Opinion
No. 650823/2011.
2012-11-15
DEER CONSUMER PRODUCTS, INC., Plaintiff, v. LITTLE GROUP, Jon Carnes, Eos Holdings LLC, Simon Moore, Xiaofu (Jeff) Huang, Joseph Ramelli, Andrew Wong, Shawn Jason Rhynes, Walter Carnes, International Financial Research & Analysis Group, Quantum Asset Group LLC, John Does # 1–10, Defendants.
Bostany Law Firm PLLC by John Bostany, Esq., New York, for Plaintiff. Eaton & Van Winkle LLP by Martin Garbus and Joseph T. Johnson, New York, for Defendant Eos Holdings LLC.
Bostany Law Firm PLLC by John Bostany, Esq., New York, for Plaintiff. Eaton & Van Winkle LLP by Martin Garbus and Joseph T. Johnson, New York, for Defendant Eos Holdings LLC.
MEMORANDUM DECISION
CAROL R. EDMEAD, J.
In this defamation action by plaintiff Deer Consumer Products, Inc. (“plaintiff”), defendant EOS Holdings LLC moves to dismiss the amended complaint against it pursuant to CPLR 3211(a)(8) for lack of personal jurisdiction and pursuant to CPLR 3211(a)(7) for failure to state a cause of action for tortious interference with business relations and violation of General Business Law (“GBL”) 349.
Factual Background
Plaintiff, a Nevada corporation doing business in Guandong, China, is a publicly traded company which manufactures and sells small home appliances. Plaintiff alleges that EOS Holdings LLC and the “Little Group”
are alter egos, and that the Little Group authored and published several defamatory reports on www.alfredlittle.com (the “website”) operated by the Little Group as part of an overall scheme to artificially drive down the price of plaintiff's common stock in order to profit on short sales.
The “Little Group” is defined in the amended complaint as “a group that includes at least the following: Jon Carnes, Walter Carnes, ... Eos Holdings LLC....” (¶ 5).
Plaintiff originally commenced its action against “Alfred Little” (“Little”), alleging that he authored and published five defamatory reports in March 2011 about plaintiff as part of the short-selling scheme. Upon a motion by Little to dismiss for lack of personal jurisdiction, the Court rejected plaintiff's claim of personal jurisdiction over Little based on CPLR 302(a)(1) (transacting business in New York), (a)(2) (tortious act within the state) and (a)(3) (tortious act outside the state), but permitted discovery on the issue of jurisdiction pursuant to CPLR 301 (presence based on domicile/residence) (Deer Consumer Products, Inc. v. Little, 35 Misc.3d 374, 938 N.Y.S.2d 767 [2012] (the “Alfred Little Decision”).
The Court held that the motion to dismiss plaintiff's “complaint for lack of personal jurisdiction, is granted to the extent that CPLR 302(a)(1), (a)(2), and (a)(3) do not provide a basis for jurisdiction over the defendant Alfred Little, and denied, without prejudice to renew pursuant to CPLR 3211(d), upon the completion of discovery on the issue of lack of personal jurisdiction based on the defendant's domicile or presence in New York pursuant to CPLR 301....”
Thereafter, on June 6, 2012, plaintiff amended the complaint to add inter alia, EOS Holdings LLC, and allege that five additional reports were published from September 2011 through February 28, 2012 concerning, inter alia, plaintiff seeking specific land use rights in China and receiving $21 million from the Chinese government through a “secret rebate” system.
In support of dismissal, EOS Holdings LLC argues that the Court lacks personal jurisdiction over the alleged dissolved EOS Holdings LLC (“EOS I”) as well as over the active corporation, EOS Holdings LLC (existing under the Commonwealth of Dominica) (“EOS II”) (collectively referred to as “EOS Funds”). It is argued that there is no general jurisdiction over EOS Funds under CPLR 301, because they were never “doing business” in New York, i.e., never had any offices, bank accounts, brokerage accounts, contractors or investors situated in New York. EOS Funds has no employees. EOS Funds were/are funds that made investments and trades through people in California, China, and Canada through brokerage accounts maintained outside of New York. And, even assuming the website could be attributable to EOS Funds, it was not directed to New York; its mission was to expose fraud and crimes committed by U.S. listed Chinese companies. Thus, such website cannot confer general jurisdiction. Further, according to defendant Jon Carnes (“Carnes”), although he used an “Eos Funds” business card with a New York contact number, the number is an online “Skype number” which permits anyone to call and speak to him online wherever he is located. And, although he also uses a fax number with a 917 area code, this fax number is an electronic number procured through eFax and is not a local New York City listing.
As to CPLR 301 jurisdiction over EOS I, EOS I maintained an office in China, and has been dissolved since November 21, 2011. On three or four occasions in 2008, Carnes, on behalf of EOS I, met with New York based investors to raise capital for a China-based company, Southwest China Cement (“SWCC”). However, EOS I did not transact any business with these investors or anyone else, and Carnes was unable to procure any investment in SWCC. In 2009, Carnes on behalf of EOS I, met with an individual in New York who sought financing from EOS I in connection with a potential investment; and, in August 2010, Carnes and an EOS I analyst met with such individual during a layover from China. However, EOS I did not make any investment and transacted no business at such times. EOS I had a single bank account in Nebraska, and to the best of [Carnes's] knowledge, EOS I had no brokerage accounts in New York. EOS I had a brokerage account with an online brokerage account service, Interactive Brokers, which, to “the best of [Carnes's] knowledge,” has only a corporate/sales office in Connecticut. EOS I also opened and maintained a brokerage account with vFinance Investments (“vFinance”) at its Florida office. In any event, EOS I did not short-sell plaintiff's shares at any time, ceased investing and trading in 2010, and thereafter, unwound its positions.
