02 Civ. 0183 (RWS)
November 1, 2002
O P I N I O N
Defendant Dong Won Securities Co. ("Dong Won") has moved pursuant to Rules 12(b)(2), 12(b)(3) and 12(b)(6) of the Federal Rules of Civil Procedure to dismiss the complaint of plaintiff Winston Strawn ("Winston").
For the following reasons, the motions are denied with leave to renew after an expedited discovery period on jurisdictional issues.
As befits a motion to dismiss, the following facts are drawn from the complaint and do not constitute findings of fact.
Winston is a partnership organized under the laws of Illinois with offices at 200 Park Avenue, New York, New York, among other offices.
Dong Won is a corporation organized and existing under the laws of Korea, with its principal place of business located at Yong Deung Po Ku, Yoido-dong 34, Seoul, Korea.
The Allegations of the Complaint
On October 16, 2002, Dong Won received notice that it had been named as a defendant in an action brought in Los Angeles Superior Court entitled Nam Suk Suh v. Mirae Investment Consulting Co., BC 234076 (the "Nam Action"). The complaint sought recovery for alleged fraud and deceit, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty and conversion.
In October 2000, Dong Won contacted a partner in Winston's New York office, Nelson Ahn, and Dong Won subsequently retained Winston to provide legal representation in the Nam Action, as well as to provide legal advice with respect to securities compliance issues. Ahn acted as billing partner in this matter.
The parties entered into an engagement letter dated January 19, 2001 (the "Engagement Letter").
Shortly thereafter, Dong Won was served with a complaint brought in a second, separate Los Angeles Superior Court action entitled Kang v. Mirae Investment Consulting Co., BC 244704 (the "Kang Action"). The Kang Action complaint asserted claims for fraud, negligent misrepresentation, breach of fiduciary duty and violation of the California Corporations Code pertaining to the sale of securities.
At Dong Won's request, Winston provided legal representation to it in the Kang Action under the parameters set out in the Engagement Letter.
Winston provided a variety of legal services to Dong Won, including but not limited to drafting pleadings, appearing at court hearings, conducting depositions, preparing witnesses, engaging in document disclosure, and drafting briefs and legal memoranda. Winston responded to numerous requests from Dong Won for memoranda explaining legal points and updates regarding status and strategy.
Winston incurred disbursements on Dong Won's behalf, including payments for photocopies, delivery of documents to Korea by air courier, electronic research, deposition transcripts and the services of court reporters.
Through invoices dated July 5, 2001 and September 27, 2001, Winston requested payment for legal services performed and disbursements incurred (less courtesy discounts) in the total amount of $108,733.68.
Dong Won has failed to pay the amount due despite numerous demands for payment.
Further Jurisdictional Allegations by Winston
Winston alleges that this Court has personal jurisdiction over Dong Won on the basis of N.Y. C.P.L.R. §§ 301 and 302 based on the following additional facts that were not included in the complaint.
Ahn, the New York partner at Winston, was contacted in October 2000 by Kyong Mok Kim, Dong Won's counsel ("Kim") and Shin Chang Kang, an officer of Dong Won ("Kang"). After discussions with Kim and Kang, Ahn drafted the engagement letter for Dong Won's signature. He faxed this letter from Winston's New York office to Dong Won.
As set forth in the Engagement Letter, Ahn was "responsible for the engagement," although attorneys from Winston's California office would work on aspects pertaining to the pending litigation. Ahn acted as billing partner and was the principal contact person with the client. Representatives of Dong Won telephoned Ahn and sent other communications to him on a regular basis. In his communications with Dong Won, Ahn provided it with legal advice concerning securities regulatory issues and updates concerning the California actions.
From the New York office, Ahn supervised the drafting of memoranda. Ahn provided Dong Won with securities law advice in at least three memoranda. Two other attorneys in Winston's New York office helped research and prepare these memoranda, which concerned, among other issues, the effect ongoing litigation would have on the reporting requirements on Dong Won's New York-based subsidiary, Dong Won Securities America, Inc. Ahn affirmed that Dong Won representatives contacted him in New York on many occasions, and that he spoke with Dong Won representatives by phone at least seven times from January to July 2001.
