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McKee Elec. Co. v. Rauland-Borg Corp.

Court of Appeals of the State of New York
Jul 7, 1967
20 N.Y.2d 377 (N.Y. 1967)

Summary

holding that "pass[ing] the time of day" with a customer in New York does not give rise to personal jurisdiction

Summary of this case from Fitzgerald v. Peaslee

Opinion

Argued February 14, 1967

Decided July 7, 1967

Appeal from the Appellate Division of the Supreme Court in the Second Judicial Department, JOHN J. DILLON, J.

Saul I. Weinstein for appellant.

Geoffrey M. Kalmus for respondent.


Rauland-Borg Corporation, the only defendant involved on this appeal, is a manufacturer of sonic equipment in Illinois, and is not qualified to do business in New York, has no place of business here, no officers, agents or employees, no property either real or personal, and no telephone listing. Its products are sold in New York State by a number of distributors, all of whom are independent businessmen selling the sound equipment of other manufacturers as well as that of Rauland-Borg. Less than 5% of Rauland-Borg's total sales are made to its distributors in New York and, when distributors wish to order its products, they mail their orders to Chicago, where the orders are accepted or rejected. If an order is accepted, the goods are shipped by Rauland-Borg, f.o.b. Chicago.

Personal service was effected upon this foreign corporate defendant in Illinois in accordance with CPLR 302. The question presented on appeal is whether Rauland-Borg either transacted any business here or committed a tortious act here, either or both of which gave rise to the causes of action alleged (breach of contract and conspiracy in restraint of trade) so as to give the courts of this State personal jurisdiction under CPLR 302.

In 1957 plaintiff contacted one Bressler, a representative of several manufacturers of electronic equipment, and, through his intervention, became a distributor of defendant's wares in Westchester and some adjoining counties. Defendant has less than a dozen such distributors in this State.

The affidavits submitted by the manager of Rauland-Borg's sound products division state that, in accordance with its customary procedure, the proposal that McKee become a distributor of Rauland-Borg products was simply transmitted by Bressler to the home office in Chicago where, after investigation of McKee's suitability, the application for a distributorship was accepted. The trial court gave "plaintiff the benefit of the doubt as to the place where the [original unwritten] contract was made," i.e., in New York State, but found it "not decisive". This distributorship agreement was for only one year, and has been renewed in subsequent years, according to Rauland-Borg, in Illinois, until the alleged breach occurred in 1965 and which gave rise to this suit. No written agreement was ever executed, and, when questions arose with regard to the exact area that plaintiff's distributorship was to cover, these questions were resolved by mail between the Chicago office of Rauland-Borg and McKee in New York.

In 1964 difficulties arose between plaintiff McKee and various consulting engineers who drew specifications for sound systems to be installed in schools in the Westchester area (several of whom are also codefendants in this case, not involved on this appeal). For the alleged purpose of alleviating these frictions, the defendant sent its representative, Carl Dorwaldt, manager of its sound products division, into this State in the latter part of 1964. In his own reply affidavit in support of the motion to dismiss the complaint for lack of jurisdiction (CPLR 3211, subd. [a], par. 8) he states:

"The answering affidavit refers to a visit I made to Mr. McKee's office in the latter part of 1964, my first visit to New York in about one year. On that trip I visited a number of distributors in Pennsylvania and New Jersey and also stopped at Mr. McKee's place of business on December 10 for approximately two hours. Mr. Stallman, our representative for 13 northeastern states, whose home and office are in New Jersey, was also present. The meeting consisted of general discussion only during which Mr. McKee explained his legalistic position regarding engineering specifications and mentioned that this position had provoked friction between himself and engineers. * * *

"Mr. Stallman thereafter did advise me that he had visited the Weiser organization [a codefendant] a few times to try to ease the friction and that absolutely nothing had come of those visits." (Emphasis added.)