As to CPLR 301 jurisdiction over EOS II, EOS II is a foreign-based investment fund, which short-sold plaintiff's shares through its brokerage account with Interactive Brokers. In 2010, EOS II opened brokerage accounts at vFinance through individuals who worked out of vFinance's Florida office, at Roth Capital through an individual at Roth Capital's California location, at Global Hunter Securities (“Global”) through its California location, and Lightspeedtrading.com through an individual in Illinois. EOS II never solicited investors, but traded in plaintiff's stock through a brokerage account not based in New York. The sole connection EOS II has to New York was an analyst attending an investor conference in 2011 in New York City, at which no business was transacted.
Nor is there a basis for jurisdiction under CPLR 302(a)(1). This Court's previous ruling, that the website and listing/trading of plaintiff's stock on NASDAQ are insufficient to confer jurisdiction, has collateral estoppel effect, and is otherwise persuasive authority. Moreover, EOS Funds has not transacted any business in New York. The defamatory reports allegedly published by the Little Group on the website were not, as the Court already ruled, purposely directed to or targeted at a New York audience.
Further, the vaguely alleged “promotion,” “dissemination,” and “advertising” of the reports to persons in New York do not constitute the transaction of business necessary under CPLR 302(a)(1). Plaintiff's conclusory allegations that “defendants” transact a substantial portion of activities necessary to disseminate the false information about plaintiff in New York and pretend to be third parties who promote such false material to New York based analysts, brokers and traders, are insufficient.
Nor is there a basis for jurisdiction under CPLR 302(a)(2) (tortious act within the state) or (a)(3) (tortious act outside the state). Plaintiff cannot “rebrand” its defamation claim as one for violation of GBL 349 and for tortious interference with business relations. The alleged publication of false reports is at the core of each of these claims, and therefore, is subject to the exclusion for defamation claims from long-arm jurisdiction. In any event, jurisdiction under CPLR 302(a)(2) is still lacking because no tortious act was committed in New York State. And, the alleged preparation, publication, and dissemination of false information about plaintiff in New York by means of a website and “other media” and contacting New York based analysts, investors, banks and traders are insufficient. Further, no injury was sustained by a New York domiciliary, and the situs of the alleged injury to plaintiff ( i.e., location of the event which caused the injury) could not have been in New York, to support jurisdiction under CPLR 302(a)(3). Neither plaintiff nor EOS Funds is present in New York, and no event took place in New York.
And, as to CPLR 302(a)(4) (real property in New York), EOS Funds does not own, use or possess any real property in New York.
The Court should not credit the purported jurisdictional allegations which are unsupported by any facts.
It is also argued that plaintiff lacks standing to assert a claim under GBL 349 because plaintiff is not the type of plaintiff the statute was intended to protect, and a claim on behalf of shareholders does not concern consumers at large. Also, the damages alleged, i.e., a decline in plaintiff's stock price, is speculative. Further, the amended complaint does not allege that any deceptive acts occurred in New York, and securities transactions are not covered by GBL 349.
And, plaintiff cannot state a tortious interference with business relations claim as it is only complaining about internet defamation. Further, plaintiff failed to name a specific stockholder, investor or financier with whom it had a relationship, with which EOS Funds directly interfered, which is fatal to its tortious interference with business relations claim.
In opposition, plaintiff argues that jurisdictional facts exist but cannot be stated at this time, and the Court should permit plaintiff to obtain disclosure to establish such facts.
Plaintiff contends that EOS
is subject to CPLR 301 jurisdiction in that its website stated it had a “successful small cap focused New York based investment fund,” Carnes testified at his deposition that he and others on behalf of EOS attended at least two investment conferences in New York, and he met with potential investors in New York in 2008–2010. Carnes also stated that EOS Funds tried to solicit New York investors to finance a Chinese stainless steel company; Entech's Form 8K and SkyPeople's Form 10K both allude to business contracts made among EOS and several New York based companies to invest in SkyPeople, formerly known as Entech. In March 2011, Jeff Huang (on behalf of EOS) had email communications with Joe Giamichael (“Giamichael”) of Global Hunters Securities LLC's (“Global”) New York branch inquiring about plaintiff, and Carnes acknowledged that Giamichael was based at the New York office. Huang claimed that EOS opened an account with Global in March 2011, which contradicts Carnes's statement that EOS opened an account with Global through its San Francisco office in August 2011. Carnes uses a New York phone number and his business card claims that EOS has a New York location.
Plaintiff does not distinguish between EOS I, EOS II, or EOS Funds in opposition to the motion.
Further, EOS is subject to jurisdiction under CPLR 302(a). Collateral estoppel does not apply since Little is not the same party as, or in privity with, EOS. Even if Little and EOS are in privity, the amended complaint alleges two additional causes of action, which provide a different basis for personal jurisdiction.
Plaintiff contends that there is jurisdiction under CPLR 302(a)(1). Huang, on behalf of EOS, urged plaintiff to respond to the attacks by the Little Group, and when plaintiff did not respond, Huang contacted Giamichael, a New York based analyst, to arrange a meeting with plaintiff. Huang sent Giamichael a link to the defamatory articles, and encouraged EOS to take a small position with plaintiff. EOS's attempt to contact and solicit business from plaintiff through a New York based analyst is sufficient to establish jurisdiction under CPLR 302(a)(1). In addition, EOS used New York based brokers to short plaintiff's stock as part of the scheme to profit by the false publications, and has several brokerage accounts with vFinance, which has offices in New York. EOS also used Interactive Brokers, which may use New York based brokers or agents.
Further, jurisdiction exists under CPLR 302(a)(3), in that plaintiff alleges that defendants provided false information about plaintiff and short sold plaintiff's stock as part of a scheme, causing plaintiff to lose money and business relationships with its shareholders in New York. Plaintiff's New York shareholders, as listed on a “Non–Objecting Beneficial Owner” list of shareholders, also lost substantial value due to the false reports. The Little Group, of which EOS is part, falsely accused plaintiff of collaborating and conspiring with a New York based corporate advisory firm in defrauding investors. Therefore, plaintiff made a sufficient start as to EOS's conduct to subject it to jurisdiction.