Ahn evaluated the time sheets and billing records in New York in order to determine the appropriate amounts to bill Dong Won for legal services rendered. On several occasions, Dong Won negotiated with Ahn for discounts, and Ahn determined what discounts would be appropriate, granting discounts in at least two instances. Ahn sent all bills to Dong Won from New York, requesting payment for professional services rendered and disbursements incurred "in connection with various regulatory and litigation issues." Dong Won wired money to Winston's New York bank account on at least four occasions in 2001 in partial payment of these invoices, the first transfer occurring in January 2001.
Of the $108.733.68 in disbursements (less courtesy discounts) that is due, it is unclear how much was related to the California litigation and how much was related to the New York securities regulatory issues. The billing records show that Ahn accounted for four (4) of the total 192 hours billed during the period covered by the July 3, 2001 invoice and 7.5 of the total 173.1 hours billed during the period covered by the September 20, 2001 invoice. Of the four hours billed in the July 3, 2001 invoice, at least two hours were related to the California litigation and California regulatory issues. See July 3, 2001 Invoice, at 9 ("Attend to Kang litigation and CA blue sky"). The other two hours involved conferences with various persons without specifying the subject of the conferences. Id. at 8. In addition, all of the 7.5 hours in the later invoice appear to relate to the California litigation. Id. at 1 ("Prepare strategy memo re: two litigation" and attend conferences (3.5 hours)); 3 ("Attend to strategy re: litigation" (2 hours), "conference . . . re: continuance motion and strategy" (0.5 hours)); 4 ("Call . . . re: confidential settlement agreement negotiation; attend to same" (0.5 hours)); 7 ("Call . . . re: Lee/Kim issue and settlement; attend to standing issue" (0.5 hours)), 9 ("Attend to litigation/negotiation"). Ahn's fees were $1,700 and $3,187.50, respectively, for those periods. Thus, at least $4,887.50 of the total $104,097.50 in attorney's fees (prior to courtesy discounts) were as a result of work performed in New York, although the subject of that work appears to relate almost entirely to the California litigation. Ahn claims in his affidavit that two associates in the New York office assisted him in performing work, but he does not specify when they assisted or identify who they were so that it could be gleaned from the invoices how much of the fees now sought were generated in New York.
Prior and Related Proceedings
On January 9, 2002, Winston commenced this action. Dong Won filed the instant motion on May 15, 2002. The motion was heard and considered fully submitted on September 11, 2002.
Dong Won also filed an action against Winston and certain attorneys in California state court on July 9, 2002, alleging, inter alia, malpractice. By doing so, Dong Won has waived its right to mandatory arbitration pursuant to a California statute.
Discussion I. Defendants' Motion to Dismiss for Lack of Personal Jurisdiction
The plaintiff bears the burden of establishing that the court has jurisdiction over the defendant when served with a Rule 12(b)(2) motion to dismiss. Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir. 1994). In responding to such a motion, the plaintiff "need make only a prima facie showing of jurisdiction through its affidavits and supporting materials." Stone v. Chung Pei Chem. Indus. Co., 790 F.2d 20, 22 (2d Cir. 1986) (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)). The facts must be construed in the light most favorable to Winston. Cooper, Robertson Partners L.L.P. v. Vail, 143 F. Supp.2d 367, 370 (S.D.N.Y. 2001) (citing Hoffritz for Cutlery Inc. v. Amajac, Ltd., 763 F.2d 55, 57 (2d Cir. 1985)).
In assessing whether personal jurisdiction is authorized, the court must look first to the long-arm statute of the forum state. Bensusan Rest. Corp. v. King, 126 F.3d 25, 27 (2d Cir. 1997). If the exercise of jurisdiction is appropriate under that statute, the court must decide whether such exercise comports with the requisites of due process. Id.
Although Winston alleges in its complaint that there is also general jurisdiction over Dong Won due to the activities of a Dong Won subsidiary in New York, it states that additional jurisdictional discovery is necessary to support this assertion.
