los Angeles, California. ITA sells and distributes fabric. (Treyzon Decl. ¶ 3) In early 1999, Boris Treyzon, Chief Financial Officer and principal of ITA, contacted William Simon at Hughwood, Inc., an insurance broker in New York City. (Id. ¶¶ 1, 7) Treyzon "instructed Simon to obtain a policy which would replace, and duplicate, ITA's existing policy" covering losses or damage to goods in transit or storage. (Id. ¶ 7)
With Treyzon's consent, Simon contacted Mark Black, a marine underwriter for William H. McGee Co., ("McGee") underwriting manager for Security. Black worked in McGee's New York office. (Black Aff. ¶¶ 1, 3) Before quoting a price for the premium, Black requested information about ITA's merchandise and its shipment. (id. ¶ 6) Simon faxed Black a letter on March 9, 1999, providing a "premium loss history" for ITA. (Black Aff. Exh. 3) On March 12, 1999, Simon faxed Black additional information regarding, among other things, ITA's security measures. (Black Aff. Exh. 4) In reply, Black faxed terms and a premium quote to Simon on March 15, 1999. (Black Aff. Exh. 1) Simon forwarded the quote to Treyzon at ITA in California. (Treyzon Decl. ¶ 8) Treyzon reviewed the quote and accepted it, signing "I hereby agree to bind effective April 1, 1999." (Id. ¶ 8, Exh. A) Treyzon faxed the acceptance to Simon in New York, who then forwarded it to Black. (Id.; Black Aff. ¶ 9) Black prepared the policy and delivered it to Simon in New York. (Black Aff. ¶ 10, Exh. 2; Treyzon Decl. ¶ 14) The policy, which was effective for one year beginning April 1, 1999, is a "marine cargo open policy" covering goods in transit and in storage at approved locations. (Treyzon Decl. ¶ 15; Black Aff. ¶ 11) ITA never communicated directly with Security or McGee. All correspondence was through Simon. (Treyzon Decl. ¶ 12; Black Aff. ¶ 7)
On or about June 18, 1999 and on or about July 5, 1999, three steel containers of rayon fabric were stolen from one of the approved storage locations. (Treyzon Decl. ¶ 21) Treyzon notified Hughwood of the losses, and Hughwood forwarded the notifications to McGee's claims department. (Treyzon Decl. Exh. C) McGee denied the claims based, among other things, on § 12 of the policy, which provides that "[a]ll deliveries of cargo in containers must be accompanied by guard(s) until the cargo is securely placed inside the Assured's physical facility (warehouse)." (Treyzon Decl. Exh. B § 12, D). ITA asserts that the stolen fabric is covered by § 60(1) of the policy, which provides coverage for goods in storage. (Treyzon Decl. ¶ 22, Exh. B § 60(1))
ITA's counsel sent a letter to McGee disputing the denials, requesting settlement discussions, and asking McGee to respond by October 29, 1999. (Treyzon Decl. Exh. E) McGee responded on October 26, 1999, stating that the claims were being reviewed and that they would "revert [respond] at a later date." (Treyzon Decl. Exh. F) On October 29, 1999, Security filed the complaint against ITA in this case. Days later, ITA filed suit in a state court in California. McGee removed the California case to the Central District of California, and on November 17, 1999, ITA amended the California complaint to include Security. (Treyzon Decl. ¶ 24) The California court has since dismissed the claims against all defendants except Security. Thus, there are now two concurrent actions addressing the same dispute. The California court has stayed that action pending the decision of this motion. (Treyzon Decl. ¶ 27, Exh. H)
II.