Plaintiff also argues that it stated a claim for GBL 349, alleging that defendants wrote defamatory articles about plaintiff and directed these articles to the readers of the subject website, causing plaintiff to suffer damages with regard to its business relationships with its existing and prospective shareholders. The damages resulted from sale, at fire prices, of stock by shareholders and significant diminution in market capitalization. Defendants' statements were materially misleading regarding the Little Group's identity, and plaintiff's shareholders were in New York at the time such articles were read. Plaintiff argues that its GBL claim is not securities related, but arises out of defamatory statements, and plaintiff has standing as non-competitors have standing to sue each other when the conduct of defendant is consumer oriented, and here, EOS's conduct impacted the public interest by deceiving consumers in New York regarding plaintiff's activities. Plaintiff is also standing in the shoes of a consumer in that it represents plaintiff's shareholders, including those who reside in New York, all of whom are consumers under the statute.
Finally, plaintiff argues that it states a claim for tortious interference with business relations by alleging that it has business relationships with its stockholders, investors and financiers, of which defendants were aware, and that defendants intentionally interfered with such relationships in a malicious or dishonest and unfair manner, causing such investors to sell their stock in plaintiff and causing skepticism among financiers who refused to grant plaintiff loans and other lines of credit. There is no case requiring plaintiff to give the names of these individuals, and discovery will also show the complete identification of such investors and financiers.
In reply, EOS Funds adds that EOS I had already dissolved in 2010, and could not have been “doing business” in New York (CPLR 301) when the amended complaint was filed in June 2012. The opposition is insufficient to show a sufficient start to warrant discovery. The statement on EOS Funds's website regarding a New York based investment fund appeared more than three years before this action was commenced, and was removed from the webpage by November 2009. Further, the trips taken to New York on behalf of EOS I occurred four years, and in some instances, more than two years before this action was commenced. Further, Carnes did not testify that he attempted to solicit New York investors for the Chinese stainless steel company; instead, he stated that it may have been possible that he spoke to investors in New York in his attempts to raise capital from co-investors from Hong Kong to join in the EOS I investment, and Carnes's interest in possibly investing in the Chinese stainless steel company in 2009 and 2010, occurred two and one half years before the action against EOS was commenced. The Entech/Skypeople transaction involved a private placement in a Florida corporation, with a principal place of business in China, and EOS I signed an agreement to sell its shares to Roth Capital Partners LLC and Maxim Group LLC. That Maxim's office was in New York is inconsequential, as EOS I sold its shares in SkyPeople more than two and one-half years before the amended complaint was filed. EOS I has not solicited or obtained financing from any New York based investor.
As to EOS II, the sole trip it took to New York in September 2011 at which no business was transacted, is insufficient for CPLR 301 analysis. And, the March 2011 email exchange between Huang (who provided services for EOS II) and Giamichael at Global's New York office in which Huang indicated that “we have an account set up with your firm” is speculative and insufficient to show that EOS Funds had an account other than the one opened with Global in San Francisco in August 2011.
As to CPLR 302(a)(1), the Court has already ruled that the posting of the defamatory reports on the website does not constitute “transacting business” in New York. And whether Carnes is in privity with EOS Funds for purposes of collateral estoppel effect is irrelevant. Plaintiff is the same party against whom this Court previously ruled that personal jurisdiction under CPLR 302(a)(1) cannot be sustained based on the website and the shorting of plaintiff's stock, and caselaw holds that the party seeking to apply this doctrine does not have or need privity with anyone. In any event, there is no evidence showing that EOS Funds transacted business via the website with New York residents. Posting allegedly defamatory material outside of New York on a website merely accessible to New York residents, without more, is insufficient.
Further, EOS II did not trade any of plaintiff's stock through a New York brokerage, and none of its five different brokerage accounts was located in New York. And, the March 2011 email between Huang and Giamichael of Global reflects no transaction of business between EOS Funds and Global for purposes of a defamation claim; nor does the link discussing plaintiff provided by Huang to Giamichael constitute a transaction of business. And, EOS II did not take a short position with plaintiff through Global's New York office. The evidence shows that EOS II opened a brokerage account with Hunter Securities' San Francisco office. A belief that EOS Funds used a New York brokerage is insufficient. Further, vFinance's New York office concerns investment banking, not retail brokerage, and the evidence shows that EOS Funds's accounts were with the retail brokerage division in Florida and handled by an investment representative from an office in Florida.
As to plaintiff's claims of jurisdiction under CPLR 302(a)(3) (tortious act without the state) arising from injuries to plaintiff's shareholders in New York, plaintiff has not commenced a derivative action on behalf of its shareholders, but a direct claim on its own behalf.
Plaintiff did not oppose arguments regarding the lack of jurisdiction under CPLR 302(a)(2) or 302(a)(4).
As to plaintiff's GBL claim, a reduction in the price of shares trading in the secondary market ( i.e., NASDAQ) is not a direct injury to plaintiff for purposes of this section, but a direct injury to actual misled consumers. And, plaintiff is not a consumer under the circumstances.
