Opinion
600510/05.
Decided September 12, 2005.
This action arises from a dispute concerning a contract between plaintiffs Exclaim Associates Limited (Exclaim) and Europlay Capital Advisors, LLC (Europlay), and defendants Acclaim Entertainment Limited (AEL), Acclaim Entertainment Studios Limited (AESL) and Acclaim Studios Limited (ASL) (collectively, Acclaim), involving plaintiffs' purchase of certain of Acclaim's assets.
Defendants now move, pursuant to CPLR 3211 (a) (8), for an order dismissing the complaint on the ground that there is lacking jurisdiction over them, or, alternatively, pursuant to CPLR 327, on the ground of forum non conveniens. Plaintiffs cross-move for an order, pursuant to CPLR 3211 (d), for leave to conduct discovery with respect to jurisdictional issues.
For the reasons set forth below, defendants' motion is denied, and plaintiffs' cross motion is granted.
Accepting the allegations of the complaint as true ( Leon v. Martinez, 84 NY2d 83), the following facts emerge: plaintiffs Exclaim and Europlay are foreign corporations. Europlay is organized under the laws of the state of Delaware, with a principal place of business in Encino, California (Complaint, ¶ 1). Exclaim is a corporation organized under the laws of the United Kingdom ( id., ¶ 2). Defendants AEL, AESL and ASL are also United Kingdom corporations ( id.). Defendants Antony David Nygate and Malcolm Cohen are citizens of the United Kingdom, and partners in defendant BDO Stoy Hayward LLP (BDO), which maintains its principal place of business in the United Kingdom ( id., 4). BDO is alleged to be a subsidiary of BDO Seidman, a company with its principal place of business in New York ( id., ¶ 3).
Acclaim is a worldwide developer and publisher of software for the video gaming industry ( id., ¶ 2). Acclaim went into administration, the United Kingdom equivalent of bankruptcy, in September 2004 ( id.). Nygate and Cohen are the Joint Administrators for Acclaim ( id., ¶ 4).
In September 2004, BDO and its partner Cohen solicited Europlay in Los Angeles with respect to the purchase of Acclaim's assets ( id., ¶ 7). Exclaim was formed as a corporate entity under the laws of the United Kingdom to effectuate this purchase ( id., ¶ 2).
As a result of those negotiations, on September 9, 2004, Exclaim prepared a deal memorandum outlining the terms of the proposed asset acquisition ( id., ¶ 8). On September 29, 2004, Acclaim, by and through the Joint Administrators, entered into a written agreement (the Agreement) with Exclaim and Europlay for the acquisition of certain of Acclaim's assets (the Transferred Assets), including all of Acclaim's interest in a video console game entitled "Juiced" ( id., ¶¶ 10-13; Exh A).
Exclaim agreed to pay œ55,000 to Acclaim as part of the consideration for the Transferred Assets ( id., ¶ 14). Pursuant to the Agreement, the balance of the consideration in the amount of œ250,000 was to be paid when the parties were prepared to complete the transaction ( id., ¶ 15). The contract defines "Completion" as the performance of all obligations of the parties to the Agreement as set forth in Clause 5 ( id., ¶ 21). Pursuant to Clause 5.1 of the Agreement, Completion of the sale and purchase of the Transferred Assets was to take place on October 5, 2004 ( id., ¶ 19).
In addition, at the time of entering into the Agreement, an inter-company debt existed between Acclaim Entertainment, Inc., a company with its principal place of business in Glen Cove, New York (Acclaim New York), and Acclaim, in the approximate amount of $21,000,000 in favor of Acclaim ( id., ¶ 16). Pursuant to the terms of the Agreement, plaintiffs agreed to collect the monies due Acclaim. In consideration thereof, plaintiffs were to be paid a fee in the amount of 25% of the monies collected from Acclaim New York. If the entire amount were collected, this would represent a fee to plaintiffs of $5,250,000 ( id., ¶ 17).