After writing to McKee in December, 1964 and March, 1965 regarding the friction between McKee and the consulting engineers, Rauland-Borg finally wrote a letter on June 8, 1965 terminating McKee's distributorship and informing McKee that Rauland-Borg was ceasing to supply it with Rauland-Borg products, except as to then pending orders.

On or about September 25, 1965, the summons and complaint in this action were received by registered mail by the foreign-based defendant in Illinois. The complaint listed four separate and independent causes of action, three of which involve Rauland-Borg. The first cause of action alleges a breach of the above referred to contract on the part of Rauland-Borg; the third and fourth causes of action allege a business conspiracy among the defendants to deprive the plaintiff of its customers and good will and to create an unlawful monopoly (see General Business Law, § 340). There is no question but that the breach took place, even as alleged by plaintiff, in Illinois when Rauland-Borg sent the letter dated June 8, 1965 to McKee notifying it that its distributorship was thereby terminated.

Defendant moved in Supreme Court, Westchester County (DILLON, J.), to dismiss the complaint for want of personal jurisdiction, process having been served upon it by registered mail in Illinois. The motion was granted and, after an affirmance and denial of leave to appeal at the Appellate Division, this court granted permission to appeal.

Justice DILLON found the facts insufficient to give defendant the minimum contacts in this State which are a prerequisite to the exercise of personal jurisdiction on a contractual cause of action. The court held, furthermore, that the tortious act, if any, occurred in Illinois where the contract was cancelled.

We cannot sustain jurisdiction under CPLR 302 (subd. [a], par. 2). The only assertion in the complaint against this defendant is that it "has refused to sell any of its equipment to the plaintiff and has cancelled the agreement". Whether such averred misconduct constitutes a tort as well as a breach of contract is debatable but, assuming it does, it can hardly be declared a wrong happening within the State. The cancellation of the contract, the only conduct complained of in the complaint, indisputably took place in Illinois and we made it completely clear in Feathers v. McLucas ( 15 N.Y.2d 443, 458) that, in Judge FULD'S phrasing (at p. 460), "The mere occurrence of the injury in this State certainly cannot serve to transmute an out-of-state tortious act into one committed here within the sense of the statutory wording." Thus, if jurisdiction is to be sustained, it must be under paragraph 1 of subdivision (a) of CPLR 302.

There is no fixed standard by which to measure the minimal contacts required to sustain jurisdiction under the provisions of CPLR 302 (subd. [a], par. 1). However, it seems to us the contacts here, rather than being minimal, were so infinitesimal, both in light of Hanson v. Denckla ( 357 U.S. 235) and Longines-Wittnauer Watch Co. v. Barnes Reinecke ( 15 N.Y.2d 443), that jurisdiction of the New York courts cannot be sustained. Otherwise, every corporation whose officers or sales personnel happen to pass the time of day with a New York customer in New York runs the risk of being subjected to the personal jurisdiction of our courts.

The overriding criterion has been established by Hanson v. Denckla ( supra) which characterized the minimum contact as being "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" (357 U.S., supra, p. 253).

In Longines-Wittnauer Watch Co. v. Barnes Reinecke ( supra), the defendant corporation, in addition to negotiating the contract and sending goods here, established its nexus with New York by maintaining its employees in this State for over two months in connection with the installation of the machines sold to Longines. In the present case, the dissenters would sustain jurisdiction because the plaintiff alleges the breach of a contractual relationship formed seven or more years before the events in question, the breach arising out of an act that admittedly took place in Chicago. Nevertheless, say the dissenters, we may exercise our jurisdiction because the original distributorship agreement was made or at least negotiated here (a consideration determinative of nothing, since the original agreement lapsed at the end of one year); the goods were used here by the plaintiff (a "unilateral activity", hardly enough standing alone to sustain jurisdiction [see Hanson v. Denckla, supra, p. 253]); and a "high level" employee of the defendant and an area sales representative came to New York to look into the difficulties between plaintiff and plaintiff's customers (these employees of defendant seem to have spent, in total, less than a full working day in the State in connection with this matter). To say that the contacts in this case between the defendant and this State are not "overwhelming" is to understate the case (cf. Standard Wine Liq. Co. v. Bombay Spirits Co., 20 N.Y.2d 13, decided May 25, 1967).

