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finding that a sole shareholder was not subject to personal jurisdiction in the Southern District of New York where the complaint failed to demonstrate control, knowledge and consent by the defendant relating particularly to the New York solicitations that form the basis for the plaintiff's assertion of personal jurisdiction
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02 Civ. 4917 (MBM)
December 22, 2003
KEVIN WALSH, ESQ. Winston — Strawn, New York, NY, for Plaintiff
MILTON L. WILLIAMS, JR., ESQ., Assistant General Counsel Time, Inc., New York, NY, for Plaintiff
DAVID P. LENNON, ESQ., Lennon Klein, New York, NY, for Defendants
OPINION AND ORDER
Plaintiff Time, Inc. is one of the largest magazine publishers in the United States, publishing such popular titles as Time, People, Sports Illustrated and Fortune. According to Time, defendants IC Marketing, Inc. a/k/a I.C. Marketing, Inc. ("ICM") and Publishers Services Exchange ("PSE") solicit subscriptions to Time's many magazines through mailings around the country without Time's authorization. Defendant Dennis Simpson owns and manages ICM and PSE. Plaintiff commenced this action against defendants for trademark infringement, unfair competition under the Lanham Act, trademark dilution, counterfeiting, violations of New York General Business Law §§ 349 (deceptive acts and practices), 350 (false advertising) and 360-1 (injury to business reputation), and unfair competition under New York common law. Defendant Simpson has moved to dismiss Time's complaint under Rule 12(b)(2) of the Federal Rules of Civil Procedure for lack of personal jurisdiction. For the reasons stated below, Simpson's motion is granted.
I.
Time is a Delaware corporation with its principal place of business in New York. (Amended Complaint ("Am. Compl.") ¶ 1) Simpson is a resident of California, (id. at ¶ 2), and ICM is a Nevada corporation doing business as PSE. (Id. at ¶ 4) ICM's principal place of business is in Nevada, (id.), and PSE maintains places of business in Oregon, Missouri, Nevada and Illinois. (Id. at ¶ 3) Time seeks damages well in excess of $75,000.00. (Id. at ¶ 41) Therefore, diversity jurisdiction exists pursuant to 28 U.S.C. § 1332. Subject matter jurisdiction exists also pursuant to 28 U.S.C. § 1331, 1338 and 1367 because plaintiff has asserted claims under 15 U.S.C. § 1114, 1125(a), 1125(c) and 1117(c). Venue is proper as to defendants ICM and PSE in this district pursuant to 28 U.S.C. § 1391 because this is a district in which ICM and PSE committed a substantial part of the acts giving rise to plaintiff's claims.III.
A two-pronged test decides the question of personal jurisdiction: 1) "whether there is jurisdiction over the defendant under the relevant forum state's laws"; and 2) "whether an exercise of jurisdiction under these laws is consistent with federal due process requirements." Bank Brussels Lambert v. Fiddler Gonzalez Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). "When responding to a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant," id., and it must meet that burden by a preponderance of the evidence. Marine Midland Bank. N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). The Court of Appeals has held:
Where as here the parties have conducted extensive discovery regarding the defendant's contacts with the forum state, but no evidentiary hearing has been held — the plaintiff's prima facie showing, necessary to defeat a jurisdiction testing motion, must include an averment of facts that, if credited by the ultimate trier of fact, would suffice to establish jurisdiction over the defendant.171 F.3d at 784 (internal quotation marks omitted). Here, no evidentiary hearing has been held, but Time was afforded an opportunity to conduct discovery on the issue of personal jurisdiction, see Time, Inc. v. Simpson, No. 02 CIV 4917, 2002 WL 31844914, at *1 (S.D.N.Y. Dec 18, 2002), and indeed Time took advantage of that opportunity by deposing Simpson. Therefore, to prevail, Time must aver facts sufficient to satisfy the requirements of, first, the New York long-arm statute and, second, federal due process. Time has failed to satisfy either requirement.