ITA moves to dismiss this action for lack of personal jurisdiction. When a motion to dismiss for lack of personal jurisdiction is coupled with a motion to transfer, the court generally should decide personal jurisdiction before venue. See Leroy v. Great Western United Corp., 443 U.S. 179, 180 (1979). Plaintiff bears the burden of establishing jurisdiction. Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981) ITA argues that Security must prove jurisdiction by a preponderance of the evidence because there has been discovery. (Mem. in Supp. at 16) However, the deposition of William Simon does not rise to the level of the extensive discovery or evidentiary hearing that would impose a preponderance of the evidence burden. Therefore, Security need only make a prima facie showing of jurisdiction. See Metropolitan Life Ins. Co. v. Robestson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996). In a case based on diversity of citizenship, personal jurisdiction is determined by the law of the forum state. See Omni Capital Int'l Ltd. v. Rudolph Wolff Co., 484 U.S. 97, 105-10 (1987). Security argues that New York has jurisdiction over ITA pursuant to New York's long arm statute.See N.Y. C.P.L.R. § 302(a)(1) (McKinney 1990). To establish long arm jurisdiction, Security must show that ITA transacted business in New York, purposefully availing itself of the benefits and protections of New York laws, and that the transaction gave rise to Security's cause of action against ITA. See CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986); Agency Rent a Car Sys., Inc. v. Grand Rent a Car Corp., 98 F.3d 25, 31 (2d Cir. 1996).
A threshold question for determining personal jurisdiction in this case is whether Simon, ITA's insurance broker, was an agent of ITA for purposes of jurisdiction. New York does not require a formal agency relationship under N.Y. C.P.L.R. § 302. Rather, the alleged agent need only engage in purposeful activities in New York with the principal's knowledge and consent and for its benefit. In addition, the principal must have some control over the actions of the alleged agent. See Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, 527 N.Y.S.2d 195, 198-99 (1988); see also Cutco, 806 F.2d at 366. Here, Treyzon asked Simon to obtain an insurance policy that would replace ITA's former policy. (Treyzon Decl. ¶ 7) Simon then contacted McGee, responded to McGee's request for additional information, obtained a quote and forwarded it to Treyzon for approval. Simon's actions were taken at the direction of Treyzon, and with Treyzon's knowledge and consent. Simon obtained the quote for ITA's benefit. Finally, ITA exercised control over Simon's actions because Simon acted at the express instruction of Treyzon, and only Treyzon had the authority to accept the policy. When taken together, these facts are sufficient to demonstrate that Simon was ITA's agent for jurisdictional purposes. Cf. Pasame Realty Corp. v. Ridge Village Partnership, 568 F. Supp. 483 (S.D.N.Y. 1983) (finding that a real estate broker was a middleman, not an agent under the control of the defendants for jurisdictional purposes because the broker's initial contact with the defendants was made on behalf of the plaintiff)
ITA argues that Simon is not an agent for jurisdictional purposes because his actions in New York were "minor," not purposeful. (Mem. in Supp. at 20) ITA's argument is misplaced. The quality of the acts performed in New York is relevant to the question of whether business has been transacted in New York by the principal through its agent, not whether agency exists. The cases cited by ITA illustrate this distinction. In Disco Aluminum Prods. v. SS Neptune Turquoise, 1979 U.S. Dist. LEXIS 10898 (S.D.N.Y. 1979), the court examined whether a foreign company was "doing business" in New York as required by NY. C.P.L.R. § 301, New York's general jurisdiction statute. Because the agent was merely "information gathering" and settling claims, the court found that its activities were insufficient to establish that the principal was "doing business" in New York. Therefore, service of process on the agents was improper. In John J. Galgay v. Bulletin Co., Inc., 504 F.2d 1062, 1065 (2d Cir. 1974), the court found agency for purposes of jurisdiction, but held that the agent's shipment of machinery from New York to Pennsylvania was minor, not rising to the level of meaningful or purposeful activity in New York. Finally, the court in Dero Enterprises, Inc. v. Georgia Girl Fashions, 598 F. Supp. 318, 323 (S.D.N.Y. 1984) assumed, arguendo, that the alleged agent was the defendant's agent, and found that "its actions as Georgia Girl's 'eyes' in the New York City marketplace did not rise to the level of meaningful or purposeful activity."