Furthermore, plaintiff failed to overcome its pleading deficiency concerning its tortious interference with business relations claim. The Court need not address the elements of the GBL or tortious interference with business relations claim, unless the Court determines that plaintiff has not improperly rebranded its defamation claim. Discussion I. Personal Jurisdiction
As the party seeking to assert personal jurisdiction, plaintiff bears the ultimate burden of proof on this issue ( see Jacobs v. Zurich Ins. Co., 53 A.D.2d 524, 384 N.Y.S.2d 452 [1st Dept 1976]; Marist Coll. v. Brady, 84 A.D.3d 1322, 1323, 924 N.Y.S.2d 529 [2d Dept 2011] ). On a motion to dismiss, however, courts do not require that the plaintiff make a prima facie showing of personal jurisdiction. Rather, to defeat such motion, plaintiff must only demonstrate that facts “may exist” to exercise personal jurisdiction over the defendant ( see American BankNote Corp. v. Daniele, 45 A.D.3d 338, 340, 845 N.Y.S.2d 266 [1st Dept 2007]; Ying Jun Chen v. Lei Shi, 19 A.D.3d 407, 796 N.Y.S.2d 126 [2d Dept 2005]; CPLR § 3211[d] ). And, to the extent that, in opposition to a motion to dismiss, the plaintiff seeks disclosure on the issue of personal jurisdiction pursuant to CPLR § 3211(d) “the plaintiff [ ... ] only needs to set forth a sufficient start, and show that its position is not frivolous” (Peterson v. Spartan Indus., 33 N.Y.2d 463, 467 [1974];see Shore Pharm. Providers, Inc. v. Oakwood Care Ctr., Inc., 65 A.D.3d 623, 624, 885 N.Y.S.2d 88 [2d Dept 2009]; American BankNote Corp. v. Daniele, 45 A.D.3d 338, 340, 845 N.Y.S.2d 266 [1st Dept 2007][plaintiffs' pleadings, affidavits and accompanying documentation made a “sufficient start” to warrant further discovery on the issue of personal jurisdiction] ).
A. CPLR § 301: Domicile or Presence
CPLR 301 provides that “[a] court may exercise such jurisdiction over persons, property, or status as might have been exercised heretofore.” This section codifies a court's power to exercise a “territorial,” or “presence” jurisdiction over a defendant ( see Vincent C. Alexander, Practice Commentaries to CPLR 301 [2010] ), based on his domicile, on any cause of action regardless of where the claim arose ( id.). “Domicile is not necessarily synonymous with residence, and one can reside in one place but be domiciled in another. Domicile is established by physical presence in a place in connection with a certain state of mind concerning one's intent to remain there” (Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 [1989] ). Thus, a person can have multiple residences but can have only one domicile (Antone v. General Motors Corp., 1984, 64 N.Y.2d 20, 30, 484 N.Y.S.2d 514, 518 [1984] ).
When the domicile of a party, as here, is in doubt, its determination requires an evaluation of all the circumstances of the case, including “current residence; voting registration and voting practices; location of personal and real property; location of brokerage and bank accounts; membership in unions, fraternal organizations, churches, clubs, and other associations; place of employment or business; driver's license and automobile registration; payment of taxes. No single factor is conclusive” ( Wiest v. Breslaw, Not Reported in FSupp2d, 2002 WL 4139213B [SDNY 2002], citingWright, Miller & Cooper, Federal Practice & Procedure § 3612, at 529–31 [1984] ) (footnotes omitted).
As to EOS I, the “Articles of Dissolution” filed by EOS I
on November 11, 2011 (and showing an effective date of June 30, 2011) show that EOS I has been dissolved for at least seven months by the time the action was commenced against EOS I. Such document clearly supports the attestation of Carnes that EOS I wound up its affairs after ceasing all trading in 2010. As EOS I was no longer in existence at or about the time this action was commenced against it, it cannot be said that EOS I “resided” or had any offices, employees, brokerage or bank accounts, or any other indicia of “presence” in New York for purposes of CPLR 301 jurisdiction.
The Amendment to Articles of Organization for JCAR Funds Ltd. filed in Nevada shows that the name of such company was changed EOS Holdings LLC on May 18, 2007.
As to EOS II however, in the absence of further discovery, it cannot be said that the Court lacks jurisdiction over EOS II at this juncture. It is noted that plaintiff alleges in the amended complaint that “EOS” is organized under the laws of Nevada and Dominica, solicits New York residents on a regular basis to raise capital, and used a telephone and fax number with New York City area codes (Amended Complaint, ¶¶ 30–32).
The Certificate of Incorporation for EOS II shows that it was incorporated in the Commonwealth of Dominica on November 20, 2010. Additional incorporation documentation related to EOS II shows that its “Sole Subscriber to the Memorandum and Articles of Association,” i.e., “Jon Richard Carnes” resides in China, as of November 10, 2010. Further, Carnes attests that EOS II never solicited investors from New York. And, EOS II's brokerage account statement for the period of December 2012 from vFinance is from a Boca Raton, Florida location.
However, plaintiff's allegations that “EOS” regularly solicits New York residents and uses New York City telephone and fax numbers in support thereof, are arguably supported by the record, and plaintiff is entitled explore the veracity of Carnes's explanation of these numbers. Also, this action was commenced against “EOS Holdings LLC” on June 6, 2012, and the webpage from EOS Funds' website, which is dated August 7, 2012, states that “EOS Funds” was founded as “a major stock trading operation that in 2002 transitioned its investments into the most successful small cap focused New York based investment fund.” (Emphasis added). While in reply, EOS Funds argues that this statement was removed from the website by November 2009 years before this action was commenced, there is nothing on the face of the documents submitted in support of this claim ( i.e., Exhibits 11 and 14) showing such to be the case. Further, Carnes attests that EOS II's analyst attended an investor conference in September 2011 (or about the time of two of the newly alleged defamatory reports), and whether this analyst conducted any business should be subject to further discovery. And, although Carnes's use of a New York “online” telephone number may not be sufficient ( Corio, supra (maintenance of a direct telephone line to an out-of-state office), it is alleged that his business card for “EOS” has a New York location. And, although EOS Funds claims that no business was conducted via the March 2011 email exchange between Huang and Global's New York representative, Carnes did not answer any questions at his deposition regarding contacts after the date the complaint against Little was filed (in March 2011), and thus, it cannot be said that discovery of jurisdictional facts concerning EOS II is sufficiently complete.
While the Court acknowledges that the solicitation alleged must be accompanied by other continuous, permanent and substantial activities (Arroyo v. Mountain School, 68 A.D.3d 603, 892 N.Y.S.2d 74 [1st Dept 2009]; Corio v. Stebo, Inc., 84 A.D.2d 738, 444 N.Y.S.2d 74 [1st Dept 1981] (“solicitation alone is not enough to constitute doing business”)), and Carnes's sole trip in 2011 on behalf of EOS II is insufficient in and of itself to establish CPLR 301 jurisdiction over EOS II, discovery is necessary to explore the claim that EOS II is a “New York based investment fund.” A determination at this stage that personal jurisdiction is lacking over EOS II under CPLR 301 would be premature in light of plaintiff's showing that facts essential to justify its opposition to this motion exist but cannot be stated at this time (CPLR § 3211[d] ).