In our enthusiasm to implement the reach of the long-arm statute (CPLR 302), we should not forget that defendants, as a rule, should be subject to suit where they are normally found, that is, at their pre-eminent headquarters, or where they conduct substantial general business activities. Only in a rare case should they be compelled to answer a suit in a jurisdiction with which they have the barest of contact (e.g., McGee v. International Life Ins. Co., 355 U.S. 220).

A dismissal for lack of jurisdiction in the present case would work no undue hardship. It is possible that the complained of activities may come under the amended provisions of CPLR 302 (subd. [a]) (L. 1966, ch. 590; see Simonson v. International Bank, 14 N.Y.2d 281; cf. Kramer v. Vogl, 17 N.Y.2d 27, 31). If the extra-State acts are insufficient under the amended statute, defendant Rauland-Borg can be sued elsewhere.

§ 302. "(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nondomiciliary * * * who in person or through an agent: * * *

3. commits a tortious act without the state causing injury to person or property within the state * * * if he
(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce".

The order appealed from should be affirmed, with costs.


While the complaint is perhaps inarticulately drawn, and several jurisdictionally necessary factors must be either inferred therefrom or found in accompanying affidavits, construing the complaint liberally as we are compelled to do we conclude that the defendant had sufficient minimum contacts in New York State required for the acquisition of in personam jurisdiction over it by the New York courts pursuant to CPLR 302 (subd. [a], par. 1). The facts of this case present us with an unmatched situation, something more than existed in Kramer v. Vogl ( 17 N.Y.2d 27) where jurisdiction was refused, and something less than existed in Longines-Wittnauer Watch Co. v. Barnes Reinecke ( 15 N.Y.2d 443) where jurisdiction was sustained.

In Kramer v. Vogl, the defendant company was based in Austria, and sent all its shipments of goods to the plaintiff in New York f.o.b. European ports (as the defendant did here from Illinois). In addition, the original contractual arrangement was consummated, not in New York, but rather in Paris (as opposed to Rauland-Borg's contract with the plaintiff, which was assumed by the Trial Judge to have been executed in New York State and which was, in any event, negotiated here). As former Chief Judge DESMOND stated for a unanimous court, "The issue boils down to whether the phrase `transacts any business within the state' covers the situation of a nonresident who never comes into New York State but who sells and sends goods into the State pursuant to an order sent from within the State. We do not have here, as we have in Singer [ 15 N.Y.2d 443], Lewin [ 16 N.Y.2d 1070] and Johnson [ 16 N.Y.2d 1067] ( supra) a nonresident defendant who has one or more local salesmen in this State or who solicits business in this State by means of catalogue, advertisements or other promotional material circulated here. All we know is that these defendants in Austria made arrangements [in Paris] to sell merchandise f.o.b. to the local distributor. Defendants themselves carried on no sales, promotion or advertising activities in this State. * * * Nowhere does it appear how much of the Vogl leather bought by plaintiff was resold to New York State customers or used in New York." (17 N.Y.2d, supra, pp. 31-32.)

In the present case there are undoubtedly more contacts with New York State than existed in Kramer. The question is whether they are sufficient, under CPLR 302 (subd. [a], par. 1), to amount to the transaction of business so that the courts of this State may validly obtain personal jurisdiction over the defendant. In Kramer, the only contact with New York was the shipment of the defendant's goods into the State for subsequent sale by the plaintiff (cf. CPLR 302, subd. [a], par. 3, eff. Sept. 1, 1966). The original distributorship contract was not executed or negotiated here (as it was in the present case); we had no indication as to what quantity of Vogl leather was resold or used in New York (contrary to the present case, where it is understood that bulk of plaintiff's work was done in Westchester County — thus Rauland-Borg's goods, sent into this State, were sold to and used by customers in this State); and, thirdly, the defendant in Kramer at no time sent anyone into the State for advertising, promotion or selling purposes (as opposed to the conduct of Rauland-Borg, who on several occasions sent its representatives into New York to confer with the plaintiff and allegedly to placate the codefendant engineers with whom the plaintiff was encountering difficulties). At the very least this conduct on the part of Rauland-Borg must be considered promotional, since its sole purpose, according to the defendant, was to enhance its distributor's position with those who controlled the Westchester market, the consulting engineers. As we view the differences between this case and Kramer v. Vogl, they are substantial and significant enough to warrant the finding that, under the facts before the trial court on this motion to dismiss, the defendant did have sufficient minimum contacts with this State in its transaction of business here and, therefore, did submit itself to the possibility of the acquisition of in personam jurisdiction under our long-arm statute.