Having determined that Simon was ITA's agent for jurisdictional purposes, the next question I must answer is whether, considering the actions of ITA and Simon, ITA transacted business in New York, and if so whether that transaction gave rise to the present cause of action. To determine whether a party to a contract has transacted business in New York for purposes of C.P.L.R. § 302(a)(1), courts have considered four factors: (i) whether the defendant has an ongoing contractual relationship with a New York corporation; (ii) whether the contract was negotiated or executed in New York and whether the defendant visited New York to meet with the parties after the contract was executed; (iii) what the choice of law clause is in the contract; and (iv) whether the contract requires the defendant to send notices and payments into the forum state. The analysis is not limited to these factors, but rather rests on the totality of the circumstances. Agency Rent a Car, 98 F.3d at 29.
ITA had an ongoing contractual relationship with Security, a corporation with a place of business in New York as the result of the activities of McGee, its underwriting manager. The policy issued by Security was effective for at least a year, and created an ongoing relationship between the insurer and the insured.
The policy was negotiated in New York. Negotiation "is that which passes between parties or their agents in the course of or incident to the making of a contract." Black's Law Dictionary, 1036 (6th ed. 1990). ITA argues that characterizing Simon's actions as negotiations "is misplaced and wholly without merit." (Mem. in Supp. at 21) ITA purposefully engaged the services of Simon, asking him to locate an insurance policy. Simon contacted Security through McGee; he alone communicated with McGee and provided McGee with the parameters of ITA's previous policy and ITA's premiums and loss history. Although there is no suggestion of extended discussion of the terms of the policy or the premium, the ease with which agreement was reached does not alter Simon's role as the negotiator of the contract for ITA. Treyzon's acceptance of the policy in California does not preclude personal jurisdiction over ITA in New York. See Hoffritz for Cutlery, Inc. v. Amajac, Ltd., 763 F.2d 55, 60 (2d Cir. 1985) ("MI]t is unnecessary that final negotiations or indeed execution of the contract take place in New York.")
Finally, although the policy contains no choice of law provision, ITA sent premiums and claims to Hughwood in New York. Premiums and claims were then forwarded to the underwriting manager McGee, in New York. (Treyzon Decl. ¶ 20, Exh. C, D) ITA's ongoing contractual relationship with Security through McGee, the New York negotiations, and payments and claims sent to New York are prima facie evidence of ITA's transaction of business in New York.
As discussed above, business transactions alone do not establish long arm jurisdiction. The business transacted must give rise to the cause of action. See Agency Rent a Car, 98 F.3d at 31: The insurance policy negotiated in New York gives rise to the cause of action here. See id. Security seeks a declaration that ITA's claims are not recoverable under the policy. Security has made a prima facie showing that ITA transacted business in New York that gave rise to the claim at issue here.
Similar facts were presented in D'amato v. Lichine USA Co., 1993 WL 437772 (S.D.N.Y. 1993). In that case, a Michigan corporation asked a New York broker to charter a vessel for the shipment of corn. The broker, considered an agent for the defendant, "exchanged numerous communications" with the plaintiff's agent, and forwarded references and a history of the defendant company to the plaintiff's agent. Id. at *1. The court, in finding jurisdiction, reasoned that the "'defendant purposefully engaged the services of a broker who was present in New York to conduct' negotiations on its behalf.'" Id. at *2 (quoting Larina Shipping v. Hideca, 1974 A.M.C. 2191, 2194 (not officially reported)). Here, ITA purposefully engaged the services of William Simon, a New York broker. All communications to McGee regarding the insurance policy were made by Simon. Security has made a prima facie showing that ITA purposefully availed itself of the benefits of New York laws, and is subject to long-arm jurisdiction in New York.
The Due Process Clause of the United States Constitution is satisfied here. Long-arm jurisdiction is based on IT.A's "minimum contacts" with New York, and comports with "traditional notions of fair play and substantial justice." Agency Rent a Car, 98 F.3d at 32 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). ITA deliberately reached into New York to engage a New York broker who then negotiated an insurance policy with a New York insurer. ITA purposefully availed itself of the privilege of conducting business in New York and should have reasonably foreseen being haled into court here. Id. (citingBurger King Corp. v. Rudzewicz, 471 U.S. 462, 297 (1980)).
III.