A. New York Long-Arm Statute
Time alleges that Simpson, through several business entities he owns and manages, "has sent notices . . . soliciting consumers to purchase a subscription to, or to renew a subscription to, Time publications," (Am. Compl. ¶ 15), and these notices have been sent to residents in New York County and Westchester County in New York State. (Id. at ¶ 7) According to Time, ICM, which is owned and managed by Simpson and does business as PSE, is one of the entities through which he sends these notices. (Id.) Plaintiff claims that neither Simpson nor ICM has ever been authorized by plaintiff to send such notices or to represent that they are affiliated with plaintiff in any way. (Id. at ¶ 16)
Apparently conceding that Simpson has no direct personal contacts with the state of New York, Time argues:
Time need only demonstrate either that I.C. Marketing/PSE is a mere alter ego of Simpson for purposes of jurisdiction or, as a simpler but sufficient ground, that the solicitations sent to New York residents by I.C. Marketing/PSE were sent with Simpson's knowledge and pursuant to some control by him and for his ultimate benefit.
(Plaintiff's Memorandum of Law in Opposition to Defendant Simpson's Motion to Dismiss for Lack of In Personam Jurisdiction ("Pl. Memo.") 5) In other words, plaintiff contends that the New York long-arm statute reaches Simpson under an alter ego theory or an agency theory. Time has failed to adduce sufficient facts to support either theory.
a. Corporation as Alter Ego
Under New York choice-of-law principles, the law of the state of incorporation determines whether to pierce the corporate veil. Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995). Here, Nevada law controls because ICM is alleged to be a Nevada corporation. (Am. Compl. ¶ 4) Under Nevada law, "the corporate cloak is not lightly thrown aside. . . ." LFC Marketing Group, Inc. v. Loomis, 116 Nev. 896, 903. (2000). The requirements for finding that a corporation is a mere alter ego under Nevada law are:
(1) [t]he corporation must be influenced and governed by the person asserted to be its alter ego; (2) [t]here must be such unity of interest and ownership that one is inseparable from the other; and (3) [t]he facts must be such that adherence to the fiction of separate entity would, under the circumstances, sanction a fraud or promote injustice.Lorenz v. Beltio, Ltd., 114 Nev. 795, 496 (1998). When determining whether unity of interest exists, a court should consider such factors as (1) commingling of funds; (2) undercapitalization; (3) unauthorized diversion of funds; (4) treatment of corporate assets as the individual's own; and (5) failure to observe corporate formalities. Id. at 497. While "[n]o one of these factors alone is determinative to apply the alter ego doctrine," id., Time has failed to demonstrate that any are present here.
In its argument that ICM is the mere alter ego of Simpson, and therefore Simpson is subject to personal jurisdiction in New York through the activities of ICM in New York. Time relies on Lorenz, in which the Court found a corporation to be the alter ego of an individual defendant, although not for purposes of personal jurisdiction. Id. at 498. Time argues:
[t]he court noted that the defendant husband and wife were the sole shareholders and directors, that the wife, although elected as secretary and treasurer of the corporation, appeared to have no awareness of the documents she had signed, and that the business of the company appeared to have been accomplished either by a management company or by the husband directly.
(Pl. Memo. 11) Time sees similarities between the defendant in Lorenz and defendant Simpson here, noting that Simpson is the sole shareholder of ICM, that his wife, as secretary/treasurer, was apparently unaware of the documents she had signed, and that the business of ICM was run by a management company or by Simpson directly. (Id.) Time argues that these facts alone are sufficient to warrant piercing the corporate veil and exercising personal jurisdiction over Simpson in New York.