In Longines-Wittnauer Watch Co. v. Barnes Reinecke ( supra) the court was unanimous in its finding of sufficient minimum contacts to sustain the exercise of jurisdiction under CPLR 302 (subd. [a], par. 1), just as it was unanimous in denying jurisdiction in Kramer. Chief Judge FULD spoke for the court: "The activities in which the appellant engaged in this State were assuredly adequate to meet the liberal statutory criterion. They comprised substantial preliminary negotiations through high-level personnel during a period of some two months; the actual execution of a supplementary contract; the shipment for use here, subject to acceptance following delivery, of two specially designed machines, priced at the not inconsiderable sum of $118,000; and the rendition of services over a period of some three months by two of the appellant's top engineers in supervising the installation and testing of the complex machines.

"We need not determine whether any one of the foregoing activities would, in and of itself, suffice to meet the statutory standard; in combination they more than meet that standard." (15 N.Y.2d, supra, pp. 457-458; emphasis added.)

Longines was in no way meant to define the minimum contacts required, and somewhere between Kramer and Longines there exists a mythical line of demarcation: cases which fall above the line meet the constitutional and procedural standards; those which fall below the line do not. In our opinion, contrary to that of the majority, the present case satisfies both the constitutional and procedural criteria, and falls close enough to Longines so that jurisdiction should be sustained because of the defendant's transaction of business in this State. Here the defendant caused a distributorship agreement to be executed or at least negotiated by one of its agents in New York; this oral contract was renewed annually for approximately eight years; Rauland-Borg shipped goods into the State for purposes of sale by its distributor in New York to New York customers for use in New York; when the difficulties which ultimately led to this suit arose in 1964, it sent first of all the manager of its sound products division (certainly a top level employee) into the State in an attempt to resolve the problem; he was accompanied on this visit by the defendant's northeast sales representative, who made "a few" subsequent visits to this State allegedly on similar peace missions. We do not concern ourselves with adding and subtracting hours and minutes; on the contrary, realistically viewing the situation as a whole, we conclude that the defendant's intentional contacts with New York, described by the majority today as "infinitesimal," are certainly far more than existed in Kramer v. Vogl, and enough to warrant the exercise of jurisdiction in personam over the defendant by our courts. The nondomiciliary defendant most assuredly "has engaged in some purposeful activity in this State in connection with the matter in suit." ( Longines-Wittnauer Watch Co. v. Barnes Reinecke, supra, p. 457; Millner Co. v. Noudar, Lda., 24 A.D.2d 326, 331 [1st Dept., 1966]; see, also, Katz Son Billiard Prods. v. Correale Sons, 26 A.D.2d 52 [1st Dept., 1966].) Furthermore, we cannot agree with the suggestion that maintenance of this action in our courts will offend the "traditional notions of fair play and substantial justice" referred to in International Shoe Co. v. Washington ( 326 U.S. 310, 316). In our opinion, under this test, Rauland-Borg purposefully availed itself of the privilege of conducting activities within this State, and thereby invoked the benefits and protections of our laws, as well as the concomitant obligations and liabilities. ( Hanson v. Denckla, 357 U.S. 235, 253; Longines-Wittnauer Watch Co., v. Barnes Reinecke, supra, p. 458.) (See, generally, McLaughlin, Practice Commentary and Supplementary Practice Commentary to CPLR 302, McKinney's Cons. Laws of N.Y., Book 7B [1964, 1965, 1966]; 1 Weinstein-Korn-Miller, N.Y. Civ. Prac., par. 302.01 et seq.)