ITA moves also to dismiss or transfer this action to the Central District of California pursuant to 28 U.S.C. § 1404 (a). ITA's request is not an unusual one. District courts have taken various approaches when deciding whether a first-filed declaratory judgment action should be transferred to the forum of a later filed coercive action. Some courts have followed the first-filed rule and its exceptions. Others have used the discretion afforded by the Declaratory Judgment Act. Still others have considered the factors for determining convenience and fairness under 28 U.S.C. § 1404(a). See Unique Indus., Inc. v. Lisa Frank, Inc., 1994 WL 525041, at *1 (S.D.N Y 1994) (listing cases). Regardless of the path courts have followed, they have consistently relied on the same consideration: whether the declaratory judgment action was properly filed or was used to secure a home field advantage. See Factors, Etc. v. Pro Arts, Inc., 579 F.2d 215, 218-19 (2d Cir. 1978) (finding no abuse of discretion in district court's decision that special circumstances warranted transfer of the first-filed action); Reliance Ins. Co. v. Bend'n Stretch, Inc., 935 F. Supp. 476, 478 (S.D.N.Y. 1996) ("The Declaratory Judgment Act is not to be used as a means of gaining a procedural advantage and preempting the forum choice of the complainant in a coercive action.") (citing Great American Ins. v. Houston Gen. Ins., 735 F. Supp. 581, 586 (S.D.N.Y. 1990)); Unigue, 1994 WL 525041, at *3-4 (finding that the interests of justice, specifically the discouragement of forum shopping, the promotion of amicable settlement of disputes, and the avoidance of abuse of the declaratory judgment remedy favored transfer of declaratory judgment action).
In this case, Security's request for a declaratory judgment was an attempt to win the race to the courthouse. Declaratory judgments are useful for adjudicating cases when neither party may seek a coercive remedy or when the party entitled to a coercive remedy fails to seek it.See Unique, 1994 WL 525041, at *3 (citing United States v. Doherty, 786 F.2d 491, 498 (2d Cir. 1986)). Security is not using the declaratory judgment act to present a claim when neither party could seek a coercive remedy; ITA has a coercive remedy available. Security is not seeking a declaratory judgment because the party entitled to the coercive remedy failed to sue for it. ITA attempted to reach a settlement within one month of the denials. (Treyzon Decl. Exh. E) Security responded with a letter stating that the claims would be reviewed and that Security would "revert at a later date." (Treyzon Decl. Exh. F) Three days later, Security filed this action. Security attempts to justify the hasty filing by claiming that settlement negotiations subsequently reached an impasse during a conversation with ITA's counsel. (See Campise Aff. ¶ 22) Regardless of whether ITA's counsel shared the understanding that settlement negotiations were at an impasse, Security presents no reason for such haste. Even if ITA had delayed suit, Security would have suffered no harm. It could simply have continued to deny ITA's claims. The ensuing uncertainty would have cost it nothing. See Unigue, 1994 WL 525041, *3 (inferring forum shopping when declaratory judgment was filed three days after breakdown of settlement negotiations absent a showing of prejudice) (citing 800-Flowers, Inc. v. Intercontinental Florist, 860 F. Supp. 128, 132 (S.D.N.Y. 1994)). There is no explanation for Security's rush to file this declaratory judgment action other than an attempt to secure its home forum. Whether under the first-filed rule, the Declaratory Judgment Act, or the interests of justice pursuant to § 1404(a), Security's filing was improper and weighs in favor of transfer to California.
Security relies on Commercial Union Ins. v. Flagship Marine Serv., Inc., 886 F. Supp. 397 (S.D.N.Y. 1995) in arguing that this case should not be transferred. It is true that the facts in the instant case are similar to those in Commercial Union both cases involve an insurance contract negotiated in New York by an insurance broker for an out-of-state defendant. In Commercial Union, the injury occurred in Florida, and the insurer denied coverage pursuant to the terms of the policy. The insurer sought a declaratory judgment in the Southern District of New York, and the insured requested a transfer to Florida. Id. at 397-98. However, as pointed out in Reliance Insurance Co. v. Bend'N Stretch, 935 F. Supp. 476, 478 (S.D.N.Y. 1996), Commercial Union did not consider the relationship between a declaratory and a coercive action, and therefore is not persuasive here.