On September 1, 2004, Acclaim New York began a Chapter 7 Bankruptcy proceeding in the United States Bankruptcy Court for the Eastern District of New York (the Bankruptcy Proceeding) ( id., ¶ 18).
On September 29, 2004, the parties executed the Agreement, and Exclaim made the initial payment of œ55,000 to Acclaim's Joint Administrators ( id., ¶ 22). On October 4, 2004, at Acclaim's request, and in order to expedite Completion, Exclaim elected to "complete" the Agreement on that date ( id., ¶ 21). Accordingly, Harbottle Lewis (Harbottle), Exclaim's English counsel, notified Halliwells LLP (Halliwells), Acclaim's English counsel, that it was in possession of the balance of œ250,000, and was prepared to make the deposit into an account at the Royal Bank of Scotland plc (RSB), as required by the terms of the Agreement ( id., ¶ 23).
On October 4, 2004, there was nothing further that was required to be done by either Acclaim or Exclaim to effect Completion of the Agreement, other than transferring the balance of œ250,00 into the RSB account, once Exclaim had been notified of the account number from Halliwells ( id., ¶ 24). On October 4, 2004, Halliwells informed Harbottle that it did not know if Acclaim was in a position to complete the transaction, and that it was waiting to hear from GMAC Financial Services LLC (GMAC), in order to complete the transaction ( id., ¶ 25). On October 5, 2004, Exclaim's solicitors were advised that, as things currently existed, Acclaim and the Joint Administrators could not comply with their obligations under the terms of the Agreement ( id., ¶ 27).
Notwithstanding the obligations of Acclaim and the Joint Administrators as set forth in the Agreement, Exclaim agreed to proceed with Completion without requiring the Deed of Release at the closing, which was its right, and to proceed with the acquisition of the assets subject to a debenture in favor of GMAC (to the extent the debenture created a lien over such assets), pending compliance by Acclaim and the Joint Administrators with their obligations to provide the Deed of Release as set forth in the Agreement ( id., ¶ 28).
On October 5, 2004, Harbottle notified Halliwells that Exclaim had fully performed under the Agreement, and that it expected to receive the Transferred Assets and the compliance by Acclaim and the Joint Administrators with their obligations under the terms of the Agreement ( id., ¶ 29). However, on October 6, 2004, Halliwells informed Exclaim that Completion had not taken place under the terms of the Agreement, and that Acclaim and the Joint Administrators were not in a position to perform ( id., ¶ 30). Exclaim's solicitors, however, informed Halliwells that "Completion had in fact taken place on October 5, 2004," and that Acclaim and the Joint Administrators were in breach of their obligations under the terms of the Agreement by having failed and refused to timely perform ( id., ¶ 31).
Plaintiffs allege that, subsequent to October 5, 2004, Acclaim and/or Joint Administrators Nygate and Cohen, individually and as directed by BDO, and in complicity with GMAC and its New York counsel, fraudulently caused to be represented through their counsel in New York, and counsel for GMAC in the Bankruptcy Proceeding, that Completion under the Agreement had not taken place, and/or that there was no obligation to complete the transaction under the terms of the Agreement ( id., ¶ 33 [a], [c]). Plaintiffs further allege that defendants made these false and misleading representations by e-mail and otherwise in New York for the express purpose of having GMAC's attorneys make these same representations to the Bankruptcy Court so as to preclude Exclaim from contesting the sale of certain assets of Acclaim that Exclaim had purchased from Acclaim under the terms of the Agreement ( id., ¶ 33 [b]). As a direct consequence of these and other fraudulent statements made in New York, Exclaim was precluded from protecting its interests in the Agreement in the Bankruptcy Proceeding, which resulted in the sale of the assets of Acclaim New York to other creditors for $10,000,000, permitting GMAC to recoup over 70% of its debt due from Acclaim New York, and boxing plaintiffs out of monies they otherwise would have earned ( id., ¶¶ 33 [d]-[e]).