Thus, the facts essential for the court's proper determination of the jurisdictional basis should be determined by discovery ( Sony Music Entertainment Inc. v. Does 1–40, 326 FSupp2d 556 [SDNY 2004][the court has discretion to allow discovery to determine the basis for personal jurisdiction], citing Volkart Bros., Inc. v. M/V Palm Trader, 130 F.R.D. 285, 290 [SDNY 1990] ).
CPLR § 3211(d) provides that, “if it appears from affidavits submitted in opposition, that facts essential to justify opposition to a motion made under CPLR § 3211(a) or (b) may exist but cannot be stated, the court may deny said motion and order a continuance to permit further affidavits to be obtained or disclosure to be had, and may make such other order as may be just” (CPLR § 3211[d] ).
Under the circumstances, as to EOS II, plaintiff is entitled to disclosure on the issue of personal jurisdiction (CPLR § 3211[d] ), and the branch of the motion to dismiss for lack of jurisdiction under CPLR § 301 is denied, without prejudice to renew upon completion of discovery.
B. CPLR § 302(a)(1): Transaction of Business
This portion of the analysis applies solely to EOS II, since EOS I has been dissolved long before this action was commenced ( see supra, pp. 11–12).
At the outset, the Court holds that the applicability of the doctrine of collateral estoppel to plaintiff's CPLR § 302(a)(1) claim is not dispositive. Under this doctrine, “issues of law and questions of fact necessarily decided by a court of competent jurisdiction remain binding upon the parties and those in privity with them in all subsequent litigation in which the same issues are material” (Ginezra Associates LLC v. Ifantopoulos, 70 A.D.3d 427, 895 N.Y.S.2d 355[1st Dept 2010). “A party asserting collateral estoppel must demonstrate that there is an identity of issue that has necessarily been decided in the prior action and is decisive of the present action, and that there must have been a full and fair opportunity to contest the decision now said to be controlling” ( id.). The Court's prior decision involved an assessment as to whether plaintiff herein could assert personal jurisdiction against a different defendant, Little, based on defamatory postings on the website at issue. This Court found that such website postings, in and of themselves, were insufficient.
EOS Funds herein seek to invoke the doctrine against the party, i.e., plaintiff, which had a full and fair opportunity to address the issue of CPLR 302(a)(1) jurisdiction based on the website. However, plaintiff now asserts additional jurisdictional facts to support CPLR 302(a)(1) jurisdiction against EOS Funds. Therefore, the collateral estoppel doctrine does not apply.
In that Decision, the Court stated “absent any indication that Little projected' himself into New York, e.g., by trading stocks directly with an employee of NASDAQ in New York or dealing directly with a New York broker, this nexus alone is not a sufficient basis upon which to establish jurisdiction over Little for purposes of this action ( cf. Deutsche Bank Securities, 7 N.Y.3d 65, 818 N.Y.S.2d 164, 850 N.E.2d 1140,supra [defendant sophisticated institutional trader entered New York to transact business by knowingly initiating and pursuing a negotiation with a Deutsche Bank employee in New York that culminated in the sale of $15 million in bonds]; see alsoSiegel, N.Y. Prac § 86, at 152 [4th ed.][where a defendant “deals directly with the broker's New York office by phone or mail [or e-mail] in a number of transactions instead of dealing with the broker at the broker's local office outside New York, long-arm jurisdiction may be upheld] ).
CPLR 302(a)(1) provides that a court may exercise personal jurisdiction over a non-domiciliary who, in person or through an agent, “transacts any business” within the State, provided that the cause of action arises out of the transaction of business (Lebel v. Tello, 272 A.D.2d 103, 707 N.Y.S.2d 426 [1st Dept 2000] ). Thus, to determine the existence of jurisdiction under section 302(a)(1), a court must decide (1) whether the defendant “transacts any business” in New York and, if so, (2) whether this cause of action “aris [es] from” such business transaction ( see Best Van Lines, Inc. v. Walker, 490 F.3d 239 [2d Cir2007], citing Deutsche Bank Securities, Inc. v. Montana Board of Investments, 7 N.Y.3d 65 [2006];Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, 527 N.Y.S.2d 195 [1988] ).
With respect to the first part of the test, courts look to “the totality of the defendant's activities within the forum” (Deutsche Bank, 7 N.Y.3d 65, 818 N.Y.S.2d 164, 850 N.E.2d 1140;Sterling Nat'l Bank & Trust Co. of N.Y. v. Fidelity Mortgage Investors, 510 F.2d 870, 873 [2d Cir1975] ), to determine whether a defendant has transacted business in such a way that it constitutes “purposeful activity,” defined as “some act by which the defendant purposefully avails [himself] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws” (McKee Electric Co. Inc. v. Rauland–Borg Corp., 20 N.Y.2d 377, 382 [1967],quoting Hanson v. Denckla, 357 U.S. 235, 253 [1958];accord Fischbarg v. Doucet, 9 N.Y.3d 375, 380 [2007] ).
As for the second part of the test, “[a] suit will be deemed to have arisen out of a party's activities in New York if there is an articulable nexus, or a substantial relationship, between the claim asserted and the actions that occurred in New York” ( Deutsche Bank; Henderson v. INS, 157 F.3d 106, 123 [2d Cir1998][internal quotation marks omitted] ).