There is one recent Federal case worthy of note at this juncture: Liquid Carriers Corp. v. American Mar. Corp. ( 375 F.2d 951), decided by the Second Circuit Court of Appeals on February 28, 1967. That case dealt with a factual situation not unlike the one presented on this appeal, i.e., the case fell somewhere in between Longines and Kramer, and as to the transaction of any business the court held that there were sufficient minimum contracts to sustain personal jurisdiction over the foreign corporate defendant. The suit involved a breach of contract; the contract was to be performed outside this State; the only contacts with New York had to do with the negotiation and execution of the contract here. After discussing both Longines and Kramer and noting the absence of any decision dealing with the precise situation presented, the court proceeded to decide the case as it believed the New York courts would have decided it. Its opinion, written by Judge WATERMAN, is illuminating: "While this section [CPLR 302, subd. (a), par. 1] has not been interpreted as extending New York's jurisdiction over nondomiciliaries as far as the United States Constitution allows, see Kramer v. Vogl * * *; A. Millner v. Noudar, Lda., 24 A Dd 326, 329 * * *; United States v. Montreal Trust Co., 358 F.2d 239, 242 * * *, it has been construed so as to find a transaction of business in cases where a defendant's agents or property have been physically present in the state and have received the protection of New York laws." (375 F.2d, supra, p. 955.)

The Federal court's view coincides with our own, and its analysis bolsters our conclusion that the activities of Rauland-Borg's agents and employees within New York were sufficient to constitute the transaction of business under CPLR 302 (subd. [a], par. 1) and to subject that defendant to the jurisdiction of our courts.

Consequently, the defendant transacted some business in this State, the causes of action alleged (breach of contract, conspiracy in restraint of trade, illegally divesting plaintiff of his good name and customers, and conspiracy to create a monopoly) arose out of this commercial conduct, and the defendant should, therefore, be susceptible to the exercise of personal jurisdiction over it by the New York courts. In reaching this conclusion we are not unmindful of the reciprocity aspect of such a determination, the danger of which was referred to by the First Department only last year: "Enthusiasm for extending jurisdiction over foreign persons in foreign lands in limited contact cases, however, may well be tempered by the expectation that the same rule will be reciprocally applied in remote countries against our citizens here." ( Millner Co. v. Noudar, Lda, supra, p. 329.) In this regard, however, the public policy of our State is determined by the Legislature which, in its most recent amendment to 302, has indicated a notable disregard for such sentiments. Accordingly, any such judicial fears can hardly be dispositive of the important legal question presented in this case. (See Kropp Forge Co. v. Jawitz, 37 Ill. App.2d 475.)

The order of the Appellate Division, which affirmed the order of Special Term dismissing the complaint for lack of in personam jurisdiction under CPLR 3211 (subd. [a], par. 8), should be reversed.

Judges VAN VOORHIS, BERGAN and BREITEL concur with Judge SCILEPPI; Judge BURKE dissents and votes to reverse in an opinion in which Chief Judge FULD and Judge KEATING concur.

Order affirmed.


Summaries of

McKee Elec. Co. v. Rauland-Borg Corp.

Court of Appeals of the State of New York
Jul 7, 1967
20 N.Y.2d 377 (N.Y. 1967)

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Case details for

McKee Elec. Co. v. Rauland-Borg Corp.

Case Details

Full title:McKEE ELECTRIC COMPANY, INC., Appellant, v. RAULAND-BORG CORPORATION…

Court:Court of Appeals of the State of New York

Date published: Jul 7, 1967

Citations

20 N.Y.2d 377 (N.Y. 1967)
283 N.Y.S.2d 34
229 N.E.2d 604

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