On October 11, 2004, Exclaim's solicitors notified Acclaim and the Joint Administrators that, as a result of the repudiation of the Agreement by Acclaim and the Joint Administrators, the Agreement was terminated, and Exclaim was rescinding it ( id., ¶ 34). Exclaim also demanded the immediate return of the œ250,00 being held by Halliwells, together with the repayment of the œ55,000 paid on September 29, 2004 ( id.).
Notwithstanding the foregoing, just five days after the hearing before the Bankruptcy Court, Acclaim and the Joint Administrators, by and through their solicitors, sent a letter dated October 11, 2004, confirming Completion of the sale in accordance with the terms of the Agreement, in flat contradiction to the statements made in New York. Additionally, defendants refused to return to Exclaim the payments made pursuant to the Agreement, unless and until they received a release from Exclaim of any and all claims ( id., ¶ 35).
Plaintiffs allege that, pursuant to CPLR 302 (a) (2), this Court has jurisdiction over defendants. CPLR 302 (a) (2) provides, in pertinent part, that "a court may exercise personal jurisdiction over any non-domiciliary, or his executor or administrator, who in person or through an agent . . . commits a tortious act within the state." Plaintiffs allege that defendants committed a tortious act in this state when they, or their agents, made fraudulent statements to the Bankruptcy Court in New York.
Conversely, defendants contend that the complaint must be dismissed for lack of jurisdiction. Although defendants contend that plaintiffs have the burden of establishing by the preponderance of the evidence that they are subject to personal jurisdiction in New York (Def. Mem. at 5), in reality, plaintiffs "need only make out a prima facie case of personal jurisdiction, and in deciding whether the plaintiffs have met their burden, the court must construe the pleadings and affidavits in the light most favorable to them and resolve all doubts in their favor" ( Brandt v. Toraby, 273 AD2d 429, 430 [2d Dept 2000]).
Moreover, CPLR 3211 (d) authorizes a court to order discovery upon a showing that facts favoring jurisdiction "may exist but then cannot be stated." This rule is designed to protect the party to whom "essential jurisdictional facts are not presently known, especially where those facts are within the exclusive control of the moving party" ( Peterson v. Spartan Indus. Inc., 33 NY2d 463 [granting plaintiff further opportunity to prove other contacts and activities of defendant in New York as might confer jurisdiction under the long-arm statute]). To qualify for additional discovery to support its jurisdictional position, plaintiffs need only make a "sufficient start" and demonstrate that facts "may exist" to exercise personal jurisdiction over defendants ( id. at 466-467); accord Ying Jun Chen v. Lei Shi, ___ AD3d ___ 796 NYS2d 126 [2d Dept 2005]; see also Noble v. Singapore Resort Motel of Miami Beach, 21 NY2d 1006 [hearing was necessary to determine scope of relationship between defendant and alleged New York agent prior to ruling on question of whether defendant is doing business in New York]; Jacobson v. Princess Hotels Intl., Inc., 101 AD2d 757 [1st Dept 1984] [discovery is generally essential to final resolution of jurisdictional issues, especially when facts are in dispute]).
As set forth below, although the record here is insufficient to resolve the issue of whether personal jurisdiction exists against defendants, it is clear that facts "may exist" to exercise personal jurisdiction over defendants. Discovery proceedings on the issue of jurisdiction are thus authorized and necessary. Accordingly, defendants' motion to dismiss is denied, and plaintiff's cross motion for jurisdictional discovery is granted.
In support of their motion to dismiss, defendants contend that plaintiffs have failed to plead the elements of fraud and that thus, the alleged acts do not constitute "tortious conduct" for purposes of establishing jurisdiction under CPLR 302 (a) (2). Specifically, defendants contend that, with respect to the fraudulent statements that are alleged to have been made in New York, because those statements were made to the Bankruptcy Court, not plaintiffs, plaintiffs have not asserted a cognizable claim for fraud. In addition, defendants contend, there is no claim that the statements were made for the purpose of inducing plaintiffs to act upon them, or that the statements deceived plaintiffs.