Although the Lorenz Court did note the facts highlighted by Time, the Court noted also a whole lot more. The Court found that the defendant "commingled corporate funds and even failed to secure a bank account" for the corporation; that "no payments were made by [the corporation] for the management company's services, nor were any checks regularly issued to" the corporation; that "only one check was ever issued by the management company," and the check was made out to the defendant personally rather than to the corporation; that the defendant's wife, the apparent secretary/treasurer of the corporation, was not a signatory on the account containing the corporate funds; and that the corporation was undercapitalized. 114 Nev. at 497. Despite having deposed Simpson and having placed designated portions of the deposition transcript before the court for the purpose of determining this motion, Time has not shown that there are present here any of the additional facts underlying the decision in Lorenz.
Time has demonstrated that Simpson's wife was perhaps not sophisticated in corporate procedures, that the ICM Board minutes reflect some mistakes as to the address of the corporation, that Simpson operated ICM from his home for some period of time, that ICM had no employees, and that Simpson is the sole shareholder of ICM. (Pl. Memo. 11) The sophistication of Simpson's wife is far from dispositive in the analysis here, and the presence of Board minutes, although they are not entirely accurate, actually suggests some regard by Simpson for corporate formalities. Further, neither ICM's operation from Simpson's home nor its lack of employees provides any support for plaintiff's argument. One may manage a corporation from one's home and have no employees without thereby being found to have disregarded corporate formalities. See American Fuel Corp. v. Utah Energy Development Co., 122 F.3d 130, 135 (2d Cir. 1997) (holding that "evidence of domination [was] inadequate as a matter of law" where a corporation had no employees and was operated out of defendant's home). That Simpson is ICM's sole shareholder is of little significance to this analysis, especially absent other material considerations. Plaintiff's argument essentially boils down to the proposition that a corporation with only one shareholder is necessarily the alter ego of that shareholder and therefore does not shield that shareholder from liability arising from the corporation's actions. This is not the law. See United States v. King, 134 F.3d 1173, 1175 (2d Cir. 1998) ("We fully appreciate that state law recognizes the separateness of a wholly owned corporation from its sole shareholder for purposes of insulating the shareholder from liability for the corporation's debts, at least in the absence of circumstances warranting piercing the corporate veil.").
The Court in Lorenz further found that the third requirement, promotion of injustice, was present because the corporation had filed for bankruptcy, which would prevent the plaintiffs from recovering payments owed them by the corporation if they could not recover from the defendants personally. 114 Nev. at 497-98. There is no allegation that ICM is bankrupt or defunct in any fashion and therefore no reason to believe that Time cannot recover damages from ICM rather than from Simpson personally.
Time has not established the requisite unity between Simpson and ICM, nor has Time shown any fraud or potential injustice. Indeed, plaintiff has not alleged any facts that would establish even one of Nevada Supreme Court's prerequisites to applying the alter ego doctrine. Accordingly, the exercise of personal jurisdiction in New York over Simpson under the alter ego doctrine would be improper on these facts,
There is no evidence in the portions of the deposition transcript submitted that Time's attorneys ever even asked Simpson about the capitalization of ICM, about how ICM's assets and Simpson's personal assets were maintained, about ICM's and Simpson's personal expenditures, about any use of ICM's assets by Simpson, or about ICM's observance of corporate formalities other than the maintenance of Board minutes. Time had an opportunity to explore these issues during discovery. If it failed to do so, it cannot now make up for that failure by overplaying facts that are inconsequential to Simpson's motion.
b. Corporation as Agent
Under New York law, "a corporation can act as an agent for an individual for the purposes of § 302(a)(1)" of the New York long-arm statute. Retail Software Services, Inc. v. Lashlee, 854 F.2d 18, 22 (2d Cir. 1988) (citing Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, 527 N.Y.S.2d 195, 199 (1988)). A plaintiff need not establish a formal agency relationship between the defendant and the corporation. See Id. InKreutter, the New York Court of Appeals held that a plaintiff "need only convince the court that [the corporation] engaged in purposeful activities in this State in relation to his transaction for the benefit of and with the knowledge and consent of the defendants and that they exercised some control over the corporation." Id. Time has failed to demonstrate the requisite knowledge and control on the part of Simpson here.