The New York long-arm statute authorizes personal jurisdiction over non-domiciliaries under several circumstances. Winston alleges that jurisdiction is appropriate under N.Y. C.P.L.R. § 302(a)(1), which provides for jurisdiction where a cause of action arises from transaction of business within the state or contracting anywhere to supply goods or services in the state. C.P.L.R. § 302(a)(1). Where jurisdiction is predicated upon CPLR § 302(a)(1), the defendant must transact business in the state and there must be "some articulable nexus between the business transacted and the cause of action sued upon." McGowan v. Smith, 52 N.Y.2d 268, 419 N.E.2d 321, 437 N.Y.S.2d 642 (1981).
Numerous courts have considered whether an out-of-state party's retention of a New York attorney is sufficient to confer jurisdiction under § 302(a)(1) when the attorney seeks to sue the client. See Reiner v. Durand, 602 F. Supp. 849, 852 (S.D.N.Y. 1985) (citing cases on both sides). From the case law, a "retention-plus" requirement emerges: jurisdiction is normally upheld if the defendant has additional contacts with the state in addition to, and relating to, the retainer agreement. E.g., Kelly v. M.D. Buyline, 2 F. Supp.2d 420, 430-31 (S.D.N.Y. 1998) (citing Colucci Umans v. 1 Mark, Inc., 224 A.D.2d 243, 637 N.Y.S.2d 705, 706 (1st Dep't 1996) (defendant's contacts with New York included retention of New York law firm to represent it in New York legal proceeding, telephonic participation in that proceeding and visits to New York by defendant's registered agents); Outterbourg, Steindler, Houston Rosen, P.C. v. Shreve City Apts. Ltd., 147 A.D.2d 327, 332 (1st Dep't 1989) (defendant's contacts included retention of New York counsel, ninety-three telephone calls to counsel, participation in settlement negotiations by means of a conference call with an open telephone line with New York and the settlement aspects of a New York bankruptcy proceeding); Reiner, 602 F. Supp. at 852 (defendant's contacts included retention of New York counsel, who rendered services to defendants in New York and who met with defendant's agent on several occasions)).
Winston's allegations, at their essence, state that Dong Won (1) telephoned then-Winston partner Ahn in New York State and negotiated a contract with him; (2) telephoned and sent other communications to Ahn in New York "on a regular basis" and spoke by telephone with Ahn at least seven times from January to July 2001; (3) negotiated with Ahn for discounts; and (4) wired payments into Winston's New York bank account on at least four occasions.
In analyzing these contacts, it is important to recognize that Winston performed work on two distinct matters: (1) representation in California litigation that was performed in California and (2) general securities regulatory work that was performed in New York. Because the instant dispute apparently involves fees associated with the former, only those contacts with New York that relate to the representation in the California litigation are pertinent to determining whether there is specific jurisdiction under § 302(a)(1). There is no question that the negotiation of the retainer agreement and the hiring and paying of Winston involved the California litigation, at least in part. By contrast, Winston fails to make a proper evidentiary showing as to exactly how many times Dong Won contacted Winston in New York and whether those contacts were about the California lawsuits or the securities regulatory work that Ahn performed for Dong Won in New York. Therefore, there is not enough information on the basis of the affidavits supplied by Winston alone to determine the weight those phone calls should have in this analysis.
The retainer agreement describes the "Nature of the Engagement" to be related to representation "in connection with a litigation involving a securities matter," i.e., the California litigation. The invoices documenting the fees in dispute, however, state that the fees are for professional services rendered "in connection with various regulatory and litigation issues," i.e., the California litigation and the regulatory work done by Ahn in New York.
Without consideration of the phone calls, the mere contacting of Ahn, contracting of Winston to perform services in California and payment to Winston in New York for the work performed in California is insufficient to establish jurisdiction in this case. The facts of this case differentiate it from most of the cases involving the conferring of jurisdiction over an out-of-state client who retains a New York lawyer. Dong Won did not hire a law firm or lawyer based only in New York to perform work in New York. Instead, due to its familiarity with Ahn, Dong Won contacted the New York branch of an Illinois law firm in order to hire attorneys in the California branch of the Illinois law firm to perform work in California. Indeed, the retainer agreement states that "a majority of the work will be performed . . . in our Los Angeles office. . . ." Given this situation, Dong Won's negotiation of a retainer agreement and payment to Winston in New York is more arbitrary than purposeful. Winston could just as easily have required such contacts to be with Illinois or California, and Dong Won would have so complied in order to obtain the services.