Defendants, however, incorrectly focus only on the representations allegedly made in New York, and ignore the fact that plaintiffs assert that defendants, through their own actions, and the actions of their agents and co-conspirators, in both England and New York, defrauded plaintiffs, in furtherance of a fraud conspiracy. Thus, in the complaint, plaintiffs specifically allege that defendants, through their agents and co-conspirators, made fraudulent statements in England, as well as in New York in the course of, and in relation to, the Bankruptcy Proceeding, that such statements were deceptive, that they relied on such statements, and that such representations were made in furtherance of the overall conspiracy to defraud plaintiffs.
In order to set forth a prima facie cause of action for fraud, the complaint must allege misrepresentation of a material existing fact, falsity, scienter, justifiable reliance and damages ( Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413; P. Chimento Co., Inc. v. Banco Popular de Puerto Rico, 208 AD2d 385 [1st Dept 1994]). A simple reading of the complaint reveals that plaintiffs have complied with these pleading requirements. Plaintiffs allege in their first cause of action that defendants represented to plaintiffs that, upon plaintiffs' performance in accordance with the terms of the Agreement, they would complete the transactions as contemplated by the Agreement; that, in the event that they were unable to complete the transactions, they would reimburse all monies paid to plaintiffs; and that they would not interfere with plaintiffs' ability to contest the sale of certain assets of Acclaim New York in the pending bankruptcy proceeding (Complaint, ¶ 38). In addition, plaintiff alleges that defendants, in conspiracy with GMAC and its counsel, falsely and fraudulently represented to the Bankruptcy Court in New York that the transaction contemplated by the Agreement had not been completed, and thus, plaintiffs had no standing to contest the sale of the assets of Acclaim New York to a third party for $10,000,000 ( id., ¶ 47). Plaintiffs further allege that such representations were false and were known to be false by defendants when made, but that plaintiffs did not discover the falsity of such representations until the Bankruptcy Proceeding occurred in New York ( id., ¶¶ 39-40). Plaintiffs allege that, in reliance on such representations, they were induced to enter into the Agreement, and paid defendants the sum of œ55,000, and an additional œ250,000, which was being held by defendants' counsel "pending completion of the Agreement" ( id., ¶ 41). These allegations clearly state a cause of action for fraud ( see Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413, supra; P. Chimento Co., Inc. v. Banco Popular de Puerto Rico, 208 AD2d 385, supra). Moreover, while not every one of the actions related to the fraud occurred in New York, the complaint properly alleges that defendants committed a fraud on plaintiffs, and that the fraud included acts of defendants (individually and through co-conspirators) in New York in furtherance of the fraud.
Moreover, contrary to defendants' arguments, while some of these allegedly fraudulent acts may have been committed on third parties, such as the Bankruptcy Court, or through agents of defendants, defendants are not insulated from liability. Under New York law, where an act in the furtherance of fraud is committed by a co-conspirator or agent of a defendant within New York, the act is sufficient to obtain jurisdiction over a non-New York defendant pursuant to CPLR 302 (a) (2), even if the foreign defendant never stepped foot in New York ( see Travelers Indemnity Co. v. Inoue, 111 AD2d 686 [1st Dept 1985] [acts of agent in New York in furtherance of fraudulent scheme conferred jurisdiction over Japanese defendants]; Reeves v. Phillips, 54 AD2d 854, 855 [1st Dept 1976] ["The acts of a co-conspirator may, in an appropriate case, be attributed to a defendant for the purpose of obtaining personal jurisdiction over that defendant"]; Blissworld, LLC v. Kovack, 2001 WL 940210 [Sup Ct, NY County 2001] [for purposes of personal jurisdiction, acts of a co-conspirator may be attributed to a defendant]). Furthermore, for jurisdictional purposes, the alleged tortious act committed in New York need not be committed upon the plaintiff. All that is required is that the plaintiff suffer damage or injury as a result of a tortious act committed in New York ( see Feathers v. McLucas, 15 NY2d 443; Karsh v. Karsh, 62 Misc 2d 783 [Sup Ct, Bronx County 1970]).