In defamation cases, the New York long-arm statute, as quoted above, has limited applicability because of the courts' special concern “to avoid unnecessary inhibitions on freedom of speech or the press” (Legros v. Irving, 38 A.D.2d 53, 55, 327 N.Y.S.2d 371 [1st Dept 1971], app dism30 N.Y.2d 653 [1972];accord SPCA of Upstate New York, Inc. v. American Working Collie Association, 74 A.D.3d 1464, 903 N.Y.S.2d 562 [3d Dept 2010] ). Thus, for purposes of CPLR 302(a)(1) jurisdictional analysis, New York courts have held that mere defamatory utterances sent into the state are insufficient to satisfy the “transacting business” requirement (SPCA of Upstate New York, Inc. v. American Working Collie Association, 74 A.D.3d 1464, 903 N.Y.S.2d 562,citing Best Van Lines v. Walker, at 248; see Kim v. Dvorak, 230 A.D.2d 286, 659 N.Y.S.2d 502 [3d Dept 1997]; Gary Null & Assocs. v. Phillips, 29 Misc.3d 245, 248, 906 N.Y.S.2d 449 [Sup Ct, New York County 2010] (a nonresident who allegedly posted defamatory statements on his personal Web site about plaintiff from his home computer in Virginia, was not subject to long-arm jurisdiction under CPLR 302(a)(1))).
In this regard, the Second Circuit observed, “when the defamatory publication itself constitutes the alleged “transact[ion of] business” for the purposes of section 302(a)(1), more than the distribution of a libelous statement must be made within the state to establish long-arm jurisdiction over the person distributing it” (Best Van Lines, Inc. v. Walker, 490 F.3d 239,supra; see Kim v. Dvorak, 230 A.D.2d 286, 659 N.Y.S.2d 502 [3d Dept 1997] (sending of four allegedly defamatory letters to health care professionals in New York did not alone amount to transacting business)).
Here, plaintiff's claim that Huang emailed Giamichael (of New York), the link to defamatory articles about the plaintiff and that “EOS” might want to take a position in plaintiff is insufficient. This email merely constitutes a distribution of a defamatory “utterance,” which, without more, is inadequate to constitute a transaction of business.
However, plaintiff's claim that EOS Funds conducted short sale transactions of plaintiff's shares by utilizing New York based brokerages, i.e., vFinance and Interactive Brokers warrants further discovery on this issue. Discovery is necessary to determine the degree to which EOS Funds traded stocks by dealing directly with any New York broker ( see Deutsche Bank Securities, 7 N.Y.3d 65, 818 N.Y.S.2d 164, 850 N.E.2d 1140,supra [defendant sophisticated institutional trader entered New York to transact business by knowingly initiating and pursuing a negotiation with a Deutsche Bank employee in New York that culminated in the sale of $15 million in bonds]; see alsoSiegel, N.Y. Prac § 86, at 152 [4th ed.][where a defendant “deals directly with the broker's New York office by phone or mail [or e-mail] in a number of transactions instead of dealing with the broker at the broker's local office outside New York, long-arm jurisdiction may be upheld] ). Contrary to EOS Funds's contention, plaintiff does not rely solely on publishing, promoting, and dissemination of the alleged defamatory statements on the website to support jurisdiction under CPLR 302(a)(1). Plaintiff relies also on the alleged use of New York based brokerages to facilitate the short sale scheme.
In light of such allegations, and the fact that Carnes did not answer questions concerning the time period after March 2011, it is premature to hold that EOS Funds did not “transact business” in New York as to render EOS Funds amenable to jurisdiction under CPLR 302(a)(1).
Therefore, dismissal of the amended complaint on such ground is denied as to EOS II, without prejudice to renew upon the completion of discovery.
C. CPLR 302(a)(3): Tortious Action Outside the State
CPRL 302(a)(3) provides that a “court may exercise personal jurisdiction over any non-domiciliary” that commits a tortious act without the state causing injury to person or property within the state, except as to a cause of action for defamation of character arising from the act, if [it] (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;....”
CPLR 302(a)(3) provides for jurisdiction “over a defendant who (1) commits a tortious act outside New York (2) that causes injury within New York (3) where the defendant either (I) does or solicits business, or engages in any other course of conduct, or derives substantial revenue from activities in New York, or (ii) expects or should expect that its tortious act will have consequences in New York, and derives substantial revenue from interstate or international commerce” (Magwitch, L.L.C. v. Pusser's Inc., 84 A.D.3d 529, 923 N.Y.S.2d 455 [1st Dept 2011] citing Cooperstein v. Pan–Oceanic Mar., 124 A.D.2d 632, 633, 507 N.Y.S.2d 893 [1986],lv. denied69 N.Y.2d 611, 517 N.Y.S.2d 1025, 511 N.E.2d 84 [1987] ). “The determination of whether a tortious act committed outside New York causes injury inside the state is governed by the “situs-of-injury” test, requiring determination of the location of the original event that caused the injury ( Magwitch, L.L.C., supra, citing Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 791 [2d Cir.1999] and Kramer v. Hotel Los Monteros S.A., 57 A.D.2d 756, 394 N.Y.S.2d 415 [1977],lv. denied43 N.Y.2d 649, 403 N.Y.S.2d 1028, 374 N.E.2d 1249 [1978] ).
Here, plaintiff, in opposition, claims that defendants provided false information in order to profit from the short sale scheme, causing plaintiff (and plaintiff's shareholders) to loose substantial money. However, such claim sounds in defamation, and thus, is expressly excluded from CPLR 302(a)(3). Courts are instructed to decline jurisdiction over claims that attempt to avoid the requirements of New York's long-arm statute by merely restating a defamation claim under a different name ( see Findlay v. Duthuit, 86 A.D.2d 789, 790, 446 N.Y.S.2d 951, 953 [1st Dept 1982] ). Having failed to allege any other tortious act committed outside the state, plaintiff cannot maintain jurisdiction over EOS Funds under this statute.
And, the purported injury to New York shareholders, who lost value in plaintiff's stock, is of no moment, as this action is not brought on their behalf, but on behalf of plaintiff individually.
Therefore, the branch of the motion to dismiss the complaint as to EOS Funds for lack of jurisdiction under CPLR 302(a)(3) is granted.