In a leading case, Calder v. Jones, an entertainer living and working in California sued the National Enquirer over an article that had been published in the company's tabloid magazine. 465 U.S. 783, 785 (1984). The plaintiff also sued the author of the article and the president and editor of the Enquirer individually. Id. at 785-86. The individual defendants, residing and working in Florida, challenged personal jurisdiction in California, arguing that as employees they had "no direct economic stake in their employer's sales in a distant State" and they were unable "to control their employer's marketing activity." Id. at 789. The Supreme Court held that the defendants' "status as employees does not somehow insulate them from jurisdiction." 465 U.S, 783, 790 (1984). The Court noted that the defendants' mere ability to foresee that the article would be circulated and have an effect in California was not sufficient to establish personal jurisdiction over them, but the Court found that the defendants' conduct went much further than mere foreseeability. Id. at 789-90. Rather, "their intentional, and allegedly tortious, actions were expressly aimed at California," and "they knew that the brunt of that injury would be felt by [the plaintiff] in the State in which she lives and works and in which the National Enquirer has its largest circulation." Id. More important, the defendants were personally involved in the specific conduct that gave rise to the plaintiff's claim: one of the individual defendants wrote the article, and the other "reviewed and approved the initial evaluation of the subject of the article and edited it in its final form" and "declined to print a retraction." Id. at 785-86. Upon these findings, the Court concluded that personal jurisdiction over the individual defendants in California was proper. Id. at 791.
The Court of Appeals relied on the reasoning in Calder in its decision in Retail Software. 854 F.2d at 23. In that case, the plaintiff brought an action in New York against a corporation and several individual defendants, three of of whom moved to dismiss for lack of personal jurisdiction. Id. at 19-20. Just as in Calder, the Court found that the individual defendants, although residing and working in California, were personally involved in the specific conduct that gave rise to the plaintiff's claim: all three were intimately involved in negotiations among the parties and made misleading statements and misrepresentations that injured the plaintiff. Id. at 20. The Court held that there was personal jurisdiction over the individual defendants because they were "primary actors" in the transaction. Id. at 22.
In both Calder and Retail Software, the question of personal jurisdiction seems to have turned on the personal involvement of the individual defendants in the particular conduct that gave rise to the plaintiff's claim. For example, in Calder, the Court did not end its analysis at the finding that one of the individual defendants was the president and editor of the tabloid and therefore generally in control of the corporation; rather, the Court went on to analyze that defendant's personal involvement in the article at issue. 465 U.S. at 785-86. In Retail Software, the Court of Appeals did not rest on a finding that the individual defendants were vice president for finance and chief financial officer, president and chief executive officer, and director, vice president and secretary. 854 F.2d at 20. Rather, the Court examined the details of their involvement in the underlying events. Id. at 22. Other courts in this district have applied similar reasoning, analyzing the personal involvement of individual defendants in the corporation's conduct and rejecting claims based only on title, position or general allegations of broad authority or decision-making. See Karabu Corp. v. Gitner, 16 F. Supp.2d 319, 324 (S.D.N.Y. 1998) (and cases cited therein).
Here, Time's attempt to sue Simpson fails for the same reasons as those that failed in the cases above. Unlike in Calder, where the defendants wrote and edited the offending article, 465 U.S. at 785-86, Time has not demonstrated that Simpson had any personal involvement in the events giving rise to Time's claims. Time alleges in conclusory fashion that Simpson is engaged "in the business of soliciting magazine subscription orders and renewals through direct mail promotions" and that Simpson is "doing business and committing tortious acts within this district, by mailing infringing magazine subscription solicitations to residents of New York. . . ." (Am. Compl. ¶¶ 6-7) However, conclusory allegations are insufficient to meet plaintiff's burden, see Karabu Corp., 16 F. Supp.2d at 324;Pilates, No. 96 CIV 0043, 1996 WL 599654, at *3 (S.D.N.Y. October 18, 1996); Sterling, No. 94 CIV 9216, 1996 U.S. Dist. LEXIS 10756, at *47 (S.D.N.Y. July 30, 1996), especially after plaintiff has been afforded an opportunity to conduct discovery, and has done so. See Marine, 664 F.2d at 904.