Defendants also advance the argument that, even if the complaint sets forth the elements of a cognizable tort, the conduct alleged is subject to absolute immunity, because New York law accords an absolute privilege to statements made in the course of judicial proceedings, such as the Bankruptcy Proceeding. However, most of the cases cited by defendants involved claims of defamation, rather than a privilege relating to fraudulent statements and, indeed, defendants fail to cite a single case in which absolute immunity was a proper defense to a fraud cause of action. Accordingly, the fraudulent statements made to the Bankruptcy Court are not afforded the protection of absolute immunity. In any event, absolute immunity is a defense to an action, and not a ground to dismiss an action for lack of personal jurisdiction. Tellingly, defendants have not moved to dismiss the complaint for failure to state a cause of action.
Defendants further contend that jurisdiction cannot exist on the theory that their agent made false statements in New York, because, according to the transcript of the Bankruptcy Proceeding, the allegedly offending statements were made by counsel for the Bankruptcy Trustee, who was clearly not their agent. However, the complaint does not allege that counsel for the Bankruptcy Trustee made the offending statements, or that such counsel was acting as defendants' agent. Rather, the complaint specifically alleges that defendants "fraudulently caused to be represented to the [Bankruptcy Court] that Completion under the Agreement had not taken place and/or that there was no obligation to complete the transaction under the terms of the Agreement (Complaint, ¶ 33 [a]), and that defendants "made the foregoing false and misleading misrepresentations, by email and otherwise, in New York for the express purpose of having attorneys for GMAC represent same to the Bankruptcy Court" ( id., ¶¶ 33[b] [emphasis added]). Thus, plaintiffs plainly allege that GMAC was acting as defendants' agent during the Bankruptcy Proceeding.
The record is thus unclear as to whether the allegedly fraudulent statements made in the Bankruptcy Proceeding were made by counsel for the Bankruptcy Trustee or by GMAC as defendants' agents or, indeed, whether GMAC acted as defendants' agents. Nevertheless, on the basis of the allegations set forth in the complaint, plaintiffs have established that facts "may exist" to exercise personal jurisdiction over defendants pursuant to CPLR 302 (a) (2), and have thus made a "sufficient start" to warrant further discovery on the issue of personal jurisdiction over them ( see Ying Jun Chen v. Lei Shi, 796 NYS2d 126, supra; Edelman v. Tattinger, 298 AD2d 301 [1st Dept 2002]). Discovery proceedings on the issue of jurisdiction are thus authorized and necessary ( Amigo Foods Corp. v. Marine Midland Bank-New York, 39 NY2d 391; Peterson v. Spartan Industries, 33 NY2d 463, supra; Jacobson v. Princess Hotels Intl, 101 AD2d 757, supra).
In addition, CPLR 302 (a) (1) permits the court to exercise personal jurisdiction over a non-domiciliary if that non-domiciliary "in person or through an agent . . . transacts any business within the state or contract anywhere to supply goods or services in the state." Plaintiffs contend that it is possible that jurisdiction can also be asserted on this basis, and seek to determine the details of defendants' additional business activities in New York through discovery. Specifically, plaintiffs contend that the relationship between Acclaim and Acclaim New York may give rise to jurisdiction, but that it is presently unclear whether Acclaim New York transacts business in New York as an agent for Acclaim, or transacted business in New York as such an agent at the time of the events in question. Plaintiffs also contend that the relationship between BDO and the New York entity, BDO Seidman LLP is unclear. While the affidavit of Malcolm Cohen, dated March 29, 2005, states that these entities are not in a parent-subsidiary relationship, he elsewhere admits that these companies are each a "co-member" of BDO International (Cohen Aff., ¶ 5). Thus, plaintiff contends, it is possible that BDO Seidman LLP acted as agent for BDO for purposes of doing business in New York, but it is impossible to determine this on the present set of facts.