While Winston relies on a case where the hiring and payment of an architectural firm was sufficient to confer jurisdiction, the case is distinguishable because it involved work done entirely in New York, rather than elsewhere. See Cooper, Robertson Partners, LLP v. Vail, 143 F. Supp.2d 367, 371 (S.D.N.Y. 2001). A party who contracts for work to be performed in New York more reasonably should expect to be haled into court if the party does not fulfill its part of the bargain.
As a general rule in contract cases, the mere execution of a contract in New York will not confer jurisdiction if the contract involves performance outside the state. E.g., Data-Stream AS/RS Techs. LLC v. ACEquip Ltd., 2002 WL 1683736, at *8 (S.D.N.Y. July 24, 2002) (citing Presidential Realty Corp. v. Michael Square West Ltd., 44 N.Y.2d 672, 673-74 (1978)). The fraction of the time spent by Ahn in New York is insufficient to result in a finding that performance of work associated with the California litigation occurred in the state.
Dong Won's motion to dismiss must, nonetheless, be denied at this time in light of Winston's persuasive argument that additional discovery is required. Winston seeks discovery to bolster its claim of jurisdiction under both § 301 and § 302. As discussed above, Winston needs to establish the necessary evidence of how many contacts Dong Won had with the New York office and what the subject matter of those discussions were. Because it turned over its records upon the termination of its representation of Dong Won and because Ahn is no longer at Winston, Winston no longer has this documentary evidence. In addition, Winston also seeks discovery with regard to a New York-based subsidiary of Dong Won in order to gauge the extent of Dong Won's control over it and whether such control would provide a basis for jurisdiction over Dong Won.
A trial court has jurisdiction to determine its own jurisdiction. United States v. United Mine Workers, 330 U.S. 258, 292 n. 57 (1947). A court may allow discovery to aid in determining whether it has in personam or subject matter jurisdiction. Lakkas v. Liberian M/V Caledonia, 443 F.2d 10 (4th Cir. 1971); Fraley v. Chesapeake Ohio Ry., 397 F.2d 1 (3d Cir. 1968); Surpitsky v. Hughes-Keenan Corp., 362 F.2d 254 (1st Cir. 1966); Urquhart v. American-La France Foamite Corp., 79 U.S.App. D.C. 219, 144 F.2d 542, 544, cert. denied, 323 U.S. 783 (1944); Alfadda v. Fenn, 1994 WL 714254 (S.D.N.Y. Dec. 22, 1994); Leasco Data Processing Equip. Corp. v. Maxwell, 319 F. Supp. 1256, 1263 (S.D.N.Y. 1970); see also Landoil Resources Corp. v. Alexander Alexander Serv. Inc., 918 F.2d 1039, 1041 (2d Cir. 1990) (district court denied motion to dismiss under Fed.R.Civ.P. 12(b)(2) (3) and permitted discovery on issue of personal jurisdiction then heard motion).
Pre-motion discovery should be permitted where the facts necessary to establish personal jurisdiction and propriety of venue lie exclusively within the defendant's knowledge. See Wells Fargo Co. v. Wells Fargo Express Co., 556 F.2d 406, 430 n. 4 (2d Cir. 1977); Gelfand v. Tanner Motors, Ltd., 339 F.2d 317, 323 (2d Cir. 1964). Here, there is an issue of whether Dong Won is doing and/or transacting business in the State of New York and this judicial district. Discovery will lead to a more accurate judgement than one made solely on the basis of affidavits in response to the motion. See Peterson v. Spartan Industries, Inc., 33 N.Y.2d 463, 354 N.Y.S.2d 905 (1974).
For these reasons, Winston's motion to permit discovery is granted. Limited and expedited discovery proceedings will include service of document requests and one deposition of a witness to be designated by defendant to answer questions regarding jurisdictional issues. This discovery is to be completed no later than thirty (30) days from the entry of this order.
Dong Won's Motions are Denied With Leave to Refile
Because Dong Won's motion to dismiss on jurisdiction grounds and for failure to state a claim under Rule 12(b)(6) and its motion to transfer venue cannot be resolved until after jurisdictional discovery has been conducted, it is denied at this time. Leave is granted to refile any and all of the motions pending closure of the limited discovery ordered above.
It is so ordered.