Time argues that Simpson "is the president, chairman and sole shareholder" of ICM, and therefore "it cannot be seriously disputed that [ICM's] transactions at issue were undertaken `for the benefit of and with the knowledge and consent' of Simpson, nor that Simpson `exercised at least some control over [ICM] in the matter.'" (Pl. Memo. 14) However, "control cannot be shown based merely upon a defendant's title or position with the corporation." Karabu Corp., 16 F. Supp.2d at 324.
Further, in his deposition, Simpson explained that ICM has no employees because most of ICM's services are performed by outside vendors. (Simpson Deposition Transcript ("Tr.") at 79, 125, 199) Simpson testified that a "mail house," operating as an outside vendor for ICM, "actually sends these notices out." (Id. at 185) This means that the acts that gave rise to Time's complaint were actually committed by a vendor acting as agent of ICM in New York rather than by ICM directly. Thus, to establish that Simpson is liable on an agency theory, Time would have to show that the outside vendor acted as ICM's agent in New York and that ICM acted as Simpson's agent generally.
There is no evidence, however, that Simpson exercised control over the vendor or had any personal involvement in any decisions made by or actions taken by the vendor, especially concerning the solicitations mailed to New York residents. (Id. at 197-199) When asked whether ICM's outside vendors "act pursuant to directives from I.C. Marketing's president and Board of Directors," Simpson responded: "Not necessarily. . . . [The vendor] processes the data and the order. The director of operations of [the vendor] may call up and pass on certain information and request changes and certain things." (Id. at 197, 198) Simpson also explained that ICM and its vendors "operate on their own respective boards and their own respective goals." (Id. at 199) When asked about the role of ICM's president and board of directors, Simpson stated that the board of directors determines policy and directives and that the president is "involved in that." (Id. at 203) Time's lawyers apparently did not inquire further into how the president is "involved" in making policy, much less a specific policy concerning the solicitations sent to New York residents. Simpson explained that the policy is carried out by one of the vendors, (id. at 200), but again plaintiff made no attempt to determine specifically how policy is carried out by the vendors or what personal involvement, if any, Simpson has in carrying out any policy. At most, these facts show control by the ICM board as a whole over the vendor, not control by Simpson personally.
Time has failed to demonstrate not only control but also knowledge and consent by Simpson relating particularly to the New York solicitations that form the basis for Time's assertion of personal jurisdiction. In his deposition, Simpson explained: "New York specifically is not targeted. Demographics of people, lifestyles and so forth are targeted." (Id. at 66) However, plaintiff made no attempt to determine what this "demographic" was — namely, what sort of people or lifestyles were targeted or what other factors were considered. These facts suggest only that the ICM board made a policy decision to target some undefined "demographic" and then outside vendors were given the responsibility of carrying out this policy. On these facts, the vendors may have decided unilaterally, without the knowledge and consent of Simpson, to mail solicitations to New York residents. Time apparently did not inquire at all into Simpson's personal involvement, if any, in designing, drafting, or mailing the New York solicitations, in choosing any recipients of the New York solicitations, or in any other aspect of the New York solicitations. In short, Time has failed to establish that ICM or any of its vendors mailed the solicitations to New York residents with Simpson's knowledge and consent.
At most, Time's allegations suggest that it was foreseeable to Simpson that these solicitations would be sent to New York residents. Such foreseeability, however, is not sufficient to establish personal jurisdiction. In Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), the Supreme Court held:
Even foreseeability is a somewhat generous interpretation of the facts given that there is no indication of what "demographic" was targeted. That said, if one considers that Time publishes many of the most popular magazines in the world, it is unlikely that there could be any "demographic" targeted for subscriptions for Time's magazines that would not include some New York residents.