Where, as here, the factual record is inconclusive as to defendants' in-state business activities, but the potential exists that discovery will yield more "contacts" with the state, or evidence of a relationship with an in-state agent, discovery proceedings are both "authorized and necessary" ( Ansellem v. Host Marriott Corp., 280 AD2d 357, 359 [1st Dept 2001]), especially since the relevant facts are exclusively within the control of the party seeking dismissal ( Peterson v. Spartan Industries, 33 NY2d 463, supra; Banham v. Morgan Stanley Co., Inc., 178 AD2d 236 [1st Dept 1991]; see e.g., Unigraphic, Inc. v. Star Wars Corp., 79 AD2d 944 [1st Dept 1981] [granting plaintiff further discovery when documentation of defendant's relationship with in-state agent is fragmentary and inconclusive]; Fishman v. Pocono Ski Rental, Inc., 82 AD2d 906 [2d Dept 1981] [denying motion to dismiss and ordering discovery even though plaintiff did not adequately establish that defendant was doing business in New York]). Thus, plaintiffs are also entitled to conduct discovery with respect to defendants' in-state activities.
Accordingly, plaintiffs' cross motion for leave to conduct jurisdictional discovery is granted. The issue of jurisdiction is referred for a hearing before a special referee, with appropriate disclosure to be regulated by the referee under CPLR 4201 ( see Shea v. Hambro America Inc., 200 AD2d 371 [1st Dept 1994]; Jacobson v. Princess Hotels Intl, 101 AD2d 757, supra). Defendants' motion to dismiss for lack of jurisdiction is held in abeyance until completion of such disclosure.
With respect to defendants' alternative motion for dismissal based on the ground of forum non conveniens, it is well-settled that the doctrine of forum non conveniens has no application unless a New York court has obtained personal jurisdiction over a defendant ( Ehrlich Bober Co. v. University of Houston, 49 NY2d 574). Thus, the court must make a threshold determination as to whether personal jurisdiction exists before undertaking a forum non conveniens analysis ( see Edelman v. Tattinger, 298 AD2d 301, supra; Caribbean Constr. Services Assocs., Inc. v. Zurich Ins. Co., 244 AD2d 156 [1st Dept 1997]; Sarfaty v. Rainbow Helicopters, Inc., 221 AD2d 618 [2d Dept 1995]).
Accordingly, defendants' alternative motion for dismissal based on the ground of forum non conveniens will be held in abeyance, until a threshold determination is made as to whether personal jurisdiction exists ( see Ansellem v. Host Marriott Corp., 280 AD2d 357, supra).
I have considered the remaining claims, and find them to be without merit.
Accordingly, it is
ORDERED that plaintiffs' cross motion for jurisdictional discovery is granted; and it is further
ORDERED that the issue of whether personal jurisdiction exists over defendants pursuant to CPLR 302 (a) (1) and (2), is referred to a Special Referee to hear and report with recommendations, and the Special Referee is directed to conduct appropriate disclosure pursuant to CPLR 4201, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by CPLR 4317, the Special Referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issues; and it is further
ORDERED that the motions to dismiss on the grounds of lack of jurisdiction and forum non conveniens are held in abeyance pending receipt of the report and recommendations of the Special Referee and a motion pursuant to CPLR 4403 or receipt of the determination of the Special Referee or the designated referee; and it is further
ORDERED that a copy of this order with notice of entry shall be served on the Clerk of the Judicial Support Office (Room 311) to arrange a date for the reference to a Special Referee.