D. CPLR § 302(a)(2) and (a)(4)
Plaintiff's opposition papers are silent as to jurisdiction under CPLR (a)(2) (tortious act within the state) and CPLR (a)(4) (real property in the state). Therefore, dismissal based on the absence of jurisdiction under these two sections is warranted as to EOS Funds. Failure to State a Cause of Action CPLR 3211(a)(7): Failure to State a Cause of Action
In determining a motion to dismiss, the Court's role is ordinarily limited to determining whether the complaint states a cause of action (Frank v. DaimlerChrysler Corp., 292 A.D.2d 118, 741 N.Y.S.2d 9 [1st Dept 2002] ). When considering a motion to dismiss for failure to state a cause of action, the pleadings must be liberally construed ( see,CPLR § 3026), and the court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit into any cognizable legal theory” (Nonnon v. City of New York, 9 N.Y.3d 825 [2007];Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972 [1994] ). And, where the parties have submitted evidentiary material, including affidavits, or where the bare legal conclusions and factual allegations are “flatly contradicted by documentary evidence” the pertinent issue is whether claimant has a cause of action, not whether one has been stated in the complaint ( see Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 [1977];R.H. Sanbar Projects, Inc. v. Gruzen Partnership, 148 A.D.2d 316, 538 N.Y.S.2d 532 [1st Dept 1989]; Biondi v. Beekman Hill House Apt. Corp., 257 A.D.2d 76, 81, 692 N.Y.S.2d 304 [1st Dept 1999], affd94 N.Y.2d 659, 709 N.Y.S.2d 861 [2000];Kliebert v. McKoan, 228 A.D.2d 232, 643 N.Y.S.2d 114 [1st Dept], lv denied89 N.Y.2d 802, 653 N.Y.S.2d 279 [1996] ).
GBL 349
GBL 349 prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service....” (GBL 349(a)). GBL 349 permits a private right of action in that “any person who has been injured by reason of any violation of this section may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages ..., or both such actions.” (GBL 349(h)).
To state a claim under GBL 349, a plaintiff must allege three elements: “first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act” (Pew v. Cardarelli, 2009 WL 3165759citing Stutman v. Chemical Bank, 95 N.Y.2d 24, 29, 709 N.Y.S.2d 892 [2000] ). Actionable deceptive acts or practices are “limited to those likely to mislead a reasonable consumer acting reasonably under the circumstances” (Pew v. Cardarelli, 2009 WL 3165759citing Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26, 623 N.Y.S.2d 529 [1995] ), and the challenged act or practice must be “consumer oriented, that is, it must have a broad impact on consumers at large” (Gray v. Seaboard Sec., Inc., 14 A.D.3d 852, 853–54, 788 N.Y.S.2d 471, 473 [3d Dept 2005] citing U.W. Marx, Inc. v. Bonded Concrete, Inc., 7 A.D.3d 856, 858 [2004] [emphasis added] ).
The Court finds that plaintiff's GBL 349 claim, as alleged, does not arise out of a securities transaction. It is noted that courts have found GBL 349 inapplicable to claims arising from securities transactions, essentially for two reasons: (1) “individuals do not generally purchase securities in the same manner as traditional consumer products, such as vehicles, appliances or groceries since securities are purchased as investments, not as goods to be consumed' or used' “ and (2) “because the securities arena is one which is highly regulated by the federal government, it is questionable that the legislature intended to give securities investors an added measure of protection beyond that provided by the securities acts' “ (Gray v. Seaboard Sec., Inc., 14 A.D.3d at 854, 788 N.Y.S.2d 471) (“[T]he clear weight of authority is that claims arising out of securities transactions are not the type of consumer transactions for which General Business Law § 349 was intended to provide a remedy”); Feesha v. TD Waterhouse Inv. Servs., 305 A.D.2d 268, 761 N.Y.S.2d 22 [1st Dept 2003] [holding that GBL 349 was inapplicable to plaintiff's claim where TD Waterhouse allegedly liquidated his account pursuant to an agreement “to grant defendant TD Waterhouse the right to liquidate securities in plaintiff customer's account”)).
Instead, plaintiff's claims derive from alleged defamatory statements made about plaintiff's alleged involvement in land fraud and a potential securities action against plaintiff. Although EOS Funds's alleged statements regarding these matters affected the stock of plaintiff, plaintiff's claim does not arise from a securities transaction.
However, “[w]hile a private cause of action under GBL § 349 does not require privity of contract or any particular consumer transaction if sufficient consumer-oriented harm is alleged, a plaintiff may not recover damages under GBL § 349 for purely indirect or derivative losses that were the result of third-parties being allegedly misled or deceived ( In re Nassau County Consol. MTBE (Methyl Tertiary Butyl Ether) Products Liability, 29 Misc.3d 1219(A), 918 N.Y.S.2d 399 (Table) [Sup.Ct., New York County 2010] [citing] City of New York v. Smokes–Spirits.Com, Inc., 12 N.Y.3d 616 [2009] [The plaintiff has failed to establish standing here because its claimed injury, in the form of lost tax revenue, is entirely derivative of injuries that it alleges were suffered by misled consumers who purchased defendants' cigarettes over the Internet'] ).” Here, plaintiff alleges that EOS Funds's misleading and deceptive statements were directed at and affected the readerships of the website and to invoke fear in plaintiff's shareholders. Therefore, plaintiff cannot recover from the fact that these third parties were allegedly misled or deceived by EOS Funds.
Nor can plaintiff utilize GBL 349 as a consumer, or similarly situated consumer, as that term is described in its own complaint. Plaintiff's claim falls outside the protection of the GBL 349 to the extent that GBL 349 “is a consumer protection statute” designed to afford “consumers” who suffer a direct injury from deceptive acts to bring suits on their own behalf without relying on the Attorney General (Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc., 3 N.Y.3d 200 [2004] ). According to the amended complaint, EOS Funds's alleged deceptive acts were aimed at the “readerships” of the website, who then took certain action based thereon. Plaintiff, however, is not part of this “readership” ( cf. Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20 [1995] (plaintiffs/union fund non profit associations “have satisfied the threshold test in that the acts they complain of are consumer-oriented in the sense that they potentially affect similarly situated consumers”, i.e., customers of defendant bank)).
And, while “any person” may pursue a GBL 349 claim, “any person” has been limited to the typical consumer and business competitors (Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256 [2d Cir.1995] (“Although the statute is, at its core, a consumer protection device ... corporate competitors now have standing to bring a claim under this [statute] ... so long as some harm to the public at large is at issue'] ), plaintiff is neither a consumer nor business competitor of EOS Funds's services. And, any potential harm to the readership is not at issue in this case, which is brought on behalf of plaintiff individually.
Therefore, as plaintiff lacks standing to state a claim under GBL 349, such claim is dismissed as to EOS Funds.
Tortious Interference with Business Relations
The elements of a cause of action for tortious interference with business relations are as follows: (1) the plaintiff's business relations with a third party; (2) the defendant's interference with those business relations; (3) the defendant acted with the sole purpose of harming the plaintiff or used wrongful means; and (4) injury to the business relationship (Advanced Global Technology LLC v. Sirius Satellite Radio, Inc., 15 Misc.3d 776, 836 N.Y.S.2d 807 [Sup Ct 2007]citing Guard–Life Corporation. v. Parker Hardware Mfg. Corporation., 50 N.Y.2d 183, 194, 428 N.Y.S.2d 628, 406 N.E.2d 445 (1980] ). Plaintiff must also allege that defendants' conduct was motivated solely by malice or to inflict injury by unlawful means, beyond mere self-interest or other economic considerations ( see Shared Communications Services of ESR, Inc. v. Goldman Sachs & Co., 23 A.D.3d 162, 803 N.Y.S.2d 512 [1st Dept 2005] ). The tort of interference with business relations “applies to those situations where the third party would have entered into or extended a contractual relationship with plaintiff but for the intentional and wrongful acts of the defendant” (M.J. & K. Co. v. Matthew Bender & Co., 220 A.D.2d 488, 490, 631 N.Y.S.2d 938 [2d Dept 1995], citing WFB Telecommunications v. NYNEX Corporation, 188 A.D.2d 257, 590 N.Y.S.2d 460 [1st Dept 1992] ). “In such an action [t]he motive for the interference must be solely malicious, and the plaintiff has the burden of proving this fact' “ (72 N.Y. Jur 2d, Interference, § 44, at 240; John R. Loftus, Inc. v. White, 150 A.D.2d 857, 860, 540 N.Y.S.2d 610).
There is no indication that plaintiff's alleged loss resulted from anything other than the harm to plaintiff's reputation due to defendants' defamatory statements. Plaintiff's amended complaint alleges that EOS Funds's defamatory statements caused plaintiff's shareholders and investors to sell their shares resulting in a financial loss to plaintiff. Thus, plaintiff's tortious interference with business relations cannot stand (Dobies v. Brefka, 273 A.D.2d 776, 710 N.Y.S.2d 438 [3d Dept 2000] (declining “to reinstate the claim for tortious interference with economic advantage in the absence of an alleged act of interference with a contract or business relationship distinct from the general declaration of injury to reputation included in plaintiff's defamation claims”)).
In any event, the plaintiff failed to “identify any specific ... business relationship that [it] was prevented from entering into as a result of defendants' interference, or adequately allege that defendants acted with the sole purpose of harming [it], such as would support a claim for tortious interference with prospective business ... relations (Baker v. Guardian Life Ins. Co. of America, 12 A.D.3d 285, 785 N.Y.S.2d 437 [1st Dept 2004]; Pitcock v. Kasowitz, Benson, Torres & Friedman LLP, 74 A.D.3d 613, 903 N.Y.S.2d 43 [1st Dept 2010] (holding that plaintiff “failed to state a claim for tortious interference with business relations, inasmuch as his pleadings asserted that [defendant's] alleged defamatory statements were made to gain, inter alia, economic advantage, and were not published solely out of malice”)). Plaintiff's general statement that EOS Funds interfered with plaintiff's shareholders, investors, and financiers, when it would appear that plaintiff should be in possession of identities of such parties, is insufficient. Further, there is nothing in the amended complaint to indicate that EOS Funds's actions were undertaken for any reason other than for mere “self-interest or other economic considerations.” Indeed, plaintiff's amended complaint indicates that defendants' motivations were purely economic, to wit: to gain significant profits by short-selling plaintiff's stock after publishing defamatory remarks about plaintiff. Therefore, plaintiff failed to state a tortious interference with business relations claim as to EOS Funds.
Conclusion
Based on the foregoing, it is hereby
ORDERED that the branch of the motion by defendant EOS Holdings LLC to dismiss the amended complaint against it pursuant to CPLR 3211(a)(8) for lack of personal jurisdiction is granted to the extent that the Court finds that CPLR 302(a)(2), (a)(3) and (a)(4) do not provide a basis for jurisdiction over said defendant (EOS I and EOS II), and denied, without prejudice to renew upon the completion of jurisdictional discovery, as to personal jurisdiction based on CPLR 301 and CPLR 302(a)(1) solely as to EOS II as defined herein; and it is further
ORDERED that the branch of the motion to dismiss pursuant to CPLR 3211(a)(7) for failure to state a cause of action for tortious interference with business relations and violation of General Business Law 349 is granted, and such claims are hereby severed and dismissed in their entirety; and it is further
ORDERED that the parties' counsel shall appear at Part 35, Room 438, on December 17, 2013, 2012, at 2:30 p.m., for an in-court conference for the purpose of scheduling jurisdictional discovery based on CPLR 301 and CPLR 302(a)(1) as to EOS II as defined herein; and it is further
ORDERED that the defendant shall serve a copy of this order with notice of entry upon plaintiff's counsel within 20 days of entry.
This constitutes the decision and order of the Court.