Although it has been argued that foreseeability of causing injury in another State should be sufficient to establish such contacts there when policy considerations so require, the Court has consistently held that this kind of foreseeability is not a sufficient benchmark for exercising personal jurisdiction. Instead, the 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. In defining when it is that a potential defendant should reasonably anticipate out-of-state litigation . . ., 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.Id. at 474-75 (internal quotation marks omitted) (emphasis in original). There is no evidence that Simpson specifically targeted New York, and the targeted "demographic" of which he spoke was not defined. On such a record, Time has failed, to show that Simpson purposefully availed himself of the privilege of conducting business in New York and that he could have reasonably anticipated being haled into court in New York. The kind of foreseeability demonstrated by the facts here is well below what is required to assert personal jurisdiction over Simpson.
Having failed to satisfy either the veil piercing theory or the agency theory, and demonstrating no other basis on which the court may exercise personal jurisdiction over Simpson in New York, Time has failed to carry its burden by a preponderance of the evidence, and therefore the exercise of personal jurisdiction over Simpson in New York would be improper.
It bears mention that Time is not bereft of "other options for legally proceeding" against Simpson personally. See Karabu Corp., 16 F. Supp.2d at 324. Simpson is a resident of California (Am. Compl. ¶ 2; Tr. 27) and also has residences in Oregon, (Tr. 26), and Nevada. (Id. at 27) Time has options for proceeding against Simpson personally in one of these states.
Accordingly, Simpson's motion to dismiss for lack of personal jurisdiction must be granted.
B. Due Process Requirements
Even assuming arguendo that Time were to have established the requirements under New York to assert personal jurisdiction over Simpson, Time has nevertheless failed to satisfy the due process requirements. Due process "permits personal jurisdiction over a defendant in any State with which the defendant has certain minimum contacts . . . such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Calder, 465 U.S. at 788 (internal quotation marks omitted). "[T]he required minimum contacts exist where the defendant `purposefully availed' itself of the privilege of doing business in the forum and could foresee being `haled into court' there."U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., Ltd., 241 F.3d 135, 152 (2d Cir. 2001). As already discussed, because there is no evidence that Simpson specifically targeted New York, and because the targeted "demographic" remains vague and undefined, Time has failed to show that Simpson purposefully availed himself of the privilege of conducting business in New York and that he could foresee being haled into court in New York. Therefore, Time has failed to establish that Simpson has the requisite minimum contacts with the forum state sufficient to satisfy the due process requirements for personal jurisdiction. Accordingly, Simpson's motion to dismiss for lack of personal jurisdiction must be granted.
IV.
Defendants have also moved to strike allegations contained in paragraphs 17-20 of Time's original complaint. (Defendants' Memorandum of Law in Support of Their Motion to Dismiss the Complaint Against Defendant Simpson for Lack of In Personam Jurisdiction, to Strike Portions of the Complaint, and to Dismiss for Failure to Add an Indispensable Party or to Add a Party ("Df. Memo.") 14-16) Time has filed an amended complaint not containing paragraphs 17 and 20 of the initial complaint, but has not submitted any justification for retaining paragraphs 18 and 19; nor has Time submitted any opposition to defendants' motion to strike. Therefore, Simpson's motion to strike is granted, and plaintiff is ordered to file an amended complaint not containing paragraphs 18 and 19 of the current amended complaint.
V.
Simpson has further moved to dismiss Time's complaint for failing to name ICM as a defendant, or in the alternative to add ICM as a defendant. (Df. Memo. 17) As already discussed, Time has filed an amended complaint, and ICM has been added as a defendant. Therefore, Simpson's motion is moot and need not be considered by the court.
* * *
For the reasons set forth above, Simpson's motion to dismiss is granted and plaintiff's complaint is dismissed as to Simpson for lack of personal jurisdiction.