Consideration of the remaining factors examined by courts in § 1404(a), or first-filed analysis, also weighs in favor of transfer. In addition to the interests of justice, courts have weighed the convenience of the witnesses; location of relevant documents and the relative ease of access to sources of proof; convenience of the parties; availability of process to compel attendance of witnesses; the locus of operative facts; the relative means of the parties; the forum's familiarity with the governing law; weight accorded the plaintiff's choice of forum; and trial efficiency. Anadigics, Inc. v. Raytheon Co., 903 F. Supp. 615, 617 (S.D.N.Y. 1995).
The convenience of the witnesses is often the most important factor in deciding a motion to transfer. See Stein v. Microelectronic Pkg., Inc., 1999 WL 540443, at *7 (S.D.N Y 1999). Security argues that the relevant evidence will come from the testimony of those who negotiated and executed the policy, most of whom are in New York. ITA, on the other hand, argues that the relevant evidence will center around the event that gave rise to the claim for benefits — namely, the theft of the fabric, which occurred in California.
The resolution of this dispute likely will require consideration of the events in California and interpretation of the policy. However, unless the terms of the policy are ambiguous, the testimony of those who drafted and executed it will be unnecessary. Under both New York and California law, an insurance contract is interpreted according to the language of the contract. See Morgan Stanley Group Inc. v. New England Ins. Co., 2000 WL 1283781, at *4-6 (2d Cir. 2000) ("[A]n insurance contract is interpreted to give effect to the intent of the parties as expressed by the clear language of the contract."); La Jolla Beach Tennis Club, Inc. v. Industrial Indem. Co., 36 Cal.Rptr.2d 100, 105 (Cal. 1994) (explaining that ordinary rules of contract interpretation apply to insurance contracts, and that the parties' intent is "inferred, if possible, solely from written provisions of the contract")
On the other hand, the testimony of witnesses regarding the events giving rise to the claim will be essential. The non-party witnesses who can testify to the events surrounding the theft include two California police officers who reported the losses, two security guards who were on duty at the time of the losses, and the landlord of the warehouse where the fabric was stored. Security argues that these witnesses will not be necessary because the "circumstances of the theft could probably be stipulated to." (Campise Aff. ¶ 13) Possible, even probable, future stipulations are not relevant for purposes of this motion. The convenience of the witnesses favors transferring this action to California.
The convenience of the parties does not favor one forum over the other. Security is a Connecticut corporation with a place of business in New York. ITA is a Delaware corporation with its principal place of business in California. New York is an inconvenient forum for ITA. California is an inconvenient forum for Security. Regarding the relative means of the parties, ITA claims that it "would place a tremendous financial burden on ITA if it had to defend this action in New York." (Treyzon Decl. ¶ 33) Security, in response, argues that ITA has annual sales of $18 million. (Mem. in Opp. at 15; Black Aff. Exh. 4) Sales do not equal profits, but even if Security has portrayed ITA accurately as a wealthy party, that only evens a balance that would otherwise favor transfer to California.
The forum's familiarity with the governing law also does not alter the balance. Security argues that New York law will apply. ITA argues that California law will apply. However, the forum's familiarity with the governing law is not a significant factor in this case. The claims center around contract interpretation, which is not an arcane area of law. See S-Fer Intern, Inc. v. Paladion Partners, Inc., 906 F. Supp. 211, 215-16 (S.D.N.Y. 1995). Either court will be comfortable applying the law that is found to apply to this dispute.
Security's filing in New York was an attempt to win the race to the courthouse. In addition, the convenience of the witnesses in this case weighs heavily in favor of transfer to California. The interests of justice and convenience of the witnesses warrant transfer of this action to the Central District of California, where ITA's coercive action against Security is pending.
For the reasons stated above, ITA's motion to dismiss for lack of personal jurisdiction is denied. ITA's motion to transfer pursuant to 28 U.S.C. § 1404(a) is granted.
SO ORDERED: